10 Myths About Demand Validation
In this issue, I’m going to cover the top 10 pitfalls that trip early-stage product launches.
Demand Validation is about demonstrating sufficient demand for your product (or feature) before you build it. Doing this well, not only sheds months from your product timeline, but you end up with a product that you know customers want vs. hope they’ll want.
Unfortunately, too many entrepreneurs, in their rush to get to the right side of the hockey stick, botch this process.
Here are 10 reasons why:
Myth 1: Giving away your product for free
While giving away your product may attract many free users, your focus should be on attracting paying customers.
Traction, not traffic, is the goal.
The argument often made is that free users will provide the requisite learning to help you later attract paying customers. But free users don’t behave the same way as paying customers.
When considering a freemium model, you’ll be better off focusing on the premium side of your business model, then backtracking into free as a marketing tactic.
Key takeaway: Focus on increasing the number of customers while reducing the number of users in your customer factory.
Myth 2: More customers are always better
Would you rather have 1,000 customers or 100,000? What if the first group had a lifetime value of $1,000 while the second group had a lifetime value of $10?
Both represent the same revenue, but your net revenue (profits) will likely be higher with the first group. This is because your operating expenses for serving 1,000 customers will likely be lower than that of serving 100,000 customers.
Additionally, churn (or attrition) is a killer as your number of customers increases.
A 2% monthly churn with 1,000 active customers = Losing 240 customers per yr
A 2% monthly churn with 100,000 active customers = Losing 24,000 customers per yr
Key takeaway: It is generally better to have fewer high-value customers than many low-value ones.
Myth 3: Tasking a VP of sales with demand validation
A VP of Sales is an accelerant.
They can take a sales process that already works and make it better. But they can’t create a sales process out of nothing.
That’s the job of the founding team.
The founding team needs to validate early demand for its product before bringing in a VP of Sales.
Key takeaway: Founders need to own early demand validation.
Myth 4: Customers set pricing
Can you imagine Steve Jobs asking customers what they’d be willing to pay for an iPad?
It’s not the customer’s job to set pricing. That’s your job.
If you think about this logically, there is no rational reason for a customer ever to tell you the optimal pricing for your product.
Either they know the value of your product and will try to lowball pricing to get a good deal. Or they don’t know the value of your product and will guess using a lowball estimate.
You lose out in both cases.
Key takeaway: Don’t leave pricing up to your customers.
Myth 5: Rush to build a Minimum Viable Product (MVP)
MVP: The smallest solution that delivers value to customers.
While the idea of rushing to build an MVP and iterating from there seems sound in theory, in practice, most entrepreneurs get stuck into a build trap.
Here’s why.
A rushed MVP is often the best guess at a possible solution to a customer problem. If it misses the target, which is easy to do when you’re guessing, customers don’t turn into early adopters or testers. They leave.
Without feedback from customers, you're left guessing some more on how to improve your product. That’s when the build trap ensues.
A pivot without learning is a disguised "see what sticks" strategy.
Guessing (without evidence) is a recipe for wasting needless time, money, and effort on the wrong constraints.
Key takeaway: Don’t start with an MVP.
Myth 6: Customers won’t wait for us to build a product
Unless you're building cars or rocket ships, most MVPs can typically be built in under two months. This sometimes requires a little out-of-the-box thinking but is achievable.
Customers will easily wait for two months for a compelling product.
If you’re selling a more complex product, say to enterprise customers, their procurement process will probably be longer than that.
Note: Customers will wait even if you’re building cars and rocket ships. The first Tesla early adopters waited over two years for their Roadsters. The first SpaceX early adopters are still waiting for their trip to space. The bigger question here is, can you afford to wait?
Key takeaway: Aim to deliver an MVP within two months of selling it to a customer.
Myth 7: We can’t sell an unfinished product
Think back to any new product launch you’ve witnessed or been a part of… PS5, iPhone 12, Tesla Model 3, a crowdfunding campaign?
Customers don’t get to kick the tires on a working product in these launches. They see a demo and decide to buy.
Customers buy demos, not working products.
Old mindset: Build - Demo - Sell
New mindset: Demo - Sell - Build
Key takeaway: If you can’t sell the demo, why build it.
Myth 8: Customers will want to see a working product
Have you tested this? If not, I challenge you to give it a try.
More often than not, all you need for a demo is a verbal description of how your product works, screenshots, or a slide deck — a far cry from a working prototype.
The art of the demo is showing the smallest thing possible that convinces a customer to buy.
I’ve sold many six-figure deals this way.
Key takeaway: Customers don’t buy working demos. They buy a story of how you can help them achieve a “better” desired outcome.
Myth 9: Crafting a compelling story pitch comes from better solutions
While your solution is a key part of the story pitch, it needs to be framed to fit your customer’s worldview, not yours.
When you pitch your solution, you might position it as faster, cheaper, or better. But “better” with respect to what? This kind of positioning is supply-side selling.
You need to focus instead on demand-side selling.
In other words, customers don’t care about your solution but about achieving better desired outcomes.
Don’t pitch your solution in terms of its benefits but show your customer how it helps them make progress towards their desired outcomes by removing problems/obstacles in their way.
Key takeaway: Compelling pitches come from nailing your customer’s problem.
Myth 10: Customers fully understand their problems
Most customers only see the symptoms of their problems and don’t fully understand the root causes of their problems.
“If I had asked people what they wanted, they would have said faster horses.”
- Misattributed Henry Ford quote
This is why you can’t simply ask customers about their problems.
But with the right approach, it is possible to study customers and deeply understand their problems even better than they do.
This is the key step to understanding what “better” means to customers, designing that “better” solution, and positioning it as the only viable alternative for your customers — a mafia offer.
Mafia Offer: An offer your customers cannot refuse.
Creating a mafia offer, not an MVP, is how you
generate demand for your product before building or even knowing what to build,
identify your ideal early adopters, and
define the right MVP to build,
Key takeaway: Understanding your customer’s problems better than they do grants you superpowers.