Venture Hacks

In Steve Jobs does customer development, I asked readers to find a customer development lesson in Steve’s interview. There were a lot of good responses that I didn’t anticipate. But Reece came closest to the answer I was looking for:

“The subtler customer development point from Jobs is ‘We don’t need to add new stuff.’ He realized the feature set is fine — instead of cramming in new features that most users won’t touch, Apple can instead focus on positioning the product via marketing and pricing.”

In other words, Apple didn’t add a camera so they could deliver on their positioning (“lowest-cost way to the App Store”), increase market share (“everyone can afford it”), and maybe even increase revenue.

I think Reece made one small, important error; so let’s pick on him for the sake of our education.

“But if we just add feature X”

Reece implies that a camera is a feature “that most users won’t touch.” But adding a camera is probably a good idea. Maybe it’s the key to selling a billion more iPods. Who knows for sure?

Go to any group meeting at any startup and you’ll hear employees arguing for their own camera: “but if we just add feature X we’ll get more customers.” That’s a reasonable hypothesis. More people might buy the product with feature X. Should you build feature X?

Not necessarily. A startup’s cash-on-hand is shrinking every day. You want to add the features that will do the most to stop your losses. You don’t execute every random idea without prioritizing it.

The optimal plan may be to slow down product development, commit more resources to customer development, and find the right positioning for your product. The lesson here:

Once you reach a certain level of product/market fit, the best plan may be to add no new features, focus on positioning, make more money, and move up the startup pyramid — even though the team has a million obviously great ideas for new features that will make a buttload of money. You can improve the business without improving the product.

Quiz

Can you find other examples where Apple and Pixar did customer development?

Steve Jobs is the ultimate visionary. He has a vision, he implements it, and the world pays him tens of billions of dollars for it. He doesn’t ask customers what they want because they would ask for a faster horse, not a car. He knows what customers want before the customers do. He is the quintessent entrepreneur — the ideal that every founder strives to become.

Right? Wrong.

Even Steve Jobs does customer development:

David Pogue: “You put a camcorder on the iPod Nano. Why not on the iPod Touch?

Steve Jobs: “Originally, we weren’t exactly sure how to market the Touch. Was it an iPhone without the phone? Was it a pocket computer? What happened was, what customers told us was, they started to see it as a game machine. Because a lot of the games were free on the store. Customers started to tell us, “You don’t know what you’ve got here — it’s a great game machine, with the multitouch screen, the accelerometer, and so on.”

“We started to market it that way, and it just took off. And now what we really see is it’s the lowest-cost way to the App Store, and that’s the big draw. So what we were focused on is just reducing the price to $199. We don’t need to add new stuff — we need to get the price down where everyone can afford it.”

(From Q&A: Steve Jobs Snipes at Amazon, Praises Ice Cream)

Apple has changed the positioning of the iPod Touch twice. First, it was a multitouch iPod. Then it was a “game machine”. Now it’s the “lowest-cost way to the App Store.”

What does positioning have to do with customer development?

Refining the product’s positioning is the second step in Sean Ellis’ Startup Pyramid:

“Once you have achieved product/market fit, it’s time to accelerate through the next steps of the pyramid and then begin scaling your business. Here’s a brief description of what to do at each of the steps before scaling:

“Promise: Highlight the benefits [positioning] described by your ‘must have’ users (those that say they would be very disappointed without your product).”

In this step, you use a combination of surveys and interviews to talk to your customers and ask questions like “In your opinion, what is the best reason for using our product?” If they say the best reason is playing games, start testing that positioning with new customers and see if it performs better than your current positioning.

How do you position a product? #

In Four Steps to the Epiphany (page 111), Steve Blank developed a model for positioning products based on market type:

“Existing Market: Compare your product to your competitors. Describe how some feature or attribute of the product is better, faster — an incremental improvement.

“New Market: It’s too early for customers to understand what your product’s features will do for them. Instead, describe the problem your product will solve and the benefits that the customers will get from solving it — a transformational improvement.

“Resegmented Market: Compare your product to your competitors. If it’s low cost, describe price and feature set. If a niche, describe how some feature or attribute of the product solves the problem your customer has in a way comparable products do not. Describe the benefits that the customers will get from solving their problem this new way.”

The iPod was initially positioned in a resegmented market — it was a multitouch iPod. Then it was positioned in an existing market — portable game players. Now it’s positioned in a new market: a way to the App Store (although Steve Jobs probably should have said “pocket computer” instead of “way to the App Store” — pocket computer is the new copy at apple.com).

If Apple wants to create a new market of devices that access the App Store, they’ll have to educate prospective customers who don’t know what the App Store is — or why they would want to access it. New markets always require customer education. Fortunately, Apple has been bombarding us with “there’s an app for that” ads for some time now.

Quiz

Jobs makes a second, subtler, point about customer development in the quote above. Can you find it? The best correct answer gets a shout-out in our next post.

Read part 2 of this series: No new features.

Photo: Jeff Chiu/Associated Press