Checklist of an IT startup at an early stage of development: what needs to be done before testing sales channels

    In the IIDF Accelerator, work with startups begins by trying to determine what stage the company is at. Why from this? In general, most of the problems for startups arise from a lack of focus: entrepreneurs make a lot of unnecessary actions, not concentrating on what will bring their business to the breakeven point. To understand what actions the company needs to take at the moment, you need to determine at what stage of development it is. To do this, the IIDF uses a tool such as a road map or road map. We distinguish three large stages in the development of IT startups - searching and studying customers, testing sales channels and scaling. In this article, we will step by step look at the first big stage of startup development - Customer Discovery, search and study of customers. Typically, the turnover of companies at this stage does not exceed 100 thousand rubles. What steps should an IT startup take to confidently move on to the next stage - testing sales channels?

    Each of the sub-stages listed below has certain nuances and difficulties that we will analyze using real-life startup cases that passed Acceleration in the IIDF. To begin with, a piece of the road map, which lists all six steps at the Customer Discovery stage, which you need to go through again and again until the number of sales exceeds the required line.



    The full version of the road map for startups can be seen here .

    This scheme is based on the Lean Startup methodology (“lean startup”), on the basis of which it is built in IIDFwork with projects. An extremely important process in this methodology is Customer Development - “customer development”. The first stage in the development of a startup by methodology is Customer Discovery - the search and study of customers. This stage allows you to check the demand for the product, the main tools here are problematic and decision interviews with paying customers and users, which allow you to test hypotheses and get feedback on the product. We’ll review each step that an IT entrepreneur must take before selling a product in channels.

    Step One - Formulating a Value Proposition

    Selling a product is impossible without formulating a clear and understandable value proposition tailored to the client’s problems. According to the metaphorical classification of IIDF, products can be divided into several categories. According to the severity of the problem under which the solution is sharpened, the products are divided into “pain medications” and “vitamins”. If you forget to drink Vitamin, nothing bad will happen. If there is acute pain, then you can’t help but think about it, you need to somehow solve the problem (“take the medicine”) and as soon as possible.

    Another segmentation is “fitness” and “cosmetics”. There is a problem - you need to get in shape. You can go to fitness, it’s long, hard, you need to work hard. And you can apply "cosmetics" and look better without much effort. If you apply this metaphor to IT products, then the first type of product is difficult and time-consuming to implement, the second one is easy enough, and it does not take much time. For example, you just need to show your client a personal account. With "cosmetics", the customer does not think about the difficulties and timing of implementation, but simply takes and puts the product. Accordingly, selling such solutions is easier.

    If we talk about the complexity of sales, then IT products according to this classification can be divided into 4 types:



    Having determined which sector your value proposition belongs to at the moment, you can try to change it so that the sales process goes easier. By simplifying the implementation process (by moving the product from the fitness segment to the cosmetics segment), sales of B2B solutions can be significantly accelerated. Well, one more way to do this is to choose another DM as your goal, for which the problem is more relevant.

    Accelerator Example: VeeRoute Project- Automation of transport logistics for business. Previously, the founder of the project Vladislav Kudinov came to the service station of online stores and said: we have a cool product for automating the delivery service. At this point, the technical director most often began to ask questions about implementation, tried to find out the release number, on what the product was written - i.e. asked questions not related to the essence of the project and the possible benefit of the company from the implementation of the system. All this happened because CTO never faced the task of optimizing transport logistics costs (business efficiency is not so important for them), so it was almost impossible to interest STO (the only exception is companies in which CTO is the founder of the business, but this is not common). In this case, if the implementation is a long and complicated process (“fitness” in our classification), then most likely the service station will refuse. This is what happened most often. Then Vladislav decided to change tactics. He came to the CEOs of companies and said something like this: look, the average check of your online store is 3000 rubles, you earn 50 rubles with each delivery, and you spend 300 rubles for delivery itself. If you start using VeeRoute, then on each delivery you can save from 20% to 30%, i.e. 60-90 rubles, due to this, the profit from each delivery will double! Now the value of the product is pronounced, the problem that it solves can be attributed to "pain." Next, the CEO asks: what needs to be implemented, how much time does the implementation process take time and resources? Then VeeRoute came up with a hack: all companies have different systems, and the guys made the Rest API, through which VeeRoute can be implemented in a couple of weeks in any system from SAP to 1C and recorder systems. Thus, in terms of complexity of implementation, the product has moved to the cosmetics segment.

    Step Two - Problem Confirmed

    This is the next step that you need to move on to when there are already customers who are ready to consider your solution in detail. It is necessary to confirm through communication with customers that they really have such a problem (they themselves may not even think about it).

    What is the difference at this stage in B2B and B2C companies? B2B companies need to build on client interviews: go to potential customers and ask if they have such a problem, and whether they need this way of solving it, and if not, what needs to be changed in the concept. In the Accelerator, we constantly return companies that have already begun testing various sales channels to the Customer Discovery phase so that they communicate with customers and collect feedback from them. Most often, this leads to the fact that the product changes greatly. For example, a graduate of the 4th set of Accelerator FRII StartExamInitially I tried to make a mass product - a common IT solution for staff testing for any business. When team members personally talked with decision makers from several dozen potential client companies, it became clear that a mass IT solution that was not muted on the industry context was of low value. Each client segment (FMCG, retail chains, car dealers, etc.) has personnel problems, processes, and business metrics with which to work, are very different. For example, a problem for international FMCG companies is to evaluate the effectiveness of multimillion-dollar investments in staff training. The problem of retail chains is the failure of sales assistants to meet work standards and sales plans, their lack of motivation and high turnover. Accordingly, for each client segment, the product must be adapted, change the value proposition, develop cases, which is what they did in StartExam. Focusing on several key market segments made it possible to increase the average bill from 90 thousand rubles a year to 620 thousand rubles a year, and the financial results of the company also improved.



    In the case of B2C, at this stage, you need to interview a large audience to find those who are interested in this solution. Then you should talk to them and find out why they need it. First - search for customers for your decision, then - restructuring marketing for them. Having identified the reasons why customers buy your product, you are more likely to find effective channels for attracting these customers.

    How did iPictory, a graduate of the 4th IIDF Accelerator, take this advice ? Project co-founder Kirill Gurbanov and the rest of the team talked to dozens of customers who already use their application to order print photos and photo souvenirs with delivery to identify key reasons why customers use the service.

    Customers were asked why they print photos at all. Why exactly through the application? What are the alternatives and why they do not suit customers? Are there any other barriers to printing photos? Here are the key findings:

    1. If you print photos in a photo kiosk, you first need to drop the photos on a USB flash drive, then go to the kiosk, stand in line and come back in a few days to pick up the finished product. This is time consuming.
    2. In addition, the photograph is not visible on the photo kiosk screen, it reflects. This may cause duplicate photos to print the same. In general, in this regard, the display of the smartphone is much more convenient.
    3. You can also print from a computer, but there is usually no special paper in the printer at home or at work. Moreover, the smartphone in this case also wins, since initially all the photos are stored there.
    4. It turned out that a lot of people order photos as a gift, although before that the team was sure that most customers place orders for themselves.
    5. People have a problem choosing photos. For example, after returning from vacation, hundreds or even thousands of pictures can accumulate in the camera roll on a smartphone. And people seem to want to print them, but their hands do not reach the analysis of photos.


    Having identified these reasons, as well as highlighting several client segments, the project formulated clearer appeals for advertisements and targeted them to the right audience. As a result, the average cost of customer acquisition (CPA) was reduced by 2 times, and it became half the average user revenue (ARPU), that is, the economy of the company converged (this is the next step).



    Step Three - Modeling the Economy

    This stage in the methodology replaces the classic business plan: the simulated company’s economy gives an understanding of whether the project has any prospects at all. How to pre-calculate the unit-economics of a project without having a significant amount of sales? There are so many different metrics, but counting them all makes no sense. The most simple and understandable way of modeling the economy was suggested by IIDF instructor Ilya Krasinsky: according to his formula, it is necessary to calculate only three metrics to understand whether the project’s economy converges. For 60% of teams, the economy does not converge: the cost of attracting a user (CPA) is greater than the income from it (ARPU). Simplified: in order to attract a buyer, we spend 100 rubles, and at the exit we get only 10 rubles from him.



    The meaning of the formula is very simple: the more users you can attract and the lower the price of attraction, the greater your profit. Each of the projects has a key metric, focusing on which, you can significantly improve performance. How is it detected?

    To analyze the project economics in more detail, the following plate is used in the Accelerator:



    Having decomposed the business economy into these metrics, you need to try to “twist” each metric in turn, making sure how this affects profit. Each metric has a “shoulder” - the maximum to which it can be increased / decreased in each case. For example, the average check cannot be increased indefinitely. Accordingly, having worked with this tablet, you need to find the “bottlenecks” where the restrictions on the growth of a particular project are concentrated. By “expanding” them, you can get a multiple income. We call such bottlenecks key metrics. To identify which metric is the “narrow neck” of your funnel, you need to calculate in turn how the change in conversion, cost of attracting a user, income from a paying customer, number of users, etc. affects profit, and it will become clear what is worth working on first turn.

    Example: the company Depo.fm after concentrated work on metrics with Ilya Krasinsky realized that the key metric for them was the conversion into a completed application (the company is engaged in the selection of spare parts for cars). The team analyzed user behavior in Yandex Webvisor. It became clear that most people “fall off” on the application form: the interface for them is incomprehensible and inconvenient. As a result, after improving (= simplifying) the interface and reducing the number of clicks on the form that are required from the user, the conversion to the completed application increased: it was 10%, and it became 12.5%. According to the co-founder of the company Vladislav Karmakov, the conversion was positively influenced by the new layout of the mobile version of the site.

    Depo.fm results for the Acceleration period can be seen on the slide:



    Fourth Step - Ready Prototype

    To start selling a product, you need a prototype - a minimum viable product (MVP). The IIDF tracker Evgeny Kalinin claims that the development period of any product can be reduced by 6 times. The solution is simple - you come to the developer, you say: you need to reduce the time by so many times. You leave, he begins to think how to live with it, and it turns out that this is really possible. Yes, for the sake of this, most likely, you will have to abandon some features, and the product will be far from ideal. But with the help of MVP it will already be possible to understand whether this solution is suitable for your customers. Based on MVP and feedback of potential customers, you can already move on to a full-fledged product.

    The fact that it takes very little time to develop MVP is confirmed by the results of numerous hackathons that are held now almost every weekend. In the process of hackathons, it becomes clear that a couple of days of concentrated work will be enough to create a minimum product. This thesis is also confirmed by the experience of one of the teams of the 3rd set of the IIDF Accelerator - MoneyHero / EasyScript, which learned how to create MVP and check the demand for it for three days. The experience of the team is described in detail in the material “ Pivot: pitfalls and conclusions on the example of MoneyHero startup ”.

    Fifth Step - Decision Confirmed

    You can congratulate yourself on going to this stage if the user is satisfied with the purchase: paid the money, recommended it to friends, made a second purchase. What pitfalls can be here? The client can use the service, but not pay for it. Until money is transferred to the account, anything can happen. Not to mention the fact that the unit-economy of a company can have many restrictions: for example, an economy can converge only with a repeated purchase, or a high level of virality is required - so that the client recommends a product to friends, etc. Here, in most cases, a struggle is unfolding to increase the average check: this is the easiest way to achieve economic convergence. How to correctly calculate how much you can increase the average bill and what new features to add so that customers continue to buy the product? Yet again,

    Let us give an example of a standard decision interview in order to identify an adequate level of product value. Artem Azevich, the project’s startup manager, once approached the project founder, spoke about the product and asked: Artem, will you buy such a solution from us for 3 arbitrary units? Artem replied that he would buy. Further, the founder asked if Artem would buy the product for 4 units, subject to the addition of certain functions. He agreed. The next question of the founder was already this: what needs to be done so that you agree to pay 5 units? Artem thought about it, threw a couple of ideas. And for 6 units? Then Artem said that 6 is an unrealistic amount for such a product.

    With the help of such an interview, the founder found out how much a potential customer would be willing to buy a product, and what value should be added to increase the average check. Conclusion: you need to communicate with the client and find out from him what exactly he is willing to pay more for.

    Sixth Step - First Sales

    After the first manual sales, which the founders themselves make, can proceed to testing different channels (for example, contextual advertising). However, IIDF trackers constantly send teams that already sell in channels to conduct interviews with customers, even if the first few sales have already been made. There are two reasons for this: firstly, without Customer Discovery, it is generally impossible to understand the needs of the client. And secondly, there must be some certain statistically correct amount of sales in order to proceed with confidence to the next stage. How to determine how many sales are needed for this?

    For different types of business, this number of sales is different. To understand how much is needed for each specific project, we use a tool such as the Space model (Supplier is the supplier, Product is the product, Average Revenue Per User is the average check, Customer is the number of customers, Evaluation is the decision to make a purchase). Tool developed by RIS Ventures.



    The first version of the business model is a solution to a mass problem, a quantitative approach: the problem is understandable, and you, as a solution provider, do not need expertise and immersion in each specific client’s situation, the average bill is small, there are many potential customers, the product is typical and simple in use, the purchase decision is made easily and in a short time. The second version of the business model is a qualitative approach: a specific problem significant for the client is solved, you as a supplier are required to thoroughly diagnose this problem, the number of customers is a small, high degree of personification of the product, it is difficult to understand, high average check, long acceptance time purchase decisions. And there are intermediate models. Ideally, for a unit economy to converge, it is necessary to bring each of these elements into one plane, one circle of the SPACE model.



    It often happens that one of the components of the model is out of the circle, for example, the average income per paying customer per year is small, the potential number of customers is large, but the product is difficult to understand, which means that customer service will require significant resources. In this case, you might think about how to make the product more understandable for customers.

    By building a SPACE model, you can identify the approximate number of sales needed to confirm demand and move on to testing sales channels (for example, contextual advertising). In this matter, we are in the Acceleratorbased on the average revenue per user per year. If your average income is less than $ 500, then the approximate number of sales that you need to make is 200. For a business with an average income per year from $ 500 to $ 20 thousand, the required number of sales is from 30 to 70. If the figure exceeds $ 20 thousand, then only 5 sales are needed to move on to channel testing.

    Using this scheme when developing an IT business, you can save a significant amount of money that startups often recklessly spend on marketing, and without checking how the demand for the product should be. We hope you find the information useful. Follow our blog posts!

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