How do you create a product vision? Part 3

Day 149 of Self Quarantine Covid 19 Deaths in U.S.: 162,000

Using an Influencer Centered Design Process to Collaborate with Customers and Domain Experts on your Product Vision

This post is the third part of describing how to create a product vision.

Getting to a product vision for an innovative product is a five step process:

Understanding what a good one looks like
Becoming an expert quickly in the knowledge domain of your product innovations
Using an influencer centered design process to collaborate with domain experts and customers on your product vision
Creating the product vision using service dominant logic and an outcomes orientation
Communicating the Product vision – to employees, to customers, to investors

Introduction

One of the challenges for most entrepreneurs is getting funding for their new venture. An alternative to angel funding and venture capital funding is influencer centered funding of your startup venture. Building on the network of experts that you created in the process of becoming an expert in Step 2, this network can also function as a collection of influencers. These expert influencers can help you develop your product vision, help identify and close prospective customers, and help you fund your new venture.

William Luther in How to Develop a Business Plan in 15 Days pointed out that the term “customer” does not parse. In my blog post on “Words Mean Something” I quoted Luther:

“In December 1984, I was hired by Clemson University to conduct a two-day marketing seminar for five state colleges in Florida. The first half-day was most difficult, because the people from the colleges kept stating that there was no way someone with no experience in education could help them develop a marketing plan. I tried to convey to them that the planning process was the same regardless of the type of product or service, but they just wouldn’t buy it. The use of a bad analogy made matters worse – the analogy being that the planning process was the same whether you were selling a college or a can of beer. The meeting did not go very well until just after lunch, when they were presented with a five-step procedure that helps you determine who your customer is and what the message should be. As I went through the sequence, I proved to them that they had been spending all of their marketing dollars for the last five years on the wrong target audience.

“Like so many other institutions of higher learning, these colleges realized that they must get a better understanding of marketing, now that federal and state funding assistance has diminished. The group was openly hostile until the purchase-process priority was discussed. When asked who should be number one in the purchase-process priority, the college officials, after several minutes of discussion, stated that it was the parent. Number two was the high-school guidance counselor. The student was listed as number three. At this point, I asked them how they had been allocating all their marketing dollars during the past five years. Almost in unison they said words to the effect of ‘son of a gun.’ They had been committing their complete marketing budget to the students.”

Luther’s process starts by identifying those categories of people involved in purchasing decisions, and then classifies them as influencers, purchasers and users. In the above example, the parent is typically the purchaser, the guidance counselor is an example of an influencer, and the student is the user. When we start talking about customer, it is important to think just a little harder to understand which role the person we are talking about is playing – influencer, purchaser, or user.

One of the fundamental mistakes made in product development is focusing the design and functionality on the user. The most successful products design in capabilities for the purchaser and influencer.

However very little is written about how to work with and develop influencers. The previous section on becoming an expert is all about working with influencers – the recognized thought leaders in a given domain. In this section we will look at ways in which influencers can help you with your product, the customers of your product, and most importantly for the CEO – the investors who are the customers for your business.

Working with influencers can help you co-create a product vision, help you sell your product to customers, and help you raise funding for your venture from investors.

While Y Combinator has done a good job of showing how to develop B2C startups, there is less literature on how to develop B2B and B2B2C companies as customers. As Geoff Moore points out in Crossing the Chasm, influencers are critical in making the jump from early adopter customers to early majority customers.

What is a B2B2C business model?

For B2B companies that are unable to fund their new venture themselves, the only sources they see for funding are angel investors and Venture Capitalists. However, there are several alternatives for funding a company which involve creating a research consortium of 5-10 leading edge companies who would be interested in early access to the startup’s expertise.

I usually recommend that the startup pursue four sets of influencers at the same time to determine which approach makes sense to develop your product vision and help you fund your company:

- Influencer centered “white paper” interviews and publishing
- Research consortium
- Pitching to second tier VCs (the off-Broadway approach)
- Offering “pre buys” of tests at a significant discount

The general idea is to propose 3-5 activities in each of the four initiatives and then see where you get the most traction.

Two things happen as you pursue the above in parallel:

- By preparing four different “presentations” for four different audiences with four different goals you see your startup in a very different light. This approach is like what Pat Whitney of the Institute of Design asserts “No medium is content neutral.” And it is similar to the six pitches approach in Dan Pink’s To Sell is Human.
- Momentum with any one audience helps with momentum with the other audiences. As you interview more people for the “white paper” several of these interviewees are likely to be interested in becoming a research consortium member. As you get revenue from research consortium members, you increase your pre-money valuation when you talk to VCs.

The following content describes an alternative funding path for new ventures. This process focuses on raising money from corporate strategic partners rather than angel or venture capital. The ideal model is to find research partners who will participate throughout the virtuous funding cycle:

- Provide significant dollars for a research project that corporations are interested in
  - The dollar amount is considerably less than they would spend internally to accomplish the same research. A good executive will realize that they are getting $5-7 of research for every dollar they spend AND access to expertise that they would be unable to hire.
  - The dollars flow through to the new venture as revenue dollars thus raising the pre-money valuation in following rounds
  - Their executives are interested in being recognized as a thought leader in the topic space
    - For the decision makers that participate in the research
    - For PR for the company that funds the research
  - They desire early access to research results, product insights and business model insights
- Will become an early adopter customer for the product or service being researched providing additional revenue dollars for the new venture
- Have the demonstrated ability to do corporate investments for Series A and beyond rounds eliminating the hassles of attracting external venture capital. These investors are already convinced of the value of the proposition.
- Will become high visibility reference customers and influencers for others in the market.

This process was used to fund Personal Health Connections in 1995 through revenue rather than through loans or equity. Following the successful completion of the research project three of the six research project funding partners participated in both a Series A and a Series B round. The result was that through two rounds of funding ($5+M) the two founders still managed to control >55% of the company.

Personal Health Connections (PHC) Story

PHC grew out of a struggling venture, PhyCom, that was limited both in the market it was going after and by the random way that the company had been funded. The two PHC founders, Bill Ellis and Skip Walter, had an interest in developing a Virtual Health Plan concept to reduce the inefficiencies in the health care insurance model circa 1995. We knew that we didn’t have enough knowledge to put a coherent business plan together so we decided to approach a range of companies to see if they would be interested in funding research into the opportunity. In our early customer discovery sessions, we found a surprising amount of interest.

We formed PHC while Bill and I split amicably from PhyCom. We wanted to target a diverse set of companies to fund the research. We hoped that the companies would be instrumental in being both customers and suppliers (content and “patients”) to the expected venture that would result. The kinds of companies that we wanted were:

- Health Plans
- Financial Services Company
- Telecommunications Company

We targeted companies in each category that we felt were either looking to be recognized as innovators or that we had previous relationships with. This is a partial list of who we targeted:

- Health Plans (Group Health of Seattle, Health Partners of Minnesota, Harvard Pilgrim Healthcare, Catholic Health Care West, Kaiser Permanente, Humana, United Healthcare)
- Financial Services Company with health care insurance (GE Financial, Fidelity, Aetna)
- Telecommunications (MCI, Sprint, AT&T)

We started with Group Health of Seattle where we had a very strong relationship with the CEO, Phil Nubelman. He agreed to the research project in the very first meeting. However, his biggest assistance was reaching out to the other health plan partners like Health Partners, Harvard Pilgrim, and Catholic Healthcare West etc. Within a week we had meetings with all of the health plans, and we got tentative approval from Health Partners, Harvard Pilgrim and Catholic Health Care West with just 2-3 meetings each. With these four health plans on board, we were then able to get meetings with GE Financial and MCI. Within another two weeks we had our six funding companies at $200K each for a projected one year research project.

The funders were:

- Health Plans (Group Health of Seattle, Health Partners of Minnesota, Harvard Pilgrim Healthcare, Catholic Health Care West)
- Financial Services Company (GE Financial)
- Telecommunications (MCI)

The offer and promise that we made to the funders was that we would do a research project to detail the current reality of the virtual health plan market and then write a business plan for starting a company to provide virtual health plans on the Internet. The research consortium companies would have right of first refusal to fund the planned entity. Each company was required to appoint a permanent representative who would attend the bi-monthly meetings and working sessions. In addition, we agreed that either Bill or I would provide a quarterly update presentation to each member company at their business location so that they could expose what we were learning to a wider audience within their company. [NOTE: Two of the representatives with the blessings of their sponsoring companies became full time employees of PHC after the research project was over.] The good news is that all of the permanent representatives so enjoyed the value of this project that they spent at least 20% of their time on it.

The deliverables agreed to in the proposal were:

- Final Deliverables:
  - a standard business plan for a new venture to provide virtual health plans on the Internet – suitable for raising money from investors
  - a presentation to each company at their location of our results
- Monthly research updates
- Bi-monthly detailed write-ups of the meetings between the PHC team and the company representatives. At least two of these meetings were workshop sessions where we did things like Scenario Planning for the health care industry.

With the $1.2M in funding, Bill and I were able to pay ourselves a salary and we were able to hire three full time employees (MD-CIO, nurse practitioner, and a business development researcher). In addition, we had several part time consultants (marketing/branding consultant, actuarial experts, web designers).

Like many startups, we had to make a major pivot about three months into the project. Working with the health plan experts in our member companies we realized that because a virtual health plan would have to operate in all 50 states we would need to get a health plan license in each state (no federal license available) at a cost of between $1-2M each. This finding alone was worth the $200k to each funding company as they realized that they would not be able to do an internet virtual health plan.

Yet, we didn’t want to stop so we changed the research to what could we do that is health related that we didn’t need to be licensed by each state. We realized that one of the major drivers of health care costs were behavioral health issues like smoking and obesity. Health plans and physicians hate dealing with these issues, but they cause about 40% of overall health care spend. We refocused our efforts on how we could create a company to significantly impact behavioral health issues. This market is what we wrote the business plan for and spent the rest of the research dollars on.

By about month 9, the four health plan partners (Group Health, Health Partners, Harvard Pilgrim and Catholic Health Care West) were sold on the idea of starting a virtual behavioral health company. They each agreed to do a Series A round of $1.5M each and all of the partners agreed that we could roll our remaining research dollars into the new entity.

We hired a development team and had a product ready to go in about 9 months (it was 1995 after all). Then we crashed into the wall of missed assumptions. We expected that because each of the four health plans had an investment in us that they would “dictate” to their organization that they use our product. As it turns out the execs that funded our research and that funded the Series A round were not the folks that determined what software was used with their members. We had to start at Ground Zero with the delivery side of each organization as if we were a random vendor coming in off the street.

Our assumptions about revenue growth from our members were blown out the window and it was clear that we were not going to come close to meeting our revenue goals.

The summary of this story is that along with getting the corporate partner funding folks on the research team, we also needed to identify who would be responsible for deploying the product within these companies and get them on board early in the research process.

In many ways this story resembles part of the Frost Data Capital Model of pre-selling potential customers to invest in a fund that invests in startups that will provide products that the large companies need.

“Unlike most other incubators who chase the latest hot startups across multiple areas, we are very strongly focused on Big Data analytics. This still gives us a lot of scope – after all, Big Data is impacting just about every area of human activity. Yet it also means that all our companies operate in a similar way and use the same or closely related technologies.

“Our portfolio companies have similar business models and sell to the same kinds of customers. The result of this focus is that the core incubator execs don’t have to context switch when talking to the various companies. In addition, it means we are creating one of the biggest ecosystems of related Big Data startups anywhere in the world.

“Most people struggle to come up with one compelling startup idea in their lifetimes, so we get asked how the Frost Model can produce ten or more great ideas each year? Part of the answer lies in our focus – Big Data is all we think about, pretty much 24/7. This focus has enabled us to build an incredible ecosystem. As of this writing in early 2014, we have 12 companies in the portfolio, all with their own CEOs and CTOs discussing Big Data ideas and opportunities with strategic partners and customers.

“We also have a shared team of highly experienced business development staff, who are talking about Big Data on a daily basis with senior execs at Fortune 100 companies, strategic partners like the major software vendors and leading system integrators. As a result, we generate a significant number of new ideas. Recently we’ve added a more intentional program to generate ideas in conjunction with a small number of strategic partners. Let’s look at this next.”

One of the secrets of the shared business development staff is that they are generating ideas, pre-selling their portfolio company products, AND seeking venture investment from the potential customers. This is a concept that Microsoft realized whenever they purchased an IT product from an early stage startup. Microsoft purchasing the product helped to dramatically increase the valuation of the startup for their next round of funding. Microsoft smartly required that future startups “allow” them to invest and not just buy the product. Microsoft transformed a pure expense into an investment that had the potential for a gain of multiple times the cost of the startup’s product. While giving up early stage equity is always painful, the startups realized that they could win two ways – they could claim Microsoft as both a customer AND an investor.

Influencer White Paper Process

One of the big challenges of a new startup is to get in front of decision makers at targeted customers. When they do get a meeting with an executive, naive founders go in with guns blazing in full on selling and pitching mode. A better way is to do the “no sell sell.” The white paper process is an example of the “No Sell Sell.”

The first step is to identify the list of recognized thought leaders in the industry market that you are aiming at. These thought leaders within corporations should be at the C-Level. Then identify the leading consultants and financial analysts in this sector. You then identify a topic that is relatively new to the industry and approach your targeted thought leaders for thirty minutes of their time.

An example of the approach is:

- Who are the smartest people in the industry you are interested in?
  - Once you have a picture of the existing wisdom, you use that to build out a list of the 20 smartest people in the industry.
  - Approach the first four or five to get them interested.
  - Each of the first four or five will give you two to four additional names
  - Continue interviewing until you get to twenty interviewees
  - Approach these smartest people with the phrase “You were selected by your peers as one of the 20 smartest people in the industry …” The magical word is “selected”.
  - The people that you interview should be practitioners (not academics) and should be actively operating in the industry.
- The types of open-ended questions that work to capture insights are:
  - What is the future of the industry?
  - What are the drivers that shape the forces of the industry?
  - What are the implications of these forces?
  - What are any startling conclusions?

As a leave behind from the interview provide your current interviewees collected wisdom of forces and strategic insights. Offer to come back and provide an hour-long presentation of your research to their team (paid for of course).

Ideally, there should be two of you doing the interview. One person should ask the questions and stay in relationship with the interviewee through deep listening skills. The other person should be taking detailed notes (preferably handwritten as typing on a keyboard can be annoying and distracting). If possible, record the conversation so that you can get exact quotes right (always ask for written permission to use any quotes).

The publishing of the white paper then gives you thought leadership credibility.

Each time we have run this process, two to three of the interviewees become customers for the Research Consortium.

The “white paper process” of influencer centered design is a “no sell sell” for the research consortium.

Influencer Centered Investor Pitching

Dan Pink shares that the “30 second elevator pitch” needs to be replaced by six pitches:

- The one word pitch
- The question pitch
- The rhyming pitch
- The subject line pitch
- The Twitter pitch
- The Pixar pitch

Coming up with each of these pitches helps you see what your company and product are really about. My favorite is the Pixar story structure. It is a fun and informative way to summarize collaborative workshops and user research.

These two slides show two different ways of summarizing the same information from an internal corporate workshop aimed at developing a vision for a portfolio of products:

As you interact with influencers, the Dan Pink six pitches are a quick way to summarize what you are learning.

Using the six pitch types of Dan Pink, the white paper pitch and the research consortium are primarily aimed at customers for your product and service. Investors have a very different take on market opportunities than do customers. Pitching to an investor helps you focus on what the business is about, not just what your product is about.

While the work of putting an investor pitch together is outside the scope of this document, pitching to an investor helps you understand where the market is in its evolution and how much of an opportunity there is for innovation.

As you interact with professional investors like VCs, you want to learn their thoughts about your target market and how crowded the early stage company space is. You will also get a sense of what an investor likes about the market and what they think of your team.

Process Steps for Influencer Centered Research

The following are the steps for getting to the research partners:

Identify likely target corporate partners who have extensive action-oriented research programs and budget
1. The entry points for a corporate partner are:
  1. A target organization that could use your product
  2. An R&D organization to draw from their budget and supplement their research dollars (Citrix funds their accelerator through R&D dollars)
  3. A Corporate investment group (do this as a last resort as the money will become equity funding)
Rank order the potential research project partners based on:
1. Ability to get to the decision maker
2. Likely dollar amount ($50k, $100k, $200k) that each company would be willing to spend
3. Identify the type of relationship that they are most likely to spend money on and the research problem they are interested in
  1. Product Panel (enlist early adopter customers to help define next product version – $50K)
  2. Shared research project into an interesting topic like behavioral economics models – $100k
  3. Research into a new generation of analytics tied to financial results (like the IBM patent for maximizing revenue from types of talent – $200k
4. Identify the internal cost of doing this research by themselves versus a shared research collaboration (at a minimum each company gets a 5 to 1 leveraging of their research dollar)
5. What is the likely calendar time to funding?
6. What is the likelihood that if the research is successful they would become a customer of the resulting product?
7. What is the likelihood that they would be a Series A investor?
Identify a “friendly” company on the list that is not necessarily the top ranked by the criteria and set up an information interview to test your value proposition
Put a 1-2 page offer and promise (might have to do 2-3) that represent what we want to research and have the friendly conversation. Use the “Hollywood” script process from Dan Pink to calibrate, tune and adjust the offer and promise.
Repeat the previous step two more times to figure out which of the research projects looks most timely.
Figure out which is the most influential anchor customer (like Group Health’s CEO). You are looking for a close with a decision maker who will help be the strategic networker to get you in front of the other companies you want to bring on board.
ABC – Always be Closing. Go for the Gold and get the $600k to $1M into the influencer network of your new venture

As you execute your research process, plan on developing “white papers” each quarter and endeavor to include the work and quotes from your research partners in the white papers. In parallel with the research process, you should be creating your product and your product vision. Working with the influencers to identify potential customers in their organization, you can constantly test your product ideas and longer term product vision.

The five parts of this series on how to create a product vision are: