Traversing the Traction Gap

by Bruce Cleveland

  Based on all of this work, how did I decide to describe the company and its product category? Here it is:

  “GreenFig is a microeducation company offering microdegrees in applied business science.”

  Let’s deconstruct that mission statement:

  Microeducation—a new type of education with a name that implies that it is shorter in duration (one semester/200 hours) than traditional forms of education.

  Microdegrees—a “shorter” degree than that obtained from a regular university, but that still implies that the student has mastered some topic. In this case, the GreenFig microdegree has been designed to prepare its students to pass the certification exams demanded by companies such as Google, Marketo, Salesforce, and other business software providers.

  Applied Business Science—the term “business science” is juxtapositioned with “computer science” and “data science.” Computer and data scientists are technical; they use math and statistics to analyze transactions. Business scientists, by comparison, are not necessarily technical. In fact, we have found that the best ones possess liberal arts degrees. Business scientists are trained to set up and operate the business application software—which generates transactions—that powers each business function, including customer success, finance, marketing, sales, service, and support. The word “applied” refers to the hands-on training and integrated work experience the company offers.

  You may be wondering how I came up with the company name “GreenFig.” I didn’t. My wife and daughters did.

  First, I concluded that I wanted an abstract name. They came up with the word GreenFig after a bunch of brainstorming and suggested the name to me.

  They liked the word “green” because it is a colloquialism for “beginner.” And, based on traditional Jewish beliefs, the fig is the “tree of knowledge.” So, they put the two words, green and fig, together to come up with GreenFig—beginning knowledge! We tested it with different groups, and it tested well. And, oh yeah, the most important thing . . . the URL for that name still was available.

  [A last word of advice: once you’ve created your message, get it in the hands of a real writer—especially someone trained in advertising copy or captions—and have that person take out superfluous verbiage and make the statement as tight and precise as it can possibly be.]

  GreenFig is just getting off the ground, but it is doing well as its message resonates with higher-ed and corporations. But, as with any startup, it will survive only if it can convert that awareness and interest into strong revenue growth—traction.

  ■

  CONSUMER CATEGORIES

  What if you have an idea for a consumer application or product—does “category creation” still apply?

  Yes. And in some ways, even more so.

  Consider Apple, a company with products for both consumers and businesses.

  Did Apple create the PC category? Did Apple create the phone category? Did Apple create the tablet category? Did Apple create the camera category? The watch category? Or put another way, did Steve Jobs create any of these categories?

  Clearly, no. All of these are consumer categories—even personal computers (a fact often forgotten)—that existed before Steve Jobs decided to enter them.

  Instead, what Steve and Apple did was to reimagine—redefine—existing categories to create an entirely different consumer experience and expectation. In fact, as the company’s fame grew, the mere addition of the name “Apple” or the prefix “i” instantly created a de facto new category.

  Today, with rare exception, most consumer categories are simply established categories that have been redefined by amazing new companies with amazing new products.

  That isn’t always the case, though. A recent exception, for example, is Uber, which defines its category as a peer-to-peer ridesharing, food delivery, and transportation network company—not a taxi company.

  “Uber is a $3.5 billion lesson in building for how the world ‘should’ work instead of optimizing for how the world ‘does’ work.”

  AARON LEVIE, CEO, Box

  The biggest categorization challenge for consumer startups is overcoming the signal-to-noise ratio. That is, there are so many consumer products in the market, and so many new products continuously coming on line, that consumers are overwhelmed by the noise—mostly via advertising—of companies, new and old, competing for our attention.

  For a new consumer company, simply creating a new category or redefining an existing category is typically insufficient nowadays for it to gain attention. It is also, in most cases, extraordinarily expensive to rise above that noise.

  In the face of that, consumer startups must focus on the category they believe they want to compete in, promote the key new and innovative features they provide, and, most of all, use nontraditional marketing tools—including social “amplification”—to tell their story.

  Deciding which consumer category you want to create or redefine up front is particularly critical in this competitive environment. Unlike business customers, who think about “return on investment” (the main criterion for a B2B product or service), consumers in many cases are more concerned with what a product says about their “social status.”

  Think about it. If I want personal transportation, I have a variety of choices. I could decide to use varying types of demand car services (e.g., taxis, Uber, Lyft, Wingz, or ZipCar), drive an environmentally low-impact car (e.g., Prius, Leaf, Tesla), or purchase a luxury automobile (e.g., Bentley, Rolls Royce) or a high-performance sports car (e.g., Ferrari, Aston Martin). Any one of these will get me from point A to point B. But they each make a statement about who I am as a person, while telling others something about me. My transportation choice communicates my social status.

  “A brand is no longer what we tell consumers it is, it is what consumers tell each other it is.”

  SCOTT DAVID COOK, Founder, Intuit

  This is why consumer startups must decide—from the very beginning—what they want their “brand” to stand for as a social signifier and in what category they intend to compete. This very strategic Minimum Viable Category decision will determine to whom and where you will begin to market and sell your products. Remember, you will be signaling this decision to customers from the very first moment—and if your aim is wrong, there will be hell to pay repositioning yourself on the right track. You must get it right the first time.

  Since “social status” is so important for consumer startups, developing brand credibility quickly is critical. This is why consumer companies (early-stage and otherwise) like to “borrow the brand” of well-known consumers (e.g., athletes and celebrities) who have already earned the trust of consumers. (Whether that trust is warranted is a different topic.)

  However, only a few lucky consumer startups—usually with celebrities or athletes as members of their investor group—have the financial wherewithal or relationships to use celebrity or athlete endorsements or to get noticed.

  So the lowest-cost and most readily accessible way for a consumer startup to gain category awareness and interest is via word of mouth from friends. Friends trust friends. And friends recommend products they like to their friends.

  Today, thanks to social networks, it has never been easier to leverage this behavior. Of course, we all recognize that this is the power of Facebook and other social networks.

  Facebook enables new consumer startups to quickly and cost-effectively reach “friends.” Friends recommend consumer products they like to their friends. And on it goes. A truly innovative product that is “friend-recommended” can quickly go viral.

  Category ownership for consumer startups (and incumbents) must have a solid customer awareness and acquisition strategy that employs the use of Facebook, Instagram, Pinterest, Snapchat, Twitter, and other social networks. Otherwise, you will be competing with one hand tied behind your back. Being an entrepreneur is hard enough without that.

  Conversely, the tactic B2C companies can
best employ to generate initial awareness and interest, and to confirm a strong MVC, is conducting “Smoke Tests.” The nature of this method is something I will discuss in the next chapter, “Getting to IPR.”

  KEY TAKEAWAYS

  ■

  The Minimum Viable Category value inflection point is closely linked to the Ideation value inflection point. As the concept of your product comes together, you should perform significant market-engineering—market research to validate the opportunity—and begin to formulate features and feature prioritization.

  Before moving beyond MVC, you must have a well-formed thesis regarding the category you intend to define/redefine and formalize a well-thought-out messaging matrix.

  The following are the key milestones you should have reached before moving on to your Initial Product Release.

  Product—Prototyping and UX/UI work, along with certain feature prioritization, should be explored. Thorough market-validated and prospect feedback should begin and be captured leading to a quantitatively verified product and feature list. Objective analysis of the feedback should be used to determine whether to continue as planned, iterate, or shut down. Beta customers should be identified and lined up for the Initial Product Release.

  Revenue—To successfully reach and move beyond MVC, you need to understand and agree upon the category in which you intend to compete. If it’s an existing category, you need to redefine it in your terms. If it’s a new category, you need to name the category and define it. You should have a list of From/Tos, that is, how the world will change due to your new product/service. After coming up with the category, you must develop a comprehensive messaging matrix that explains what the company is, what it does, how it compares with potential competitors, initial pricing ideas, boilerplate messaging, etc.

  I highly recommend that all team members read the book Play Bigger to understand the category-definition process.

  Team—Few changes beyond the Ideation value inflection point, unless you have been able to raise some or additional capital based upon your concept. Most likely, any team changes at this point will involve a few engineers or product managers who elect to join.

  Systems—As with the Ideation stage, at MVC systems do not yet play a significant role. You should have some basic tools that enable your team to communicate and collaborate effectively and share information easily. You only need basic applications, such as email, spreadsheets, collaboration software, word-processing and engineering applications (e.g., build/QA system, bug database, user stories). You should have established processes and systems so you can easily track expenses, make payments, and manage equity, hiring, payroll, and benefits.

  Traction Gap Architectural Pillars

  FIGURE 13

  Percentage of emphasis during this stage.

  The following are the key principles Wildcat Venture Partners looks for at MVC:

  ■ Traction Gap Principles ■

  MVC

  Product

  Capture statistically valid market feedback to produce a verified product and feature list.

  Revenue

  Define or redefine the category you intend to build/compete in; lock in your initial value propositions, pricing models, and positioning.

  Team

  Do not hire anyone who cannot accelerate initial product release.

  Systems

  Establish your startup’s initial governance and core values.

  Traction Gap Hacks ▶ MVC

  When you are first beginning your startup, one of the more challenging issues you may face is how to explain your concept and product to people who are hearing about it for the first time. After all, if it is truly disruptive, then, by definition, it will be radically new to the listener. He or she will likely need to take time and think about what it means and determine how it fits into the world they already know.

  It may be a cliché, but you really are going to need to develop your “elevator pitch”—how to tell your story in one minute on a theoretical elevator ride. In addition, you will need to create your company’s mission, PR boilerplate, and other category positioning.

  The tool you can use to develop this positioning is the messaging matrix. Some entrepreneurs think the messaging matrix is specifically a tool for the Public Relations team. They couldn’t be more wrong. The messaging matrix must be owned and controlled by the startup CEO.

  This document should represent the startup CEO’s official point of view, a formal “message of record” that everyone in the company should rely on for any and all communications.

  It should capture the way in which the CEO wants everyone in the company to explain:

  What the company does,

  How the products fit in and stand out,

  The From/To definitions (as defined above and in the book Play Bigger),

  The approved mission statement, and

  Competitive positioning.

  In other words, the messaging matrix must be the official “go to” document that defines and describes your startup. If you choose to add new positioning, language, etc., the messaging matrix must be revised to reflect those changes and rolled out across the company.

  The fastest way to wreck—or never create—your brand is to allow everyone in your startup to invent their own idea of what your brand is, and to use their own language to explain who you are and what you do.

  One of the things I like to do during due diligence when I first meet members of a startup team is to ask each individual to tell me what the company’s mission statement is and what category they are in. Their responses tell me a lot about whether the CEO and team understand the importance of category design and brand—and whether they are all working to accomplish the same thing.

  The messaging matrix plays a pivotal role toward ensuring that everyone in the startup understands the mission they are on and why. Once hardened, like the US Constitution, it should be difficult to change and should only be revised when the CEO approves a revision.

  In the Appendix, I provide you with a comprehensive messaging matrix I developed for GreenFig. It took me more than three months and countless hours to develop and finalize this document. During that period, I tested and iterated upon the category name, definitions, and positioning with a variety of groups, including companies, students, and universities.

  I was careful not to engage the venture community—even my own firm—until I had finalized this important work and was confident I had adequately defined a new category and positioned GreenFig satisfactorily within that category. The result was a successful seed financing of $1M that gave me and the GreenFig team the opportunity to explore pricing and business models and to deliver their first courses.

  (Again, while you are investing significant resources and effort in “product-engineering” in the go-to-product phase, you must concurrently invest an equal—perhaps even greater—effort in “market-engineering” by defining/redefining the category and validating the market in which you want to compete. These are as critical to the success of your startup as your product is.)

  Category and brand creation begin by developing your “messaging matrix” as the foundational category and brand document. Once finalized, every employee in your company must internalize—and memorize—key positioning statements established within your messaging matrix.

  You should digitally post your final “branding document,” developed from your messaging matrix, so that everyone in the company has access to it. As part of the onboarding process for new employees, you would be well served to require them to read the document and take—and even pass—a test, to ensure that they have mastered and can effectively communicate your positioning. And, if you have employees on board who haven’t read the brand document and taken the test, you should demand that they do so as a condition of ongoing employment.

  The fact is that anyone in your company can Tweet or make posts to many social media sites; therefore,
every one of your employees is a potential brand ambassador. You want to be sure that if they mention or discuss your company in those forums, they can accurately position who you are and what you do. And, if you modify your positioning, you must update your messaging matrix and bring the entire company up to speed with your new positioning—and the rationale for the changes.

  Your instructions to your employees should be something like: “You can position us any way you’d like, as long as the words you use are the exact words from our approved messaging matrix and brand document. Our brand—and ultimately our valuation as a company—depends on all of us to do this effectively.” If you elect not to formalize and emphasize this process, you will diminish and compromise your ability to create and sustain a category and a brand.

  4

  GETTING TO INITIAL PRODUCT RELEASE

  The next challenge you face before reaching the Traction Gap is the jump from Minimum Viable Category to the critical value inflection point of Initial Product Release, or IPR. In this chapter, I am going to cover:

  What it means to be a “market-first” startup and why this is critically important—in fact, mission critical,

  Why you need to develop a complete view of the market through “market signals,” and

  Why you need to develop Market IQ.

  Then, in the Hacks section at the end of this chapter, I will discuss how you can capture some of the market signals you need to be a market-first company.

  If you adopt the methods I describe, you will be able to engage with prospective customers or users to generate statistically relevant data that your team can use to help confirm ideas, determine key product features, and secure early-stage financing.