Constraints Help You Uncover Your Riskiest Assumption
Thursday, Dec 17 (2020) | 4 min read
So how did you do on the constraint question?
There were a number of great responses here.
In all fairness, this was a bit of a trick question because the customer factory didn’t have any numbers.
Think back to the factory floor.
You can’t pick out the slowest machine (constraint) among a line of machines without any metrics - or you’d be guessing, which we want to avoid.
So the right answer depends on whether I didn’t give you any numbers because
- I’m not currently measuring any metrics (flying blind), or
- All my metrics are zero (customer factory not yet running), or
- I don’t yet have consistent enough metrics to report (not repeatable).
Case 1: Flying Blind
Running a business without metrics is like flying an airplane without instruments.
Neither is a good idea — especially when the early stage always comes enveloped in a fog of uncertainty.
If you’re not yet measuring at least the 5 customer factory metrics in your business on a regular basis, start immediately.
It only takes a week of metrics to create an actionable baseline.
Case 2: Customer Factory Not Yet Running
If the numbers in your customer factory are zero because you don’t yet have any customers, users, or leads in the pipeline, your next immediate goal should be getting your customer factory up and running.
In other words, your constraint is acquisition.
More strictly speaking... according to the Theory of Constraints, the constraint is really external to the system -- the market in this case. But practically speaking, the next step is driving market demand (aka leads/users) into the customer factory.
Much as in a real factory, you can’t make finished products without first acquiring the raw materials for doing so.
Seem like common sense, but when it comes to the world of products, it is fairly common to see the exact opposite in practice.
Most teams don’t start with acquisition and defer building a customer pipeline until they have a product ready to use/sell.
This is backward.
More importantly, you risk wasting needless time, money, and effort building something nobody wants i.e. you focus on the wrong constraint.
- building a minimum viable product
- optimizing an experience for activation
- building a referral campaign
- even integrating a payment system into your product
If you don't yet have any leads/users even interested in your unique value proposition (UVP), all these are things that distract you from the one thing that matters.
Getting attention or building awareness is the first battle.
It is akin to a factory manager buying expensive equipment with no ready means to acquire raw materials and more importantly, no clue on how many widgets to make (market demand).
Customer development should come before product development.
And customer acquisition is the first step in that process.
Rather than taking on a huge risk of first building a product and hoping there’s demand for it, a better approach is flipping the order:
First, establish demand for a product, then wire your customer factory to meet this demand.
We call this process Demand Generation.
Demand Generation is a systems approach to repeatably driving awareness and interest in a company's products and/or services.
As counter-intuitive as this might sound, you don’t need to first build a product or even know what product to build to generate demand.
I’ll preview this demand generation process in a future email…
For now, though, let’s get back to the third scenario.
Case 3: Not Repeatable
If you have a product already built and with paying customers, first congratulate yourself.
Creating value for customers out of nothing is an amazing feat.
But you also need to recognize that while getting to paying customers is a good first step, establishing repeatability next is going to be a necessary precondition for scalability.
If your paying customers are coming in randomly or represent many different combinations of customer segments, channels, and/or price points, this isn’t yet repeatable.
The constraint here is establishing repeatable acquisition.
Repeatable Acquisition == Demand Generation.
If you're currently chasing multiple customer segments, think of that as running multiple customer factories simultaneously. Which do you optimize?
This is fine at the earliest of stages when you’re testing and pitting one customer segment against another, but you need to quickly apply Pareto’s 80/20 principle:
80% of your growth will come from 20% of your customers.
Your job should be finding the right 20% and expending 80% of your effort on them.
To put this more concretely, unless you can clearly describe what caused your customers to buy your product, you’re going to be hard-pressed to predictably acquire your next 10-100 customers.
This clarity of customer-problem-solution insights (with evidence) is the litmus test we use to determine the next significant milestone: Achieving Problem/Solution Fit.
The proof that you have achieved Problem/Solution Fit is demonstrable through a repeatable customer factory that meets your traction model criteria.
- If you’re currently flying blind, immediately start measuring at least the 5 customer factory metrics on a regular basis.
- If you don’t yet have your customer factory running, start with acquisition, and establish repeatability there first.
- If you don’t yet have repeatability in your customer factory, focus on repeatable acquisition first.
- Repeatable Acquisition == Demand Generation.
- This is why we prioritize “Demand Generation” as the next playbook in the journey to product/market fit.
Some of you might be wondering if starting with Demand Generation is universally applicable to all business models.
I’ll cover that tomorrow.
A number of you suggested Activation as the constraint in your responses.
While activation quickly becomes a very critical step (next constraint) because it’s where you make happy customers, we still need to start with acquisition because making happy customers follows a specific sequence.
You can’t make a happy customer (revenue) without first delivering value to them (activation and retention). And you can’t deliver value without first getting them inside your customer factory (acquisition).
When launching a new product, the order of constraints typically follows the numbering scheme on the Customer Factory:
Once you repeatedly start putting users, leads, customers through the customer factory, it doesn’t take long for a baseline to emerge.
Then a new search for the constraint reveals where to focus next.
If you’ve got more questions / comments, leave them below.