Larry too was hit by an awesome idea a year ago, but unlike Steve, he doesn’t start with a build-first or an investor-first approach. Larry recognizes that this approach used to work at a time when building products was really hard and expensive, but the world has changed.
Investors used to value intellectual property and funded teams that demonstrated they could build stuff. This is no longer the case…
Also, because building products were prohibitively expensive, teams that managed to raise funding used to have a significant unfair advantage over others because they could get to market faster and learn faster than their competitors. Even if they got the product completely wrong the first time around, they could still manage to course-correct and get back on track because there were few competitors nipping at their heels. But the world is different today…
We live at a time when it’s easier and cheaper than ever to build products, which means that there are many more people “starting up” all over the world.
This creates many more choices both for investors and customers.
Investors today don’t value intellectual property, but traction.
Traction matters above everything else
Traction is evidence that people other than yourself, your team, and your mom care about your idea — aka customers. More important, traction is early evidence of a business model.
Investors today don’t fund solutions that work, but business models that work.
This leads to an epiphany for Larry:
The business model, not my solution, is THE PRODUCT.
And just like any product, a business model can and should be built systematically. Larry spends half an afternoon sketching out his business model. Then does some back-of-the-envelope calculations to ballpark some numbers, and then formulates a validation strategy…
When building a complex product, one doesn’t start with the easiest stuff, but the hardest or riskiest stuff. Building a business model is no different. Building solutions come easily to Larry. So he instead focuses on what’s hard — building a customer.
Larry decides to start with a traction-first or a customer-first approach.
But how do you demonstrate traction without a product? Aren’t we back to the Catch-22? Not really, because…
Larry knows that customers today are constantly bombarded with all kinds of products. The initial battle is getting their attention.
And here’s the really counter-intuitive bit…You don’t need a product to do that, but a compelling offer that can stand-in for your product.
The challenge today isn’t building a product, but uncovering the right product to build.
You build a compelling offer piece-by-piece by first understanding your customers, their problems, and their existing alternatives. Once you have that down, defining a solution becomes a lot easier.
Here’s the exact process he uses:
Unlike Steve, who is still perfecting and polishing his product a year later, Larry defines his minimum viable product (version 1.0) in less than 8 weeks.
A minimum viable product (MVP) is the smallest solution that creates, delivers, and captures customer value.
Following this approach, Larry avoids spending needless time, money, and effort building a product he hopes customers will buy with a product he knows customers will buy.
This puts Larry’s idea on solid footing and he spends the next 4 weeks building out the first version of his solution. Once completed, he immediately starts charging his customers from day one, who are happy to pay because the MVP nails their must-haves and delivers value out of the gate.
Larry continually refines his product from here through many more customer conversations. This allows him to continuously outlearn his competition and always stay a step ahead of them.
His customer base is growing, his revenue is growing, and so is his team and business model.