This sort of reminds me of the Kano model: http://en.wikipedia.org/wiki/Kano_model
Startups: The Minimum Viable Product Lifecycle
We’ve been paying a LOT of attention to the folks who use our product as we build out a minimum viable product, along with a scalable and repeatable business model. Since July 12th (roughly 6 weeks), nearly 6,000 people from just about every country on the planet has used our SiteJuice product, running over 10,000 websites through our system which shows them basic SEO information with resources on how to fix various issues. We’ve collected close to 500 responses to our KISS Insights survey asking people what they thought – how useful was the information we gave them. The answer was overwhelmingly “very useful” – but that doesn’t mean we’re ready to throw up a paywall just yet. Let me explain…
I believe that you have 2 basic needs to meet if you’re going to sell a monthly subscription for your product: Usefulness and Value. We can debate other things, like Simplicity, Cost and more, but let’s just focus on these for a second. My theory is that users can find a product useful all day long, but never pay for it. Why? If Google Analytics started charging for the service tomorrow, would you pay for it? Do you pay for survey tools, or try to use them as much as you can for free? Why would you pay for KISS Metrics, but not Google Analytics, or KISS Insights, but not SurveyMonkey? I’m sure there are a lot of reasons why, but I suspect it all points to “value” one way or another. The tricky part is everyone’s definition of “value” can be different.
Enter the Minimum Viable Product Lifecycle graphic below. Let’s assume a High Value product that is Not Useful doesn’t really exist – at least I can’t think of a worthy example here.
The bottom right quadrant, Low Value and Not Useful is a dangerous place to be. Not only are people failing to continuously use your product, but they simply don’t see the value in it. Perhaps the product has too many features, or the user experience is awful. But more than likely, the product is not solving anyone’s pain – at least the way they want it to, which means you need to get out of the building and start talking to customers.
Let’s consider the bottom left quadrant of Very Useful and Low Value. While this quadrant is much better than the lower right, it’s still is not enough to probably get users to whip out their credit card for you. I feel like our product, as it stands today, is somewhere in this quadrant (although I would argue not at the bottom, but probably right in the middle towards “has some value”). And I’m OK with that because we are focused on a minimum viable product (MVP), and we’re simply not going to build a boatload of features nobody wants, or can’t figure out how to use (we already did that and failed, so we did a major pivot). Part of moving from the red to the orange is understanding who your users are – are they “experts,” “prosumers” or “Joe lunchpail”?
So how do you get to the green quadrant?
By talking to customers and finding out what their pain is, and providing a solution to that pain. By now you should know who your basic customer is and where they hang out. With enough users you can start to ask them things like “you use our tool quite a bit…what is your favorite part about it?,” or “what are your biggest challenges with [X], and how can our software solve that for you?” Try to make the questions open ended rather than forcing them into a particular answer that you’re looking for. For instance, in our last iteration, we found out through talking to customers that their favorite feature was completely hidden. It also turned out to be the most useful.
Update 8/30/10 5:17p: Another way to tell if you are in the “green” is that 40% or more of your customers say they would be very disappointed if they could not use your product anymore. This is something that Sean Ellis talks a lot about, and he teamed up with KISS Metrics to create the perfect Customer Development survey located at survey.io. Go and get it today.
How will I know when people are ready to pay?
The easiest thing to do of course, is just throw out a paywall of some kind and just see who pays. But that takes engineering resources which you don’t want to waste by building upgrade paths unless you’re certain that folks with their credit cards are standing by. You could create an “Upgrade” link in the software and track how many people click on it, and when they do it just pops up with a “coming soon” message. What we do is keep a close watch on users likeliness to pay by running a separate KISS Insights survey on pages inside accounts. That’s right – a user who does not have a free account with us will see a different survey that those who do. What’s the question? Well, quite frankly, “would you be willing to pay for this product.” If the user was willing to go through the account creation process, the assumption is that they must be interested in the product at some degree higher than those who didn’t create an account. My personal feeling/goal is that if we can get 50% of the responses to say “yes”or “maybe”, then we’re probably ready to explore putting up a simple paywall and testing some prices (right now we’re sitting at a really shitty 1 out of 26). That may be a lofty goal, and I think some would argue that if you can get just 1 person to pay for your product, you’ve achieved minimum viable product (even freemium models convert at only 2% to paid users). My issue with that is we had people paying us with the last iteration on the software, and then we hit a wall. It began to get more difficult to “sell” with bugs and other frustrating issues, and we had cancellation problems. I think software users are willing to put up with a lot, but they have their limits. As for now, since we’re not at that percentage, we assume it has to be related to us not hitting their Value needs since they’ve already told us it’s “Very Useful”.
How Do I Create More Value In My Product?
So moving from the lower left to the upper left is a much harder step. I think it involves careful consideration of what you’re going to “build next” because you have limited engineering resources, and a runway to think about. No matter what you release, make sure you have a way to measure it’s usage. Your trying to find the feature that is going to be the most useful and valuable to the user. We have several ideas on what those could be for our product, but we need to validate them with the customer first by talking to them, releasing the feature, and measuring the usage. By doing this, the percentage to our “would you pay for this” question should go up.
Again, these are all of my opinions based on what I have learned. If any lean startups or advisors have different (or additional) advice, please add it by commenting. We do get a lot of startups reading our blog, and I’m sure it would help them too
Thanks for the great article! Pricing is always difficult to set and even more intimidating to pivot and revise. Do you know if there has been any metrics posted regarding the conversion of the "40% that would be very disappointed if they could not use your product" into paying customers? For example, if a standard "benchmark" to aim for is 50% of the "cannot live without it" group, and if 80% upgraded/converted and became paying customers, then chances are you could revise your pricing structure and increase the price. (while keeping your early adopters grandfathered) BTW, We are building our MVP and I'd be interested to hear your needs for your paywall.
Hi Colin, I'm not aware of any conversion rates, although I would guess it can vary depending on industry/product. To me, it's simply an indicator that you now have a "must have" product instead of a "nice to have" product. Once we hit that 40%, we're ready to start throwing up a paywall and testing pricing. I've also learned with several pivots that we need to treat the payment process just like any other feature. With so many free SEO tools and website optimization tools in the market (and I'm sure for e-commerce as well), the challenge is to not only create something useful, but something so different and insightful it's worth paying for.
Hi Ryan, Just thought of something, you should talk to Griffin Caprio. He worked on a project in the same space and has a great presentation about how he decided to murder it, based on his CustDev-ing of the project. He is good guy and would likely be happy to share his insights with you. See here: http://www.slideshare.net/gcaprio/killing-a-product-the-murder-of-seo-grader 2) To be frank, I am not a big fan of pay-what-you-think-it-is-worth either. I would triangulate around how they are solving their SEO problems now, what they are paying, if anything, for substitutes etc etc and then throw some prices at 'em.
Great write-up. Pricing is such a tough nut to crack - I always have ambivalent feelings about the question: “Would you be willing to pay for this product?” - as answering it can be a bit self-serving for the user. I always try to think of ways to triangulate around pricing where the target user/buyer can reveal their preferences without having to explicitly answer such a direct question - but it always depends on the product, market and buyer.