We talk to startups and investors, you get the value.
Rocket DAO ecosystem
Does the disruptive product really exist, who is responsible for it in the team and what do investors pay attention to?
Andrei Kuryan is the author of the product evaluation methodology at the Rocket DAO platform. He answered Andrew Miroshnichenko’s questions about how to recognize a potentially successful product, what evaluation criteria are important to take into account for investors while assessing startup’s product solution and what should a startup focus on while developing its product.
We talk to startups and investors, you get the value.
Yes, the roots of the project evaluation are in TRIZ (it’s the middle of the 20th century), but the gap between those roots and present project evaluation methodology is enormous.
TRIZ concentrates on the technical component, which lays in the product basis. The easier this technical system is (which allows solving user’s problem), the easier it is to deliver, distribute and use it, etc. To this extent, TRIZ is a perfect starting point to mastermind a product from a technical point of view.
Product is about a user and solving his problem with the help of technical means. After all, the product is completed in this way not because the engineers want it like that, it is because they need it this way. In such a way, connections between the user’s needs and technical equipment are realized, which satisfy these needs. From the side of solving the user’s problem, it is not TRIZ that comes to the first place, but a service design that is geared towards solving this problem.
That is why, TRIZ is important, but it won’t be enough: you also need design-thinking. It is a symbiote of two bits of knowledge, which each founder needs to have.
Product is not only a physical concept. It has to be contemplated in a cluster “problem+solution”.
Why is it important to start with a problem that the user have? In this question lays a fundamental point of view (presented by Clayton Christensen) that users, when buying a product, plan to entrust it with the performance of some of their work. It can be everything, from a milkshake, to satisfy one’s thirst, to a complicated application, with the help of which, a person will get some profits. That is why when we evaluate a startup from the product point of view, we have to understand, how relevant customer problems, which the product solves.
Here I need to give the first piece of advice: there are two ways to understand problems. First one (the simple one) — when founders themselves face this problem and clearly understand the solution, which helps to solve this problem. Second — a deep analysis of the user’s experience, the process of understanding the problems, which users face in this field, and product design, which can solve this problem.
The second thing you need to pay attention to is scaling, or in other words the market size, the number of users, which face this problem. It’s possible to find a problem which is relevant to every second user — this is another important component of a successful startup.
Next part — a solution, that founders offer to the given problem. Why is this solution better than others, already existing ones?
Also, it is important to pinpoint, that problems, which users face, are changing slowly, thus, it is hard to find a problem which cannot be solved (I’m not sure, whether it is even possible). In the end, every problem can be solved.
In such a way, when we are talking about the solution, it is important to understand, why these solutions are better and how is it different from the ones already existing. Novelty is one of the most important factors.
Yes, it is possible. However, we have to differentiate: product solves users problem, business model solves a problem of distribution. Depending on how the founders decided to pack the product, it may be better or worse distributed. For example, if you want to offer a coffee delivery product to the market, it has two components: coffee itself and logistics. “Coffee” product is hard to distribute because the material component implies staff recruitment, transport rental, procurement and many other things, needed for material component distribution.
However, if we consider coffee delivery (via an App, for example), we will have a product which is easy to distribute — through GooglePlay or AppStore.
Growth depends on what boundaries you set and what problem you are solving. Business model sets some specific requirements to the product, that is why one of the startup tasks is to create a product that is easy to distribute.
I was developing solutions in the Inventing machine. If to look at the product, Inventing the machine was solving a problem for engineers, which was occurring, when they had to mastermind a solution to some problem — such as inventing innovational solutions.
In this context, the problem that the Inventing Machine solved, was the problem of engineers “How to invent new solutions better and faster, relying on the vast experience accumulated by mankind”. It was at the end of the 70th. At that time, we used the most advanced of the available technologies. What is interesting, in the prior USSR, the Inventing machine was very popular: more than 800 enterprises bought it. However, sometimes it was bought not to invent something, but because we were selling our application with a personal computer, and the majority was buying not because of the app, but because of the computer. When Inventing machine Laboratory moved to the United States, the sells were more up to the market, as the product was in demand among engineers, who used it for their work.
Let’s take financial application as an example. An important aspect — onboarding in the application. What problem does a user have regarding onboarding? “How to spend less time and quickly register so that it is safe, meets the requirements of the law, and makes it possible to safely operate your funds?”
The developers of such applications use well-known solution — a long thorough legal path with dozens of steps, with a requirement to enter a variety of data.
How effective is this method in resolving the user’s problem? I think, not that much, as the user wants to do everything as quickly as possible, and the existing methods cannot present a solution. It is clear how such a product will develop: less will be required from the user, while the accuracy of determining the identity will increase.
This is an example of the situation when existing products are not good at resolving the problem, and this is a good platform for the applications to solve this problem in a better way.
Product — it is something that users hire to solve some of their problems. Often, startups try to solve an unobvious user problem: they can create this problem, even though it is not relevant. Another widespread mistake — when a startup does not even formulate user’s problem. Now artificial intelligence is in fashion, and a startup “codes” a solution, focusing on it, and not understanding whether there is a problem that can be solved with the help of this technology.
A problem must be relevant to a great number of users. If a problem is relevant, then there are products which solve this problem. The example with onboarding is a case in point: nobody has presented fast and quick onboarding.
The next thing we are paying attention to is whether this startup offers a solution that solves the problem better than existing products. If so, then the project has good potential. It is also important to note whether this solution is well protected against copying (patents, know-how, unique resources — there are many ways).
You need to have a demand to have a disruptive technology. If an existing solution does not resolve a problem that good — this is an excellent condition for the emergence of disruptive technology.
User needs are constantly growing, and at some point, old technologies reach the limit, while the needs actually keep growing (the gap between the problem and the proposed solution also grows). When such conditions are created, there is a good opportunity for disruptive innovation.
The term disruptive does not apply that much to technology as to innovation, but they can also be in the experience of use. Thus, products can act as disruptive, creating new experiences — many of such examples can be found in IT-sphere.
Especially, when users are offered a brand new experience of resolving a problem. Nobody knew 20 years ago that it would be possible to order a taxi via the app but not via telephone; to see the car coming to you and pay through the app. In such a way, the application to order a taxi solved a huge problem and offered a user new experiences.
If a product solves a previously unresolved or incompletely resolved problem, then it will be popular.
In one time, AppStore was such a product — it has solved a problem of a great number of applications. There was a problem, which seemed almost impossible to solve, and when a product has closed this problem completely, it became perfect.
Nowadays, we are developing solutions in the sphere of Internet of Things, and one of the problems, which developers face — sensor power supply. If we need them to transfer the data, they need to be supplied with energy. Two traditional solutions — connecting to the power grid or to use batteries. The problem is that you have to change a battery at some moment, and the more sensors are there in the world, the more frequently you have to change the batteries. Many even at home are faced with this problem: today everyone has a lot of gadgets, and from time to time you need to change the battery.
We are using the third method of energy acquisition — from an environment. It is popular now due to the growth of the Internet of Things market. The source may be heat, vibration, wi-fi radiation, more exotic physical effects, etc.
Why such technologies of power acquisition are badly distributed? We’ve made the analysis and discovered a simple problem: to use a sensor power supply technology, you have to understand how much energy do they need; developers don’t have such a data, it is a barrier. As soon as we have discovered this problem, a solution became quite evident: we have to give a developer a tool which will provide data, how much and what kind of energy they can harvest; and after that count how much energy will they need to supply sensors with energy. In such a way, discovering a problem gives the possibility to offer a solution. This is how a product appeared — Energy Harvest Tester.
Three main roles, connected to product development: product-marketer (he is responsible for the understanding of user’s problem and the market interaction), product-manager (he is responsible for technology — the technological basis of the product), product-owner (a person responsible for the product scale). In the first step, all three should proceed from the initial hypothesis, what is the user’s problem and what should the product be. In the next steps, checking the hypothesis, MVP testing and market testing should take place. Product-marketer is responsible for market testing, product-manager — for the testing of technical solution. Meanwhile, product-owner spectates everything and understands how the product is distributed. This is done until the framework of the product and its market are finally defined.
If a team has discovered a very interesting problem and has come up with a solution, the first what a team will face — it is the market and competitors, which will copy the product and will compete with their copies on the market.
Second factor: technologies are constantly changing, and even tomorrow there will appear a technology that will solve a problem in a better way. And if you do nothing today, tomorrow a company will appear that can solve a problem of distribution in a better way.
It is important to remember, that product has a short life cycle, and nowadays it continues to shorten: if before products lived for several decades, today we are talking about several years, and later the product will become obsolete, new technologies will appear.
The third factor (it accelerates the speed of the process even more): when you present a product to users their experience of using changes. If you missed the moment when the customer had those new expectations, you may fail. Therefore, the division into a startup and a main business is possible from a methodological point of view but is pointless from a business point of view. After all, the company must always remain a startup in its culture.
An investor has to take into account:
How relevant is the user’s problem. Here, any sane person can evaluate the relevance;
How much the solution that the founders offer is better than all existing ones. If the gap between the problem and existing solutions is large, then there is room for a new product;
How much this solution is protected (protection in the form of a patent, know-how, etc.).
3000 product ideas turn into 1 successful product. Investors are involved at the stage when the ratio becomes 1 to 10, i.e. 10 ideas and prototypes (and even then, the probability of successful investment, in this case, comes down to 10%). This suggests that everything is not so simple, and to become a successful investor, you must either invest in 10 startups and wait for at least one to work or make investing decision based on a lot of data. The more understanding the investor has about the team, product, business model — the greater is the likelihood of success. It is hard to fully evaluate all the components by one person. Of course, this must be done technologically, and, of course, the best way out is to seek expert judgment.
I do like a quote by Niels Bohr. He said:
Problems are better than solutions because problems tend to outlive.
I would suggest every startup not to forget about this and to constantly work on the problem, so their solution is always useful and relevant.