EP2: The 3 Features & 3 Strategies Every Startup Must Have

In our journey to Market Dominance, Hope springs eternal…it does in sales forecasts…in product rollouts…and especially in venture fundraising. 

“But Hope is not a strategy. And Luck is not a factor. And fear is not an option.”

In this episode, I ask Chris about the key features and strategies every startup must-have. I brought extra paper expecting a long list…but to Chris, things are simplified…there are only three. 

So arm yourself! Tune in to this episode of Market Dominance Guys to hear Corey and Chris and let’s now dive into the 3 Features & 3 Strategies Every Startup Must Have. 

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The complete transcript of this episode is below:

Chris Beal (01:40):

This is the work that has to be done before the product is built. This is the key to the whole thing is, know that the product is going to succeed in the marketplace before you build the product. I hate to say it, but it sounds like an art of war thing. This is where you win the battle and you actually win the war before you begin fighting, because you're going to lay out the intelligence that you have in a way that guarantees that before your enemy starts to maneuver, you've already won. So the whole idea of this approach is to always win before building the product because you build the product that is going to not only win, that is you can set appointments for it, but that has such a headstart and such velocity going into the market, that you have the luxury of a full pipeline all the time, and you can be selective and choose the best customers.

And the issue is always customer quality, not customer quantity. And I don't mean this BS that people say about if I totally talked to one person a day, that's high quality. What I mean is your targeting needs to be as much as possible, like that hypothetical person in the bar. So think of it as I go in and I look at that person, but they look kind of fuzzy. Every time I try to focus on them sometimes they're tall, sometimes they're short, sometimes male, sometimes female, sometimes the drinking with the right hand, sometimes it's the left, sometimes it's whiskey, sometimes it's beer, that's not good. I want that shimmering image to come down to a single human being. That thing that they call a persona because that's all I've got. And then I'm going to make a list that I think contains them.

But of course it's got to be a little broad. Good queries always delivered too much data. Therefore good queries have always got to be winnowed against the obvious false negatives. Obvious false negatives must be removed because they're pure pollution and they can only be removed by inspection. And a huge mistake people make is they diddle around with the query to try to get the perfect list. If the process is due to query, inspect not one at a time, but in chunks of titles. Wipe out titles you know are bad, that you just know they're bad. If you're going after CEOs and you see somebody's title is assistant to the CEO and out of a list of 10,000, you have 2,337 of those, wipe them out. Don't go about making a better query, just get rid of them.

Corey Frank (04:07):

But why do people leave them in? Is it the security of the numbers? Is it the hope that maybe my persona could be saying, "Hey, it's a beer drinker and maybe he also could be a whiskey drinker and maybe he also drinks wine." And trying to take it from the backend of the dog versus having the empirical data stare at me in the face here.

Chris Beal (04:30):

Entrepreneurs make the mistake repeatedly encouraged by venture investors, by the way. To describe their market, their total addressable market is vast. As though that's an advantage, it's a huge disadvantage. The tighter your first market, the better off you are because the better your chance of your product actually solving the problem that that market has. If you're making shoes for people that have a left foot that's much larger than the right foot, that may be a small market, but every one of those pair of shoes has a chance of selling because those people who've got one and a half inch longer left foot than right foot, well, they're going to be very interested in your shoes and they're not going to be so worried about whether the laces are pretty or whether the colors are perfect or what the style is. Like, "Finally shoes that fit my foot."

So tight markets are excellent for going to market, and they're not great for raising money, but this whole technique avoids raising money because all the products can work before you build the product. So instead of wasting all of this effort doing your pivot on the product and you're going to market, do your pivot on the words between, "I believe we discovered a breakthrough." And "The reason I reached out to you today is to get 15 minutes on your calendar." That pivot costs you 15 minutes. Do your second pivot on the list. That pivot costs you an hour. So now you have two ways to pivot in order to explore combinations. And now we have the hard part, which is, "Okay, but what do I vary first?"

And what you vary is this, you make your list. So you put that person in that bar stool seat and you tighten it down as well as you can and you put some time into the list, not into the query, but into the list. Your list doesn't have to be big. If your market is a market of... Say your initial markets is a market of 10,000, you're going to need a hundred conversations. To get 100 conversations you're going to need a list of 500 folks. And you're going to talk to 20% of them. You're going to talk to 20% of them over four weeks. That's really easy. Maybe you'll talk to them over two weeks. If you use ConnectAndSell you'll talk to them in the first week. So there you are, it took you a week.

Message is not generating 5% conversation to meeting those two possibilities. One is, you're not very good at delivering the message. Well, there's three, actually. You're not very good at delivering is the message is the most common. Getting the intonation right and believing sincerely in the value of that meeting. You've got to write down, what is the value of this meeting potentially for this human being that I'm talking to.

Corey Frank (07:10):

Not the company. I need to make it as personal as possible.

Chris Beal (07:14):

As much about their day, "How was your day?" "You have no idea." As much about one of those you have no ideas. Whatever that bad thing is, it's got to be about that. And then that meeting has to provide value for them, not just around that by the way, but value for this person, which always means learning. The only value somebody can get out of meeting is to learn something. So you have to know what they are likely to learn and how that's likely to change their life. Even if they never buy your product.

The beauty of this is, you now have a product to sell which is very easy to make. It's called a meeting. You have value in that product, that's very easy to describe, it's called learning something. You got to be explicit though. This isn't like, "Hey, I'm going to hold a meeting and try to sell you something." Try to sell you something is not value. You must bring insights from your research, from your revelation. You have to bring those insights and allow this person to learn from them. And then you let them confess. And if their confession indicates that one of the things you're talking about is so intriguing to them that they want to tell you the answer to, "How was your day?" You're not going to get that answer. Then you focus on that. Ignore all of your other great ideas and say, "Okay. Went into my product feature category as interested in this and this is how I developed my feature set."

My feature set for my product is the output of discovery meetings. Sales are the secondary output. My first output, I'm not trying to prevent a disaster. The disaster is I build a product the market doesn't want. That's the number one way that startup companies run out of money. They build a product that they think the market wants and the market doesn't want it. It's called product market fit and everybody talks about it endlessly and then they put the cart before the horse and build the product and take it to market and see if it fits. The key here is the product is the message. The message is the product. The discovery meeting is the experience in which if someone confesses to having a need that you could fulfill in your product, they've told you about a feature that they need. They've told you about a capability.

This is how you do requirements gathering in a completely fail-safe way. By the way so far, how much have we spent? We spent $500 on Zoom. We spent 15 minutes coming up with a message. Somebody had to learn how to deliver a message with the right intonation. There are experts who could do this. You can learn to do it yourself. I recommend entrepreneurs learn to do it themselves. It's really straightforward. It's just, there's a belief in the value of the meeting. You have to write down three things that somebody is going to walk out of the meeting with that are of potential value for them if they never do business with you.

And then you got to push a button. Now, this is where it becomes really hard. This is where it becomes a ConnectAndSell commercial unfortunately, but it's just a fact of the world. Now, all you've got is time. So you can talk to two people a day and you could do it for 50 days. So 50 days is two and a half months. Or you can talk to 20 people a day and do it for five days. The problem with 50 days is now you're talking about real money. Now you need an external investor. At some point, if I'm going to cycle 50 days per test and I'm going to do 10 tests, I'm 500 days in before my 10 pivots have revealed the perfect product and that's too long.

So my real issue is in the original scenario, you propose the poor head of sales is asked to do this impossible task, which is take a product we don't know if anybody needs. That we haven't figured out why anybody's going to buy it. That we don't even know why they're going to take a meeting, figure it out. Redevelop the product as a set of persuasive techniques. And so the product itself gets hidden. If the sales guy's great, the product needs and its gaps in the marketplace get hidden behind good salesmanship. And what really happens is the great sales guy goes out and find somebody who needs the product for a completely different reason. Usually competitive advantage. There's no such thing as a product that you can gain competitive advantage from. Those are weapons. I sell a weapon. In that sense it's not a product. It's a weapon. You gain competitive advantage. Why do people buy it? They buy it to kill their competitors. That's why they buy it.

The great sales guy will take your idea of a product and go find this fabulous customer. They're the best in the world. They need this so bad. They tend to be really big. They're so excited. They're the only one we need. If we just get this one more, we'll make our number and their need for the product has very little to do with what it was built for. They need the components to pick apart and turn into a weapon and they will take you off course.

Now, if you invest for that fine. Hang out with those guys. But it's not a salesperson's job. Now you have to overcharge them a huge amount of money in order to have your weapon on an exclusive or semi exclusive basis, it's got to be in a market you're never going to address. You're going to leave that to sales? You're the entrepreneur, you're out of your mind. I hired a sales guy. He's really good and found a way to get us into a market of one, which we will now wallow in for two years, except he's going to price it down because it's not his job to price it up because he imagines he's going to sell more. Now we're done. That's how you enter the chasm and die. That's the exciting way. That's the ski jumping way of entering the chasm.

Corey Frank (12:38):

I lose control of my company, because they continue to raise maybe another round or two, maybe you'd get up to the C round and I've had maybe a handful of slight pivots, hope springs eternal, maybe replace the sales guy by two or three other guys that have maybe more domain expertise as I perceive it. And the feedback back to the product team is, "Well, if you guys only had X in a product then it would sell more as opposed to selling off the menu." And they're not addressing the problem from the true persona. What does the persona itself say is a problem that you were addressing and then work backwards up the funnel to the product features. That's what I hear you say at this point.

Chris Beal (13:28):

Exactly. Most products only need three features. Very unusual is to have a problem that's worth an initial solution in the marketplace that needs more than three features. So the question is, well, what are the three features? And are they worth something? What would somebody pay for them? And then, now I got to figure out, how does that work? How would you implement it? How would you deploy it? There's a whole bunch of things we don't know but the first thing we don't know is, is there anybody out there who's interested enough in this problem that they're going to pay to have it solved and which are the three elements? And the three elements tend to be... One of them tends to be economic. The product will deliver economic benefit in the form of decreased costs or increased revenue. Sometimes that's time. So it will deliver value in the form of decreased cycle time. Sometimes that's some business process.

So reducing cycle time to business processes that are at somebody else's bottleneck allows them to actually grow their business. So that's what I call a real product. A real product is a product that when applied improves their business. That's pretty exciting. So something that reduces cycle time at a bottleneck process will actually improve their business. If you apply the product, their throughput will go up. Because reducing cycle time at a bottleneck is how make throughput go up. If the product allows their bottleneck to be scaled, that is there's something expensive there or slow or whatever and they can replace it with something that has bigger capacity, then that can help too. Cycle time is the same, but you can shove more inputs in and get a higher flow of outputs out. Okay. That's wonderful. So that's one of them.

The second thing products can do is, I'll call it emotional cultural. That is the bottleneck process-wise turns out not to be where you need to invest. You need to invest in the robustness of the behavior of a team. So this is what a lot of sales tools do. They basically say, let's be happy or let's feel better about what we're doing or whatever. And that's actually big. Products that do that, that have features that improve the emotional cultural, the surround, so to speak. People call them vitamins, but I tell you they're more like a balanced diet. You're missing this entire macronutrient and you're in bad shape and that's why you're snapping at each other. Let's toss some juicy stake in and see if you guys start to act better. So it's something that in discovery, if you have part of your message, that's about the emotional element. That's good because they might resonate with that.

And then the other thing that a product can do is a product can take somebody forward strategically. So it doesn't actually address a bottleneck process. It doesn't actually make them happier or more productive working together better, reduce social friction and so forth. It actually lets them go somewhere from which they could go somewhere else. So strategy is always about a list. A list of destinations. A strategy is nothing but a list of destinations. Each destination has the peculiar quality that it lowers the cost and the risk of going to the next destination on the list. That's a strategy. Think of strategy as, I've come to a river and I've got to get across the river. The river is too wide to jump and it's too deep and swift to swim. I need rocks in the river. I'm going to make a path, my strategy in which I say, "I can jump from this rock to this rock, to this rock."

It could look really weird. Maybe sometimes I'm going back toward the bank from which I came. But that's because that's where the rocks line up. This is why strategy is hard. It's very rare that strategy might lie. Strategy is conceptually and emotionally hard because it takes us on a path that's not obvious. If it were obvious, we already would have taken that path. So when you sell a product that helps somebody get to a new destination, I call that a strategic feature. So in discovery we're going to talk about these three kinds of things and say, our breakthrough has an effect over here. It makes this faster or it makes this cheaper or makes the throughput bigger. It has an effect over here. It makes us happier. It lets us work together better. Our customers love us more, or it has an effect over here.

It actually allows us to go and become better, go to a new place, become the leader, something like that from which we can go forward. There's only three things we can do in business. We can either take what we have and make it run better, faster, cheaper, which means expand the bottleneck in some way. We can take who we have and have them work together better. And who we have includes our customers, our partners, and whatever, do something with people. Or we can do something with our situation. We can move to a position from which we can move to a better position.

That's the sum total of everything we can do in business, your product, better address all of those in some way. And we want to get discovery meetings in which somebody can say to us, "Man, it would be so great if we could produce twice as much at that particular bottleneck." If we can have twice as many sales meetings or somebody might say, "You know it would be so wonderful if our people could work together better. If the projects were more coordinated, if they hated each other less, if it was less like a Dilbert strep." And somebody might say, "Our market is really changing out from Honduras and we need to move from our current position as the provider of, I don't know, rebar, we've got to actually start providing custom rolled steel." Whatever it is, there's something in there that will appeal to them or answer number four.

Corey Frank (19:26):

Is there a magic cocktail or maybe a best practices cocktail where I don't want to just by appeal to the heart, the mind and the gut, do you try to grab one from each? Or am I making a mistake if I don't employ at least one specific emotional benefit into the breakthrough.

Chris Beal (19:48):

Huge mistake. The breakthrough itself only needs to be sufficient to get the meeting. In the discovery meeting you need to explore all three. You need to make a claim in all three areas. The claim doesn't need to be heavy handed, but it needs to be distinct. So the whole idea of this process is that the true core duty cycle of this whole thing is discovery meetings. The purpose of early discovery meetings is to discover your product, not to discover their problem. Like, "Hey, you have this problem. Let me go solve it." It's to discover the nature of their problems so that you can abstract out of that the features of your product. Your product is going to have three features. Really. If you can build more than three features and do it coherently, more power to you, but even an iPhone only had three features. You really think about it. One of them was a negative feature. The little keyboard was gone.

Corey Frank (20:48):

Yeah. Right. Right.

Chris Beal (20:50):

One of them was a funny feature that, "Well it works more like a computer so my apps can be broad." That's a strategic term from the foundation of being able to make real apps for a computer. You can go to a place that you couldn't go to before, which is the future is opened up to more solutions. And then one was emotional, which is the iPhone was just more fun to use. And you got a social benefit out of being an early adopter of it. It had three features. They were marvelous features. They got it all right. At that point, does the salesperson really have a problem?

Corey Frank (21:34):

No.

Chris Beal (21:34):

If you can make your product as appealing as an iPhone and the economic dimension, the emotional dimension and the strategic dimension, so that they don't even have to pick. The one that resonates with them first. "Oh, I love it because it's a more practical way for me to do the four things I have to do every day at work whereas my Blackberry can only do two and a half. And the stupid keyboard was driving me nuts and now I get to do this thing and I don't always keep..." "Oh, I like it because it makes me just look sexy as hell."

Corey Frank (22:05):

Where is the disconnect though, Chris? I find this where you and I have both been on the other side of pitches where folks are presenting their product to us for either a capital raise or a strategic or just a practice. It's we are the Uber of, we're like the iPhone of and it's an articulation issue or just simply unimaginative where they can't bridge that chasm where they see beyond this kind of self product love. They are in love with their own shadow and they don't take any of this advice from the market yet. They only believe it in the antiseptic clean room of their own mind that this product will be a breakthrough. If I can just get it out there, if I can just raise my $5 million on a 15 post money, then all my problems will be solved because I know that just getting it out into the universe will be enough.

Where do you see some of those common pitfalls where when I start a company with a product, I could be 100% completely brutally honest that it doesn't matter what I think, it matters what the persona at the end of the bar thinks. How quickly that flywheel happens, where I can adjust, go to market, adjust, go to market versus the tree huggers who say, "No, no. It's a client problem and I'm going to go find another market and maybe another market and another market." And then again, I go through two or three, four cycles of funding and then now I'm at 7% of my company left and now I'm a hostage in essence.

Chris Beal (23:50):

Yeah. Yeah. And you're a hostage who's on your way to becoming a statistics. Not a good one. I think it's a fundamental paradox inside the entrepreneur. The entrepreneur has to have this massive... Call it passion, this irrational belief and their ability to solve a difficult problem that's out there. So they have this insight and the insight as well, if we just did this it solves its problem, whatever the problem is. So they have to irrationally believe that. And there were rational belief in the nature of irrational beliefs. It wants protection. The belief itself is the thing that they're afraid might die if they expose it to reality. So it truly, when somebody says, "It's my baby." The baby isn't the product. The baby is the belief that was born inside of them that says, "I can solve this problem and therefore I really don't want any negative feedback to come in."

Because that's just the same dumb naysayers who didn't solve the problem in the first place. I have to believe I'm right in everybody else's wrong in order to be an entrepreneur. So I start off in that place. So the question is really given that that's a requirement that I start off there, how do I get around that requirement? It's actually fairly simple, but it's hard. It's emotionally hard. You need a single advisor and you give that advisor a little bit of your company, rather than giving it to somebody for money. You need advice and it's go-to-market advice. And the go-to-market advice has to do with establishing a feedback loop that gets you the three free features of your product that still conformed to the basic shape of your baby.

So you can imagine the baby going out there and dominating the world and your advisor has to be very, very encouraging with regard to the feedback. Oddly enough, one of the advisers jobs is not to be brutally honest about the feedback, but to be brutally honest about the process. So the process is we're going to talk to people and we're going to have these conversations in which we find out which of the three kinds of problems that the economic, the emotional and the strategic are resonating most. So it's not like your baby could be ugly. It's just the little toes could be really pretty or maybe the baby has beautiful eyes or maybe when the baby coos, that's going to be lovely.

Corey Frank (26:19):

I'm hung up on that. They don't engage in that encouragement number one. And they certainly, from my experience don't often enough focus on the process. Instead, they focus on the brutally honest part. After you have your quarterly board meetings and you show your metrics that aren't going in the direction that you need to and then they'll pile on and, "Hey, have you thought about this market or this market in this market?"