Finding Product/Market Fit: Using Consulting to Understand Customer Needs

Many entrepreneurs have a strong suspicion that there is an opportunity in a particular market, but lack the detailed understanding of customer pain needed to design an appropriate solution. The  following guest post by John Raguin, ex-CEO, and co-founder of Guidewire Software, describes how he and his co-founders tackled this problem.

Recently, David Skok and I had a discussion about the importance of market and product feedback early on in seed-stage companies. He asked that I write a post for his blog on my experience at Guidewire Software which I am happy to share with you now.

Guidewire Software is a leader in the core insurance software space. I was a co-founder of the company in 2001. Guidewire is thriving today still as a private company, with almost 600 employees and significant growth every year.

When the founders and I started the company, the facts are that we had very little domain expertise. None of us had worked in the insurance industry, and although companies we previously worked at sold to the insurance industry, those companies provided peripheral systems which were not close to the problems we were now trying to solve with this new venture.

The founders recognized this gap in our knowledge and knew we needed to gain this knowledge in some way. First, we did have a few potential users give us significant feedback on our early designs. That was very valuable, but not complete as a way to get feedback. It is one thing to get feedback in a room away from their operations, it is completely another to sit in their operations and “see their pain”.

We instead chose to go to the market directly with a win-win value proposition that we can pitch directly. We went to our potential customers, insurance companies, and proposed to do a short free consulting study that would provide a high level benchmark of their operation. We would spend approximately 7-10 man-days of effort understanding their operations, and at the end we would give them a high-level presentation benchmarking them as compared to their peers. In return, we asked for feedback on what would make the best system that would meet their needs. Note: Given that we only had some friends & family seed money at that stage, we also asked that they pay for our travel expenses, which some did.

In the end, we were able to work with over 40 insurance companies this way. We were honest about our motives at all times, and we made sure to provide a quality output. Although we had a template for these presentations which involved mostly Harvey Ball-style quartile scoring on different metrics, we customized it with actual quotes from personnel at different levels in the organization that supported their ranking in the given areas.

The benefits of this approach were many, and here are what we perceived as the primary benefits:

  • Product insight – We received valuable insight to what users liked about their current internally built systems and what they disliked.
  • Approach insight – We got feedback on how we should approach the market, what techniques worked, and what biases they had based on prior experiences.
  • Connection with executives – We were able to make connections with executives such that they answered our calls later and granted us audiences when our product(s) were more mature.
  • Adjacent product insight – We got feedback on what might be potential adjacent product spaces that were in demand by these users.
  • Stories – We accumulated many user stories that we could then use anonymously in other discussions about how our product would help the companies in the market.
  • References – Although we did not have a marketable product yet, we were able to build relationships such that these companies acted as references on our character.

There is one more important point I should make. The key differentiator in this approach was that this feedback was very rigorous. We were “shadowing” users in the operations of these insurance companies for multiple days, and therefore accumulated hundreds of hours of feedback from people at many different levels of each organization. We really got to understand the user, organizational pains, and what might be interesting to them as a solution to those pains.

The final note here is that this information in these consulting engagements also spawned other surveys. We used other information we gathered in order to create different surveys that we were able to publish. This helped us establish Guidewire as a trusted advisor in the insurance industry. Although no software company will be viewed as unbiased, we gained a level of credibility with the depth of our knowledge through these engagements and the subsequent surveys that we were able to publish.

Conclusion

Product and market feedback is absolutely critical for seed stage companies, as well as companies at later stages. You must focus on getting significant depth in this feedback and from constituencies at all levels in an organization or buying entity, regardless of how much domain expertise you already have within your early team. Running a series of consulting engagements of the kind described above is a great way to do this.

Comments from David Skok

Entrepreneurs frequently struggle to understand their target customers well enough to know where the pain lies; what to build; and how to message and sell. Not gaining this understanding early enough causes startups to waste money, and frequently to fail. I really liked John’s story of how he and his co-founders solved this problem. I think many entrepreneurs could take a similar approach.

I asked John if any of the founders had a background in consulting and he replied that two had been at McKinsey, and one had been at Booz-Allen. While that background probably helped them to frame their engagements, I don’t believe it is a requirement for this approach to be successful.

I also asked John what had made the founders focus on the insurance industry and this particular application area. His response is below:

  1. Service industry with high volume, yet complex transactions
  2. Industry built with custom built solutions, either in-house or consultant built
  3. Not a lot of traditional modern enterprise competition in the sector (e.g. Oracle, SAP, etc.)

Cautionary note

What John and his co-founders did is very different from something I have seen other founders attempt to do, which is using a services business to fund their startup. Guidewire’s consulting engagements were specifically focused on finding out what product to build. They did not build anything special for any one customer, but rather interviewed many customers to find out what were common needs. The engagements were kept short to avoid losing focus on the main goal: figuring out what product to build. They did not leave behind custom software that would need maintenance over time.

I am usually not a fan of trying to use a services business as a way to fund a product business. I’ve seen this go wrong many times in the past. The problems come because the types of people and processes needed are very different, and because there is a focus problem. It only works if the two teams are completely separate, and if the people in the product side of the business are truly experienced at building products that have been sold to a large number of customers. This skill is very different to delivering a project to a single customer.

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  • http://markgslater.wordpress.com/ markslater

    Interesting. I’ll add that while the fundamentals of discover, iterate, (repeat) and then scale are applicable across most sectors, the enterprise software build VS say a consumer internet service process is very different. We are going through the latter right now….in my right hand i have my onion peeler, in my left, my pencil!. the minefield is avoiding what we call blind alley building where you become too bespoke in your build. We are constantly looking at the feedback and seeking out the signal for the noise. We can’t possibly be all things to everyone – just enough to most should see us there..

  • http://twitter.com/chasedave Dave Chase

    I like that approach. Another way to get feedback on market fit that won’t give you as much detail but also won’t take as much time is to leverage one’s blog or writing skills. Though I don’t consider myself a “journalist”, I have written on my own blog as well as publications ranging from the Huffington Post to Techcrunch to the Seattle PI. I think about a topic that would be a)of interest to a set of readers AND b)would give us valuable feedback. I then craft some questions around those and then setup calls. It’s fairly easy to get executives speaking about a category they are involved in. Naturally, if they are pithy I will quote them. Lots of times there’s product feedback that doesn’t lend itself to the article but is useful market feedback.

  • Gail Kerr

    I agree that this is an excellent way to identify and scope a new product, but even more I agree with David that scoping, prioritizing and sizing a product shuld be separate from the group that is actually building it. In Guidewire’s case, the fact that they started with NO product was an advantage – – they had a clean slate to draw on. I often work with clients to take a current technology/product and repurpose it for new applications and often new industries. That requires focusing totally on the customer and the problems/pains to fix without the biases about the technologies’ original purpose.

  • http://www.forentrepreneurs.com David Skok

    Mark, strongly agree that the process of discovering customer needs in a consumer business would be different this. It would be great to hear back from you on what you found to be the most helpful techniques, and what didn’t work.

  • http://markgslater.wordpress.com/ markslater

    Will do – i am posting use cases at getabl.wordpress.com as we uncover them.

    At the end of the day David – there is no substitute for getting up in the morning and getting at the coalface and literally staying there as much as you can all day. Consumer facing or in our case, both consumer and SMB facing services must literally be built from the ground up by both parties.

    I think alot of companies trot out the proverbial Steven Blank theories, but do they actually execute?

    I can tell you that if you are in amongst merchants right now and asking the right questions, its a great lens in to the shifting tectonics of group buying for example.

  • Mark Anthony

    Discover innovative startup ideas, disruptive new technologies and succesful business models at 100mills Startups Database 2011. Go here – http://www.100mills.com

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