Michael Siebel is an entrepreneur who graduated from Yale University in 2005. While at Yale he met Justin Kan and Emmet Sheer and in 2011 they would start the social networking platform Justin.tv. This idea would evolve and pivot into the social media platform Twitch which was sold to Amazon.com Inc. for just under $1 billion in 2014.
Siebel is an angel investor as well as the current CEO of Y Combinator, which is a Silicon Valley based seed accelerator incubator program that launched in March 2005 and was used to launch over 2,000 companies including Dropbox, Airbnb, Stripe, Reddit, Optimizely, Zenefits, Docker and many other significant companies.
Siebel shares his insights and advice on how to build a product and examines the things to avoid. He begins with 3 things that provided an advantage to being able to build a product and enhance the likelihood of success with his companies.
1. Technical ability
A frequent talking point in the entrepreneurial field at large is the question of technical founders and co-founders. A technical founder is a person who has the ability to write enough code or to be able to make the product or business work successfully.
An example of a technical founder is Bill Gates of Microsoft, his co-founder Paul Allen was also a technical co-founder and they both had the ability to write code and create products, prototypes and software.
An example of a non technical founder is Steve Jobs of Apple, his co-founder Steve Wozniak was the person who wrote the code that enable the Apple computer products to actually work.
Silicon Valley venture capitalists and incubators typically prefer to invest in companies that contain a technical founder that will be able to implement iterative changes when necessary during the startup phase of a company.
It is a good idea to have technical expertise within your team, and also there is a great amount of new technology that allows founders to implement changes and create products without having an in-depth level of coding ability so this factor also helps entrepreneurs to get their ideas actioned quickly.
2. They kept costs down
In a number of situations an entrepreneur dreams of investment because he or she has the idea that the investment will contribute to a lavish lifestyle where the money can be used for their own personal gains. The reality is that the investment is for the growth and development of the company and depending on the type of investment that is procured the deal may not include any salary or income for the entrepreneur’s personal use.
Siebel’s advice is very useful especially when the company is at a start-up stage (when no clear revenue stream is defined) and the ability to fight another day is based on your ability to survive today. The life of a tech entrepreneur is often seen as a glamorous affair and all too often the truth is that most ventures will fail within a few years with or without external investment, so it is essential to try to keep costs down until there is a clear and feasible way for the product / business to make enough income to support the lifestyles of the entrepreneur and employees.
The business model is something that many do not think about in enough detail before launching a product, they often intend to repeat the business model of an established or publicly listed company attempting to be the ‘Uber of this’ or the ‘Facebook of that’ without understanding the real nuances of the business and how it generates income in both short-term and long-term periods of time.
3. They were emotionally attached to a successful outcome and committed 100%
One of the keys to success in any area of life is to never lose sight of the outcome that you are trying to achieve and unfortunately many do not have a clear outcome defined, and of those that do a large number get distracted or lose sight of what they originally set put to do.
The success author Napoleon Hill often spoke about having a Major Definite Purpose and a large number of the most successful entrepreneurs have an obsession with their purpose and do not get knocked off of their path when challenges and unforeseen events happen.
A Major Definite Purpose often goes beyond the boundaries of a business, and yet this purpose should be compatible with the primary aim of a business.
Michael Siebel asked a key question for all entrepreneurs to think about and the question is:
What problem are you solving?
In addition to that question I would add - What is the purpose of your company?
The reason that I would add to Siebel’s question is that not all companies exist to solve a problem. Companies such as Louis Vuitton and Ferrari do not solve problems, however they do fulfil desires and wants which in many cases are more urgent and pressing than needs.
It is important that every entrepreneur should examine those two questions at an early stage of their company.
A number of entrepreneurs are more concerned with what they want to say rather than listening to or understanding their customers who will provide the necessary money and patronage for the company to thrive long-term.
In relation to solving a problem for customers Siebel asks a number of follow-up questions.
Can you state the problem clearly?
Being able to sum up important elements of your business is a very useful skill because the clearer that you are about your business the easier that it will be to pinpoint, customers, solutions, markets, and the like.
Have you experienced the problem yourself?
In the tech world investors and entrepreneurs often speak of ‘scratching their own itch’ which simply means to provide a solution for yourself and then find a way to share that solution with others who experience the same or similar issues.
As the business thinker Steven Covey would put it, ‘Find your own voice then allow others to find theirs.’
The specific experiences that you have as a person with a specific problem should give you the understanding that will let customers solve problems for themselves.
The next area to look at would be to identify your intended customer. The more information that you can have about your prospective customer the more enlightened about solving their problems.
This process of identifying your customer comes under the field known as demographics, and demographics refers to understanding your prospective customers through understanding how to identify them through areas such as: location, income, age, occupation, gender, etc. then too understand the process of decision making in prospective customers this would come under the field known as psychographics, and psychographics looks as the psychology, preferences, values, beliefs, motives and drives of your prospective customer.
Demographic and psychographic information are essential to understanding how to begin to target and sell any product or service in a professional and sophisticated manner. Until you can completely understand who you are solving the issues for then it will be very difficult to succeed long-term.
The question of price is always an issue to deal with in relation to creating products and services for customers.
It certainly is true that the more that a customer likes or desires your product then the less they will be concerned with price.
The more valuable that your product is the higher the price that you can charge. It is also important to understand that the question of value is always based on beliefs and the perceived question of value.
Market research has its purposes, at the same time you will never know how much people will pay for a product until you actually test people in the market for real and not just questionnaires and interview tests.
A popular way to overcome the price hurdle in the first instance is to create a ‘free’ product that people can sign up and use for no upfront cost. This provides an immediate psychological benefit for the customer.
This process has been used by a number of the most popular products and services such as Facebook, Instagram, and the like. The goal for a number of companies that use the freemium model is to gain a monopoly with a dedicated user audience, then at a later date advertisements would be introduced that companies would pay for and customers would be exposed to these advertisements.
Another thing that many people do not understand is that ‘free’ products are not always free, as information, preferences, desires, likes, and so on can be used as information and data that can be sold on to other companies for profits or used to create even more detailed products in the future.
So even though some products do not have a designated price, there is always a cost that will need to be paid either now or in the future.
To charge for your product will provide a greater level of sustainability for your company going forwards and at the same time this provides a large barrier to entry as many consumers are not willing to pay for a product initially unless it provides a significant amount of value.
Minimum Viable Product (MVP)
A minimum viable product (MVP) is a stage that is reached in the development of a product that allows for a certain level of functionality and interactivity without being a fully finished or developed product.
This is a useful innovation in the development cycle of a product, as it is extremely expensive to produce a fully designed and developed product and add changes time after time when new information has been gathered.
Therefore a MVP provides a reduced risk for products and allows changes to be actioned quickly in a flexible and fluid manner.
A good question that Michael Sibel asks is ‘does your MVP solve the problem that you want to solve?’ Initially to ask such a question would appear to be foolish. In reality, when we look at the execution of many businesses, products and services, often they do not solve the problems or desires of their market, and in a large number of cases many entrepreneurs have no idea of who their customer actually is.
The reason for this is that many entrepreneurs are not interested in creating products, services and businesses that solve the needs of specific customers. They are concerned with fulfilling their own desires and needs that have to do with getting rich, financial freedom, freedom from working for others, or doing their own thing, but not in solving situations for others. The business author Michael Gerber examines this issue in his book ’The E-Myth’ which is a book that all serious entrepreneurs should read at least once. You can collect a copy here – THE E-MYTH BOOK
Once you are clear on exactly what needs to be done then it is important to build a prototype as quickly as possible.
Siebel says that the prototype should be ugly. I do not think that the prototype should be ugly as that shows a lack of business sense. It is possible to both produce something functional and attractive. It is not a case of either the product must look good or it must function well. If the team is run by experts who know what they are doing then they can have both.
Having said this, there is no such thing as a ‘finished’ product. Products must evolve and change as the business changes and may even be jettisoned altogether if the requirements are no longer needed.
Another great book to read is called ‘The Lean Startup by Eric Ries’ which elaborates on the need for both speed and competence. You can pick up a copy here – THE LEAN STARTUP
The entrepreneur and venture capitalist John Henry once said, ‘the first few dollars from creating my own system was worth more than all the money combined that I have made from working for someone else.’ The first customers that use your product are vital and should be treated as if they are your most important VIP customers even if they are only spending a small amount, or even no money at all. The essential thing is to gain value, information and insights from their time using your product.
“If you can’t measure it, you can’t improve it.” – Peter F. Drucker
Customers that do not spend money on your product can still be extremely valuable as they can provide insights that give information on what is being done right and what should be improved.
Siebel mentions his recommended analytics tools for measuring user data. Three products that Siebel suggest for having a deeper look at analytics are listed here:
The tools that he recommends are events based products that will measure what happens on the product and not just where a user came from.
Things to think about when looking at events based metrics are:
- Which pages were visited?
- How long was the user on the product?
- How easy was it to sign in?
- Did they visit key areas?
- Did they search for anything specific?
- Did the product fulfil what the customer wanted?
It is a good idea to use measurement constantly as part of the build cycles for products. This should be used for real customers and the product should be at a sufficiently professional level, and also produced in quick sprints of intense activity.
Another important thing to do is not to make too many changes in-between each sprint because this will effect the effectiveness of the process. There are thousands of little details that product owners can get consumed with that have absolutely no effect on the success of the product or business, so it is important to keep the main thing the main thing and not to get lost in things that are urgent but not important.
A Key Performance Indicator (KPI) is a way to make sure that you can keep track of what is essential for the success of the product.
The most important KPI’s for a product usually fall into a small number of categories
This may seem obvious but it is often overlooked as product owners and entrepreneurs fall in love with ‘their story’ or ‘their brand’ and forget that the point of a business is to obtain and maintain a customer, and revenue is a vital driver of success in any business that should be observed at all times.
Some products use the number of users as their KPI as they intend to gain a monopoly or significant user base and then they can sell advertising or premium services when users become ‘hooked’ on the product.
3. Retention rate:
For some products how often the customer comes back and how long the customer stays using the product is an essential part of the success of the product.
You would need to choose your own measurements which are specific to the particular dynamics of your business and then make sure that each release of your product allows the customer to make the most of being able to access and understand the product in the way that is enjoyable for them and beneficial for you.
One way to make sure that your products are always the best that they can be is to constantly be innovating new ideas and ways to bring them to fruition. Research and development should play an important part of the product design cycle as well as being able to add new features and functions into the product in an efficient and easy way.
A great danger is the practice of obstinacy where an idea is continually pursued even when the evidence that it is flawed reveals itself in plain sight.
Taking time out to plan and introduce new features is an important part of the process and even if regular sprint deadlines need to be met, the process of innovation should never stop as the customer is always searching for ways to meet their desires and needs.
When Siebel and his team at Twitch implemented changes for each sprint session, they would assign each task a level of difficulty, being either hard, medium or easy. A hard task would take the entire development cycle to produce. A medium task would take a couple of days to build, and an easy task would take a couple of hours to complete.
In addressing which specs are important it is essential to keep an eye on the big strategic picture and not to become lost in ‘the thick of thin things’ or minor details that have no real important to the success of the product or business.
In some cases it is advisable to attempt the most difficult part first and in other times then the easiest task first is the way to go. Each solution will depend on your company and what specific objective you are looking to achieve.
If you are creating specifications or instructions for people to build or create products then you must be very clear and precise in your instructions about how the product should behave and work. If a person lacks in creativity or technical knowledge then it is advisable to get as much input and insights from those who do in order to make the process as easy as possible to put into practice.
Speaking to users
An essential thing for understanding the progress and viability of the product is to speak to people whose the product. This does not mean people within your team or company, but real people who have found and downloaded the product as a result of your own marketing efforts. This is important because people within the team or company are usually unable to provide real objective points of view and are either influenced by trying too hard to protect their own point of view or trying too hard to disprove another person’s point of view. In situations such as those internal politics, conflicts, ego’s and the like are detrimental to really understanding the product, and a thing that is also surprising is that there are some features that customers like that are often counter-intuitive and make very little sense from a rational point of view. This is important to understand because no matter how smart a person thinks that he or she is, customers see the world through their emotional beliefs and perceptions and not through logical rational abstract frameworks. Moreover, even complex abstract frameworks are grounded in emotional beliefs and value based judgements and postulations.
Having said all of this the reality is that most companies still do not have a real understanding about who their customer is, why their customer buys their product, or even how to create a great product experience.
Many companies are lost in buzzwords such as ‘innovation’, ‘VR’, ‘AI’, ‘future’, ‘Internet of Things’, ‘robotics’ and the like. Many others are lost in being able to create a product with the latest new ‘on trend’ software application as if that will somehow make a poorly thought out operation a meaningful one. Many companies are focused on ‘features’ of products but not on ‘benefits’ to the end user.
It is certainly not easy to create a great product, simply because there is no real end to a product because a product must always change with the needs of the consumer and if a company is more concerned with using a current technology today than understanding the user of today, then they will be out of business tomorrow.
The only thing that I can say with certainty is that things will always change. Sometimes for the better and sometimes for the worse, however it is always important to remember that we cannot product the future, or control the future, but we can control ourselves and our ability to adapt to changing market demands, wants, drives as well as fundamental principles which have been around since the time of the first human beings.
These steps should provide enough of a foundation to create a successful initial product offering baring in mind that a product is never finished and always needs to improve and evolve perpetually.
MICHAEL SIEBEL – HOW TO BUILD A DIGITAL PRODUCT
Speaker: Michael Siebel