As managing directors of IBsolution, Oliver and I took part in the InnovationCamp Baden-Wuerttemberg. This is where we gained fascinating insights into Silicon Valley’s secrets of success. It is striking to see how many companies between San Francisco and San José sustainably change the business world with their ideas and achieve rapid growth and tremendous success within the shortest time.
Silicon Valley blog series
- Part 1: If you don't ask, you will never know
- Part 2: Chasing the unicorn
- Part 3: “Be a sponge and not a babbler:” Interview with Annika Hoeltje (1)
Focusing on the customer
Silicon Valley in particular, – a 70 kilometre long and 30 kilometre wide region – as the stronghold of the American technology sector it is responsible for the fact that California in its own right would be the sixth largest industrialised economy of the world with a gross domestic product of 2.4 billion US dollars. But what are the software and high-tech companies based there doing differently? The answer might sound rather mundane, but it makes all the difference: The needs of the customer are always at the forefront.
Many products do not prevail in the long run because they do not satisfy what the customer wants. In other words: There is no product/market fit. This can be caused by two reasons: Either a company did not precisely define a target group for a product (according to the motto “Everyone is our customer”) or the product offers too many different features and was not created for a specific purpose. Both scenarios increase the probability that the product will be unsuccessful.
On the trail of demand
With their customer-focused approach, the companies in Silicon Valley ensure they are inline with the market trends. If you start by designing a product, the first task is to specify which target group it is intended for (customer segment) and which benefits the new product has for the customers (value proposition).
It is not a coincidence that both these aspects are the first fields that need to be completed in the Business Model Canvas (BMC). BMC is a planning method that structures and tests all elements of a business case or a business idea in a matrix, to see whether they are logical business goals. In the meantime, BMC has established itself as a standard template to promote innovations.
Companies often only do inadequate research on customer groups and value propositions or even not at all. This is not the case in Silicon Valley. Start-ups embark on a Customer Discovery: Within three months, they carry out as many interviews as possible with potential customers to find out what value proposition a product must provide so that it is accepted by the market.
Just don’t ask your mother
However, these interviews also entail a certain challenge: How do I know that I am asking the right questions and my interlocutors are answering honestly? Here is the so-called Mom Test orientation. Background: You should never has your mother, whether your business idea is a good one. Your mother loves you and therefore, will not always tell you the truth.
Similarly, most people do not want to hurt your feeling out of politeness and will give you a false-positive answer under certain circumstances. Since you are in search of confirmation, you will class the answer given to you by your counterpart as reliable information. The Mom Test will help you ask the right questions and draw the right conclusions from the answers.
Within the framework of Customer Discovery, it becomes clear to see which target group the product has been matched with and which benefits the target group can draw from it. It is often necessary to repeatedly change your own focus during this process. Due to the interviews, companies must either adapt the product or the target group in comparison with their original plans. Optimising a business model by means of feedback is known as pivoting and is an absolute must in the start-up scene. If an idea proves to be unfit for the market, the only option is to revise it.
Programming is done later
The software is still not programmed after the customer interviews. In fact other practical tests are carried out. For example, a dummy website is to determine how much the users are willing to spend for the product. If the customer clicks on the download button, he/she must enter his personal data. By means of the number of customers that leave their data, it becomes clear to see whether a product has potential or not.
The Wizard of Oz Experiment works with the faking of applications. An example: A user is communicating with an autonomous system within the terms of artificial intelligence. In reality however, a human is covertly creating the reactions of the system.
The Wizard of Oz method is used to gather possible reactions from potential users of a system. In this manner, the company can recognise which data is received and whether the service is used. Once sufficient potential has been determined in this manner, will the programming of the software begin.
Observe and learn
Even if a product is established, companies in Silicon Valley continue to work on optimisation, for example if growth comes to a halt. Inter alia, methods such as “Follow me home” exist for this purpose. A manufacturer team visits the customer at home and observes how they work with the software. The employees derive conclusions from the observations that flow into the optimisation of the software. By the way, SAP is very familiar with this method. Between 2010 and 2012 it used the “Follow me home” principle very intensively. Result: the Fiori surfaces in S/4, as known today.