How do you know if your startup is solving a critical problem?

You can survey your users, conduct user interviews, and run a/b testing experiments to try to get your answer. No matter what method you use, parsing out reality is really hard, especially for entrepreneurs (see Reality Distortion Field & I Don’t Know).

I was talking to Joshua Porter, my co-founder at Performable, today, about a certain app we use internally and how bad and confusing their UI is. Despite this, we use the app almost every single day. And we’re not alone — they have tens of thousands of customers.

Why do we continue to use this app? Because it solves a critical problem; it’s a utility we need to run our business and, despite its shortcomings, the app is better than anything else we’ve tried.

So how do you know if your startup’s product is solving a critical problem? After years of trying to figure this out at multiple startups I’m starting to get the hang of it.

If you repeatedly hear any of the following comments, chances are you are not solving a critical problem:

1. “If you made your app easier to use I would start using it.”
2. “I’m really busy right now but I’ll start using your app soon.”
3. “If your app was cheaper I would start using it.” (contributed by Josh)

Sounds familiar? Is it time to admit you’re in trouble? Don’t panic, just stop now and reevaluate whether you need to resegment your product/audience, change your pricing, or pivot your entire product.

Question: How did you figure out that no one cared about your product? (I’d love to hear about it in the comments.)

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Super Conversion Button is a web application lovingly hand-crafted by our team at Performable that lets you create a beautiful, effective call-to-action button in seconds!

At ABTests.com we have seen companies increase their website conversions by double digits by simply changing their call-to-action buttons.

The Super Conversion Button app is absolutely free. I’d love it if you could try it out and let me know what you think about it in the comments below.

Note: This post was cross-posted on the Performable Blog.

These are my slides from my Data-Driven Startup presentation at the Lean Startup Circle in Cambridge, MA on July 22, 2010. Had a great time geeking out on Lean Startup, Customer Development and A/B Testing.

I was fortunate to have the opportunity to interview Gail Goodman last week at the Momentum Summit at MIT Sloan. Gail is the CEO of Constant Contact, an email marketing company that was founded during the “boom days” of the Internet, made it through the post-bubble apocalypse, and is now a publicly traded company and a market leader.

I originally planned to ask Gail a bunch of standard interview questions but then I realized what a missed opportunity that would be. Instead I only asked her questions that I personally care about as a first-time startup CEO (at Performable).

From her answers to my questions, here are 8 startup lessons that I learned from Gail:

1. If an investor tells you that you can’t build a real business on $20/month, direct them to Constant Contact. Their average selling price is $37/month, they have 375k customers, they are on target to do $170 million+ in revenue this year, and they are a publicly traded company (AKA liquidity event).
2. SAAS (Software as a Service) startups need to focus on getting on past what Gail calls the slow ramp of death. When selling low-priced subscriptions you make your money in subsequent years —  not up front. The slow ramp of death is even harder to get past at an average selling price of $37/month; 1000 customers at that price brings in enough revenue to pay a small handful of employees.
3. The trick is to give experiments enough time to prove themselves. Too often a focus on failing fast leads to false positives. Three months is not enough time to figure out a sales model; you need to give it time.
4. Get a CEO peer group to bounce ideas off of as soon as possible. Gail learned from a fellow CEO that calling free trial-ers would lead to a doubling in their “trial-to-pay” conversion rates. Trying this was the difference between a model that she thought was failing miserably and one that has built Constant Contact into a publicly traded company (see #3 on giving experiments enough time).
5. If your product is strong enough, people do not need to be sold. Focus your sales teams on being coaches, not salespeople. This means focusing salespeople on making prospective customers successful, and not on near-term revenue maximization.
6. There are no silver bullets, just many “A-ha” moments. Success is driven by a million incremental improvements to your business model.
7. A startup CEO’s only important job is what Gail calls searching for the model. In the early days of your business it is all about experimenting in-order to find and perfect your business model.
8. Raising money from institutional investors is all about working the entire partnership, not just your single partner. Make sure you are in front of the entire partnership at least once a year.

Listen to my interview of Gail Goodman of Constant Contact: Download audio file (20100628MomentumSummit-Session1.mp3)
(interview starts at 7:00)

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At Performable we’ve been working hard, building out our platform. It will turn your site into a marketing machine.

Over the last two weeks we’ve been winding down our beta program, and transitioning our beta customers to live paying customers. Thanks to everyone who helped us out as beta testers — we learned a lot. We have many new features, which will be announced over the next several weeks. This summer is huge for Performable; the forward momentum is massive — we will not slow down!

I’ll be speaking and/or attending the following events this summer:

• Angel Bootcamp – I’ll be giving a talk called “Boston Throwdown: Step up or Shut up” and I’ll be a panelist on the “Kicking Boston in the Ass” panel. Notice a theme here? (June 1st, 2010)
• PopSignal Mix 6 – A great night of drinks with local entrepreneurs put on by my friends Brian Balfour and Jay Meattle. (June 3rd, 2010)
• CEO Idea Exchange – A one day event focused on Customer Acquisition Strategies for SaaS companies put on by my friends at Charles River Ventures and Matrix Partners. (June 10th, 2010)
• Venture Summit East - I’ll be speaking on the Lean Startups Panel with Eric Ries and  Ann Miura-Ko. (June 22nd, 2010)
• Momentum Summit – Once you’ve created a great product how do you get customers to try it and buy it? I’ll be interviewing Gail Goodman, CEO of Constant Contact to find out, and giving a talk on A/B Testing. (June 23rd, 2010)
• Brandeis University Talk – Pito Salas invited me to speak to some students about Startups and Geek stuff, this should be lots of fun. (June 28th, 2010)
• Catch the Wave – Put on by my friends at Flybridge Capital Partners. (July 30th-August 1st, 2010)

Hope to see you at one of these events. Until then, have a fun and productive summer, and please stay in touch!

I think the biggest problem with A/B Testing is the “single winner” fallacy that most a/b testing and multivariate testing tools perpetrate.

In my latest post on the Performable blog I explain how you can prevent falling into this trap and how you can continuously improve your business using A/B Testing.

Remember this: Each visitor to your site is different and brings a different context. Some are fans who follow your company on Twitter, others are first-timers who have never heard of you, and others are potential customers in the research stage, comparing you feature-by-feature to one of your competitors.

Interested in improving your marketing performance? Read the rest on the Performable Blog: Avoiding the biggest problem with A/B Testing

Performable Customer Development Lunch

A couple of people have recently asked me for a list of Boston startup resources. Here’s a list of my favorite local events and email lists.

Events:

1. WebInno – The biggest web startup event in the area, everyone attends these at some point, you should too. David Biesel and the folks at Venrock do a great job organizing and sponsoring these.
2. PopSignal – Invite only event put on by my friends Jay Meattle, Rob Go and Brian Balfour. Highest quality event in the area, small crowd, only startup founders and free drinks from great sponsors such as the crew at Spark Capital.
3. OpenCoffee – Great meetup founded by Bijan Sabet and Nabeel Hyatt. No agendas, themes or pressure, just show up and share a coffee with fellow geeks.
4. North Shore Web Geeks – Great event put on by my co-Founder Joshua Porter and Tom Summit in Newburyport, MA. Super geeky fun over beer and burgers. Checkout John Eckman’s great writeup of their last event.
5. Customer Development Lunch – Of course I had to include our Customer Development Lunch at Performable.  The goal  of this event is to cross-pollinate by introducing young local entrepreneurs to the best startupers in the world. We’ve been fortunate to feature these world class entrepreneurs so far: Sean Ellis, Jonathan Mendez, Dan Martell and Dave McClure (this week!).

Up-and-commers: Two events that I haven’t attended but I’ve heard great feedback from people I trust are the Lean Startup Circle meetup and DartBoston’s Capitalize. Check them out and let me know what you think.

Email lists:

1. Startup Digest Boston – Great weekly email list of Boston startup events.
2. VentureFizz Newsletter - Periodic buzz newsletter curating local jobs, blog posts and company profiles.

Any great resources that I missed? Please let me know.

Ok enough reading, today is your day, get up, get outside of the building and start building your startup!

Update: Checkout the comments on this post, I missed two great resources: MassInnovation Nights and Greenhorn Connect.

Next month I’ll be speaking at the MIT Enterprise Forum of Cambridge Lean Startups Event. The event will take place on the campus of MIT at the Stata Center on February 24 at 6:30pm. More details can be found here.

I’ll be talking about our experiences running an agile product, customer and engineering process at Performable. The Boston Lean Startup Circle are having their monthly meetup later that same night if you’re feeling up for two startup events in one night.

If you’re a startuper or marketer in Boston I’d like to invite you to join us this week at Performable‘s 3rd Customer Development Lunch, this Tuesday (January 26th, 2010) at 12:30pm.

We’ll be welcoming serial entrepreneur and fellow marketing metrics geek Dan Martell to Boston. Dan is a canadian entrepreneur now residing in Silicon Valley; he is the co-founder of FlowTown a social email discovery platform.

Our first Customer Development Lunch featured our Advisor, Sean Ellis, and was graciously hosted and sponsored by Spark Capital. Our second lunch featured Jonathan Mendez and was hosted by our friends at Compete and sponsored by Charles River Ventures. This lunch with Dan Martell will be hosted by our friends at TechStars Boston and sponsored by Performable.

Please register on EventBrite if you can attend this Tuesday: Customer Development Lunch with Dan Martell.

To the Ghostery Community,

Since starting Ghostery last year my goal has been to provide my fellow consumers with a free service built on the principles of transparency and consumer control. I am proud of the overwhelming response to Ghostery; over the past year, over 2 million people have installed Ghostery and joined our community.

Over the past months, as my focus switched to my new company, Performable, I made the decision that Ghostery should be in the hands of those who can give it the resources it needs to grow. I am happy to announce the sale of Ghostery to Better Advertising. Better Advertising is a company started by a team of privacy and online advertising veterans whose goal is to bring trust and transparency to the online advertising industry by working with companies, industry associations and the FTC to bring the best privacy and transparency to consumers.

Preserving Ghostery’s principles of user control and data collection transparency were paramount for me in making this decision. That is why, of all the options for Ghostery, including various offers for acquisition, a sale to Better Advertising was clearly the right choice. It gives me great peace of mind to know that I am leaving Ghostery in the right hands. They will not use any data collected from Ghostery for any type of advertising, a promise they make explicit in their Mission Statement and Privacy Center.

I have prepared a short Q&A to answer some questions that might come up in the near future:

1. Will the Ghostery service be interrupted?
   • No. While we’re transitioning over to Better Advertising’s infrastructure, we will do everything possible to make sure it is seamless.
2. Do I have to do anything or make any changes?
   • No. In the short term nothing is changing that would require you to do anything on your end.
3. Will my data be collected and used for advertising?
   • No. Better Advertising’s services are built from the ground up to specifically avoid collecting any type of data that could be used for behavioral advertising. Better Advertising also publicly pledges never to use any data it collects for advertising
4. What will Better Advertising do with Ghostery?
   • Better Advertising is committed to growing the Ghostery community by extending Ghostery across more Internet browser versions, and providing new services and features to our community.
5. Will the service remain free?
   • Yes. We don’t see making any changes to the service for the foreseeable future.

The Better Advertising team and I will be communicating more information in the coming weeks  and months. I will personally stay involved with Ghostery as I will remain an advisor to the Better Advertising team going forward. If you have any immediate comments or questions please send them to support [at] ghostery [dot] com.

Thank you all for your support. This has been an incredible experience!