The Four Steps to the Epiphany
The Four Steps to the Epiphany
The Path to Disaster: The Product Development Model
... for the gate is wide and the road broad that leads to destruction, and those who enter through it are many.
- Matthew 7:13
EVERY TRAVELER STARTING A JOURNEY MUST decide what road to take. The road well traveled seems like the obvious choice. The same is true in the search for startup success: Following a path of common wisdom-one taken by scores of startups before-seems like the right way. Yet for most startups, the wide road often leads straight to disaster. This chapter looks at how and why this is so.
Let me begin with a cautionary tale. In the heyday of the dot-com bubble, Webvan stood out as one of the most electrifying new startups, with an idea that would potentially touch every household. Raising one of the largest financial war chests ever seen (over $800 million in private and public capital), the company aimed to revolutionize the $450 billion retail grocery business with online ordering and same-day delivery of household groceries. Webvan believed this was a "killer application" for the Internet. No longer would people have to leave their homes to shop. They could just point, click, and order. Webvan's CEO told Forbes magazine Webvan would "set the rules for the largest consumer sector in the economy."
Besides amassing megabucks, the Webvan entrepreneurs seemed to do everything right.
The company raced to build vast automated warehouses and purchased fleets of delivery trucks, while building an easy-to-use website. Webvan hired a seasoned CEO from the consulting industry, backed by experienced venture capital investors. What's more, most of their initial customers actually liked their service. Barely 24 months after the initial public offering, however Webvan was bankrupt and out of business. What happened?
It wasn't a failure of execution. Webvan did everything its board and investors asked. In particular, the company religiously followed the traditional Product Development model commonly used by startups, including "get big fast," the mantra of the time. Its failure to ask, "Where Are the Customers?" however, illuminates how a tried-and-true model can lead even the best-funded, best-managed startup to disaster.
The Product Development Model
Every company bringing a new product to market uses some form of Product Development Model ( Figure 1.1 ). Emerging early in the 20th century, this product-centric model described a process that evolved in manufacturing industries. It was adopted by the consumer packaged goods industry in the 1950s and spread to the technology business in the last quarter of the 20th century. It has become an integral part of startup culture .
At first glance, the diagram appears helpful and benign, illustrating the process of getting a new product into the hands of waiting customers. Ironically, the model is a good fit when launching a new product into an established, well-defined market where the basis of competition is understood, and its customers are known.
The irony is that few startups fit these criteria. Few even know what their market is. Yet they persist in using the Product Development model not only to manage Product Development, but as a roadmap for finding customers and to time their sales launch and revenue plan. The model has become a catchall tool for every startup executive's schedule, plan, and budget. Investors use the Product Development model to set and plan funding. Everyone involved uses a roadmap designed for a very different location, yet they are surprised when they end up lost.
The Product Development Model (Figure 1.1)
To see what's wrong with using the Product Development model as a guide to building a startup, let's first look at how the model is currently used to launch a new product. We'll v