If this is your first time reading, I recommend you start with a new B2B SaaS venture and table of contents of biweekly posts for the past eight weeks.
tl;dr I’ve made some progress so far but am really stuck trying to validate a SaaS product idea. I know the best validation is paying customers but am scared of reaching out and potentially having to restart the process if it doesn’t pan out; I share insights about the construction industry, how others validated their SaaS products, how to ship an MVP for SaaS, highs and lows these past 2 weeks and more.
The short version? Get 10 paying customers — without building anything.
You can even do it without even building a website. Possibly even without mockups or wireframes.
The “less” things you have to show (best yet: nothing to show at all except words — sell the “dream”, baby!) while still getting 10+ people to pay you — you’ve validated your SaaS product. Plain and simple.
It’s one of the easiest things to say and the hardest thing to do… I know.
I. My current status so far
II. Sharing insights about the construction industry
III. How five companies validated their SaaS products
IV. On shipping an MVP for SaaS
V. Applications for me
VI. Highs and lows these past 2 weeks
VII. Lessons learned
When ten people say they’ll give you money if you build this thing, that’s the only validation that counts.
– Jason Cohen, WP Engine
I. MY CURRENT STATUS SO FAR
I’m sure you’re wondering how far I am and I’d like to keep track too (these days pass by so quickly that sometimes it’s hard to remember where I am).
So what’s my current status?
Let’s start with the good:
- I’ve got my software idea that would solve a very well-defined problem (after 24 or so phone calls/meetings).
- I’ve serendipitously found a technical cofounder.
- We’ve got two potential customers (i.e., companies) who want to use it once it’s built. Actually, scratch that, just one potential customer so far — it didn’t serve as urgent or necessary a need for the other one. Ugh.
- We’ve got a half-baked spec of requirements/mockups for the well-defined solution (this is a work in progress based on iterative feedback).
- We’ve got another idea we want to test and validate if this one doesn’t pan out…
Now with the bad:
- We still have no money before code.
- Assuming we can convince our one customer to pay with no working product yet (a big assumption, might I add) — we still do not have 9 other paying customers.
- Thus, this idea may actually be terrible and we may have to soon start over.
My biggest fear is that the software idea I have uncovered only solves this one person’s problem. I don’t want to turn into a software consulting company! I would absolutely love to pursue building this software idea (no matter how “boring” and “unsexy” it is, which it really is), honest to goodness, but I want validation first with 10 paying customers upfront without any code.
My second biggest fear is having to restart over. A part of me is even almost ready to give up on the construction industry entirely, and I’ll talk about why in the next section on sharing insights about the construction industry. It’s definitely not for the faint of heart.
However, I really truly believe this software idea I have solves a problem — it’s the matter of finding my customers (not to mention, selling to them) which is difficult. I’ll talk more about that in the next post in 2 weeks about a crash course in enterprise B2B sales.
II. SHARING INSIGHTS ABOUT THE CONSTRUCTION INDUSTRY
Since I am exploring B2B SaaS in construction, understanding the industry and landscape is critical to validating a software idea. Feel free to skip this if it’s not interesting to you.
This time around, I want to share some more macro insights about construction I’ve learned along the way and from conversations with my technical cofounder, who works as a project manager in a mid-size commercial construction company.
Construction companies (the industry jargon here is general contractors, or GC’s for short) and the construction industry are a very curious and interesting bunch.
I’d like to briefly touch upon four key insights:
- The construction industry as a whole is actually less efficient and productive than before — it’s because of the people more so than the technology.
- GC’s either buy big, bulky, complicated and massively expensive software (and their accompanying costly license agreements) or resort to janky, ad hoc and highly inefficient methods.
- There are software names that keep coming up, but there is no uniform way of how people do things.
- Construction has extremely low profit margins and software is actually seen as an overhead cost.
(1) The construction industry as a whole is actually less efficient and productive than before
This has been spoken to me by multiple industry professionals. It’s very mind-boggling — you’d think that technology has advanced so many industries today, but for some reason, construction is still stuck in its slow-moving past.
It’s head-scratching and just very confusing if you’re not in the industry and are on the outside looking in.
Here are just several factors that prevent construction from becoming more efficient and productive IN SPITE of technology today:
- Adversarial relationships between owners and contractors, management and labor, union and open-shop workers, business and government
- The lack of accurate information about the industry, its projects, and its labor supply
- Poor safety performance
- Undertrained foremen and poor job-site management
- A lack of training and education for the workforce
- Disinterest in adopting new technologies and a slow pace of innovation
- The lack of management systems
- Collective bargaining agreements and labor practices; and
- Government regulations, including building code administration.
I don’t have time to write a research report on the inefficiency and lack of productivity in construction, but Google has a lot of material you can read on this discussion if you’re interested in learning more.
Bottom line, in my opinion:
- The people are key to increased efficiency and productivity in construction.
- There are so many stakeholders in construction (not to mention it is a very manual/physical labor-oriented field), so this “people” requirement/effect is significantly amplified. Lots of moving parts. Some stakeholders are more forward-thinking than others (and also by industry in commercial vs. residential) but other stakeholders are absolutely stagnant and hold everyone back.
- Software and technology are USELESS if the people in the industry don’t change.
Some additional insights I have myself:
- Ultimately, winning the end user is the biggest challenge here. More often than not, that actually requires changing habits and human behavior (extremely difficult — just look at the diet industry!). Lots of older generation field personnel who are not tech-savvy and refuse to adopt and adapt to new technology. If you build great software but your end user doesn’t use it or find it useful, you won’t get any customers.
- Construction software is inherently social and viral, for better or for worse. On the upside: if you get one GC to adopt your product, by extension 20-50 or even 100’s of subs will be brought into the system too and will naturally perform word of mouth marketing. On the downside: you need to convince many stakeholders to adopt it in order for it to be truly useful and valuable. This is with one big caveat: assuming you’re building an all-in-one ERP solution like Procore, rather than a niche product like we are trying to validate.
- Construction has so many stakeholders and people are the biggest asset. There are many roles in the chain of command and each has its own separate problems. You need to be able to understand both and be able to look at the forest as well as the trees (industry knowledge and domain expertise comes into play here).
(2) Big, bulky complicated and massively expensive ERP solutions vs. janky, ad hoc and highly inefficient methods
I’ve quickly realized a very important lesson — 99% of GC’s (both residential and commercial) either 1. buy big bulky, complicated and massively expensive ERP solutions that are all in one and jam packed with so much stuff and are absolutely awful and crappy to use, or 2. don’t use software at all (other than MS Office/Excel and Quickbooks) and instead, concoct janky, ad hoc and highly inefficient methods.
There is no middle ground.
I’ve talked to big GC’s with $200-500+ million revenue and clients like Google and Square (you’ve probably seen their names on construction signs around San Francisco, guaranteed) and there really is no point selling to them.
It seems like our target audience are companies who don’t have and can’t afford big expensive software like Procore. I asked one of my leads about if he’d use/pay for our software idea and he says that his company uses Procore which solves that aspect pretty easily.
(3) There are software names that keep coming up, but there is no uniform way of how people do things
My gut is telling me our idea solves a need and if it worked well, people would use it. The thing is, so many GC’s do things differently that it’s hard to tell how to help them standardize things. I always hear a lot of the same construction software names over and over, but that’s only for commercial GC’s that have huge budgets for software.
However, I can’t begin to tell you how overused (over-abused?) Excel is by GC’s who can’t “afford” or “don’t need” software for their myriad use cases that Excel really isn’t designed for. I feel there’s a lot of opportunities in unbundling Excel — the key thing is identifying validated pain points.
(4) Construction has extremely low profit margins and software is actually seen as overhead
People may not know this, but construction has extremely low profit margins. Even worse or on par with the restaurant industry, actually.
There’s some high statistic out there, like some 90-95% of GC’s go out of business within 2 years because it’s so hard to make a profit (I can write an entire other blog post on why this is, but I won’t talk about it here).
So with that in mind:
- GC’s have to run as lean as possible and software is added overhead that owners don’t find necessary.
- The market is so competitive, companies often make 2-5% profit on a project.
- GC’s bid against each other and no one wants to add software fees into their budgets.
- Needless to say, the construction industry is scared and slow to change (hence the whole point of the AEC hackathon I attended) — if you break in successfully, there’s big money (hello ERP solutions), but it’s really hard to do.
This is actually kind of funny and interesting. So my technical cofounder works at a mid-size commercial GC, right? He tells me stories of a lot of construction software companies that come in and demo their products, but ultimately his company is not interested in buying. Not even has an intent to buy, but still lets software companies come in to demo their software.
What a waste of time, right?
So… again, I want to find a product that actually saves time and money which is seen absolutely necessary for GC’s — it’s a really hard sell for an all-in-one software ERP solution, that’s why I’m trying to validate a smaller chunk that is more “doable” but still very important that people would pay for it, in spite of adding overhead costs.
III. HOW FIVE COMPANIES VALIDATED THEIR SAAS PRODUCTS
Every sale has five basic obstacles: no need, no money, no hurry, no desire, no trust.
– Zig Ziglar
Unpacking the amazing nuggets in Zig Ziglar’s quote is a story for another time, but I really love that quote because it either just shows how hard it is to make a sale if you actually aren’t building something people want, or by contrast, how easy it is to make a sale if you really are building something people want.
Here are some stories on how five companies built their MVP’s and validated their SaaS product ideas.
- Joel Gascoigne, Buffer
- Patrick McKenzie, Appointment Reminder
- Amir Khella, GUIToolkits
- Brennan Dunn, Planscope
(1) Joel Gascoigne on Idea to paying customers in 7 weeks: how we did it
The aim of this two-page MVP was to check whether people would even consider using the app. I simply tweeted the link and asked people what they thought of the idea. After a few people used it to give me their email and I got some useful feedback via email and Twitter, I considered it “validated”. In the words of Eric Ries, I had my first “validated learning” about customers. It was time to gain a little more validated learning.
So we had validated that people probably wanted the product. The next thing to validate was whether people were comfortable with paying for such a product. This was as simple as adding a page in between the two which showed pricing. One extra click before they gave me their email for a notification when we launch. The extra step tests the pricing (by detecting which plan they click on) and also tests further the demand for the product (one extra click, so they must be keen).
The result of this experiment was that people were still clicking through and giving me their email and a small number of people were clicking on paid plans. After this result, I didn’t hesitate to start building the first minimal version of the real, functioning product.
Read Joel’s full story: Idea to paying customers in 7 weeks: how we did it
(2) SendWithUs on How we validated our SaaS product without building it:
The “sendwithus zero” Experiment
The goal was simple. We wanted to a) gauge interest in a transactional email service, and b) measure what features mattered the most to customers.
To accomplish this we decided to build a website that seemingly offered many features and measured which ones customers were most interested in. Once we had an answer, we’d build an MVP focusing on those features. Easy.
It’s important to note that our goal was not to build a great product – it was to gather information about what a great product might look like. That is why we call sendwithus zero an “experiment” and not a “product”. The distinction is important and greatly impacted how we approached the problem.
And that was it – the experiment was feature complete. Those two pages covered the core functionality of a transactional email service; that was all we needed for the experiment to be effective.
Read SendWithUs’ full story: How we validated our SaaS product without building it
(3) Patrick McKenzie (patio11) on How To Validate Product Ideas Before (And After) Building Them:
This guy’s post is rock solid and has so many insights, I really recommend you read the entire post. But here is how he went about validating Appointment Reminder.
Three years ago, I had had the idea for Appointment Reminder, and wanted to discover whether businesses had a large enough no-show problem to justify paying $30 a month for it. I don’t have great access to non-technical small business owners, so I just decided to pretend I was an extrovert for a day, and interview people door to door in Chicago.
Here was my pitch, which I made to every massage therapist and hair salon owner I could find just doing a breadth-first search down Michigan Avenue:
Hiya, do you take walk-ins? Are you the owner? Great, can I book the thirty minute option for name a service? Great, actually, I’ve got a request. More than the name a service, I am really interested in the business of name industry here and want to talk to you about it a bit. I’m happy to pay for your time. Does that work for you?
I lost my notebook where I kept the interview results (d’oh), but my recollection was that only one person out of a dozen plus actually took my money for this. Most were happy to talk, since unscheduled time for them in the early afternoon had a predicted value of zero anyhow. (n.b. That was, in itself, a useful lesson.)
Here’s what I asked, for de-risking Appointment Reminder:
- How many appointments do you have in a typical day?
- So that is about X a month, right?
- What is the ratio between booked appointments and walk-ins?
- What do you do to book an appointment? Can you walk me through that? How do you get the appointment? What do you record it in? Does anything happen between you recording it and the appointment happening?
- Do people not come to appointments ever?
- About how often does that happen?
- How does this make you feel?
- Have you ever tried doing anything about the no-shows before?
- How did that work out for you?
At this point, I did a quick demo of the two-page version of Appointment Reminder. It just basically demonstrated to people that I could automatically call their customers in advance of the appointment and leave a message. (This wasn’t actually possible at the time, but hearing the message on their own cellphone was sufficient demonstration for everyone.)
- That doesn’t exist yet. Would you use it on your computer if it did exist?
- [If no] Why not?
- [If yes] I think it’s going to cost $30 per month. Can I get your email address to tell you about it when it launches?
Read Patrick’s full post: How To Validate Product Ideas Before (And After) Building Them
(4) Amir Khella on How to Validate and Bootstrap Startup Ideas:
Phase 2: The Minimum Viable Product
First, I needed to build a proof of concept that would validate my previous assumptions.
I am not a fan of building “Coming Soon” pages, since they don’t provide insights into potential demand or purchase behavior. So I pretended that the product already existed, and built a site where I could measure how many people would go through the entire purchase funnel to buy that product.
I got a WordPress theme from ThemeForest and created an eCommerce site that included various product SKUs (UI templates) for different tools, along with screenshots that I generated with Keynote. I also added “Buy Now” buttons, and hooked up analytics everywhere on the site to measure clicks and conversion.
Whenever visitors clicked the “Buy Now” button, they would be taken to a page where I informed them that the product is still under development, and asked them to leave their email to get notified when I am done with it.
Over 70% of people who left their email addresses ended up buying the product when I launched it later on.
The whole process of creating the website, including the logos, buttons, etc… took less than a day. I used Keynote as my design tool to create new graphics, and to tweak and customize the graphics of the WordPress theme that I bought.
Next, I ran some ads (Google, Facebook, LinkedIn) for a couple of months and drove traffic to the site. I regularly worked on optimizing the design and copy of each page to make sure they converted well, while optimizing for search engine keywords to generate and measure organic traffic.
I ran dozens of A/B tests on several pages until I found the best combination of graphics/copy for each one.
It took a couple of hours each week (mostly on weekends) to measure and tweak, and things were starting to look promising: I was seeing over 4% conversion on some templates, which wasn’t bad for an eCommerce site without an existing brand.
Read Amir’s full story: How to Validate and Bootstrap Startup Ideas
(5) Brennan Dunn (Planscope.io) on Idea to Customers in 3 Days:
Making The First Sale
You’ll remember that I had a number of active conversations happening as I developed the plugin. On Monday, exactly 3 days after launching the email course, I elevated the conversation I was having with a few of the people who had joined my list.
“Hey, I have a WordPress plugin that will help you increase your sales by promoting the right products to the right people. You can buy it right now for $197, and I’ll include a year of free updates. And if it doesn’t work the way you need it to, I’ll refund you in full.”
Yes, this is high touch sales. I didn’t wake up with random people sending me money for my plugin that Monday. But this process helped me learn what objections people had to getting this solution, often spanning over quite a few emails, which would really be helpful when I switched the marketing site on in a few hours.
Needless to say, it worked. Two people who had first come across me the Friday before were now ready to fork over $197 a piece to grab this three day old WordPress plugin. Not only would this cover (and then some) my Facebook ad spend, but people had found enough value in solving this specific pain that they were willing to pay to have it go away.
Read Brennan’s full story: Idea to Customers in 3 Days
- Joel from Buffer, SendWithUs and Amir from GUIToolkits all built “fake” prototypes and landing pages where they tracked conversion rates of people who were aware of the products they were selling and clicked through anyways with the clear intent to buy.
- Brennan from Planscope used an email course as lead generation for potential customers — otherwise harnessing the power of inbound marketing.
- Patrick from Appointment Reminder actually did walk-in’s and asked business owners directly and demoed his product.
The key thing here is that there is no “right” way to validate your SaaS product. It also depends on your SaaS product/service in order to determine a suitable “MVP” and also to go where your customers are.
Admittedly, these are all geared towards tech-savvy customers (except Patrick’s approach) — I don’t think this would lend over as easily to construction (not as easy to test MVP’s like this or easily reach GC’s who are not exactly the most tech-savvy people), but I found their stories useful and interesting. I also believe in my case, I don’t actually need to build full out prototypes (fake or not).
Patrick’s approach and post actually resonates with me a lot more, but that’s just because of the nature of B2B SaaS in construction.
Actually, I find Steli Efti’s approach to shipping an MVP for SaaS a lot more compelling, but also a lot more “difficult,” in a more hard sales way.
IV. ON SHIPPING AN MVP FOR SAAS
I recently stumbled across Steli Efti’s presentation at Pioneers Festival 2013 called “You Gotta Be a Hustler” and my mind was blown.
Here’s the context behind Steli’s presentation:
We got our own startup (Elastic, which later gave birth to Close.io) off the ground with nothing but a minimum viable pitch. We didn’t even have a logo or a website. Equipped with our idea of building a platform to provide sales as a service for startups, we hit the phones and tried to sell our services. That pitch got us 7 paying customers within 14 days.
So I would encourage you to consider this as an alternative to the MVP to help you find product/market fit:
- Sell it.
- Get customers.
- Build it.
Here’s his presentation — I promise you the best 45 minutes you’ll spend on learning how to hustle in B2B sales/validating SaaS/a sales MVP:
Steli also wrote a companion piece to his presentation: Lean Sales – How to Validate Your SaaS Idea With The Power of Hustle.
Wow. Single most high value thing that I’ve ever watched for validating for SaaS. I can’t wait to try this out (though I’m really scared and nervous, to be honest).
V. APPLICATIONS FOR ME
After watching Steli’s presentation, I’m really inspired by his approach to try to validate our SaaS product idea.
My new goal to accomplish by May 1: Validate our software idea by getting 10+ paying customers in 4 weeks. Without any code.
As Noah Kagan once said, and I keep repeating in this blog post — it’s all about paying customers (emphasis mine):
Validating is ONLY money driven. Validating because “someone else has” or people said they pay never counts. Can’t tell you how many promises have never paid up so I make it very clear to get 3 paying customers within 48 hours to validate your business idea.
If you’ve spent over a month and money on your idea with no paying customers, you’re taking too long, mate.
Every business JUST solves a problem. So focus on the root core of what you are solving and seeing if that’s valuable to people.
VI. HIGHS AND LOWS THESE PAST 2 WEEKS
- Skype call with a potential customer. Just to get some feedback on initial mockups. I was happy that I was able to get a price anchor of $50-100/month by the end of the conversation. Unfortunately, I didn’t go for “the ask” yet…
- Getting coffee with a guy whose startup I indirectly helped raise money. Long story short, I helped one of my favorite startups raise money by simply doing a cold connection between them and an investor in NYC. Incredibly serendipitous. Turns out the cofounder is from the same hometown as I am, too.
- Meeting with a couple other entrepreneurs. Great to learn about what they’re working on and get feedback on what I’m working on too.
- Meetings and calls for this upcoming week. Hopefully can get more insights.
- Teaching myself how to code now. Doing some refresher courses on web design and front-end development using Treehouse.
- No $ or prepaying customers. Self-explanatory.
- Did not start cold calling yet. It’s hard to cold call, you know?
- Not doing enough daily lead generation.
- Still unsure whether to look for a full-time job or work on this on the side. Again, this is a tough call.
VII. LESSONS LEARNED
I’m learning several really hard and frustrating lessons right now:
- Selling makes me uncomfortable. It’s a bit of a chicken and egg problem — I get more confident and comfortable once I get more validation that I’m building a product people want, but I need to validate and sell (or attempt to sell) it well first in order to get validation.
- Bullshit walks and money talks. It’s never too early to sell (even with no website, no prototype, no business cards, etc). At the worst case scenario, you find out it’s not something people want. It’s only fear holding you back. If your end goal is to make money, the only real way to validate your idea is if people are willing to pay you for it.
- Niche is better than serving everyone for B2B SaaS in construction. Two key challenges here: 1) figuring out an actual problem that you can solve with automated software and 2) identifying your customer persona to a tee — the more niche, the better. You really need to understand your customers in order to understand their problems, and by extension, help them solve those problems with software.
- An easy way to check if people want to pay — email them directly (this works better if you’re B2C or maybe even SMB, rather than B2B, in my opinion): just email 20+ people and ask them to pay for your product.
For instance, for his new product Drip, Rob Walling emailed 17 founders:
I don’t want you to tell me that you think this is an interesting idea; I want to know if you would actually use and pay for it.
He got 11 out of 17 “yes” replies.
P.S. I’d love to meet you on Twitter here.
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