Avoid B.I.A.S.! Design Thinking for Founders & Investors

Calibrate your Marketing in 2019 with Marketing Model #2: Avoid B.I.A.S.! Design Thinking for Founders & Investors (and growing mid-size companies, and basically everybody).

In M:CALIBRATE Marketing Model #1 on Growth CMOs vs Brand CMOs here, we talked about how the Marketing function is broadly shifting from a tactical to a strategic focus. Our focus on the Design Thinking model demonstrates how this type of strategic thinking can help reduce startup failures.

B.I.A.S!…. But It’s Awesome Stuff! Innovators are passionate believers that their new product/service is awesome, as they should be. But is that passion enough to ensure success? Entrepreneurs are biased. Mature company innovators can be biased. Anyone who has a great new idea, something creative to sell  or a category-changing service to provide may inadvertently suffer this malady. We have great “stuff” on offer, so of course the market will buy it and we’ll enjoy inevitable success, right?

70% of VC-backed startups fail¹ and Founders cite marketing drivers as causing nearly half of these. Importantly, this isn’t about failed tactics… Weak Facebook performance, poor branding, and lack of PR are not behind these failures. We are talking about truly strategic gaps like “No Market Need,”, “Got Out- Competed,” “Failure to Pivot,” and “Product without a Business Model.” No up-front strategy, no matter  how well-conceived, is bullet-proof, but a better approach to Market Validation seems to be merited.

If around half of failures can be attributed to marketing-related drivers, maybe it’s time to shake things up! It may very well be awesome stuff, but it’s better to validate and test that hypothesis, even in a streamlined manner.

Marketing’s value as a strategic discipline has migrated over time from consumer to B2B to professional services. I’ve spent my career primarily in large organizations, both in B2C environments where marketing has been understood as a strategic driver of long-term profitability for decades, and in B2B companies where the importance of integrated, brand- aligned Customer Experience is increasingly embraced.

But if there’s a holdout market sector that is too often product instead of customer focused, drinking its own proverbial (B.I.A.S.!’ed) koolaid rather than investing in upstream market validation, it may be in Entrepreneurship.

¹CBI Insights; Feb, 2018;  ²Forbes, 07/02/14  ³Model based on multiple Design Thinking sources and modified by M:CALIBRATE

How Founders can avoid B.I.A.S.!

As a piece in Forbes entitled, “Dear Startups, Don’t Skip Design Thinking²,” states,

Too often, companies spend all their time on the innovation itself and miss one or two key elements that would really connect with a particular market. By identifying and really understanding their customers early on, companies can save a lot of time and money in discovering that successful business model.”

Okay, so what’s an Entrepreneur to do differently? That’s where Design Thinking, comes in.  Originating at   IDEO and Stanford, and now deployed in a broad range of successful companies (see Fortune’s 2018 Business By Design List ranging from AirBnB to Capital One to PepsiCo with Lifewtr), Design Thinking begins with the customer, not the solution. Though it’s a deliberate and analytical process, at its essence, Design Thinking is all about gaining a true understanding of customer pain points before creating a solution to them. Logical, right?

Founders, if you are wincing out of perceived process rigidity, this does not require a strict adherence to sequence, nor does it have to crush entrepreneurial spirit!  But Investors expect you to hit your numbers.  Investors expect you to grow and scale as you’ve projected. Granted, access to capital, team harmony, cost controls and effective operations are also critical to success. But with half of your odds resting in identifying your true customers and really understanding their needs, a key way to avoid landing in that 70% failure category, is by focusing more deliberately on Market Validation.  Go back and validate that you not only   have great “stuff”, but that customers need it, will pay for it, will refer you, and will increase their spend over    time. Even a streamlined version of Steps 1 and 2 above are worth your time.

A Message to Investors…

Investors bake this all in by taking a portfolio approach in their investment decisions, knowing that not every    one will be a winner, but by delivering on expected overall portfolio ROI. In continuing to seek ways to improve ROI, consider incorporating questions like those below as part of due diligence. Consider also supporting your existing companies in applying greater strategic marketing rigor. Doing so can reduce cycles of iteration and “pivots”, help Founders hit growth milestones and profitability targets, and may ultimately be the difference between startup success and failure.

Consider factoring Market Validation questions like these into your due diligence process:

  • Is the Founder able to articulate how the product/service meets a customer need in a way that is demonstrably better than current competitors or competitive substitutes?
  • Has a clear, compelling, and differentiated value proposition been developed? If we are targeting multiple markets or segments, does the Founder understand the differences in their needs and purchase behaviors?
  • Has the market research process validated customers’ willingness to pay for the product or service?
  • Does the Founder’s Marketing plan span not only customer acquisition, but growth and retention?
  • If we are creating a new category that requires customer education, are we confident that there is a compelling need that justifies the projected rate of customer uptake?