The Four-Way Fit — Chapter 8: The “Heads Up” Motion in Phase I (Part 2)
By: Tom Mohr
Tags: CEO, Enterprise Technology, Startup, Technology

If you are a startup CEO in search of a value breakthrough, you know the challenge: find one before the money runs out. It’s a Catch 22. To achieve a true breakthrough requires you to understand gaping problems and screaming needs at a deeper level than any other actor in the space. And your solution to these problems and needs must radically improve upon anything that currently exists. How is that possible with so few resources?

The only way to accomplish this feat is to learn more than all others about your chosen market and top priority segment, as cheaply as you can. Within your segment of interest, what are its jobs to be done? Who are its key personas, and what gaping problems and screaming needs do they face as they seek to complete these jobs? As you pit problems and needs against your own capabilities, you wrestle to find some unique innovation that defeats them. In Phase I, your path to a better, faster, cheaper breakthrough progresses through four stages: Immerse and Ideate, Minimum Viable Concept, Initial Product Release and Minimum Viable Product. Like this:

At every stage, the “heads up” motion plays an important role. Across the domains of Market, Product, Model and Team, you seek a business concept that is comprehensive, integrated and internally consistent. When you execute the “heads up” motion well, you will clarify the opportunity, build an integrated view of the way forward, and prepare for action. But it isn’t easy. Early stage company-building is messy. Your integrated view will undergo continuous change as you narrow in on truth.

How long will Phase I take? It can’t be put on the clock. You can’t predict when you will move from stage to stage. Your customers will decide. Having said that, in each stage there are certain objectives to accomplish. In the first stage, Immerse and Ideate, your job is simply to observe, ask, learn and conceptualize possible solutions. In the second stage, Minimum Viable Concept, you will draw upon insights gained to sketch out a comprehensive business concept. In the third stage, Initial Product Release, this minimum viable concept will become the basis for your first working product. In close collaboration with alpha visionary customers, you will build a small set of first features; you’ll watch in fascination (and, sometimes, despair) as they try to use them. In the fourth stage, Minimum Viable Product, you will start to figure out the path to a product with sufficient value to be sellable. You’ll figure out the initial business model and start selling.

At first, as you immerse yourself in the problem domain, quick observations will masquerade as epiphanies. Like a fox, you’ll “see” the most important problems hiding in the underbrush. With a short leap you’ll “land” on their solution. But these early insights will prove wrong. It takes lots of time, trouble and trial to discern true problems and needs. With time, as real problems rise from the fog, you’ll find yourself coming up with all kinds of half-baked solution ideas — one upon the other. Only slowly, in fits and starts, will frequent failures funnel you towards the white hot center of need and opportunity. Only then will an integrated solution concept begin to emerge. Even yet, you’ll need to hold it lightly. Iteration after iteration will remain before a true value breakthrough is achieved.

When you follow the Four-Way Fit method, you oscillate between the “heads up” motion and the “heads down” motion. Before you dive heads down into execution, you must first think everything through in an integrated way, and sort out the things you know (settled assumptions) from the things you aren’t yet sure of (testable claims). The “think everything through” part is the “heads up” motion. Let’s go deeper into how it plays out in each Phase I stage.

Immerse and Ideate Stage

The job of the Immerse and Ideate stage is to build a sufficiently deep understanding of the market, its top priority segment, the segment’s personas, their problems, their needs and solution requirements to devise a minimum viable concept for your company. Most of this is “heads down” work, but there are important “heads up” acts. In this first stage the most important of these acts — by far — is team formation.

Who will make up your founding team? This is fundamental. You need to recruit a team that has what it takes to make it through the first four stages. If yours is a technology company, your team will need to possess certain functional competencies — such as engineering, product management and general business skills (sales, financial planning, fundraising, etc.). These are important. But to actually achieve a value breakthrough, you especially require two “thinking competencies”: design thinking and lean thinking. Design thinking gets you through the first three stages. Lean thinking gets you through the fourth.

Design Thinking

Design thinking is the capability to perceive and elucidate the most gaping problems and screaming needs experienced by customers, and then to narrow in on solution concepts that might successfully address them. Problems are different than needs. Problems are objective: these are the obstacles actors encounter as they seek to execute a given job. Needs are subjective. These are the human emotions and motivations that drive actor behavior. Both are extraordinarily important to understand, if you want to build a product that achieves a value breakthrough. To do so you need the competency called design thinking.

A competent design thinker will observe customers and their behaviors in many contexts, with empathy and insight. She will leverage that insight to gain a deep understanding of problems and needs. She will then follow both intuitive and analytical design routines, using heuristic methods to devise superior solution hypotheses.

Design thinkers understand that to create a value breakthrough, a solution must substantially overcome a customer’s gaping problems and screaming needs, be technically feasible and pair with a financially sound business model — one that the customer will readily accept. These discoveries emerge in three “stepping stones”. The role of the design thinker is key in all three of these:

Observation stepping stone

Invention stepping stone

Iteration stepping stone

In his book The Ten Faces of Innovation, Tom Kelley (a partner at the famous design consultancy IDEO) identifies three personas that roughly correspond to these three stepping stones: the learning persona, the organizing persona and the building persona. In Kelley’s construct, each persona exhibits multiple “faces” — roles. Note that multiple roles may be performed by one person. The roles themselves, however, are distinct.

At the observation stepping stone, design thinkers learn. For Kelley, three roles comprise the “learning” persona:

Anthropologist

Experimenter

Cross-pollinator

The anthropologist brings active curiosity, beginner’s eyes, simple observation, an absence of judgment, empathetic listening, an ability to see the unnoticed and a capacity to learn. She understands the science of human behavior. She recognizes that humans can be rational in certain contexts, and irrational in others. Emotional factors, personal motivations and short-term effects can influence decision making in important ways.

The experimenter knows how to conduct human factors research, is effective at open-ended questioning and ideates collaboratively. The cross-pollinator is a boundaryless thinker, can see the associations between seemingly unrelated things and looks for metaphors in solution concepting.

At the observation stepping stone, the work to be done is concrete — involving both analytical observations and intuitive insights. At this stage, the job is to live inside of your customers’ spaces. This enables you to immerse in their routines. As you observe, your aperture widens — you experience divergence. Your sense of the problems and opportunities, which at first seemed simple (simplistic), now seems complex.

At the invention stepping stone, design thinkers invent. The design thinker draws upon observations and insights to ideate and narrow in on viable solution options. In this alchemy, she leverages your company’s capabilities to transform problems and needs into solutions. Leveraging Kelley’s construct, this includes the faces of the “learning” persona (noted above), but now adds the faces of the “organizing” persona, as follows:

The hurdler

The collaborator

The director

The hurdler is a tireless problem-solver, undeterred by failed hypotheses, who brings a relentless determination to overcome every obstacle. The collaborator leverages different perspectives to discover breakthroughs. The director keeps the team coordinated and focused on the big picture. For instance, the director is the one that will build out the framework canvas during the Minimum Viable Concept stage.

At the invention stepping stone, the work to be done begins at a high level of abstraction, and moves towards the concrete. It begins in the customer’s world, and moves into a creative space for ideation and iteration. Ideas emerge first from intuition, and then are narrowed through analytical thinking and heuristic methods. Your sense of the problems and their solutions moves from complexity and confusion towards greater clarity. Ideation heads down a narrowing path.

At the iteration stepping stone, design thinkers narrow in on viable solutions to known problems and needs through trial and error. This occurs in the Initial Product Release and Minimum Viable Product stages. The design thinker’s unique contributions at this point are captured predominately by what Kelley calls the “building” persona. Here the three faces of interest are:

The experience architect

The set designer

The caregiver

The experience architect leverages human factors research to simplify workflows and aid the user experience with visual cues. Working closely and carefully with visionary customers, she examines each step of the customer journey. At each step, she seeks to discover the friction that slows the user down, and the motivation that encourages the user to proceed. She conceives of ways to reduce the friction and increase the motivation at each step, and knows how to test these design ideas. The set designer tends to the creative workspace, enriching it to support inspiration, ideation and iteration. The caregiver brings high empathy for the user to every task.

During the iteration stepping stone, the work to be done is concrete — involving testing, iterating and optimizing. What was once complex has clarified. The product vision, once stuck between simplistic to complex, is now headed towards simple. Simple, of course, is hard — and is never fully achieved.

In Phase I the team is small. During the Immerse and Ideate stage, you will seek a “design thinking” founder who wears many of these “faces”.

Lean Thinking

The goal of lean thinkers is to minimize waste of time and money. Lean thinkers make improvements in an incremental way, guided by the scientific method and informed by data. You can’t follow the Four-Way Fit method without this competency. It is the seminal contribution of lean startup advocates. Does someone on your founding team possess this “lean thinking” competency? Do you all possess it? It is a discipline that, like a muscle, is built through exercise. It is seen in the use of disciplined agile delivery methods within product development teams. It is seen in the decision methods of the top team — for instance, in the expectation to bring data to anchor any opinion. It is seen in respect for the scientific method (the “hypothesize / test / iterate / verify / build / measure / learn” cycle), in all contexts — from product development to business model development to marketing and messaging development to employee and team development.

Lean thinking kicks in during the fourth stage of company-building: the Minimum Viable Product stage. It is here that customer usage data begins to stream in from your product, enabling you to leverage lean routines.

Of course, other competencies will also be required in your founding team — functional competencies, market knowledge and so forth. Just make sure that as you form that team you prioritize design thinking and lean thinking at or near the top of your recruiting priority list.

Minimum Viable Concept Stage

The “heads up” motion takes the podium in the Minimum Viable Concept stage. It is here that your emerging understanding of the market, its segments and their personas comes together for the first time in an integrated view, expressed within the framework canvas. From this point forward, every new learning will lead you back to the canvas — where you will replace every disproved claim with a new one so that all claims remain comprehensive, integrated and internally consistent.

You will start by building out claims in the domains of Market and Product. It is here that the game is won or lost. Of all subdomains, none is more important than the one called “Gaping Problems / Screaming Needs”. This subdomain is the fulcrum on the lever of growth. As you explore the customer’s jobs to be done, you will encounter gaping problems. This insight is, of course, pivotal. But it’s equally important to understand the constellation of needs and motivations that actors experience as they deal with those gaping problems. The more clearly you understand human needs and motivations, the more likely you are to build a product that addresses both the objective problems and the subjective human needs. Products that do both do better.

Eventually, you’ll add claims in the domains of Model and Team as well, until you have a completed canvas on the whiteboard. Once these claims hang together — comprehensive, integrated and internally consistent — you are ready to concept-test them with visionary customers. The reactions of these customers will help you find and fix the most obvious flaws.

Let’s go deeper. In this Minimum Viable Concept stage, the job of the “heads up” motion is to:

Complete the first iteration of the canvas

Differentiate settled assumptions from testable claims

Prioritize testable claims

Keep updating the canvas until claims settle

Complete the Canvas

This is the work of your founding team, led by your design thinker. I covered how to do this in Part 1 of this book.

Differentiate Settled Assumptions from Testable Claims

At this stage, there are many things you think, but few things you know. It is important to differentiate between the two. The things you “think” are testable claims; the things you “know” are settled assumptions. Settled assumptions can be immediately invested in and acted upon. All other claims require testing. Remember, at this point your company’s essence is to be a learning engine — so it’s natural that most claims will need to be tested, and that most of your time will be spent testing.

Prioritize Claims to be Tested

To prioritize claims for testing, you will need to weigh the significance of each. Which ones, if proven false, would bring the entire edifice of your business concept crashing to the ground? These are your most fundamental claims. For each of them, consider your level of certitude they are true. Focus on facts, not opinion. What evidence substantiates truth?

To decide the sequence of testing, you will weigh these two considerations — significance and certitude. These ratings will help you prioritize which claims to test, in what order. As always, you want to minimize the waste of money and time — so you will test high-significance but low-certitude claims first, and work down the list from there.

During this stage, the most important claims to test are those that pertain to the market, its gaping problems and screaming needs, the solution ideas that most resonate and the product features most compelling to visionary customers. Your design thinker will immerse, observe, discern, ideate, and conduct rapid prototyping exercises with a small group of visionary customers, bringing to the task an anthropologist’s eye. Of course, the concept testing itself falls into the “heads down” motion — the subject of the next chapter.

Update the Canvas

As concept test results come in, flaws in your thinking will be revealed. Every time a claim is disproved, you will need to return to the canvas to update it. In other words, you’ll return to the “heads up” motion. As you fix each broken claim, be sure to root out any other claims that were dependent on it. This will lead you to reprioritize and assign the next tranche of tests. The more efficiently you move from the “heads up” motion to the “heads down” motion and back again, the more quickly you will learn.

Initial Product Release

After your “minimum viable concept” has made it through the concept-testing gauntlet, you will get to the point where you feel ready to build your initial product. At this point, your minimum viable concept has been conceptually validated by visionary customers. You haven’t built anything yet, but you have received sufficient signal that you’re on the right track.

By now, if your concept is clear and compelling, and you have chosen a large market, you probably have been able to attract seed funding. Funding in hand, your first “heads up” motion at this stage will be to set hiring requirements for your product development team. Perhaps your founding team includes an engineer and product manager. You still need a few more engineers and a designer.

Once this team is in place, you’ll need to choose first features. What is the minimum set of features you can build that alpha customers will value? This too is a “heads up” act. Once the building begins, you will oscillate back and forth — “heads up” and “heads down” — as you build, measure and learn. Customer feedback drives this process.

As alpha customers attempt to use your initial product, your job will be to watch, learn and iterate. Their difficulties and frustrations will be grist for the mill; you’ll apply design thinking and agile practices to iterate towards something these customers find at least minimally useful. Whenever a significant claim proves flawed, remember to update it on the canvas.

Minimum Viable Product

Slowly but surely, your first features will coalesce into a solution set that alpha visionary customers find valuable. With a small set of paying beta customers, small streams of data will begin to flow out of your product. Now the competency called lean thinking becomes important. Your lean thinkers will introduce data-driven decision making — the build / measure / learn cycle that is central to agile methodology. Continuous improvement will become a weekly routine as landing page heat maps and AB tests enable features optimization.

Once you observe customers using your products with regularity, and once you hear validation that your skinny feature set is helping address at least some of the problems and needs it was intended to address, you will be ready to try to sell it to beta customers. This is an important part of the MVP stage — to sell and retain a handful of early adopter customers. It requires a new “heads up” motion, for now you will need to ascertain the value your product delivers in its skinny state, and use that information to land on your initial business model and price. Your business model decision will be key. Who will you charge? By what unit of measurement? Will you base your price on objective ROI considerations only, or will you consider subjective factors?

A company that did the latter is Lemonade, the B2C insurance company. Its founders knew that trust was a major problem for insurance companies. Consumers know that the carrier’s self-interest is to maximize premiums and minimize claims. These companies are all too happy to take our money, but will they pay it back when we’re sick, burglarized or in a car crash? Deep mistrust hobbles the relationship. Lemonade chose to address this problem head on, by changing the business model. It was and is their biggest innovation. The company established a set fee for its insurance products. It then created a claims pool, and stipulated that if the claims pool had excess funds in it at the end of a given claims period, those excess funds would be paid out to the customer’s charity of choice. Lemonade gains no benefit from underpaid claims, and so there is no incentive to do it. This business model design addressed the consumer’s “screaming need” for trust. It became the source of customer-defined value that powered the company to iconic enterprise status.

Lemonade’s business model was decided on early in the company’s development. It was part of its MVP. The example of Lemonade shows us why Market / Product fit is an insufficient standard for a true value breakthrough. A breakthrough only occurs once a company achieves Market / Product /Model fit.

Once you have identified your business model, you need to build a sales message. This too is a “head up” step. So too is your customer acquisition method. Your price will impact your customer lifetime value, which will guide go-to-market. As you think through these issues, you’ll return to the canvas time and again, updating your claims in the Model domain.

Summary

To make it through the first phase of company-building takes certain core competencies — especially design thinking and lean thinking. Once your team is in place the work begins to transform your company into a learning engine. You will search out the gaping problems and screaming needs experienced by known personas inside your chosen segment and market. You will conceive of solutions, conceptualize a business, and then build, measure and learn your way towards a minimum viable product. All of these things require you to step back, think things through and plan things out. That’s the “heads up” motion.

But of course, these conceptualizations are not fixed in stone. They are peppered with testable claims which must be tested, and settled assumptions which must be acted upon. That’s the job of the “heads down” motion — the subject of the next chapter.

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