How to get customers
Week 2 of the Divinations Market Analysis Workshop
I’m taking a class from Every called Divinations Market Analysis Workshop taught by one of my favorite writers and business thinkers, Nathan Baschez. This post is about what I learned in week two of the class. Miss week one? I got ya right here.
During week one, Nathan explained Clay Christensen’s Jobs to Be Done (JBTD) framework to us. This week, we reviewed the JTBD framework and added another element from Clay Christensen called the Basis of Competition. I’ll explain what the Basis of Competition is in a moment.
I’ll be writing about the Divinations Market Analysis Workshop for the next few weeks. Subscribe to make sure you don’t miss an installment.
Jobs to Be Done are not product features
Working with my breakout group last Friday, I had an aha moment about how these frameworks are helpful. They help you get out of the thought rut you might be in as an entrepreneur or product manager. Since we didn’t know each other, our breakout group first introduced ourselves and said the Jobs to Be Done for our products. Both members of my group told me things that their products did (one displayed customer experience management dashboards and the other had crypto banking features) rather than needs their product met (eg. detect problems before customers become an angry online mob, bet the kids’ college accounts on Doge Coin, etc). They were so used to seeing the world from the point of view of their product that they needed a framework and some gentle prodding to wiggle them out of their rut.
The difference is so subtle that I’ll give a more concrete example. Returning to the Jobs to Be Done analogy of school teachers that I included in last week’s post, it’s as though, instead of telling me that the job of a math teacher is to “make kids know math,” they told me that the job of of the math teacher is to demonstrate how to solve math problems on the chalkboard. No! That’s how the product works. That’s not what the community hired the teacher to do. Ostensibly, the community hired the teacher to make the kids know math, and maybe also to keep them off the streets. If the teachers could do that by mind-beaming math into their brains while they ran laps on a track, that would maybe be just fine.
This is meant as no slight to my intelligent and fast-learning breakout group, but rather that once you’re deep in the land of a certain product, it’s hard to see anything but the product—even with these really useful frameworks.
The Basis of Competition
Not being able to see beyond the product is even more important when it comes to the thing that I’m supposed to be writing about here—the Basis of Competition. Nate showed us this graph…
…and talked about how most new inventions go through an evolution where the first iterations are just about whether they work sufficiently, and later evolutions tend to be about marginal improvements. Imagine the incandescent lightbulb. In the early years, they probably broke easily, burned out quickly, and tended to cause fires. But then they had around 60 years in the GE heyday where they went essentially unchanged. They were good enough, and people bought them without thinking.
It’s possible GE was still finding ways of sourcing tungsten more cheaply, marginally extending the durable life of the bulb, and touting other improvements during the incandescent heyday, but the Basis of Competition was the mix of name recognition, availability, and price. People recognized GE, the bulbs were in stock at their local hardware store, and the price was low, so they bought the bulbs.
Then something changed. Light emitting diode (LED) technology became sufficiently advanced that LED lightbulbs could last 25 times longer and use 90% less energy than their incandescent predecessors. Early LEDs were even kind of bad in terms of the color and quality of light they produced compared to what they were replacing. But the Basis of Competition had changed. The huge advantage in energy efficiency and lifetime was the new Basis of Competition. No amount of improved tungsten mining could allow incandescent bulbs to compete evenly. In the graph above, the LED bulbs would be the new line rising above the words “Progress due to disruptive technologies.” Notice how the beginning of that new line has a lower value on the Product Performance y-axis at the the time the product first becomes available.
So, as entrepreneurs and VCs, it’s our job to understand the Basis of Competition for the products we’re creating or betting on. I like to think of it like this, for a given Job to Be Done, what is the current state of the art? In the case of making kids know math and be off the streets for most of the day, schools and teachers are the current state of the art.
Now let’s return to the fintech problem that I introduced last week. We found an imaginary person who used a Buy Now Pay Later service, and we did a thought experiment where we learned that they used the BNPL service to buy a mountain bike because it would help them keep the purchase secret from their wife. So the job to be done was to make a large, secret purchase.
Now let’s imagine the Basis of Competition for that job. It seems like keeping the secret is the most important thing. If the BNPL service puts four payments of $1000 with the vendor listed as “Layaway Larry BNPL”, and the wife sees that, well it didn’t do it’s job. Going even deeper, let’s strip away the idea that the service has to be BNPL and imagine an ideal service that would help some hopeless sports gear addict secretly buy more gear.
Small transactions would be better than big ones. They should also be hard to notice. Our bike purchaser Dennis would probably love it if they could be included as small additions to other purchases he was already planning to make. He goes to the grocery store once a week and spends $300 on high priced organic fare for his family of 5. What if he could instead spend $340? In a year, that would give him an extra $2000 for gear, and no one would be the wiser. The basis of competition for Dennis is how well the product keeps the secret. Not until he is presented with several options that he trusts will keep the secret will he begin to rank them against each other for price or any other features.
Let’s think about regular BNPL and the more intuitive Job to Be Done of allowing a person to control cash flow and make a purchase with money they may not have immediately available. For them, the Basis of Competition is a few things:
Is it available on this e-commerce site as I check out?
Will they give me the money I want?
Are the payments affordable?
How much extra money to I have to pay to have this service?
Those are the things that current BNPL companies like Affirm, PayPal, and Klarna are competing over with number 1 being most important, and they are winning marketshare against traditional credit cards because they’re an entirely different product that doesn’t include a carried balance that compounds owed interest. It’s safe to say that BNPL changed the Basis of Competition for online payments from availability and security (what credit cards used to compete over) to total cost (not having an ever higher debt balance on your card).
What do we do with these frameworks?
Without these frameworks, you’re likely to see the world from the lens of existing products and default to incrementally improving their features. With the frameworks, you have a shot of getting out of this cycle. In my case, in our small group, one of the people talked about his product having a dashboard of information. I asked if maybe the dashboard is a way of getting some more fundamental job done (showing people information that can help them make a decision), and whether having dashboards or having pretty dashboards will remain the Basis of Competition for the next two years. With a bit deeper reflection, the answer turned out to be, “No.”
Any startup that is pre-product market fit, and especially any startup that is struggling with product market fit should try these ideas on for size, and see if they gain insight into how to fix what’s not working. If you’re thinking about this stuff and you have a startup, I’d love to talk through it with you. I’m happy to spend an hour just helping you learn what I’ve learned so far. Hit me up and we can chat.
The more of us that know these ideas, the more we can have useful conversations with each other where we don’t have to start from scratch defining what this stuff means. So please consider passing this or Nathan’s posts along and make these ideas take hold in the startup world as well as the Lean Startup did!