Stephen Edkins, CEO of Rice Exchange talks to one of our Founding Partners, Sean Sheppard, about how technology startups and big corporate companies can successfully commercialize innovation.
Stephen: Let’s talk about startups that are building ecosystems. What advice do you have? How should startups approach corporations? And what problems can a startup solve that the corporate itself can’t solve?
Sean: The first thing to do is clearly define the problem.
“As an entrepreneur what problem are you solving, and for whom, and I mean, right now, I don’t mean two years from now, or five years from now, once you’ve achieved world domination.”
You need to clearly identify a problem and get that problem mutually agreed upon and articulated between yourself and the customer. Then you need to deeply profile that customer so that you can understand if there’s a fit and validate what we call problem-solution fit before product-market fit.
Rice Exchange is a good example. Today all this rice is traded offline: it’s very difficult to track, it lacks transparency and there are many problems associated with the way rice is traded today. And there are various user profiles in the rice trade: the farmers, the shippers, the brokers, the buyers, the sellers and the banks. All these different user groups operate in the rice trading ecosystem.
You need to profile those people and understand their situation. What are the problems associated with the rice trade that you think you can solve? Can you quantify the impact of those problems on their business?
That’s how you’re going to learn whether you can be successful on a proof of concept. What would the resulting need look like? And then you have those conversations with them and show them your value hypothesis based on the way you think they’re working today. What problems do you have?
Let’s flesh those out and gain mutual clarity on those problems. Then figure out how to quantify the size and scope of those problems. The problems might be things like lost time, lost money, productivity and security.
“We know that in today’s world, there are probably five reasons anyone buys anything: to make money, save money, create a competitive advantage, or maintain it, and move the needle emotionally and psychologically.”
Taking a negative emotion and turning into a positive one is a very consumer-oriented purpose for buying. There is another reason which is to stay out of prison or manage risk liability. So those are the business and human needs that motivate people to buy.
Your job is to connect the dots between what you do for someone and those things. Then you gain mutual agreement together and then you define a way to learn together.
It all starts with having an open mindset that says: “Look, I don’t know what I don’t know yet. I don’t know if I have all the answers. But I do have this value hypothesis based on what I understand.
And I’d like to have a conversation with you to determine if you see this as an issue. And then let’s see if it makes sense to continue the conversation down a path where we might try to work together on solving that problem for you.”
Often at this point it has nothing to do with money but to do with you getting resources from an early customer that is willing to give you feedback. And that’s key because in today’s world people will not tell you the truth if it creates more work or conflict.
You must create an environment that creates less work not more and gives them the ability to feel comfortable in telling you the truth in a conflict-free manner. You need to have the growth mindset that says “I’m here to learn and if I can solve a problem for you, I believe there are many others like you for whom I can solve it.”
Then there are three things you need to accomplish. One, you need to be able to own the customer use case in a way that the customer looks at you and says: “this is my use case, you solve it well for me, I’m super happy with you.”
Then you need to own the customers thoughts and actions as that use case is creating more information that’s valuable especially if it’s technology. And that comes through data analytics and the insights that come from that. And that starts with “Can I track it?” And once I can track it: “Can I manage it?” And once I can manage it: “Can it help me make better decisions?” And ultimately “Can it make better decisions for me?” That’s the promise of technology.
You need to own the use case and own the customers thoughts and actions. And don’t forget to own the relationship. Everybody’s still human. I don’t care if you’re selling B2B, or B2C, or marketplaces, widgets, services, it doesn’t matter.
“It’s all still human to human, especially in the early stages, when there’s a small team of people just trying to find fit in the market.”
So most of the critical insights that you collect from the marketplace at this stage, are collected offline. They’re collected in conversations like this, over coffee or lunch, or at a conference or an event.
And there’s a lot going on, but you’re collecting information. So, it’s critical that you discipline yourself to organise that information and use that information to help you learn faster, so that you can get to the truth quicker about where your product fits in the market.
And so those are the three objectives. In order to achieve those three objectives, there’s three things you must do.
The first is be focused on finding the truth from your customer about where your product might solve a problem for them. The second is to create a functional learning team out of the small group of people who are responsible for pursuing that truth.
And that doesn’t mean some massive culture shift. That just means somebody must be responsible and accountable for soliciting and collecting feedback from the customer. And using that internally to work cross functionally with the rest of the team to make sure that you’re solving the problem they want solved, not building the vision that you originally came up with.
Because if they’re not going to pay for it, it doesn’t matter. And then the third one is profitability. Can you determine if profitability exists at a transactional level and demonstrate that there’s value?
It’s a methodology that’s about the learning that leads me to the revenue, and the learning must come from that customer. When you profile who you’re going to go to first, you must answer all those questions.
And recognise that you don’t want or need everybody, you only need x amount of data, say a cohort analysis, a statistically significant number of customers, use cases or trials to learn. There is no need to get more than that.
And then from there, it’s about recognising the psychology of the people that you attract into your community at this stage. Geoffrey Moore, who wrote Crossing the Chasm, talks about the technology adoption curve, and breaks humans into five communities. And these communities are all about how people respond to change or risk. Those communities are: innovators, early adopters, early majority, late majority, sceptics and laggards.
There’s a very important reality that people need to understand which is that mainstream buyers will not buy from you when you’re new. Innovators and early adopters will.
The mainstream is 60% of the market. Innovators are only about 7% to 10%. And early adopters are about 12%. One in five humans will have the right mindset and psychology to take a risk in working with a startup early. And out of those people the early adopters are the most important as they have budget, power and influence to make good, sound calculated business decisions about whether they want to take a risk on working with you.
Innovators will try anything, but nobody gives them budget because they will try anything. They’re great for early product feedback. They have energy for what you’re doing and want to play with it. If you can get them to give you real product feedback, that’s fantastic.
But I would not hitch your trailer to that vehicle long term. It’s a great short-term psychology for people to leverage but you really want to get to the early adopters. They are the people that see a competitive advantage in working with you. They’re the ones that see the opportunity to say, if I start doing my trades on Rice Exchange, next year we can go to the global rice conference and the two of us could stand on stage and talk about how we improved the rice business through Rice Exchange. That’s the psychology of that early adopter.
The mainstream people will give you time and they’ll ask the risk-based questions very early. And that’s a sign that they’re not a good fit for you right now. It’s not a bad thing. It’s just timing.
And you need to recognise that you’re a small team and that you can only handle a small number of customers early on. In business to business enterprise you don’t want more than two to three customers validating your use-cases early on because it’s just too much work.
And you want to do it well. And you don’t have to do technically well out of the gate. You just need to do it well as a group of humans who can support and service a problem.
Once you have identified your early adopters then you need to have the conversation about being with them to learn from them not to sell. Would we be good partners now? What would a proof of concept look like? How would we measure it? What resources do you need to allocate towards it versus the resources I need to allocate towards it?
And then you need to qualify these people out just as much as you qualify them in.
“Where I see the behaviours of founders go sideways is when they get seduced by everyone who expresses interest in what they’re doing regardless of whether it’s good for them. because it’s emotionally and psychologically validating.”
And they start spending time with the wrong people. And every moment spent with the wrong person, when you only have 6 to 12 months of money, is valuable time.
You can always raise more money or make more money, but you can’t make more time. So be disciplined about being focused on who you work with first and then try hard to understand them.
And then go to them with that value hypothesis: I think I can help you in this way because we’ve helped others like you in this way. Here are the measurable, quantifiable results. Can we talk to see if we can help you in a similar fashion?
And then you need to stay focused on that until you’re able to validate the three things that I talked about: Where does your product fit in the market? What problem is it solving and how can it be profitable?