Traffic Source: HackerNews, link to landing page with demo video targeted at early adopters

Result: Pass. Built list of around 5,000 interested prospects. The problem description resonated strongly with their targeted early adopter audience.

Step Back: Moving to a video format helped get across the product’s story more effectively. This made it more accessible to everyone. In and of itself, an explainer video is just a change in format–similar to how a bestselling book is treated as a candidate to become a blockbuster movie. Ultimately, a landing page that tests demand much get across the story well. The medium for telling that story is secondary to the relevance and quality of that story to the target audience.

As Dropbox’s initial target audience was quite technical, this explanation mapped to a number of tools and behaviors they already knew from software development. And they were more than happy to run with the write once, read anywhere concept. Arguably, this niche perceived other cloud storage as defective because it didn’t support this kind of functionality. As a result, they needed little convincing and persuasion to hop on board.

Hypothesis: Paid search can be a profitable engine of growth for Dropbox

Test Type: Growth hypothesis

Success Criteria: Customer Value > Customer Acquisition Cost

Traffic Source: Paid search engine marketing

Dropbox experimented with using paid acquisition on a landing page. This is not an early-stage landing page MVP test. It’s an attempt to figure out what will grow the company, not whether the product idea is attractive. They hired an experienced search engine marketer, who went out and made landing pages. On those pages, they hid the free option, replacing it with a free time-limited trial.

google adwords launch tomorrow
AdWords interface is showing incorrect campaign conversation numbers. Difference of numbers are computed here.


Total ad spend: approximately $3,000 in the image above

In their words, here were the problems they faced:

Result: Fail. As their cost of acquisition at the time was at least $233 for a $99 product, the experiment to test paid acquisition as a profitable traffic source failed. Based on the economics of paid search, pay-per-click didn’t look like a viable growth strategy for Dropbox.

Step back: Even though PPC as a source of traffic didn’t work for them, it solidified their confidence in their ability to retain customers.

If people bought, their subscription retention rate was over 75%. In short, they had a great product their community loved, and they had product market fit. In Drew Houston’s words, this meant that “product-market fit cures the many sins of management.” After this idea failed, Dropbox created a famous explainer video which went viral, thus proving that a viral engine of growth was better for them.

Hypothesis: A simple value proposition resonates more with the target audience than a complex one

Test Type: Value hypothesis

Success Criteria: Conversion rate > initial conversion rate

Traffic Source: Paid search engine marketing

dropbox design launch tomorrow
Simpler the better!

Result: Pass. Simple and concise converts better, as does having a clear call-to-action for the next step.

Step back: This test type is taken out of the traditional toolbox of conversion rate optimization (CRO).

The idea is clear to the founders. They want to communicate it as concisely and effectively as possible to their target audience. Even if they move to a different traffic source later (as Dropbox did), a clear and powerful value proposition ensures a high conversion rate for all further marketing efforts, including free traffic sources. Moving too early into this kind of testing can be a type of premature optimization.

The Takeaways

The key tactic Dropbox used was to to test both market and technical viability simultaneously. In addition, they did a number of smaller tests. Each test checked a much smaller piece of the bigger puzzle. This required them to break down the overall vision into discrete tests which they built and ran.

Build -> Measure -> Learn

By running a series of experiments, Dropbox stayed with the ethos of MVP=experiment. Each cycle around the Build, Measure, Learn loop gave them greater insight. Each step they took tested something new about their target market and their product.

As a result the product evolved very quickly, because the team gathered actionable yet counter-intuitive data. This helped them build a strong USP (unique selling proposition) in a crowded marketplace using technology that was theoretically possible but unproven.

There is a lot more to a minimum viable product than just a beta software release. This post aims to make that clearer.

<< Help Yo' Friends

How Early Can You Launch?

launch calendar launch tomorrowThe main thing about launches that I’ve realized is that people put way too much emphasis on them. They end up focussing too much on a one-off event, rather than on building a successful business. Sometimes, they end up paying a price for suboptimal trade-offs they make.

The goal of a traditional launch is to work towards a specific date. Your customers will expect to see the product on that day. You product development team has to get the product in a presentable shape. Launching works well as a tool to build anticipation.

But a launch is also a planning tool. The thing is, you commit to plans based on your assumptions. And if you are creating a new product, or entering a new market, there are bound to be some wrong assumptions.

For example, I’ve run or participated in a few Lean Startup Machine weekends in the past. Of the teams that are formed at the beginning, I’d say about 10-20% are still working on roughly the same product at the end.

This means 90% of early stage founders generated significant learning by speaking to their customers. If any of those 90% of ideas were launched without any customer engagement, there would have been a lot of back-pedalling to do. After speaking to many prospects over the weekend, most have an epiphany or two.

Engage with your market as early as you can. Here’s why you should do so in your startup:

  1. If you earn (or are already earning) revenue, you are proving the commercial viability of your idea with your chosen niche
  2. If you eventually do a traditional launch, you can start testing your marketing and positioning now. This typically involves getting your message in front of different traffic sources. Seeing what speaks to each niche. Optimize your growth. Improve your message market fit. Avoid low-ball price wars as a commoditized product or service.
  3. If you have revenue (ideally cash flow) then you can finance further growth. You can create internal positive feedback loops within your company. Self-finance your roll-out to different audiences.

If you are concerned you’ll be losing out on the marketing effect of “launch anticipation”, run a limited small scale test. Try giving your product away for free to a handful of ideal clients. Confirm that they actually spend the time to engage with it. Listen to their feedback. If it’s good, you can include the reviews as testimonials. If you need to improve, then at least you find out before you do an entire media blitz.

Or sell the product using paid advertising. Make 30 sales. Use those numbers to figure out all of the critical factors in your marketing. Quantify market size, customer acquisition cost, and conversion rate at different price points. Then you have a legitimate baseline for planning further investment in the product, or to reject it as a bad idea.

Once you do that a few time, you will be ready to start building anticipation. Do all of the usual “launch stuff”:

Whatever is relevant for you and your product.

So there’s definitely a place for a traditional launch. It’s just after completing a lot of experiments–including marketing ones.

[image: dave cholet]

Business Benefits Of Extreme Product Launches

Even though an extreme product launch may sound like a new idea, it’s just a name for something already happening on a wide scale. There are many sites which promote selling a product before you have it. Kickstarter for products. LeanPub for books. for courses. Thanks to the take-down of private company funding regulations in the US, there’s even websites for funding businesses which don’t exist yet.

The main business benefit you accrue from an extreme launch is that you truncate your cost of delay to zero. In high growth industries like technology, timing is crucial. Once the technical inputs for a product are easily accessible and affordable for the players in a niche, the first mover will earn the greatest benefit from introducing the product.

By selling to confirm you have a good offer, you do more than confirm your intuition about the offer. You start earning revenues immediately, which is the whole point of creating your business. Granted you will almost certainly sell less, or at least get more refund requests if you don’t have the product yet. But…and this is crucial…you won’t have any cost of delay. Because you start selling earlier, you make it more likely that you’ll grab a greater share of the market. You also discover whether you might be too early potentially. Even though the technology may have matured enough, it’s possible your users aren’t ready to accept a new gadget which solves a specific problem.

It’s basically a cunning ploy on my part to elevate the status of the lowly pre-order. While an extreme launch may be uncomfortable for you, you either build a lot more confidence in your idea based on pre-order sales, or you blow up much earlier so you actually waste less money when learning your product idea is a dud.

Why is delay such an important factor? Just because you can’t see it, doesn’t mean it’s not there. Just like blood pressure.

In the case of a startup, there is a very real opportunity cost of releasing late. You risk making fewer sales if your competition beats you to a market. Even if they have more bugs, they will already be earning cash. In most markets, according to Ries & Trout’s booklet the 22 Immutable Laws of Marketing, there is space for three players in your users’ mind. How many brands of toothpaste can you come up with, without checking a store? More poignantly, do you know who the second person to cross the Atlantic was, without checking Google or Wikipedia? (Hint, it wasn’t Charles Lindberg or Amelia Earhart). You are up against the limits of human perception and memory, at least within your niche.

According to Doug Hall in “Jump Start Your Marketing Brain”, based on his proprietary studies across thousands of product launches:

Having the courage to be the first to market nearly doubles your sales versus being the fourth to market. On average, brands that are second to market generate 71 percent of the sales of the pioneer. Those that are third generate 58 percent, and those that are fourth some 51 percent of the sales of the brand that is first to market.

Most companies simply don’t explicitly take the cost of delay into account, because they think it’s given. It’s obvious. They don’t think about how big it is, usually because it’s hard to estimate.

Moreover, this loss of sales revenues will typically be significantly greater than the cost of accelerating development, to finish the product faster. So for example, getting to market faster with a full blown product may cost more to execute; however, the additional sales you generate will compensate for far more than the additional development costs incurred.

Product development expert Don Reinertsen popularizes the cost of delay as a highly relevant metric when launching new (read:greenfield) products, both in large and small companies. When running in-house training sessions, within most product teams the range of initial cost of delay estimates is about two orders of magnitude. Each time it’s the same company, the same product, the same target market, the same technologies, and the same group of people. Nonetheless, this lack of estimate agreement is consistent across companies. Presumably, no one even bothers bringing it up, so everyone just assumes that everyone else has the same assumptions. And then they can’t figure out why they disagree on how and when to launch the product.

So if you’re an entrepreneur creating a new product, your best bet is to launch immediately. You won’t have any cost of delay. You will start making sales, which implies cash to finance the rest of your business growth.

Why Extreme Product Launches Are Different

In a traditional marketing “hard launch”, you build up to a crescendo. The whole market trembles with excitement for the minute your product comes out, pulls out their credit card, and buys. You make 7 figures in one day, synchronously. This is particularly common for something like a highly anticipated event with limited availability of tickets. Often this requires significant planning, operational gymnastics, and making sure all of your ducks are standing in a row.

Hard launches try to take advantage of extra components of Cialdini’s principles of influence by building everything up at once. If there is a lot of buzz on a particular date, this helps with generating social validation for the product. Word of mouth intensifies.

Not A Soft Launch

A soft launch is the opposite. You try to avoid making a big splash all at one moment. Instead, you introduce the product to new people incrementally, to expand your product reach as you are certain you’ve ironed out the technical problems with the product. Soft launches are a good tool if there is a very high level of technical uncertainty, particularly from the founders’ perspective

Instead, you iteratively release and notify groups of prospects, and then work with them to perfect the product. It’s continuous improvement in the sense Toyota and other Japanese manufacturers originally pioneered, just in the context of introducing new products. As you feed customer feedback into the product, you make it increasingly attractive to the next batch of prospects.

Not A Rolling Launch

To some extent you could also compare it to a rolling launch. In this case, the same product is just re-introduced to a completely new set of prospects at a different place and time. So if the initial launch was at a local chamber of commerce meeting, and then the product is shown again to similar prospects at a business breakfast networking group, the new set of prospects will think it’s just being launched now just for them. The fact that the second launch happened later doesn’t really make a difference to that second group.

In most cases, a rolling product launch doesn’t really affect total profits, compared to trying to reach all of the same prospects to launch on one day. So in fact, we put unnecessary scheduling pressure on our team to release products on a specific date. If we stagger release dates, from a marketing point of view it still generates additional value. The added benefit of perceived scarcity of being the very first adopter is limited.

In fact, because the launches are spread out over time, it provides an extremely powerful feedback loop for both the marketing and for the product development team. Customers who buy can be interviewed for greater insight into why they bought, what they find attractive, and how they describe the benefits of the product in their own language.

So what is an Extreme Product Launch, then?

You figure out who you’re targeting. You put up a landing page. And you try every possible approach you can to drive relevant traffic to that landing page. Measure results. Get conversions. And prove who is actually willing to pay for your product and how to reach them. You figure out how much time or money it will cost you to acquire each customer type.

You can do this without a product. All you need is a landing page. And you can get started tomorrow. Details in Launch Tomorrow.

Optimizing Your Product Idea By Building a Sales Funnel First

When your prospects first hear of your product, your message will make or break your whole business. That moment is crucial. You will repeat it many times. You will continue repeating it as long as you have prospects. The more successful you are at nailing that first impression, the easier it will be to ramp up afterwards. Exponentially easier. You will literally see it in the numbers at each stage of the funnel, as people drop off and lose interest.

In fact, invention guru Doug Hall did rigorous market research across his client base, where he looked at thousands of new product launches. His results confirm the importance of the product idea, “the quality of the idea or the offer is 2.2x more often the source of product failure than the marketing plan, and 1.5x more often the source than product [technical] performance.” Ouch.

Once your prospect has a clear picture of what you are selling and whether they care, which will typically take a few seconds, then they’ll know whether they want to continue engaging with you or not.

If you nail this core message, and your market drools as it hears about your product. Everything else will be much easier:

A clear, sexy, and differentiated offer that solves a real problem affects all downstream metrics in your business. And you go from startup to successful business owner fast. Very fast.

In mature businesses, the simple way to benchmark business success is profits. If you are just starting out, you don’t have profits yet. Instead, you can observe the flow of your prospects towards a sale.

As you build out the funnel, you can test and optimize your product idea
“Begin with the end in mind.” –Steven Covey

Therein lies enormous power.

In a for-profit business, your ultimate goal is to make money. If you start with that end in mind, you immediately identify all of the reasons why you aren’t selling yet. In fact, this helps you rapidly identify all of the key things you need to do.

By learning how to reach your ideal prospects, learning enough about them to convince them to sign up for more information, and ideally even pre-selling the product in a simplified form, you will be certain you’re building the right product when you actually start building anything.


In the image, the top funnels symbolize each traffic source you use. The big funnel then grabs the output of those funnels, and sells them on the product.

The trap many tech startup founders fall into is creating the product, only to discover that they don’t have a sales funnel. They don’t know how to reach prospects systematically. They don’t know what prospects actually need. Building the right product means hit-or-miss.

If you know you want to build a business, by trying to sell (or at least get email addresses from interested prospects) from the start, you learn about the business you are entering. You are finding out where all of the warts are immediately, before building anything.

You are immediately forced to see the world how it is, based on the patterns in the data you gather, not how you think it should be.