University Startups and Spin-Offs: Guide for Entrepreneurs in Academia (2015)

Part I. Strategies for University Startup Entrepreneurs

Chapter 5. Benefits vs. Features

A venture capitalist has read about your technology and has shown interest in learning more about your startup. When he and his associate come to the lab, you show them the research you have carried out in the last year. With your 200-slide strong PowerPoint presentation, you explain the features of the different technologies. This includes how you have improved on them by doing X, Y, and Z; an extensive list of software you used; and why most of it is no good to measure data with the precision you need. You show the statistical data that proves with confidence that this and that ratio have changed. Data from other tests is still waiting for processing, but once it is available, you can work on improving this and that ratio by so and so many percent. The venture capitalist and his associate both nod and say they find your work very interesting. They promise to stay in touch, and they leave. Since that day, you have not heard from them, and your e-mails to them remain unanswered.

Such an interaction is most frustrating. Yet it is clear why it happens: researchers are by nature deeply involved in a topic. They are experts in the features of a technology, how they interact, and how they have improved. On the other hand, consumers only care about the benefits of a technology. As Peter Drucker says, you don’t buy a product, but what that product does for you. This thinking is relatively alien to scientists, yet it is vital when making the jump into the free market. It no longer works to just present a technology and then let the other party figure out how to draw a benefit from it, let alone create a product. Academic entrepreneurs must make this step clear when speaking with non-academics.

The SPIN Technique

Author Neil Rackham devised a simple process called SPIN to move the discussion from features toward benefits.1 SPIN is an acronym for

·     Situation

·     Problem

·     Implication

·     Need-payoff

With this in mind, you can shift the discussion with external parties from a feature-laden presentation to an actual dialogue, where you match the benefits of a technology with the needs of the other party.

To do this, let’s recap the fictitious example from the Lean Startup method: Simon has been building an electric scooter and now wants to take it to market with a startup. He is trying to confirm the growth hypothesis (will people buy the product?). His scooter costs around $2,000, which is above the price of similar models on the market. Features of the scooter include a futuristic design with several innovations (mainly the technology of the wheels), a closed body, new accelerator technology, and regenerative braking. Let’s see how Simon could conduct an interview to discover whether the market would buy this product. He has identified a potential buyer and asks her a few questions.

Simon: Hi, and thanks for coming to this interview. This here is our scooter. It has a cool design with numerous innovations. The wheels are 15% lighter than comparable wheels. The same goes for the closed body. Because it consists of carbon fiber, the scooter has the identical weight of other scooters with an open body in the mid range. Crash tests have shown that our closed body reduces driver injuries by at least 50% when a car hits you full frontal. The accelerator is also a novelty. We managed to optimize the air/fuel mix with a special jet that we patented. The technology is very exciting; I can show you how it works in more detail if you want. The scooter also has regenerative braking, which extends the battery charge by 9.5%.

Potential buyer: OK.

Simon: Would you buy it?

Potential buyer: Well, what does it cost?

Simon: About $2,000.

Potential buyer: Wow, that is beyond my price range. But it sure looks interesting. Well, thanks for showing it to me. Keep up the good work. All the best with your project!

Did Simon learn anything about the market in this interview? No—nothing at all. He only concluded that the potential buyer will not buy the scooter. Was his growth hypothesis validated? No, because the buyer said the scooter was too expensive for her. This may be the case, but this answer had a lot to do with how Simon bombarded her with the features of the scooter. Buyers never think in features but in benefits, and the only one that Simon mentioned (50% fewer injuries in a full-frontal crash) hardly registered with the buyer. This interview was a complete waste of time, largely because Simon neglected to ask the potential buyer about her real needs. Let’s rewind and see what Simon could have done better.

Simon: Hi, and thanks for coming to this interview. Please tell me how you currently commute to work.

Potential buyer: I mainly take a bicycle.

Simon: OK. Every day, even when it rains?

Potential buyer: No, if it rains I take the MRT (a rapid commuter train in Singapore).

Simon: How does taking the MRT compare with the bicycle for you?

Potential buyer: The MRT is a drag. I live quite far from the station, and my office is also a 15-minute walk away from the next stop. This takes me about three times as long as taking the bicycle.

Simon: Have you tried wearing a raincoat on the bicycle when it rains? Or have you tried any other way to still be able to use the bicycle?

Potential buyer: Of course, I have tried everything! The thing is, I usually have my son with me, who sits in front in a child seat. I have to drop him off at kindergarten on the way and get him on the way home. When it rains, this is very cumbersome, and it is easier if we take the MRT.

Simon: OK, I see. So how often a week do you have to take the MRT then?

Potential buyer: About once or twice.

Simon: And how much time do you lose?

Potential buyer: About an hour per day. But it’s not only that. If there is no rain in the morning, I take the bicycle. But when the rain starts in the evening on my way back home, I am soaked, and so is the work I take home, and my child. The weather has become unpredictable lately. I have considered taking the MRT each day, but that would cost me 5 hours per week in commuting time, 20 hours per month. What a waste!

Simon: What about a car?

Potential buyer: No way. I can’t be seen in a vehicle that destroys the planet.

Simon: I meant an electric car.

Potential buyer: Yes, but those things don’t work reliably yet. And they are ugly. And they cost a fortune.

Simon: Would you consider a different vehicle, perhaps a scooter or electric bicycle that had an enclosure to shield against the rain?

Potential buyer: I never thought about that … Yes, that may be an alternative. But what about reliability and cost?

Simon: We’re working on a scooter that is very reliable and not that expensive. There are two seats, and it has an enclosed body. This would protect you and your son from the rain and is very safe.

Potential buyer: Interesting … What does it cost?

Simon: About $2,000.

Potential buyer. Wow, that is beyond my price range.

Simon: Yes, it’s not cheap. But before, you said you would be wasting 20 hours per month by taking the MRT. That is 240 hours per year. If your time is worth at least $8 per hour, the scooter pays for itself in one year.

Potential buyer: When you look at it this way, you’re right. Can I take a test drive?

Do you see how this works? Simon fully engaged the potential buyer. He let her talk about the situation and frame the problem. Then he let her discover that she should do something to address that problem. Finally,  Simon brought up the scooter as a natural solution. In the previous example, when Simon told the potential buyer about all the features—regenerative braking, innovative design, and the accelerator—he left her to figure out the benefit for herself. When he used SPIN, the benefit became obvious. The herself buyer gave all the arguments that the scooter could indeed be a solution. Without any sleaze or hard sell, Simon presented the scooter as the answer to her problem. Unless the buyer strongly dislikes the test drive, chances are high Simon sold his first unit.

Let’s analyze the interview in more detail:

·     The potential buyer’s situation and problem is that she cannot use her preferred mode of transport when it rains.

·     The implication is that she is losing time because she has to use the MRT. If she let’s this slide, she keeps on wasting 20 hours each month on commuting.

·     The payoff of Simon’s solution is that she can save time while still keeping her carbon footprint low and her finances intact.

Her actual need is not regenerative braking and fancy design, but a safe and reliable way to transport herself and her child around the city in any weather. These are benefits of the scooter, not features.

Simon was also smart to frame the discussion about the price in a different light. Because the potential buyer will make more than $8 per hour at her job, in just one year the scooter will have paid for itself because it saves over 240 hours annually. This is a solid benefit, and it seems that this buyer may confirm the growth hypothesis. The only thing that changed was how Simon approached the interview, and it made all the difference.

These answers gave Simon a good picture of how this particular buyer thinks and what is important to her. In any event, he has learned a lot in this interview. He can use the feedback he collected from this potential buyer in the next interview, and he can come up with a product that matches the needs of his market.

Listen and Learn

When you shape discussions with the SPIN mindset, people will tell you about their needs. You will learn whether your product meets them. If it does, great. If not, then you can adjust the product or find a different market. Had Simon asked the potential buyer directly about her needs, she might have given him a different answer than what he found out. Most people are unclear about what they want, so asking them directly rarely gives you the correct answers. It’s better to read between the lines and find out for yourself. Then test whether your findings are correct.

Once you have framed the discussion around the value that your product can bring to clients, then all you need to do is show your ability to deliver that value. If they trust that you are competent, they will want to make a deal. The last step is simply getting the commitment to move forward from the other party. That’s the whole secret of making a sale.

Validating the growth hypothesis is similar to making a sale. Unless you have clearly established the benefits of the product, trying to show your competency will fall on deaf ears. Unless people see you as competent, they will never buy. This is the difference between validating the hypothesis and not doing so. There is nothing more annoying than a salesman who drones on about their product or company, while the client is oblivious. Getting commitment is impossible if the other party has no need for the benefit of your product. If that’s the case, why should they make a deal with you? But it is perfectly possible that you can help a client to discover his need to address a lingering problem. This is where SPIN comes in to guide you.  Practice to break your communications into several steps. It gives you a proper framework to validate your growth hypotheses and sell your products or services.

Make it a habit to think in terms of benefits in your startup. When engaging in discussion with others, begin by asking questions about their situations, their problems, and the implications of these problems, and then think of how your technology could help. This is an effective strategy to frame the dialogue around benefits, away from academic facts and technology features.

When you leave the building and engage with others while testing your MVPs, you will find that you can gain much insight from listening and watching. If you guide the discussion toward needs and benefits, as shown in the interview and outlined in Figure 5-1, people will voluntarily tell you the best reasons why your product is valuable. It is then just a matter of keeping the dialogue going and taking notes. Practice asking questions rather than beaming down information. Practice listening and collecting feedback about your business model, financial model, product, or any other ideas.

image

Figure 5-1. Checklist for benefits vs. features

____________________

1Neil Rackham, SPIN Selling (New York: McGraw-Hill, 1988).