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Catalyst SYNC Features Klaus Schauser and Jim Semick: Market Validation

The co-creators of AppFolio share with entrepreneurs their tips for getting it right the first time

Catalyst for Thought is a local nonprofit with the goal to advance the community by educating and inspiring individuals to dream, develop and act on their entrepreneurial ideas. Through its SYNC events, Catalyst for Thought seeks to create a unique synergy between its featured speakers and a group of local entrepreneurs in order to empower each individual to help create solutions that impact society and inspire others.

A nearly sold-out crowd of 150 entrepreneurs gathered at the University Club of Santa Barbara for the final Catalyst SYNC event of 2011, to hear Dr. Klaus Schauser and Jim Semick speak about “Market Validation: Getting It Right the First Time.” By the time the two men were introduced to the group, the energy level and collective excitement in the room was almost palpable, due to a lively meet-and-greet hour among attendees in the lobby before the talk.

Jeff Bochsler, one of the founders of Catalyst For Thought, prefaced the talk by noting that Schauser and Semick have collaborated in the software business industry for more than a decade, beginning in 1999 when Schauser founded Expertcity, which later became Citrix Online.

Dr. Klaus Schauser
Dr. Klaus Schauser

Over the next seven years, Schauser envisioned the needs of GoToMyPC, GoToAssist and GoToMeeting, which Semick validated through extensive market research. Then in 2006 they teamed up again to create AppFolio, which launched a new property management software that enables property managers to quickly and efficiently advertise vacancies and manage data.

Schauser continues to serve as AppFolio’s chief strategist, and also finds time to act as a professor of computer science at UCSB. Semick served as AppFolio’s director of customer development for the past five years, during which he aided the company by identifying new consumers, and creating market opportunities and product strategies. Recently Semick founded Product Discovery, a firm fully focused on aiding software companies in their discovery, validation and launch of successful products.

Schauser began the presentation by telling a cautionary tale about his 1999 start-up company, Expertcity.com. The concept of Expertcity.com was to be the eBay of tech support, an idea that garnered $30 million from venture capitalists. So they went ahead and gathered 1,000 experts who could offer amazing support in hundreds of industries, then developed the technology for those experts to be able to screen share their clients’ computers. Then they waited for the calls to come in, but none ever did. The moral of the story?

“We found that people loved the screen-sharing software, but no one wanted to pay for tech support,” Schauser said. “The $10 million lesson? Do market validation!”

Even though the screen-sharing software they developed eventually grew to become GoToMyPC, GoToAssist and GoToMeeting, money and time could have been saved at the beginning, if they had started with market validation.

What Is Market Validation?

“When we started AppFolio, we began with market validation, which is the idea that you should sell-design-build rather than design-build-sell,” Semick said.

Schauser first learned about the methodology of market validation from Frank Robinson while working with Robinson at GoToMyPC. Semick then went on to describe how this process works.

Create a Hypothesis

This is your best guess about what you think your product does.

“During this phase, you should spend time with your customer and learn about the challenges they’re facing,” Semick said. “This will ultimately help you understand how you can build a better product solution.”

Jim Semick
Jim Semick

There are also a number of questions you should be asking yourself about your company, such as: What problems are you solving? Why are you different? Who are (and are not) your customers? What is the price? How will you make money? Who are your competitors? How are you going to sell it?

Ultimately, the goal is to create a business model canvas to remain organized during this research phase. One way that Semick recommended was www.businessmodelgeneration.com, although it’s not the only option; Microsoft Word works just as well.

Get in Front of Customers

The biggest part of market validation is to get in front of customers — ASAP!

“Very often your instincts are good, but your assumptions may be wrong,” Schauser said.

When they were developing the property management software for AppFolio, Schauser discussed his experience of speaking with nearly 20 property managers to find out what they thought they needed. Semick then shared his favorite quote, which came from Steve Blank, who said, “There are no facts inside the building,” which further reiterated his point that the only way to find out the truth is to get outside and talk to people.

Listen

Ask a lot of questions.

“Ask ‘why,’ and then ask again. And again,” Semick said. “Ask ‘why’ at least five times and each time you’ll get deeper and deeper to the root of the problem, which will help you in figuring out a solution.”

This step also means that you’ll already know who your first customers are before you even start to build the product. He went on to recommend reading Four Steps to Epiphany by Blank, which describes the process of customer discovery-validation-creation-building process that leads to market validation. Pivot. Revise. Go back to Step 1. Repeat as necessary.

Both Semick and Schauser recommended several other helpful resources including, Entrepreneur’s Guide to Customer Development by Brant Cooper and Patrick Vlaskovits, Business Model Generation: A Handbook for Visionaries, Game Changers and Challengers by Alexander Osterwalder and Yves Pigneur, Inspired: How to Create Products Customers Love by Marty Cagan and The Lean Start Up by Eric Reis (also check out Reis’ blog).

Make Your Own Ideas More Successful

As the evening’s talk came to an end, Schauser shared a couple of tips that he’s found to be true for finding success in his business ventures. The most important thing is to identify a problem worth solving, but the second part of that would be to make sure that people are willing to pay for that solution (as was illustrated by his experience with Expertcity.com). From there, you must hire the right team of flexible people, given that start-up companies are constantly evolving.

“And join great start-ups,” Schauser said as he clicked to a slide showing that AppFolio is always looking to work with great people on their ideas. To close, Schauser shared his favorite quote by Albert Einstein: “Vision without execution is hallucination.”

Catalyst For Thought’s next MINDS event will be at 12:30 p.m. Thursday, Dec. 1, at the University Club of Santa Barbara, 1332 Santa Barbara St. The event features Trygve Duryea speaking about “The Common Sense of Business.”

Click here for more information about Catalyst for Thought. Connect with Catalyst for Thought on Facebook. Follow Catalyst on Twitter: @CatalystSB.

— Carolyn Turner is a writer for Catalyst for Thought and works at Avalan Wealth Management as its client care director.

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