- The value of your product is not in the effort
that you put into it, but what the customer gets from it
and is willing to pay for.
(upbeat music)
So today's video, if you don't know who I am,
I'm Dan Martell, serial entrepreneur,
investor, creator of SaaS Academy,
but most importantly just a hardcore entrepreneur.
I love business.
I've been building businesses since I was 17.
I've built and exited my own companies,
became a multi-millionaire at 27,
and, you know, continue to invest
in some of the fastest growing companies in the world.
One of the principles that I use, not only in my companies,
but in the companies that I work with
is this fundamental belief, this mindset,
I'm gonna share it with you,
and it sounds simple, but it's not easy,
is to work backwards from your customer.
It's literally the secret weapon to Tesla, Amazon, Facebook,
and every great consumer product.
If you have a product on your desk,
it's probably because the company has built
a almost religious approach to always get feedback
from their customer.
And I remember, you know, one of my favourite stories
to tell around this is my brother, Pierre.
You know, he started off as a home builder.
He came to me and was like sick of being a mechanic,
wants to start a home building company,
and I gave him, you know,
everything I had in my bank account.
I wanted to support him.
We were, he was 20, maybe 3 at the time, I was like 25,
and he started this home building company
and he went all in.
He bought two lots.
He built these two, you know, these semi-detached,
so he built two units, there's four units,
and you know, six months into it
I get a call and I show up at his house
and I walk in and there's like no furniture in his house.
And I'm like, okay, where's all his furniture?
And then I walk into the living room
on his way to his office
and I'm like looking around and there's no furniture
in the living room.
And I'm like, "Yo, bro, are you here?"
And he's like, "Yeah."
And I go, "I think somebody stole all your stuff."
And he just goes, "Come here, I want to talk to you."
And then I walked past his bedroom
and in the bedroom there was no furniture, no bed,
nothing where it all was prior except for an air mattress.
And I just look over, he's in his office
and I'm like, "Yo, what happened?"
And he starts to tell me the story
that essentially he built these two houses.
He wanted to sell them based on price.
He negotiated all the best trades.
He did all the work himself.
I was looking at like a skeleton
of my brother, super skinny.
If you meet him today, he frigging,
he looks like the Incredible Hulk.
But because he was working every day
trying to build these things for the least amount of money,
because that was his belief.
I'm going to sell it without real estate agents,
direct to the market, cheapest price out there,
and because of that, when you looked at the house
and I asked him why he hadn't sold any yet,
is because he built houses that had
what's called no curb appeal.
In the real estate industry there's this thing
called curb appeal, which is like, does it look attractive?
And unfortunately he built the ugliest houses on the street.
I mean, it's crazy.
And what he realised is that even though he was trying
to appeal to the, you know,
the budget-conscious buyer of a house,
he underestimated that the truth was is that for, you know,
the man who he thought was making the decision
was really the wife.
She wanted to have the right house, okay.
And this is not a man versus woman thing.
This is just 90% of the time
if the woman does not love the house for whatever reason,
the design, the vibe, the feel, I know that's true for mine,
okay, I love the house I live in,
but my wife 100% dictated it, okay.
She wanted that house.
That's the house I got her, okay.
I got my office, I got a few other spaces,
but it's her decision and what happens
because he couldn't sell,
he was sitting on these houses and he was, you know,
like just construction mortgages
and just pull and he remortgaged his house.
He maxed out his line of credit and he was at the end.
And I came in and I said,
"All right, I don't know anything about building houses,
but I know a thing or two
about building software and products."
And we immediately flipped the whole thing, okay.
The fun fact is actually called my little brother Moe
and I said, "Hey dude, you're now a home builder."
We had to deal with the houses.
We had to get Moe to buy.
He bought the first one, this ugly,
no curb appeal looking house, it was a good deal,
I gave him the downposit to buy the house
and we got him a mortgage.
He was like 22 years old paying rent.
So he got a house, he moved in.
That was one, got the second one dealt with, third,
and then we had one left and we figured we'll figure it out.
But what we changed was the process
for designing the next house.
And what I recommended to my brother
and this is what he executed against was,
he went and got, you know,
six people that was his perfect target market.
Okay, people who went to high school with,
these are, it was a first time home buyer, women,
I think 28 to 32 was the age bracket.
And what'd he do is he brought them around
as a secret shopper on a Sunday
and went and looked at all the open houses
and told them to take photos and write down things
on a notepad that they liked about these different houses.
And that's what they did.
And they did that for a whole day.
And at the end of the day, he gave them all some drinks,
some martinis, some wine and had his designer sit down
with them and essentially take all this input
and show them what they had taken photos of
and why they liked this and why they liked that.
And then the architect, the designer,
designed the new house that he
was gonna go to the market with
and once he not only designed the house
and did 3D renderings and put some marketing collateral,
he ended up selling, pre-selling, 16 houses in the first 12,
in like the next 12 months.
Okay, from almost going bankrupt
to now becoming the largest home builder in Eastern Canada,
Martell Home Builders.
If you go online, they've won awards.
They are the premiere home.
And they even moved up market so they used
to be like the first time home buyer
and over the last 10, 15 years
have become the premium home construction company,
building some of the most luxurious homes
on the East Coast of Canada.
And I share that story because of that philosophy
of working backwards from the customer.
And when I think of like how to do this right,
there's a few things that come to mind.
Number one is, you know, on my team,
anytime somebody has a good idea,
especially around like a feature or a product direction,
I always ask, "Who said that?"
And I got this from a,
not like in an aggravated way, but just like,
"Which customer did you talk to?
How did they say that?
Can you show me that email?
Did you record that conversation?"
Like a lot of stuff is done online.
So a lot of it's recorded.
Can you show it to me?
And the reason why, and I got this from my buddy,
David Cancel, so he built a company called Drift,
amazing company, and there's a philosophy
that every customer has an internal employee sponsor.
So that means that there's a voice of a customer
that they can at any point talk to their sponsor
to get problems resolved, which I love.
But most importantly is any product person,
any technical person, any marketing person,
they're always talking to their customer.
They don't pretend like they have the answers.
They work backwards from their customer,
so that's a big one.
Number two is the opportunity to co-create.
I love to build innovation, but I also know that at scale,
when I build companies, I am not my customer, okay.
I may have been my customer, but today I am not.
You may be so far removed from the problems
that your customers are facing,
that you don't have the judgement you used to have.
And what I'd rather do is sit down and co-create
the right solution for the biggest problems
my customers have.
And the way I've done that with clarity
was clickable prototypes.
You can literally, in today's world it's even fancier.
Back in the day when I was building my last tech,
you know, venture-backed tech company, Clarity,
I mean, we would just use
like this software called Balsamiq.
It would let you create these clickable interfaces
to simulate the software and then you could like show it
to a customer and get feedback.
Today you can do high-fidelity, pixel-perfect mockups
and simulations, I mean, it's amazing what you can do today.
But the beauty of it is is that you know
the solution's gonna solve your customer's problem
without ever investing time and energy,
development resources in building it
because you can show it to them.
Very low cost, very low risk.
It's how people, you know, create models of a house
they're building, right?
So that's number two is the co-creation process.
Number three is the idea of pre-selling, okay.
Working backwards from your customer to pre-sell
the solution to get buy-in, to get what's called validation,
to test your riskiest assumptions.
The riskiest thing you could ever do is build something
that nobody wants.
And when people say to me, "Yeah, Dan, but you can't do that
with enterprise software.
Yeah, Dan, but you can't do it with toothbrushes.
Yeah, Dan, you can't do it with this."
It's not true, it's not true.
My brother does it with houses by getting deposits.
My buddy, Matt, at Pela,
which I'm blessed to be an investor and I sit on the board,
came out with a product called Lomi,
which is the world's first home compostable machine.
It's like the coolest thing.
You throw in all of your, you know, like, you know,
food scraps and anything like that could be
kind of like put into a compost bin
and it turns it into dirt overnight, okay.
It was the largest crowdfunded ecotech in the history.
I think they sold 22,000 units and continues to just grow.
And I share that because, you know,
they didn't have the ability to just fund
a bunch of hardware and to assume
that they had the right product and sell it to the market
but what they did is they took the 3D drawings,
they created a video and they did a crowdfunding campaign,
which is like crowdfunding I think is like
a seven or $8 billion market
so when people say like, "You can't pre-sell this,"
I go, "Crowdfunding."
There's literally no category of business
that has not pre-sold what they are about to build
before they build it and it's available to all of us.
And when we do that,
we're truly aligning with the customer's problems
to build the absolute best solutions.
Tesla does it.
Look at what Tesla does with their cars.
They pre-sell, they get deposits,
they tweak, they get feedback,
they have early beta releases.
I mean, they're self-driving everything.
I'm gonna let it go because I think some people
on the receiving end of this message is going to go,
"Yeah, it won't work for me, work for me."
It's just not true.
It's a belief that you have that's holding you back
and when you fight against what the market wants,
you know, Buffett says, he has this great quote that says,
"When a competent manager meets a declining market,
the market always wins," something like that.
Like you can't beat the fact that if you're working
backwards from, you're not working backwards
from a customer that is very easy to build something
that nobody wants.
And I want to leave you with a quote
that hopefully wraps this all up, okay.
What I learned working with my brother,
what I've learned building my software companies
and helping hundreds of other clients work backwards
from their customer is that the value of your product
is not in the effort that you put into it.
A lot of people think like,
"But I put so much time into this."
Go look on "Shark Tank" or "Dragon's Den",
whatever country you live in, and go see these entrepreneurs
that have created board games, okay,
or products and invested their life savings
and all their time and energy and they're pleading
with the sharks like, "But I did all this work.
You know, it's worth more."
And it's like, look, and this is from Peter Drucker,
one of the smartest management minds ever, he said,
"The value of your product is not in the effort
that you put into it, but what the customer gets from it
and is willing to pay for."
That's Peter Drucker.
And that to me summarises the whole thing
is that if you don't work backwards from the customer
to figure out what they find valuable
and they're willing to pay for,
then your effort going into it does not matter.
That is how the market works and that's my philosophy.
I hope this finds you incredibly well
and I'll see you next Monday.
Peace, later.
(upbeat music)