Early Customer Validation – Sell first, spend later

I just read Jason Cohen’s recent post on customer validation “Yes, but who said they’d actually BUY the damn thing?” (here).  Given all the startups I’ve seen recently, this post really struck a chord.  If you are starting a company or developing a new product, read Jason’s post and take his advice:  Find 10 customers who will say “If you build this product, I’ll give you $X.”  For medical device products, this is just a start towards early customer validation.

Ken Morse, on the MassChallenge blog, says virtually the same thing:

I suggest that you name your first 10 customers in your business plans. There is no better way to show that you know what you are doing than to say “These are the 10 customers that are going to buy.” You have to say, “the Vice President of Engineering is going to buy this software”, and you also have to include the buyer’s first name, middle initial, last name, title, e-mail address, and cell phone number. It is good even to know what he/she eats for breakfast! If you do not know these things about your early, lead customers, you are not ready to start a business.

I’ve talked to several entrepreneurs this summer, all with great technologies addressing important medical needs.  Each has created logical rationales explaining why their target market should adopt their product.  None of them can name 10 actual customers.

For medical device companies, finding 10 physicians who promise they will buy your product is necessary, but not sufficient.  You also need these physicians to say they will use your product on the appropriate patient subset, and explain why.   If your business success is based on an endoscopist using your device on every patient with Barrett’s esophagus, but your customer plans to use the product only on the small subset of patients with high-grade dysplasia, you may be in big trouble.  If your customers can’t explain why they will use your device, they won’t be able to explain it to the hospital or insurance company forking out the cash.  Your customers also need a convincing story of why their hospital or insurance companies will pay for your device at your planned selling price (possibly by using examples of other newly adopted technologies).  If the hospital balks at paying for intravascular ultrasound, why would anyone believe they will pay for intravascular optical imaging?  If they are willing to pay $600 for an ultrasound catheter, why would they be willing to pay $1,200 for an optical catheter?

Be assured, if you make it past a first meeting with a venture firm, every VC will perform the exact same next step: survey a handful of docs and hospital administrators in the field.  Get out of your office, get out of your lab, and do it first.

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One thought on “Early Customer Validation – Sell first, spend later

  1. It was easy for Acoustic Imaging because we had an established diagnostic ultrasound market. We promised better resolution and delivered it. Pricing can be tricky, however. The market paid much more for an Acuson System after it was introduced. It was the best on the market. Customers said they would never pay the price but did so due to competitive pressures from other hospitals with owning Acuson systems with superior resolution.

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