Whether you are in a startup, or an innovator within an existing company, you face a big challenge. How do you know your product will succeed, when 9 out of 10 products fail? The bad news is: you don’t. Not even if you’ve talked with potential customers about your new product. Many of us who have been there (including myself) know that what these potential customers SAY in these interviews is often different from what they will DO.
The good news is: there is a way to find out with a high degree of certainty. And it doesn’t mean investing in product development and taking a jump in the dark (and risk losing a lot of your time and money to find out whether people are willing to pay for it or not).
What if I told you that you don’t have to build a product to start selling it. I have applied it successfully myself several times in different markets. The framework is called The Mafia Offer and if done correctly it can convert at a whopping 80%… It’s an offer you simply cannot refuse :-).
I first learned about it on a workshop by Ash Maurya (if you don’t know him, Ash is a serial entrepreneur from Austin, and the best selling author of Running Lean). A big takeaway was Ash’s hands-on, step-by-step process – with real world case-studies and word-for-word scripts – on how to sell your product before it has even been built. Here are my big takeaways (BTW, did you know Ash’s new material is available online now)?
Ingredients of the Mafia Offer
Ash explains how to construct a mafia offer by means of an example. The example he uses is a product called UserCycle, a web analytics tool that gives actionable advice on how to improve the conversion rates throughout your funnel. Here’s the different ingredients required to construct a mafia offer:
Let’s zoom in a bit on the details.
1. Nail the Problem
The first step is to pinpoint a problem that’s worth solving for your customers. To find that out, Ash started doing 20 “problem interviews” with potential customers during the first week. What I really liked about Ash’s workshop is that it was no fluff, but very actionable material. For example, he gives word-for-word interview scripts he is using. You can jump right in and craft your own script and know exactly what to document after each interview.
After the initial batch of interviews, patterns start to emerge. With that information you can improve the definition of the customer problem you’re trying to solve. In that process you also identify the characteristics of your ideal customer. Here are some screenshots of interview scripts and how interviews are to be documented:
2. Deliver a Compelling Demo
Once you nail the problem, it’s important to expose your potential customers to what you think is a good solution to that problem. This step is called the solution interview. Ash recommends you recycle some prospects from your previous round of interviews, but also expose new prospects to your idea.
The central activity during the solution interview a demo of your product. However, this demo is not based on a working prototype but rather a series of screens / mocks of what you envision your product will look like.
The key is showing how the product will solve your customer’s problem, and how it will do this better than the existing alternatives.
Very important: don’t start development just yet. The goal is to build the minimal demo that visually demonstrates the solution, not a working prototype. A very real-looking prototypes can be built with simple tools in very little time.
These solution interviews should be repeated (and improved) until your potential customers spontaneously start asking you: “When can I start using the product?” and “How much is it?”
In the workshop, Ash discusses the prototyping tools, and gives a framework is given on how to do these iterations based on customer feedback in detail.
3. Build Desire
Once people start asking for the price and when it’s available you have a buying signal. But it’s important to take this a step further, because a buying signal does not necessarily result in a sale.
What Ash recommends in this step is to mix in a number of marketing tactics to further build the desire. Some of these tactics are:
- Social Proof: For a product that doesn’t exist yet you may think it’s hard to provide social proof. And you’re right. However, chances are that you can provide social proof about other things you’ve done in the past. For instance, if you are a developer your social proof can be past customers of projects that you did that were happy with the results. This will demonstrate to your prospective buyer that you will be able to deliver the product once it has been pre-bought. If you’re not a developer your social proof may come from consultancy you or your company did for people in this market, etc.
- Personal Authority: What many people forget when bringing an innovation to the market is that trust mainly comes from the people behind this project. Showing your knowledge or authority can be done by teaching people about the subject and giving them insights in the market.
- Prizing: The method of prizing is about turning the tables around with your prospect. Rather than you begging your prospect to buy, you prize the early access to your product as an exclusive, closed club, so that the prospect becomes the one having to prove they are worthy of becoming your customer. This tactic plays well with scarcity.
- Scarcity: The underlying here is that there are more customers than you can handle at this early stage, so you get to pick your customers. It may feel weird – if not downright scary – to think like this for a new product. But think about it: launching your product will require time-costly, close interactions with your customers to make it work like a charm.
Granted, not all of these tactics can always be applied to your case but the beauty of it is that you only need to add one or two of these tactics to make your offering irresistible.
Here is how the different elements of offering worked in concert for Ash’es example, UserCycle: he was highly selective, and just hand-selected 10 customers to start with – not a 100. Those customers will get full concierge training, and Ash worked with them personally to model their metrics and experiments for improving their business. This works well because people almost always prefer high-touch approach over low-touch experience. The service you will provide to those first customers should be correctly valued. The consequence is that you are able to charge more to your initial customers and this income is more than welcome to finance the development of your product. For example, Ash sold his product, UserCycle, initially for $200/month instead of $50/month he envisioned.
4. Explicit Price Anchoring
Another key ingredient borrowed from smart marketeers in the Mafia Offering is price anchoring. When Steve Jobs introduced the iPad to the big public he compared the price of the iPad to that of a Netbook. At the moment of the introduction of the iPad, Netbooks were sold for $999.
The iPad was introduced at “just” $499 instead of the $999. The audience applaused spontaneously and enthousiastically when they heard this “bargain” price. But is $499 such a bargain?
What happens is that you compare your product to a much more expensive alternative, making it seem less expensive.
For example, in the case of Ash’es product, UserCycle, he sold his Web Analytics product at $200 while there are free alternatives on the market (and commercial ones usually under $50). So, how was he able to sell it at more than four times the price of an average alternative. Well, during the solution interviews he showed that his product is not like any alternative Web Analytic products on the market. Once he established this he could go on to compare the price of his product to development hours. For $200/month you have at most 4 hours of development time. Can you build your inhouse analytics platform for this amount of money? By making this comparison the price suddenly looks like a steal.
Still, the candidate customers you talk to may have expected to spend less on the tool. This is why another ingredient is added into the mix.
5. Make a Big Promise You Plan on Keeping
At this stage you can also reinforce your offering with a big promise. For software products the key to this big promise can lay in the concierge model: because you will have such close interactions with those first customers you are not only selling your product. You are actually selling your expertise in the form of consultancy. To the customer, this consultancy, combined with the software product is certainly worth way more than $200/month. For you, the consultancy is necessary anyhow, to ensure that the product you are building matches the expectations of your customers.
You may also include a risk-reversal clause in your offering with a 90 day money back guarantee. It is however important that this clause also requires commitments on the part of your customer (e.g. make the necessary time available, etc.)
6. Don’t Lower the Sign-up Friction. Raise it!
Ash also warns not to lower the sign-up friction too much. Why? Because you want to avoid people signing up, but asking their money back after 30 days.
This is why you want to raise the signup friction and thereby thoroughly qualify who you allow to be in your first set of customers. You do this by being upfront, telling them that they need to qualify, and that you will ask them a couple of questions. For example, Ash asked which tools they used for web analytics, which experiments they ran in the conversion funnel, etc. All with the goal to gauge if they are a good fit and to make sure interests are aligned.
This qualification has the additional advantage that it builds up customer’s interest because they also understand that your product will be the right fit for them.
All of the elements discussed are required to effectively presell your product. Although it is the best option, it’s not always possible to end with an actual sale. Signed contracts can work as well. When done right your mafia offer should convert at 80% rate with qualified customers.
How to Put This in Practice
If you missed Ash’s workshop, don’t despair. Ash is launching an online version, with bunch of new materials. From what I have seen, it’s packed with practical, hands-on tactics, real-world examples case studies (will all sorts of products!), scripts, tools… and you can even get on the phone with Ash and discuss your own challenges.
The only problem you may have is that signup for his course will only be open for a week somewhere at the end of May.
To get notified when it opens, register here, and get a detailed free video training (3 part video course explaining many of the concepts we talked about here).