SaaS 102 # 9 SaaS companies should learn from Tesla
SaaS businesses should learn from Tesla about how to use the minimum viable product (MVP) model to test product-market fit (PMF).
On Tesla’s official website, at the time of writing, there is a car for sale that has not yet entered production.
This car is called the Cybertruck. It went on presale with just some photos, a prototype driving video, and some info on what the car will offer (features include passenger protection, impressive towing capability, and long driving range).
The key feature is the price - the value for money is great. And if you’re sold on the Cybertruck, you can order one directly on the Tesla website. You can pay your deposit first and select your configurations later as production nears.
But in the short-term, at least, you won’t be driving this car. Originally, production was scheduled to start in late 2021 or 2022. In a June 2022 interview, Elon Musk said he expected Cybertruck production would start in 2023. But considering Musk’s track record, buyers might be lucky to get behind the wheel of a Cybertruck in 2023. 😅
Looking at this Cybertruck example is a good starting point for us to think about two questions:
Question 1: How can a product which hasn’t even been produced yet be put on sale and take payments?
A product can do this if it promises to provide users with the kind of value which is important to them.
Great value for money, safety, towing capacity of 7,500+ lbs, range of up to 500 miles. The Cybertruck promises a range of features like these, and more. As long as the customer believes the product can provide them with the kind of value they care about, they will be willing to pay.
And in fact, more than 1,000,000 people have paid the deposit and are waiting for the arrival of the Cybertruck.
Question 2: Why doesn’t Tesla wait until production and design are finalized before they start selling the Cybertruck?
Tesla wants to verify in advance that the kind of value they are planning to include is the kind of value that customers really need. They also want to find out how many people would be willing to pay money to buy a Cybertruck.
There are costs to designing, researching and developing a product. If we wait until a product has already been designed, researched and developed, before pushing it out to the market, and then find there’s no actual demand, then we’ll have wasted a lot of labor, production materials and time.
Many people don’t realize that switching costs are actually bigger than research and development costs. Once you’ve already produced a car, if the customer turns around and tells you the car is no good as it is and you need to change it, then the costs of making changes at that point will be much higher than if all you’d produced was a PPT.
But what if we can use methods such as presale to clarify the following questions in advance?
- Is the value we’re thinking of creating the kind of value our users care about?
- Is the product we’re thinking of actually the product our users want?
If we can clarify the answers to these questions before we start investing in research, development, and production, then that’s a much more efficient way for us to operate.
It’s worth noting that when Tesla customers order Cybertrucks and select configurations in advance, this is also a process that allows Tesla to collect information on customer needs.
The difference between value, benefits, and features
Before we explain the different MVP levels, it’d be useful to be clear on exactly what we mean when we say value, benefits and features. This understanding can also help us to create better MVP products.
Let’s use our AfterShip product as an example of what features, benefits and value can look like.
AfterShip feature: Can send text message and email notifications to the consumer after they make purchases in eCommerce stores.
AfterShip benefits: Can improve the consumer’s shopping experience and reduce store operation costs for eCommerce merchants.
AfterShip value: AfterShip can save eCommerce merchants 70% of the time that their customer service teams would have otherwise spent on tracking packages. Using AfterShip can also significantly increase customer satisfaction.
The most important part of value creation is: Customers should be able to feel the difference you bring to their business.
Ideally, the value created should be measurable. Numbers and data are one of the best ways of expressing created value.
Before we create a product, we need to clarify what value this product will bring to our customers. Will customers be willing to purchase this product in order to access this created value? We need to look at these questions before we look at how to create a product.
The different MVP levels: Terrible, Bad, OK, and Real
Before, when people discussed using an MVP product design strategy, they’d often just say something like:
“I’ll produce the minimum viable product and push it out to the market. That way I’ll verify whether or not this product really satisfies user pain points.”
But actually, depending how an MVP product is carried out, it can be classified into one of four different levels:
Level 4: Terrible
This is the worst kind of MVP. It focuses only on product features.
Level 3: Bad
Focuses mainly on product features and only gives a little consideration to the benefits and value provided to the customer. This method can only produce a bad MVP.
Level 2: OK
Focuses on features, benefits and value right from the start.
Level 1: Real MVP
First consideration is how to provide value. Sets out to clarify what kind of value and benefits are most important to users. Once that is clear, then it’s time to think about the features that would best provide the required value and benefits.
How to create products based on value
So, how can we create products based on value?
We can use fake door testing to collect information on customer needs fast and at a low cost. Fake door testing can help us discover the values customers currently care most about.
Fake door testing process: First provide a low-cost feature that looks like it’s already online. Then collect data on how many customers click on this feature within a certain time period. You can then use this data to judge the potential value of this feature.
For example, the value we want to provide to our customers is: save them time by creating a one-stop solution to track packages globally.
However, integrating data from global carriers into our system is very time-consuming. We also don’t know whether integrating carrier data is actually useful to our customers, or which carriers we should integrate data from first, in order to provide the most value.
In this scenario, we can use fake door testing. We can show a page displaying 100 carriers that we’re not integrated with yet. We let customers select the carrier they want to query, and allow them to enter their tracking number.
Once the customer goes ahead with their search, we show a message along the lines of: “We are working to integrate data from this carrier. Please provide your email address so you can be notified immediately once data from this carrier is available.”
We can then use the data generated from those user clicks to decide which carriers we should integrate with first.
Actually there is another possible result for this test. That is, no one uses the test web page at all. In that case the test would tell us very quickly that there’s no demand for this kind of product. Either way, testing like this allows us to continually make decisions according to real customer feedback.
Summary
The best kind of MVP can maximize value creation and show that value to the customer.
What customers care about is what value there is to be gained from using your product. They also care about what visible benefits your product will provide them with.
Product features are actually just a method by which we create value for the customer.
If your product really provides value for the customer, then customers will be excited about the product and be willing to pay for it. This applies even if at the start the product is quite a rough initial version, or even if the product is still at the idea stage.
This is because at the initial stage, the value which the customer believes can be provided can be bigger than the actual value provided.
I'm Teddy, Co-Founder & CEO of AfterShip, SaaS 102 is a series of articles where I share my experience in SaaS startups.
We are looking for great SaaS sales talent and welcome you to join us at careers.aftership.com.
(Article translated by Joseph O'Neill)