How Smart Startups Turn Early Customer Feedback into Success
Ah, we are perfection lovers in Germany. — Lorenz Graef
In this podcast interview, Anna Noakes Schulze talks about customer experience in the startup scene with Lorenz Graef, founder of startup incubator Startplatz. We cover a range of startup topics including the importance of involving customers early in the life of a startup, the right way to listen to customers, knowing the market, keeping an open mind, innovation versus compliance, characteristics of entrepreneurs, getting over the fear of looking foolish, and what makes Germany’s startup scene so different from America’s.
Anna Noakes Schulze: OK, thank you very much, Lorenz, for meeting with me today. We first met, I guess, last fall here at Startplatz in Cologne, and in the very first meeting I had with you, you explained to me that every business you’ve been involved in has won on customer experience. And I thought that was very interesting because I don’t hear that very often from people in the startup community. Can you tell me a little bit more about that?
Lorenz Graef: About winning with customer experience. I always made the experience that you can learn much more from talking with customers than we in Germany normally expect. Therefore, it was always a good idea to really involve customers early, early on. And just to talk and to listen to them and we have an open mind so that we really can try to learn from customers. I believe that the Germans, in general, don’t really understand the value of customer feedback and how to do it properly.
Anna Noakes Schulze: Yeah. That’s really interesting because I can tell you in the 10 years that I’ve been here in Germany, I noticed some big changes in the customer experience. Even simple things like the way that salespeople behave in shops have become much more customer-oriented in the last 10 years.
Lorenz Graef: We always felt that or feel that Germany is still a customer service hell!
Anna Noakes Schulze: Well, this is the land of ABOs and these ABOs, these subscriptions [for products or services], are basically a way of forcing customers to stay with you long past the point where your business or your service is really any use. I see that a lot with activities and dance programs and things like that. Businesses in Germany often make it very, very difficult for customers to leave, but is that really the right way to keep customers?
Lorenz Graef: I don’t know that. I think that we think we have this American way of keeping customers, might be customers. [laughter] Anyway…
Anna Noakes Schulze: Well, in The Lean Startup, Eric Ries talks a fair bit about customer contact and he describes it as a little bit of a honey trap because, on one hand, you need all this customer input early on to form your concept, to test your product-market fit and see if you’re building something that customers are actually going to buy. But on the other hand, he says, be very, very careful of just doing whatever they say.
Lorenz Graef: Of course.
Anna Noakes Schulze: Sometimes they don’t even know what they want, you know? So, he describes that as a necessary input, but something that you have to experiment with, to test what they will actually do. So, you have to listen, and you have to get that basic understanding of your customers. But then you have to see, do they put their money where their mouth is? Are they really interested in this product? Is this really going to work? And so, he describes customer input as, not as something that leads the agenda for startup development, but something that is there in the background from which you can form hypotheses that you actually test. So, in the end, you have to see what they do, listen to what they do and not so much what they say.
Lorenz Graef: Yes. I totally agree. So, I didn’t say that we have to do what the customer has told us. We have to listen to the customers or, in my opinion, need to be clear what we want to do. So, we need clear, clear perspectives. We need to be sure what we want to achieve and on the basis of this, a clear vision of the product or services. We can then ask customers and let us don’t try to convince customers that our vision is hard [fixed], but to let us be influenced by the customers in order to learn from customers. But it would be totally a failure to just do what…
Anna Noakes Schulze: Just do what they say.
Lorenz Graef: …do what they say. [laughter] Yeah, you have to interpret it, interpret what they are saying and therefore I’m very convinced that you need to do it yourself as a founder and not having someone else intermediary who does customer interviews or does talks with customers.
Anna Noakes Schulze: That’s interesting. You’re saying they really need that direct contact.
Lorenz Graef: You will have to know if you can really override the customer feedback or if you have to obey the customer feedback, right? To let you be influenced by customer feedback means, okay, you need to listen and to need to rethink, but in the end, you can say, no, not your fault. [laughter] Okay. Okay. If, but if you don’t listen, you can’t say, or you can’t judge. And if you let it be done by another person, you don’t really know what type of customer was it and in what situation did you get this feedback?
Anna Noakes Schulze: Right!
Lorenz Graef: So, you were in a hurry and just wanted to end the interviews.
Anna Noakes Schulze: So, in the end, you’re really, you’re listening for customer understanding, but not for your agenda or your development agenda or what to do.
Lorenz Graef: Yeah, yeah.
Anna Noakes Schulze: So, what do you think, from the perspective of the startups, and you have quite a lot here, what do you think are the advantages for them? Can they get a competitive advantage from being very directly connected to their customers and understanding deeply what they need and want and are willing to buy?
Lorenz Graef: I would frame it from the opposite: why don’t they do customer experience? Why don’t they say, why do they expect that they can’t learn from customer experience? I always have the impression that the startups expect that it’s not worth it to get customer feedback. My first idea or impression was that we, in general in Germany, we often think that we know it better; that we are in a better position to know what the customer really needs or what he should need in order to buy our product. So, we are deeply convinced that we are on the knowing side. And therefore, we do not care about feedback that could give us different points of view. So, I always find the people sitting around open-minded, but when it comes to product development or feature development, they are always deeply convinced that they know what should be done.
Anna Noakes Schulze: This is interesting because these are very contradictory characteristics that entrepreneurs require. On one hand, you need that big ego, that determination, and that focus, but on the other hand, you still have to stay kind of open-minded and flexible. Otherwise, it’s not going to work.
Lorenz Graef: And you need to be open to let your idea [be] confronted by others without the need to give up your idea. I guess then the Germans are too shy to defend the idea. [laughter] It’s definitely, maybe they don’t like it to test it against Someone else’s feedback.
Anna Noakes Schulze: Yes. That’s something you’ve talked to me about before.
Lorenz Graef: They don’t have enough self-esteem or whatever.
Anna Noakes Schulze: Or maybe falling in love too much with the idea and not wanting to test it…
Lorenz Graef: Or don’t want to get a different or contrary opinion. Yeah. It’s, it’s difficult because you need to be convinced of your idea but just the same you need to be open to learn from others.
Anna Noakes Schulze: That takes a special kind of person.
Lorenz Graef: Or I could say it takes a special kind of openness, or just you can learn it. You have to value your own opinion, to value your own opinion highly, but even on the other side, to get to know what other people think.
Anna Noakes Schulze: There’s so much of a stereotype of the entrepreneur as the lonely genius working away by himself and not talking to anybody afraid that everybody is going to steal his ideas…
Lorenz Graef: It’s not only entrepreneurs, it’s even the employees. So, someone who is responsible for product development [at a corporate] so it’s not only entrepreneurs. It’s the person in charge of doing something new. It could be on a website.
Anna Noakes Schulze: Now, you started Startplatz, I guess, eight years ago now. And it’s been a tremendous success. And I’ve read that 80% of the startups who had their beginnings here at Startplatz are still running, which is an incredible success rate.
Lorenz Graef: Yeah, 80% you need to be, maybe you need to be clear, it’s 80% of the companies that survived the first period; the first round.
Anna Noakes Schulze: Okay, those that graduated…
Lorenz Graef: Because, in the first round, we make it as hard as possible and our target, in the first round is really to get to know if this is a good idea and is this a good entrepreneur. If we have a pulse. Yeah, entrepreneurship and a good idea. And if not, if you have a good idea, but you’re not really an entrepreneur because you don’t like to go the hard way, then it’s better to stop. And people learn very quickly that it’s not you if they don’t fit as an entrepreneur, that tends to create what is good. So, you have to measure after the first three months.
Anna Noakes Schulze: So, at this point, you’ve seen a lot of startups graduate and some of them have gone onto great success. And you must have formed some strong opinions about what contributes to their success.
Lorenz Graef: No, not really. Not really!
Anna Noakes Schulze: Can you say something about that?
Lorenz Graef: So, I’m always surprised which startups make it to success and which do not. So, and I am more convinced from the way of the many programs that a startup can really evolve over time. And then the system or the process decides. Not really decides but shapes out who could be successful and who not. So, after years in the Startplatz, I’ve become much more agnostic about the future success of a startup. When I have the first interview as a startup I only judge on the ambition and the knowledge, the knowledge of the market of the startup, yeah? Ambition and about the idea, not always the idea of what does it know, but what the market needs and so, on. And then it’s mostly about ambition but it’s even on the ego. On doing and making things happen, and you cannot judge it from the first day. Is this or is she, or is he able to make it work? Therefore, I said that I’m totally agnostic about that and even about the idea. The founder needs to know about the market, not me. I am not the one that can judge it better than a founder if there’s a market or could be a market or not. Because it is the founders’ task to see a market.
Anna Noakes Schulze: Do you encourage them to have this sort of frequent and early contact with their prospective customers?
Lorenz Graef: Of course. I guess it’s the whole of Startplatz that does it, more or less. It’s more or less the idea, to get early in touch with customers. Or even if you go to coffee or play table Soccer. It’s Some kind of judgment from the environment, yeah? It’s the first day and you have to talk, Oh, what are you doing? Your first sentence pitch. Then you’d get quite instantly feedback. Direct message, okay? So, it’s boring, okay. Good idea, whatever.
Anna Noakes Schulze: So, there’s something about bringing all of these ambitious people together that creates a kind of atmosphere that indirectly even supports it.
Lorenz Graef: Indirectly, yeah, and it makes them talk to each other. Let’s see. That’s the secret sauce.
Anna Noakes Schulze: So, what do you think is the future for the startup scene here in Germany? What are you looking forward to?
Lorenz Graef: I guess we… I think we have for nearly 20 years, we didn’t do enough innovation in Germany. We are lacking innovation and we are lacking open-mindedness. We did too much compliance. We did too much work on processes, on data security, on all kinds of compliance issues.
Anna Noakes Schulze: Which is still important…
Lorenz Graef: Yeah, but this made us stuck, it made us, we lost innovation by doing compliance. Compliance is the opposite of thinking outside of the box or let people play around. [laughter] Compliance is strictly keeping to the process, strictly keeping to the rules. But then thinking outside the box is testing the limit of the rule, [laughter] testing what’s going beyond. So, now we have to relearn it. I’m deeply convinced that to Germans, the heart of the German, it’s still this TÜV-ler [standards and certification association] and innovator gene. Now we have been the land of innovators like Bosch, Siemens, and those people. So, that’s not the opposite of our genes, yeah? That is our heritage, but we did it, we burned it with all these compliance things.
Anna Noakes Schulze: And dampened down that creativity that is still in there…
Lorenz Graef: Yeah, and closed creativity and now we have to reopen creativity in the people’s minds.
Anna Noakes Schulze: And maybe also lose a little bit of inhibition about looking foolish, or trying something that won’t work, or…
Lorenz Graef: Yeah, I think the Germans, and it’s a hardship, and so we have an open door to be foolish, but we judge each other very much. We have a deep understanding of communities. We like to be a community. And so, therefore, we judge each other very deeply.
Anna Noakes Schulze: To maintain those community standards…
Lorenz Graef: To maintain those communities and so we don’t want to lose ourselves, or this social esteem with our peers.
Anna Noakes Schulze: And that’s very different from a culture like the United States, which is much more individualistic.
Lorenz Graef: We don’t say, we don’t feel it is a good idea. If you do something that’s, what’s out of the community, you stick too much to this as a way to…
Anna Noakes Schulze: There is strength in that, though.
Lorenz Graef: Yeah, there is strength in it, but even it’s that…
Anna Noakes Schulze: But restriction.
Lorenz Graef: But restriction, so that’s even one of the reasons why we don’t speak earlier to the customer, and even to our friends or to our peers. We don’t want to be disappointed by the feedback. And we would like to have it fully elaborated so that we don’t get negative feedback.
Anna Noakes Schulze: Right. But unfortunately, negative feedback is part of the process and an essential part.
Lorenz Graef: Yeah, you need to be open to all messages, we need to be, to be more open to foolish, to people [who] could be seen as foolish, yeah?
Anna Noakes Schulze: Yeah.
Lorenz Graef: Therefore, will it be that… I’m very proud of this part of Startplatz. We are, we were successful in establishing such a culture where you can be a little bit foolish, yeah? They can be open and talk about their ideas at an early stage, even if the idea is not fully, fully worked on.
Anna Noakes Schulze: You’re giving people that little bit of, a little more room to innovate, a little bit of Spielraum [leeway].
Lorenz Graef: Yeah. It gives them more self-esteem, and it gives them more pride for the early products. So, you need to be proud of what you have done. Even this is only 70% in your own eyes because, for other people, it looks like 100%.
Anna Noakes Schulze: Right. And there has to be a willingness as well, to know that you could do your best and fail. But you change something, try again, and see what happens.
Lorenz Graef: And you just did something really good, so you can be proud of that. So, it’s the first step even if it’s not already finished and not as perfect as we want it to be. Ah, we are perfection lovers in Germany, yeah?
Anna Noakes Schulze: For sure.
Lorenz Graef: We can take anyone out of hundreds of Germans, and he wants to have that the station is functioning, or whatever is wrong should function. So, yeah.
Anna Noakes Schulze: Okay. Well, it’s been great talking with you. Thank you so much for your time. I really appreciate this. I know we’ve been trying to arrange it for a while, but it’s fantastic to hear your insights and I really appreciate it.
Lorenz Graef: Yeah, you’re welcome.
Anna Noakes Schulze: Thanks so much. ___________________________________________________________________
About Dr Lorenz Graef Dr Graef is a serial entrepreneur and the founder of Startplatz, the biggest startup hub in the German Rhineland. A longtime expert in online interaction and communication, Dr Graef founded Startplatz in 2012 to provide a comprehensive incubator environment for the regional startup scene. Find out more about how Startplatz helps ambitious startups: https://www.startplatz.de/en/
* Interview recorded on Friday, February 14th, 2020 and lightly edited for clarity.