Gain/Pain

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The quantitative evaluation is the Gain/Pain ratio, and I’m a big believer that if you can’t measure something, you can’t manage it. It’s simple: measure the gain you deliver to the customer against the pain (the cost) the customer incurs to adopt you. Almost every one of you could list all the gains you deliver; almost none of you could list all the pain of adopting you. That gap is where startups die.

The GAIN side is the obvious side, usually measured in revenue, cost savings, time, or people saved. Two less obvious gains matter especially in early markets. Competitive advantage: some customers will buy simply because your breakthrough lets them leapfrog rivals. Supply a carrier equipment that makes their network 10x faster at the same price and they’ll acquire more customers, so they’ll pay even if it didn’t directly save them time or money. (This is what visionaries and early adopters, in Geoffrey Moore’s terms, actually buy: not ROI but a genuine breakthrough that makes them the coolest kid on the block, or lets them serve a customer segment they couldn’t reach before.) And reputation: enhancing how a customer is seen, for example helping them build a community their competitor lacks, can be worth paying for.

The PAIN side is the one people forget, and it’s very real. Factor in the full lifecycle of what it costs a customer to find you, try you, buy you, implement/deploy you, and even own you:

• Finding you: this is the one you never budget for, and it can be the most expensive. You’re a brand-new, unknown company with no IBM or Apple on your business card, and just getting found (or finding your first customers) is painful. Reducing that is a big part of the go-to-market discussion.
• Trying you: in consumer, you turn a phone on in a store and know in minutes. In enterprise it’s far heavier: performance testing, scalability, security assurance. If you can make trial take minutes, hours, or days instead of weeks or months, you take out pain.
• Buying you: pricing changes the process. In large enterprises, roughly over $5,000 can’t go on a credit card, over $50,000 needs a second sign-off, over $500,000 enters a formal process, and over a million dollars you’re in procurement. Packaging so people can buy easily reduces this.
• Owning you (total cost of ownership): think of a laser printer. Do you care about the cost of the printer or the toner? The toner, by a factor of five or ten. HP prices printers below cost to hook you on toner. So don’t think only about your upfront price; think about what it costs to run you (which can also be a business-model opportunity).

In the MIDDLE of the equation sits inertia, and it’s usually your greatest competitor. As a startup you are pure risk, so the customer’s default is to do nothing. “Do nothing” might mean literally nothing, or it might mean building it themselves because they consider that less risky than betting on a startup (as with commenting systems). And if there’s already a “good enough” alternative, that becomes the default, plus switching costs (retraining people, changing processes) stack on top. This is why the whole point of finding an underserved white space is to avoid handing the customer an easy do-nothing option.

So what Gain/Pain ratio do you need before a customer writes a check? The answer is at least 10 to 1, an order of magnitude. You need that much because you have to get people over the activation energy, over the risk and inertia of betting on a small, new company. It’s not one-size-fits-all: for a Pharma company changing expensive drug-development workflows, 10:1 is probably right; for a consumer offered 30% to 90% off airfares, even 10% or 20% might clear the threshold. The rule holds either side of the equation, too. It’s incredibly easy to download an app (very low pain to try), but if it’s no good it’s equally easy to delete it, so you need sustainable value plus friction-free adoption.

Startup Secret: don’t ask customers what they like, ask why they would NOT buy. When you talk to a customer, don’t pitch your idea. Ask all the reasons they have pain, then ask, “What are all the reasons you would not buy my product?” and keep asking until they’ve listed every objection. Common answers: “I don’t really need it that badly” (a bad starting point, so probe what they dislike about the alternative), cost (an easy excuse), and less obvious ones like retraining, or “my supply chain is already in place and I don’t want to disrupt it.” The greatest reason people fail is not solving a valuable enough problem for the Gain/Pain to justify a change.

Venmo is the everyday example. Once I started using it, writing a check felt like the dumbest thing imaginable; it was convenient and easy from the first minute. But it wasn’t always frictionless. Early on the pain was real: yet another app; you had to connect it to your bank; you weren’t sure it was secure; and not everybody had it, so the network barely existed (the classic cold-start problem). On top of that sits inertia and startup risk: “What happens if I put my money in this network and the startup fails?” People won’t do that unless it feels bank-like. Venmo worked through it by adding security, making sign-up trivial (scan a QR code to pay), and solving real jobs like splitting bills and tips. Now it’s friction-free, and because the network is there, it’s hugely defensible: everyone you’d pay is already one click away.

Quantifying Gain/Pain in practice: uTest started at roughly a 1:1 ratio (“nice to have,” good feedback, but constant overhead nagging testers for responses) and iterated the pain down over time until the gain was significantly larger. The Google Chrome team in Seattle ran a rigorous ROI comparison against traditional on-site outsourcing. Their in-house/outsourced approach: 8 testers, 40 hours over a full week, tested 300 URLs, found 19 fix-worthy issues, at a cost of about $15,000, roughly $789 per issue fixed. uTest, same week: 30 testers, 10 hours each, finished in two days, tested the same 300 URLs, and found 129 fix-worthy issues at about $10,000, roughly $78 per issue fixed. That’s three gains at once: time to market (faster), quality (10x more issues found), and cost (a true 10:1 per issue). Importantly, uTest deliberately refused to be just “the cheap solution”; they built the value proposition on incremental value, not only cost savings, treating gain as cost savings plus the value added to customers’ lives.

Two more ROI examples on the gain side. Apperian’s “Live in Five” (getting a customer live in five minutes instead of two to three weeks of messy installation) doubled conversion rates through the funnel, and they now market it as “instant on.” The Boston Celtics stood up an enterprise app store to distribute iPad playbooks in under two hours, an unheard-of two-hour sales cycle. And Apperian solved a problem for Estée Lauder: it built iPad questionnaire kiosks for Clinique-style counters, then a system to push app updates to what is now roughly 17,000 (ultimately 40,000) kiosks worldwide, versus a do-it-yourself alternative Estée Lauder estimated at about $2.5 million. In early New York stores, sales rose roughly 400% off the bat, because customers trusted the iPad’s recommendation (enter your skin type and plans, get exact product numbers to grab) far more than a salesperson pushing product. That kind of order-of-magnitude gain is a no-brainer.

A crucial nonprofit angle on Gain/Pain comes from Diagnostics for All (DFA), a nonprofit commercializing paper-based diagnostics developed in George Whitesides’s lab at Harvard. A penny (two pennies with reagents) of patterned paper can test for a range of enzymes and diseases in minutes, for people in the developing world who otherwise have no access to a diagnosis at all. In Rwanda, an NIH study found about 53% of women couldn’t afford healthcare and about 26% lived too far from a hospital to access diagnostics; DFA is running a field test in Vietnam for liver function (assessing enzymes ALT and AST, critical because many medicines taken in the developing world can damage the liver), a problem affecting roughly 8 million people. Here the “pain” is literal, medical pain, and the alternative is no diagnosis at all. It also surfaces a key question: the person who feels the pain (a farmer in Ghana or Gambia) is not the person who pays. DFA addresses that split two ways: governments (Rwandan, Indian, Chinese) invest in low-cost technology because they can’t afford million-dollar MRIs and need healthy, productive citizens, and philanthropy (the Bill & Melinda Gates Foundation) funds development and field tests. So when user and payer differ, your Gain/Pain analysis has to satisfy both.