In a previous post, I outlined the massive opportunity and challenges innovative start-ups face in cracking product/market fit. With at least 42% of start-ups citing lack of product/market fit as reasons for failure, it’s a company’s first milestones of success. Get it right and ride the exponential growth curve. Get it wrong and chalk it up as another failed company.
This post dives into the first of four frameworks, I’ve used to cross the product/market chasm: the Customer Development Process. Stay tuned for future posts on Pricing, Managing Customer Demand, and Surviving.
He was one of the first people I heard so succinctly state that most start-ups fail due to lack of customers (he cites 90%), not lack of product or financing. Given my sales background, I thought I was biased. I valued the sales and marketing department above other departments.
Blank questioned why we have a framework to build products but there wasn’t a framework to develop customers.
If you take nothing else away from this post, I do hope you’ll spend time reviewing Steve’s enlightening framework here.
Need another reason to subscribe to the Customer Development Process? Though most people remember The Lean Startup for popularizing a Minimum Viable Product (MVP), one of the three pillars of The Lean Startup is actually the Customer Development Process. Not surprising as the author of The Lean Startup, Eric Ries, was Steve Blank’s student.
So once a founder accedes to the premise that they’re building great customers not a product, then reaching product/market fit becomes easy. Here are few principles and tactics that I’ve admired in other companies or have, worked for me.
1. Deeply understand your customers.
If building great customers – happy, passionate, loyal – are what great organizations do then “know thy customer” must be a basic tenet. Before shipping that product or testing customer appetite, “knowing thy customer” might be tough. But there are several ways to start the customer discovery process before spending tons on product’s R&D, sales or marketing.
a. Develop an Ideal Customer Profile (ICP)
The ICP asks the demographic questions (who they are) to help segment the right buyers. For the entrepreneurs raising money, this is the Segmented Addressable Market (SAM) vs. the Total Addressable Market (TAM) in an investor deck. As an angel investor, and now at Graphene Ventures, I’m always shocked how underdeveloped the ideal customer profile is.
Demand Metric’s spreadsheet below provides a good framework for both B2B and B2C businesses.
The more granular the ICP becomes, the better you’ll be able to assess market size and target the right buyers. Version 1.0 of the product is built for the few, not the many. Which means deploying the minimal features needed to extract utility and engagement. The key is doing that for the right group.
b. Develop a Buyer Persona
Once your team has agreed on the type of customers to target, the next questions – in order – are:
- What problems are they experiencing?
- How does your product(s) solve one or more of those problems?
- Why is that vitally important to them?
To answer these questions you must start to think like the customer. The frameworks for developing a buyer persona help you understand how they think, what they do, how they’re motivated, etc.
“Buyer personas are research-based archetypal (modeled) representations of who buyers are, what they are trying to accomplish, what goals drive their behavior, how they think, how they buy, and why they make buying decisions. (Today, I now include where they buy as well as when buyers decide to buy.)” – Tony Zambito
WARNING: Don’t rush past the buyer profile and personas exercise.
You’re building an entire company or future on how your customers receive your product(s). Spend 1/2 a day or more brainstorming with your team about this. Challenge each other on who the ICP is and why they “need” to buy/ engage with your products. Bring in outside experts for assistance. Do an out of office retreat to solidify who your target customers are and how they think. Fast-tracking this process burns morale, time and money.
2. Ask for advice, you’ll get money.
Once you know who the best customers are, what problem they’re trying to solve and how they’re motivated, then engaging with them is also easy.
You can speak and market to them in an authentic voice via channels they identify with. Bullseye.
But before asking for money, listen first.
Allow your first customers to be part of the product creation process. Build up a waiting list for private betas. Engage your community with questions to help steer the product build. This can be feature related feedback via mock-ups or it can be psychographic questions to help you better assess the buyer persona of a user base. Note though this feedback should be before releasing your MVP. Like a focus group but faster, cheaper and less stuffy.
In a B2B environment, remember that most people are genuinely good and want to help. But no one likes to be sold to and time is precious.
So for in-person feedback, get warm introductions to target decision makers. Ask them for their help and feedback on the innovative product you’re building. Make it clear that you are not seeking to sell them anything. Find something that makes it worth their while to take a meeting with you – recognition, research, first looks, etc. Get this formula right and you’ll be surprised at the level of insight and support you’ll receive.
With proper early engagement of your ICP, you’ll have increased interest, loyalty, and commitment to buy. All before even asking for a sale.
3. Listen. Adapt. Repeat.
After the Customer Discovery is done, then Customer Validation is where great products and companies surface. Listening to what customers are saying, or not saying, becomes crucial. In this phase, you may find you were wrong about the ideal customer profile, wrong about their personas, or wrong about the product to solve their problem. Kudos! The process is working. Few experiments are right for all variables the first time.
Adapt the product to the right customer until there’s a repeatable sales process. If that sticks, then you’ll have gotten the coveted product/market fit. If not, keep searching for the right customer and problem, then adapt the product accordingly.
For the developer turned founder or product manager, the customer development is like using Agile instead of the Waterfall methodology.
Great. But how do I solicit these insights?
There will be several insights from the product data alone. Your communication channels (social, newsletter, sales, etc.) will have a wealth of information as well. In receiving feedback – especially in person – remember to ask open-ended questions that have Implication and Need-Payoff questions as covered in SPIN Selling by Neil Rackham.
Implication questions ask about the consequence of a problem. They help define the severity of the problem to motivate a buyer to change behavior.
Need-Payoff questions ask about the benefits of solving that problem – unrelated to your proposed solution. They probe for an idyllic or positive situation for a buyer.
The Implication and Need-Payoff questions can define how painful the problem and how important the benefit is. The difference between a nice-to-have and need-to-have product.
For example, in assessing a customer’s problem an Implication question would be, “Why is x problem so challenging for you?” A follow-up Need-Payoff question would be, “By solving the x problem, how do you benefit?” or “By freeing up your time [in solving for x], how would you allocate that free time?”
These seem like simple questions that good product managers and founders could answer. Most of the time they’re right. However, listen for the signal in the noise and there will be gems of insight. Gems that do more than save a start-up time and money. They can transform a company’s trajectory.
4. Be a passionate subject matter expert.
If you’re doing something innovative, customers will want to listen, engage, and track your progress because of your conviction. Use this to your advantage. In consumer sales, this can be your company’s rallying call. It may be your mission or your vision statement. It’s the unique set of beliefs that differentiates you. If you’ve understood and engaged with your customers well, you’ll attract many customers just on that passion.
In enterprise sales, this expertise can open several doors. Though enterprises may initially be unwilling to buy from an unproven company or solution, framed differently (see point 2 above) they will want to hear your thoughts. Conferences and trade shows will want to feature you. Partners will want to promote or resell your solution as innovation is vital to their future growth.
Most successful companies spend a lot of time understanding who their customers are throughout their Go to Market process. Think of the most iconic brands today (Apple, Nike, Tesla, etc.) and how in-tune they are with their customers.
Likewise, the most successful start-ups hit their inflection point because they understood their initial customer base far better than the competition. Those that have been challenged rush or refrain from digging into the details.
Few companies failed for not knowing their customers well. In fact, the greatest companies know their customers as well, or better, than they know themselves.
Build a company and its products from the customer (and their pain points) outward. It will not only save time and money, but is crucial to success.
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