Sunday, April 6, 2014

Know Thy Customer

Recently I've been meeting with various start-ups, including spending some time mentoring young entrepreneurs at Geek Camp V a few weeks ago.

I happen to be talking to more B2B companies lately. And one thing I've noticed is around customer acquisition. I always stress to young entrepreneurs they have to do everything they can to truly understand their target audience. Unlike B2C products or services, it is sometimes difficult for entrepreneurs to fully understand the customer needs, unless they have specific experience in the business.

But first, in order to do that, one needs to narrow down and identity a target or industry vertical. I always share with start-ups my story of a former client -- a global entertainment company that was starting a new music venture. The client told me its target was "everyone in the world because everyone listens to music." While the latter is probably true, not everyone is going to want your product to do so. I also call that the "Microsoft Zune trap" =)

The reality is as a start-up, one has limited time and resources. So one needs to really focus. You can't be chasing everyone in all markets because then you're not addressing anyone's needs very well. And quite frankly, it's like throwing spaghetti on the wall to see what sticks.

So do a little homework, even if you have to do some scrappy market research or talk to lots of smart people in various industries to pick their brains over coffee. Then pick a target or no more than a handful of targets. Do everything you can to understand the target customers' use cases and pain points. Really learn the target's current process for doing things. Better yet -- try to observe them in their "natural habitat." You don't need to be an ethnographer! Talk to as many customers as you can 1:1 or in small focus groups. If you can get in front of a bunch of them at once, buy them lunch. A $20 pizza will get you intel worth way more than that!

Going back to my B2B entrepreneurs...

Armed with this insight, ask yourself: How can I improve the situation? I advise them to quantify the cost benefits or savings. Because B2B deals are usually not an emotional sell, but a cost or efficiency sell. So, it's quite black and white if you make a compelling business case. This is when I usually teach these young entrepreneurs some basic economic modeling skills. VC's like to see these analyses as well!

Once one identifies the primary problem that is being addressed, step back to see the entire value chain and customer journey to see how one can use the customer intel to either enhance the user experience or sell services.

It's really about determining the value exchange. This can help one figure out one's pricing model and sometimes help one figure out who the REAL paying customers are in the value chain. It might end up being a middle man or distributor versus the end user. This is often the case in B2B industries.

Think you got a better mouse trap? Most do. Now think about the switching costs to get a new customer to use your product or service instead of the status quo. It is human nature to not want to make changes. After all, it's never easy. How can you lower this barrier? Can you create a way to import their current data into your platform? Or the cost-benefit analysis you did above shows a clear positive ROI in a short time period. Whatever the case, don't underestimate during the sales cycle how difficult it is to acquire customers, despite how awesome one's mouse trap can be. I've seen this firsthand from a start-up with a great school administration tool to an easy-to-use dental office administration tool.

The entrepreneurs I meet are often super smart and passionate about their businesses and technologies. For a few moments I spend with them, I enjoy having them focus on their customers and try to walk in their customers' shoes, which is my passion.


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