Did you have the opportunity to read my first notes about the MOOC ‘Becoming an Entrepreneur’ on edx.org? If you want some information about a career as an entrepreneur or about entrepreneurship activities, you may learn some practical things.
Here is now the second part, covering ‘Customers’ and ‘Designing your offer’.
1) Early Market Research
- in-depth interviews
- focus groups
- Loaded question: “Where do you currently get this need solved?“
- Difficult to evaluate: “Do you like ice-cream?“
- Biaised / Leading: “How likely are you to buy this product?”, “Would having an organization system help you feel more organized?“
- Absolutely do not use “absolutes” in questions: “Do you always eat breakfast?“
Steps involved in conduction in-depth interviews:
- Developing a sampling strategy (who you are going to interview)
- Writing an in-depth interview guide
- Conducting the interviews
- Analyzing the data
2) Conducting an Effective Interview
a) What NOT To Do:
- Don’t come into a customer interview feeling you have the answers. If your idea doesn’t adjust at least some based on these conversations, you’re not listening.
- Don’t expect customers to have the answer (possible exception: lead users). They’ll know their frustrations and needs, but not necessarily how to solve it. Lead users may have cobbled together a solution, though.
- Do not sell! No demos! No presentations! This is the time to learn, not to sell.
b) What To Do:
- Focus on the need, not the solution!
- Beware of confirmation bias — you are NOT there to validate what you think, you are there to uncover a need.
- Do it in person, one at a time — this will allow you to pick up on cues from gestures and facial expressions.
- Ask open-ended questions — this makes it a conversation and allows you to get to more depth of the need you may not have thought about before.
- Get subjects to tell a story.
- Listen much more than you talk!
- Follow your nose and drill down (Why? Why?…).
- Understand their priorities.
3) Interviews – Examples
a) Bad Examples:
- On a scale of 1-5, in which 1 is none and 5 is a very much, how would you rate your need for organization?
- Do you like to travel?
- Would you find value in having an app that allows you to workout without the need for a gym?
b) Good Examples:
- How do you keep yourself organized now? When do you find yourself not staying on top of everything? What keeps you from staying organized in those times? Would anything help?
- How often do you workout? How often do you wish you worked out? What keeps you from that goal? Tell me about a time you planned to work out and ended up not doing so.
4) Choose your Target Customer
Steps to gathering insights from your market research and choosing your initial market (continued):
a) Gather similar insights within a customer segment:
- Determine the common themes of the need first
- Assess where the need is the biggest / most frequent
- Review insights of potential features
- Additional research may be valuable here, sometimes through a survey of target customers
b) Choose your top segment — this will be your beachhead market or target market:
- Determine which segment has more positive insights
- Assess if the needs of customer segments have overlaps
- Determine if there are gaps in insights
- Perform further research as needed!
5) Dropwise Example
Interview results / insights:
- Renters tend not to have to pay for water usage, so are less likely to implement a solution
- Homeowners would prefer to use less water due to:
- Monthly costs
- Environmental impact
- Water shortages
- Homeowners who have the biggest concern of the above are in locations like California, where there has been a drought
6) Customer Persona
What it is:
- One single person within your target market, ideally someone from your interviews, who…
- Has the biggest unmet need where you could create the most value and
- Will spend the time and money to adopt your offering
Why it’s important:
- Align the company around a common vision of the customer need
- Refer back to this person when making decisions, either through reminding yourself and asking what this customer would want or where he/she would look for solutions, or by physically calling or emailing the person to ask
How to do it:
This can be a poster, PowerPoint, video, or other visual reminder.
What it includes:
- Name and Title
- Frustrations, Needs, Challenges
- A Quote
- Age, Location, Background
- Occupation, Socioeconomic Status
- Name: Jennifer
- Occupation: Refuge Manager for the US Fish and Wildlife Service
- Age: 38
- Location: Sacramento, California
- Status: Married, 2 kids (ages: 7, 9)
- Interests: Trivia nights, board games, camping, kayaking, running her daughter’s Girl Scouts Troop Frustrations: Wants others to appreciate nature and wildlife (and its preservation) as much as she does; working mother who wants to do more for the environment
- Needs: More fun and engaging ways to have her family take part in a sustainable lifestyle
- Challenges: Sustainable practices, like saving water, are hard to track right now, especially while balancing work and raising her kids
- Goals: To raise environmentally conscious kids and do her part to preserve nature
- Quote: “My kids respond well to metrics and accomplishments, which is easier for things like recycling, but I’ve struggled to have the same with other environment-saving practices.”
7) Common Questions about Customer Personas
Q) What if I have a two-sided market like Uber (drivers and passengers)?
=> Your customer is whoever is paying you. In the case of Uber, this is the passengers. The drivers are the offering that is provided to the customer. It is most important to develop a persona for the paying customer, and to fit the offering to their needs.
Q) Do I need to include all components of the customer persona that were listed?
=> No – you only need to list the components that are relevant to your business that help you tailor the offering to their needs. Relevant items are the ones that might impact the customer’s buying behavior.
Q) Should I really have a visual of the persona?
=> Having a visual like a poster can be extremely valuable to allow the team to consistently be reminded of the person for whom you are developing an offering.
8) Quiz Customers
Question 1: Which of the following is a correct strategy in choosing your target customer (Make sure you select all of the correct options—there may be more than one)
a) A homogeneous group of potential customers in terms of their buying behavior
b) The “mermaid strategy”
c) A market that is not too small or too large, and provides opportunities for other markets later
d) Choose a large market so that even if you get only 1% of the market, you can do wellCorrect answer:
The key in finding a target market is FOCUS – the target market needs to be homogeneous and of a moderate size with the opportunity to prove the market to other groups later down the road. The target market should never be defined so broadly that you are going after everyone, or that you are only trying to capture 1% of the market.
Question 2: What is the first market research method you should use early in the research process to explore and validate that there is a real need for your potential idea? (only one answer)
a) Google – see what data is out there that proves that there is a need
b) Focus group – interview multiple people at once to get validation quickly but directly from potential customers
c) Interview – ask open-ended questions about use and frustrations to learn more
d) Survey – ask a lot of potential customers efficiently to get lots of quantitative dataCorrect answer:
Interviews will best allow refining the problem to be solved before getting into detailed logistics of how best to solve it.
Question 3: Which of the following formats of questions work best for early market research? (only one answer)
a) Scale of 1-5 (or similar numerical scale) to gauge the positive feedback on your idea numerically
b) Open-ended questions about the frustration or use of items in the targeted problem area (v)
c) Open-ended questions about willingness to pay for the potential solution you are proposing
d) Yes / No questions to ensure that there is a clear answer to what you are askingCorrect answer:
Early in the process, market research should allow customers to share their experiences openly so that the entrepreneur can understand the extent of the problem without being too leading. It would be too early to ask about specifics of a potential solution such as willingness to pay, or to have simple yes/no questions, since there is still too much to learn about defining the problem to be solved.
Question 4: Which of the following would be a good question to ask during market research?
a) How is your current organization system not helping you enough?
b) What do you currently do to try to stay organized?
c) Would having an organization system make you feel more organized?Correct answer:
The last one is too leading – trying to push the responders towards a solution. While they may say “yes”, this answer is close to meaningless, since they would rarely seek out this solution, even if they need more organization.
Question 5: What should you consider when developing your customer persona? (Make sure you select all of the correct options—there may be more than one)
a) Who has the biggest need and willingness to pay
b) What you will be offering to the customer
c) Characteristics that are important to their buying behaviorCorrect answer:
You want to find a customer persona who has a large unmet need and is willing to pay for a solution, and has optimal characteristics that are important to how they would consider and buy an offering in this category. This can often be potential customers who have already started solving the problem on their own. While you may have a solution in mind, your filter should not include who YOU want to SELL to, since it is more about whether or not that person wants to BUY.
B) Designing your offering
1) Customer vs End User
Often, your customer will be different from the end user, and many early startups make the mistake of optimizing a solution for the end user. Keep in mind that your customer is whoever is paying for the offering, though the person who obtains value from what you develop may be different. Here are a few examples:
- Educational products — the school is the customer while students are often the end users
- Public transportation — governments pay for the solution while commuters are the most common end user
- Corporate products — the business buyer will be the customer while it is usually another person in the organization is the end user
2) Full Life Cycle Use Case
First, map your customer’s full use case — from when they discover they have a problem, through creating value, and getting word of mouth referrals from a satisfied customer.
Next, you want to prove that the considerations that you think will be most important to your customer when choosing a solution are, in fact, most important. This can be done through surveying potential customers who have the same needs and similar profile to your customer persona.
1) Determine what you need to know about your market. The more focused the research, the more valuable it will be.
2) Craft unbiased questions. Include a mix of multiple choice, rank order, and open-ended. This will allow you to test your hypotheses and make decisions. Examples for Dropwise may include:
- Demographic questions: gender, age, profession, marital status
- Do you currently use/ own any of the following products in this space? Dropdown list of similar offerings, such as sustainability forums, a Nest thermostat, etc.
- How would you rate your current water usage? Range from “Far below average” to “Far above average”
- What methods do you currently use to regulate your water usage? Dropdown of options
- What factors do you consider when purchasing an energy or water saving product? Rank in order of importance:
- Financial savings
- Initial product cost
- Tax rebate incentive
- Environmental impact statistics
- Ease of installation
- Ease of use
- Other (fill in the blank)
- What would you suggest to improve your water usage? Open-ended
- Target market validation questions (wait to ask these until the end, so that respondents do not becoming unconsciously biased by their answers to them): homeowner status, environmental consciousness
3) Determine how to find people in your target market to survey. Consider:
- Paying a research company to conduct survey and provide results
- Obtaining a list of potential customers (ensure they are in your target market) and performing the survey yourself
4) Send it! Ensure you have a target minimum number of completed surveys in mind that will help you validate your hypotheses and make decisions.
5) Analyze the results. In the above example, you may consider:
- Analyzing the rank order of factors for purchasing a product in this space
- Reviewing if this ranking changes for specific sub-segments of the group surveyed, such as those who already use products in this space
- Reviewing suggestions on what would improve their water usage
4) Entrepreneurial Strategy
Steps to perform your competitive advantage analysis:
- Determine your top customer priorities (only two). These might be things like convenience, reliability, specific capabilities, or items specific to your customers’ frustrations. Note that some priorities may be in conflict with one another – such as quality and cost. Customers that care about one often do not care about the other as a top priority, and it is practically impossible to deliver both. Draw your customers’ top two priorities on the axes (you should have listed these out in the last section on Value Proposition).
- Rate your competitors on these dimensions and map them on the chart.
- Rate yourself and map where you would be on the chart.
- If you’ve done the previous steps correctly, you should be in the top right with minimal competition nearby:
- If this isn’t the case, look at how you’ve defined your customer segment — should it be more defined?
- Look back at your market research — where is the unmet need highest?
Value Proposition Recap
The value proposition is your sales message:
- Defines “why you should buy from us”
- Clearly communicated to the customer
- Shapes every choice you make and every aspect of the customer’s experience
- Is NOT a slogan or catchphrase
Your value proposition must have a few key parts:
- Customer: Who you are providing value for
- Industry: What category the company plays within
- The promise of value to be delivered
- Strategy: Belief from the customer that value will be realized
Outline for writing a value proposition statement:
The Promise – Quantify It
Once you have assessed the single most important priority of your customer, you need to quantify how much more valuable you are than your persona’s current solution along that dimension:
- If they care about time and convenience, quantify the hours and portion of their time on this problem that they save.
- If they care most about money, quantify the savings and put it in perspective of their current costs.
Keep away from weak “promises” within your value propositions:
- Our product saves you precious dollars
- You will get countless benefits
- Our technical superiority will save you money
- We are the best when it comes to saving money
Instead, use strong “promises”, that are convincing and verifiable:
- This new policy saves you $10,000 per year and provides you with more coverage
- Our clients have increased their business by 20-25 percent using our business solutions services
- Your savings on waste management will be nearly one percent or $1300 per year
Types of Strategies
Your entrepreneurial strategy is about how you will test and commercialize your offering. This can take a few forms:
1) Product Development
Product innovations can be brought to customers through:
- Manufacturing yourself – you may choose to make the product yourself and sell it to the market. This option has the most control, though can be slower to get sales since there will be a learning curve of how to build and distribute the product.
- Hiring a manufacturer – you may hire a manufacturer develop your product. Keep in mind that you will need to provide clear instructions and have robust expectations on both sides of how the process will work, to ensure things are to your quality and timeline standards.
- Partnerships – with both of the above, there is the opportunity to partner with credible complementary companies to get the product to market. For example, Dropwise may consider outreach to Amazon Alexa, Google, or other companies focusing on smart home devices.
- Licensing – some innovative products are best suited to licensing to existing companies. This is especially true when the innovation can be integrated into the product of these other companies. An example would be a headlight company licensing an innovation to car manufacturers. To use this method, the innovation must be patented.
2) Commercializing a Service Offering
Most items that are not a physical product can be considered services, including schools, hospitals, travel booking websites, community forums, food delivery services, crowdfunding sites, online shopping plug-ins, music apps, and more. These can be commercialized in a few ways:
- Improving the value chain – this builds on the offerings of other companies in the industry, requiring their support. A music app needs to license music, shopping plug-ins access shopping websites’ information, and food delivery works with restaurants or cooks.
- Stand-alone offering – The alternative is to create an entirely new offering with your own resources, without being reliant on any other companies. This approach can have a lot of competition. An example is education workshops, where many organizations have developed programs.
Dropwise could have considered:
- Developing an online community of environmentally conscious homeowners who shared tips for saving water
- An app that allowed users to manually track their water usage through a few usage options
- A water usage awareness campaign
- Developing a new water tap for faucets that was more eco-friendly
- Partnering with smart home product companies
Remember, their customers need a solution that takes minimal interactions on their part, while allowing them to save water across all of their usage.
Quiz Designing your offering
Question 1: What are good uses of surveys? (there may be more than one answer)
a) Showing statistics on how many people have the need
b) Prioritizing the factors that the target customer considers in finding solutions
c) Determining pricing
d) Testing hypotheses of the target customer groupCorrect answer:
Question 2: Which of the following would be potential competitors of Dropwise?
a) Customers checking their monthly water bill
b) Technician-installed solutions for obtaining real-time water usage data
c) An online community of people who share tips for saving water
d) All of the above correctCorrect answer:
Question 3: Which components are part of your value proposition statement? (there may be more than one answer)
a) Target Customer
b) Product Price
c) Promise of Value
d) Strategy of how value will be delivered
e) Product CostCorrect answer:
Question 4: Which of the following is a good example of quantifying the benefit to the customer?
a) Our product saves you precious dollars
b) Users of our product show increased cognitive abilities
c) We save companies 20% of their costs
d) We reduce lead time to receive your suppliesCorrect answer:
Question 5: Which of the following is NOT an example of a strategy?
Partnering with complementary companies
Licensing a patented innovation to companies in the industry
Building the product or service with your own resources
Having the best access to financial capitalCorrect answer: