Its All About Figuring Out the Customers, Stupid!

Sumit Gupta
February 2010

Introduction

Got a great idea?!  Got a friend that thinks its great too.  Well, lets start coding/designing/developing.   That’s the most common reaction of technical entrepreneurs.    It is also the reason why we have 100s of successful technology companies and how the silicon valley was built.

The challenge is that for every successful startup, there are perhaps 100 other guys in garages, whose idea didn’t go anywhere.  Frequently, a major reason for this is they never spoke to a single customer before they started engineering their product.   Or even worse, they talked but didn’t listen.

Innovator’s Dilemma

“But if I share my idea with people, someone will steal it!”

This might be true if you have an idea for a new website and you talk to other would be entrepreneurs looking to do something similar.   However, in general, validating your idea with prospective customers is very useful.    To summarize, some simple do’s and don’ts:

  1. Don’t talk to prospective customers who are capable of implementing the idea themselves (that rules out a lot of your colleagues and peers).
  2. Do talk to customers at large companies if your idea is targeted at enterprises, to average consumers who do not have a technology background if your idea is targeted to consumers, to professionals if it is targeted to them (for example, talk to doctors if you can make a better medical device).

For example, if you are creating a website for twin parents, drop by the local twin parent club and ask the parents there what kind of information would help them, if they would visit such a website.

Profiling Your Customer Base

This is the crux of what a good marketing guy (typically a product manager) does.  For a startup, there are some key things you need to find out:

  1. Who are the various types of customers or “Target Segments” for your product?For example: if you have a website that gives out medical advice, then you can target
    • Men & Women between 20-30, 30-40, and so on
    • Only Women or only Men
    • Only Children (ie actually parents looking for information for their children)
    • Only Seniors
    • Some other permutation!
  2. Determine the size of each Target Segment (aka Market Size)Using the example of the medical advice website, you would have to determine
    • how many folks of each type (Men/Women in each age group, parents, seniors) access the Internet. Remember Google is your friend – there is a lot of data on the internet, if you know how to use a search engine well.
    • how many of them are likely to look for medical advice online (look for studies that have this data, look for other indicators like how many of these type of people buy drugs online, and so on)
    • Where else can each group get this data?
      • Is finding medical advice for children’s ailments difficult?
      • Do parents or seniors want to look up the dosage before taking/giving medicine?
      • What other competitive websites, services are available?

      A lot of this information is going to come from talking to customers. So, you may have to visit the local AARP meetings to meet seniors to find out what their medical information needs are and how they get information. Similarly, parent clubs, mailing lists, websites might give information about the concerns of parents.

  3. What is the difficulty of penetration into each segment?
    If you target seniors:

    • Do they have the motivation to look for information on the internet? If not, can you make your website attractive to them by making it part of something they have to do or like to do every day. For example,
      • Enable them to renew their prescriptions from your website.
      • Connect to a video conferencing software like Skype so they can talk to their parents.
      • Add online games like bingo to create a community.
    • Do they trust information on the internet? Or how can you make your website look trustworthy? For example, does adding endorsements from senior doctors help?
    • Do seniors prefer talking to someone on the phone? Perhaps you can add a helpline to your website for a certain fee.
  4. How does your customer spend money aka how are you going to make money?Creating a great product is just the basis of a company. Figuring out how to sell it and extract the maximum amount of money from a customer is just as big an uphill battle. For that medical advice website, you have to figure out how to monetize all those people visiting the website. A standard strategy seems to be to leverage text ads. There are in fact many other ways to monetize a website.
    For example:

    • along with the free advice, add a for-a-fee advice helpline; this could be a live chat or a phone call.
    • Tie up with a pharmacy to offer referrals.
    • For a parenting website, besides offering advice on the best things to buy for baby, add links to where parents can buy them.

Case Study

Lets try a different case study to understand these concepts.   Consider that you have an idea for a new iPhone application that enables people to morph a photograph into funny caricatures (there is probably an app for that!).  So, lets profile our potential customers.

  • Teenagers (13-18):
    • Pros:
      • Have lots of time to kill, are hooked to phones, take a lot of pictures with camera phones, and are likely to be looking for these kind of silly, fun applications
      • Teenagers are fad-oriented; they will gravitate towards a cool application that their friends are using.
    • Cons
      • iPhones are expensive and not many teenagers are likely to have one.
      • Teenagers are fickle customers and are likely to try the application for a while and move on. If your business model is based on repeat business, that can be a problem.
      • Your application is fighting for attention among millions of other things that teenagers can do (example, IMing their friends).
  • College crowd: 18-21 year olds
    • Pros:
      • Have limited time to kill, but are hooked to phones, take a lot of pictures with camera phones, and are looking for these kind of silly, fun applications.
      • Meet a lot of new people in college/different classes, so this application can be evergreen.
      • Are fad-oriented, so friends are likely to also try the application.
      • Are more likely to have a iPhone than teenagers (that is, have credit cards to charge the phone to).
    • Cons
      • Lots of things fighting for attention. Free time might go in other activities like socializing.
  • Post-College crowd: 21-30 year olds
    • Pros:
      • A large population has iPhones due to its current popularity.
      • Have the money to keep buying new interesting applications. Are likely to also continuously pay for add-ons to the primary application,
      • Do take a lot of pictures with their iPhones, but perhaps not as many.
    • Cons
      • The friend circles of this age group is usually static (not expanding) and reasonably small. So, after a while, this becomes passé in the group.
  • Everyone else: 30-45 year olds
    • Pros
      • Likely to be a large population that can easily afford iPhones and new applications.
    • Cons
      • This kind of application is less likely to appeal to the broader crowd.
      • Not likely to be a viral application in this group.
      • Friend circles are reasonably static and small.
      • Probably do not take too many pictures with their phones.

You can put in much more thought into this customer profiling, but this quick and dirty profiling indicates that the best target customers to study further are the College and Post-College groups.

The next step is to visit a college campus and survey students on

  • if they have iPhones
  • if they take a lot of pictures with it
  • what do they do with these pictures
  • if they would be interested in this sort of application
  • how much they would be willing to pay for it (pricing is a whole separate, long subject!)

Similarly, visit a few stores like Fedex, Starbucks, Best Buy, etc and talk to the 21-30 year old employees to ask similar questions.

Remember, you must do all this *before* you start building it to validate that there is a market for your product and what product to really build for the markets you find.

Questions, Comments? Send me a note at sumitg AT gmail.com

Sumit Gupta

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