Customer discovery and validation is a pretty challenging area for most startup entrepreneurs. While most can build a product and maybe even hire people to help it grow, validating with customers and cold calling people to get feedback is hard for most technology entrepreneurs.
An entrepreneur suggested to me an idea to start an agency that does Customer Validation as a Service (CVAS) or Customer Discovery as a Service (CDAS).
The key part of this service is setting up the problem statement for the entrepreneur, distilling the list of potential customers (Both B2B and B2C) and finding – emailing, talking to and interviewing potential customers to find the top 3 pain points for which they’d pay money for.
Imagine if you were a technical developer entrepreneur and you can build a good product, but your customers were in another location, or they were people you were not able to get to easily.
If a service built a website landing page, setup Google adwords, Facebook campaigns, Twitter profile and ran a campaign for a week or so to give you feedback on what’s the interest, what are potential customers interested in and what would they pay for?
I think this type of service would be very valuable for entrepreneurs. I can easily see various offerings being add-ons to this service.
1. Pricing validation
2. Content (what to write, what medium – email newsletter or Youtube Video, etc.) validation
3. Budget validation
4. Technology landscape validation (what other products should we integrate with)
5. Go to market validation (Where should we advertise, how should we market, etc.)
In the Steve Blank Model for customer discovery above, this set is most useful in the Test problem phase, followed by the Verify phase.
What do you think?
Would you buy this service for $500 – Consumer startups and $1000 for Enterprise startups?
Yesterday I met an entrepreneur who has built his company in a suburb of Seattle, completely bootstrapped and without any outside investors. He is growing 30% YoY and the most amazing thing he taught me was that he gets all his questions answered on Quora.
This led me to take another look at Quora to understand where any entrepreneur could use it. Turns out there are a lot of use cases. Most people use it to get specific questions answered, but I know that Jason from Storm ventures has used it to build the SaasTr brand, another entrepreneur uses it for lead generation, etc.
One of the first places I got to these days to get an understanding of any market is Quora. It turns out many of the questions, competitive information and relevant market numbers are largely available on the Q&A site.
In fact here is a list of things you can use Quora for, but it is such a good waste of time as well, so I still recommend you Google your question and get to Quora than search Quora alone. When you do get to your question, browsing relevant questions within that topic are really valuable.
1. To understand what problems need to be solved that people face
2. To validate key features that are needed.
3. To understand competitive products
4. To learn about the key influencers in the space.
5. To keep up to date with strategies for growth hacking
6. To look for new people to hire (especially non developers)
The interesting thing I learned last week from a founder of a small startup last week, was they have weekly celebrations. The reason was it forces the team to think about what they should be doing to celebrate in a few days. Every Thursday, their team would get catered lunch, and a cake, providing the opportunity for one person to be the MVP for that week.
When he was presenting this to us at the advisory board meeting last week, I thought it was pretty cool. I loved the culture they are building of celebrating smalls wins.
Another member of the board, who was an angel investor, nodded his head, and moved on to the next item, which was a milestone he really cared about – $10K in monthly revenue, which the entrepreneur had committed to last quarter. The progress was slower, and so it was likely they were not going to hit that number in the quarter, but he was confident they would in 2 months.
I gathered later (post the board meeting) that they were unable to hire a “Growth Hacker” to their team, since they had interviewed 3 great candidates, but they all picked up offers at other companies.
I asked him what the issue with hiring was. He mentioned that the companies they lost the candidates to were smaller, earlier and were wooing the candidate with a different culture (free food, benefits, pay were all table stakes) of work from anywhere and 2 weeks paid work from a place of their choice (think Hawaii or Bulgaria or anyplace you choose).
That’s when it struck me. You will always have investors who have been through the startup experience and those that have not. Those that have not, will not understand the nuances of what it takes to actually be an entrepreneur, so they are less appreciative of the “many little things” that go towards making the big things happen.
What this entrepreneur was planning to do was to have candidates attend their final interview (if they went to that stage) on a Thursday, so they got to see the culture in action.
In this particular case, the outcome that the investor cared about was revenue. To achieve that though, the #1 thing they needed to do was to hire a good marketing person (Growth hacker) and the #2 and #3 things were to build a good pipeline of opportunities for their newly hired sales people and tweak the on-boarding experience for new customers.
Unfortunately the entrepreneur had failed to explicitly communicate this to the other investors, who were not entrepreneurs before.
If you do not have investors and advisors who are entrepreneurs, make sure that you are clear about the “little” things that need to happen to make the outcomes happen.
I had the opportunity to meet about 20+ entrepreneurs at the Plug and Play Tech Center, an accelerator and coworking space in Sunnyvale. This cohort was 2 sets of companies in the IoT (Internet of Things) space. Companies ranged from those in wearables, healthcare, connected car and home automation spaces. There were none in the industrial or commercial IoT area.
The startups were trying to get a sense for the changed funding landscape for startups and how to manage the new set of investors they had to deal with. Many in the connected car space were also talking to “strategic investors” such as the automakers themselves to get a sense for their interest to fund startups.
There was a question that one of the startups asked, which was they were adviced by a mentor who was a venture capitalist that “If we get funding from a strategic investor, then it will be viewed as toxic (sic) since we have to build to their needs”.
I am not sure of the context of that discussion, neither do I know about that investor’s background or intent, but this seems like poor advice at the outset. With more context and analysis I might learn more, but at the first glance, this is poorly construed.
I think the best way to deal with experts who provide advice professionally is to resist the temptation to dismiss it rightaway or the desire to take it at face value and implement it rightaway.
Surprisingly I have found that most entrepreneurs actually “forget” the advice and seek out to experiment and find their own answer. That’s goodness, but it begs the question, how do you remember to seek what you learned?
So the problem as most people realize is that (like with storing and sharing good things at home) the problem is not storing, it is retrieving.
How can you recall the right advice when you need it?
Some decisions we make are fairly quick and provide us with very little time to process. Most decisions we make as entrepreneurs take require a longer lead time than a day.
The best way I have found to recall information an advice is to ask it again in context, instead of trying to remember what was said before and assume no judgement or bias before asking for a framework to think about the decision.
That way it gives you the ability to recall in context.
This surprising tactic means you should ignore all the advice you get and filter most of it as entertainment.
Which, if you are an entrepreneur is a much needed distraction.
I am always wary of absolute statements such as “We only invest in entrepreneurs” or “The best way to hire is to have a strong culture” or “Raise money from top tier VC’s, else you will not have a Unicorn exit”.
Why? Primarily because there is no one right answer. The answer is always “It depends”, but “it depends” is a hollow and unsatisfying answer.
So I prefer frameworks.
A framework is a mechanism to think about your particular situation and unique constraints and apply the possible approaches to come up with a personalized strategy.
I was reminded of that by Dave McClure, who talks about portfolio size in his latest post on Venture Capitalists.
When VC’s tell me they want to be “stock pickers” not index fund managers, I tend to have a lot more questions.
A “stock picker” assumes they know something everyone else does not. They have a key market insights, some differentiated information that’s not available to anyone else or knowledge that most others are missing.
An “index fund” manager believes that they dont have that insight, but can make money nonetheless by tracking market returns.
Turns out in the VC world, most VC’s think of themselves as “Stock Pickers”. That is one strategy to win in Venture and generate outsized returns.
To call every other strategy not-workable, is incorrect. While many folks call the other approaches “spray and pray” or “finishing with a net”, the strategy might work.
A framework to think is probably a better approach. That framework has to put desired outcomes on one side, the constraints in the middle and the inputs on the other side.
This framework visualization is not the only way to think about answering a question. There are many cases, when an “expert” might have learned something unique, analyzed the situation and provided the constraints in a more prioritized fashion. So, instead of looking at all the constraints, you can look at the 2-3 that matter.
Over the last 3-4 weeks, I have been putting together more frameworks to outline problems and questions I have encountered and worksheets or templates that work.
Going back to the VC conundrum, if an investor believes that there’s only one way to approach early stage investing, then they are possibly wrong.
The constraints I have heard from VC’s who follow the stock picker approach is that they dont want to sit on too many boards, dont have time to help more than 5-6 companies at the same time, or that they dont have time to find more than 10 companies are worth investing in.
If those are the constraints, then there are better and more different ways to solve for those constraints.
You can not sit on the board, and still have influence rights, you can hire people to help your portfolio and use technology to find more relevant companies and founders.
Most constraints can be solved, as long as you are clear about the outcomes you desire.
Some constraints you do not want to compromise on, and that is a constraint as well.
As an entrepreneur, though, if you are given only “one answer” or “one approach” or “one strategy” to be successful, you are talking to a fairly inexperienced person who you should probably not take advice from in the first place.
One of the first things you will realize as an entrepreneur is that you will need to be absolutely clear about your customer’s problems and envision your product solving their most important pain point. This realization results in an appreciation for the “micro” problem for a “small set of customers” to begin with.
That in essence is customer segmentation.
The discipline of finding the factors that differentiate one set of your potential customers from another based on a set of characteristics.
First, segmentation is a discipline.
The output of that disciplineis a) a way to make it easier to identify your customers via a known name or persona b) a means to target them more effectively and c) a language to explain their problems / pain points and d) an ontology to express your solution to help them solve the problem.
Second, you will have to find factors that help you differentiate customers.
The idea behind the factors it to help you focus on those customers who have the highest pain, and hence the most propensity to buy, or the most desire to solve the pain and eliminate (during that period) than those that dont have the need immediately.
Third is to identify and document the characteristics that help you find the patterns or a set of questions to help guide your segmentation.
The best way I have found you can document the characteristics is to write down a set of interview questions that can help you during a discussion with potential customers. Others have used the buyer persona canvas or a simple tool to document thinking, feeling, seeing into maps.
The empathy map is more relevant for design, but it can be made very relevant for you to leverage as a founder to understand the sales cycle, buying process, marketing criteria or service design.
Lets take an example. Assume that you are building a CRM system for SMB, to help them track their sales and allow sales reps to directly provide a quote and contract using just their mobile phone.
Most entrepreneur’s state that all SMB are their customers. This is usually done to prove that the market is very large and hence deserves attention.
The goal of the segmentation exercise is to make the market extremely small (a set of customer you can get in front of, collect feedback and test your hypothesis in as short a time as possible).
In most B2B scenarios there are 3 major and many minor characteristics that define segments of customers.
1. Size of the customer: Some people define size by revenues, others by # of employees, still others by # of sales people within the organization, still others by # of quotes the company delivers in a year, etc.
2. Industry vertical: In industries where speed to quoting and contract delivery makes a difference in the sales process, your solution might be more valuable, (e.g. some insurance verticals) than others were the contract process involves multiple rounds of competitive bids.
3. Title of the buyer: Titles (VP of Sales, Director of sales, Sales Manager, etc.) are usually an indicator of spending authority. In our case the VP of sales at a small company in the insurance brokerage is likely to have the ability to try and purchase the solution to help his sales professionals be more productive, than a Sales manager, who, is likely going to focus on trying the solution to offer feedback, but may not have the authority to buy. They will end up being a user, but not the economic buyer.
It used to be that location was the 4th characteristic, but with the Internet, is highly possible that your customers are in a different location (physically) than you are.
For B2C companies, most segmentation is done by demographics or psychographics. The 3 most frequently used characteristics are age, gender and income. There are many others as well, but these are the primary. I will share the B2C example in the next post.
The 3 most important factors that should go into the decision making process for taking advice is a) Who should you take advice from b) What advice should you take and c) When should you seek that advice.
There are 2 kinds of people you take advice from – those you consider as “experts” in the field and those who have “experience” with the specific problem you set are seeking the advice from. Everyone else is rather a big waste of time. So, if you are an entrepreneur and seek advice from someone at a much larger company on what you should do with your product direction, when they are not an expert in the field, then be prepared to be given useless advice. Well, you asked for it so there.
Expertise is easy to ascertain since, it has a factual basis. If someone is a certified legal professional, then they know the aspect of law they practice. They won’t necessarily be the best at litigation or immigration if they are a corporate attorney, but they would be the best at company legalese.
Experience is best couched with situational awareness. If the person giving the advice is smart, they will tell you the specific conditions, background and environment that the course of action worked. From that, you can at least determine if it might work for you in your specific situation.
The worst people to take advice from are those that pattern match. In my experience, most investors, general practitioners and enthusiasts understand a situation by talking to many people and offering their generic opinion couched as “experience”.
If you seek advice from those whose experiences don’t match your current situation, then you will get suboptimal advice. People who are confident may tell you they don’t know, but it is more likely you will get opinions from 3rd party reading couched as experience.
You need actually both expertise and experiential advice for most situations, which is why understanding the contours of the problem will help you explain it to the person you are seeking advice from.
What you need advice on falls into 2 buckets as well. Easy questions and hard questions. Easyquestions have a binary outcome. These are fairly rare. Most difficult questions tend to have a range of answers, with complicated if-then-else statements around the answer.
Easy questions are those that can be answered by experts alone. Can you hire someone from your ex-employer is fairly easy to answer if you look at your exit interview or contract and have a legal person review it.
Hard questions typically will give you multiple choices, not just two. Should I raise money is an easy question to answer if you are running out of cash, but the harder question of who to raise money from and how much to raise are harder questions that can run the gamut based on your situation.
Finally, when you seek advice is also fairly binary. You can either seek advice when you need it, or way before you encounter your specific situation. Seeking it after is just a waste of time – it reaffirms your position and makes your feel nice, or it will make you regret the decision since the advice you get is contrary to the decision you already took.
If you seek advice just when you need it, prepare to be rushed and expect to miss out on key details that tend to be nuances and shades of grey. For example, trying to decide what type of company (C corp or S corp) you should incorporate is best done when you don’t need it done yesterday. It will give you time to think about the options if you learn about the options way before you need them and keep the notes handy.
Seeking advice way before you need it is useful in situations when the impact is longer term. When the decision to be made cannot be reversed very easily (for example who you want as a cofounder), you are better off getting advice on the type of cofounder you need.
The biggest challenge is always the conflicting nature of the advice. What do you do when two people, both of who you trust, offer very different advice or in fact the exact opposite advice.
The relative scale of their expertise and experience does not count, so most people go with what they feel “more comfortable” with. Or they get more opinions and do a “vote count”. Either way it tends to be sub-optimal only in hindsight.