The number one problem with Customer Development in B2B environments is that startups begin the Customer Development process too late.  The revenue plan has been sold to the board, the product is done or near-done, and a marketing launch date has been chosen.  Despite the increasing popularity of the LeanStartup “movement,” this is, IMO, still standard operating procedure for most B2B startups.  So having skipped Customer Discovery entirely, the company founders have neither validated their problem assumptions nor their proposed solution.  The board eagerly awaits first revenue and to that end, will even help hire the first VP of Sales in order to accomplish this momentous milestone of best-laid plans.

Welcome to the maze of complex B2B sales.  Did you think B2B sales was going to be straightforward; based solely on rational, business-savvy calculations?  Based on the bottom-line?  Most everyone recognizes that the B2C sales process requires appealing to consumer’s emotions.  But believe it or not, business buyers, influencers and users are human, too, and thus are not-exempt from emotional decision making.  Ego, hierarchy, competitiveness, fear, grandstanding, sycophantry join budget, market share, revenue, profits, risk, time, resources in the sale.

The “Status Quo Coefficient” represents that which you must overcome above and beyond the pain your product solves, in order to make a sale.

Pre-Launch Customer Development

If you are practicing Customer Development prior to product launch, then Blank’s The Four Steps to the Epiphany goes into great detail about how to discover and validate your understanding of the complex selling environment.  In less detail, but perhaps with more specific tactics, Vlaskovits and my The Entrepreneur’s Guide to Customer Development is a good resource for executing your Customer Discovery plan.

During Customer Discovery, you are not selling, so you are in a better situation to have “learning conversations” with prospective customers.  Your aim is to establish relationships inside businesses who are likely to be early adopters.  This means you must find your champion.  Your champion will help you understand who your saboteurs are and hopefully, how to navigate around them.  As you build your product and validate your vision with the champion, you empower him or her to sell you inside the organization.

Post-Launch Customer Development

These are tricky waters for the reasons described above.  If you have a sales team in the field, let them go.  If you have a VP of Sales unable to take a learning approach, let him or her go.  If you are fortunate to have a board that has bought into learning before (large scale) selling, perhaps you are able to hire a VP of Customer Development or utilize outside resources.

In 2005, Mark Leslie and Charles Holloway wrote a very #custdev-y paper, called the Enterprise Sales Learning Curve (.doc).  Leslie and Hollow describe the same failures of scaling sales and marketing prior to knowing how market and sell that led Blank to establish the Customer Development methodology.  I highly recommend this paper for B2B startup executives and investors.

Leslie and Holloway advocate hiring a “Renaissance” Sales person to practice Customer Discovery:

The “Renaissance” Sales Rep:    During the initiation phase we would like to hire an individual who is able to facilitate broad based learning by the enterprise.  This individual likely has a deep interest in the technology and in bringing together various customer departments with the appropriate representatives of the company.  The individual is extremely resourceful, able to develop his / her own sales model and collateral materials as needed.

Fundamentally, two approaches exist no matter who you bring on board:  1) go back to Discovery or 2) establish a painstaking process for winning your first five deals.  For a peek out how this approach might be developed, I highly recommend you read this comprehensive interview with Sean Murphy.

So what is it exactly, that you need to learn?

1) Validate Customer-Problem-Solution: No matter what stage your company is in, you need to validate that you have the right combination.

2) Do you have the “whole product?”  Or do you need partners, systems integrators, etc.

3) Identify the buyer’s process and corresponding business tactics.

4) Identify all the player’s in the process: user, influencers, economic buyers, decision makers.

5) What messaging and positioning messages resonate?

6) What does the corporate purchasing process look like?

Non product-specific answers you need:

Are you the decision maker?

Do you have budget?

Who also is involved in decision making?

Is this deal subject to other departments’ approval processes?

Are there compliance issues regarding this deal?

Can legal or purchasing nix the deal?

Do you keep a list of approved resellers/systems integrators?

Are there departments who might disapprove of a deal (are you adversely affecting another department’s budget)?

All things considered, what is the “typical” length of the approval process?

What other user groups/departments will benefit from a deal?

Will a successful pilot assuage naysayers?

Will you sign a contract whereby you purchase upon a successful pilot?

************

The method for obtaining this information doesn’t change significantly between pre- and post- product Customer Development:  You must establish deep relationships.  High-powered, “renaissance” sales people do this through “consultative” sales, whereby they learn what core problems the client needs solving and how they can work together to implement product that does the job.  Either way, you must find an internal champion and developing this relationship is typically a painstaking process that takes months to evolve.

The best way to find internal champions is through your network, no further than 1 link away (i.e., friends of friends).  This means reaching out to the friends, family, and colleagues of you and your co-founders, employees, board members, mentor, advisers, etc., for introductions.

As discussed in The Art of Customer Development Conversations, the answers you seek are not often the result of direct questions, but flow from conversations that grow deeper over time as the fit between problem and solution becomes tighter and trust among principals builds.

Before you hire a PR agency or even consider PR, the first thing you need to understand is what you are trying to accomplish, what is your objective.  Second, you should consider whether that objective is right for the stage of your business.  If you are an early startup, pre Product-Market fit, or even pre “Sales and Marketing Roadmap,” you should not hire a PR firm.

Hiring an agency is wrong, because, generally:

• You do not need press releases
• You do not need a campaign blitz of articles and press mentions
• Your PR firm does not know how to do your customer messaging or positioning for you
• Your PR firm should be no where near your social media
• Most PR firms will tell you need all of the above, that they are the experts and you aren’t, and will try to charge you a retainer of at least 5K/month

You do not need press releases.

Do your customers read press releases?  Does anyone?   Press releases were originally intended to notify media of a newsworthy story.  In the high-tech world, releases have been so abused by businesses blasting trivial events on the one side and by media outlets writing “stories” that repeat the content without critique or judgment that the credibility of releases has diminished significantly.  And it’s getting worse.  Online releases are used not to provide notice to interested parties, but rather to generate external links in  order to boost PageRank.  If your objective is the latter, there are several online PR services that will accomplish your goal for a lot less money.

You do not need a campaign blitz of articles and press mentions.

An agency orchestrated analyst and media tour and blogger outreach program is called “awareness” marketing, is intended to create “buzz” about your product and company, and can indirectly lead to increased visits to your web site by prospective customers.  Hiring an agency to lead this effort is still the best way to go, because a good firm not only has a great rolodex of media contacts, but the principals have relationships with the media that mean increased credibility and better press.  The problem is that startups are not ready for the buzz.  You can only launch once and if you blow it, it’s blown.   If your selling process isn’t tuned to your customer’s buying process, if your target market segment isn’t finely tuned, if you product doesn’t provide enough value to retain users and you need to pivot, you’ve likely wasted your one chance at not blowing the Techcrunch bump.

Further, as you grow and learn more about the market, you want to cultivate your own relationships with key figures in your industry.  Since reporters and analysts participate in social media, access to them through your network without the assistance of a PR agency is pretty easy.

PR firms do not know how to do your customer messaging or positioning

I find this one particularly irksome, because PR firms often tout their ability to develop messaging and positioning.   And they can do a good job when targeting the media and analysts. PR firms do not know your products, customers, or competitors.  You do, so it’s your responsibility to learn what messaging and positioning works in your market.   The key verb here is learning. You should be testing your positioning through Customer Development interviews and A/B testing.  There’s a large pool of talented and creative people (including PR professionals) who can help you brainstorm concepts and wordsmith phrases, but outsourcing the effort to an agency is a recipe for bland, undifferentiated marketing-speak.  Further, wrong positioning, like placing you in the wrong market, could ultimately lead to your startup’s demise.

PR firms do not belong any where near your social media

Big companies hire PR agencies to manager their social media streams, because they don’t want to screw up their brand.  It’s spin, baby, spin.  It’s used as a continuation of traditional one-way communication from company to consumer or as a new (mostly) one-way communication from consumer to company black hole.  This is likely not your social media strategy.  Your strategy likely is to belong to a community through active participation (in ways that don’t directly benefit you), and to provide value unique to you and your business.  You might retweet interesting articles that relate to your industry, answer questions unrelated to your business, or even give props to competitors who have done something positive.  Such activity requires intimate knowledge of your products, customers and community and you cannot expect a PR agency to have that level of knowledge.

Most PR firms will tell you need all of the above, that they are the experts and you aren’t, and will try to charge you a retainer of at least 5K/month

PR agencies are in a tough place.  Online PR resources; reporters, analysts and influential bloggers easily accessible to businesses; decreased use of traditional (e.g., print) media; and a legacy of a high-priced retainer fee structure portents poorly for traditional agencies.  Hence the move to make their case as the natural purveyors of social media marketing.  For the reasons given above, however, I beg to differ.

Which isn’t to say, you should never do PR.

At Eric Ries’ Startup Lessons Learned conference last month, I participated on the Customer Development panel and we were asked if PR was ever justified.  While moderator Sean Ellis and fellow-panelist David Binetti rightly pointed you shouldn’t do PR campaigns, as I discuss above, I mentioned that there are ways to use PR activities in “small” ways to help you achieve discrete objectives.  Low-level PR can help build an “expertise reputation” for a Founder without compromising the company.  Low-level PR might help you access specific industry contacts who you feel may be early adopters. The distinction here is that you’re not trying to build “buzz,” but rather are taking discrete steps to achieve a defined objective within the context of the stage of your business.  For these tasks, you can do them yourself or you might hire a PR consultant and pay them by task or by hour.

Finally, some believe that buzz is required to raise capital.  I don’t know, but I have a hard time believing that’s true.  I do know that I’m not sure I would want money from someone who could not see through the ruse of manufactured buzz.

Comments welcome!

Modern culture dictates that we claim to know, so we spend a lot of time knowing stuff. We expend much effort displaying our expertise.  If we personally don’t know something, we rely on designated “experts,” who tell us they know (despite their unimpressive track record). We know where the stock market is headed. We know how countries will respond to “liberation.” We understand the ins and outs of other cultures. In relationships, we do not hesitate to state unequivocally the others’ thoughts, intentions and motivations. At some point in the past, we have “known” the world is flat, the sun revolves around the Earth and that spontaneous generation exists. Collectively, we know both that “God Exists” and that it doesn’t. We know that the people in our tribe are more intelligent, moral, and civilized than in theirs. Of course, they say the same thing.

Everyday, millions go to work knowing what their customers need and know how to market and sell to them.  Getting feedback on business plans from a “panel of experts” is often an exercise of pure bloviatng.  Executive teams sit at conference tables playing “pass the conjecture.”

Einstein wrote about a lack of knowledge being the key to learning.

Approaching problems with a clean slate, allows one to view problems more objectively, to see things one might not see if filtered through the lens of what you know. His thought experiments were constructed from the perspective of an unknowing observer.

I don’t know.

It’s a powerful idea. It’s liberating.

First, it’s anti-delusional.  To admit that you don’t know (or to accept the premise that you don’t know) is honest.  Being honest with yourself is frees you to explore all sides to a problem.  Being honest with others from the outset instills credibility, even when that honesty means admitting a lack of knowledge.  Try one of these the next time someone asks for your opinion:

I don’t know, but perhaps…

I don’t know, but to find out we could…

I don’t know, but I bet your existing customers do…

Second, while no one is able to completely eliminate personal and cultural biases from thinking, increased self-awareness allows you to potentially minimize or at least account for them.  Denying them may shield  you from a more inciteful answer or more relevant result.

Third, “I don’t know” exposes what you need to test and learn.  If you know social media marketing is the best way to market to your target segment, say, low-tech, late-majority, senior citizens — hey, more power to you!

Open your mind to all possibilities and then use your experience to test.  Hunches are great, but accept being wrong and have a test B (and C, D, etc.) in place.

People, language is for communication and marketing terms, abused as they are, fall somewhere within the scope of language.  To communicate you need to learn the terms.  To practice marketing or to hire a marketer you need to grasp some basics. Please.

Marketing Help Rule 1.

(<> means “not equal to”)

Blogging <> PR <> Brand <> SEO <> Logo <> Advertising <> Tagline <> Messaging <> FaceBook <> Positioning <> Twitter <>Lead Gen <> [Enter mktg term here]

Marketing Help Rule 2.

Trust me, you don’t need all the marketing tactics listed in Rule 1.

Marketing Help Rule 3.

The right marketing tactics for you, right now depend on WHO your prospective customers are and WHAT stage your company is in.

Marketing Help Rule 4.

All Marketers have a core competency (or two).  Regardless, (almost) all Marketers will sell (almost) all marketing services.

Marketing Help Rule 5.

You need marketing to grow your business.  And more likely than not, you need or will soon need help marketing.  Admit it.

For a moment, forget everything you know or think you know or have heard about marketing.  Start with a clean slate.

Now imagine you are a new customer of a particular product or service.  You just finished buying.  You are a bit giddy:

• You’re eager to get started.
• You’re excited at the prospect of reaping serious value.
• You’re determined to at least get your money’s worth.
• You have a small fear in the back of you mind that you spent too much or made the wrong choice.
• You both want to show it off and hide it from view until you’ve proved it’s worth.

Now like a bad movie flashback, go back to this morning right before your alarm clock sounded.  Better yet, go back to the moment BEFORE you realized you had a NEED that you MIGHT eventually purchase SOMETHING from SOMEONE to RESOLVE the need.  Your experience from this moment –pre-realization –to the moment of sale is marketing.

Your maybe want to tell me it’s sales.  But no, the seller sells.  The buyer experiences marketing.  Whether you agree or not, analyze all the marketing advice you’ve received in this context.  Think about all the people telling you that you must use social media marketing.  Think about magazines, news, commercials, blogs.  Think about your logo and your clever slogan.  Think about “your brand must be consistent!”  Think about your color palette.   Did any of these things affect your path from pre-realization to purchase (as far as you know)?  No, yes, maybe?

Ruminate on this concept:

Ms. pre-realization will eventually buy from me because:

• I’m a good person
• I try hard
• My technology is the best
• I don’t oversell
• I’m ethical
• General Haig interviewed me on some TV show on a plane somewhere, sometime.  I think.
• I tweet

Marketing feels daunting because you are being shown a dozen yellow brick roads that weave off gloriously into the colorful horizon.  That and the promise that the chosen path is flowering with ROI poppies.  Walk forward in your customer’s shoes from before purchase; from pre-realization.  How do you get to you?

A technical CEO learning marketing is the equivalent of a sales/marketing CEO learning development engineering.

Not.

I am not a developer.  If push comes to shove, I can code in PHP, or develop shell scripts, and truth be told, I did take a couple of ECE courses in college; courses which inexorably told me I was not going to be a developer.

My path to becoming a marketer was unusual, I think, which has had both its advantages and disadvantages.   I like to think I’m a “technical marketer,” rather than what I call a “Madison Ave” marketer; not to dis the later, since they have their role to play in the grand scheme of marketing.  By technical marketer, I don’t mean one who only markets technical products, or who does only “product marketing” in the industry vernacular, but rather a marketer who uses processes and actionable metrics to achieve near term business objectives that lead to realizing company vision.

IMO, development is harder than marketing.  The phrase “everyone is a marketer” is a mocking one, but it contains a granularity of truth.  Most people at one time or another promote themselves (to get a job), or reflect on messaging (e.g. self-awareness that an advertisement hit home), invent pithy, creative phrases, etc.  These things are not unique to marketers.  I am not going to claim that technical CEOs learning marketing is the equivalent of marketing CEOs learning development.  They simply are not.

That being said, the recurring theme that CEOs and entrepreneurs should avoid hiring marketers, that a marketer only “creates web sites, corporate presentations and sales materials… [and] hires a public relations agency to refine the positioning and to begin generating early “buzz” about the company,” and that in the end, CEOs should formulate marketing strategy themselves, is misguided.

This is not the 1990s.  High tech marketing people don’t have backgrounds in retail window displays.  High tech marketers’ primary ambition is not running a Super Bowl ad.

I am the first to admit that marketing can be a nebulous concept, a vast space that includes smarmy hucksters, spammers, tin men, and all those “want 16K followers for free” tweeters you have in your DM bucket.  I get that.   But I also get this:  1) specialization of labor was fundamental to the rise of capitalism; and 2) you can’t scale if you don’t delegate.

The point is this:

CEOs and technical entrepreneurs need to be better educated about marketing not so they can formulate strategy or do it themselves, but rather so they can make the best hiring or outsourcing decisions and know how to evaluate performance.

When formulating a problem team and solution team, or otherwise rejecting traditional “product development” process for sales and marketing (concepts I heartily recommend), a decision to not hire a marketing (or sales) executive is arbitrary and reflects a fallacy of cause and effect reasoning.

Not hiring a VP of Marketing because all marketing professionals practice antiquated marketing methods is equivalent to not hiring a VP of Engineering because all engineering professionals practice waterfall development methodology.

Don’t conflate titles with roles; hire the right person for the job.  Technical CEOs are confident in their ability to either direct engineering themselves or to hire the appropriate executive to lead that team.  Likely, the CEO will choose to hire someone who is  philosophically compatible.   The same approach should be taken with sales and marketing executives.  A CEO, however, doesn’t need to be able to do marketing or formulate marketing strategy, but must be able to espouse his or her philosophy and in order to do so, needs to understand something about marketing!

One purpose of this blog is to help educate CEOs and technical entrepreneurs about marketing.

Let me know how I’m doing.    Tell me what you’d like to learn more about in comments.  Or Ask me a Question.

My book was (is) trite and sophomoric. After all, what insights do most 20-somethings have worth sharing? A lack of experience — a lack of failure — makes pontification shallow. One of my younger brothers, who was trying to make a living as a painter at the time, had a great comment. He said that he felt my book, like his art, was merely trying to say too much. That it wasn’t that we didn’t have good things to say, but that there was lack of discipline in focusing and examining in greater depth a few ideas, rather than “letting it all hang out.”

I think young entrepreneurs suffer from a similar malady. But I’m going to leave it to you to ponder the connection between this and customer development and lean startups.

I actually bring this up because I recently did my first customer development presentation and I think I tried to say too much! I’m no Eric Ries, but really, I’m not a bad presenter. This was my first attempt at a new presentation and admittedly, I did not dedicate the proper time to building the deck up front.

So now the presentation has been made available on video.  I forced myself to watch it, which frankly, was rather painful. You know what I mean if you’ve ever watched yourself “perform.” FWIW, I’m going to share it with you. Maybe you’ll find something of value!

BTW, it cuts short not because I was removed with a hook, but rather due to technical glitches. (Yeah, right.)

Insights on how to improve or which parts you’d like me to concentrate on would be of great help!

Presumably if you are committed to the principles of customer development, you are already committed to “getting out of the building.”  Before you can interview potential customers, however, you have to find potential customers to interview.  Unfortunately, there are no magic bullets.   This is painstaking work.  Just as with other portions of the customer development model, to find early adopters you make assumptions, test, and iterate.  If you are having trouble getting started, try these steps:

Step 1. Profile your Customer

Write up a description of your ideal mainstream customer.  Are they male or female?  How old are they?  What do they do for a living?  Are you targeting them as a consumer or professional?  Are they online?  Where do they hang out?  Where do they congregate offline?  How do they spend their day?  Describe their personality like?  What are their hotbuttons?  Where do they fit on the technology adoption curve?  What technologies do they use?  Late adopters of social media, for example, may just now be heavy users of e-mail.  Include as much detail you want, letting your creativity guide you.

Re-read your description and remove attributes that are not unique.  In other words, if they are male or female, then their sex is not a differentiating characteristic.

Step 2.  Brainstorm Locale

Brainstorm how to reach these users.  To state the obvious, users who are not active online, are not likely to be reached online.   This is the whole point of “getting out of the building.”  Don’t build an online strategy for reaching offline users.  If your potential users attend networking events, then that’s where you’ll have to go.  You have to be clever about finding them!

Andrew Chen has a great post on using surveys and Craigslist to talk to customers.  Note, however, that posting on Craigslist or buying ads on Facebook won’t work if your potential customers don’t use Craiglist or Facebook.

Don’t consider your method yet, consider where they are.  Have you thought of:

Your network -> Some here may also be biased, but those 2 or 3 degrees away are likely to offer real answers.

Social networks -> For b2b, have you considered LinkedIn groups?

Your blog readers

Networking events

Web surveys

Customer registration cards (ha ha)

Store fronts -> stand out in front of Trader Joe’s with a clipboard!

Talk to your customer’s customers

Database, e.g., Hoover’s or Lead411

Initially, the idea is to cast a wide net, because you really don’t know the best place to find your prospective customers.  There are no wrong methods, if the end result are users who understand the problem you’re trying to solve.  I was speaking with a colleague in Shanghai on the recent Geeks on a Plane tour, who expressed some consternation over the fact that he had found early customers through PR (actually a newspaper interview), which is verboten according to the customer development model.

Models are only that.  There are no rules, only methods to acquiring answers from the customer.  If a magazine article (not, BTW, the result of a PR campaign), puts you in touch with hard-to-reach potential customers (in this case the Chinese government), then that is valid customer development.

Step 3.  Who determines how

Your endgame is an interview.  You want to speak to your customers in order to confirm your assumptions about their need for your product.  You’re not selling, you’re listening.  You are not gathering feature requirements, you are gathering understanding of their pain.  You do not ask leading questions, you ask open questions.  You not to cajole users into contributing to or beta testing your product, you learn what it would take for them to pay you for your product.

The method you use depends on the person.  Surveys are used to provide you a sample, from which you cull early adopters.  Remember, your objective is to interview the early adopters.  Though it may provide you valuable information, the survey is not the endgame.  The interview is what you are getting to.  For potential customers whom you have identified via phone call or through in person networking, you need to setup a meeting, preferably in-person.  Tell them that you would like to conduct an informational interview or you are doing research and that the meeting will only last 15 minutes, and that no selling will be involved.   Be sure to keep yourself honest!

At this point, you are satisfied to be speaking with any potential customer, whether or not they represent early adopters.  Remember, you are testing each of the assumptions comprising your profile.

Profile 1 -> has pain? -> if no, iterate to Profile 2

->Locale 1 -> if yes, I can reach them through Craigslist?  -> if no, iterate to Locale 2

-> if yes, etc.,

You must have a concise set of objectives for the first interview.  Remember, you only have 15 minutes.  You must learn:

• is problem assumption valid
• are current solutions insufficient
• does your solution sound plausible
• is the person I’m speaking with a potential early adopter

Step 4.  Identifying the early adopters

Simply put, early adopters have these three determining characteristics: they understand the problem you’re trying to solve are passionate about finding a solution, and if your model calls for it, are willing to pay.   They do not have to be passionate about your solution, but recognize that nothing out there today adequately solves a problem that is very important to them.

You learn valuable information from all your interviewees, but are happiest to discover early adopters.  Hopefully you can establish a long term relationship with them, since they will help you build the right product and teach you how to market and sell to them.  More on that later.

Where have you found your early adopters and how did you find them?   Let me know in comments!

But I wrote a post about an iterative, process-oriented approach to high-tech sales and marketing on 2.9.9.   Shortly thereafter, Andrew Beinbrink, CEO of the interesting San Diego start-up SportsTV, introduced me to Seal Ellis who introduced me to Steven Blank’s book The Four Steps to the Epiphany, which sounded an awful lot like what I had blogged about.  Whew.  Oh, and Steve’s even got a new blog.

Eric Ries melded Blank’s customer development with Agile product development methodologies and lo and behold, when it comes to Internet-based products, we’ve got a whole movement going on here.

My thoughts were initially guided by a paper I read in 2005, The Enterprise Sales Learning Curve (ESLC), written by Mark Leslie and Charles A. Holloway, subsequently published in the Harvard Business Review in 2006.   This was the first paper I had seen that clearly articulated the gap between high tech marketing and sales methods and well, reality;  the reality defined by customers. You know, the people with the money.   Let it be known that 1) you should read the paper, and 2) there was a decent amount of buzz in 2005/6; but now, not so much.  Will customer development have a similar fate?

There are some differences:

• Scope: Blank’s customer development takes on a broader scope, i.e., not only sales and marketing, but a system for integrating customer input into all business operations.
• Timing:  Adherents to Customer Development are primarily Internet-based businesses, which has an advantage in terms of customer outreach, as well as testing and implementation compared to software companies, who were the primary audience for the ESLC paper.

Sean Murphy kindly pointed me to several other sources of people thinking along a similar vein, including the  “Sell, Design, Build” model from the SyncDev team at http://www.productdevelopment.com/ and Bijoy Goswami’s “Demo, Sell, Build.”

I enjoyed Goswami’s bootstrapping video series and particularly appreciated his quoting E.P. Box regarding these types of models:

All models are wrong.  But some are useful.

The similarity between business models and scientific theories is that they both (may) accurately describe the past.  The difference, however, is that good scientific theories predict outcomes.  IMO, this is what is most interesting about the Internet based Lean Start-up model, is that we can produce a test of the theory that can be replicated, rather than merely construct a model that more or less describes the past.

That being said, we can never achieve the predictability of manufacturing models which served as the premise for both ESLC and customer development.  Humans, despite what the Invisible Hand aficionados wish to believe, do not behave in a way that approaches the definitiveness of mathematics.  Hence, all models based on such, will in some way come up short.

Not that key lessons can’t be learned.  What strikes me, however, about both the ESLC and Blank’s Customer Development, is the presumption that businesses deploying these models have not only been funded, but likely have finished product.  Again, the nice thing about the Internet model being played out today, is that this is not necessarily true.  Entrepreneurs, rejoice!

But what is scary, in my opinion,  is that businesses continue to get funding despite the fact there’s no real evidence that a market exists other than what was written down in the business plan.

Are you kidding me?

More on that in a future post.

To make a short story long, it is looking to me that for Internet-based start-ups, the Lean Start-up model is proving useful.

In 1991, Geoffrey Moore in Crossing the Chasm defined a market segment as:

• a set of actual or potential customers
• for a given set of products or services
• who have a common set of needs or wants, and
• who reference each other when making a buying decision.

Most of this is pretty intuitive.  In a nutshell, a market segment is comprised of like buyers who share the same pain.  But there’s more to it.   The reference part trips some people up.  The key point to understand is that the customers and potential buyers must be willing AND able to reference each other. 

So, for example,

• a CEO may not reference an IT manager buying the same product;
• a smaller company CEO might look to a larger firm’s IT manager for guidance, but is there a means for referencing?  Do they visit the same forums or social networking sites?
• a Network Engineer likely won’t reference an IT Manager in the same company;
• A Telco Network Engineer likely won’t reference a same level network Engineer for a Fortune 1000 enterprise;

And so on.  Why is this important?    Leverage.   Each group of similar individuals is likely to be similar in terms of:

• what is their pain (compelling reason to buy)?
• how much budget authority?
• what is their buying process?
• who do they listen to?
• where do they congregate?
• what pubs do they read?
• what are likely product requirements?
• what is the method of finding and reaching them?

Clearly, the impact on the business plan is huge.  The answers to these questions determine:

• who your competitors are;
• what your sales model should be;
• pricing;
• product roadmap;
• marketing activities;
• resources required.

It boggles the mind to think a business might only go through the process of determining potential market segments after writing a business plan, let alone after obtaining funding, scaling headcount in all departments, and marching to market with product in hand.

Market segments affect additional factors entrepreneurs should consider:

• Does they have a passion for a particular segment, or lack a passion in another?  In other words, a particular segment might demand a particular product based on their technology, that solves a specific problem and therefore needs to sold through a reseller channel.   Perhaps there’s something about this that is not gratifying to the entrepreneur.
• Does the segment fit within the core competency of the company?
• What is the proliferation potential?  Does it enable a “bowling pin” strategy?
• How long will it take to get to market; to sell product?

Most businesses naturally fall into a market based on their business model, technology, or key differentiators.  A SaaS company, for instance, is typically carving out a niche in an existing market.   A company selling wireless equipment to carriers already knows who each of its potential customers is.   Such knowledge ripples through the entire business plan.  There’s not a great need for lead generation, for instance.   Likely an expensive direct sales force is required, the members of which have high quality telecom contacts.   They must plan for a long sales cycle and the ability to provide equipment for a pilot program.

You start with the company truths — the reason you’re in business — and flesh out your possible segments from there.  How do you decide?  Two versions of an opportunity matrix should get you through the process.

The first, uses weighted criteria.  Score the different criteria by importance, 1-5.  Next score each segment for each criteria.  For example, criteria A is the level of competition and may be very important (5).  The 1st segment may have several entrenched competitors, so you score it a (1).   Product fit, criteria B is important, but you have some flexibility so weight is (4).  1st segment represents is a good product fit, so you score a (4).

The normalized weighted mean is =(scoreA * weightA/sum all wt) + (scoreB * weightB/sum all wt)

or, (5/9*1) + (4/9*4) = 2.3

Some business plan characteristics are easier to evaluate in terms of costs, rather than subjective evaluation.  So the second method uses a cost estimate comparison.   Using real dollar estimates, presumably based on primary research, you attempt to compare the cost of doing businesses vs revenue potential.   Marketing dollars, product development, sales model, time to market, length of sales, etc., are dependent on market segment.  A simple spreadsheet tallying up the burn based on different scenarios should suffice.

If you are going to build a hosted platform for wireless mobile video, for example, out of a technology originally introduced as a 10K SMB software package, you had better figure out carefully whether there are enough customers who are willing to pay enough money to keep the datacenter operational.

Finally, a quick note on what a segment is not:

• a vertical.  Healthcare is not a market segment;
• a horizontal.  “IT Manager” is not a market segment;
• Big.  A small, focused niche is better.  Choose a segment you can dominate.

Comments welcome!

• need to be revenue focused, rather than # of leads focused;
• marketing taking greater responsibility for pipeline management;
• measuring, testing, refining every step of way through pipeline;
• identified information and activity overload problem;

A few key points still missing, IMHO.

First, in today’s environment, business needs to be profits-focused, not just revenue-focused.  This is a critical distinction.   An expensive advertising campaign may add more leads to your pipeline, some of whom eventually buy.  You’ve increased revenue, but hurt the short-term bottom line.   (Arguably there may be longer-term benefits from raising “awareness” through advertising.)

Second, this may just be a language thing, but I’m guessing not.   Marketing and sales professionals continue to talk about the “sales process,” e.g., the necessity to create activities and produce collateral that “nurture” customers through the sales cycle.   Despite the fact that this webinar correctly identified information overload as a problem, the end recommendations still pushed for “getting all the information the sales team needs into their hands.”  Step back!  This is classic reactive marketing and emblematic of VP of Sales (& Marketing) driven marketing.

Key question to ask:  what is the buyer’s process.

Third, “who is the prospect” was asked at the end of the webinar, when it should have been slide 1.   Even if your company was able to handle multiple segments before the economy tanked, you need to reassess to determine what are your profitable segments now. See point 1.

Comments welcome.