Half Engineer / Half Business Guy

Starting Your Business And Becoming An Entrepreneur

Choosing Your Target Customers – Not An Option

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Having now experienced two incubator classes and meeting an amazing number of entrepreneurs, I’m still surprised at how often I meet folks who have made significant progress on their ventures, but haven’t even discovered their target customers.

Ok – I get it. There are a lot of places your product can be used, and you won’t really know where it will catch on until you launch. However – you have to make an educated guess and TRY before you find out which market will work.

Dwight Eisenhower once said “Plans are worthless, but planning is everything,” and this is a perfect example.

Depending on your chosen target audience, you will change:

  • Marketing Strategy
  • Product Features
  • User Interface

…and not just by a little.

Depending on whether you choose between a market of internet-savvy young professionals vs. disconnected elderly, or consumers vs. businesses, you’re going to need to make major changes in your product and strategy.

A real example of two groups of customers we’ve looked at: Imagine creating a travel site targeted at i) businesses that sell to seniors vs. ii) direct to young consumers. The content, user interface, and marketing strategy are all entirely different, and building out and executing each will take months.

If you figure out your target customer before you build, you’re going to build a better product and a better company.

HOW DO YOU FIND YOUR TARGET CUSTOMER?

To get started:

  1. Brainstorm on the potential customers (market segments)
  2. Size of each potential target segment
  3. Assess intensity of need for each segment
  4. Is the segment addressable?

Brainstorm – I recommend getting all of your ideas on a whiteboard, powerpoint slide, or your chosen visual medium. It’s a good way to organize your thoughts about what is likely a large number of options.

Size of the markets – This could be a whole post in itself, but the key points are to keep your market size estimates simple and understandable, and use clear and backed-up numbers that directly relate to the segment you’re examining.

To make the right decision, you need to find a market size that’s directly related to some mix of revenue, profit and timing. Don’t fool yourself by leaving out steps (e.g. 100M potential customers is meaningless if your expected profit per customer for the next 10 years is measured in pennies).

[Number of customers] x [number of uses per year] x [amount they pay for similar solutions] is one set of data that will get you to a reasonable estimate.

In some cases, you may not be able to get a market size, but at least you can find metrics about a market that you can compare with other markets you do have more data on.

Intensity of the need – Independent of the size, how much does each segment’s customers need the product. One good analogy that I’ve mentioned in previous posts is:

  • Vitamins – Your customer doesn’t need this or know they need this yet. (E.g. Foursquare – Still arguable if this is useful, but has a huge audience)
  • Advil – Customer has a mild pain point, your product helps. (E.g. iPod – Couldn’t carry all your CDs)
  • Morphine – Customer has a major point, you solve. (E.g. Online flight search – Took hours and pain to plan a trip, or paid fees to travel agents)

Is the segment addressable? – Once you’ve figured out which large, profitable, market segments exist, you’ll need to figure out which ones you can actually address.

As one example, a group of entrepreneurs I know once looked into building an online university in a developing country. The market was growing rapidly, and potential customers were crawling over each other to get access to the current offerings.

However, it turned out that actually reaching that market was going to be too difficult for them, based on 1) laws governing businesses and even school accreditation, 2) language barriers, 3) cultural feelings toward education, both on and offline and 4) absolutely no understanding of the online market or how to navigate the online community to reach customers. Despite their initial excitement, they ended up passing on the opportunity.

A final word on assessing potential market segments – This is a simple, structured way to start assessing potential target markets. However, there are plenty of strategies – e.g. acquiring low-profit users first to eventually reach high-profit users – that may suggest you choose a different course.

In addition, as you grow your business, you’ll eventually have to tap new markets.

What’s important about this framework is not that it gives you “The Answer”, but that it helps you frame each market and understand your opportunity. After this assessment, you can make strategic decisions – and if your strategy starts off by acquiring small numbers of unprofitable customers, you’ll be able to explain why.

NOW THAT YOU’VE TAKEN YOUR SHOT AT IT – GET FEEDBACK

This is one of the most important themes in entrepreneurship. No matter how smart you are, or how long you’ve worked in your industry: Make sure you ask for advice and feedback as much as possible. (And make sure you include people outside your company.)

Even though you and your team may have an opinion on the proper target market, it’s likely that other people, including potential investors, will be able to refine your logic, target weak points in your analysis that you can improve, or come up with ideas you’ve never thought about.

Treat this feedback like a survey, and aggregate the advice you receive to make decisions on your target market. Whether or not this actually causes you to change your direction, you’ll at least begin to understand the key questions that outsiders have on your business, so you can be better prepared to answer them in the future.

NOW THAT YOU’VE GOT THAT SETTLED – PROVE IT

To further support your selection of target market, you’ll want to find proof. Whether or not you intend to raise money, you’ll want to at least prove this to yourself (after all, you’re investing a lot of time and probably a high percentage of your net worth in this).

There are many ways to find proof, some of the big ones are:

  1. Survey – You can pay for Facebook surveys by demographic, or build a simple survey on the free version of a service like SurveyMonkey and email it to folks in your target audience
  2. Get people to sign up for something – Before you’ve even built a product, you can build a simple landing page with a platform like Unbounce, that gives users a description of your product/service and a place to sign up for beta invites/newsletters. If you can get huge numbers of signups with no product, it’s often a good sign the product is worth building
  3. Other tests – You may be able to create a specific test that illustrates the need for your product. For example, creating a popular twitter feed or email list that responds to requests for a certain type of information could show that there is a market for a paid product providing that information

Just remember, while the target segment’s need for the product may seem very obvious to you (e.g. if you’re creating a service for college students while you’re in college), it won’t be obvious to people who aren’t in your position and don’t spend all day thinking about your business.

Building your product and making it successful will take time, and it’s likely you’ll want to make a partnership or raise money before then. Make sure you find some way to show others why you’ve made the right choice.

…AND NOW YOU CAN BUILD

Once you’ve figured out your target customer, you can design your product, UI and marketing strategy around them.

One good way to help your team stay focused on your target segment is to personify the various customers within that segment. Select pictures, give each a name, and write a blurb describing who they are and why they need your product. Post their pictures on the wall, and bring these personae up as you design new features and strategies.

For example, if you are building a restaurant review site targeted at wealthy young male professionals, find a picture of a twenty-something in a suit, name him Stefan, write up a bio about his job at Goldman and his European girlfriend, and make it clear that he prefers his restaurants to be new, expensive, and next to a certain type of club. At the beginning, you may make pretty major assumptions like these, but as you continue to learn more about your customers, you can continue to refine each persona.

This makes it much easier to think specifically about whether Stefan would be into your new feature or service, rather than the sometimes nebulous concept of “our users”.

REALLY, IT’S IMPORTANT TO ALL ASPECTS OF YOUR BUSINESS

Choosing your target customers and building specifically for them will help clarify the goals of your company, and help you build a clearer story about your business for future customers, partners and investors.

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1 Comment

  1. i want to produce new product that is facial mask from banana peel..so what is my target customer?im not clear..

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