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Your startup idea means sh*t

Instead of focusing on your idea validation, it's much better to decide which customers you will serve first and then build a product for those customers.

May 20, 2021

Your startup idea means sh*t

You might be tempted to validate your idea as a first step to building your startup. This is actually an excellent thirst step. The first thing you need to do is create an ideal customer profile.

What is an ideal customer profile?

The ideal customer profile is a refinement of all of your assumptions about your customer.

I would challenge you to start with the following:

Given that someone would be compelled to buy your product when seeing it,
describe that customer in great detail,
without talking about their problems.

The first time I came across the Value Proposition Canvas, I thought it was a great starting point to explore and validate our idea. We thought of building a tool for investors' updates. Yet, once we started to analyze the customer needs using the value proposition canvas, it had hit me that the canvas takes a somewhat naïve approach to who the customer would be. In a sense, it forces you to shoot an arrow and then draw the target around it. In our case, we have no passion for a specific tool, but rather, only passion around a particular type of customer: the startup CEO and preferably the first-time startup CEO.

That was a sort of epiphany for us:

  • Even if you have an idea, be ready to lose it fast with your first customer interactions and form a new one.
  • By creating a tool we could use ourselves as entrepreneurs, we could provide the tool to startup CEOs. It’s Meta! Also, dogfooding isn’t always delicious, but it works.

Why do you need an ideal customer profile or customer definition in the first place?

Steve Blank is one of the most outstanding entrepreneurship educators. He developed several frameworks, including the customer discovery and customer development methods that became the base for the lean startup model. One of Blank's first lessons is: "get out of the building." In this lesson, Blank explains that successful startups are developed by iterating together with customers around solving a problem. I think this is a crucial lesson. In reality, we got it wrong.

Our line of thinking was: "This is our idea. That is how it will benefit customers. Let's go out of the building to meet customers and see if they indeed can benefit from my idea – or what features I should add to cater to them."  

The customers we met loved our idea, appreciated its technical elegance, saw the benefits it provided, and even gave it a spin. Some loved it so much they were even giving referral calls to other customers and VCs. The problem we had was that most didn't buy it.

The primary reason was, we were trying to validate OUR idea with the customers. While this may work, I now believe there is a much better approach.

Your idea means sh*t

Instead of focusing on your idea validation, it's much better to decide which customers you will serve first and then build a product for those customers. The pros of the customer first approach are:

  • You decide in advance the type of audience and people you're going to interact with.
  • It is much easier to identify if you can reach them in the first place.

For example, let's assume you have a fantastic idea to serve CFOs of Fortune 500 companies. I challenge you to interview 20 of them as a first step.

  • You can identify where they hang out and what channels you can reach them through.
  • You can quickly build strict qualification criteria for your customer discovery that will later be passed to your sales team.

The cons of the customer first approach are:

  • You risk getting lost with too many options and priorities.
  • You might have a specific passion for a particular technology or tool that you have to drop.

Our passion for technology is pretty broad, and we knew we could satiate it with any tool.

We also know many entrepreneurs. They are intelligent, optimistic, open-minded, and brave.

These are the type of people we want to interact with and serve. We've already interviewed dozens of them and know we could reach dozens more to further our research. Early-stage entrepreneurs can be found in accelerators, incubators, and university programs. As for that last step of qualification – more on that below.

Who needs to define an ideal customer profile, and when?

There are many stages where defining and focusing on your customer definition would become valuable. Before a product launch, before any expensive campaign, whenever considering a new feature, and even when analyzing your current retention and churn. In those stages, different functions of the organization would own the customer definition, be it product, marketing, customer success, or customer support.

The scope of this blog is the ideation stage for a new product or startup -  before it was validated and before you were able to generate substantial revenues from it.

As a first step, I suggest the founding team do some short sessions to understand why they are doing the project in the first place and make sure they are aligned. A V2MOM template is an excellent tool for that.

After the team is aligned around the cause, I suggest the founding team decides on who they would want to serve.

Creating your ideal customer profile

Chose between horizontal aim vs. vertical aim.

  • In horizontal aim, your focus is a business function across many vertices, for example serving the marketing function.
    Both a pharmaceutical giant and a small restaurant would have some marketing resources.
    Albeit they would be very different, you can state that you aim at the marketing manager. You will focus you customer definition further later.
  • Vertical aim makes sense when you have an idea that would benefit players in the industry due to its unique needs.
    For example, improving quality in manufacturing for industrial companies would not make a lot of sense for the restaurant vertical.  

For us, we started at a horizontal play.
We stated we want to serve entrepreneurs, founders, CEOs, and product managers.
We didn’t care if they were working on a new EV or a new software product.

Narrow your customer definition as much as possible

In this step, you would narrow the types of organizations you prioritize serving. Try to narrow it down on as many criteria as possible, such as size, location, industry (even if you chose a horizontal aim).

See if you can identify your initial leads list or research the number of potential leads in the market.

We aim at startup founders with either the potential to raise money from VCs or have already raised initial funding. As an exercise, it’s also beneficial to state who you do NOT intend to serve. In our case, we don’t intend to serve entrepreneurs of lifestyle businesses.

Startups should also evaluate the number of customers of this type as an indication of the market size. If the market is too small, there is no potential to raise VC money for this startup.

Source https://news.crunchbase.com/news/global-2020-funding-and-exit/

This diagram gave us a rough number of at 10K potential leads per year, which we thought would allow us to build a sustainable business around. We also found some other reports that supported this number or higher. It is not a good market sizing technique, but it can later be used to size the market using bottom-up calculation.

Narrow on the exact target you’d try to interview – and eventually sell to

Let's assume you got to a point where you want to serve the quality function at industrial companies, and you’ve narrowed down the type of organizations you’ll target to additive manufacturers. Who do you go to? COO? Director of operations? Quality manager? Do some LinkedIn research to identify the best candidates.

Now you should have a combination of title, types of organization, and narrowed down criteria for both.

For us it was:

Title:

  • “Founder”
  • “Founder and CEO”
  • “Co-founder and CEO”

Org: Startup (Started in the last 3 years)

Additional criteria:

  • Raised at $100K-$5M
  • English communication (since all our material is in English)

We have further focus but we'll publish it in a separate blog.

Once you have an ideal customer profile defined, you can start to hypothesis about the specific customer problems you think you can solve as an interview preparation focus.

Don’t focus on your solution, but rather the customer problem you are aiming to solve. Is it a lack of budget? Not enough time? Lack of report or data? Hard to get the right talent? List your thoughts down and, based on them, structure a discovery interview.

It's never too late

What if you’ve never defined an ideal customer profile and already offer a solution?

Ideally, you’d want to focus your customer definition as soon as possible, preferably during the ideation stage. However, you should never consider it terminal if you’ve not done so, as it’s never too late to reap the benefit of such focus. At any stage of the company, it would be helpful to go back to this step and deliberately create your ideal customer profile definition. It will benefit your marketing, your product, and your team.

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