The customer, post #3 of “Startup Briefs”

What is more important than your idea? More important than your startup? More important than you? You got it – your customer.

Most first-time entrepreneurs don’t focus early enough on their customers: who they are, what their needs are, and why will they buy your product or service. It sounds so obvious, but you’d be surprised at how many millions of dollars get spent, as Eric Ries says, “building products that nobody wants.”

It’s an easy mistake to make when you think about it. Everyone tells you to “focus like a laser” to “build a prototype,” to get your product “working” before you approach customers. After all, doesn’t marketing to your customers happen AFTER you have built a product? How do you approach potential customers when you don’t have anything to show?

In addition, early stage entrepreneurs are in love with their idea and their product. They sometimes don’t think to stop and make sure that they are putting their efforts into something that provides value to a paying customer. Entrepreneurs rely on their own mindset about their product; they think that if they envision it, if they build it, customers will just love it. Wrong!

How should the first-time entrepreneur ensure that he/she doesn’t fall into the “ignore my customer” trap? A few simple rules:

• Understand who your customer is. Don’t confuse your customer with the end-user. There may be several stages in your channel to market so make sure you know who is who in the value chain. For each step in the chain, you have to understand what’s in it for them to buy your product.
• Learn about your customer. Use techniques like profiling and a-day-in-the-life-of. Don’t generalize your customers; personalize them. Make them real people with real needs. Do you help them with their work? Do you help them personally? Understand the difference. Understand how you help them and how that is important.
• Talk to your customer. Once you have identified customers in the value chain, make sure that you actually talk to them. In person and on the phone, not just by email. Let them communicate to you their needs and desires. Do those mesh with what you see as the problem that you are solving? If not, there may be a disconnect. Make sure that there is not, as you want to build a product that customers want.
• Interview first; show later. Your first contacts with potential customers are not sales calls. They should be interviews where you discover what your customer wants (which is why this process, à la Steve Blank, is called “customer discovery”). Only after you have identified what your customer needs, and then built a solution to that need, do you show them a prototype. Even then, you are not selling. You are validating (which is why Steve Blank labeled this process “customer validation”).
• Pilot with your customer. Since you have been talking with your customers early on, and validating your product with your customers, then the next logical step is that you pilot your product with a few customers. This can be called either an alpha or a beta in a software or hardware startup. No matter what you call it, this is testing. And you need to be there when the customer tests your product. You need to look at their faces, observe their reactions, see how they use it, or how they don’t. You will learn a huge amount from basically watching and listening.
• Be flexible, but don’t overdo it. Customers will want the world from you. Once they are on to the fact that you want to solve their problem(s), they may ask for all kinds of customization in your product. Be sensitive to their needs, but be smart about it. Are they asking for additional features that will provide value to other customers? Or, are they asking for something that is niche focus? This may take you a long time to develop and it may or may not add value to others. Be careful of customers’ demands at the early stage.
• Grow your customer base. Don’t rely on your first customers to be your only customers. Do you need to expand your customer profile to grow? Is the segment that you picked robust enough to handle your desired and required growth? Use your early customers for testimonials, referrals, and as a base from which to grow. Don’t get stuck there, however. They should be a launch pad, not an endpoint.

In conclusion, NOTHING IS MORE IMPORTANT THAN YOUR CUSTOMERS. You don’t have a startup unless you have customers, paying customers, who value what you are offering.

Addendum for life sciences startups: You don’t get to test new products on humans, whether they are drugs, diagnostics, devices or methodologies. You have to go through the regulatory process. However, I have seen too many times in my position at the Innovation Institute at University of Pittsburgh, where we have an abundance of life sciences technologies, that the only focus of the first-time life sciences entrepreneur is the patient condition. This is the starting point – a clinical unmet need. There is no denying that need if you support it with data and physician/patient validation.

But, is the patient your customer? Rarely. Is the physician your customer? Rarely. Often, the customer is the hospital. And almost always, reimbursement is important, making Center for Medicare and Medicaid Services (CMS) and insurance companies your customer.

In healthcare, you are faced with a multi-sided, complex market. Make sure that you understand the value proposition to all constituents in the value chain. Make sure that you talk to people in all of these segments, that you know how new technologies get adopted in the healthcare arena. That way, you stand the best chance of understanding who your customer really is – which is where we started with this blog post.