On Customers MGT 709 New Venture Creation

Agenda  Readings  Juice Guys  RelayHealth

Adams On Customers  Before you build it, validate the market  Don’t have a solution looking for a problem (like me)  The ready-fire-aim approach  Common illusion – I know my customers  Limited feedback and personal experience generate the illusion  Why validate?  Get the product right the first time  A beta community emerges  You generate a ready-made contact list of first customers  You can more easily raise smart investment capital  You use capital more efficiently  You clarify your competition

Market Validation  You cannot sell to everybody  A target market is a limited, discrete subset of companies or individuals whose pain is so great without the product that they will readily buy it  Your solution should be a “must-have” for your targets  Pyramid of influence  Stage 0: Secondary research  Stage 1: Primary market research  Stage 2: Quality influencers  Stage 3: Leverage influencers

Stage 0-1  Secondary research  Market size, trends, growth  Research competitors, customers  Read the industry press & specialized reports  Remember that secondary research is not validation  Primary research  Who needs the product most?  Who has the worst pain?  What does this market look like?  Test at least 3 hypotheses with data  Be prepared to revise hypotheses and start again  Interview at least 100 customers  Understand the customers and develop a sense of their pain  Make it everyone’s job to interview – even engineers!  Get a professional firm to develop questions and analyze data  Eliminate temptation to lead customers or offer solutions

Stage 2  Quality influencers  Have high pain, interested in a solution, a willingness to be contacted again  Also use thought leaders (speakers, writers, analysts) who also understand the pain  Presentation & prototype  Outline the pain, the target segment, and solution  Demo a prototype  Results:  Feedback on essential product features  Cultivate core customers  Fine-tune presentation and prototype

Stage 3  Leverage influencers  Analysts, thought leaders, editors, consultants  Get them excited!  Results:  Visibility in analyst reports & publications  Revenue possibilities (from consultants)  Easier financing  Customers change – keep validating  Build what the customers want and only what they want

Entrepreneurial Marketing  EM is  Balancing an obsession with the customer with the allocation of the firm’s scarce resources  Matching the right subset of possible customers with the right subset of possible products to maximize value  Knowledge of the market and ability to assemble people and partners with specific relationships and know-how is the key  Moore “Crossing the chasm”  Visionaries versus pragmatists  Speaker example

EM Questions  Customers  Who is the perfect (pragmatist) customer and what do they want?  What do “relevant” visionaries want?  What is the right backward path from pragmatist to visionary (risk/reward)?  Are your resources allocated to the right projects and visionary customers?  Visionaries are high maintenance!  Who are the people and partners you need to assemble and deliver the pragmatist product?  Do your people have a track record of dealing with the appropriate pragmatists, visionaries, and partners? Get the right people on the bus!  Can you afford experiments?

Juice Guys  In your business plan teams:  Pretend one of your team is a customer  Interview your customer using Exhibit 3  Group statements from your “customer” and the other five customers to identify “What is the ultimate juice shop”  You have one hour

RelayHealth  Questions  Should RelayHealth change its current marketing focus?  55% health plans, 35% doctors, 10% patients  Should they offer pricing concessions to get as many health plans as possible?  How should they allocate funds between marketing and product development?  How many product enhancements are necessary?  How can they prevent competitors from entering the market?  Do they need to change their business model?  Use the concepts from Entrepreneurial Marketing to frame your answers

Epilogue  Nantucket Nectars closed Juice Guys on Beacon Hill after one season, continues to operate summer outlet  RelayHealth was acquired by McKesson Group (ranked 16 on Fortune 500) in June 2006