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On Customers MGT 709 New Venture Creation
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Agenda Readings Juice Guys RelayHealth
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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
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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
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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
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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
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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
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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
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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?
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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
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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
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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
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