1. Introduction

1.1 What Is Your Hypothesis / What Are You Trying to Learn?

Understanding the ‘customer’ using the process of Entrepreneurial Innovation is a 3-step process:

1. Learning about the customer problem to come up with an idea; 
2. Speaking to additional customers to see if the idea solves the problem;
3. Engage in MVP testing to reiterate customer feedback. 

2. Why Customer Obsession Is Critical to Success

2.1 Why Spending Time Identifying Your Customer Helps You Build the Right Solution

Thought Exercise: Finding a customer for an idea

As an entrepreneur, understanding your customer is of the utmost importance. Take a moment now to visualize your idea and jot down who you think would be your customer. 

Now that you have identified a customer for your idea idea you have, stress-test your assumptions on who is your customer. This will help you gain a greater understanding of the customer as It is critical that you deeply understand their needs and pains. 

Case study: #2 Pencil

Now, a simple explanation of the importance of new ventures being customer centric is the #2 Pencil. In this case, we’ll look at a #2 pencil as a solution. Other possible examples might be Chromebook for education vs. Mac for professional/creative or Salesforce for enterprise vs. Hubspot for SMB.

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A #2 pencil solves a perfect need for one customer: a high school teacher whose students are taking a multiple choice test. The pencil provides a solution that allows their students to mark multiple choice answers and erase them as needed. This solves the problem of excessive scribbles and illegible answers from students, which could be an issue if they chose to use ink pens. 

The #2 pencil is also a great solution for a range of other customers:

Now, although the original yellow wood, medium darkness, medium softness #2 pencil is the perfect solution for the teacher/student scenario, it may not be for other user cases.

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Golfers, for example, have no easy way to carry around a standard length 7.5” #2 pencil while on the golf course. Instead, golf courses provide a smaller solution, short pencils, that uniquely solves golfers’ problem of needing a portable writing utensil.

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Similarly, carpenters also have unique needs because they are not just writing on paper. They might be writing on wood one day and stone the next. A larger size pencil with a higher grade of lead density helps carpenters ensure their markings are visible on any surface and are easy to trace.

Lastly, artists need color and require a variety of different stroke sizes and shades. For an artist, a #2 pencil alone might create one style of a masterpiece but it won’t meet all of their needs.

The point of the example is that a pencil (i.e. the solution) needs to transform into the right solution for the right customer (teachers, golfers, carpenters, etc.). This requires a deep understanding into the problem of the right customer and the primary use case. The fundamental truth is that an entrepreneur must first start their venture with a strong understanding of the customer and the customer’s problems, before prescribing a solution.

In summary, every type of customer has unique needs and you must solve for those.  If you only create one solution and try to sell it to everyone under the sun, you would not likely solve any one problem extremely well.

2.2 Examples of Customer Obsession

Activity 1: Evaluate a Startup’s Customer Needs

Activity 1 involves reviewing a startup’s website and evaluating how they market, what it is that they do and, more importantly, who they do it for. The purpose of this assignment is to look at the concepts described in the session within the context of a real-world startup.

The questions are designed to be open-ended;you should place a good amount of thought into your responses as there may be a variety of correct answers and opinions. Teaching notes are included for each question.

Kiwibot

Kiwibot is a startup which provides hardware and software for last mile robot delivery. They’ve raised $3.5M, according to Crunchbase. Awesome!

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Who is their customer exactly? Try browsing their homepage and see what you will find:

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Once you have had a chance to review the customers and value propositions above, please answer the questions below:

When you browse the homepage and see the above information what do you think?

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Teacher note: Correct answer is that they lack focus and they are a technology in search of a problem to solve. It is always better to identify your customer before you start marketing, in order to market to your specific customer. No efficient customer acquisition pipeline, digital experience or sales funnel is sufficiently broad and effective to allow for a diversity of customers in the very early stages of a new venture. As an entrepreneur, you must put “all your eggs in one basket” to maximize the impact of your limited resource. That’s why it’s really important to constantly assess your understanding of the customer and adapt your approach to their problem accordingly. 

Who is the startup’s target customer?

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Teacher note: The answer is that they don’t know who their customer is but they think they could have one of four possible customer segments.

If you were the founder of the startup what might you do to improve your understanding of your customer?

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Teacher note: The answer we’re looking for stems from part two of the session and is that they should conduct more research into the possible customer segments to understand who they are best able to solve a concrete problem for.

Which of the four target customer segments outlined do you think is the best?

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Teacher note: While students should be able to present a personal opinion here the answer we’re looking for is that it’s hard to say without conducting additional research.

The key takeaway is that if the startup can focus on one of their four customer segments, they can design the perfect solution for that customer. However, designing a solution to serve all four customer segments will leave none of the four customer segments satisfied because the startup’s attention is spread too thin across multiple, unique needs.

3. Preparing to Learn About Your Customer and Company

3.1 Types of Knowledge

In Entrepreneurial Innovation your level of risk is determined by your knowledge. The more you know, the less risk you face. The less you know, the more risks you face. Therefore, it is important to understand both what you do and do not know. 

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To expand upon this matrix, 

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The first thing that must be immediately obvious is that knowledge is relative, unto itself and between people. Therefore, the “we” in this matrix is interchangeable with “I”, “You”, “They”, etc… 

3.1.1 the Interplay of Knowledge and Risk

To be effective in this transition, we must first confront the reality of how we perceive risk. 

Opinions are not knowledge. Facts and data that result from quantitative measurement are knowledge. Qualitative insights and executive perspectives are either Known Unknowns or Unknown Knowns but they are never Known Knowns. 

Which in turn translates into different levels of perceived and actual risk:

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It’s important to contextualize that knowledge is entirely relative. Whereas one demographic “knows” something, another demographic may not yet be aware of the knowledge or may not have accepted the knowledge. This relative distribution of knowledge is particularly important in the context of business as the intent of any good organization is to direct its resources. 

On any given team there could be a variety of knowns. To this end, one of the primary purposes of a team should be to optimize the distribution of known knowns by compositing a team who has the requisite knowledge to achieve the goals of a particular task. 

To truly know the customer, you must first get into the mindset to learn.  

3.2 Customer Mindset

When learning about your customer, leave your biases at the door. 

“Real self-confidence is not reflected in a title, an expensive suit, a fancy car or a series of acquisitions. It is reflected in your mindset: your readiness to grow.”

– Carol Dweck, a pioneering researcher at Stanford who specializes in the field of motivation, why people succeed (or don’t) and how to foster success.

You must be willing to look at old problems with a new perspective and understand them anew. You cannot start with preconceptions of what the data will tell you. This is also known as having “beginner’s mind”:

“In the Beginner’s Mind there are many possibilities. In the expert’s mind there are few.” 

– Zen Master Shunryu Suzuki, Zen Mind, Beginner’s Mind. 

You must have the strength to let your ideas go and the openness to learn:

“The true test of self-confidence is the courage to be open—to welcome change and new ideas regardless of their source.”

– Jack Welch

As you learn about your customer, you must allow the shape of your idea to change shape inline with the customer.

“You must be shapeless, formless, like water. When you pour water in a cup, it becomes the cup. When you pour water in a bottle, it becomes the bottle. When you pour water in a teapot, it becomes the teapot. Water can drip and it can crash. Become like water my friend.” 

– Bruce Lee

To achieve this, you must be able to understand and sympathize (ideally: empathize) with the customer:

“there is no way for our innovation to meet unmet unarticulated needs (…) if we don’t listen not just listen to the words but go and go deep to understand what the needs are behind it core innovation” 

– Satya Nadela (CEO, Microsoft) speaking with David Rubenstein (co-founder and co-executive chairman of The Carlyle Group)

You must be open to having your initial idea be incorrect. It is much more effective, and will serve you better long-term to invalidate ideas rather than just validate ideas. 

“(T)hose who change their minds are the biggest winners because they learned something, whereas those who stubbornly refuse to see the truth are losers.”

– Ray Dalio, American billionaire hedge fund manager and philanthropist and founder of the world’s largest hedge fund

3.3 “brave Space” / Invalidate, Don’t Validate

We must start the learning journey with the open mindset that is needed to conduct customer discovery. It is important that every innovator recognizes that the search for knowledge is the highest priority, even if it makes some people uncomfortable. Participants must be allowed to openly and honestly explore and learn about what is measurably occurring.

What makes innovators great is that they are passionate about an idea and committed. So openness and being incorrect may not be the most natural for innovators, founders, entrepreneurs, managers or anyone. It is important to leave your biases at the door and as you acquire knowledge, be ready to invalidate ideas, rather than to validate every idea. This will help in the long-term and save time, money, emotional anguish and credibility!

There are a range of biases that you should explore in yourself before pursuing a venture:

Taking a few practical commitments BEFORE talking to customers can help you “get into the mindset”:

3.4 Act Like a Journalist

As an innovator, try to embody the characteristics of a journalist, such as:

Similar to the “brave space”, do not try to get the customer to validate your hypothesis. If you go in with the “brave space” mindset, and ask open ended questions, you will be surprised by things your customer says. That is what you want!

In the very early stages of learning about the customer, it is imperative that you personally are gathering customer data. Acquiring customer knowledge should not be outsourced as knowing your customer intimately can be one of your greatest assets. Personally working with customers will allow you to ask questions and clarify feedback, to create intimate customer knowledge,a priority of a great entrepreneur!

3.5 Keep a Customer Mindset

The foundational difference between companies that have a short-term focus and those that have a long-term focus is the company’s mindset. Short-term, investor focused companies have “Business Mindset”. Long-term, customer-focused companies have a “Customer Mindset”. It is this simple, yet foundational difference in mindset, which separates companies that successfully innovate and grow against companies that struggle to remain competitive.

These differences play out across the business: 

Table 1 breaks out the differences for easier comparison: 

Most people are more widely familiar with the Business Mindset. It is taught in schools and, if you work in a traditional company, reinforced by the incentives you are given at work. 

Innovation in business mindset companies consists of creating short-term gains to appease shareholders, often at the expense of the customer experience and the long-term relevance and viability of the company. This often futile approach is known as “innovation theater”, where a company does things to appease shareholders and not customers. 

3.6 Data Saturation

When an entrepreneur begins their primary market research, a critical question is ‘to how many customers should I speak in the first place’? Is it 5 or 50 or 100? What is that magic number? In reality, there is no magic number – however, a great way to gauge the stopping point is when you reach ‘data saturation’.

One thing to iterate is that once an entrepreneur reaches data saturation → Stop! Customer discovery is an ongoing process which you must commit to throughout your venture life. However, once you hit data saturation, move towards sharing what you learned and executing the ideas. 

While there is no “magic number” on when you or a team will reach data saturation, it can be after 6 or 20 interviews, Google “demonstrates that asking five customers will uncover 85% of the problems.” That said, you ultimately have to choose whether you know enough to stop or keep going.

Many entrepreneurs struggle to talk to their customers, especially in their early days. It may take you time to get comfortable having honest conversations with customers and potential customers. However, these conversations are incredibly important because they are the foundation for any business. As referenced in the Research section of this article; a key book recommendation for any entrepreneur is ‘Talking to Humans’, by Giff Constable. It is available as an online PDF here: https://www.talkingtohumans.com/

3.7. Warmup: Review of Existing Literature

To help you find out more about your customer, how to segment them, and how to find out the problem that you can solve, the following section summarizes three important bodies of research: ‘Talking to Humans’, ‘Disciplined Entrepreneurship’ introduces the Beachhead Customer and ‘‘Competing against Luck’ introduces “Jobs to be Done”.

Activity 2: Evaluate Your Customer and Business

Activity 2.1: if You Have Existing Customers, Baseline Existing Knowledge.

There are a few ways to collect this data, from low-cost do-it-yourself to expensive managed services.

The data you collect from this process is the foundation for everything that you will do next. To ensure you get the right data, explore as many options as you can. Ideally you will find a tool or firm that has prior experience researching and analyzing your intended customers.

Activity 2.2: Baseline Your Knowledge of the Customer (Knowledge Matrix)

Activity 2.3: Research Tracker

In order to get a real understanding of your customer you must actually talk to them! To get started, you should first identify where you can find your potential customers. Once they are identified, you should approach the individuals and record their names. 

Step 1:Finding People to Talk To

Start by making a list of 5 places where potential customers generally gather. Places include a specific aisle of the supermarket, stores they frequent, or Facebook groups in which they congregate.

Where potential customers gather:

1. __________________________________
2. __________________________________
3. __________________________________
4. __________________________________
5. __________________________________

Step 2: Record names and details

Now that you have identified the places your potential customers gather, visit these places and get permission to quiz customers inside. With permission, approach customers by letting them know the study you are conducting and the goal of your conversation. Once they agree to be surveyed, ensure you write down their name and the notes you gather. Encourage them to document their top objectives for the call. Ask open ended questions.

Activity 2.4: Pattern Tracker

Now that you have identified your customer and are recording your conversation, it’s important take note of certain patterns in their feedback. The attached worksheet can be used to track patterns and themes that emerge from the conversations with potential customers. In the first column, you can list the potential customers, themes and patterns should be written in the first row and in the end, tally up all of the occurrences for each pattern to identify those that are most prevalent. 

Patterns to look out for include attitudes they may have, problems they face or other considerations. Patterns will vary so the most important consideration is to track whichever patterns you see and set them aside for discussion with your team. 

Note:it is important to not be deceived by patterns at the qualitative level of research. These patterns should only form the basis of your quantitative research. To truly enhance your pattern recognition, you must also track demographics and psychographics to identify whether patterns or themes are related to those characteristics.

Example

These can be identified as patterns that emerge from potential customers and deserve focus.

4. Identifying Your Customer

Now that you know that it is important to focus on one customer segment, you must determine what that customer segment is and who is a part of it. How do you do that? 

Talking to (potential) customers, start with a little bit of secondary market research:

Seeking answers to these questions will give you a little bit of background on the market you are entering and will provide you with some knowledge before engaging in a conversation with a potential customer.

Once you have some background information, focus on talking to customers rather than relying on generic online data. Once the conversation starts, explore their interests and thoughts rather than selling them your vision or ideas. At this point, they are not purely customers, rather, they are your guiding posts to your end product.

Many entrepreneurs will think of this as an excellent opportunity to send out a survey, but surveys are quantitative therefore you will only produce measurable results. Instead, you must start with qualitative research to build a foundational set of assumptions that you can test with your quantitative research.

Qualitative Research

Start with qualitative research where you:

In qualitative research:

Through these research tactics you should be looking to uncover answers to questions like:

This is just a simple selection and you may need to find other answers to truly get to know the customer. There may be additional questions or modifications of the questions above depending on the industry you are working within and who you have interviewed.

Remember: when talking to customers, you cannot make major assessments about a group of customers based on what one person says. Instead you must identify the patterns and themes that emerge from research across subjects. To validate what you have learned in qualitative research, move on to quantitative research. 

Quantitative Research

Quantitative research methods, such like surveys, allow you to collect data on a statistically significant number of customers:

A deeper understanding of your customer and the problems they face is critical in helping you craft a value proposition for the solution you are presenting. When thinking about your customer segment, you should be looking at an in-depth understanding of the following characteristics about your ideal customer:

4.1 Psychographic

To introduce Psychographic – which captures human traits based on psychological attributes, start with this mental exercise:

Think about your favorite brand.

Now, list down everything about yourself* which would explain why you are so drawn to that particular brand.

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*List down things about yourself: Example, perhaps your attraction to Nike is due to your desire to run a marathon someday. Or perhaps you are an early adapter so you love Apple products.

You likely did not just list down demographic information about yourself. While demographic information may play a role in why you are drawn to a brand, it is likely that the psychographic information about yourself is the bigger driver in why a brand speaks to you.

In short, some entrepreneurs may tick the box by doing demographic surveys, but nothing replaces in-person conversations with customers, where you can best uncover motivations, attitude, aspirations and other psychological information. With this information, you will be able to build the best products and the best messaging for that customer.

One example that shows the importance of both demographic and psychographic information is through the customer persona that Lululemon came up with in their early days:

By understanding your customers motivations and priorities, it allows you to better speak to them and reach them, which is essential for all entrepreneurs. Ultimately, you will have enough data to formulate customer profiles called “personas”. A persona is one ideal target customer that represents a series of other customers with the same or similar characteristics as them.

4.2 Aligning Around the Persona

Once you have  narrowed in on a group of like-minded target customers, you must figure out how to represent them accurately. The simplest way is to choose the real target customer who most embodies the characteristics of the group of customers you’re seeking to serve. Once the accurate persona is chosen, you should create a customer profile that lists their name, a headshot, and all additional details about them that are common amongst their target customer group. This information is called a persona.

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Activity 3: Defining Your Customer

Activity 3.1 Building Customer Personas

Activity 3.2 Determining Your Beachhead Customer

Once you’ve determined your personas, you must now choose which one will be your beachhead customer. As previously mentioned, Bill Aulet mentions the need for selecting a beachhead customer in his book, ‘Disciplined Entrepreneurship’. He defines the beachhead market as:

1. Customers within the market who all buy similar products;
2. Customers within the market have a similar sales cycle and expect products to provide value in similar ways;
3. There is “word of mouth” between customers in the market, meaning they can serve as compelling and high-value references for each other in making purchases. 

Some important nuances to discuss when determining your beachhead customer:

Activity 3.3 Integrating Customer

This is a crucial step that is often forgotten! You have done all this hard work talking to your customers and understanding them. 

How do you make sure that work helps your new venture move forward to the best of its ability?

Some of this comes from how the customer discovery was conducted. As a reminder:

It also comes down to how the customer persona is used after:

Continue to refer to the person by name. You are selling to this individual, not a nameless customer. Examples:

It’s important that your entire team knows who they’re serving. Why? Otherwise you may wind up with different team members having different impressions regarding who is the customer. If different team members think the customer is someone slightly different, then they will create value propositions that don’t match the intended customers’ problems and solutions that don’t deliver the right value propositions.

Alignment on the target customer is crucial to ensure everyone is working towards the same goal. A persona is a simple way to help bolster a common understanding in a startup of who is the target customer. Further, by having a visual nature of the person (i.e. headshot), everyone will clearly see who exactly the team is serving.

Every decision that is made and every feature that is built should tie back to the persona. Let’s use Annie for example. When a decision is being made in regards to product development, etc., a question should always be asked “How would that help Annie?”

Caveat: Brand Permission

If a pre-existing company or entrepreneur plans to launch a new product, brand permission is a critical factor. According to the Yale School of Management “brand permission defines the limits of customers’ willingness to accept a familiar brand name in new marketplace situations.”

If Warby Parker, the eyewear retailer, decided to branch out and sell jewelry, it would be a tenuous link, and obtaining brand permission would require massive investment in branding and customer education. Eyeglasses, sunglasses, or contact lenses are what the customer wants from Warby Parker, not bracelets and necklaces. 

The point here is that customer centricity guides you in future strategy. The questions to ask are “will your customer want this and, if not, what does that mean for your customer relationship? 

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