Business Plan Toolkit: Session 2, Customer Discovery · Session objectives - Understand WHY...

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Business Plan Toolkit: Session 2, Customer Discovery

Winter 2016

Session objectives

- Understand WHY customer discovery is the #1 priority of any entrepreneur wishing to start (or grow) a business.

- Learn the four steps of customer discovery.- Write a customer discovery plan.

Image from Pixabay

2.1 Customer Discovery

What is a market?

Image from Pixabay

“A market is any structure that allows buyers and sellers to exchange any type of goods, services and information.” (Wikipedia)

Your “market” is the group of customers who will buy your product.

Why should you “get out of the building” and discover who your customers are, and what they want, BEFORE you start (or change) your business?

Customer discovery helps you identify:- What your market looks like right now, if it’s in

the process of changing, or if it may change in the near future

- The size of your market (and if it’s large enough to support the business you’re trying to build)

- Why people in your market buy products; what attracts them to a certain product or brand (or repels them)

- How much demand there is for your product or service, and what people are willing to pay

“The job of entrepreneurs is to find a business model that works before running out of money.”

- Ash Maurya, Running Lean

“You can't be smarter than the collective intelligence of your customers.”- Steven Gary Blank, Entrepreneur

Questions?

2.2 Common Customer Fallacies

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Common problems in customer discovery:

• “Everyone drinks water!”• “1% of China” fallacy• Blue ocean vs. red ocean• “I don’t have any competition!”

“Everyone drinks water!”

1. There are six billion people on the planet2. Everyone needs to drink water3. I sell water bottles4. I have six billion potential customers!

“1% of China”

1. China has 1 billion people2. 1% of 1 billion is 10,000,0003. If we can just sell to 10,000,000 people at $10

per transaction, we’ll make $100,000,000 in our first year!

Blue ocean vs. red ocean

- The red ocean is red because all the sharks are fighting over the same prey!

- The blue ocean is calm, because the sharks are all over in the red ocean

- Can you fight the sharks in the red ocean for your little piece of the market? Or should you try to create a market (or serve an underserved market) with your business?

- Red ocean risk: restaurants, food products, consumer tech, web-based services, salons

Images from Pixabay

Blue Ocean products: Cirque du Soleil and the iPod

“I don’t have any competition!”

- Everyone has competition

- EVERYONE HAS COMPETITION

- Basic laws of economics:

“Opportunity Cost”- Resources are finite- Buying X means you cannot buy Y - There is ALWAYS an X someone can buy- You may have a UNIQUE product – that

does not make it NECESSARY

Images from Pixabay

When researching your market, think bottom up, not top down!

Images from Pixabay

READ: Case study, CleanBottle™ (10 min)

CleanBottle™ Bottom-Up Analysis:

1) Where are bike bottles typically sold?2) How many bike shops are there in the US?3) How many of them would stock my product?4) How many water bottles does each shop sell in

a year? 5) How many CleanBottles would each shop sell

in a year?

1) Where are bike bottles typically sold?(Bike shops)

1) How many bike shops are there in the US? (5,000)

2) How many of them would stock my product? (5% of shops, or about 250 shops)

3) How many water bottles does each shop sell in a year? (About 150)

4) How many CleanBottles would each shop sell in a year? (About 40)

250 shops x 40 bottles per shop = 10,000 bottles

Questions?

2.3 Interviewing Customers

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Four steps to the customer discovery process:

1. Formulate a hypothesis for your company:• My product/service solves <problem> by providing

<solution>.• People will use my product or service because <reason>.• People will love my product or service because it offers

<benefit>.

2. Develop a list of questions to ask yourself about your product, and a list of questions to ask customers.

Four steps to the customer discovery process:

3. Create a sample size of at least 10 people, and try to meet them in person for interviews.

4. Look at the data you have gathered and identify patterns. Which of your hypotheses were correct? Which were incorrect? What do you need to change about your business model, or your product or service, or your other assumptions?

How do I find people to interview?

https://www.youtube.com/watch?v=SiWkFsWoJSM&list=PLcdm0yqdmhJopRkThQ16Wc8LXqSoQg15m&index=2

What the heck do I ask people???

https://www.youtube.com/watch?v=KZYntTU3JW4

ACTIVITY- For 10 minutes, write down your answers to

the questions on your worksheet. - Find a partner – it CANNOT be the person you

paired with last week- For 5 minutes, discuss your answers to the

questions. Get their feedback, reactions and suggestions.

- For 5 minutes, listen to their answers. Give your feedback, reactions and suggestions.

Formulate a hypothesis for your company:• My product/service solves <problem> by

providing <solution>.

• People will use my product or service because <reason>.

• People will love my product or service because it offers <benefit>.

Questionable sources of customer discovery data:

- Your mother or father, stepmother/stepfather- Your grandma, grandpa, uncle, aunt, cousin- Your husband/wife, partner,

boyfriend/girlfriend, “friend with benefits”- Your best friend- Your best friend’s cousin’s uncle’s roommate- Your online buddies from World of Warcraft- People you ask at the bar (unless you’re

opening a bar)

What other questions should you answer through the discovery process?- Who is my customer, really?- How many potential customers (realistically)

are out there?- Where do they live? - How do they purchase goods or services? - What other companies out there are offering

products/services similar to mine?- What are they charging? (Is my price point

realistic for my market?)

Questions?

2.4 Using Customer Discovery Data

Image from Pixabay

How do you use your customer discovery data?

How do you use customer discovery data?- Refine your product/service- Use it to inform or create your differentiation

strategy or positioning- Figure out the optimal place to locate your

business, or the optimal design for your website/web store

- Determine who your competition is, and research them

- Use your research to develop realistic sales projections, which then inform profit and loss/income statement and cash flow

Questions?

Review our Session Objectives:In this class, we will:- Understand WHY customer discovery is the #1

priority of any entrepreneur wishing to start (or grow) a business.

- Learn the four steps of customer discovery.- Write a customer discovery plan.

2.5 End of class

• Please fill out your class evaluation forms

• Thank you!

2.5 End of class

Business Plan Toolkit: Session 2, Customer Discovery · Session objectives - Understand WHY...

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