Business Plan Toolkit: Session 2, Customer Discovery

Winter 2016

© WESST, 2016 except where other copyrights noted

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.

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Image from Pixabay

2.1 Customer Discovery

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2.1

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.

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2.1

2.1 Customer Discovery

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?

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2.1 Customer Discovery

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

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2.1 Customer Discovery

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2.1 Customer Discovery

© AZQuotes.com

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2.1 Customer Discovery

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

- Ash Maurya, Running Lean

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2.1 Customer Discovery

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

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2.1 Customer Discovery

Questions?

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2.2

2.2 Common Customer Fallacies

Image from Pixabay

Common problems in customer discovery:

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

2.2 Common Customer Fallacies

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2.2

“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!

2.2 Common Customer Fallacies

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“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!

2.2 Common Customer Fallacies

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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

2.2 Common Customer Fallacies

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2.2 Common Customer Fallacies

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Images from Pixabay

Blue Ocean products: Cirque du Soleil and the iPod

“I don’t have any competition!”

2.2 Common Customer Fallacies

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- Everyone has competition

- EVERYONE HAS COMPETITION

- EVERYONE HAS COMPETITION

2.2 Common Customer Fallacies

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- 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

2.2 Common Customer Fallacies

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2.2

Images from Pixabay

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

2.2 Common Customer Fallacies

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2.2

Images from Pixabay

READ: Case study, CleanBottle™ (10 min)

2.2 Common Customer Fallacies

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© WESST

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?

2.2 Common Customer Fallacies

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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

2.2 Common Customer Fallacies

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Questions?

2.2 Common Customer Fallacies

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2.3 Interviewing Customers

Image from Pixabay

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.

2.3 Interviewing Customers

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2.3

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?

2.3 Interviewing Customers

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2.3

How do I find people to interview?

2.3 Interviewing Customers

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

2.3 Interviewing Customers

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What the heck do I ask people???

2.3 Interviewing Customers

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2.3

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

2.3 Interviewing Customers

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2.3

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.

2.3 Interviewing Customers

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2.3

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>.

2.3 Interviewing Customers

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2.3

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)

2.3 Interviewing Customers

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2.3

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?)

2.3 Interviewing Customers

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2.3

Questions?

2.3 Interviewing Customers

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2.4

2.4 Using Customer Discovery Data

Image from Pixabay

How do you use your customer discovery data?

2.4 Using Customer Discovery Data

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2.4

© Steven Gary Blank, 4 Steps to the Epiphany

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

2.4 Using Customer Discovery Data

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2.4

Questions?

2.4 Using Customer Discovery Data

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2.4

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

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2.5

• Please fill out your class evaluation forms

• Thank you!

2.5 End of class

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2.5