Starting a Company, Part 2: Identifying your Customer

The previous post in this series was about changing your thinking from a project mindset of making something that people like, to a business mindset of making a sustainable product with paying customers. This post is about working out who your customer should be.

Your hypothetical customer

One of the most pressing problems for any startup is making that first sale. You need a product to be able to sell something but, as I said in the last post, you don’t know what to build until you know who you’re building it for. Without customers, this looks like a vicious cycle — where do you begin when the customers are needed before you can make the product, and the product is needed in order to draw in customers?

The answer is to start with a hypothesis for both, a best guess of who your customer is and what the product they need looks like. The next post in this series is about developing products.

Once you have a hypothesis about the customer and product, you can cycle between improving your hypothesis of the product and improving your hypothesis of the customer. Only part of this process is actually recruiting the customers and actually building the product.

CustomerProductHypotheses

You read that right. More important than building the product and recruiting customers is refining your understanding of the customers and what they need from the product. The latter is how you set yourself up for long-term success.

An example

Let’s say that we want to start a dog-sitting service. Perhaps you love dogs but don’t have one yourself and you think there’s a gap in the market for looking after other people’s dogs. Customers pay you to turn up at their house and take care of their dog when they’re unable.

Disclaimer: I’ve never owned a dog and am not much of a pet person. If this idea sounds mean to dogs, then I apologise. If you think it sounds like a ridiculous business that would never work, then you should Google for “dog sitting service” and be surprised, like I just was.

Customer hypothesis 1: My customers are any dog-owners who want to be able to send someone to care for their dog when they’re busy.

Customer hypothesis 2: My customers are middle-aged commuters with desk jobs who live near me. They constantly feel busy and love their dogs, who are always waiting for them when they get home. On nights when they have to work late, they feel very guilty about leaving the dog on his own and waiting to be fed. Existing dog-sitting services are frustrating because they will look after the dog over holidays, but won’t come to the house for an evening. They’d love a way of sending someone to care for their dogs while he can stay working at the office until 10pm.

Which is the better customer hypothesis for a startup to have?

For most people, they assume it’s number 1. It’s less specific, so there are way more potential customers, and more potential customers has to be a good thing, right? It’s also less detailed, so there’s less chance of it being wrong.

These are all terrible reasons. More potential customers makes it much harder to know where to direct your efforts at the early stage when you’re still trying to get your product going. And a hypothesis that can’t be wrong is totally pointless! The hypothesis is only useful if you can test it and find out if it’s true or not, so you can test whether you really do understand your customer.

Hypothesis 2 gives you a much clearer image of who the customer is and what their problem is that you’re solving. It’s a much stronger starting position, as it gives you a statement that can be proved or disproved. Moreover, it lets you empathise with the customer, and that’s critical to being able to solve their problems.

The reality is that most companies will start out with a slightly vaguer customer hypothesis than hypothesis 2 (“The customer is a dog-owner in my city who wants someone to look after the dog when they work late in the evenings”), but only really established companies can afford to have broad hypotheses like hypothesis 1 (“The customer is a dog-owner who wants someone to look after their dog”) because it takes a lot of resources and a strong brand to target a broad set of customers.

Improving the hypothesis

Once you have your customer hypothesis as a starting point, you can start improving and refining your ideas. The best way to do this is to talk to customers and to change your hypothesis to reflect what you learn. I’ve written before about creative ways to find customers. Here I’m going to talk about the right way and the wrong ways to talk to customers. There are two simple golden rules to bear in mind here.

Golden rule 1: Ask about problems don’t tell about solutions. When you’re still at an early stage, you’ll be tempted to go to prospective customers and tell them all about what you’re creating. That’s OK later on, when you have a firmer grasp on your product hypothesis, because you already understand who your customer is. But it’s a bad idea in the early days, because you’ll end up pushing the conversation towards your current hypothesis, rather than hearing how the customer describes the problem without prompting. This could be illuminating: customers will surprise you with the problems they find, the solutions they’ve tried, and the insights they have into what’s wrong with everything else on the market. Knowing these things is a big advantage in working out your customer hypothesis.

Bad: “How would you feel about a dog-sitting service that operates on evenings and weekends? You phone up to say you’re in urgent need of a sitter and we send someone round to feed your dog, walk them and stay in the house until you get home.”

Good: “What happens with your dog when you’re late home? Have you already tried any ways of fixing that problem?”

Golden rule 2: Ask for preorders not feedback. Feedback is quite vague. Kind people will respond with praise, cynical people will respond with criticism, creative people will respond with ideas for new features, most people will respond with a mixture of all three. But these don’t help you unless you can convert the feedback into a paying customer. The most valuable feedback you can receive is an answer to the questions “Can I take a preorder?”, “Why not?” and “When I’ve done that, can I come back and take a preorder?” The reason these are so valuable is because they immediately tell the other person to think about their own opinions rather than those of another hypothetical person who they think is user. And they bring the other person’s brain straight to the issue of money and value: is this product valuable enough that you’d pay for it? Getting closer to a ‘yes’ is the goal of improving your product and customer hypotheses.

Recap

For long-term success, it’s more important to understand who your customer is and what product they want than to recruit customers or build a product. This starts with a customer hypothesis and a product hypothesis. The best ways to improve your customer hypothesis are to to meet with potential customers and to find out as much as you can about their problems before telling them about your product. The strongest kind of feedback you can get is whether a customer will preorder your product, rather than simply expressing an opinion about it.

Thanks to Tom Carver for reviewing a draft of this post.