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EP245 Lecture 3


Customer Segments

Today we're going to talk about customer segments. Who are you building your value proposition for? What jobs do they want to get done? What pains do they want to solve, and what gains do they want to see? And at the end of this, what you want to find is what's the archetype or persona of who you're building the product for? Last time we talked about value propositions, but today we're going to focus on customer segments. One of the interesting things about customers is that customers don't exist to buy; you actually exist for them. And especially if you're a technology startup, it's really hard because you always think it's about your product and it's hard to remember that it's actually about the people on the other side who are going to buy. And so one of the things you really need to understand is who are they and why are they going to buy from you? And one of the goals of customer segments is trying to understand the archetype or the persona or maybe just the details of who these people are in specific detail. You want to know where they live, what do they do, what's their age, are they in urban areas, are they married, etc. And why do you want to know that? Because it will help you figure out how to not try to boil the ocean by trying to get everybody in the world to buy your product. But figuring out who specifically is interested and why makes it incredibly easy to sell and have them want your product when you understand who they are and what their motivations are. So that's why we spend all this time talking about customers and customer segments. One of the things you'll also see later in this lecture is that you might actually have multiple customer segments-- that is, different types of customers all interested in your product. They might be male 18 through 24 who live in urban areas, but you might also have women who live in the countryside 45 to 55, in some cases, also interested. And the types of marketing or demand creation you'll do to attract each segment will be different, but if you didn't know who they were, you'd be creating the same type of marketing and in fact probably not reaching any of them. So let's take a look at this in more detail.

Product Market Fit

So if you remember from the last lecture--value propositions, what we're really trying to do is find the right product market fit between what you're building and who wants to buy it. Again, we call this relationship between value proposition and customer segment, simply product market fit. Today in customer segments, in this lecture, we're really going to ask what job are we getting done for the customer, that is what functional or social jobs are we going to get done, what emotional jobs, what problems or needs are we solving, what gains are we providing the customer, what pains, how does market type affect this, and at the end, what we're going to come up with is a deep understanding of the persona and archetype who are they, why would they buy, why won't they buy, what do you need to say to them, and if you spend your energy out of the building doing customer development and customer discovery, it will make your company incredibly efficient and actually figuring out how to market and sell to them. So remember, the goal is now to connect the value proposition with what you're going to know and learn outside the building about customers.

Jobs To Be Done

Remember, your goal here is to start with a series of hypotheses. That's all you'll have on day 1. If you're a domain expert, maybe you know a little more, but it's okay because you're just kind of guessing here. You start with, "Here's who I think my customers are," but then you get out of the building and you start running experiments, and you find out, "Oh, I was right," or, more often on your first guesses, "I was wrong." And because we're going to do these experiments cheaply, inexpensively, and up front, we're going to save all the enormous waste we would do if we waited until we launched the product and did an expensive marketing campaign and then, only then, realizing that, "Oops! These weren't our customers," or, "These were our customers, but we built the wrong features." So let's dive down a level deeper and first focus on what's the jobs needed to be done. That is, what is the customer segment trying to get done? And is it a problem or need? This phrase "jobs to be done" was first popularized by Clayton Christensen, who wrote a series of books. The Innovator's Dilemma and The Innovator's Solution should probably be on any entrepreneur's reading list. And what Christensen said is, "What functional or social jobs are getting done?" That is, does the customer want to perform or complete a specific task or solve a problem, or are they trying to look good, gain power or status? Or are there some emotional jobs? Do they want to look better, feel good, feel more secure? And what basic needs are you helping your customer satisfy? Is it entertainment, is it dating, is it something hard wired into the human psyche?

Rank And Day In The Life

Now, a simple way for you to start with your customer segment hypotheses is rank each job according to what you believe is its significance to the customer. And you get to guess on day 1 is it crucial or trivial? And take a guess about how frequently it occurs, and outline what specific context a job gets done. I call this the day in the life of a customer. That is, you ultimately ought to be able to go up to a white board and diagram for me or anybody else here's what a customer does from the moment they get up to when they go to work or when they're at school or something else, and here are the products they use and the car they drive and what they read, et cetera, and if you really don't have a deep understanding of that customer and where your product fits you're really going to have a hard time understanding them. Now, just remember on day 1 all you're mostly doing is guessing, but the whole objective of getting out of the building is trying to fill in this day in the life, so actually when you say something about here's how we ought to go advertise to them or reach them or get Google AdWords to them that you're just not saying it's because I think so. It's because you're saying I've spoken to a ton of these people, and they'd love to buy our stuff, but here's how we reach them, or here's the key message we need to deliver.

Customer Gains

Another key component of understanding customers is understanding customer gains, which is a fancy way for saying what are the benefits that customers expect, or desires, so besides the jobs they want to get done what do they want to gain by using your product or service? Let's take a look. Some of the gains could be what would make them happy? Is it saving money, saving effort, saving time, and what do they expect, and what would go beyond their expectations? How would you delight these customers? Is it quality, more of something, less of something? And is it features that would delight them or performance or quality? And what would make your customer's job or life easier? More services, lower cost of ownership, flatter learning curve? Obviously this depends whether you're selling to business customers or consumer customers, but you want to be able to make a list or a column of all the gains that they would get by using your product. And some more gains could be is it social consequences? Does it make them look good, increase in power? Is it good design? Is it specific or more features? And how do they measure success and failure? Is it performance or cost? And what would increase their likelihood of adopting your product or using it or using your solution? Again, is it about cost? Is it about lower risk? Is it about better quality? Is it because it's more fun? You need to come up with a series of hypotheses. Just make that list now. But you can't guess forever. You have to validate these hypotheses.

Customer Pains

Now, the last piece in understanding customer segments is understanding their pains. We've been talking about all the wonderful stuff that we do for them that makes them happy. What are the things that we could get rid of that actually is kind of like they've been walking around with an arrow through their head, and they've just kind of accepted that for a while, but when you come about you could say, "Hey, we could solve these problems for you?" Well, let's see what kind of problems we could solve. Is there something your customers find too costly? Again, is it about time, and it costs too much? This is essentially the flip version of the gains. The pains are what could we solve for these customers that they hate? Is there something about their product or service that's underperforming? It's missing features. It's too slow. It doesn't work well. It's bugging. And what are the main difficulties and challenges? One of the interesting things is that entrepreneurs come back and say, "Yes, the customer said this was a real pain." "Our product really solves these problems." Well, one of the things you need to know is was this like problem #47 on their list? Or is this in the top 3? Because most human beings, whether they're in corporations or even at home, tend to only worry about the top 3 or 5, so when you find out that this solves a pain, the question you need to ask is in context, well, what are the other pains you have? And you really want to understand their top 10, top 20, and then to find out you're #32 or 47 I wouldn't be celebrating, but I actually would be asking, "Well, wait a minute." "Is there any way that our product or service could actually solve anything in the top 5?" And if not, maybe you're in the wrong customer segment, and so you want to understand what's keeping your customer awake at night? Or maybe conversely, maybe you want to keep them awake at night, but you want to figure out what are their big issues, concerns, and worries? And then finally, the last piece is what are the barriers to adopt your product? Is it it costs too much up front? Maybe you have a pricing issue to decide later. Gee, it takes a long time to learn, or we're happy with what we have, and it's kind of okay, and what makes your customers feel bad? Frustrations, annoyances, et cetera, and what do they fear? Financial or social risks, what could go wrong, et cetera. You need to understand all of this.

Customer Archetype

And the goal of all this is to actually define the customer persona or archetype, which is just a fancy way for saying I want you to know everything about those customers. What could be everything? At the end of the day, not only do you know about the pains and gains of these customers, but you specifically know who they are. If they're in a company their position and title, their age, their sex, their role. Consumers could be parent. They could be child. For a consumer it could be housemate, et cetera. How do they buy? Where do they buy? How much money do they have discretionary to spend? And again, it's true in companies, and it's true for consumers. In companies do you know how much each individual department can sign off for? That is, if you've priced your product $1 too high, sometimes it requires the next level of management to sign off. Same at home. If you're trying to sell to kids, do you know what their allowances are and where they get their money and how often they get it? And if you're selling to consumers who are parents what's their weekly spend on discretionary items? You need to understand what matters to them, what motivates them, who influences them, and this one isn't trivial. The influences them, you're going to go back to this when you do customer relationships later, and it would be great if you actually knew how to reach these people and what buttons to push when you do. And so if you start asking these questions when you're starting to talk to them, trying to define them, it makes spending for marketing and demand creation, that is, for customer acquisition and activation, incredibly easy because you already asked them up front how would I get you to buy this? So marketing doesn't become some mysterious process later on. Customers already told you "Oh, this is how I buy, and this is how much I spend, and here is who I listen to when I want to make a purchase." As I said earlier, to me the goal is actually for you to know enough to confidently go up to a white board and draw the day in the life of a customer.

Customer In Context

There are some other things to consider in customer segments besides jobs to be done and pain and gain, and that is--who's the customer? Gee, I thought we're just defined the customers, it's the archetype, it's the persona but sometimes who's the customer in context is really what we need to know. In corporations, it's pretty easy to understand that you might have someone who uses the product but they might not be the person who pays for the product. So, there might be someone up here. The payer, let's give them a fancy name and call them the economic buyer. So we might be buying software for accounting to use, but it might be the chief financial officer who has to sign off for that, and in between those process, in a large company, you might have people who influence the decisions, you might have people who actually recommend who the vendors should be, you might have a decision-maker who's the head of the department but he still needs to pass off the final purchase to the chief financial officer, and surprisingly, if you spend enough time selling to companies, you might have saboteurs and saboteurs in the company are individuals or organizations whose jobs feel threatened if they knew piece of software or new process or new organization comes in place. And so in complicated business to business sales, you really need to know the archetypes for each one of these even though you might think, all I need to know is about my user, and then you might go okay well then all we need to know is about the buyer. As we'll see later, you actually need to understand archetypes for all. Now, if you were kind of rolling your eyes going, well I don't sell to businesses, I just sell to consumers, this isn't relevant to me. I want you to think of a case of selling entertainment software to teens. Well, think about it. You kind of say, the user, well that's pretty simple. That's the team. How hard can that be? Well, if they don't have a job, the economic buyer are their parents and the influencers and recommenders may be their friends, and the decision-maker, depending on your family might be mom or dad or the kid, or somebody else in between and so when you think about business to consumer sales, you also need to start thinking about is the user different than the payer. The last example is a personal one. I was buying a car and I thought how simple could that be. I was the customer. Well little did I know, having two teenage daughters, that really wasn't the case. Cause when I started talking about my care or potential car, my daughters said, "Dad, you can't buy that type of car. We wouldn't be caught dead on it." I looked at them and I said, well the car is not for you. They said, "Oh, we just won't even be riding in it," and they said, "Well, listen if you buy that car, you can't get that color, " and this conversation went on for a long time until finally we're able to make a decision and I realized that the final decision-maker in our household was my wife.

Types Of Customers

For this quiz, let's consider an example where we're selling business intelligence software into an enterprise customer, a large business. Why don't you match the titles below with the roles of the customers?

Types Of Customers Solution

Here's the answer. The chief financial officer is more than likely the economic buyer. The saboteur might actually be the existing business intelligence group inside of IT or the CIO's department who is actually trying to already build the software, and they might be afraid they're going to lose their jobs, so in every major organization you might find people who actually don't want or actively attempt to block a sale. The CIO is more than likely the decision maker. In some organizations they can actually sign off on large deals, but in this case the chief information officer is actually going to recommend to the chief financial officer that they buy this software. The report users, the people who actually use the product, in this case they're just simply the influencers, and that's kind of interesting to remember because sometimes those entrepreneurs, we forget that the people who use our product are not necessarily the people who even pay for or even recommend the product, and in this case the recommenders were probably the line of business management, that is, those users worked for a line of business, a division or a department, and the influencers, the people who used it, said to their bosses "We'd really like to have this software." "This would work great." And their managers, who didn't have any signature authority or couldn't actually install software, recommended that this actually get bought. Understanding this ecosystem is really important not only in business to business sales but sometimes business to consumer sales as well.

Signals And Experiments

Remember, we've been talking about pass/fail signals and experiments. As you get out of the building and start talking to these potential customers you need to set up some experiments. How do I know these are the right customers or the right buyers? And so you want to set up a series of experiments to test interest and figure out where do you want to test it and what kind of experiments can you run, and how many do you test? By the way, the how many is a classic question, and the answer is it depends. In a business to business enterprise sale you might get away with talking to less than 20 customers, and that's a great number. But if you have a mobile or web app you want to talk to hundreds if not thousands of customers. Now, obviously you can't personally interview all of those like you could in the enterprise, and so you want to get out and reach them virtually, but the number you want to get to really is an order of magnitude different than if you were doing B to B direct sales. Just a caveat and a warning. When you're out of the building trying to talk to hundreds or thousands of potential web or mobile app users you want to be careful that you're not completely dependent on online surveys. People simply lie on surveys, and so what you want to have is some sample where you actually bring those people into your building or you go see them, and you watch their pupils dilate as you actually ask them the question and see if that kind of diverges from the data you're getting when they're hitting your website or you're sending them questionnaires, and then you'll have a correlation to be able to figure out is that data valid or not? Just keep that in mind when you're trying to reach hundreds or thousands of people for customer discovery.

2 Sided Market

Now one other thing about the business model canvas in general, now that we've talked about customer segments is understanding that sometimes you'll have multiple customers, multiple segments, and it's kind of interesting to take a look at Google as an example. So, let's just take a look at Google search. Let's just think about who is the customer for Google search? It's anyone searching on a web or mobile and the product we have is a free search bar or free mobile app and what are the key resources? Well, they need software and software developers and installed user base but the key idea is this product is free and if you think about the cost directory for this, it requires massive data centers and software development and key activities or data center or speed but the key idea is the red new model is free but Google and Google search is one of the most profitable businesses on the face of the earth. Well, how can Google do that? Well, think about it what we've just been doing is Google has been acquiring users, but someone else if paying for this product and that someone else is a different customer segment called advertisers. So we had users here but we now have payers here. Now, what's really interesting is for every customer segment, we have a value proposition. We had a free search bar for the users but for the advertisers, we have a completely different product. We have Google AdWords and our customer relationships are different. For users, it was kind of an automated process. You just basically went to the Google website or you downloaded a Google toolbar. But for pairs, it might be automated but they also have telemarketing and direct sales to go after big advertisers but they're distribution channel, in addition to the automated is also self-service and direct sales, but the key thing to note is that not only do they have different segments and different value props and different customer relationships, more importantly, they have a different red new model. It's a big idea--multiple customer segments require multiple value props, multiple customer relationships, sometimes different channels but always different revenue models. These are the payers. So, Google Search is what we call a two-sided market. There are users and they are payers.

Market Matching

As we discussed, some businesses are multi-sided. In this case, let's take a look at the 2-sided market and match the market with the appropriate business.

Market Matching Solution

So the answer is for the linked in, there are two sides to this market. There are the workers as a customer segment and there are recruiters. For Visa, you would have banks and merchants. For eBay, you would have sellers and buyers. And in New York Times and almost every newspaper, radio, television, Google, you have readers and you have advertisers. So understanding multi-sided markets are just understanding which customer segments in a 2-sided market use and which other customer segment placed.

Market Types Introduction

One last thing and we've been avoiding bringing this up until now, but it's something you as an entrepreneur should know, it's a secret. And it's a secret that we didn't even understand for a long time and that secret is there are four types of startups and not knowing which type you are can really sink your company. So we call this market type. It turns out that there really are four types of markets for startups. One is existing market. Another is where you take a segment or re-segment an existing market. Another is a new market and another is a clone market. So let's take a look why this is important and then we'll give you the definition of each one. It turns out that the type of market changes everything. It changes your initial market size, how much it cost to enter the market, what kind of launch you do with your product, it affects the type of competitive barriers you have, and how you position or describe your product. It affects your sales model. Are you going to hire direct sales? When do you hire them? What kind of margins you should have or the profits? How long it takes, that is the sale cycle and something called the chasm width, which we'll take a look in a sec. It also affects how much money you're going to need to raise and how long it takes to get the profitability and then finally, it affects the types of customers and what they're needs are and how long it takes to adapt? So, what are the things this looks like is just a checklist of market type seems to affect everything. What the heck can it be? So let's go a little further and define.

Multiple Customer Segments

So just to summarize for a Google search, each had its own value proposition, but most importantly each had its own revenue stream, and one segment cannot exist without the other--that is, if you had users but you had no revenue, you'd be out of business over time. But if you had a revenue model but no users, there would be no reason for those advertisers to show up. Now this was an example of a 2-sited market. Let's see what happens when we have multiple sites.

E. Coli Example

So Google Search was a very simple multi-sided market--just two sides. There were users, and there were payers. But can the canvas actually work with something more complicated, like in the life sciences? So here's an example of a business model canvas from a life sciences company that was going to provide E. coli cell lines for simplified downstream processing. And they said, "Oh, our customer segment is segmented in niche marketing." Now, in hindsight, after the end of the class, they were the ones who actually went in and said, "Well, yeah, that was kind of a definition of what a customer segment was," but they didn't really describe who. And their value proposition, as even they realized later, was pretty unclear. And their channels, when they said web sales, trade shows, and direct sales, you know, in hindsight, looked pretty unrealistic. And for partners, they just said, "Well, you know, when we look at it now, it really kind of looks like a random list of hopefuls." So let's see how they got from something that started over here-- which you shouldn't laugh because your first canvas might have looked like this-- and what happened after they got out of the building. And so now you could see, instead of segmented and niche market only, they started to understand, "Oh, maybe the market is somebody in something specific by a farmer, by a technology, or food"--still kind of vague, but they're getting a little better, and then they're still a little vague on their feature set, gains and pains, and value proposition. They're getting a little more refined about partners. And then, as they went down, they kind of understood. "Oh, we understand what a value proposition is; it's not like what our technology is--it's what gain and pain we're providing." So simplify protein purification, increase yield, increase throughput, decrease cost. Now we're making a lot more sense, and now, if you look at the customer segments-- oh, now they're actually getting down to very specific groups. Not yet the people in there, but they're now actually going, "Oh, these are the people we should be talking to; and our partners are now also getting specific, and they're getting some very interesting traction on what potential revenue streams work." And, if we look at their next rev, the things in red are the changes. So now they're looking at industrial enzyme manufacturers, their key activities are R&D, and production support is their next change. And then, finally, they now kind of verified--"Yep, these look like our customer segments; here are our customer relationships. More than likely we'll make money from royalties and commercial licensing, etc." And so you could see multiple customer segments, multiple value props, multiple revenue streams--this is a somewhat complex multi-sided market. Just by the way, as a note, some of the most complex are actually in the medical device business where you have users, payers, hospitals, insurance companies, and regulators, etc., and each one needs a value proposition; each one needs to--you need to understand the revenue model, and so some business model canvases can be quite complex. Now what's interesting, by the way, about this life sciences company is here's something that you would think, "Who could I call? I'm just a scientist." I mean you might be an entrepreneur building an iOS app, and at least you could ask your friends. Who do you ask about, you know, E. coli-based purification platforms? Well, basically, they decided to go through the Rolodex of all the trade shows, all the conferences, and all the people they've met in their careers, and, instead of physically driving out to them, they used Skype, they used phone calls, and they started a cold-calling strategy which set a stage for a conversation. And they had two or three of their team on the call. So they would send the message to contact, they'd set an appointment, they'd send out a short summary electronically, they'd have a conversation, and follow up. And they also used survey tools; they used LinkedIn and Surveymonkey, but when we were counting how many contacts they made, we didn't actually count them in their progress.

Existing Market

Existing markets--well, the customers--well, they're know. We know who they are. They exist. The customer needs--well, we could ask them-- "What do they really care about for gains and pains." They could tell us. Competitors, by definition, they are many. The risk--well the risk is lack of branding, lack of sales, lack of distribution, and well unfortunately, sometimes your product really does not live up to the claims. Example, well the Google. It's an existing market. Go ahead and try to enter your search business to that. It's a dominant player in search.

Resegmented Market

Resegmented market--well, you have a hypothesis about who the customers are-- that is you think you understand what your fit is, either in the low cost or there are specific in each needs and so you might have a better fit for them. And competitors, there's many if you're wrong but very few if you're right, and your risk is that you get the market and product redefinition just wrong. You didn't do enough customer discovery and you say-- "No, no, no. This is how we're going to enter this existing market. We're going to go after these set of usuals specifically," and oops, you are wrong. A great example of this is what Southwest did. Southwest took on the airline industry by bringing up the traditional hub-and-spoke model and providing just very limited services but for an extremely low price.

New Market

Now there is a new market and here, the customers are really unknown. All you have is a vision and a set of hypothesis, and what you're hoping is you're going to provide for customers is something transformational--not just incremental improvement but transformational improvement. And the good news is and bad news is that there are no competitors on day 1--it's pretty lonely. So for this market to exist, you're going to have to create it through a force of will and a lot of money and that's going to require evangelism and education. An example--Groupon. Groupon single handedly created the daily deals market.

Clone Market

At clone market, the customers are possibly known because you copied an existing market like the United States, but the customer needs and why it's a clone is you're going to actually localize all those specific issues for your country or region. There are no competitors if you're first and the risk is misjudging the local news. A great example is Baidu.

Time To Profitability

One of interesting things about market type is that it really gives us a handle in trying to understand the expected time of profitability from shortest to longest. Take a look at the list below and rank the markets in order of expected time to profitability.

Time To Profitability Solution

When I look at an existing market, it's clear that if you've match those market needs, you could be achieving profitability the soonest. If you're doing a clone market--that is copying a US business model in a foreign country, that probably is the second closest to immediate profitability because you know the market exist that you just need to implement it in your local country. Resegmented market--well, that's probably somewhere in between existing in clone and new because you not only have to understand the market you have to understand the customer's specific needs or low-cost needs. But the longest time to profitability is a new market. You have a vision that you understand what the future might look like, but the market just hasn't adapted yet and that might take years.

Existing Market Extended

Again, a little further definition in existing market incumbents exists. Customers can name the market. Customers want or need better performance. And it's usually a technology-driven play. Positioning is driven by the product and how much value customers place on its features. The risks in an existing market is thinking that the incumbents are dumb. Typically, incumbents unless they're large corporations that are falling asleep will defend their turf and remember the network effects of an incumbent. It might mean that it's not only about their product but it might be all the ancillary services and third-party offerings they have in their catalog. And remember, just as you're focused on innovation, most incumbents are focused on innovation. So before you jump into an existing market you need to take a look at the innovation rate of the incumbents. Now, one of the interesting things is trying to figure out what sales looked like and what's the adoption rate in a new market. It turns out one of the interesting curves for startup companies is a technology lifecycle adoption curve popularized by Geoff Moore in a book called Crossing the Chasm. And Moore postulated that there was a gap, a chasm, between visionaries and the mainstream and pragmatic and conservative market. It turns out though in an existing market that chasm between these early adopters and the mainstream is very small or nonexistent because if you were right entering an existing market your sales curve, the spreadsheet you're putting together for your revenue, if you get it correctly should look just like this. You're taking market share from incumbents from day one. In an existing market, if customers react to your hypothesis that what they needed was higher performance and you are correct, this is your revenue curve. Congratulations!

Resegmented Market Extended

Now the other thing is that in a resegmented market and again we use Southwest as a low-cost entry or whole foods as a unique niche supplier via positioning and what you really want to start asking is what factors can you eliminate that your industry has long competed on or what can you reduce below the industry standard or raise above the industry standard or what can be created that the industry has never offered? Now what's interesting is if you look at the chasm between your early adopters, your early evangelists and the mainstream market in a resegmented market this is what Moore was kind of talking about called the chasm. There really is a gap between what these people want and a gap between their needs. And if you're not careful your sales curve well it would start looking like this over here and actually might collapse until the mainstream adopts. So let's take a look at what a sales curve might look like in a resegmented market. And it's a complex sales growth chart because in the first couple of years you're just kind of getting the spillover of people who kind of think you're just a competitor in the existing market and your sales will kind of toddle along until if you're correct and you were right about that niche or low-cost segmentation you will start seeing an exponential increase in sales. And if you're wrong, well you'll just kind of be one of the many competitors in an existing market.

New Market Extended

Now, the next market type is a new market. Customers don't exist today. As the real questions are, if they don't exist, how will they find out about you? And how will they even become aware that they need to be in this new market? And by the way, how do you know the market size of something that doesn't even exist today? The market size is zero and what factors should you create that the industry has never offered. Now, a way to look at this is take a look at the chasm. Man, this is scary. That is you can sell to the crazy people all you want. The early evangelists, the early adopters, and that's nice but you'll have a small business until you figure out how do we get the masses to adopt? and here's what that hockey stick sales curve looks like. Here are the early people you're selling to and one of the mistakes that start-ups and entrepreneurs and founders make, is look at that slope of those early sales, and when you get them, you go great time to like kick up spending and look at this, our board is happy and when we start doing advertising and stepping up the company, but then it kind of declines and people scratch their heads on what's going on. What's going on is the mainstream market just hasn't adopted and this might go on for years and never kick in but if you're lucky, you'll hit a tipping point and market adoption happens. And when it happens, it happens faster than you could imagine but at times, it takes longer to get there than you could imagine. So in a new market, one of the things you need to be thinking about is that, is there any possible way to move this curve in? There's a couple of really interesting things to notice about in a new market. One is this value of debt of almost no sales can continue for years. Now, why is this important to know? Well, just imagine you're a start-up and you put together a nice financial forecast for your board and your investors and they all believe that you are an existing market. So, they're expecting you to have revenue that increases every year. Why? Because you've never asked the question what type of market am I in? Now, if you're in a new market, you now know that it's quite possible that you might have a curve that doesn't look like this but actually is flat for a long period of time.

Consequences of Not Understanding a New Market

So the consequences of understanding a new market are essential for a startup. This was a startup killer for decades. In a new market, there are no customers, so revenues might extend out for years. In fact, if you think about what happened during the dot-com bubble, in the beginning of the 21st century is every startup executed like they were in an existing market. They hired sales people, they spent marketing dollars, and in scale of tens of millions or dollars trying to create and use your demands for a market that didn't exist. Just imagine what would've happened if those start-ups would've parked their capital in a bank getting interest and doing ??? activities to help start the market because the market wasn't there. There is no way any individual startup can accelerate technology diffusion. So for a new market to take off, lots of things external to your startup need to happen. Regulation needs to change. Platforms need to become cheaper. Customer cases need to change, etc. The dot-com bubble was actually predicated on all these things happening all at once and they didn't, and therefore, all that money that got raised got spent trying to acquire customers when they were none. The test for whether you're in a new market is not whether 30 people in your regional cluster, or in Silken Valley, or New York have heard about your technology. The real test is whether your grandmother in Omaha or Berlin or in Uganda actually have heard about the technology or the product or the market. And if the market doesn't exist there, you might be spending a lot of money trying to create a market where there is none. Premature spending is the killer for startups.

Clone Market Extended

So let's take a look at the last type of market, it's the clone market. This takes foreign business models and adapts it to local conditions. What's a foreign business model--typically right now, a foreign business model is one that's occurring in the US. What's a local condition? Well, if the language is different than English or your culture is different than the US or if your country has import restrictions or your local control and ownership and you have a market large enough to support a business model. Typically, a country's worth more than 100 million people that fit this criteria might be China, India, Russia, Brazil--even though EU itself; just cloning US business models that exist is not a bad business strategy.


So we covered a lot of material in the customer segment part of the business model canvas. We talked about the jobs to be done. We talked about pains. We talked about gains. We talked about multi-sided markets, and we've closed with market type. Let me give you an example of a couple of startups who actually went and tried to define our customer segments. So here was one. The startup was actually trying to understand how to find foreign students at universities, and so they were putting together their archetype and this was just the definition of meet the student and here's who they are and here's their family and oh this is their first time in America. And because it was about providing financial services to foreign students, they actually understood something about their credit score, about social security number, US address, whether they were responsible academically and financially, and whether their social network was responsible. Another example of a customer segment was someone making new kite boarding equipment. Who were their customers? Professional kite surfers. They're solely concerned with performance. But they had another segment. Average kite surfers. And they had a third, prospective kite surfers, and though I don't think they were this young they were actually trying to understand how to segment their market and what their specific performance needs for kite surfs were in each segment. The other thing that we're interested in doing if you remember in customer segments is understanding a day in the life of a customer. Now sometimes this could actually be diagrammed as to how do they spend their time. And this happens to be how does a designer spend their time putting together an architectural product. So how much they spend in phase 1 and then in prototyping and manufacturing and final product, and so this was giving them a view of what it would look like and so they can now describe to me and others, "Oh! And our product fits right here and here's why," etc. Here was another example of someone trying to understand the customer problem of couples who happen to be on separate coasts or long distance from each other. And they were trying to understand what the problems were and so they were able to articulate all the key pieces and kind of rank them by priority. And I thought that this was a great way to kind of diagram the problem. Here was another example of a team putting together a detailed archetype of a set of customers. They gave their archetype a name, Pat the Professional. Specified who Pat was, upwardly mobile professional, salaries, what they did, how much they spend, what their demographics are, what their traits were, what their motivations were, how many were there, where they worked, where they bought, etc. I thought this was a great example of a professional class consumer who was shopping frequently online. Another example, in medical devices, trying to understand two segments, oncologists and pathologists, here's what they did, here's what they cared about, and more importantly here's how they're paid. Here's how they're paid in the hospital and here's how they got reimbursed. Here's another example of a mammography product, how patient care works inside of a hospital and how people got reimbursed. So you could find these examples and more on the link below.