CHAPTER SEVEN

Choosing your customers

They say that startups don’t starve, they drown. You never have too few options, too few leads, or too few ideas. You have too many. You get overwhelmed. You do a little bit of everything. 

When it comes to avoiding drowning and making faster progress, good customer segmentation is your best friend.

Segmentation

When we look at the big successes, they seem to serve the whole world. Google lets anyone find anything. Paypal helps anyone send money anywhere. Evernote backs up all the writing of everybody.

But they didn’t start there. If you start too generic, everything is watered down. Your marketing message is generic. You suffer feature creep. Google helped PhD students find obscure bits of code. EBay helped collectors buy and sell Pez dispensers. Evernote helped moms save and share recipes.

When you have a fuzzy sense of who you’re serving, you end up talking to a lot of different types of people, which leads to confusing signals and three problems:

1. You get overwhelmed by options and don’t know where to start
2. You aren’t moving forward but can’t prove yourself wrong

1. You receive incredibly mixed feedback and can’t make sense of it

Babies or body builders?

I talked to a woman who had developed a very cool powdered condiment. It was sweet (like a cinnamon brown sugar), but had all the nutrition of a multivitamin. In fact, it was an all-natural superfood — you could eat nothing but that powder and survive indefinitely. 

She said that it had countless uses: you could sprinkle it on your breakfast or mix it in with your protein shake. Moms could trick their kids into being healthy. Restaurants could leave it on the tables as a healthy sugar alternative. However, she was running in circles because the bodybuilders wanted one thing, the restaurants wanted another, and the moms needed a third. Making one of them happy always disappointed the others. She didn’t know how to start. 

Before we can serve everyone, we have to serve someone. By thinking about who would be most likely to buy, she realised it was moms with young kids who are currently shopping at health food stores. She also knew where to find them: in the health food stores! But the stores were an important partner and she didn’t know what they would want. 

She decided to kill two birds with one stone by going into only the small, independent health food stores (slice that segment!) and asking them to place a few bottles of her condiment beside the breakfast foods. It’s a great way to cut through opinions by asking for a commitment (some shelf space) and she would come back in a week to ask them about their experiences. If the stores were happy and the product sold, she could begin finding ways to talk to their customers (and her end consumers), perhaps via an in-store tasting.

By getting specific, she was able to cut through the noise, stop drowning, and start making progress.

Big brands or mom & pop?

I was once thrilled that my customer segment was “advertisers”. Everyone advertises somehow, so naturally this was very exciting. Our market was practically infinite! I talked to mom-and-pop shops, e-tailers, big brands, creative agencies, SMEs, music labels and more. Everyone I talked to had different needs, constraints, problems, and desires. 

Everything we did ended up sort of working. Everything was somewhat promising. Some people were talking about paying us $10,000/month while others scoffed at the idea of paying $10. Every feature was more or less well-received. But if we tried to cut any of those middling features, we would get an uproar. It was always someone’s favourite part. 

In reality, our customer segment was just too broad. We were trying to serve everyone simultaneously. We said “yes” to every request. Every debate over a new feature could be won by claiming, “Well, those guys would love it.” The reverse argument could be made to prevent any feature’s removal.

The big trouble was that we could prove ourselves neither right nor wrong. We could never say that a new idea had really worked or totally failed. We were paying attention to so many customer segments that there was pretty much always someone it worked for. But making a so-so product for a bunch of audiences isn’t quite the same as making an incredible product for one.

Getting specific about who your ideal customers are allows you to filter out all the noise which comes from everyone else. In our case, we eventually noticed unusually strong signals from creative agencies who wanted to be edgy. We cut a bunch of features and were finally able to get a sense of what was working and what wasn’t.

But what does it mean!?

I recently spoke to a couple founders who have been working hard on their customer conversations. They were doing a great job of ensuring they use every sales meeting as an opportunity to learn. They’re asking good questions which pass The Mom Test and are pushing for advancement and commitment whenever it’s relevant. And yet, they have no idea what is going on and aren’t sure how to move the business to the next level. They don’t know which features to build and which to cut. They don’t know how to improve their marketing language. Why aren’t customer conversations helping them?

To make matters worse, the feedback they’re getting is absurdly inconsistent. If they run twenty conversations, they end up with twenty different must-have features and twenty separate must-solve problems. The more people they talk to, the more confused they get. What’s going on here?

Their customer segment was incredibly broad, but in a sneaky way. Imagine I tell you my customer segment is “students”. Okay, you say, with a picture of an American undergraduate university student in your head. Maybe it’s a male student. He sits down in the lecture hall, cracks open his mac (adding to the sea of glowing apples the professor’s view has recently become), and fires up reddit to help him survive the next ninety minutes.

So I’ve built a product for students, and feedback starts coming in. But it’s not what I expect. One user needs to add formal citations. Another wants practice questions. A third needs it to run on the iPad. A fourth needs eighty pupils to be able to use it on the same computer. The next needs to use the app through an intermittent internet connection. We’re looking at this list of requirements and our soul feels like it’s being forced through a colander. This will literally take us years to build. Where do we start?

It turns out that “students” is a broader segment than we initially expected. The first is a PhD student. The second is an ambitious youngling at a prep school. The third is a homeschooling parent who wants to use it with her kid. The fourth is a rural village in the Indian rice belt where all the local kids are self-educating through the one village computer. The fifth is in Africa, running the app off a shaky cellphone connection. All are “students”. 

The founders I mentioned were having the same experience, but for “sales organisations” instead of “students”. There are countless different kinds of sales organisations with fundamentally different needs and workflows and tools and goals. But from the outside, they all look like companies who do sales. Even if you narrow it down with a demographic constraint, as these guys did (sales organisations with 25-250 salespeople), you’re still facing unfathomable diversity.

They weren’t having 20 conversations with their customers. They were having one conversation each with 20 different types of customers. That’s why the feedback was so inconsistent. It was as if they were exploring two dozen business ideas simultaneously.

In these cases, talking to an industry expert can be hugely informative to provide you with a taxonomy of the industry. That will give you a better starting point for choosing where to begin. If you don’t have access to this high-level view, you still want to take your best guess and get specific. The next section on Customer Slicing will show you one way to approach it. Over time, your understanding of the industry will improve and you can adjust your mental categories as needed. When the feedback is all over the map, it’s really hard to extract value. Once you get specific, you can learn. 

Customer slicing

If you’ve already got a product and users, you can explore your way to a good segment by seeing who likes it and focusing on that group. The other approach is to just make a best-guess. In both cases, you’re ending up with a specific idea of who you’re serving so you can really make the features and language resonate for them.

You’ll want even more specific segmentation for your conversations than for your whole business. Going out and talking to people is that it takes time. If you talk to five people who each have different goals, you’re going to get mixed signals which don’t give you the confidence you need to move forward.

This drilling down into ever more specific groups is called Customer Slicing. You take a segment and then keep slicing off better and better sub-sets of it until you’ve got a tangible sense of who you can go talk to and where you can find them. Start with a broad segment and ask:

• Within this group, which type of this person would want it most?
• Would everyone within this group buy/use it, or only some of them?
• Why do they want it? (e.g. What is their problem or goal)
• Does everyone in the group have that motivation or only some of them?
• What additional motivations are there?
• Which other types of people have these motivations?

We now have a two groups of segments: the first is a collection of quite specific demographic groups and the second is a series of motivations. When we look at them, some will be more generic than others. Go back through the generic ones and keep slicing. Just repeat the questions above. Within that sub-group, who wants it most? Next we’re going to look at our groups’ behaviours and figure out where to find them.

• What are these people already doing to achieve their goal or survive their problem?
• Where can we find our demographic groups?

• Where can we find people doing the above workaround behaviours?

Are any of these groups un-findable? If so, go back up the list and slice them into finer pieces until you know where to find them. A customer segment isn’t very useful if there’s no way you can get in touch!

Now that we have a bunch of who-where pairs, we can decide who to start with based on who seems most:

1. Profitable
2. Easy to reach
3. Rewarding for us to build a business around

For example, if we were thinking about building an app to help students become more confident speakers, we might decide the best-case-students are graduating students nervous about their first big job interview. They are motivated not to screw up their big day. Other folks with those motivations might be first-time TV/radio guests, someone giving a wedding speech, or new authors who are about to go on book tour. Additional motivations (beyond coping with nervousness about a particular event) might be to improve at a valuable long-term skill or to fix some of the quirks of being a non-native speaker. That gives us some additional demographics, such as young professionals who have to talk a lot, such as teachers and salespeople. Or foreign exchange students who are about to graduate. Or non-native speaking PhD students who have an upcoming conference talk. 

As we get specific, it becomes easier to imagine where to find these groups. Instead of the generic “students” (I guess I’ll walk around campus?), we can easily find non-native speaking PhD students through the admissions office or the department advisors. We know exactly who to look for and won’t waste our time talking to a bunch of irrelevant folks. Or we can find people online. We might reach new authors by searching Amazon’s upcoming release list and then reaching out to them on Twitter.

Now that we’ve got some focused demographics, we also want to look at existing behaviours. A lot of people are terrified of speaking and just ignore it. They probably aren’t going to be our customer. Others talk to a therapist about their anxiety in general, while others try to improve speaking in particular by googling for tips, reading books, or going to workshops and meetups like Toastmasters. There are more existing solutions (e.g. new salespeople might get on-the-job training), but you get the idea. 

Once we know a group’s existing behaviours, it’s incredibly easy to get in touch with them. Nervous wedding speakers might be Googling for examples of great wedding speeches. We could advertise on those search terms and offer a bit of re-assurance and support in exchange for a quick chat. If someone is listening to a podcast about speaking skills, we could sponsor it or propose to the host that they run a “call in to talk about your speaking fears and solutions” live event.

If this was my business, I would probably shift my preferred customer segment from “students” to “people scared of public speaking who are trying to get better.” I would start by going to a Toastmasters meetup since I could have a dozen conversations over the course of the evening by Keeping it Casual. That one evening would give me a great starting point for understanding the motivations, worldview, and needs of a large group of totally ideal customers who are already spending time and money to try to get better. 

On the other hand, if you were attacking the same vision and happened to be a secret bibliophile, you might choose to start by tracking down some authors who are about to go on book tour. 

You needn’t be planning and theorising all day about this stuff — use it to quickly get to a specific, best-possible customer so you can go grab a few of them and move the business forward.

Since you’ll spend a lot of time talking to your customers, it’s worth choosing someone who is both accessible and fun for you to be around. This stuff is hard work and can be a real grind if you’re cynical about the people or the industry you’re trying to understand and serve.

As we mentioned, you can broaden your segment back out later. Make your life easy for now by choosing someone who is specific and who also and meets the three big criteria of being reachable, profitable, and personally rewarding.

Talking to the wrong people

You can’t get the data you need if you’re talking to the wrong people. There are 3 ways to end up fall into this clearly unhelpful trap.

1. You have too-broad of a segment and are talking to everyone
2. You have multiple customer segments and missed some of them

1. You are selling to businesses with a complicated buying process and have overlooked some of the stakeholders

We’ve already talked about #1. If you talk to everyone, many of them are inevitably going to be the wrong people.

You can miss segments and overlook buyers in lots of ways. The first important step is to know they exist. Sometimes it’s obvious. If you are a multi-sided marketplace, you obviously have multiple customer segments. 

Other times, it’s sneakier. If you’re building an app for kids, need to “sell” to both them and their parents. If you’re building something for public schools, you could potentially be affected by the concerns of the teachers, the students, the administration, the parent-teacher association, and the tax payers. 

You’ll also need to worry about multiple groups if you rely on an important partner, whether for manufacturing, distribution, or promotion. If your business relies on a certain partner, you’d better understand their goals and constraints just as well as you understand your customers’. 

Don't just talk to the most senior or important people you can find. You want to talk to people who are representative of your customers, not ones who sound impressive on your status report. When I was building interactive advertising products, I spent lots of time talking to guys in suits and very little (well, none) talking to the teenagers we were assuming would enjoy using our products. Telling my board that I had successfully talked to ten children that week just didn’t seem like the most important thing I could be doing. In retrospect, it clearly was.