It’s a Customer Development Problem, not a Conversion Problem

It’s a Customer Development Problem, not a Conversion Problem

I feel like “conversion rate optimization” is in 2013 what “social media marketing” was in 2009. Most startups fail. Not because they have a conversion problem but because they never really nail the product or how to market it.

The product or website (be it software, e-commerce, or a service) might be awesome , but if it puts itself in front of the wrong market, or packages itself so the right market can’t figure out why it’s awesome, the startup will fail.

The most common mistake startups make is assuming they can operate the same way big companies do, and expect success with little to no feedback from potential customers.

A corporation like Starbucks could pick locations by throwing a dart at a map and know they’ll at least break even with a new location and mediocre customer service.

But for a new coffee shop, things like customer service, atmosphere and selection, will make or break the company. If they don’t nail the experience on the first few visits, they can all but ensure their doors will closed next year. Same goes for e-commerce, SaaS or any startup really.

This is not a conversion problem. This is a customer development problem.

By the end of this article, you should have a better understanding of how to develop new products or tweak your existing offerings by working with existing or prospective customers to incorporate their feedback to create viable solutions to their problems, and clearly communicate their value.

So What is Customer Development?

Steve Blank, a serial entrepreneur in Silicon Valley, developed a methodology for creating businesses that runs in parallel with the traditional product development process.

The core idea behind customer development is that the assumptions you make about a target market are only guesses.

Startups rarely survive by guessing, and can only create products and business models based on facts about their target market.

Facts about your customers don’t come from your friends and families. Sorry.

You need to “get out of the building”, get in front of real customers, ask for feedback, and deeply analyze their problems. If your guesses are validated, what you’re building is might be a viable product.

More likely, your first few guesses will be invalidated however, which means it’s time to:

  1. Re-evaluate your core assumptions
  2. Change who your product is for
  3. Pivot the product entirely

The idea is that by repeatedly testing your hypothesis, with your customers, allowing your assumptions to be proven wrong, you can create a product & business model that customers enthusiastically get behind because it is a genuine response to their problem.

Fortunately, because most of the customer development process is about having conversations, you’ll learn more and spend a lot less to make (or reposition) your product into something people actually care about.

Phase 1 – Exploration

In the exploration phase of the validation board method, you simply interview your customers to find the problem you think they’re having.

The idea is interviewing enough people will reveal trending problems, while confirming or invalidating your beliefs about your customers.

For startups looking to conduct these interviews pre-launch, this process could be as simple leveraging Linkedin to conduct your market research. Existing companies can segment their email database to reveal their most loyal customers.

In this case study on Moz.com by Conversion Rate Experts, the first phase of their conversion strategy was to interview paying, non-paying, and former customers about how they felt about the product. Even though Moz’s focus was conversion oriented, it’s telling that the first step is still interviewing the customer.

There are many ways you could conduct the customer interview, but here are some really great ones.

Phase 2 – The Pitch

In The Pitch phase, you essentially take what you learned about your market’s pain points from the exploration phase to create an offer in exchange for currency.

Currency can be defined as email addresses, tweets, cash or anything your customer gives up to receive a solution to their problem.

Trevor Owens shows how he uses the Exploration and Pitch method to validate a Vespa Rental business. Facinating case study, and a must watch if you want to fully understand The Validation Board Method.

Phase 3 – Concierge

The Concierge stage is about delivering the product promised in The Pitch, to a few customers with as little technology as possible.

The reason you want to start with a small customer base & minimum viable product is so you can work with those customers to create an experience they’re truly excited about.

If you want to see startups in the Concierge phase, follow what happens after a Kickstarter campaigns get successfully funded.

For a high profile example of a startup in the Concierge phase, watch what the Pebble Smartwatch does moving forward. Having presold over 68,000 units through Kickstarter – over 10,000% than they thought necessary – it turns out, that’s the smallest customer base possible, because the customer base selected themselves.

The Pebble Smartwatch itself comes stock with a fairly standard feature set – email, clock, heart rate monitor etc. But what will truly set Pebble apart from the other smart-watches on the market are the highly active forums.

Here early adopters give feedback and enterprising developers discuss app ideas. As Pebble evolves from a startup to a legitimate competitor against the likes of Apple or Sony, much of their success will hinge on how attentive the founders are to their enthusiastic early adopters. From the looks of it, they’re going to do great.

If Your Product Isn’t Experiencing Growth…

Before you consider your lack of growth a “conversion problem”, be open to the idea that your customers aren’t as enthusiastic as they could be.

This isn’t the end of the world, in fact, it’s a great time to pivot and make something people will enthusiastically want and be happy to recommend.

Services like Qualaroo or Olark can help you to start that conversation with your existing customers, and give you the valuable insight you need.

It might be the perfect time to Pivot

“When we discover that our experiments have stopped being productive, let us pivot to a new fundamental strategy that will allow us to do better experiments, that’s what a pivot is.”- Eric Ries

Famous examples of companies Pivoting usually involve the founders and early employees looking hard at what’s working, and getting rid unnecessary features.

For instance, ThePoint.com was an activist fundraising site which allowed users to contribute a sum of money towards any cause, but it was only once the funds reached a “tipping point” that the funds would be released. Problem was, the target market was wildly unfocused, so people using the site didn’t really know who it was for. There was however, one area that seemed to do well – Group buying.

“Mason and his team decided to apply this model to purchases by letting merchants advertise goods or services at a discount that would only go live if enough people signed up in advance. About a year later, Groupon was born.”

As entrepreneurs, we often bloat our offers and make them do more than is necessary. Sadly, it’s that extra stuff that fight so hard to put in that adds extra weight to a good core experience.

As you’ll see in contrasting case studies between Fab.com and Eventvue in the next section, this step of nailing the product, and having just the right amount of features is what will ultimately make or break your company.

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