Disciplined Entrepreneurship: 24 Steps to a Successful Startup

by Bill Aulet

Within the broad definition of a customer, there is the end user, who ultimately uses your product, and the economic buyer, who makes the final decision about whether to acquire the product.

Step 15, Design a Business Model,

Step 1A: Brainstorm Start by brainstorming a wide array of market opportunities. Include even the “crazy ideas” that you think are longshots, because they are helpful in expanding the boundaries of possibilities to where some of the most interesting opportunities might exist.

Even at this early stage, talking about your idea or technology with potential customers will give you clear and accurate feedback for your market segmentation.

You will find them at trade shows, through connections with fellow students and professors (perhaps some of them would have been potential customers at their previous jobs), or, if others have heard about your idea or technology, perhaps they will be contacting you, suggesting potential uses. The best scenario is when you are the potential customer yourself and have a deep understanding of the problem you are trying to solve.

How to find customers to interview

If you have an idea, you may think you already have a specific market and a specific application in mind. However, as a first-time entrepreneur, you will want to carefully determine whether your perceptions are correct.

Likely, your defined market is not specific enough, but you may also find that the market you have in mind is not a good match for your idea, or that other markets are better for starting a business. Be open-minded and creative.

For instance, if you are expressing your idea as “I want to create an online social network for high school teachers and parents to communicate about their children’s progress in school,” you may lock yourself into a path that does not produce a sustainable business. Start instead with “I want to improve education with technology.” Then ask yourself why you are passionate about that idea. If technology is your primary passion, you probably want to consider a wider range of industries than just education. If your passion is education, you can simply segment the education industry, but be open to other solutions besides one involving a high degree of technology.

A school doesn’t use a textbook, or a chalkboard, or a lesson plan, but teachers do.

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Next, identify the different tasks your end user performs.

Sometimes, my students have an easy time segmenting end users when starting with an employee like a teacher, but have a much harder time when the end user is a consumer, purchasing for personal or household use. A useful question to ask is why the consumer would purchase a product in a particular industry segment. For the education segmentation above, why would a parent purchase a product that improves education?

Step 1B: Narrow

1. Is the target customer well-funded? If the customer does not have money, the market is not attractive because it will not be sustainable and provide positive cash flow for the new venture to grow.

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2. Is the target customer readily accessible to your sales force? You want to deal directly with customers when starting out, rather than rely on third parties to market and sell your product, because your product will go through iterations of improvement very rapidly, and direct customer feedback is an essential part of that process. Also, since your product is substantially new and never seen before (and potentially disruptive), third parties may not know how to be effective at creating demand for your product.

Energy people are not redily available for us now. Reflect. Should we change to another segment?

3. Does the target customer have a compelling reason to buy?

4. Can you today, with the help of partners, deliver a whole product? The example here that I often use in class is that no one wants to buy a new alternator and install it in their car, even if the alternator is much better than what they currently have. They want to buy a car. That is, they want to buy a whole functional solution, not assemble one themselves. You will likely need to work with other vendors to deliver a solution that incorporates your product,

5. Is there entrenched competition that could block you? Rare is the case where no other competitors are vying to convince a customer to spend their budget on some product to meet the identified need. How strong are those competitors, from the customer’s viewpoint

Can the competition block you from starting a business relationship with a customer? And how do you stand out from what your customer perceives as alternatives?

If you win this segment, can you leverage it to enter ad...

If you dominate this market opportunity, are there adjacent opportunities where you can sell your product with only slight modifications to your product or your sales strategy? Or will you have to radically revise your product or sales strate...

you do not want to choose a starting market from which you will have a hard tim...

Geoffrey Moore uses the metaphor of a bowling alley, where the beachhead market is the lead pin, and dominating the beachhead market knocks down the lead pin, which crashes into other pins that represent either adjacent market opportunities or diffe...

7. Is the market consistent with the values, passions, and goals ...

You want to make sure that the founders’ personal goals do not take a back seat to the oth...

Start by asking these questions at an industry level. Then, consider what the answers would be for the end user of your product. Within an industry, if you have segmented your potential end users by branching out into many categories, like in the education example above, ask the questions at each branching level.

Your limiting factor is time—you will research each of these markets in depth, and you do not have time to consider an unlimited number of options. Six to twelve market opportunities is more than sufficient—with a realistic number being much closer to six than twelve.

Step 1C: Primary Market Research

talking directly with customers and observing customers will help you get a better sense of which market opportunity is best.

Because you are identifying a new market opportunity for a product that does not yet exist, you will not be able to rely on Google searches or on research reports from research firms.

If there is already a market research report out there with all the information you need, it is probably too late for your new venture. You have missed the window of opportunity—someone else has beaten you to the market.

Instead, you will gather the vast majority of your information from direct interaction with real potential customers about their situations, pain points, opportunities, and market information.

Unfortunately, there are few shortcuts in this process. While you should find out what you can about customers and markets before you talk to potential customers, it is impossible to overstate the importance of doing direct customer research, as any other sources of information and knowledge are frequently superficial and likely of minimal value.

How to Talk with Potentia...

When you talk with potential customers, encourage the flow of ideas; don’t restrain them or try to gain a commitment. If the potential customer senses you are trying to sell them something, they will change their behavior; they will either say little or say things that are related to the market opportunity you seem to be presenting them, rather than providing you with new, innovative ideas for markets. As a result, you will get less market data, and what you do get will be biased.

Likewise, you should not count on your customer to design your product or tell you the answer to their problems. The goal of this research is to understand their pain points,

To do so, you will need to thoroughly understand the underlying issues and sources of opportunity, whether by speaking with them or, even better, watching them as they work (“primary observational research”). Actions are more important than words, because people sometimes say things that are contrary to how they actually do things.

It would be great to address markets that we can dominte and where we can easily access to customers.

You will want to talk with as many end users as possible, but individuals who are not end users may also give you valuable advice or may point you in the right direction.

There are a few key factors that are integral to collecting accurate information: You must have a high level of intellectual curiosity. You must be fearless about getting on the phone, in the car, or on a plane to pursue this information. You must have an ability to listen and get people to talk. You must be open-minded and unbiased, and never presuppose a solution (inquiry, not advocacy). You must have the ability to explain what the essence of your proposed offering might look like while also being flexible. You must have time and patience to devote to this important step. There are three important caveats when conducting your primary market research: 1. You do not have “the answer” for your potential customers and their needs. 2. Your potential customers do not have “the answer” for you. 3. Talk with potential customers in “inquiry” mode, not “advocacy/sales” mode.

Organize Your Research

1. End User: Who specifically would be using your product? The end user is often your “champion,” who you need on board so that your product is successfully adopted.

2. Application: What would the end user be using your product for? What is the task that would be dramatically improved by your new venture?

3. Benefits: What is the actual value that the end user would gain from the use of your new product? Not feature or functions, but specifically what the end user gains from the product. Is it a time savings? A cost savings? Additional profit?

4. Lead Customers: Who are the most influential customers that others look to for thought leadership a...

“lighthouse customers” because they are so respected that when they buy, others look to them and follow their lead, gaining you instant credibility.

Who are they

Market Characteristics: What about this market would help or hinder the adoption of new technology?

Partners/Players: Which companies will you need to work with to provide a solution that integrates into the customer’s workflow? Sometimes, this category will tie into the “Complementary Assets Required” category below.

Size of the Market: Roughly, how many potential customers exist if you achieve 100 pe...

Competition: Who, if anyone, is making similar products—real or perceived? Remember, this is from the customer’s...

Complementary Assets Required: What else does your customer need in order to get the “full solution,” that is, to get full functionality from your product? You will likely need to bundle your product with products from other manufacturers so that ...

It is easiest to organize this information in a matrix, where each potential market opportunity is a column header, and each category of information is a row.