UNDERSTANDING YOUR

CUSTOMERS

Written by Tom Walkerin conjunction with

1275 Kinnear Road, Columbus, Ohio 43215 614.487.3700 techcolumbus.org

TABLE OF CONTENTS

1.......................Entrepreneurship is All About Customers

2...................................Ask These 3 Questions to Really Understand Your Customers’ Pain

3...........................................Customer Buying Decisions

4................................People Buy from People They Like

5.................Sometimes Firing a Customer is a Good Idea

Entrepreneurship is All About Customers

To paraphrase the baseball great Yogi Berra,

entrepreneurship is 90 percent about customers and the other half is hard work.

1Modified with permission from Flazingo Images. Some Rights Reserved.

Every successful business exists because it provides a product or service that customers need and are willing and able to pay for. “ “

When we’re helping entrepreneurs start companies, keeping this reality front and center isn’t automatic—especially for entrepreneurs who come from scientific and technical fields as so many company founders in technology businesses do.

Early on, there necessarily is so much emphasis on product—designing the solution, securing and protecting IP, creating a prototype, and so on—that focusing on potential customers and markets can take a back seat.

Instead, develop a company where customers are the pivot point from day one.

Talking to people in the industry you seek to serve is a great first step toward matching your solution to their needs.

• Use your personal, professional, and industry connections to reach out and connect with individuals who have the problem you are trying to solve. You can do this on the phone or in person. The way not to do it is via email or text.

• Compose your questions ahead of time. Listen and take notes. You are not there to validate your assumptions as much as you are to discover where your assumptions are wrong.

• Talk to people who are using competitive or alternative solutions. Find out what they like and what they don’t. Find out which features they are willing to pay for and which features are “nice to have.”

Create a system for the company that allows you to collect anecdotal information about customers and use it in product development and fund raising.

2Your startup may have the best technology in the universe, but

This is especially true when you’re selling B2B.

if it doesn’t solve a problem that real customers are willing to pay real money for, your business can’t succeed.

Modified with permission from Lisa Brewster. Some Rights Reserved.

Ask These 3 Questions to Really Understand Your Customers’ Pain

To solve a customer’s problem, you really understand what that problem is. Do not wait until you have your prototype built.

Here are three questions to get you on the right path.

1. Ask the first question of yourself.

• Talk to the people doing the work. They will understand problems with process and execution. If your target market is manufacturing, reach out to the folks who work in the plants. If it is software, the IT folks who install and maintain application systems can tell you things you need to know. If you have a physical distribution solution, talk to the drivers of the trucks and the managers in charge of the warehouse or inventory.

• Functional managers with profit and loss (P&L) responsibility live and breathe margins, pricing, and costs. Use your network to gain appointments with upper level managers with responsibility for markets and product lines.

• Sales, marketing, and customer service teams know better than many in the company what their customers want. If you can come up with something that produces an advantage over the competition, these groups can become your internal advocates.

Now start talking to potential customers.

2. If you could change one thing about your business, what would that be?

• Every customer has this hot button. If someone tells you they like things just the way they are, you’re talking to the wrong person. Go back to question #1.

• Your customers have the same concerns you do—it’s just the specifics that are different. You’ll hear about increasing sales, reducing costs, finding the best people with the right skills, keeping customers, beating the competition, dealing with regulatory issues, speeding up product development, and finding the right strategic partners.

3. What would you like to do with your business that you can’t do today?

• In well-managed companies, there are lots of individuals with vision. Imagining new possibilities isn’t the exclusive territory of senior management. Open your aperture.

• From wish list to strategic plan, the more you hear about the direction of the company, the better you can aim your technology to match the pace. There’s nothing worse than having a solution that solves a problem that your customers won’t have five years down the road.

Googling gives you a great head start, but nothing, absolutely nothing, beats talking—and listening—directly to customers.

• We’ve been in many investor presentations where the entrepreneur refers back to actual conversations with potential customers. It adds impressive credibility.

• Keep in touch with the potential customers you talk to as you are developing your prototype. Share with them how their input influenced your solution. They might never turn into paying customers, but again they might.

• Be on constant lookout for beta sites or early adopters.To be successful, an entrepreneur must like his or her customers and be liked in return. That starts by being genuinely interested in their business, interested in their problems, and respectful of their time.

• Practice by thinking about customer problems as if they were your own. If your startup is successful, they will be.

• Be open and willing to share your ideas and your dreams—especially with customers who may have started as entrepreneurs themselves. It’s a bond.

There are a million and one new things that every successful entrepreneur wants to learn–financial reporting, tax considerations, and team building. Make sure that customer relationships are at the top of your list.

“ “

You understand your market. Your solution is out of beta test. You’ve identified a funnel full of prospects—profitable companies who need your solution.

Here are five things to understand about any B2B customer’s decision to buy.

3Modified with permission from Franck Blais. Some Rights Reserved.

Customer Buying Decisions5 Things Every Entrepreneur Should Know about B2B Customers’ Decisions to Buy

1. B2B customers make buying decisions that are in their own best interest, based on some rationale.

This does not imply that customers are selfish, self-serving, or out for themselves. Nor does it suggest that decision makers ignore the good of the whole. In fact, in well-managed companies “best interest” will be defined through a 360 lens, taking a broad view that considers all participants.

What it does mean is that to achieve any B2B sale, entrepreneurs need to dive deep to understand potential customers’ true decision criteria. You can’t figure out ways to influence or change the customers’ rationale until you thoroughly understand what it is.Even though it might feel otherwise, B2B buying decisions are never random.

2. Timing matters.

Timing may not be everything, but it can be a huge part of getting a B2B customer to buy.

In B2B purchasing decisions, timing is often determined by budgets. Budget cuts can postpone or cancel purchasing decisions. Budget surpluses, especially at the end of a quarter or a year, can accelerate decisions to buy.

The lesson is to understand the customer’s budgeting process—and to be in the know when budgets go up or down.

3. In every B2B transaction, there are multiple humans who influence every decision to buy.

Some influencers are visible and obvious on the organizational chart—executives and senior functional managers who believe that your solution will increase their divisions’ revenue or reduce costs; CIOs who believe (or don’t believe) in your technology.

Other influencers may be more behind the scenes–people who work in the warehouse or on the production line, office workers and administrative assistants, accountants and analysts—people who are likely to use your solution to do their daily jobs.

There are many more people who have informal and influential input into B2B decisions than just the executives who own the P&Ls.

There are many more people who have informal and influential input into B2B decisions than just the executives.“ “

4. Value will trump price almost every time. Almost.

Startups don’t succeed by selling commodity solutions. Angels don’t invest in firms unless the company has a convincing value proposition for its customers.

In most companies, functional managers and executives make decisions based on justification models that tie solution costs to anticipated benefits.

The mission of most purchasing departments is just the opposite—find ways to lower total costs and to deal with fewer vendors.

This is a difficult scenario for any supplier, but especially a startup company. If a purchasing department is setting the rules of the game, think long and hard before you sign up to play.

5. Sometimes “non-decision” is more formidable than the real world alternatives from your competitors.

If your customer doesn’t believe that there is a real cost to a non-decision or a delay, the process of deciding to buy hasn’t even started yet.

Some would say customers don’t buy because of product deficiencies or price points that are too high. Others might blame it on external factors—regulations, competition, or the economy.

While any one of these might be true, in most situations where a startup is unsuccessful in closing a B2B sale (and in every situation where the startup is surprised that this turns out to be the case), the entrepreneur doesn’t completely understand the way the potential customer makes decisions to buy.

“ “

“I never yet met a man I didn’t like.”

-Will Rogers

4People Buy from People They Like

Used with permission from Wikimedia Commons.

Cowboy, entertainer, and social commentator Will Rogers traveled around the world three times. He learned a lot about people and wrote about it in more than 4,000 nationally syndicated newspaper columns.

There’s a little more that goes with this quote. In its original context, Rogers was referring to Leon Trotsky, a controversial revolutionary figure then and now.

“I bet you if I had met him and had a chat with him, I would have found him a very interesting and human fellow, for I never yet met a man that I dident [sic] like. When you meet people, no matter what opinion you might have formed about them beforehand, why, after you meet them and see their angle and their personality, why, you can see a lot of good in all of them.”

For startups that seek to lay the foundation of excellent customer

relationships, developing a mindset like Will Rogers is a pretty good place

to start.

People buy from people they like. This is true in both business-to- business and business-to-consumer sales.

If you want your customers to like you, you have to like them first.

This is like breathing for some entrepreneurs, but it’s not automatic for everyone.

Whether you are a person who feels a nearly instant rapport with most people, or whether you are a person who’s a bit more reserved, here are five beliefs that make it easier to appreciate, respect, and, yes, even like customers:

1. Customers buy things. Their dollars become your revenue. Their problems help shade your solutions. They are the only reason your company exists.

2. Customers know things that you don’t know. Your customers are knee-deep in the industry you want to serve. They have relationships and contacts. They have an insider’s viewpoint of how things work.

3. Customers start out every day wanting to do the best job they can. In this respect, customers are just like you. They get up, have their coffee or tea, and head out the door or to their computer, intending to be the best they can be. Very few humans in our experience start the day intending to make a lot of mistakes or do a bad job.

4. Some customers are faster, smarter, and more competent than others. These folks may be your early adopters. They also may be more challenging. When you’re dealing with customers that aren’t quite so quick or competent, it’s your opportunity to help them succeed.

5. Customers are human beings. They have good days and bad. They have budgets and pressures that they have to meet. Sometimes their well-intended decisions get reversed, and sometimes they do make mistakes. Anticipate that these events will occur and do some scenario planning to protect your own objectives.

Will’s words reflect his great appreciation and respect for the humanity and diversity of people. His interest in other people helped him build his brand and enduring relationships with huge and widely diverse audiences.

There’s a lesson for every startup in that.“ “

I believe in firing customers. Not very often, and never

casually or in frustration or anger.

Sometimes Firing a Customer is a Good Idea5

But sometimes there are individuals and companies that a startup simply can’t afford to do business with.

Modified with permission from Silive Media.

How do you know when you have a customer you need to let go? Look for these signs.

1. The company or its employees are engaged in Illegal activity. This one is black and white. Don’t do business with a customer you know is breaking a law. You may even have a legal responsibility. Consult your attorney.

2. The company behaves unethically or against the intent of the law. Even if there is no legal responsibility, do you really want to build a business that “looks the other way?” That’s not the type of startup that attracts investors, customers, or outstanding employees.

3. The customer has a pattern of treating your employees disrespectfully. Harassment, bullying, even perpetual rudeness is not something your employees should have to endure. Everyone has bad days, and we can all be short or ill-tempered with others. But if this happens repeatedly, it’s your job to address the situation appropriately.

4. The customer demands price over value. Unless your vision for your company is to be a low-margin commodity business, be wary of purchasing-agent driven customers. It’s hard to create a successful new business where price is the only “value-add”.

5. The customer doesn’t pay. Who needs accounts receivable headaches every month, especially when cash flow is such a challenge for new companies?

If the issue is law breaking, talk to your attorney immediately. For other situations, the goal is to repair the relationship if at all possible.

1. Call a roundtable meeting with all employees who have anything to do with the customer. Discuss what you can do to improve the relationship. Talk to the customer openly and honestly. Assign the customer to different employees. Change service terms. Lower expectations.

2. Determine if the customer is one that the employees want to keep? If so for how long—from a month to forever, until replacement revenues can be found, for as long as they can stand it, only if the customer will change behavior?

3. If yes, define a path to improving the relationship, with specific actions and owners. Set a 60-day review.

4. If no, what has to happen before your company can terminate the relationship? Fulfill contractual terms, find a replacement customer, reduce expenses to offset revenue loss, notify the Board, or nothing—the situation cannot be allowed to continue.

Firing a customer is serious business. Proceed cautiously before taking such an extreme move.“

“

Most of the time, the process of talking through the situation with sales, engineering and the administrative team identifies ways to keep the customer.

However, if the customer has to go, put a plan in place to disengage as efficiently, and respectfully as possible.

If you would like personalized advice on this and other topics, fill out our Get Started form to see how we can help you.