Building a business begins with creating value for customers

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This may seem obvious, but it’s not obvious to everyone who starts a business: building your business begins with understanding your customer and then producing a product or service that customers are willing to pay enough for that you can be competitive and make a profit.

It’s not enough to build a better mousetrap if the world is happy with the mousetraps that it already has. Tens of thousands of new food products are introduced annually, most sink without a trace — and that’s just food products. Many great products have failed because the company was too early to market, too late, or it was delivering something that, good as it was from a technical or aesthetic point of view, wasn’t what customers were willing to pay for.

In other words, customers did not consider it valuable.

Value in business can take many forms. It can include products and services necessary for survival, to do things faster and easier, or for knowledge, entertainment and joy. But in business if the customer isn’t willing to pay for it, it doesn’t have a value.

While many people of think of marketing as just being about promotion and demand generation, the central role of marketing is understanding the customer – the market – and working with the rest of the company to create those products and services that will have a chance for success.

Some years ago I attended the 25th anniversary of the MIT Enterprise Forum. The president was talking about the lessons that they had learned in those 25 years and he said that, for a start-up, more founders are better: two are better than one, three are better than two, four are better than three. He said they didn’t know if that rule held true above four or five, but it definitely was true up to that.

“And”, he said, “one of them should be in marketing. Because I spent five years in the EE program at MIT and I don’t think I heard the word ‘customer’ once.”

Now, in case you think that attitude is a holdover from the last century, I recently was talking with the executive director of an association of green tech companies about the possibility of speaking at one of their meetings. He said, “The members have told me that they don’t want any speakers on the subject of marketing. They’re engineers. They’re not interested in marketing.”

How’s that working out for you?

Who is your real customer?

Who an industry’s actual customers are may not initially be apparent but they are the people who are willing to pay for what that business provides.

You may think that you’re a customer of Facebook, but you’re not: the advertisers are the customers. You’re part of the product, and Facebook uses its social networking tools to aggregate viewers for advertisers. Google’s customers are its advertisers. Network television’s advertisers are their customers.

To aggregate those “eyeballs”, those people, so that advertisers can sell to them may require providing an excellent service or entertaining programming to people, but ultimately their customer is the advertiser. And if the advertisers stopped paying, they’d stop providing their free service to you.
On the other hand, you are the customer for paid cable, movie theaters and books.

How to create customer value

So how do you go about producing something that people want so much that they are willing to pay for it?

You can start with a skill or passion that you have. You may be great at designing, programming, cooking, playing basketball, singing, construction, organizing events, managing projects, cleaning houses, or any of thousands of other skills that are valuable and people are willing to pay for. But unless you’re really extraordinary, you’ll have competition in almost any field. And today that competition is often global. So then you have to figure out how you can provide something better, cheaper, faster, or easier to use.

And that’s where marketing comes in, and why the president of the MIT Enterprise Forum mentioned it.

Most people make the mistake of thinking that marketing is just promotion. But at its core marketing is about identifying a group of people – a market – and what they would find valuable enough to pay for. Sometimes that involves intuition; Apple was famous for not doing customer research and Steve Jobs would quote Henry Ford, who probably never said this, that “If we had asked customers what they wanted they would have said a faster horse.”

But usually that intuition is actually skill based on lots of experience and research. Steve Jobs also said,

“It comes down to trying to expose yourself to the best things that humans have done, and to then bring those things into what you’re doing. Picasso had a saying, ‘Good artists copy. Great artists steal.’ And we have always been shameless about stealing great ideas.”

Very few companies bring to market truly new products or services. Facebook was not the first social network (there were Friendster, Myspace, Classmates and others), Southwest wasn’t the first airline, the iPad was not the first tablet, Canon wasn’t the first company to sell printers, and The Beatles started out playing a lot of American R&B music before writing their own.

It can be very difficult, time consuming and expensive to educate a market about what you’re selling if you truly are the first one. I did work for Lotus Development in the early 1990s when they were introducing their new “groupware” product, Lotus Notes. They spent several years, and hundreds of millions of dollars educating the market, and then this open platform called the Internet exploded onto the scene with many similar capabilities. Lotus Notes, now IBM Notes, is still around, but obviously it doesn’t have the market share of the Internet.

So most people who want to go into business build on an existing industry and bring a new twist to it. That may mean product or service innovation, targeting an underserved market, or a superior go-to-market strategy.

That was my approach when I created revenue + associates. I saw a gap both in how the majority of companies are doing their sales and marketing, including a failure to adopt many of the most valuable, data-driven tools, and a gap in how service providers are serving them.

Ways to do market research

Research is a key first step in understanding your customers.

Markets can be segmented in many ways: gender, age, income, location, race, ethnicity, lifestyle, sexual preference, interests, and on and on. Do you want to sell to all baseball fans? To just Boston Red Sox fans (tickets and souvenirs)? To Boston Red Sox fans over the age of 40 with means (fantasy camp or spring training trips) or under the age of 15 (baseball camps)?

The Internet is a great market research tool. Online you can, for example, find out:

What’s the demographic breakdown of the United States?
Of a particular town?
The number of people serving in the military, and the states with the highest numbers
How many Hispanics of Cuban origin are living in the United States?
• The wealthiest towns
The wealthiest zip codes in an area
How many Mexican restaurants are there in San Antonio? (approximately)

Two useful tool are Google Trends and the Google keyword tool.

In Google Trends you can see how the interest in terms is changing over time, and how strong it is relative to other related items. For example, this Google Trends chart for cookies (blue), cakes (red) and pies (yellow) shows a very big annual spike in interest in cookies every year around Christmas, with a corresponding decline in interest in cakes; a slight bump for pies happens around Thanksgiving.

Google Trends chart for cookies pies and cakes

In the Google Keyword Tool you can put in a few keywords and it will show you many related terms, how many searches are done nationally and globally each month for those terms, and how competitive the market is for those keywords, including estimated cost per click if you decide to advertise for that keyword.

And on and on. But quantitative research isn’t the only thing that’s important. The Internet lets you do a lot of qualitative research, too.

Today there are so many public sites and industry forums on which people review products and services that entrepreneurs don’t necessarily need to hire market research firms to understand what’s important to prospective customers. Go online and read. Also look at sites such as Facebook, Twitter and Google+. What’s going on in the conversation about the industry, and the conversation around particular companies? What do the customers like? What are their gripes? Are there patterns that can help you identify an unfilled need?

And you can use a variety of online survey tools.

You don’t have to do all of this alone, either. There is someone who is often happy to donate her time to help you with your research: your local librarian. Your librarian may have access to many databases with valuable information.

And you can use the Internet and other sources to do competitive research. Searches can tell you major industry competitors. Those social media conversations and reviews can tell you about competitor strengths and weaknesses. In just a few minutes you can learn what digital marketing programs and tools your competition is using to promote itself.

But don’t just think about who you want to serve, what they would find valuable, and whether you can reach them with your offering, talk to them! You’ll find people can be remarkably accessible if you say (1) I don’t want to sell you anything, but (2) I do want to hear what you think. For some products you could show them a drawing or prototype.

Talking in person or over the phone with people, learning about how they actually use a product or service, what they like and would like, is not just great research, it’s an early stage sales call. Because if you come back three months later showing them exactly what they asked for, they’re very likely to be interested.

Positioning

Ultimately you need to figure out what marketers call your positioning: how can you be unique and valuable in the mind of the customer.

Notice that I didn’t just say “How can you be unique and valuable?” What’s important is whether you can find a niche in which people will agree that you’re unique and valuable.

Positioning traditionally required that you find a unique, unfilled space in the mind of the customer, because it was considered very difficult to dislodge an established competitor with a particular position. For example, it would be very hard for another company to displace Google as the place to go for search. From the beginning Google has been focused on providing great search results quickly. It delivers on that positioning. And for Bing the very difficult challenge is to get people stop thinking, “But that’s what I use Google for.”

That may be true today, but when it launched in 1998 Google had a lot of competition. Remember HotBot? AltaVista? MSN? In just a few years Google blew away the field with a faster, better search experience.

Today, though, brand loyalty in many industries is far weaker than in the past. Consumers are checking online reviews and if they find something better, they’re more willing than ever to try it out. For example, a study of Yelp in one city found that an extra half-star rating caused restaurants to sell out 19 percentage points more frequently, up from 30% to 49%. This isn’t surprising because although Yelp appears to have a five-star rating system, in practice the five stas averages are:

• 3 stars or less – terrible
• 3.5 stars – meh
• 4 stars – good
• 4.5 stars – really, really good
• Close to 5 stars – extraordinary, get there immediately

The problem of weak brand loyalty is true in many B2B markets, too. Today B2B buyers tend to do a lot of research, almost totally online, before even talking to sales reps. Eighty-seven percent of B2B buyers say that content has a moderate-to-major impact on their buying decision.

Remember Blockbuster? Kodak? Gateway? Circuit City? Compaq? Borders? Woolworth? Having a strong brand didn’t save them.

On the other hand companies like Airbnb (hospitality), Uber and Lyft (taxis), Craigslist and LinkedIn (classified and job ads), Apple’s iTunes (music), Orbitz and Priceline (travel) and so on have seriously disrupted major industries in a very short amount of time. If I were a manufacturer, I would be keeping up with 3D printing.

You need positioning, but today change is faster than ever, so don’t assume you can’t displace an existing company if you offer something better, promote it properly, and it gets good word of mouth. Almost everything being promoted in this Radio Shack flyer from 20 years ago is now on your smartphone:

Radio Shack 1991 ad

So how do you go about doing that?

Creating your unique positioning and value

Let’s say that there are 1,000 Mexican restaurants in San Antonio and you want to open the 1001st. Do you have a chance? Sure (even though the restaurant business in general is very tough). Here are just some of the attributes that you might consider which, in some combination, may create a unique position that the market would find valuable:

• Food style:

o Authentic Mexican food (in San Antonio this might be a very crowded field)
o Mexican fusion: your chef has a unique take on Mexican food
o Fast food

• Location
• Hours of operation
• Serve liquor
• Family-friendly
• Décor
• Price
• Service (Are you just eat-in? Do you deliver? Do you have the world’s friendliest wait staff? Do your waitresses dress like Hooters?)

Think for a few moments about how each of these fast food chains have used combinations of these attributes to create a unique positioning:

• McDonald’s
• Subway
• Taco Bell
• Five Guys Burgers
• KFC
• Arby’s
• Panera
• Papa John’s Pizza
• etc, etc. etc.

Or, in just one category, think of Ruth’s Chris Steakhouse versus Longhorn versus Outback.

American Airlines versus Southwest versus JetBlue.

Apple versus Dell versus HP.

Differentiate!

There is a relentless pressure toward commoditization in business, but success comes from differentiation.

If your competition is going left, go right. Online communication was known for being persistent and searchable; SnapChat created a mobile service in which the text and image disappear forever after just a few seconds. Today it’s estimated worth exceeds $3 billion.

Every field is going to have different opportunities for entry and growth. But we live in a very, very dynamic economy. What works one year or in one location may not work in another time or place. Henry Ford did great producing the Model T and applying his philosophy that customers could have the car in any color they wanted so long as it was black. But when customers decided they wanted more choice, and Ford didn’t respond, he opened the door to General Motors becoming the world’s largest car company.

Once you’ve identified your positioning, you’ll have a ton of other issues to deal with, such as:

• Who’s investing in the company?
• What will the company culture be?
• How can you affordably reach your market and get them to buy your products and services?

But those are topics for another post, or one hundred.

The first challenge is creating customer value.