3rd in a series on Customer Segmentation
Two weeks ago, we showed how to construct a
customer profile.
Creating a Value Proposition Hypothesis from a Customer Profile
For a startup, one of the most important reasons to create a customer profile is to use it to formulate a
value proposition hypothesis, the heart of developing product/market fit.
To illustrate, lets start from the example profile from
before, looking at just the two pain points highlighted in red in Table 1:
Table 1
We create a new table (Table 2) with pain on the left,
value proposition hypothesis in the middle, and product/service on the right.
Table 2
Initially, the
value hypothesis is an unvalidated best guess. This needs to be validated in discussions with target customers fitting the demographic column (highlighted in blue in Table 1) of our
customer profile. As we iterate over time, the middle column can be changed from
value hypothesis to
value proposition.
Note that the value hypothesis describes the benefit derived by the customer in relieving the pain. Ideally, this should be quantifiable. Value hypotheses usually tie back to increased sales, increased speed, decreased cost, improved performance, or improvement in quality.
The far right column shows the
product feature hypothesis (i.e. the specific product or service) we are offering to deliver on the value proposition. This too need to be validated in discussions with target customers as to whether these product features actually deliver the value the customer wants.
Lead Qualification Using the Customer Profile
Whether as part of the hypothesis validation process or for sales execution, the customer profile is the starting point for qualifying leads. To illustrate, focusing on just the two demographic points highlighted in blue in Table 1 we create a new table (Table 3) with questions we can use as part of a qualification script in the middle column and information learned or actions to take listed on the right.
Table 3
A good lead qualification script should shunt a raw prospect into the appropriate customer profile among multiple profiles or completely out of the sales process. What I've skipped in this example is that we actually have several different customer profiles of which I'm only showing two (highlighted in orange in Table 3) called "serial entrepreneur" and "1st time entrepreneur". If a raw prospect fits none of our profiles, it means that they are either not a fit or we potentially have a new customer type that requires further profiling.
I'm not going to cover the creation of lead generation scripts here. But typically it's a flowchart with subsequent questions or action determined by the answer to prior qualifying questions.
Customer Segmentation from Customer Profiles
One of the fundamental premises behind marketing strategy and positioning is the concept that markets can be segmented. The better your segmentation, the better you can target your offering which if executed properly should enable you to dominate your segment better than competitors who do this less effectively. That's the theory.
One practical implication of this is in the area of sales resourcing and forecasting using the classic sales funnel. To see how this works, Table 4 shows a simplified comparison of the sales funnels created from the two profiles highlighted in orange in Table 3.
Table 4
Note that based on our customer profile and our understanding of each type's pain, we have two different value propositions. And in the case of 1st time entrepreneurs, we know that we likely have an additional step - education - not necessary with serial entrepreneurs and that that step has a fairly low yield rate. This means that we know that to close the same number of new clients we have to talk to seven times as many 1st time entrepreneurs as serial entrepreneurs (30:4 ratio) and that it takes longer as well. This has obvious implications about where we target our sales time and resources, what resources we use, and how we use them.
Customer profiles: don't go to market without 'em.
is that it may offer a way to close the gap between social value and economic value.
by Gifford Pinchot (1978). As a student engineer at 3M, this is THE book that first awakened my interest in technology commercialization which eventually forced me off the pure path of engineering and into the dark side (i.e. marketing). (My father only forgave me after I became a CEO!)
by Joseph Badaracco (1993). If you think values are soft and squishy, read this. I can safely credit the success of my first turnaround to the lessons taught here.
by Charles O'Reilly, Jeffrey Pfeffer (2000). There are a lot of books that teach you how to hire and build a high performance team with "A" players. This one has the refreshing approach of showing how a great company can be built with us regular folks.
by Jeffrey Pfeffer, Robert Sutton (2000). As an MBA student, I had the great fortune to take a class called Power & Politics taught by Jeffrey Pfeffer. Case discussions were always somewhat terrifying; Pfeffer had a knack for shredding conventional wisdom and half-baked solutions with a keen understanding of how things really worked. His books do the same.
by Jeffrey Pfeffer, Robert Sutton (2006). Ditto the above.
by Peter Senge (2006). Senge approaches business as an organic entity. Where others see functions, he sees dynamic human systems.
by Jim Collins (2001). If you take nothing else away from this book, take away the concept of the "flywheel".
by Eliyahu Goldratt (2004). Reads like a novel and does a great job of conveying the implications of continuous improvement via Goldratt's Theory of Constraints.
by Robert Cialdini (1984). The first time I read this book, my blood ran cold. If there is ever a course in sleazy marketing, this book could be the text. Cialdini exposes the psychological underpinnings of common marketing tactics. I had to do a re-read of Badarraco afterwards to shake the willies.
by Geoffrey Moore (1991). Since it's initial publication, this has become part of the canon for technology commercialization in Silicon Valley. Moore focuses on the startup transition from early adopter to mainstream markets.
by Steve Blank (2005). Blank is to Moore as the new testament is to the old in the canon of Silicon Valley technology commercialization. Blank is father of the Customer Development methodology focused on helping startups gain first traction with early adopter customers. Customer Development plus Agile Software Development are at the heart of today's Lean Startup movement.
by Brian Fugere, Chelsea Hardaway, Jon Warshawsky (2005). This should be required reading for everyone in marketing communications with violators subject to incremental immolation over a hyperthermal heat source.
by Youngme Moon (2010). Normally I would not put a current book on the list that has yet to withstand the test of time, but this one is the exception. Moon goes beyond traditional branding. Branding 2.0? Anti-branding?
by Robert Miller, Stephen Heiman, Tad Tuleja (1985). This classic on selling to major accounts is still the best around. And if you're ever offered a chance to participate in Miller-Heiman sales training, take it! 
by Michael Porter (1998). The bible of competitive strategy. Porter's Five Forces analysis for industry dynamics is now a staple of MBA training.
by Michael Treacy, Fred Wiersema (1997). Goes to the heart of effective strategy: you can't do it all and you don't need to. One of the best texts on strategic alignment that I know.
by W.Chan Kim, Renee Mauborgne (2005). Picks up where Porter leaves off. Where Porter focuses on existing industry competition, Kim and Mauborgne focus on disruptive strategies.
by Clayton Christensen (1997). Digs deeper than Kim and Mauborgne in discussing technology enabled disruptive strategies.
by David Keirsey (1998). INTJ? ESFP? One of the most widely used frameworks for personality classification. Highly recommended if you want to understand how motivations, worldviews, and communication styles differ for different people.
by Sandra Seagal (1997). The textbook for the most effective interpersonal communications seminar I ever took. 
by John Gardner (1995). While at Stanford, I also had the great fortune to take classes with John Gardner, former Secretary of Health, Education, and Welfare in President Lyndon Johnson's administration. Gardner was an inspiration and a living example of someone who stayed vital through a process of continuous reinvention. Read this if you don't want to end up the old curmudgeon in the corner railing against that new-fangled teleportation technology.
by Alvin Toffler (1971). While he didn't predict everything right, forty years later, its impressive to see how much Toffler did get right. And the major trends he spotlighted continue to roll through our lives today.
by David Shenk (1998). One of the earliest and still best essays outlining the differences between living in a world where finding information was the challenge vs. one where information glut is the issue.
by Howard Schilit (2010). Just revised, this classic should be required reading for all investors or anyone involved with corporate oversight. I think the Enron guys used this as their text book.
by Darrell Huff (1993). Should be required reading for anyone in market research and for anyone who has ever suffered through the "market opportunity" section of a business plan.
, think of the scene where Daniel finally gets fed up waxing Miyagi's car, in exchange for karate lessons, only to be shown that through the process he's actually been learning karate blocks all along.
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