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B2B Customer Development

Welcome to the maze of complex B2B sales. Did you think B2B sales was going to be straightforward; based solely on rational, business-savvy calculations? Based on the bottom-line? Most everyone recognizes that the B2C sales process requires appealing to consumer’s emotions. But believe it or not, business buyers, influencers and users are human, too, and thus are not-exempt from emotional decision making. Ego, hierarchy, competitiveness, fear, grandstanding, sycophantry join budget, market share, revenue, profits, risk, time, resources in the sale.

The “Status Quo Coefficient” represents that which you must overcome above and beyond the pain your product solves, in order to make a sale.

The Art of the Customer Development Conversation

Generally speaking:

Pre-Problem-Solution Fit, you concentrate on learning as much as you can about the problem, who are the real customers (user? buyer? boss?), and possible solutions.

Pre-Minimum Viable Product, you concentrate of learning, developing and testing the minimum features and functionality required o solve the problem to a degree the customer will buy.

Pre-Product-Market Fit, you concentrate on learning about funnels, testing messaging and positioning, and likely iterating on product and market segment in search of P-M fit.

You Can Outsource Customer Development, You Can't Outsource Learning

The consultants came out in droves to weigh in on Steve Blank's recent post, "Consultants Don’t Pivot, Founders Do." (Myself included.)  Generally, all were in agreement with Blank's primary point:

Founders get out of the building (physically or virtually) to test their hypotheses against reality. There are times when customers are going to tell you something that you don’t want to hear.  Or you’re going to hear something completely unexpected or orthogonal to what you expected.

As I like to say, those that hold the assumptions need to test the assumptions.   In the comments, several of us pointed out that teaching Customer Development is a viable service for which entrepreneurs can hire outside consultants. Sean Murphy:

We work with teams as they prepare for and then execute the customer discovery and validation steps in B2B markets. We helping them rehearse leaving the BatCave, we often go with them on customer discovery interviews or sale calls, we debrief from prospect meetings to formalize lessons learned and adjust the sales presentation or the target prospect definition or sometimes the feature set.

Clearly, there's some value being provided here.  In my experience, entrepreneurs have repeatedly sought help with both Customer Development basics, as well as some of its more nuanced components.  Sean Ellis raises a separate issue, agreeing that consultants can provide value, but wondering how the economics work.

I believe the need is there and most consultants have the expertise to fill the need; the problem is that their cost exceeds their value at this stage.

There is no doubt in my mind that this is a challenge, but there's more that one way to skin a cat, so I'm not sure such a blanket statement is accurate.  (Note that Ellis isn't suggesting that consultants don't provide fair value for their compensation, but that the compensation is likely to be too high for the particular stage the business is in.)

This begs the question, what exactly can be outsourced and at what cost?

What Part of Customer Development Can be Outsourced?

It's worth pointing out that one of the best Customer Development practitioners I know is Cindy Alvarez, who is a Product Manager and not a founder at KISSMetrics. Theoretically, at least, Alvarez could be doing what she does as a consultant, rather than as an employee.  If she had internal assistance (say, a less Senior PM  or a technical marketer), she could potentially have two or to three clients and perhaps make a pretty good living.  And while KISS is likely at or near Product-Market Fit, Cindy has been executing Customer Development for them for quite awhile.

As with employees, the key element to working with consultants is trust.   Further, Founders must process outside information to make decisions.  Is it better, for example, for Founders to pivot based on analytics than Customer Development information provided by a trusted adviser?  If a Founder has a "salesperson mentality," and cannot stop selling when supposed to be listening, does that doom the company?  Or can a trusted adviser steeped in Customer Development best practices provide better information?

The more I reflect, the more I think blanket statements about what can or cannot be outsourced are dubious at best.  Learning must happen.  How it happens is not particularly relevant.  The key measure is willingness to learn.  If you belong to one of the archetypes of anti-lean, you are not likely to do Customer Development anyway.  If you are willing to learn, you can likely learn from a trusted consultant, too.  I do think the level of understanding potentially suffers, however, so the stage of Customer Development you're in should influence who the lead CustDev actors should be and what other roles might benefit the process.

In the book, Entrepreneur's Guide to Customer Development, we break Customer Discovery down into three stages:

  • Problem-Solution fit, i.e., validating your core C-P-S (Customer-Problem-Solution) assumptions:  This is the most important stage for Founders to be heavily involved in.  Consultants might help you articulate your assumptions, define market segments, find prospects to talk to, help prepare the presentation and the presenter, and help analyze results.  I have, in fact, also done the interviews for a Founder with both positive and negative results.
  • MVP development: Best if Founders are still heavily involved with early adopters, since they likely need to hone in on the core value they're providing.  I don't see much value in consultants here, other than help with process,, like coaching Product Managers (and Founders) to not engage in feature mongering.  This phase requires a dedication to minimum viability, and a balance between customer-driven solution and vision.  If the two diverge, a pivot is required and only Founders pivot.
  • Proposed Funnel, i.e., learning your sales and marketing roadmap:  Founders need to be engaged relative to their adamancy regarding their sales and marketing assumptions.  Other business model assumptions are typically exposed here, as well.  I believe consultants can play a larger role in this phase, since many founders can use a lot of help thinking through marketing basics.  Consultants might help with defining market segments, proposing funnel hypotheses, and preparing (or conducting) conversations, surveys, etc., to test and validate assumptions.

Clearly I believe a high level of Founder involvement is necessary.  Founders who actually practice Customer Development themselves are arguably in a better position than those that delegate.  But not only are there parts of Customer Discovery that can be effectively delegated, consultants may have a role as well.  The question remains, however, whether (1) consultants can make a living doing this, and (2) whether startups can afford fees that result in (1).

What Model Works for Outsourcing Customer Development?

I know several individuals who practice customer development as consultants.  Clearly, Sean Murphy has found a model that works for him and his clients; Nick O'Connor is another.  I have helped several clients, though finding the right model has been a challenge.  I am passionate about working with early stage companies and have done so for years as a volunteer mentor at San Diego's CONNECT Springboard program.  Figuring out how to make some money, too, isn't a bad thing and admittedly, I've struggled to find the right model that serves well early stage Founders.

Recently, Patrick Vlaskovits, pointed to me a startup lawyer with a unique business model, Kevin Houchin. Houchin charges a low monthly retainer for a long(ish) range commitment, which allows clients unlimited contact, but not unlimited access.  So I'm trying the same thing. So far, so good!  I haven't solved my scaling problem, but I get to work with some great entrepreneurs who are willing and able to execute on Customer Development principles.  They are high-energy, have bought into Customer Development and truly value (and benefit from) feedback, pointers and actionable recommendations.  For more information, see here.

In light of this more in-depth conversation regarding outsourcing and leaving aside for a moment, the general evils of consultants, what do you think about outsourcing components of Customer Development?

How to Raise Micro-Capital Online with T-Shirts

Very recently, the Diaspora project (advertised as "the privacy aware, personally controlled, do-it-all distributed open source social network") on Kickstarter has caught the attention of the Twitterati, and has blown past its goal of raising $10,000 by June 1st 2010, by having raised $138,961, as of this post.

The way it works is this: people who create projects to be funded by micro-capital on Kickstarter offer differing levels of sponsorship.  The more you pledge, the more you get.  In this case, if you pledge $10, you get a CD (with the source code), a note from the Diaspora team and a bunch of stickers.  If you pledge $2,000, you get the same as well as phone support, hosted service and a computer.

They seem to have done a few things right, either intentionally or unintentionally.  (Most likely a combination of the two.)  They appear to be riding a recent upswell in anti-Facebook sentiment with regards to privacy (or lack thereof) in a select minority of techie folks.  Their video pitch seems to have hit the right chords (moxie, passion, hard-core geekiness), which appears to resonate with many of the same people.  Lastly, I think their dandelion logo/look is, in a word: cool.  (Get it?  Seeds of a diaspora?)

But that is not what this post is about.  This post is about how to raise micro-capital via clever pricing and bundling strategies.

Now, check out this chart I slapped together.  It shows the Number of Backers per Pledge "Bucket".  One might expect, very reasonably I would add, that the number of backers declines as price increases.  In other words, you observe the classic, negatively sloping Demand Curve you learned about in Econ 101.  As price increases, demand lessens.

But here it doesn't quite do that, does it?

Now, take a look at the chart below, and see how that translated into revenue.  Shooting from the hip, one might expect, in terms of revenue by pledge bucket, to see a bell-shaped/normal distribution.

But we don't, do we?

So in this case, the secret of their success is a pricing/bundling strategy that uses t-shirts as social proof of geekiness.  Or another way to look at it is:  the Diaspora team has utilized Kickstarter to sell +$40,000** worth of t-shirts!

My gut tells me that the Diaspora team hit some sort of nerve that has nothing to do with the potential success or failure of their project.  People think the project is cool and sticking it to The Man (i.e. Facebook), whether or not these guys succeed or fail is almost irrelevant.  So, if I think the project is cool and if the project is likely to provide me substantial geek street cred -- well then, what better way to demonstrate my geekiness/validate my support for Diaspora then by sporting a Diaspora t-shirt.  And looking at their de facto marketing materials, the t-shirt is likely to look good.

And if I want that t-shirt, I'd better pony up $25 for it --- which, incidentally, seems like a fair price for a t-shirt.  And apparently, I am not the only one who thought that way.

Lessons learned:

  • If you can harness yourself to a growing/popular social trend, you may benefit in an extraordinary manner.
  • You need to think of pledges/sponsorships in terms products, pricing and value.  In other words, WIIFM (What's In It For Me?).
  • People get value from feeling that they have done their part (sticking it to Facebook), even if it doesn't amount to anything concrete (aside from a t-shirt).  You can and should capitalize on that.
  • Don't forget about reference pricing.  My reference price for a generic "cool" t-shirt is around $20.  Meaning, that is what I would expect to pay in a store for a t-shirt that was adequately "cool".  The Diaspora t-shirt, in that light, seems like a bargain.

Full Disclosure:  The only reason I noticed this pricing strategy was because I actually pledged $25 because I wanted a t-shirt (and I think about pricing stuff all the time).

For the record, I actually don't think that a self-hosted peer-to-peer social network will get off the ground in circles other than amongst hard-core geeks.  As someone mentioned on a Quora thread, no one actually wants to host their own social network on a server under their bed.

But I still think these guys are worth backing.  And are cool.

Lastly, I don't think this sort of hyper-success is easy to replicate, if at all -- but that doesn't mean you shouldn't think about your pricing/bundling strategy if you are trying to raise micro-capital.

Before I forget, you should check out the pricing page for book Brant and I wrote.  Not only should you check it out, but you should go buy a copy of our book.


Data table here:

Number of Backers: 766 634 1,550 261 161 43 5 4
Pledge Amount: $5 $10 $25 $50 $100 $350 $1,000 $2,000
Sub-Total: $3,830 $6,340 $38,750 $13,050 $16,100 $15,050 $5,000 $8,000
Percentage of Total: 4% 6% 37% 12% 15% 14% 5% 8%
*Grand Total: $106,120
Total Number of Backers: 3,424
*Will not match total pledged on as pledge amounts are "$X or more"

**Actually more since anyone pledging at $25 and above gets a t-shirt.

***The actual numbers in this post are already outdated, but conclusions are the same. Will update later.

Poll on Surveys: Open Text Fields or Buttons?

I hear two schools of thoughts regarding the use of automated surveys: some prefer open text fields, others prefer buttons.

Assume you were asked to take a customer survey for a product you use or are considering using.  The survey is short (fewer than 10 questions) and completely voluntary.

[poll id="1"]

(For those that prefer text fields, my apologies.) Please let me know why you prefer one over the other in comments.

Is My Poem Lean?

Lean is not about the funding you take,

The size of your sales force, the money you make.

Lean is not how much money you spend,

That you like your product and so does your friend.

To test your guess and iterate,

To kill your favorite feature your customers hate,

To exercise ideas, removing the sheen,

That is what makes a startup lean.

My VentureBeat Marketing and Customer Development Articles

A new way of looking at sales and marketing

Upside down world map
Have you ever viewed a world map where South is up? It’s a useful frame of reference, since our Eurocentric view of North as “up” and South as “down” is really just an arbitrary one (a sphere has no top or bottom – nor left or right for that matter). Perspective affects our perceptions...

But what if we turn the funnel upside down?

For most entrepreneurs, the top of the [sales] funnel represents the world-at-large.  It’s unfiltered; it’s not segmented.  In a traditional funnel, the mouth at the top is wide open for attracting both suspecting and unsuspecting potential customers (aka suspects) into the sales process.  Marketing’s job is to find and lure live bodies into the top, while sales is responsible for to pushing ‘em through.  Continue Reading

How to avoid being blinded by the idea aura

The glow of a new, sure-fire idea is a wonderful feeling. You feel you’ve discovered something (or some angle) that no one has ever imagined before.  As you expose that idea to the light of the day and begin vetting it and taking it to market, though, that enthusiasm can dim...Your product or solution fights more than just competitors. It also battles all of the other problems your prospective customer faces. While your awareness of the problem and the weight you grant it is relevant, that doesn’t accurately predict how important it is to others – even if they ‘fit your profile.’

you must conquer the “status quo coefficient”

In fact, one of the most difficult dilemmas entrepreneurs face is determining whether fading excitement is part of the natural decay of the creation process or because the idea – ultimately - is a bad one. Continue Reading

The hidden secrets of market research

The last time I checked, the world’s population was around 6.8 billion.  If only 0.1 percent were to visit your website… and if you were to convert only 1 percent of those to paying customers… and they each paid $2 for a Thneed, for example, then revenues would be over $135M. (And everyone knows you could get way more than 2 bucks for a Thneed, which everyone needs!)

I can prove anything by statistics except the truth.

To some, market research only goes as far as finding a really big revenue number to put on the TAM (Total Available Market) slide of their business plan or investment pitchContinue Reading

Is social media worth your marketing dollars?

As social media has reached mainstream consciousness this year, businesses have been inundated with the message that they must immediately get on board or risk doom and calamity. The hyperbole (and the frenzied buzz it creates) is confusing and many businesses could use a practical guide on how to evaluate social media and how to engage – if it’s appropriate.

It’s amusing to hear that “Word of Mouth” is new.

So the first benefit of using social media in your marketing efforts (and the first thing to keep in mind) is that social media systems are designed to facilitate person-to-person communication, as opposed to traditional media and most first generation web efforts, which are predominately one-way communication.  Continue Reading