The Right Customers At The Right Time
I’ve had some discussions lately with teams at different stages of their journey about their “ideal customer.” The old “take any customer you can get” adage is short-sighted, because the customers you have at different stages of your business impact how your product evolves and how your team prioritizes. Especially for venture-backed businesses that optimize for growth before cashflow, not all customers are equal. What makes a customer attractive throughout the lifecycle of a company? It really varies, depending on the stage of your company and product.
1. Willing Customers: Most willing to try your product, and try again.
In the beginning, your challenge is to find customers willing to engage with your newly launched (or pre-launch) product. You will benefit most from the customers that are willing to try something new, share feedback, and continuously give your product more tries as it evolves. In the early days of Behance, I recall certain members of our network that responded to every email and understood what we were trying to build well before it was built. I also remember when Periscope was in its early beta with a very small but hyper-engaged audience that would jump in whenever a user was live streaming. These “willing” and often times visionary customers are the ones you want to engage first. You don’t want too many, because you want to get to know them. These early customers get what you’re doing and are willing to participate before you launch.
2. Forgiving Customers: Most forgiving of your barely viable product.
After launch, you will begin marketing your product while it is still rough around the edges. At this point, the ideal customer may not be as visionary and willing to keep trying, but is forgiving. They are technically capable enough to withstand your cumbersome on-boarding, settings management, and other unpolished sections. Most importantly, they value a better product lacking features more than a worse product with every feature. Rather than look for a perfect fit, they’re able to tolerate missing features for some period of time. To engage forgiving customers, be transparent about your roadmap. I love the way Revue, a fast-growing email newsletter tool for authors to publish newsletters, has an “open roadmap” where customers can actually see their Trello board. One way to make sure your customers are forgiving is to show them that you’re aware of what is missing and working hard to improve.
3. Viral Customers: Most viral about your product.
Once you have found product-market fit and will do anything to spread word of your product far and wide, you will benefit most from influential customers that are likely to tell others. These customers tend to NOT be forgiving, because their reputation is at stake when they spread the word. In my experience, sustained (not-hacked) virality only happens when a product is polished enough to elicit trust and love from customers that are busy. Your most viral customers are inherently busy and may not give you the benefit of the doubt. I encourage teams to engage the viral customers only when they feel ready for it (they may not give you a second chance, don’t burn them). When you’re confident in your product, your best customer is viral.
4. Valuable Customers: Most valuable over time (LTV).
As your product matures beyond product-market-fit, you’ll want as many customers as you can handle. As you scale and focus on revenue, you will benefit most from loyal customers that spend increasing amounts of money and time in your products. Ranking customers by LTV (lifetime value) helps Sales and Customer Service allocate resources. New product efforts are geared towards driving lifetime value, and the best customers are those with the highest LTV. You will need to add new features and consider offering better services to increase the value of customers over time. Many companies make the mistake of accommodating one type of customer at the expense of new customers. The challenge is to drive value from your loyal customers without alienating those that aren’t valuable yet.
5. Profitable Customers: Most profitable over time.
Finally, for mature businesses, the drive is profitability. You will prefer customers that require the least resources to attract and maintain over time. Customers that pay the most and demand the least will drive your profit margin. At this stage, many companies take their eye off the ball when it comes to engaging and serving new customers (opening up the door for new startups to compete and win over the “less profitable” customers).
Wait For It…
Contrary to logic, you don’t want all of your customers right away. You want your first cohort of “willing” customers to be quite small, so you can communicate directly and provide an incredibly high level of touch. At the start of your business, you must do a lot of things that don’t scale in order to triangulate your value proposition and build your brand. As you expand, you want to do so slowly.
Notice that my graph above suggests that a late-stage business may focus on driving value from existing customers more than engaging new customers. When optimizing for “Profitable Customers,” great companies often “fire” some of their customers (or purposely stop attracting less profitable customers) in order to optimize profitability and provide a higher level of service to their best customers. This is especially true in service-related industries. It is wise in the short-term, but can backfire in the long-term as new and less profitable customers may flock to a new and shiny competitor.
So much of building a business is about patience and pace. You want to build as fast as you can, but not before you interpret the data and gain empathy for the problem you wish to solve. You want to launch as soon as you can, but not before you have a product worth the cost of PR and marketing to spread. And you want all the users or customers you can find, but not before you’re able to keep them.
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