Commercializing solutions in search of a problem
At LionBird, we often invest in B2B companies developing strong core technology platforms with multiple use cases. The challenges for these companies are that it’s easy to underestimate the time and resources cost of pursuing too many top of funnel opportunities at once, and that it’s easy to assume they know the customer needs.
If after every potential customer meeting, you leave with exciting new ideas for applications and segments to target, the question then becomes: how do you decide where to start?
Step 1: start with a problem
The #1 determinant of your chances of getting a prospect’s attention is whether your solution is a “must-have” and not just a “nice to have”. I won’t go in-depth here as to how to determine this, as there are plenty of good resources out there for generating your own problem interview script and scoring the severity of problems. What’s important to keep in mind is that unless you are Steve Jobs, you probably should not just rely just on intuition and informal customer conversations for validating a need.
Step 2: Ranking segments
After you’ve identified a few critical problems and segmented the groups that have them, there are four dimensions along which you can rank the potential for each segment you are looking to target.
How easily can you reach this segment?
This is why so many startups begin by scratching their own itch, selling to other startups, or selling to smaller clients and moving upstream. Speed to market is critical early to get feedback and initial revenue, but think first about the other four factors before tailoring your solution for the first group that approaches you.
Problem/Solution fit
Does your product actually address their pain points? And is it mature enough to be accepted? For this reason, you may begin in healthcare selling within unregulated segments, or enterprise companies begin by selling direct to end users.
Willingness to pay
The classic example of where willingness to pay is critical is healthcare, where consumers are often reluctant to pay out of pocket, and you must follow the payer and provider money to build a real business model.
To figure out willingness to pay, don’t ask directly. Instead, start by finding a baseline using well structured solution interviews, and further validate via quantitative surveys.
Size of market and ancillary opportunities
Last and least important when choosing initial segments to target is size of the niche market. However, while it’s ok to start in a small market, you do need a clear story as to how well the assets being built (ie learnings, technology, customer base) by winning in this niche position will help in expanding into ancillary, larger segments and opportunities.
Yes, this applies to you too
Of course, life is not black and white, and neither are startups. Exceptions to the linear, iterative path that lean startup assumes you are taking include companies that run with their product ahead of the solution, and companies selling to large enterprises with long sales cycles and feedback loops.
When your product gets ahead of customer development
Many product/tech driven companies run out to market with a product that reaches wide, and only after experiencing funnel issues do they begin to take seriously the need to focus on customer qualification.
In these cases, you can begin validating which parts of your solution resonate with existing leads via helpful marketing and solution interviews. If you find in these interviews you don’t really know what the problem of these customers is, you’ll need to go back to problem interviews (I know, what a bummer).
For companies targeting only large enterprises
If you are an enterprise tech company, the amount of deals that make it from top of funnel to bottom are few, and even with a good qualification process it’s very hard to predict ahead of time who will fall out due to unforeseen reasons. Couple this with a slim funnel to begin with, and it becomes much more difficult to turn down potential deals from interested customers.
Counter-intuitively, the strategy here is not to focus, but instead to follow-up with every credible opportunity, and to build in “validation gates” for those that don’t rank high on your segmentation scores. One way to do so is asking customers to at least cover your costs for any POCs, and to ask for payment for any features not already on your roadmap.
The end result: personas
Whether you are just getting started, or already have a product out in the market, executing a “niche to win” strategy requires deep understanding of customer problems and prioritization. There is always “low hanging fruit”, and targeting the right segments at the top of your funnel leads to more bang for the buck and a healthier funnel.
