Step 1 Market Segmentation:

  • Goal is to narrow down a viable market segment.
  • A business idea is only successful if someone is willing to pay for it. Until then it is not.
  • College students don’t buy crap.
  • Find something that solves a problem.
  • Then find and discover the target market groups that could possibly buy your product by talking to people in environments where you think your potential customers may be at. ex DIY people interested in a new smart ceiling fan my be found at home depot.
  • Prepare a script with key questions you need to know about that your market’s consumer.
  • The 7 criteria for narrowing market opportunities are:
    1. Is the target customer well-funded?
    2. Is the target customer readily accessible to your sales force?
    3. Does the target customer have a compelling reason to buy?
    4. Can you today, with the help of partners, deliver a whole product?
    5. Is there entrenched competition that could block you?
    6. If you win this segment, can you leverage it to enter additional segments?
    7. Is the market consistent with the values, passions, and goals of the founding team?”

Step 2 Beach Head Market:

  • Goal is to analyze your top 6-12 market opportunities and chose one to pursue.
  • Narrowing down and focusing on one market, then dominated that market first is the key to success and expansion into other markets.
  • Targeting multiple broad markets will leave you without a focus and waste resources.
  • Focusing on a small and penetrable market is a far better use of time and resources than pursing a large and competitive market. For example, the advance polymer that release chemicals slowly that was release to sun-lotions vs the medical field because of the time and resources needed to get certified by the FDA.
  • The 3 conditions that define a well focus Beach Head Market ( aka knowing if the market needs to be segmented further) are:
    1. The customers within the market all buy similar products.
    2. The customers within the market have a similar sales cycle and expect products to provide value in similar ways. Your salespeople can shift from selling to one customer to selling to a different customer and still be very effective with little or no loss of productivity.
    3. There is “word of mouth” between customers in the market, meaning they can serve as compelling and high-value references for each other in making purchases. For example, they may belong to the same professional organizations or operate in the same region. If you find a potential market opportunity where the customers do not talk to each other, you will find it difficult for your startup to gain traction.
      • These three criteria for defining a market mean that you will get efficiencies of scale in the market and you have a good chance to do that magical thing that all startups want, “to go viral.”

Step 3 Building an End User Profile:

  • Goal is to use primary market research to flesh out a detailed description for the typical end user within your market segment.
  • It is critically important that you recognize that to be successful, you must build your business based on the customer your are seeing, rather than pushing onto the market the product tor service you want to sell.
  • Each customer consist of two key parts:
    • End User:
      • The individual who will use your part. Maybe a household member or a member of the organization that will use the product. This may no be the import person in deciding to purchase the product.
    • Decision-Making Unit:
      • The individual(s) who decide whether the customer will buy your product or not. This unit has three parts.
        • Champion: The person who wants the customer to purchase the product; often the end user.
        • Primary Economic Buyer: The person with the authority to spend money (think parents or wife). Often the end user.
        • Influencers, Veto Power, Purchasing Departments, ect: People who have sway or direct control over the decisions of the Primary Economic Buyer.
  • We will build a profile of the end user to calculate The Total Addressable Market size of the BHM. We will focus on the end user, because if they don’t want your product, then you cannot reach your customer.
  • You do not want to spend your time and resources trying to be everything to everybody.
  • Your sales strategy may not be equally effective for 25 year olds and 50 year olds. Look for subset in the same way you looked for BHM.
  • As a startup, you have to exclude many potential customers in order to stay focused on a key group of relatively homogeneous end user, who will provide much needed cash flow.
  • Your goal is to create a description of a narrowly defined subset of end users with similar characteristics and needs.
    • Bike/Bus app: US mid-20’s college students in metropolitan universities who live in bike friendly cities?
    • What is their gender?
    • What is their age range?
    • What is their income range?
    • What is their geographic location?
    • What motivates them?
    • What do they fear most?
    • Who is their hero?
    • Where do they go for vacation? For dinner? Before work?
    • What newspapers do they read? Websites? What TV shows do they watch?
    • What is the general reason they are buying this product? Savings? Image? Peer pressure?
    • What makes them special and identifiable?
    • What is their story?
  • Is there an end user on your team? If so this will a huge benefit as they will add a depth of understanding. You will not need to rely on assumptions. If you don’t have someone, then you should hire a targeted end user for your executive team.
  • Use the question “Why would this end user wan tot use my product?” to segment BHM further.
  • Dig deeper into specifics. Ex: If the use social networks, then which ones? If they have smartphones, what kind?
  • Gender, age, and occupation are key criteria for narrowing down priorities of the demographic.
  • Build the company around the customer’s need, not based on your interest and capabilities. The latter does matter, but it is secondary to how you should think about your business.  Step 4 Calculating the Total Addressable Market Size:
  • Goal is to use demographics from the End User Profile to determine quantitatively how large your beachhead market is.
  • Then use this market size number to determine where you need to further segment the market to have a more appropriately sized beached market.
  • Calculate first how many end users exit using a bottom-up analysis based on the PMR. Then compliment it with a top down analysis.
  • “Counting noses” means customer lists, trade associations, and other sources of customer info the can help determine how many end users there are out there. This is a very specific means of counting targeted end user customers.
  • Top-Down analysis is an inverted pyramid where the bottom tip is the smallest and contains all end users that me your end user profile. This analysis is complimentary and not to specific.
  • To calculate revenue you simply multiple revenue per user by number of end users.
  • You must make assumptions about how much a customer is willing to pay per end user. You can try to base this by looking at what they have paid in the past for other new products and how much value your product creates for them.
  • If less than 5 million then it is too small, and you need to identify a bigger beachhead market. Also, because usually the market size overestimated and much smaller than estimated. Ideal TAM is between $20 million to $100 million per year. Anything over a billion is insane.
  • You can do a 5 million TAM if the product has a high gross margin (software, apps, ect) and few expenses (employees, ect). 

Step 5 Profile the Persona for the Beachhead Market

  • Chose an end user and create a persona for that customer.
  • Build a detailed description of that real person.
  • The Persona ensures that everyone is unambiguously focused on the same target.
  • The persona is a person who best represents the primary customer for the beachhead market and is the same in the end user.
  • The person helps know what would they like. Do they want this? Do they like this or that more?
  • You will focus your product development around this individual, rather on the more-general End User Profile.
  • Involve the whole team ind defining the persona. They will feel ownership and understand the nuances of the Person that might not get written down.
  • If you haven’t sold the product, then that customer is would provide very valuable date and good starting point for a persona.
  • If not then use the people who seemed more interested in purchasing. Make sure they would actually pay for, instead of being just interested.
  • “If i had only one end user to represent of End User Profile, who would it be?”
  • Create a fact sheet about the Person. Include info about their personal life( born, raised, education, family, age, ect) and the person job( what company, how many yeas, training, managers, salary, performance metrics if a B2B case). Needs to be specific, not just that they make a five figure salary. State specifics and location.
  • Use Real name preferably.
  • List the purchase priorities of the persona in order.
  • The top priority is the concern that keeps the Persona awake at night.
  • interview the end user and examine their habits. Is there desk organized? Does he have a picture in his/her office? What kind of clothes do they wear? Do they go to the gym? ect. Do they use android or iPhone? Do they still have beeper or old ass phone? Pick up on details.
  • Complete a fact sheet on the persona.

  • After completing a fact sheet, summarize a few key areas on a sheet nearby your work station. 
  • The persona helps you focus on what to do and what not to do.
  • Their purchasing criteria in prioritized order is highly important to understand you customer and what makes them tick.
  • The more you understand your personas needs, behaviors, and motivations, the more successful you will be at making a product and a new venture to serve them.

Step 6: Full life Cycle Use Case

  • In this step you will detail ho your persona finds out about product and purchases it. This also includes the installation.
  • Understand why this expended use case is important to identify and resolve problems in the most timely and cost-effective manner.
  • You have to determine how your product fits into your personas value chain.
  • What are the key interface points?
  • Why exactly would customers want to acquire the product?
  • What barriers to adoption might arise?
  • It is also important to understand if and when the user would purchase your product again.
  • You should determine why the end user will determine they need your product.
  • It is imperative that your see your product through the customers eyes and not yours
  • Entrepreneurs tend to over estimate many things, like how enthusiast a customer may be about a product. Also, ease off use and benefits they may gain.
  • What to include in a full life cycle use case:
    • Determine how persona will determine their existing needs are not met by existing products and how they will find out about your product.
  • The following factors are all essential parts of the Full Life Cycle Use Case:
    • How end users will determine they have a need and/or opportunity to do something different.
    • How they will find out about your product.
    • How they will analyze your product.
    • How they will acquire your product.
    • How they will install your product.
    • How they will use your product (in detail; see the Satisfier example further on).
    • How they will determine the value gained from your product.
    • How they will pay for your product.
    • How they will receive support for your product.
    • How they will buy more product and/or spread awareness (hopefully positive) about your product.
  • The Full Life Cycle Use Case should be visual, using diagrams, flowcharts, or other methods that show sequence.
  • Creating a visual representation of the full life cycle of your product enables you to see how the product will fit into the customer’s value chain and what barriers to adoption might arise. Just showing how the customer uses the product (the typical definition of “use case”) will not provide an accurate enough picture to fully understand what obstacles will come up when trying to sell your product to your target customer.”

Step 7: High-Level Product Specification

  • Create a visual representation of the product.
  • Focus on benefits. Do not focus solely on adding FEATURES!
  • Defining the high-level product specification ensures it is targeted towards your customer and your group can all agree on what it is.
  • Even if you know what the product should be, start at the customer needs and work your way back.
  • This way you can tailor your product to your beachhead market and not be forcing down a product onto a market and watch it get lost in a sea of a large general market.
  • If the product is software or a website, storyboards should be made showing the user’s logical flow from one screen to another. If it is hardware, then diagrams are useful. The key here is that you have something concrete and specific enough that your team understands thoroughly. As you refine the product (with lots of iterations with the target customer), you will all have a common understanding of what the product is.
  • The product does not have to be built at this stage, because it will evolve as you go through the later steps.
  • If you build at this stage but it will immediately get you distracted, and the team will start to focus on the wrong things, like the particulars of the technology.
  • Make a product brochure, targeting your persona.
  • Building a brochure helps you see your product through the eyes of your customer. This allows you to validate your ideas and learn if you are on the right track.
  • Always be specific about the benefits you are providing to your customer.
  • Do not include PRICE on brochure as it may distract a customer from giving feedback.