Business ideas, even good ones, are a dime a dozen — the business world is filled with products and services that solve legitimate problems and offer valuable alternatives. Sussing out the market to validate that idea’s legitimacy may mean legwork and number crunching, but it does not tend to be overly complicated. The real challenge for a business comes when it has to figure out how to attract customers.
For Andrew Razeghi, an adjunct lecturer of marketing at the Kellogg School of Management and advisor to several Fortune 500 companies, aggregating customers is where a lot of entrepreneurs find themselves stuck. “They do all of this work to come up with an idea, but they don’t know what that next step is.”
Efforts during this “day zero” phase — when the company has neither supply nor demand — can be daunting. In order to launch, a company needs a plan for how to aggregate customers at scale. “Think of it as a business before you launch your business,” Razeghi says.
Seeding the Market
Designing ways to aggregate customers is especially complicated for companies that enter two-sided markets. OKCupid, Uber, and OpenTable all faced the challenge of getting two sets of customers comfortable with their business models simultaneously. When founding OKCupid, Sam Yagan undertook a strategy of “seeding the market,” which allowed it to engage with target customers and build trust.
Before it launched its online dating business, OKCupid sent out a survey intended to help people discover the type of person with whom they would make the best match. The survey had nothing to do with the dating website per se; it was simply a way for the company to aggregate people who might have an interest in dating. Crucially, it also gave these potential future customers immediate value through their survey results.
“It would have failed if they had launched early and then said, ‘Hey, we have this fancy new website — please give us your email address.’ No one would have done that.”
Chuck Templeton, founder of restaurant reservation website OpenTable, took a similar, if more expensive, approach to getting buy-in from customers — in this case restaurants. “He had to put in Internet connections and terminals at customer sites, but it helped him aggregate concentrated demand early.” The point, Razeghi says, is to launch your business around the people who raise their hands and say, “I’m in your market.”
“You’ve only got so many hours in the day. If you’re trying to build a company and build a product and raise capital and attract people to join your team, who’s focused on the customer 365 days a year?”
Another strategy for seeding the market is to begin with a service offering that has potential to become a product. 37signals started in 1998 as a web-design firm, then became a software company with the release of its Basecamp product in 2004. Razeghi says there is an obvious advantage to starting out as a services company and evolving into a product company. “You can bill clients for value that you’re creating while you’re building the product.”
Getting the Roles Right
Once the business is ready to launch, it is important for founders to focus internally to establish roles within the organization. This can be a challenge for entrepreneurs who are used to being the catalyst for all aspects of the company. After all, they are the ones who developed the idea, wrote the venture plan, and secured the capital to launch the business.
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“A lot of times startup founders will wait too long to bring in a salesperson,” he says. “You’ve only got so many hours in the day. If you’re trying to build a company and build a product and raise capital and attract people to join your team, who’s focused on the customer 365 days a year?” Successful founders act early to build teams that divide roles as early as possible — for example, by giving certain people more market-facing, customer-facing roles and having others take more internal roles such as managing investors and the team.
This can be difficult for founders with a natural impulse to control every aspect of their business. “I think what people are attracted to in startups is that you have a chance to do it all,” Razeghi says. But in the longer term, that is simply not feasible. “There’s only so much one person can do. At some point, you’ve got to draw the line.” Having one person exclusively focused on winning customers will help ensure the business gets off the ground successfully.
Overcoming Friction and Inertia
When luring customers, new businesses should identify the friction that exists between a customer and what that customer is trying to accomplish. Honing in on this friction can give startups an opportunity to add value for their customers. When Uber launched its ride service, for example, it did so by addressing a number of issues customers had with taxi services: they took too long, were often inconsistent, and were expensive. “The more you can remove that friction, the more you win,” Razeghi says.
But even startups that pinpoint instances of friction between customers and their goals have to take on the greater task of overcoming customer inertia. “People generally value what they have by at least a factor of three over the new idea,” Razeghi says. “We’re used to it; that’s how it’s always been done. So if your value proposition isn’t at least three times more compelling, people are going to deal with the friction. They’ll do it the way it is.”
This means that young companies need to be honest with themselves about the substitutes that exist for their service. “If the customers come up with a workaround, that counts. There may not be a company that does that, but if they figured out a way to solve their own problem, consider that — because it might be a competitor.”
Addressing as many customer pain points and workarounds as he could imagine helped Saq Nadeem guarantee that his premier resort for cats and dogs, Paradise4Paws, was able to attract customers. Simply building a huge, deluxe facility was not compelling enough to attract customers. But by systematically incorporating solutions to all of the various inconveniences that a traveling pet owner has to deal with, he reduced customer friction. His complete value proposition, including facilities located close to airports, on-site veterinary care, and a screening process to ensure that every pet it accepts is friendly enough to socialize, tipped the scales in the company’s favor.
“That’s at least three times more compelling,” Razeghi says. “He could have stopped at any point, and it might have failed.” It was the fact that he addressed all of the pain points — all of that friction — that guaranteed his success.
Order Andrew Razeghi’s new book Bend the Curve today.
Adjunct Lecturer of Marketing
About the Writer
Fred Schmalz is the business editor of Kellogg Insight.
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