Understanding your customers can’t be delegated<\/p>\n\n\n\n
by Tom Schryver \u201993, MBA \u201902<\/p>\n\n\n\n
A few years ago, I invested in a promising startup run by an energetic, young entrepreneur \u2014 let\u2019s call her Ellen. Recently, she reached out to let me know that she and her cofounder realized that they were barking up the wrong tree. They were folding the company and returning to shareholders what was left of available capital in the business.<\/p>\n\n\n\n
I was dumbfounded. Most entrepreneurs I know would keep going in the face of any obstacles and only stop when they found themselves in the center of a smoking crater. Ellen impressed me both for keeping her fiduciary duty in mind through a tough time and for taking a realistic view of the trajectory of her company.<\/p>\n\n\n\n
In thinking about how to maintain a successful startup, it\u2019s best to start by looking at why startups fail. Japanese inventor and industrialist Sakichi Toyoda promoted the technique of the \u201c5 Whys\u201d to explore the cause-and-effect relationships underlying a particular problem, which I apply here:<\/p>\n\n\n\n
Startups fail when they run out of money \u2014 they can\u2019t invest in things required for their future success, or, more directly, they can\u2019t make payroll.<\/p>\n\n\n\n
There are two main sources of cash flow for startups: revenue and investor capital. If they dry out, lack of customer traction is the cause. Either not enough customers are buying the product, or there\u2019s not enough evidence of customer interest to induce investors to keep providing capital.<\/p>\n\n\n\n
Entrepreneurial educators spend a lot of time talking about product-market fit. Put another way, a group of customers (a \u201ccustomer segment\u201d) needs to find that a product or service either solves a problem or creates an opportunity compelling enough to transact (a \u201cvalue proposition\u201d). Ideally, the customer segment is large and growing, and the value proposition clearly addresses a compelling customer need. Evidence of this is customer traction. No product-market fit, no customer traction.<\/p>\n\n\n\n
At Johnson, I\u2019m a member of a team of practitioner instructors who teach courses and workshops in the community at our business incubator, Rev: Ithaca Startup Works, as well as through the Southern Tier Startup Alliance. Our philosophy is built on a fundamental belief in the value of having a deep, empathetic, and personal understanding of customers and their needs. Most entrepreneurs are focused on what product or service they want to bring to market. Instead, what\u2019s critical is deeply understanding customers and the problem or opportunity they have as well as the environment in which they experience that problem or opportunity. Then the entrepreneur can understand how best to solve it \u2014 as well as how best to convince customers to buy the solution.<\/p>\n\n\n\n
Startups, indeed all fast-growing companies, have as their most renewable resource \u201cvaluable things that can be done\u201d and have as their scarcest resource \u201ctime available to do them.\u201d It\u2019s natural to divide and conquer \u2014 and, like Lucille Ball at the chocolate factory, process the inflow of tasks by any means necessary. Understanding your customers can\u2019t be delegated. Only if everyone at the startup from the founders on down has a deep understanding of customers\u2019 needs will you develop and offer compelling products and services that customers can\u2019t wait to buy \u2014 clear evidence of customer traction that leads investors to invest and grows revenues ever up and to the right.<\/p>\n\n\n\n
By making constant customer discovery a priority, Ellen and her team realized that while their product was technologically groundbreaking and visually compelling, it didn\u2019t solve a big-enough problem for enough customers to yield a viable startup. That, then, led Ellen to make the right decision to fold the company and return capital \u2014 living to fight another day with investors who are impressed not just with her technical skills, but with her market understanding and her fiduciary ethics.<\/p>\n","protected":false},"excerpt":{"rendered":"
Understanding your customers can’t be delegated by Tom Schryver \u201993, MBA \u201902 A few years ago, I invested in a promising startup run by an energetic, young entrepreneur \u2014 let\u2019s…<\/p>\n","protected":false},"author":33,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":"","_links_to":"","_links_to_target":""},"categories":[171],"tags":[196,201],"ppma_author":[11],"class_list":["post-7386","post","type-post","status-publish","format-standard","hentry","category-alumni-profiles","tag-archived","tag-eii-cornell-startups"],"acf":[],"yoast_head":"\n