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Ten thoughts for the budding entrepreneur: some obvious, few provocative, and a couple that are controversial. But whether you agree or disagree with them, they are all worth mulling over. Note: the word ‘product’ is used in a generic manner to include any market offering, including services.
(1) If you live by the sword, get ready to die by bullets.
Focus on addressing unmet customer needs, not simply providing “improved” versions of existing products. The latter approach will likely kill your venture, because products die, but customer needs persist. The point is not to make a better mousetrap, but to find the best way to get rid of the mouse.
Example: What’s better, making an improved laptop, or ensuring better portable computing?
(2) There are no traffic jams in the extra mile you go for the customer.
Don’t simply address one customer need. Embrace the customer more comprehensively, ensuring multiple “benefit touch points”. This is the entrepreneur’s best bet to entry barriers, and the gateway to pricing power.
Example: Offering corporate training programmes? Offer clients added benefits before, and after the programme: Enable candidate selection for the programme, measure post-programme impact for the client.
(3) Don’t underestimate customer resistance to behavior change
If your market offering requires behaviour change on the part of the customer, beware! The more radical the behaviour change expected, the less likely it will gain market acceptance, regardless of the benefit offered.
Example: So you have a cure for weight loss, but you want customers to do WHAT?
(4) N segments of 1 customer each are better than 1 segment of N Customers
Segmentation that is not customer need-based is a waste of time. But needs vary across customers, and vary over time, for the same customer. To be a successful entrepreneur, get as close as practically possible to “segments of one”; that is, focus on one-to-one customer relationships.
Example: Selling books online? Why not provide each customer a bundled solution for her specific reading needs, including personalized recommendations, and information about local book clubs?
(5) Price the customer, not the product
Price based on the value you provide the customer, not on the cost of making the product. If the value varies across customers, price discriminate between customers, for the same product.
Example: Two customers got to the same online retailer, look at the identical product, at exactly the same time. Should they see the same price? May be, may be not.
(6) Your customer’s perception is your reality
Throw out any objective comparisons of your product with competition. They are irrelevant; what matters is your customer’s perception of competing alternatives. And what are the set of competing alternatives? Again, they depend on your customer’s perception.
Example: If you don’t proactively manage your marketing communications, customers will decide the positioning for your product –which is likely to be different from your s, and very difficult to change.
(7) If you torture data enough, it will confess
If you don’t do regular, systematic customer research, your venture will ultimately falter. However, it is impossible to keep your finger on the pulse of the customer, if you do not have a conduit for continuous data collection, and an ability to cull information on emerging customer needs. What’s important is that you let the data speak, rather than listening for what you want to hear.
Example: Planning to throw out that outlier in your data ? Stop! It may be an early indicator of an emerging trend.
(8) Customer loyalty can be bought; brand loyalty must be built
If customers flock to you when you discount, don’t fool yourself into believing that you have loyal customers. They are loyal to price, not to your product. The only loyalty that matters is one that is based NOT on price, but rather, inspite of price. Begin building your brand from day one.
Example: Need to move inventory? Offer 2 products for the price of 1, rather than a 50% discount. The former preserves the value of your brand, the latter slashes the value of your brand—permanently.
(9) Price pressure is an effect, not a cause
Don’t blame pricing pressure for your problems. Pressure on prices is the consequence of your inability to create unique value to your customer. As such, don’t think of the marketing mix as 4Ps, rather think of it as 3Ps that will determine the 4th, which is price.
Example: The entrepreneur who says that he wants just a sliver of the $X billion market, because there is room for many who offer the same benefits, will run into this wall very quickly.
(10) Profits vs. Growth: Where do angels fear to tread?
The more unique your offering is, choose angel investors who focus on profits, not simply growth. In other words, the uniqueness of the product should require the higher test of profits as early as possible. However, if your product is only a little more than a parity product, then growth priorities can be allowed to trump profit priorities.
Example: Remember the dot.com bust of the early 2000s? Hundreds of now-defunct firms focused on revenue and eyeballs, expecting profits to arrive magically. Enough said. Yes, there are exceptions; but make sure you understand what made them exceptions.
Professor Arun Pereira teaches Entrepreneurial Decision Making (ENDM) in ISB’s PGP.
-Professor Arun Pereira, Executive Director for the Centre for Learning and Cases