Fail Fast or Win Big: The Start-Up Plan for Starting Now (2015)
The Whole Customer Truth
I have met tens of thousands of customers, and you know, I never get tired of meeting them. And neither should you. Today, my customers are college students who are taking my entrepreneurship courses and participating in the Lavin Entrepreneurship Center programs. I get constant feedback through interactions in the classroom and through student surveys. The feedback has both quantitative scores and qualitative comments. I read everything. I look for little aha’s—those comments that point toward ways to improve my courses. Just when I think I have created the world’s best entrepreneurship course, a student comment will let me know that I have yards to go.
The LeanModel Framework works just like this. Customer truth is the heart of the model. There is a logical reason for this. As an entrepreneur, your biggest ally is your customer.
“Right or wrong, the customer is always right.”
—Marshall Field, entrepreneur and founder of the famous Chicago department store
If you connect with your customers and keep your product or service promise, those customers will help you with your marketing. They will write solid reviews. Via word of mouth, they will tell others about your product or service. But ignore them and you do so at your peril. A great idea that’s poorly executed with customers is in real trouble. Especially if those customers have the option to buy the same type of product or service from your competitors.
Recently I conducted a workshop on customer loyalty and service for a local company that owns 10 retail service stores catering to small business owners. Sam and Irwin, the two founders of that company, felt their business was at a critical juncture. Started with just five employees six years ago, the company now had over 100 employees— and yet, they felt something was lacking. They sensed complacency had crept into their business and so they were concerned.
Sam and Irwin assumed the problem lay with training. At the workshop, I talked to the employees about what was actually happening in their marketplace—how it was getting competitive and going to get even more competitive in the next five years. That their customers had choices, and that the only differentiator for them was how the employees served their customers.
“I’ve learned that people will forget what you said, people will forget
what you did, but people will never forget how you made them feel.”
—Maya Angelou, American poet
I asked the employees to name a company they admired for its customer service but that they had never met an employee. They were puzzled for a few minutes. Then one person said, “Amazon.com.” I asked why. The person said, “They keep their promise.” The rest of the employees in the room murmured their agreement.
I then asked them, “How many of you make and exceed a customer promise every day? How many of you ask your customers what will make them happy? How many of you ask them what you can do to meet the customers’ needs?” The room fell silent. They got it.
Sam and Irwin have instituted myriad “customer best practices” in recent months, including better training, greater hiring standards, and motivational reward programs for their employees. They now conduct face-to-face and quantitative surveys with customers every week. With no additional marketing dollars spent, their business revenue went up by 20 percent in a very competitive market. They are now aggressively seeking “customer truth.”
WHY YOU NEED TO DELIGHT YOUR CUSTOMERS
In your lifetime, you will probably never meet an Amazon.com employee. So why is this “brand” so successful? Because “they” never stop responding to their customers’ needs. In 1996, when Jeff Bezos asked our agency to handle all of Amazon.com’s marketing, we spent months trying to figure out how to differentiate this “brand” from its competitors. We didn’t even work on any creative elements for the first three months. Instead, we focused on the customers: on their expectations and what would delight them.
We were stalled in some initial brainstorming, so we asked ourselves, “Who delights us?” After some discussion, we all agreed it was boutique hotel concierges. So we went and visited them. We saw how they remembered and greeted people who came back repeatedly to stay with them. How they provided reviews for local restaurants. How they retrieved newspapers for guests. How they asked people if they enjoyed their stay. This “concierge mentality” was designed into the Amazon.com experience. It’s based on seeking customer truth so that you discover how to delight your customers.
EMBRACE CUSTOMER TRUTH
To fail fast or win big, you need to understand your customers. You also need to embrace the idea that customer feedback, or as I like to call it, “customer truth,” is critical to the success of your company. Marketplace graveyards are littered with companies who quit listening to their customers (e.g., Blockbuster, Blackberry, Borders, A&P food stores, Nokia, Kodak, Tower Records, Circuit City). Many other large companies are teetering on the edge of failure and will almost certainly be gone in the next few years. On that short list are, perhaps, the cable companies, entertainment and fast-food companies, and several retail brands that are simply not paying attention to their customers or the developments in their marketplaces.
It concerns me that most students and a number of potential entrepreneurs don’t grasp the importance of knowing everything about potential customers. Okay, you can’t know everything—but how about knowing some things that are important? When I get pitched an idea, my first questions are about the potential customers. Invariably, the entrepreneur or student begins to falter. Perhaps it’s because of my extensive branding experience and long marketing career, and my entrepreneurial and turn-around careers, but I believe it’s critical to know as much as possible about current or prospective customers.
In this chapter, I share my insights and experiences with branding and marketing as it relates to customer truth. Then, I give some examples of my (and, quite frankly, any entrepreneur’s) expectations and work ethic in regard to customers and their buying preferences.
MY EYE WAS ON THE CUSTOMER
Early in my career, I landed on a marketing agency account team that was working with Cadillac, the luxury car division of General Motors. Honestly, at age 27, I did not know or have anything in common with 45- to 70-year-old Cadillac customers. I reviewed all the research on hand, looked at all the customer survey data, and still felt I did not know enough about Cadillac’s products, dealers, or customers—and felt I knew even less about the competition. So, in that first year on the account, I spent a good deal of my spare time visiting Cadillac and the competition’s dealerships. I examined showroom environments, met with salespeople, and sat with customers in the customer service lounges. I asked customers about their product and service experiences, and inquired about how many Cadillacs they had owned and why.
Later that year, with my customer insights, I started to make strategic recommendations to the Cadillac management. When they asked where I had gotten the basis for my recommendations, I indicated that I had met with more than 250 customers that year. The Cadillac senior marketing manager I spoke to said he doubted the entire management team had met with that many actual customers. That was an amazing revelation to me. Was it any wonder that Cadillac suffered in the ‘80s and ‘90s?
Another agency assignment had me working with Nikon. I loved their cameras. But I knew very little about who was actually buying those cameras and the accessories. So I spent my free time in camera stores. I went to photography trade shows and events. I met with professional photographers. I took a photography class for beginners. I bought a Nikon camera from a local dealer. I learned a lot about the entire “ecosystem” that Nikon lived in—more importantly, I learned about their customers and the trends in the marketplace. These insights led me to recommend an accessories sales and marketing strategy that yielded millions of dollars in additional annual revenue for Nikon, and even more satisfied customers.
Later, when I worked with Apple to support their education-channel sales with marketing strategies and campaigns, I met with education-channel salespeople at computer dealers. Then I visited elementary and high schools to better see who was buying Apple computers and why. How were schoolchildren using Apple computers in their classrooms? I learned much about what was happening in education and how Apple’s vision for educating children included using powerful hardware and software technology. All this insight allowed me to recommend marketing strategies to drive Apple’s education market share higher. And Apple’s early focus on its customers in the education marketplace made them a dominant player in education. It’s also a classic branding and marketing strategy: get to future customers early and often, so as to continue selling to these customers your future products, like music players, smartphones, and tablets.
When I was a partner at CKS|Partners, I developed the integrated branding and marketing strategy for Amazon.com. Initially, I was insanely curious about who was actually buying books online in 1996. Our team spent months studying several marketplaces, including the traditional bookstores and the emerging online e-commerce platforms. We worked very hard to understand who was actually buying books online initially; but better yet, we wanted to know who we needed to target that would lead us into a much larger marketplace. All of our research led us to a core influencer target market smaller than 2 million people (i.e., those who love to read books, are early technology adopters, have higher incomes, etc.). Our research showed that, in the United States, they were located mostly in just two or three states and perhaps four key cities. This close focus on adopter customers, plus our attention to building a customer “experience,” allowed us to increase Amazon.com sales explosively over the next two years.
YOU ARE NOT THE CUSTOMER
You can’t assume you know what a customer wants or needs just because you are launching a start-up to serve that customer. Why do so many entrepreneurs assume they know what a customer wants or needs—even when those entrepreneurs themselves do not fit the target segment profile? And even if you do fit the target segment profile, don’t assume you are the customer or know more than they do. You don’t. You want to know why? You are not the customer.
Ever meet a 45-year-old entrepreneur who is running a start-up making products for 18- to 25-year-old customers? Or, the reverse? And, if you did, did you ever wonder what he or she was thinking? Here is some advice for entrepreneurs: never assume you know your potential customer. Ever. That realization will force you to do several things:
• Always be researching the marketplace and trends.
• Base your decisions about customers on as many facts as possible.
• Surround yourself with other people who might have customer insights.
• Relentlessly visit the customer environment.
Many entrepreneurs and company founders speak as though they are customer experts—yet yesterday, before the launch of their startup, they were engineers, nutritionists, lawyers, accountants, programmers, and the like. When did they transform themselves into the customer?
Here is what you should do to learn more about your potential customers. Ask these types of questions:
• What are the customers’ ages, incomes, and sexes?
• Where do they live?
• What do they live in?
• What kind of music do they listen to?
• What kind of car do they drive? Lease or own?
• Where do they shop for clothes?
• What kind of food do they buy?
• How do they use technology in their lives?
I could go on, but you get the point. You need to understand your customers. You can’t assume that you know everything—or even anything—about them. You can’t pretend that you are in the mindset of your customer.
REAL CUSTOMERS, REAL SITUATIONS
Here are real situations from real entrepreneurs and how each of them handled learning more about their potential customers.
Fashions for Young Women
Two young entrepreneurs, Paul and Griffin, now 26 years old, started their company about four years ago with a fashion product aimed at and purchased predominantly by women, ages 15 to 22. In order to understand and maintain their knowledge about this marketplace, they immerse themselves in their customers’ world. They attend trade shows and events that feature fashion buyers so they can hear from professional buyers about what is trending, what is selling, and what is on the horizon in terms of fashion. They attend fashion shows and even music concerts, always noticing what women that age are doing and wearing.
Probably one of the most important things that Paul and Griffin do is have about 10 interns working in their business who are in their customer’s demographic. These interns update the website, talk to distributors, and deal with store owners. They are responsible for the fashion blog on the website and they also update the company’s social media. They provide Paul and Griffin with feedback and insights about the product design based on trends they are noticing. It’s a great way to stay in touch with customers.
Internet Photo App
Duncan is a 35-year-old serial mobile entrepreneur. He had previously created and sold two companies that produced mobile services and/or applications. His third company came about when Duncan began to notice the staggering number of photos that were being uploaded to the Internet. By some forecasts, this numbers more than 1 billion each day. As Duncan’s team started to investigate this marketplace, they noticed a “sweet spot” of customers ages 14 to 18 who were very active in uploading their photos. The more time they spent looking at this demographic, the more convinced they were that they had a couple of potential products for this marketplace.
The other people in this start-up were about the same age as Duncan and were software programmers, so they set about building a prototype. Within about 45 days, they had a functioning prototype that worked on a tablet, and they began to test it with friends and family who were in that target age range.
No one liked it. They felt the features of the application were not that great. Seven out of 10 potential customers said they would not download it, even for free. So it was back to the drawing board. This time, the team brought some college freshmen on board in the design and functionality process, and they started to get some real insights. They rapidly built another prototype and tested it with 16- to 19-year-olds. This test customer group liked it and made some suggestions that a younger demographic would like. Based on that feedback, they built the final product for the smartphone platform and launched it. They are on track to receive 2 million downloads this year.
SEEK CUSTOMER TRUTH—RELENTLESSLY
Think relentless, which means “unending.” Though you’re just forming your start-up, embrace the idea that you’ll continually be in the customer’s environment to learn about that customer. You’re not just there at their purchase decision, but also wherever the actual customer environment is, whether that’s a retail location, a dealership service area, a restaurant, a local mall, an airport, or a grocery store. You will be studying customer behavior so well that you will “know” what they might do next.
Additionally, you will need to visit your competition and see how they treat their current customers, and what could possibly be improved. For example, in my own company, which dealt with creating new brands or launching new products, I regularly walked into the customer environment and met with real customers. I never relied exclusively on the survey research data or third-party industry reports. I needed to “feel and touch” the customers. I needed to see what they felt, to better understand their patterns, to really get insights into trends that were affecting them or those that were potentially starting.
As an entrepreneur, you need to be zealous in your approach to understanding your current or potential customers. Just as an aside, it would have helped Blockbuster Video and Borders Books if they had watched or listened to their customers!
ANTICIPATING WHAT CUSTOMERS WANT
“Customers may not always know what they want, but they are never wrong.” I believe the biggest piece of advice in that adage is simply to accept that customers are never wrong. They are not always right, but they are never wrong. As an entrepreneur, it may seem easy to believe you know what customers want. If you had been Larry Page in the days before Google, perhaps you would have agreed with him if he had said, “Online search results suck and I am going to make search results way more relevant.” I don’t think you would have needed to conduct customer surveys to find out that people wanted a better, more relevant search engine.
“It’s really hard to design products by focus groups. A lot of times, people
don’t know what they want until you show it to them.”
—Steve Jobs, co-founder, Apple, Pixar, Next
Other times, though, it’s more difficult. Say, you are designing a car that will take three to five years to get to market. Do you ask customers what they want, not knowing what is going to be going on in the world five years hence? Are customers designers? Do they even know what they want versus what they need? If you read the Steve Jobs quote, it seems to make sense. And yet, do you want to hedge your bets and get some direct customer insight? Of course, but it can’t drive the decision-making process. It can add insights or help confirm some assumptions, however.
In my 20 years’ experience, I cannot recall a time when focus groups or customer surveys were used to design or determine final products. To be honest, I am not a big believer in focus groups. Can 12 people really determine the fate of a product or service? Seems risky to me. I have used focus groups to look for an “aha” moment or to discover something we missed, but not as an affirmation of what we were going to do.
When we landed the Amazon.com account in our Portland office, we never utilized a focus group to test our designs or recommendations. We looked first at crafting the “soul” of the website brand around the idea of a helpful concierge. Once that was done, we looked at the early adopters who were buying books from Amazon.com and we did research on the next possible customer segment—that is, who were the next most likely 2 million buyers? We discovered that they were people who loved technology and who read voraciously, both books and daily newspapers like the Wall Street Journal and the New York Times. They were also people who traveled. They lived primarily on the coasts, and had higher household income. They were thought leaders and influencers.
When Jeff Bezos gave us the majority of his funds that he raised in the first venture capital round for marketing, he asked about the marketing strategy. We told him about our concentric rings expanding outward from a core target customer base of early adopters. We explained that we were going to use heavy print advertising carefully and word of mouth to drive Amazon.com revenue upward. He asked if we were advertising online. We said no. Initial advertising would be in just three regional publications, on an almost daily basis in smaller strip ads. That and public relations would drive the “fever” we intended to build.
We also suggested implementing an affiliate program whereby targeted companies would place online book banners on their websites for free in return for a simple commission on referred sales. We did not have enough money to do more advertising or marketing. Bezos was nervous; honestly, so were we. But we were also excited and sure we were on to something big. Time to fail fast or win big. We launched the campaign and sales exploded.
Here is the takeaway. You need to know your customer. You need to know your customer’s environment. As much as possible, you need to know what your customer aspires to be or do. You need to have an ability to have conversations with that customer. But I agree with Steve Jobs. If you asked customers to design an MP3 player, it wouldn’t look like an iPod. Most people might not ask for a 1,000- calorie burrito from Chipotle. Or a $75,000 electric car like a Tesla. Customers will tell you what they want, but not what they need.
The truth about customers is that they will tell you what they don’t want. Customer truth is a funny thing. They are not always right, but customers are never wrong. Gather as much information as possible. Listen well and, it is hoped, you will give them what they need. If not, they will tell you the truth.
CUSTOMER SEGMENTS AND POSITIONING LADDERS
If you are looking to create a start-up company, or perhaps you see an opportunity to enter a disrupted marketplace, focus on exactly that target market segment, and conquest that segment first. You can’t take on the whole marketplace. As I mentioned in the beginning of this chapter, when entrepreneurs tell me they have a product that will revolutionize civilization, I ask them the size of the marketplace. They say 100 million people. When I ask them to identify the target segment, they say 100 million people.
Seriously, cut the marketplace into several segments, target the early influencers/innovators, then the early adopters, then the next segment, and then the next larger segment. If you get into the third segment, you are probably going to have a successful company. The sparks of customer segment networks will be firing and word of mouth will be driving sales. (If you want more insightful information on customer segments and networks, read The Tipping Point by Malcolm Gladwell.)
One of the best books I ever read on how people categorize “brands and products” in their minds is Positioning: The Battle for Your Mind by Al Ries and Jack Trout. Amazing book, simply written, powerfully explained. Their premise is that we, as humans, organize everything into neat little categories in our brain; they call those categories “ladders.” Based on their research and insights, Ries and Trout determined that most consumers usually remember the top three brands or products on every ladder, and that if your company cannot or will not penetrate the top three, you better reconsider your positioning strategy or that marketplace.
In other words, if you can’t be in the top three brands or products in the customer’s mind, consider creating another ladder. Think of the top five car-rental companies; in less than five seconds, say them out loud. Did you get past three? Here’s another example. When a new company wanted to enter the rapidly growing bottled-water market, they knew there was no room in the customer’s mind for another water brand on the “water” ladder. So they created a new category ladder—vitamin water—and placed themselves at the top. The company? Vitamin Water.
So, before you create your product or service, examine the market and your potential placement in the customer’s mind. Is there room for another brand/product or do you need to create a new ladder?
YOUR BRAND MATTERS—BIG TIME
I have worked with some amazing brands. Kellogg’s, Mercedes Benz, American Express, Nikon, Apple, Mazda, Powerade, Amazon.com, Nike, Widmer Brewing, Yahoo!, Mercury Marine, John Deere. When you are in the midst of working on an existing brand, or even launching a new brand, you don’t notice all the great elements that make up that brand. Until you meet the customers. They remind you of why a brand is great—or not.
When I ask entrepreneurs about their brand, they say, “What? Do you mean our logo?” If that is the answer, I know they don’t understand the power or importance of branding. Rather than spend hours explaining it, I suggest they read The Brand Gap by Marty Neumeier. I explain that the brand exists inside of customers’ heads, that it is what they feel about the product or service. I explain that people need to trust that brand and that trust comes from reliable and consistent “delight” with the product or service. Entrepreneurs must very carefully “craft” their companies or product brands with the utmost design and care.
A great brand is one that
customers believe has no substitute.
As an example, the Apple iPhone is really just a smartphone. Tear off the outer shell and what do you see? Integrated components. So why do most iPhone owners love their iPhone? Why do they feel so good about this product? More important, why do they feel there is no substitute for their phone?
Put as much care and attention into every element of your company, both product and brand, as Apple has. Or, as I often say, it costs just as much to design a weak brand/product as it does to design a great one.
CUSTOMER SATISFACTION AND LOYALTY
When I ask entrepreneurs what they will do to ensure customer satisfaction and loyalty, they often explain what they will do after the sale. But that is too late.
Take the time to grasp the impact of a poorly designed and launched product or service, and how word of mouth will negatively impact future sales. Market researchers have noted that people who are disappointed in a product tell five times as many people about their disappointment than they do when they are satisfied.
That negative talk can have a significant effect. With today’s online reviews, that number can grow exponentially. On the positive side, though, consider the lifetime value of a satisfied customer.
For example, Starbucks has done exactly that. Assume that you have bought one Starbucks latte per day, five days a week and 52 weeks a year, for about 20 years. At a price of $4 per cup, that’s $20,800. That’s serious money, and it’s all tied to customer loyalty.
Here are four major guidelines for building exceptional customer satisfaction and establishing ongoing loyalty with your future customers:
• Meet expectations: Sounds simple, but quite a few entrepreneurs get this wrong. It’s your customers’ expectations you are trying to meet, not your own expectations.
• Exceed expectations: Unless you are launching a monopoly, you’d better plan on exceeding your customer expectations. This is what builds brands and keeps competitors at bay. Just meeting their expectations does not.
• Delight the customer: Here is where the brand really gets built.
When you delight the customer, you build trust. That trust gives your customer the feeling that your product or service cannot be substituted.
• Great customer service: This sounds really simple but so many companies get it wrong. They get hung up on hierarchy, policies, processes, and everything else that prevents great customer service. Recall every bad customer service experience you have ever had, and then don’t do that.
When you create and launch your start-up, everyone around you will be watching. They will be taking their cues from you. You are creating the company culture. Will you be respectful to customers, or do you just want their money? Strive for the highest levels of customer satisfaction, and loyalty will follow.
LEARN TO LISTEN
You will never satisfy 100 percent of your customers 100 percent of the time. You should try, of course, but it won’t happen—statistically. So, knowing that, figure out all the ways you can have conversations with your customers and really listen to them.
“If a customer’s calling and they have a gripe, don’t you think they kind
of enjoy the fact that I picked up the phone and talked to them?”
—Jim Sinegal, co-founder, Costco
It’s not always what you do wrong that matters so much as how you fix it. Walk among your customers. Before Jim Sinegal, former CEO and founder of Costco, retired, he routinely visited more than 150 stores per year. That’s almost 200 travel days annually. He would also stop in at competitors’ stores. He had no problem talking to employees and mingling with customers. When he was asked why he did this, he would often say, “Seeing is believing.”
If you called Costco to complain about something, there were certain times where he would answer the phone. I know. I called him once, expecting to get his assistant. He answered the phone instead. That’s my kind of entrepreneur.
CUSTOMER TRUTH IS DEFINED BY THE CUSTOMER
If you use Google to search “customer truth,” you will get a smattering of results. Some entries will talk about how “communities” of consumers are now providing brands with “community truth”—that is, a sentiment the entire community believes to be true. Other entries touch on the economic impact of “customer loyalty” and the financial value of a customer. Several cite the “moments of truth.” This might be industry jargon, but it’s the process a customer goes through with respect to purchasing a product or service. This process happens in stages, and you should be aware of them.
• Zero Moment of Truth (ZMOT): Created by Google, it’s what people search for and find after encountering the initial message that directs what they do next. Google spokespeople would say this is “that moment when you grab your laptop, mobile phone, or some other wired device and start learning about a product or service you’re thinking about trying or buying.”
• First Moment of Truth (FMOT): Introduced by Procter & Gamble (P&G), a great retail products and marketing company, it’s what people think when they first see your product, and the impressions they form when they read about it or see images of it. This is the critical point when shoppers can become customers.
• Second Moment of Truth (SMOT): Furthering P&G’s philosophy, it’s when people feel, think, see, hear, touch, smell, and (sometimes) taste, as they experience your product or service. This is not the first time but occurs after several purchases.
• Bernie’s Moment of Truth (BMOT): This is my spin on the moments of truth. It’s how the brand listens or reacts to a customer problem. It could be as simple as an order of coffee or as large as a washing machine. If that “brand” steps up and satisfies you, you will be with it for a long time. If it disappoints, you are gone.
How many of us have purchased a product or service for years— and then it happens. The product quality suffers. Poor service, with an attitude. Or just a lack of respect. I know people who will not even consider a certain luxury car brand owing to a fallout with a salesperson or a service adviser over a relatively small problem. And that’s even after owning that brand for 15 years! They will also tell everyone within earshot why that company is a failure.
As an entrepreneur, you will need to understand the consequences of not listening or failing to deliver excellent products and services to your customers. Define “customer truth” any way you want; but understand its power. If you are listening to your customers, you will improve your product and service, based on their collective feedback. If you ignore their feedback, you won’t have to worry about improving your products or services—because you won’t have any sales.
Also, refrain from defending your company with statements like, “The customer just does not know how to read instructions or use the product properly.” Remember, “Customers are not always right, but they are never wrong.” Believe that and you might win big.
In 2009, Kevin and Mike set out to create a mobile application that they felt would be on the cutting edge for mobile consumers. It would have several features, one of which was the ability to use location as its core attribute. They spent more than one year building the application, and when they thought it was perfect, they invited a core set of friends and family to try the application on their smartphones.
The user feedback was not good. In fact, those family and friends said that the application felt cluttered and overrun with features. But there was one key feature that they liked. And Kevin and Mike listened to this “customer truth.” They agreed that they needed to pivot the company. So they started over and built a new application around the one feature everyone liked: photos. Instagram was born.
You do not have to be a brand or marketing expert to understand the impact of customer satisfaction and loyalty. You do not have to have 10 years of customer service experience. You do need to listen to your customers and accept their truth about your product or service.