In this article, we will be exploring the customer creation step of the customer development model. Customer creation represents the essential marketing activities needed to help customers understand a product and create demand for it. According to Steve Blank, specific critical points should be noted about customer creation:
First, customer creation activities happen for the first time in a startup.
- They aren’t related to the marketing department but are related to customers.
- They are creation activities and not follow-on execution activities.
- The kinds of marketing programs are significantly different based on market types.
On the other hand, traditional marketing communications are different from customer creation. Marketing communications have six elements:
- An internal and external PR audit to understand customer insights.
- Development of a separate company and product positioning.
- Enlisting the prominent industry influencers and recommenders.
- Recruiting enthusiastic beta customers ready to spread the good news about the product.
- Product launch at the first customer ship.
- Boosting demand creation spending such as advertising, PR and trade shows.
It’s assumed that all the startups are in existing markets, and these six elements work in every existing market. However, at times, at least 2 out of the four types of startups aren’t successful in having these six elements. To develop a marketing communications strategy that suits their circumstances, most startups return to outdated marketing programs they used at their last company. This is a massive mistake as introducing a new product and starting a new company shouldn’t have obsolete marketing strategies. Thus, startups need an intelligent customer creation strategy and a plan to finetune their market type.
To build a successful customer creation strategy, you need to answer the following:
- What kind of startup are you?
- What are your messages on positioning in terms of your understanding of the types of customers and what they require).
In customer discovery and customer validation, you discover who will buy the product and gain much information on those customers. Then, in customer creation, you will use that information to create a strategy to reach your customers, not unrelated.
Let’s begin by understanding the market type your startup belongs to.
Market types of startups
In our previous articles, we learned four types of startup markets. In customer creation, you should be 100% certain which market type your startup belongs to. Market types decide how you form your customer creation strategy. The market type is the source of all the company’s positioning activities. However, remember that a market type isn’t fixed as it can be flexible in positioning. For example, a product that is seen to be in an existing market can also be positioned as a niche product in a resegmented market.
Choosing the correct market type that you belong to is based on reviewing the knowledge you have gained through speaking with customers in customer discovery and customer validation. At this point, you should have gained a good understanding of customer needs. In addition, by talking and selling to earlyvangelists, you have discovered who else is trying to satisfy their needs.
The new Lanchester strategy
The new Lanchester strategy is one of the best tools to identify which market type a startup belongs to. This marketing strategy is used in Japan and is a military operation research theory. The Lanchester strategy shows a few rules that startups can use to study an existing market:
- If a single company owns 74% of the market, the market has become a successful monopoly. For a startup, that position cannot be defeated by a direct assault.
- The market is a duopoly if the mixed market share for the market leader and the second-ranking company is more than 74%. This is also a defensible position for a startup to attack.
- If a company possesses 41% of the market share and at least 1.7 times the market share of the next largest company, it’s the market leader. This is a tough market for a startup to enter. On the other hand, markets with a clear market leader are an opportunity for startups to resegment.
- If the market player has at least 26% of the market share, the market is unstable, and it’s highly likely for company rankings to shift frequently. As a result, a startup may have some opportunities to enter such a market.
- It cannot impact the market if the most significant market player has less than 26% of the market share. Startups can quickly enter this market.
Another rule in this strategy that should be noted is that if a startup decides to enter a market with one dominant player, it must be prepared to spend the dominant player’s combined sales and marketing budget thrice. On the other hand, if a startup decides to enter a market with multiple competitors, the cost of entry is lower, but they still need to spend 1.7 times the sales and marketing budget of the company they plan to attack.
A startup is the weakest player with fewer resources when considering an existing market. Thus, it’s foolish to attack the largest companies in that market immediately.
If a dominant player owns 74% of the market share, don’t directly attack the market because you need three times the resources of the market leader, and you’ll go bankrupt. Instead, it would help target your attack where your limited resources can make a difference. You can resegment an existing market where your product can be different or if you want to create a new market, you can address a space which the market leader hasn’t considered. Your goal should be the number 1 leader in something important to your customer. It could concern your product features, distribution channel or customer base. You need to keep segmenting the market in terms of age, income or region etc. and focus on the competitor’s weak points until you succeed.
If a dominant player has between 26% and 74% of the market share, you need to be careful about the cost of a direct attack. It’s thrice the budget of a single competitor or 1.7 times a competitor in a crowded market.
You’ll be guaranteed at least 41% of the market share in a new market. You can probably lose market share, and your success will attract other competitors, but you start the market. It should be noted that startups creating a new market will not create a new market of significant size to produce profits until 3-7 years from the product launch.
Customer creation strategies that match market type
As we have understood the market type a bit, it’s difficult to believe that with monotonous constancy, startups with no revenue yet produce new products using the exact positioning and product launch strategy as a multi-million-dollar company announcing its 43rd follow-on product. This results in a high burn rate and less than brilliant market penetration of more than a few startups.
In an easy-going economy, a lot of funding will cover these problems but if money is scarce, getting it right on the first try is difficult. This also means matching your positioning, launching and demand creation strategies to the kind of startup you are.
The main idea is those customer creation strategies should be matched since there are existing, resegmented, and new market types. Therefore, each company and product positioning, company and product launch, demand creation activities and first year goals are based on the type of startup market.
We will next explore the four building blocks of customer creation.
Customer creation and its four building blocks
All startups have four common building blocks for customer creation:
- Year one objectives.
- Company and product positioning.
- Company and product launching.
- Demand creation activities.
Some of these blocks, like company launching, are an one-time event. Others don’t frequently happen, like company and product positioning, and demand creation activities occur continuously. Unfortunately, most startups implement these building blocks carelessly without understanding how they are connected to the company.
Customer creation timing
Although customer creation is one step in the customer development model, it doesn’t happen once. It’s a continuous process that begins when the company is founded. One of the biggest mistakes most startups make is by some of the most customer creation activities like advertising and PR way too early. The essence of customer creation is that the startup shouldn’t spend seriously on marketing activities until the company has a proven sales roadmap which is repeatable.
However, all four blocks of customer creation need proper preparation before customer discovery and customer validation. Following customer discovery and validation, the company finalizes its positioning and launches its company and product.
Customer creation and the customer development team
Most startups have one common disappointment. That finally brings a new product to the market and has poor sales. The marketing and sales team end up accusing each other. The engineering team believes both teams consist of brainless people who don’t understand the product’s technical features and benefits. One thing that should be understood is that the customer development model is based on the view that the customer development team understands the customer’s problem, validates a sales roadmap, and select and implements the correct customer creation strategy.
It should be noted that there is no marketing or sales department in this phase. Thus, there is no marketing or sales budget. Although some people do marketing activities and specialize in closing a sale, they work for the customer development team.
The phases of customer creation
- Phase 1 is the getting ready to launch activities – selecting a market type and setting year one customer creation and sales goals. In this phase, the company makes a great effort to understand the market size, available market and customer budgets. The company finally writes down its strategy, goals, objectives and milestones and establishes the customer creation budget.
- Phase 2 – company and product positioning.
- Phase 3 – company launches its product, defines the audience, messengers, and messages and establishes metrics for success.
- Phase 4 – company matches the demand creation activities to the sales road map.
Phase 1 – getting ready to launch
This phase of customer creation creates the big picture strategy for all the startup’s customer creation activities. In this phase, the following should be done:
- Constructing a market-type questionnaire.
- Choosing a market type.
- Agreeing on the company’s first year customer creation and sales objectives.
Constructing a market-type questionnaire
As you have collected quantitative and qualitative data on customers and your market, you’re now ready to choose your market. By collecting this data, you will have a significant advantage you didn’t possess before: the earlyvangelists. Unlike startups wondering about their market type before even speaking to customers, you were talking to customers for months who were earlyvangelists who had opinions on the product. You can now start by asking your existing customers and prospects what they think about the company’s positioning, competition, market focus, customer focus and market trends in the form of a questionnaire.
Choosing a market type
Based on the market type questionnaire results, you will now have helpful information for choosing your market type. All the customer creation activities should match the market type and the company. In phase 1 of customer discovery, we saw four variables for each startup: customer knowledge, market knowledge, how vital the product features are at first to the market and the depth and breadth of the competition. Finally, you need to add ‘risk’ as one last variable to see what type of company you are.
The most significant risk of entering an existing market lies in the competition and the subsequent cost of entry. Startups make a mistake by underestimating the cost of sales and marketing by going up against well-established competitors. Since the incumbents own the sales or distribution channels, the cost of establishing the startup’s channel is another risk. Remember, attacking your competitor in an existing monopolistic market requires thrice the amount of the competitor’s spending. Attacking a market with many competitors requires 1.7 times the spending of the weakest competitor.
The risks in entering a new market are different. You should define the new market to suit the customers’ views of their problem and your solution. A new market carries a lot of money and a long-term vision.
The risk in resegmenting an existing market is a combination of creating a new market and entering an existing market. Resegmenting an existing market should be perfect, and the company should persuade existing customers that their current supplier’s products don’t solve their problems. Additionally, your product should be unique so that customers notice the differences in the features between your product and the competitors’ products.
First year customer creation and sales objectives
After the market type is selected, the first-year revenue and market share objectives for customer creation and sales objectives can be set. We will now explore the different first year goals based on each market type.
The first-year goal for an existing market is to take as much market share as possible from competitors. Later, all the customer creation activities should be directly focused on demand creation and customer acquisition. You need market research data to calculate the available market size to decide how ample the opportunity is. However, a more significant number for planning is the size of the serviceable available market. This part of the total available market is the target market for your first year sales objectives.
To calculate the serviceable available market, you need to deduct all the unreachable customers in the first year. These customers could be unavailable as they have already purchased from your competitor, their product needs might be more significant than what your startup is initially offering or if they need a complete product which includes your service, support and other infrastructure that a large company could offer.
It would help if you then came up with a sales forecast. By talking to earlyvangeslists, you now know who to sell to, how long the sales cycle is and your pricing. You can start with a simple question: “if there was no competition and our product was free, how many customers would we have in the first year?” After that, ask yourself, “the product is still free, but we have competitors. How many customers will use our product in the first year?” You’ll be surprised to see how often an answer more significant than the total number of available customers comes back from keen salespeople. Keep changing the questions as “based on our prices, how many customers can afford our product in the first year?” Then, “Based on our speed in hiring and training salespeople, how many products can we sell?”. You should then take these numbers and compare them with the industry norm of dollars per salesperson or per distribution channel.
You should calculate the number of customers your sales organization will require using the revenue number to achieve the first year revenue goal. At that point, you need to start working on the sales forecast model backwards. You can also start considering how much you need to spend on customer acquisition activities.
The first year in a startup includes one-time costs which aren’t found in an existing company, such as the product and company launch and the distribution channel one-time costs. Add the one-time costs to the current demand creation and customer acquisition costs to provide the customer creation budget for the first year.
Finally, you must test the customer creation budget number against the new Lanchester strategy.
When entering a new market, the first year goal isn’t connected to the market share. This is because a startup cannot get profits from orders in a market that doesn’t exist. Thus, spending money on a massive product launch to reach customers and market share is absurd. Instead, the first year goal of this market type is to operate or grow the market.
The limited demand creation activities of a startup in this market type are based on:
- Educating the customer on the new market.
- Converting earlyvangelists into references for the market to develop.
Resegmenting an existing market
The first year goal in this market type is challenging to achieve. Not only does a company need to secure a lot of market share, but it must also educate the customers about new issues in the market. The customer creation activities should create demand and gain customers while segmenting the market in a manner that is valuable to customers.
When resegmenting an existing market, the budget is the same as in an existing market.
Phase 2 – Company and product positioning
You have extensive data to develop an effective company and product positioning by this time. Positioning controls how the public views a product as it relates to the competitors’ alternatives. This becomes an essential part of communications, marketing and relationships. All the company and product messages are taken from this positioning. In this phase, the startup should:
- Choose a PR agency.
- Conduct internal and external positioning audits.
- Match a positioning according to the market type.
Choose a PR agency
As customer creation starts with thinking and planning instead of spending on marketing, the startup might need help from a PR agency in strategic communications. A good PR agency will:
- First, position the company and its products.
- Next, communicate its message and improve its audience.
- Finally, gain industry influencers and messengers to spread the company’s message.
The PR agency’s goal is to understand the company’s objective, provide additional information on customers based on their other projects, develop company and product positioning and make messages that properly communicate how the product meets the customer needs.
Before hiring a PR agency for customer creation, you need to check the agency’s ability to think about positioning and communication strategy and not merely its skill in getting press tactics. Do they know your market and adjacent markets? Do they have customer-specific knowledge? This means, are they creative? Will they come up with better insights than your company? Is strategy their main strength? Do they have metrics to measure the success of each client? Does measuring success make them scared? Once you’ve completed the answers to these questions, you know whether an agency is good enough to position your company and product. Finally, you must ensure that your agency understands the market types.
Conduct internal and external positioning audits
Before the company spends money on the positioning, it is good to clarify doubts about it through an audit. An audit is a fair way of learning how others view your product and the company. In an external audit, the agency calls customers, influencers, press and industry analysts etc. and asks them questions.
Although PR agencies handle audits, a startup completely handing it over to an agency is a big mistake. The founding team should only make the first few calls to customers and other messengers. On the other hand, an internal audit is based on asking questions from the company’s founding team and executive staff. Although it’s common for startups to assume that everyone has the same opinion, an internal audit will reveal there are different opinions. The goal of an internal audit is to hear the differences thus and get new ideas.
Match positioning according to the market type
A good company positioning starts and ends with the customer as the attention. If a prospect heard your company positioning statement, would they care? Would it excite them? The messages a company wants to convey to people are based on the market type; therefore, it’s time for you to match the positioning according to the market type. A PR agency or consultant can help you decide this as well. Let’s now go through each market type’s positioning:
An existing market
When entering an existing market, the company positioning is about making your company look unique and trustable. Once the company positioning is selected, product positioning takes place. As various products exist in an existing market, product positioning demonstrates how and why your product is unique based on the other competitive products. Differentiation in an existing market has three types of forms:
- Product features.
- Distribution channel.
A new market
Since there are no other companies in a new market, company positioning cannot be about how unique your company is compared to other companies. Instead, the company positioning is based on communicating the vision and passion of your company. Your customers need to understand thus what your company is trying to achieve in a new market. After company positioning, product positioning becomes relatively easy. Publicizing product features in a new market is useless as there are no comparable products.
Resegmenting an existing market
The company positioning will depend on market segmentation instead of differentiation. Segmentation means that you have chosen a clear and unique part of the customers’ minds that is understandable and related to something valuable. The company’s positioning in this market type communicates the value of your market segment and the innovation your company brings to such a segment.
Accordingly, there are two kinds of market resegmentation:
- A segmented niche.
- A low-cost provider.
Phase 3 – company and product launch
A company launch is where a company communicates with the customers for the first time regarding itself, what it means, and the product it’s selling. A product launch is based on why your customers should buy your product. These two launches happen simultaneously, and the process is the same. The company prepares its communication materials, picks its audience, tailors the message, chooses the messengers and gets ready to make a demand. The following steps should be adhered to in this phase:
- Choose a launch based on market type.
- Choose the customers.
- Choose the messengers.
- Position the messages.
- Understand the context of the message.
- Understand the media for the message.
- Measure success.
Choose a launch based on market type
Company launches shouldn’t be a mistake, and they require a lot of thought. The company must choose and dedicate itself to a launch strategy that matches the market type. Accordingly, there are three types of launches: onslaught, niche and early adopter, which we will be looking at in detail.
The onslaught launch is used in an existing market which most startups use. It is an expensive, high-commitment launch based on maximum exposure at one point in time. It carries a lot of expenditure on advertising, PR, trade shows, mail, etc.
This launch is used in a new market with a more targeted and cheaper approach. The target market in a new market doesn’t have enough customers to justify its spending to get market share, so the aim is to gain maximum mind share.
Early adopters avoid expensive media like PR, advertising and so on and merely focus on the internet, focus groups and word-of-mouth marketing. It uses the enthusiasm of earlyvangelists to create a new idea in the minds of prospects and thus, create a new market.
This is used in a resegmented market. In this launch, the company invests all its demand creation money into capturing a single niche market and customer. However, if the new segment you’re creating is hypothetical, you should treat this market as a new market and adopt the early adopter launch.
Choose the customers
After choosing the launch type, you need to select to whom your launch messages will reach. This is the first step in creating product demand. Unfortunately, most startups make a mistake choosing a customer audience they’re more comfortable with instead of selecting an audience who will most likely buy their product.
Earlier, startups used to launch products without talking to customers first and had little knowledge of customer needs. However, in the customer development model, you would have already spoken to earlyvangelists. So by the time you reach the company and product launch, you have more knowledge of customer problems that want to be solved.
To choose the customers for a launch, you should select customers on the influence map your launch messages need to reach. However, most startups mistake everyone on the influence map to be targeted for the launch messages. Instead, the audience should be a small group that is most influential such as:
- In an existing market, the launch audience is the user or company responsible for selecting the product.
- In a new market, the launch audience is the earlyvangelists who know they have a problem and have been actively searching for a solution.
- In a resegmented market, the launch audiences are the users or companies that will appreciate your selected segment.
Choose the messengers
In ‘The Tipping Point’, Malcolm Gladwell established a theory that certain personalities can influence others through word of mouth, which he terms the “law of the few”. You need to capture these essential people, and your message will spread through them. One of Gladwell’s personality types included the “messengers”, well-established and highly beneficial people in the industry. There are three types of messengers such as experts, evangelists and connectors. Experts are industry analysts in private research firms, wall street analysts or consultants. An essential segment of products that experts talk about is the “best products”. Walt Mossberg, the technology columnist for The Wall Street Journal, David Pogue at The New York Times and Stewart Alsop at Fortune, are experts who discuss and recommend the best products.
During the company and product launch, the press and earlyvangelists rely on experts to help them understand your company’s claims on the product. As a result, you need to develop relationships with your customers who you identified in customer discovery and customer validation and make them believe and educate them on your company and product before the product launch.
The second type of messengers is the evangelists who tell everyone how great your product is and the unlimited potential that your product has. These messengers have two features: they are paying customers and are enthusiastic about what they have to say to other customers. Sometimes, startups confuse earlyvangelist to be customers who will give a reference.
The third type of messengers, connectors, are not product or industry experts. They are individuals who know everyone in the industry. They could be bloggers and are mostly thought leaders. It is essential to establish a relationship with connectors and educate them about your company or product before the product launch.
Position the messages
The messages a company delivers at launch result from all the positioning activities you’ve done so far. Steve Blank suggests it’s better to position a memorable and sticky message as it has a greater chance of changing buying behaviour and buyers’ thinking. Great PR agencies know how they present information on a product and company impacts people.
Understand the context of the message
Remember that when positioning messages, they operate in a context. Messages are accompanied by many other messages that can significantly impact your message’s memorable or sticky.
Understand the media for the message
Media is a part of any strategy for a launch. Purchased media is a traditional way a company can deliver its messages directly. Media includes magazines or email. The message formats can be ads, direct mail and trade shows. Although paid media can be a part of marketing communications strategy, customers find messages from unpaid messengers more trustworthy. Your startup needs to therefore come up with a media strategy which is a plan that describes what media should be used to reach customers and which media won’t. In customer discovery and customer validation, you inquired earlyvangelists on what media will they rely on. If you didn’t ask them, you should pivot and ask them now.
Most startups have found it difficult to measure marketing expenditures in bulk as they had no solid objectives regarding market share, educating customers on the new market, etc. Thus, it’s better to establish a set of measurable goals. You need to ask yourself, “how do I know if I’ve succeeded?” for that, you need to answer another question first, “what are the specific success criteria?”. to set a success criterion, the customer development team should agree on its objectives. In an existing market, the apparent goal is to achieve market share. In terms of a resegmented or new market, you can use the internal and external audits you did before the launch. Following the launch, call the people in both audits and ask them the same questions again to see if you’ve made a difference. Next, do a press audit. Are they talking about the issues just like your company has positioned them? How deep and extensive was the press coverage? Were you briefly mentioned in trade magazines or the wall street journal?
Phase 4 – demand creation
Demand creation includes PR, advertising, trade shows, seminars, etc. In demand creation, you will:
- Choose a demand creation strategy which matches the company’s first year goals.
- Agree on demand creation measurements.
- Iterate, return or exit.
Choose a demand creation strategy which matches the company’s first year goals
The primary mistake that most startups make is keeping goals for demand creation which are not similar to sales goals. If the goals for demand creation and sales are the same, a demand strategy is needed to list the measures you will be adopting and the activities you will be adopting to achieve the goal.
That being said, after the sales and demand creation goals are similar:
- In a startup entering an existing market, demand creation aims to establish qualified and end-user demand and move it into the sales channel.
- In a startup resegmenting an existing market, demand creation aims to educate customers on the new benefits created by the resegmented market and drive demand into the sales channel.
- In a startup entering a new market, demand creation aims to educate customers on the market and drive the early adopters or niche into the sales channel.
Agree on demand creation measurements
Demand creation budgets are the most significant part of a marketing department. Therefore, a procedure is needed to measure demand creation results and correct them when needed. The best option to ensure demand creation and sales are in sync is by agreeing on a bunch of goals for each step in the pipeline and measuring their success.
Iterate, return or exit
Although customer creation can be exhausting, you might need to iterate a few parts of it again. Has the company and product positioning made sense to customers? Are the messengers convinced? Has demand creation brought sales? If the answer is no, don’t worry. Every step in the customer development model, as we discussed before, is about learning. Your failures in some of these steps will make you realize where you went wrong and prepare you to avoid such mistakes next time.
Sometimes, the problem isn’t in the positioning messages or demand creation but the market type. If your competitors are defeating you or if you cannot generate demand for your product, you need to step back and see if you’re in the right market type. Suppose you’re ready to proceed with the next step of the customer development model. In that case, it means that your sales have risen due to practical demand creation activities if competitors have noticed you or started copying your positioning and your financial model works.
Customer creation includes four essential phases to be achieved if you want to generate a lot of customers for your product. It’s, therefore, necessary to read this article carefully for you to proceed in the next step of the customer development model, which is company building.