Five Assumptions We Make about Target Customers

FactsThere are many things aspiring entrepreneurs need to be doing as they study the feasibility of their new venture idea. It can be overwhelming. Starting with the personal discovery journey, followed by the intensive customer engagement activities that are critical for understanding whether you have a potential business or not. Early in the venture for discovery process, you begin to define who your potential customers are and whether they need your solution enough to pay for it. As part of identifying your customers, you realize that customers differ by how they experience the problem or how they purchase solutions or how you will reach them in order to deliver value. This leads to the need to consider how to best categorize or segment your potential customers.

Deciding on which customers you should focus on as you launch your venture is an important decision. Getting this right can be the difference between success and failure. For this post, we focus the underlying assumptions and criteria for selecting customers to reach out to first when launching your venture. Customer segmentation may be defined as dividing all potential customers for your product into subgroups that optimizes your new venture’s early traction and profitability. These sub-groupings are based on the fact that customers have different needs, priorities, and financial capabilities.Deciding on which customers you should focus on as you launch your venture is an important decision. Getting this right can be the difference between success and failure. For this post, we focus the underlying assumptions and criteria for selecting customers to reach out to first when launching your venture. Customer segmentation may be defined as dividing all potential customers for your product into subgroups that optimizes your new venture’s early traction and profitability. These sub-groupings are based on the fact that customers have different needs, priorities, and financial capabilities.

Deciding on which customers you should focus on as you launch your venture is an important decision. Getting this right can be the difference between success and failure. For this post, we focus the underlying assumptions and criteria for selecting customers to reach out to first when launching your venture. Customer segmentation may be defined as dividing all potential customers for your product into subgroups that optimizes your new venture’s early traction and profitability. These sub-groupings are based on the fact that customers have different needs, priorities, and financial capabilities.

Customer Segmentation AssumptionsThere are several assumptions entrepreneurs make when defining customer segments in order to later prioritize them for entry into the market. This prioritization is a critical step for new ventures due to limited resources and inadequate infrastructure required to reach multiple customer segments at the start. However before you can prioritize your customer segments, you need to identify all the assumptions you have about their characteristics, experience with problem and solution, ease of access, and competition. Here are five assumptions to identify and test.

1. The Customer Profile
Typically one starts with some assumptions about who are the target customers for your product. These assumptions come from your experience with the problem first hand or based on conversations you have had with people within your network. You may have a gut feeling that this is a serious problem, one that many people experience and desire a solution. However, like most aspects of your venture idea and evolving business model, these are just assumptions, not facts. The venture discovery process is focused on turning assumptions into facts.

Your first assumptions are related to identifiable characteristics of your potential target customers. List these first. Do you suspect that your early customers will be predominantly of a certain gender and age range? Education and income level? Do they have a certain lifestyle or manifest specific behaviors? With these characteristics, you are making assumptions about the demographics of your target customers. As with all assumptions, these will be tested during early customer discovery. You will be looking to speak with customers with the specified demographics to learn about their experience with the problem and current solutions. From these interviews, you will begin to validate whether your assumptions about the demographics of your target customer are indeed correct.

2. The Problem
The next set of assumptions about your target customers revolve around their experience with the problem and solution. There is a good chance that you are making a number of assumptions about the customers experience with the problem, including how severe the pain or discomfort or inconvenience is caused by the problem, the frequency experienced, and the importance placed on solving the problem. As the entrepreneur, you assume that the customer experiences great discomfort, often, and can’t wait for a solution. As with the characteristics of your target customer, the experience with the problem must be validated during discovery.

3. The Solution
You are also making assumptions about current solutions to the customer problem. Many of these are probably based on a core assumption that you have a solution that is better than what currently exists. In fact, sometimes we will work with an entrepreneur who starts with the assumption that there is no solution in the market currently…always a faulty assumption! You will need to focus a healthy portion of your discovery work on learning about how the customer currently solves the problem. What products or services do they currently use to alleviate the problem? How are these solutions work for them? How are they performing or underperforming? What is missing? How can their overall experience with the solution be improved? What benefits do they expect from a better solution?

4. Our Access and Reach
There is another aspect of segmentation that in critical for new ventures, assumptions about customer access and ease of reach. We always have entrepreneurs think carefully about their assumptions about how easy it will be to deliver their product to target customers. Quite frankly, many entrepreneurs don’t think about what it will take to reach the customer in terms of marketing or product distribution. They have many assumptions about the best way to make customers aware of their product as well as the most effective way to get the product to the customer. So it is important to articulate these assumptions about customer reach and access, thinking about marketing and distribution channels.

We recommend that entrepreneurs also list assumptions about where the customers are located and place geographic boundaries around the early target market. This will help to evaluate your access to customers and, as we will discuss in future posts, is critical information for sizing your target market.

5. The Competition
We have all heard aspiring entrepreneurs state that there is no competition for their product or service. Of course, this is a faulty assumption at best. There are always alternative ways for the customer to solve important problems. So as an entrepreneur, you should list all options that the customer may have at their disposal. As you begin to ask customers questions about the solution, you learn more about potential competitors. Based on the number of competing solutions and the current satisfaction with said options, you will be able to evaluate the degree of competition in your marketplace.

By learning all you can about the customers, their experience with the problem and solution, their accessibility, and competing products, you are able to better evaluate which customers are most willing to try your product and pay for its benefits. By using the featured worksheet, you can list your assumptions and build information on each customer segment for purposes of prioritizing and selecting your first target customers.

For more information on Venture for All®, go to bit.ly/VENTUREFORALL.

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