Entrepreneur's Handbook
CUSTOMERS
When you ask someone who goes fishing what kind of fishing he goes to, if he is someone who tries to fish at the summer house twice a year for fun, the answer might be "all", "what comes next" or "I don't know". But this answer is unacceptable for someone who is fishing as a business! To hunt different fish, it is necessary to hunt in different places with different needles, lines and baits at different depths. (Cooper and Vlaskovits, 2015). Otherwise, it will go bankrupt after a very short time. Entrepreneurship is similar, you need to know well who will be your customer. Where does it live, where does it wander, what does it eat and most importantly, what kind of problems does it have while doing these? When developing your business idea, do not focus too much on the product, the solution at first. Focus rather on who and what problems it would be good to solve. As many have stated: Fall in love with the problem, not the solution! What is a good enough problem? A problem sufficiently experienced, not yet satisfactorily (or at least not fully) resolved, and customers will find valuable if resolved. When you find such a problem, hold tight to it, you may have caught the most important part of a successful entrepreneurship project.
One of the decisions you have to make is what type of strategy you will target the customer. If you are targeting the mass market, you do not distinguish between customers and you are trying to reach a large group of relatively similar ones with a standard product. Since you will produce in high numbers, you can find the opportunity to produce at low cost thanks to economies of scale. If you are targeting a niche market, you are targeting a relatively small group, and since this group is not large enough to attract the attention of large companies in the market, different needs may not be well met in such markets. Such markets can be good starting markets for entrepreneurs. Even if it is not enough for large companies, it may be enough for a small company at least for a certain period of time. Because there is less competition in such markets, profit margins can often be high. If you are targeting a multilateral market, you have 2 or more related customer groups. Some of these groups may be users rather than customers (ie not paying money), but they are also needed for the model to be successful. Examples include free newspapers or advertising-supported websites. Both readers and advertisers who want to show them ads are needed. Here, readers become just users and customers become advertisers. The fact that readers are just users doesn't trivialize their wishes, if they didn't exist, advertisers wouldn't have a reason to be there. If you are targeting the long tail market, you focus on the low-sellers rather than the best selling products. There is a Pareto, or 80-20 rule, that applies to most jobs. 80% of sales (or profit) come from 20% of products. 80% of the remaining products bring only the remaining 20% of sales. In this case, successful companies focus on best-selling products in order to use their limited resources more efficiently. The downside to this is that profit margins are generally low, as there is a lot of competition in the best selling products. Nowadays, with the development of technology, models that can be successful by focusing on the long tail part of the market that sell less can be seen in some areas. For example, bookstores that only sell rare books of certain types have opened shops on the Internet, making it easier to find them from all over the world, and delivering products to customers at reasonable prices thanks to cheaper transportation. In addition, because of the low competition in these rare books, profit margins can be high. Another example is that today, not only the popular books that will sell best, but even the books that will sell only 10 books can be published by finding a publisher. All books can now be printed because the books are already entered into the computer by their authors, the typesetting can be done automatically, and they can be printed only electronically or in very low quantities. After all, the publisher keeps these low-selling books in the database for almost free of charge only electronically and can print and sell them individually if requested. Thus, if there are 1,000,000 more books similar to that book that will only sell 10, it can be a profitable business model.
2.1. Customer Sections
By dividing customers into sections according to certain criteria (this can also be called segmentation or segmentation), we can create subgroups that are different from other sections but similar (homogeneous) within themselves, and we can develop products that meet their needs better by knowing them better according to these features. In this way, it is possible to sell to customers with well-defined needs and to keep them for a long time by satisfying them.
Entrepreneurs trying to develop and sell a product for everyone usually cannot sell to anyone because they do not have enough resources and cannot make anyone fully happy. In addition, entrepreneurs try to determine how best to use their limited resources. You usually don't have enough resources to reach everyone and advertise at the same time, so you need to make some choices. One of them is which customer section you will choose as a starting point. Starting from here does not mean that you will stay here forever, but it may be wise to start in places where your chances of success are relatively high and your competitors cannot hold or have not yet entered.
Take the automotive market. Depending on what type of car you intend to sell or develop, your customers are actually made up of many different sections. What kind of vehicle you want will vary greatly according to the characteristics such as marriage, children, income level, age, where you live, and it will be very important to make a good division in order to sell.
In order for a group of customers to be considered a different section (segment, division), there must be at least some of the situations listed below. (Osterwalder and Pigneur, 2012):
- Their needs require a different product / service.
- It can be accessed from different distribution channels.
- It requires different customer relationships.
- There are clear differences in their profitability.
- They are ready to pay for the different features of the product / service.
- The most common methods used in practice to cut customers into different sections can be seen below.
- Geographic Segmentation
- Country
- City
- Climate
- In / out of town
- Demographic Segmentation Age
- Gender
- Marital status
- Number of children
- Job
- Income status
- Level of education
- Psychographic Segmentation Personality Traits
- Areas of interest
- Hobbies
- Values
- Behavioral Segmentation Benefit
- Loyalty
- Frequency of use
- Sectioning can be done using one or more of the methods listed above. You can even use other methods not listed here. It should be noted that segmentation is a tool, not a result. As a result, we aim to make them happy customers by getting to know the customers we target in the cross-section we can distinguish better and provide them with better service. If this market section is large enough or if sufficient size can be reached by expanding to the sections located nearby, you can have a successful business model.
2.2. Müşterilerin İşleri ve Sorunları
After deciding what your customer section will be, you should examine and recognize it closely. Osterwalder asks you to describe what jobs customers have to be done in order to identify customers on the Value Proposition Canvas. (Osterwalder vd., 2016). In addition, it is necessary to reveal what kind of problems (pain) they encounter while trying to fulfill these tasks.
Customer jobs are what they try to do in their work and life. Functional ones: tasks such as tidying the house, trying to eat a healthy diet, preparing reports and helping customers. The social ones are all about what your customers want to look like: to appear as a fashion-savvy person who is successful at their job. Personal ones: feeling safe from their investments or career.
When trying to understand customer business, it is necessary to include the environment in which they are performed. For example, the meal at the workplace at lunchtime and the dinner with the spouse on the wedding anniversary are very different things. Another point to be aware of is that not all jobs are equally important. Some jobs can be important because they need to be done frequently, and some because of problems that will arise if they are not done.
Customer pain is something that disturbs you while doing your work, prevents you from doing things, or can happen to you if things go bad. Examples of potential pain are such things as the preparation of the report being too tedious, the report being blocked by a power failure, or the risk of humiliation in the eyes of the boss if the report was poorly prepared. It is necessary to concretize pains as much as possible and measure their level.
Customer acquisitions are the benefits you get while doing your work. Some of these benefits may be necessary, expected or desired, while some may even be unexpected (surprise). For example, making calls with our mobile phones is a necessity, an expectation to look nice, and gains that are required to work in harmony with our computer. This phone would be an unexpected achievement to be cheap.
Once you determine your customer segment, you are not done. There are others around those customers that influence the purchasing process. When your client is an institution, their number is usually higher. We can call these people stakeholders in general, but it is useful to take a look at the roles Steve Blank uses. (Blank and Dorf, 2014).
- Influencers do not make the purchasing decision directly, but their opinions are the people who bear the weight in the final decision. There may be spouses or children in families, they are people whose views on similar issues are valued in institutions.
- The recommenders are people who are tasked with gathering information and making recommendations, although they will not make the final decision, there may be neighbors in families who have bought similar products.
- Economic buyers are those who control the corporate budget and make payments. Sometimes it can veto or change the decisions of decision makers. It must determine when and how the payment will be made according to its own rules.
- Decision makers are those who are given the right and responsibility to make decisions on certain issues.
- End users are people who are inside or outside the company and will directly use the purchased product.
Sometimes, the people who will use what will be taken, those who examine the subject and make decisions may be completely different people. In such cases, the probability of making problematic decisions increases, especially if the priorities of users and decision makers are different. A final role in the purchasing process is the saboteurs. These people may disrupt the purchasing process at any stage for valid or invalid reasons. It should be understood and the situations in each role should be evaluated in order to manage the whole purchasing process in a healthy way and to estimate the impact on the business model.
When discussions are made and inferences are made with only part of the purchasing process, wrong conclusions can be drawn. For example, only interviews are made with end users and an important problem that exists for them is determined and then a solution is produced, but when the product is released and tried to be sold, you can learn that this problem is not considered important for decision makers and they do not find it appropriate to spend money on its solution.
2.3. Market Size
What investors often want to know about customers in a business model is who you solve for which problems. In this way, they try to predict what size of the market you will have and how much money you can earn from it. There are some standard terms used to describe this market size. We summarize them in this section as they were described in the previous section. TMP (TAM, Total Available Market), EMP (SAM, Serviceable Available Market) and İHP (SOM, Share of Market). You come across the TAM - SAM - SOM trilogy when making a top-down market forecast.
Although it is mentioned on page 57 in Chapter 3, since the subject is important, let's try to reinforce the subject once again with an example. For example, your business idea is to sell a new product to retirees in Turkey, and retirees currently spend an average of 10 TL per month on a similar product. You are planning to establish your business in Ankara, but to enter other cities after 5 years. As a result of your research, you have determined that there are slightly more than 8 million retirees in Turkey and approximately 650,000 of them live in Ankara. In this case, an estimate can be made as follows for the next 3 years:
TAM = 8.000.000*10*12 = 960.000.000 TL
SAM = 650.000*10*12 = 78.000.000 TL
SOM = 78.000.000*%20 = 15.600.000 TL
Of course, this is a very rough estimate. Retired numbers, economic conditions or changes in TL prices were not included in the analysis. It was assumed that a 20% market share could be achieved in 3 years. This ratio will vary depending on many variables such as the competitive situation in the market, the differences of the products, sales and marketing situations. Investors are also aware of the challenges of market forecasting, but they want to see how well you have mastered the subject, how much research you have done, and how realistic your assumptions are.