When Your Strategy Is Not A Strategy

I have seen a lot of startups over the years. I often get asked to look over their pricing strategy, and nine out of ten times it is rarely a strategy. Usually it is a single price or something similar to the market leader in the industry. 

And that’s ok! Having an idea of how others in the market price is a good start. 

The problem is, it’s not a strategy. 

Startups often focus on getting to the “magic number” rather than on the key questions they should be asking or the context the pricing strategy should operate in for the startup. 

In the startup world, the goal is focus. Startups that have grown successfully, did so because they quickly removed ambiguity of where they are going early and often. They had a strategy or at least the makings of one. 

If you can put in the effort to understand the problem at hand, then why are you “failing fast” by trying to do 200 things with your startup? It’s ok not to know what will work. Learning is part of the process. That starts by creating a plan that generate hypotheses you can test and iterate on. This is the food feeding your strategy blueprint.

Take Slack as an example. Founded in 2009, Slack took a focused 7 year journey to achieving product-market-fit. While the platform had use cases that went far beyond technology-based companies including large enterprises and SMBs, the leadership focused squarely on tech startups. The early Slack team was incredible focused. They focused squarely on their core customer rings that included tech startups in key startup ecosystems where team sizes were small. They wanted to grow with their customers who were not only willing to adopt the new platform but were also willing-to-pay because they connected with the value offered and delivered. 

One exercise we do early-on with our clients is an evaluation of the existing strategy.

Look at your own current strategy, and ask yourself:  

  1. Does it help us transform our startup?
  2. Can we do it well? 
  3. Will it enhance our acquisition strategy (and the unit economics)?
  4. Does it scale?
  5. Is it defendable with the resources and talent we have?
  6. Do customers question whether it is “worth it”? 
  7. Longer term, if we stay on this path, does the strategy create value debt for our startup? 

This should give you a starting point of your strategy’s strengths, weaknesses and gaps. This should also create a long-list of questions that require further research and fact/information-finding. As we often say to our clients, the discovery process never ends, just the simplicity of the approach. 

This also gives you a chance to build creative ideas – or strategic choices – and build around this to quickly test and eliminate options. It is important to not only get outcomes, but understand why it didn’t work. If learning is not part of the process, you will blame the pricing. It’s not the pricing, it’s your approach.  

If you’d like help thinking through your pricing strategy, contact us. If you have a pricing strategy that works – fantastic! Keep it going and look for ways to enhance it and evolve it as your startup continues to grow.

Note: This article was originally shared to our email newsletter subscribers. If you want to get early access to articles, tools and updates signup for our free bi-monthly newsletter clicking here. 

Found this article helpful?

Sharing is caring. ❤️

Share this on social – super easy 1-click share buttons below 👇 – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

5 W’s Of Pricing: Your Starting Guide To Pricing Decisions

Pricing can be a daunting task as a startup. 

When thinking about the creation and development of a product or service, we often focus on the pricing component that seems the most important to success — the “what”. On the surface it seems like this is the most important thing that one should think about with pricing, so it is easy to fall into the trap of fixating on “what is the price point for our product?”

This is certainly important; but when it comes to pricing, there are multiple components that need to be researched and developed in order to design pricing successfully. Companies need to consider their pricing multi-dimensionally or what we call the 5 W’s of Pricing.

The 5 W’s of Pricing provides a framework for companies to assess their price design strategically and tactically. This framework can also offer companies an early step to building a decision-making process. This is even more powerful when you consider less than 30% of new ventures have a pricing process. 

As you go from the “why” to the “what”, the decisions made become increasingly more visible to your user or customer. The “why” is what your company thinks about and sees and the “what” is what your customer ultimately sees. 

Let’s start with the “Why”. 

 

The “Why”

To start thinking about a pricing strategy, you need to figure out the reason behind your composition and structure. Why do we need to make these pricing decisions?

 It is critical to start here, because this will influence not only how you price, but to what customers and at what price. The “Why” is also important because it really pushes you and your team to think about the decisions you’re making in the context of your vision and overall business strategy. Less thoughtful approaches can lead to lots of filler with little content that’s actually valuable to pricing decisions you need to make. 

Question for you and your team to consider — what is your goal and what do you want your pricing to help you to accomplish? When thinking about how you want to structure your pricing decisions, will lead to successfully moving forward into other areas of your business. 

 

The “Who”

Knowing who your target audience is and trying to sell to is extremely important. 

Picture this. You put in years developing something that you are finally ready to offer to the world. Although you probably spent a considerable amount of time researching how to market and distribute, there is a good chance that you didn’t connect who these people are and how your product resonates with them from a value and pricing standpoint. 

We find too often that one of the reasons why companies discover there is no market need for their product, is yes partly due to the product, but also because the product failed the “worth it” test: is the product right for this customer at this price and offer?  

Knowing who exactly your target audience is and ensuring they are aligned to your value (which includes price) creates loyal customers. More companies need to focus on researching and surveying their customer base — we found that only 47% of companies stated that they ran a price test or pilot with customers. 

In order to address this, you need to validate what you believe to be true about your customers which can include online surveys, focus groups, and in-field testing. 

 

The “Where”

Now we need to consider what our channels are for pricing, engagement, and distribution. 

In other words, where will your product be sold? Do you want to sell across multiple channels, directly or indirectly, internationally, and overall what would be the optimal way to sell your product? Where will your pricing be displayed (if at all) and on what platforms do you plan on connecting with your customer base?

Mapping out the “why” and the “who” leads to an easier transition to finding out the “where”.

If we already know the meaning behind our actions and our customer base, then there is already a strong foundation to pave the way for where our prices live and how. 

The message being sent has to be accessible and practical to the audience you’re trying to reach.

 

The “When”

The “when” is focused on the timing of monetization and the influence of pricing. This is the stage where you need to figure out the timing of your pricing decisions. 

For example, you can offer a service that can be paid for monthly or annually depending on the needs of the customer and what they are willing to pay for. In order to try to bring in new customers, you can also offer a free 14 day trial. 

These are not only structural mechanics, but also the types of “when” decisions to be considered for your customers. 

 

The “What”

At last we have reached the “what”. At this point you will have found that there is no one way to decode pricing. The “what” can be influenced materially when accounting for the other W’s.  

One consideration to think about with the “what” is to think if you want to offer just one price point or multiple prices. This can be housed in tiers, but also can be designed for timing and for different customer types. 

Other consideration when thinking about multiple prices, is also the pricing distance between the prices. Are your prices really “simple” because they are exactly $10 apart, or do your customers find this irrelevant to their decision-making because prices are divided into payments? 

Every price difference needs to be considered when planning out the “what”. Each level of pricing and all additional components need to be assessed and determined at this stage. 

 

Final Thoughts

Pricing is a complex journey, but once you understand the 5 W’s of Pricing, it brings it down to a level that is more manageable. Using a structured framework like the 5 W’s of Pricing can improve your pricing decisions, and make a material difference in the early traction and success for your business. 

Take it from companies that are successful — pricing is strategic and goal oriented. Researching and testing at each level takes time.

We all need to get into the mindset of working smarter not harder. Pricing is challenging but once you’ve mapped out each step and your objectives, most of the hard work has already been completed.

 

 

Found this article helpful?

Sharing is caring. ❤️

Share this on social – super easy 1-click share buttons on the 👈 left side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

How To Enhance Your Product Uniqueness With Price

Price is an expression of value. 

Customers associate the value of your product with your pricing. It is the value-math all customers do. 

How you price should help illustrate the individual uniqueness of your product. 

Essentially, pricing should help customers answer the question, “Is [add your product here] worth it?”

 

Focus on value

A product or service’s unique benefits are what makes it stand out from competing products. Discover what that value is––now! 

You can benefit from this uniqueness by designing your prices on what customers really think your product should be worth. By implementing value-based pricing into your strategy, you will reach closer to what your customers are willing to pay and can help you understand what your customers want from your product. This strategy may raise your prices above your competitors; signaling to the market that this value is linked to your product’s uniqueness. 

Now don’t just raise your prices to make your products unique without having a strong grasp of your value drivers. When Kanye released a $120 plain white t-shirt, he was able to sell-out because his brand and exclusivity are core value drivers for the product. 

Your customers must believe – or hold the perception – that your product is worth the price. When value-based pricing is done correctly, there is greater alignment between your customer, your value, and your price.

One great example of value-based pricing came from a web-based service called If This Then That (IFTTT). IFTTT, a tool enabling users to trigger and connect multiple web services such as Gmail and Instagram, offered customers the ability to set their own prices for their paid Pro-version web-based service.

The customers who choose higher prices signal value for the service – whether it be through the benefits of the services or through a more altruistic desire to keep the service going. This is also a reflection – and test – for IFTTT on what their customers are truly willing to pay when given the choice.

 

Create uniqueness for the customers who value it

Remember, you’re in charge (or at least can influence perception). You have the ability to design your prices. Changing your price strategy is a great way to find a different market segment that is more interested in your product. Do this by lowering or raising prices or even by offering a payment plan to make a luxury product more accessible. 

One way to find and address your target market is by using Customer Rings. 

Customer Rings are micro-segments that pinpoint customer preferences, perceptions, value drivers, and more. Think of Customer Rings as concentric circles. Your core circle are your loyalists. As you move further away from the core, these segments are likely to be more price sensitive. This price sensitivity can be persuaded towards your product or service if you develop a unique pricing strategy that catches their attention. Assessing what part of the market needs or wants the benefits of what you offer them will help you determine the value of your product or service. 

If you find that your product is needed by a segment with a lower income, you may decide to lower your prices to reach those customers. A lower price could be what makes your product unique. That’s a strategic decision. 

Take for example the iPhone SE. Apple realized that in order to reach customers in the outer circles of their Customer Rings, they recognized a more affordable phone was a value driver, and influenced the willingness-to-pay. In order to offer lower prices, the SE model was made of plastic. This also maintained differentiation from their premium priced phones. However, Apple generously marketed this product as being “lightweight”, making the product unique enough to be sought out by consumers in their outer rings. 

 

Differentiate price design to enhance product uniqueness

Change it up! 

Your pricing signals your value proposition and shapes consumer perceptions of your brand. Three ways companies have recently been using price to create product uniqueness is: 

  • Create  a unique way to sell your product. This can be digital-only sales channels or buy now, but pay later. 
  • Revolutionize your pricing. Help your product stand out from competitors and against industry “norms”. Recently, many SaaS companies have decided to offer their products for free and use pop-ups and other advertising tools as their main source of revenue.
  • Change the model. Another strategy companies have been using is changing the model. One example of this strategy is the rise of subscription services. More and more companies are adopting new models that include tiered levels of pricing. Netflix has long been a pioneer and leader of this model.

Netflix has three different subscription packages: $8.99 for Basic, $13.99 for Standard, and $17.99 for Premium. In order to differentiate offers and prices (latest price increase on October 29, 2020), Netflix created different price packages that made specific benefits accessible on different tiers.

Taking a page our of the Netflix playbook, you can also decide what features and fences to use that could be made even more valuable.

One of Netflix’s top competitors, Disney Plus also tried creating product uniqueness by using pricing. They offered their own premium plan with the benefit of watching the live action movie Mulan months before general release. This way, Disney Plus gave subscribers the option of whether or not the premium package had enough benefit to purchase. Making your pricing unique will draw attention to your product allowing your customers to reassess the value and benefits of what you’re offering them. 

 

Final Thoughts 

Building an differentiated product or services is challenging. Having customers identify or perceive the difference can be difficult especially for those operating in crowded markets.

When designed thoughtfully and strategically, pricing can be used to enhance your product’s uniqueness, but reframing how customers understand the product. 

This take insights, design and strategic execution. 

Leverage all the tools available to you – including pricing – to make your product standout and win the customers – and revenue growth – you need to help your company grow.

 

 

 

 

 

Found this article helpful?

Sharing is caring. 💗

Share this on social – super easy 1-click share buttons on the 👈 left side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

Don’t Break The Bank: Make Promotions Work For You

promotion

Promotions.

As consumers, we all love them. As a company, how do they work for you and drive the results you need? 

When it comes to promoting certain products, there is so much to consider:

1. What type of promotion are you planning?

2. What product or service are you promoting?

3. Should your price change be permanent or temporary?

4. What is the target audience you’re trying to reach?

5. When are you going to do this price change?

This list goes on and on. In fact, we found that companies when using discounting promotions, only 16% found that the discounting they did was effective. 

Let’s break it down. 

Defining The Right Goals 

Before offering a promotion to your customers, you must establish specific and quantifiable goals that are consistent with your pricing and business strategy. Do you want to increase sales volume, focus on customer retention, or concentrate on new customer acquisition? 

aeropostale retailer promotions

Take a look at Aeropostale Inc (AERO).  Like many apparel companies, AERO wanted to have a seasonal promotion to ring in the Fall season. Their goal is clear: to increase sales volume and reach customers that are more price sensitive.

Outlining your specific goal and target customer clarifies what your promotion will be like, making the next steps in the process that much easier. 

 

 

Targeting The Right Audience

When it comes to figuring out the target audience, consider the following:   Are you trying to get the attention of stingy or once-in-a-blue-moon customers in order to turn them into loyal shoppers? Or are you targeting the customers that value high-quality products that are worth potentially higher prices? This will help you determine what promotions to offer.

Creating a pricing inventory helps you list the inputs you need, have, and won’t obtain which will make pricing decisions easier and more effective. In order to use pricing to reach your objectives, you need to understand the market you’re entering, your competitors, the customers, and your product or service. 

Selecting The Right Promotion Strategy And Design

After you have a clear idea of the direction you’re heading, the promotion has to be on a product (or set of products) that matters to your target audience and that’s going to make them purchase during the promotion. If it’s not relevant or highly demanded, the promotion will not bring the desired results. 

In one of our studies, we found that when acquiring new customers was the business objective, companies found discount promotions were effective only 15% of the time. In the case of a sales increase objective, only 24% of companies felt discounting promotions were effective. It is important that the promotion strategy drives the desired goals. 

This is a good time to remember a key element of your value proposition: how you price your product is a direct message on how you view your own product. If you lower your price relative to your competitors, you’re telling your customers that your product is a bargain and an overall “good deal.”

However, if the product in question is highly-valued (think technology or designer brands) then with promotions – particularly large price discounts – customers may associate your product with inferior quality. Understanding your value proposition helps to do promotions better while defending the overall value.  

design handbag promotions

The Amazon Echo is also a great example. Amazon takes pride in its value proposition that combines high quality with affordable prices. Their product is already accessible to many customers, including those that are price sensitive. To incentivize customers to purchase, even more, Amazon still discounts Echos on days like Black Friday and Prime Day. This is something Apple does differently. Apple’s HomePods sell for around $200 which has made the purchasing process a bit more difficult for customers given the high cost. Apple’s ambiguous value proposition has cost them additional sales. 

The Big 3

The important thing to do is to focus on customer behavior. The promotion is about them. 

This is where exclusivity, scarcity, and value come into play. If a promotion is only applied to an exclusive set of customers, they will begin to feel special and a sense of belonging to a selective group. For example, think about those times you’ve signed up for a company’s email list. At times, email subscribers are given access to promotional deals before companies advertise online or in-stores. The customer’s excitement and sense of superiority for having “insider access” can push them to purchase more regularly from your company. 

In addition, if the product is scarce (and popular), that means it is low in stock and only a few people will be able to purchase. Scarcity alone can increase the value of a promotion by creating a sense of urgency. When something is limited, it can make people push the “buy now” button quicker leaving little room for any second guesses or pensive questions of “Do I really need this?” In fact, FOMO also comes into play here. People want to feel unique and having an item that is in high demand will do just that. 

Overall, promotions will give customers an opportunity to experience your product or service which reflects on your company and brand as a whole. This is your chance to provide something valuable and beneficial to customers that they would’ve otherwise not experienced had your promotion not pushed them to purchase. 

What To Avoid

However, you must be careful. While consumer behavior shifts with price changes, it can also change depending on how frequent your promotions are. 

Don’t underestimate the element of surprise.

If consumers can predict when you’re going to have a promotion, you’re doing something wrong. Switch it up a bit and don’t make promotions happen during the same time each week or year. This will encourage customers to “wait it out,” and I wouldn’t blame them. Because why should they purchase your product for full price today when you have promotions every first Monday of the month? Not only will you lose sales on full-price items, but your promotions will lose their effect as customers will just hold out and expect it. 

Final Thoughts

Ultimately, promotions are targeted, and short-term pricing moves. If you use a price discount promotion, you can attract more customers (new and old) and ultimately increase your sales volume to make up for the lower profit margins. 

How you manage promotions can be as important as the promotions themselves. Frequency, availability, and rules should not be underestimated. This influences the value of not only the products on promotion but also on the overall company and brand. It can also shape customer’s perceptions of fairness where “gotcha” promotions create bad customer experiences. An example is a BOGO promotion, but the rules are so specific to items customers do not value that the promotion itself and the response to future “deals” decreases. 

Done right, promotions can positively impact your business. It all comes down to your own goal: what are you looking to get out of this promotion?

Did you know? 

We shared this article with our email newsletter community first. If you want to get access to our articles and insights before anyone else, you can sign up here (plus, it’s free!). 

Found this article helpful?

Sharing is caring. 💗

Share this on social – super easy 1-click share buttons on the 👈 left side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

Make Strategic Pricing Decisions That Work

This post was going to be different. 

Then Apple happened. We’ll come back to that in a second. 

Last year, Peloton made some new price changes and updates to its product range. The changes themselves are interesting, but what is more valuable is how thoughtful these changes are. 

As a company, strategic pricing was nothing new. Early on, when they launched the original Peloton bike they priced it at $1,200. They learned that this did not cross the customer’s psychological red-line for quality – and part of Peloton’s strategy was to be a premium brand. 

So they increase the price. A lot. 50% higher to $1,995. 

Eventually, they’d get prices for their bike to $2,245 (another 12.5% increase). 

So what makes the Peloton price design interesting? 

 

Pricing Is Thoughtfully Designed

Proactive and strategic with pricing

With the pandemic in 2020, Peloton was in no shortage of demand. Far from it. In fact, customers placing new orders can expect to get their bike in December. But they’re looking ahead to expand their base. They looked toward strategic pricing, so they decreased their price by 15% from $2,245 to $1,895 for their base Peloton Bike. 

Create differentiation 

Peloton is a premium bike and brand. Their new Peloton Bike+ continues to support that strategy at a price point of $2,495. But with the price change of its base bike, they were able to increase the price distance to $600 – creating greater differentiation between the two products. Had they kept the base bike at its old price, the distance would be $200, and potentially a weaker price fence between products. 

Leave future pricing options open

One thing Peloton did not touch (for now) is their membership products. Pricing for the all-access membership (which is needed to make either the Bike or the Treadmill valuable) remains at $39 and their digital-only product stays at $12.99. Peloton could have done a complete pricing refresh, as some companies will do to avoid doing this again in the future. Instead, Peloton left open the possibility for future strategic pricing changes.  

 

There’s Always Competition: The Elephant In The Room

Peloton has always operated in a highly competitive space both inside and outside the walls they compete – the room where a Peloton product sits. 

They compete with the brick-and-mortar gyms; both local and national chains. Peloton also competes with the hybrid boutiques such as SoulCycle and Flywheel. Both brands offer in-person (pre-COVID) and in-home options similar to Peloton, and have powerful community and brand recognition in and outside the fitness space. 

In fact, SoulCycle has been selling its studio non-digitally connected bikes to customers while gyms and fitness centers remain closed due to COVID.  

Then Apple released its new Fitness+ digital service. 

Priced at $9.99 per month (or $79.99 per year), it is on the surface, cheaper and based on descriptions (the service doesn’t launch until the end of Fall 2020), similar to other digital home fitness classes. 

Yes, Apple has become a visible competitive threat, but to what extent? 

I’d argue very little. Here are three reasons why. 

#1. Different customers: While Fitness+ as a product appears similar to what Peloton offers (and in fact other fitness apps), their target audience is not the fitness-first user with a higher relative commitment and investment to fitness. It is for the lifestyle user that is using the short and accessible bridge from Apple hardware. Much like Apple+, this can fit into the ecosystem of services within a customer’s fitness repository. 

#2. Different product strategy: Apple is expanding its services business and investing in growth (see Apple One), but Apple is still a hardware-first company. Services are designed to keep customers deeply tied to the ecosystem (and future product releases). Think of this as version 2 of the App Store and iTunes strategy. Peloton is not making much on their bikes, but the software and services are where their long-term opportunity lies. Much like the magic of the SoulCycle culture, instructors, and yes those candles – Peloton’s content library and ability to leverage behavior psychology so prevalent in high-ticket items and fitness will be their longer-term play. 

#3. Different strategic goals: Both companies are at different stages of their lives. Their focuses are different. This is an example of companies who identify their objectives and stay laser-focused – despite the hyper-competitive industries they are in. 

Peloton is continuing to dig in on its market position. The company is capitalizing on its accelerated growth – and shut down of many of its competitors – during the pandemic – unit economics be damned. Apple on the other hand is looking to nurture its next big winner – and future cash cow (maybe Apple Watch?). 

 

Final Thoughts

Peloton has implemented pricing and product changes that on the face of it are straight-forward. Dig deeper and you can see strategic and tactical purposes for these decisions that Peloton’s leaders made. Treating it simply as a binary decision – price change up or downward – would miss the deeper strategy. 

For entrepreneurs, this is a lesson of ways pricing can be used for strategic objectives. It is not isolated to the what (new product and price) of what we call the 5Ws of Pricing. This is looking at the why and how of what pricing is going to do to support the company and its goals. 

Yes, the Apple news gave Peloton – and the industry – a jolt, Peloton was planning these changes since March 2020. Would the news have changed Peloton’s leadership to take a different course? It is hard to say for certain, but what is certain is that for any strategy that’s thoughtfully analyzed, crafted, and executed then as an organization you trust the work your team has put together. You monitor, assess, and maneuver. 

You do not have to be a public company to build these capabilities. If these skills do not exist, then it is in the interest of the company to start building them now – otherwise you might find yourself reactionary and making decisions in a vacuum.

 

 

Found this article helpful?

Sharing is caring.

Share this on social – super easy 1-click share buttons on the 👈 left side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

Build Your Financial Independence Strategy Map (Part 2)

Direction map

TL:DR

  • Achieving financial independence is going to be a core competency and competitive advantage in the coming decade.
  • Startups need to design the map they will use to achieve the financial independence right for their company and objectives. 
  • Working on the core components of financial independence empower startups with greater maneuverability to build stronger businesses and increase their attractiveness to investors and stakeholders. 

In our last post, we discussed the rise of financial independence as an important theme we will hear more about in the coming decade.  Startups are increasingly assessed (and scrutized) as more than a center of innovation, but as a business capable of delivering disruptive innovation and technology. 

That does not mean startups and founders have to go it alone. 

In the second part of our financial indepedence series, we share a guide on the core components to building a financial independence strategy , and how to start making decisions to help you achieve this critical competitive advantage. 

 

Navigate Your Strategy With A Map

For most startups, going it alone isn’t as easy as Prince Harry (who had a tidy trust fund to fall back on) or Princess Meghan (who was an established and capable actress who had her own career prior to joining the royal family). 

Creating a financial independence strategy requires a thorough assessment to form a plan forward. To help the process we outline four important components of financial independence to assess and work towards. 

 

1. Define the strategic intent 

Financial independence – if achieved – is liberating and empowering, but the question leadership teams should be asking is why does your company need and want it? 

There are many reasons why a company strategically chooses financial independence, including controlling how the company will grow and monetize, whether to take external capital (and need to take more again in the future), or set the company up to quickly seize future opportunities. It is vital to understand how the company will look in 2, 5, and 10 years into the future and how this strategy will materially impact the company. 

The other part to this assessment is about execution – to define what it takes – time and resources – to achieve a financial independence strategy. Are there skills, people, product development, capital, or other resources that are required? How will the company acquire what it needs? What are blocks within the company to commit to this strategy?

These are hard questions that require more than soul-searching but a rigorous assessment of known information to drive a conclusion. The goal is not creating absolute certainty of the future, but to envision the pathway to the future your company wants to create.  

 

2. Rigorously design and test the business model

At the core of the financial independence strategy is a defendable and sustainable business model. One of the top 10 reasons for startup failure is a product without a business model. This is a risky way to build a company, and one that takes the company further away from financial independence. 

In our experience, the best business models are rigorously designed and tested. This means creating hypotheses about what business models are relevant to the company’s value proposition and objectives. This is followed by an iterative process of testing, refining and testing again. 

Ideally this process starts from the very beginning, but for companies that are a year or more into existence, tend to use the business model they started with – often adopted from another “comparable” company – and do not work on this. 

No company is “stuck” to their business model, especially if it does not get them onto a path that will lead them to financial independence. What is crucial is that the business model is built around the value delivered to customers and is aimed towards financial independence. Companies can be creative, and draw from outside their traditional industry, as long as they design the model right for their company, product, and customers. 

 

3. (Re)gain pricing power

One of the challenges to a successful financial independence strategy is the loss of pricing power. As value is given away through poor pricing, companies need to offset the per unit revenue loss with increased volume or customer acquisition. This is a challenging (and costly) calculus to manage when pursuing financial independence. 

Companies that are often best positioned for financial independence are those that have strong price management. This includes now the billion-dollar public company Atlassian to designer water bottle brand S’well (with more than $200M in sales), to mainstream companies such as Apple and Netflix. 

Gaining pricing power is not only vital for any financial independence strategy, but creates a unique competitive advantage to do more with pricing to win new markets and customer segments. 

Pricing power is not just the output (price level), but is the pricing strategy and pricing design created to extract the right monetary value, for the right customers. This is a process that market leading companies are constantly working on to master, and one startups can start on right now. 

 

4. Leadership driven, stakeholder supported

Any pursuit of financial independence starts with the leadership team. It can be a leadership team of one or many, but there needs alignment on why a financial independence strategy is necessary and the steps to get there. 

The importance of leadership goes beyond strategy and philosophy, but also in decision-making. Companies are faced with trade-offs, where decisions must be made on deals or opportunities that can impact the pathway to financial independence. A disciplined and aligned leadership team is better positioned to navigate these situations than those where there is fragmented and compromises lead to further complexity. 

In addition to leadership, is the support from other company stakeholders which include team members, investors and advisors. Pursuing financial independence can change the way the company does business, makes decisions, and the results achieved. Having the entire team rallied around the strategic intent is critical. Having the conversation early and often is required. 

 

Final Thoughts

One important theme that will rise in the new decade is the need for financial independence, and the action (or inaction) companies take to adopt and achieve this strategy. 

Growth at all costs is no longer the only way to build companies and create markets. Instead more fundamentally strong companies focused on financial independence are on the rise. This trend will continue as scrutiny increases on companies to not only build incredible products, but to build busiensses that support the development of more products well into the future. 

To ensure companies are better prepared, it is vital that they receive the right support to develop right building blocks.  Like building a company, financial independence is a process, but one that can empower companies and founders to realize the vision they set out to build for years to come. 

 

Found this article helpful?

Sharing is caring.

Share this on social – super easy 1-click share buttons on the 👈 left side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

The Theme We Will Talk About In The New Decade (Part 1)

theme financial indepedence

TL:DR

  • Growth without pathways to financial sustainability are no longer tenable (and tolerated).
  • Startups need to work towards designing achievable business models that support greater financial independence.
  • Greater financial independence will give entrepreneurs longer horizons and maneuverability to build stronger companies.

 

Earlier this year, Prince Harry and Princess Meghan announced they were “stepping back” from the royal family. One of their reasons is because they wanted to secure their own financial independence. Across the covers of pop culture publications and UK news outlets, the decision (and the subsequent happenings) shook the world. 

They were not only distancing themselves from public money subsidized roles they had as royals, but wanted to create flexibility and dictate their own path forward which includes where they live, what they work on, who they are accountable for, and how they spend their time. 

For the prince and princess, they wanted to decide their destiny and they knew the pathway to achieving this was securing financial independence. 

 

Shifting Tides

Increasing uncertainty and scrutiny was a theme we highlighted at the start of last year, and throughout the year, we saw increasingly greater scrutiny of startups, their business models, and the rationale justifying their financial viability. 

We had “untouchables” like WeWork get to the brink of an IPO only to find itself withdraw its bid to go public, get devalued, and layout staff. Less extreme events include companies such as Postmates pull back from IPO plans, and a slew of other startups who delayed potential scrutiny of their businesses.

 

Pressure from public markets

Companies such as Casper – which was losing $342 per mattress sold – went public but at third of their private market valuation. 

Other unicorns from Peloton and Slack, have not fared much better as public companies. Part of the reason is new pressure about their financial performance, and defensibility of their business model they otherwise did not face as private companies. 

Yet the challenge to even get to this stage (IPO) these days is unicorn status ($1 billion private market valuation or more). This creates an odd paradigm. To reach the level needed to go public, requires the capital and growth of a unicorn, but the type of business needed to reach that status may not be able to sustain the scrutiny of non-private investors and stakeholders. 

This creates a direct challenge to the defensibility of the business from the value proposition to its business model.

 

Stress on business models

The pressure is not only on companies on the brink of an IPO. The start of this new year has seen even more companies finding themselves re-evaluating themselves as a business, and starting with cost-cutting to ease some of the financial burden of their business model and go-to-market strategy. 

Unicorns such as Bird began reorganizing themselves. They laid off staff and pulled out of markets to rationalize their business operations. Bird competitor Lime also did their own round of cost cutting by laying off 14% of staff and pulling out of 12 markets.

But this business rationalization is not limited to scooter companies. 23andMe, Playful Studio, Oyo and countless more unicorns are also going down this path.

Simply put, many companies have been defending the capital they currently have because of uncertainty to access more capital in the private markets, but fundamentally their businesses are not built to make enough money to sustain itself. So these companies need to make the capital they do have go further than originally planned, and find ways for their business economics to work better for them in the short and long term. 

Marketing expenses are increasingly getting unsustainable. Take Unicorn a scooter startup founded by Tile founder Nick Evans, who had to close down his company due to unsustainable acquisition costs. Evans states,  “Unfortunately, the cost of the ads were just too expensive to build a sustainable business.” They not only closed the company, but did not have the capital to fulfill the 350 orders they did receive from customers for their scooters. 

Popularity shouldn’t be confused for viability. And a core component of viability is, at minimum, a reason to believe there is pathway to financial independence and build a company that is building a business, not just a product. 

 

Positioning For The Future: Financial Independence

With ever increasing visibility and scrutiny on startups, a growing theme we will hear is the need for, and decisions-made to help companies achieve financial independence. 

Does this mean financial independence means profitability? Eventually. 

Financial independence is a process and mindset, as much as an outcome. Being on a pathway to achieve financial independence is a function of the systems and processes created and put in place, led by a disciplined leadership team. 

There is an intentional-ness to financial independence, because it is a goal for leadership teams to work towards. Pursuing financial independence also has significant implications on how the business operates including: 

  • How the business will make money;
  • Expectations on growth (trajectory and speed); and 
  • Resource requirements to scale. 

Ultimately, financial independence means companies have created a business model and path where it can still materially grow and create markets, but also achieve its own profits. 

Financial independence enables companies to have a wider array of strategic and tactical options today and into the future. This includes the resources available to invest in the team, new business and product opportunities, and partnerships. This also involves the capital and investment that must be raised and secured. 

In the end, when a company pursues financial independence they are looking to create scalable revenue and profitability engines that decrease the need to seek outside capital, and the expectations that come from external stakeholders. 

It is important to note that financial independence and seeking external capital or investment can coexist. One example where both can be achieved is 1Password, a cloud-based password management platform. 

1Password pursued financial independence since the very beginning. They built a self-sustaining business that was profitable, and remained profit for more than a decade. 1Password had 1 million users, and 50,000 customers paying for their enterprise solution (Enterprise Password Manager) including 25% of the Fortune 100. 

They built an impressive track record, and after 14 years since its founding, 1Password decided to take outside investment ($200M). The decision was strategic and intentional – to help pursue specific growth programs and objectives.

Financial independence is not going to be top of mind for everyone. As stated earlier, this strategy is created and led from the top. This is true for young companies and mature growth companies alike. 

 

What’s Next?

Achieving financial independence will be a core competency of startups in the new decade. Startups will be expected to demonstrate their business acumen more than they have in the last decade. For external stakeholders such as investors, startups building financial independence capabilities today will not only help increase growth efficiency, but will create a stronger portfolio of companies. 

Where do we go from here? 

To help companies evaluate what financial independence means for them, our next article will outline the core components to build a financial independence strategy map and how to navigate the process. 

Is your company on the road to financial independence? How does your company think about financial independence? Let us know what you think! 

 

Found this article helpful?

Sharing is caring.

Share this on social – super easy 1-click share buttons on the 👈 left side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

Create A New Competitive Moat

Peter Thiel famously said, “Competition is for losers”. 

He may be right, but that doesn’t mean competition does not exist. 

If your business is going after a market with many new and existing competitors – and chances are you are – then you can not easily ignore competition. 

At the heart of any competition strategy, is the goal to create or acquire advantages – ideally substantial – over your competitors. These are yours moats – the protective layer that keeps competitors out of your home and away from your customers. 

For many companies, there are a number of ways to create a competitive advantage. We look at three common and often pursued forms of competitive advantage – technological, operational, and supplier. 

 

The Technology Moat

Businesses that has a technological advantage, creates technology innovation (e.g. proprietary technology, patents) that is either difficult for competitors to acquire or re-create. 

It can include technology such as the recommendation engines of Netflix or Spotify, or the formula for a new drug of a pharmaceutical company. Not disconnected to the innovation, is also the product quality. This advantage requires resources (e.g. capital) to acquire, but can have a long-lasting payoff and competitor moat. 

The Operations Moat

A second competitor advantage companies try to acquire is an operational advantage. That operational advantage is focused on decreasing the cost of producing and delivering goods or services, by increasing the effectiveness of elements in their operations. 

This can include how the supply chain is managed to the manufacturing/production process used to create and distribute product. This competitor advantage has helped companies such as clothing giant Zara, retail leader Wal-Mart, and even startups such as Warby Parker and Casper well. Acquiring this advantage also requires resources (e.g. capital) as well as expertise to design and execute. Done well, this advantage can improve a company’s cost positioning, reduce waste and increase pathways to profitability. 

The Branding Moat

A third competitor advantage some companies try to acquire is a branding advantage. This is commonly seen in consumer-facing companies, including clothing brands and retailers. The goal of the branding advantage is to extend beyond a transactional relationship with customers, but create an emotional connection and loyalty. This advantage can decrease costs of customer acquisition – for SaaS companies negative churn – increase the number and frequency of repeat purchases, increase total spend (revenue), and increase customer satisfaction and advocacy. Unlike other competitive advantages, creating a brand advantage is an earned advantage and can take more time to acquire and retain. Once achieved, brands can experience longer term benefit as seen by companies such as retailer Nordstrom, fashion brands such as AllBirds and Patagonia, and video game maker Nintendo. 

But these are not the only moat-creating advantages you can build for your business. Entrepreneurs also have pricing  

 

Make Pricing A True Competitive Advantage

Using price to create a competitive advantage is not a new. For many companies trying to make a dent in a new market, price is often deployed to shake up the market and put pressure on incumbent pricing. What this typically has meants lower – sometimes free – pricing. 

This pricing tactic can be highly disruptive and lucrative as companies such as Ikea, Walmart, and tech companies such as Zoom and Google have used low prices as a competitive advantage against legacy brands and companies. 

When looking at what made the pricing strategies of these companies successful is not just in going low, but how they defended their value even at lower prices and found pathways to new sustainable revenue channels and profitability. 

This is important, because for too many companies creating market disruption using low prices is used as a blunt instrument that leave them scrambling to find ways to monetize and defend their worth in the eyes of customers. Not only can this be a costly reality to maintain, but can also result in a pivot that is hard to recover. 

Pricing is multi-dimensional and can be deployed in many different ways. The key is in the rigor in planning and execution. 

From the years of working with companies at all stages of growth across the world, there are five core questions to consider when deciding how best to use pricing to create a competitive moat.  

 

#1: Do you know your monetizable value today?

This is obvious, but if you are using your pricing strategically, particularly through lower prices and discounts, then it is all the more important to know what the baseline willingness to pay for your product is. 

Many companies go low on price without considering what their true willingness to pay is and for what customer segments. This is giving away the farm without realizing perhaps all you really own is the chicken coop. Alterantively, if we want to be more strategic and tactical, we may not have to give away 50% of our customer’s willingness to pay, if we know 30% will due. Anyone who’s had to convince a customer to buy their product will know, each dollar is hard earned so if you don’t have to, don’t leave it on the table. 

 

#2: What is our value defense?

Whether you’re going high or going low, it is important to know how the pricing strategy will be defended. Too many times we have seen companies where the first and last line of defense is (low) pricing. 

As any sales professional will atest, you never start the discussion on price; the prospective customers will struggle to hear anything else. 

So what price drivers can and must you defend? Who are the value drivers meaningful for?

Pricing is a core inter-connected component of the value proposition and buyer decision, so it is vital to identify and defend those price drivers that shape a customer’s perception of your product. 

Consider a new car a customer is looking to buy. What does she consider?

  • Price? 
  • Performance? 
  • Safetey?
  • Financing?
  • Trust in the dealership?
  • Brand?
  • Asthetics such as car color?
  • Features such as the sound system?

What factors matter and the relative importance is important to understand what is defendable and what is given away. It is rarely all or nothing. 

That said, value is a lot like trust. It is very difficult to gain, but extremely easy to lose. 

 

#3: What are the success factors for our pricing strategy?

It is important not only to execute new pricing, but to understand what are the success factor of the strategy. This requires prepararation ahead of the pricing launch to understand what will be needed to manage successful execution. 

In the case of Walmart, their “Everyday low prices” strategy is more than a marketing slogan. The pricing strategy is enabled by a company that knows world-class supply chain and operational excellence is how that strategy will be delivered and sustained. 

When thinking about how you will use pricing to create a competitive advantage, consider what factors are required to make the strategy successful. 

 

#4: What alternative strategies can be deployed in the future? 

There are two parts to this – (1) as a result of today’s decisions, what opportunities or limitations are creaed; and (2) what other pricing models and approaches are potentially available. 

Pricing will evolve as fast as your company and it’s products. So it’s important to consider given the current state, what else can you do with your pricing in the future. 

This can be using more complex pricing methods such as dynamic pricing, but will also require the technical backend development and investment to successfully execute. 

It can be the development of a mix of pricing models, that will capture revenue and growth opportunities across different buyer groups and use cases. Rarely is the pricing decision an at the moment decision, and will require planning and more importantly research and analysis to support the decision with your team. 

 

#5: What organizational competencies are created?

We often think of pricing from an output perspective (e.g. a price, revenue, profit), but pricing – when done well – is a core competency that is hard to replicate, maintain and execute well. 

For all the technical and marketing prowess of companies such as Amazon and Apple, pricing remains a straetgic advantage. The advantage is not only for the price they execute and achieve, but the organizational capability to maintain discipline, and continuously maintain and evolve the pricing. It is hard, which is what sets the best companies apart. 

 

Final Thoughts

Pricing is an effective way businesses can create a competitive moat, but is too often designed and executed like a promotion rather than a strategic decision. 

The tradeoff for short-term customer acquisition, are the potential longer term consequences to the business including the dilution of price/willingness to pay, increasingly expensive customer acquisition costs,  and limited future pricing options. 

Thoughtful planning and design, early and often can mitigate future pricing and proposition challenges. This starts with establishing a willingness to pay baseline for targeted customer segments to craft how the competitive moat will be executed and sustained. 

Like any good strategy, maintenance and defense is required. This means we need to measure and modify regularly. If immediate value is given away (e.g. lower prices), then we need to ensure core value drivers are defended and we understand what tactical pricing options are available as the market and business changes.

Like a good cajun roux, if you stop stirring and take your eye off the pot, it will burn making the roux unusable. Avoid the pitfalls to make pricing a true competitive advantage and moat that will position your business strategically for the long-term. 

 

Found this article helpful?

Sharing is caring. Share this on social – super easy 1-click share buttons on the 👈 left side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

 

Fundamentals Of A Winning Business Model

At the core of every successful company is a strong business model.  

Your business model is the blueprint for how your business will make money (or not). But for many companies starting out, not enough time or effort is put into identifying the right business model for their business.

This can turn out to be a very costly mistake.

In a study by CB Insights on the top reasons why startups fail, a top ten reason (coming in at #7) is going to market with a product without a business model. 

It doesn’t have to be this way.

Designing the right business model for your company, product and goals are very much in your control. From our experience working with fast-growing startups to global corporations, we cover core elements to building a successful business model.  

 

What Is A Business Model?

Let’s level set by making sure we understand what a business model is, and is not.

According to John Elkington and Richard Johnson, “business models are what connects technology potential with real market needs and consumer demand”.

Another definition from management theorist Peter Drucker is that a business model is “assumptions about what a company gets paid for”. 

So there are two vital parts to understanding what a business model means for your business:

  • A connection between your product or services and the needs of your customer and market; and
  • A structure that defines your customer’s willingness to pay.

This is important because to build the right business model it will depend on how much we know about our customer, market, value proposition, prices, and financial requirements and resources.  

This requires information – the right information – to help us assess and inform the right business model for our company.

No small task, but all work within your control.

 

Why Your Business Model Is Critical To Your Company’s Success

Entrepreneurs and businesses understand that they need a business model, but too many do not understand what makes a good business model for their business.

A good business model answers core questions about how your business will operate, as well as the viability prospects of the company. A great business model creates a competitive advantage embraced by customers and differentiated to the competition.

Given the high stakes, your business model should not be left to guesswork and chance.  

 

Create and deliver value: How you bridge the gap between your solution and customers

Why your customers need a new product – more specifically your product – is not always obvious. This is especially relevant for new technologies and innovations.

Your business model is the bridge between the solution your company offers, and the needs and willingness to pay of customers. It is how customers make sense of your value proposition and the pathway to acquiring the proposed solution. 

 

Financial viability: How your company makes money

At the core of any business model is how a company intends to make money and profit from its products. The quality of the business model for a company and its product reflect whether enough money will be generated (read: profits) to achieve viability.

The business model also reflects how well the company understands its customer and market, to make a commercial enterprise capable of generating revenue and eventual profits. If the business model isn’t right, this can wreak havoc on the financial viability of your company.

 

Strategy: How your company wins customers and the competition

Too many companies – big and small – have a tendency for a ‘follow-the- leader’ mindset when selecting a business model. This can be an actual market leader with a commanding market lead and is setting perceptions on the value and prices.

Then there is the perceived market leader, where within an industry – often in nascent or technology-driven industries – there are companies competing with one another despite the vast majority of prospective customers don’t know the company let alone the value proposition or pricing competitors.

What this means is there is business model complacency that occur for many companies, leaving potential profits on the table, but also a missed opportunity to differentiate from competition. By creating business models that are like everyone else, there is greater pressure to justify the value proposition and the pricing question of “is it worth it?” – a tall order for many startups and new ventures.

 

Key Components Of A Business Model

Like pricing, a good business model doesn’t start by simply selecting between a menu of models. No, a good business model starts by understanding your customers for your product created by your company. A great business model is designed for the company, it’s customers, and the goals the company aims to achieve.

 

Your value proposition   

Developing an effective business model requires a clear identification of the value proposition and how you can differentiate yourself in an often-times crowded market.

As Peter Drucker famously says, ”Customers don’t buy products, they buy the benefits that these products and their suppliers offer to them.”

We often take for granted what our product actually does for our customers, leading to business models built on assumptions. Companies that are attempting to disrupt an industry, are particularly prone to this because they hold the belief that the disruption itself is the benefit.

Yet human nature is often resistant to change if not rejects change outright in favor of the familiar. That’s why when you go to the purchase page of some software companies you see a long list of features and benefits – a list made for everyone, and thereby for no one.

 

Your customer

The process of defining the value proposition and the benefit your product aims to deliver, the next question is, “who is the benefit for?”.

In our project experience working with companies from high-growth startups to large market leaders, the question of who is actually the company’s customer is commonly overlooked.

We take a tiered approach to the customer question that is based on the degree of connectedness the customer segment has with your product.

Imagine a series of concentric circles – like the rings of a tree trunk – where each circle gets smaller as you get closer to the center. While in aggregate, all the circles combined represent your desired market, it is those circles closest to the center that care most about your product and ideally, your brand and company.

Defining who those customers are, what they value most and the benefits they need to derive – whether through your product or a different solution – is critical. This enables you to create a business model aligned to your customer; not someone else’s customer.

 

Your pricing

The best companies are pricing experts because one of the most important parts of your business model is the pricing strategy.

An effective pricing strategy maximizes revenue and demonstrates that you really understand how your customers value your offering. The amount of resources dedicated to developing a pricing strategy also reflects how much time a company has spent trying to extract value out of its products. This involves monetizing different aspects of the product to serve the largest possible audience.

More advanced pricing strategies may use tools such as targeted discounts or promotions to increase revenue, and the use of other pricing design tactics. A good pricing strategy that captures the value out of your offering increases the odds that your business will be sustainable in the long run.

 

Your goals and resources

Creating a business model for your customer and company means self-discovery by your company of what it wants and needs to achieve. This can be to maximize revenue. It can be to penetrate the market and win market share. Creating a proxy for success steers how the business model is designed but also make changes as needed.

Creating a good business model also needs to account for resources needed to achieve your defined success. This may mean to make changes on how your company sources materials or talent, how your company acquires customers or shifting the business model.

When companies adopt a business model of market leader or look-a-like company, many input and output assumptions are made often to the detriment of the company. Rather than methodically evaluating inside on what is and is not available, attempts are made to fit their square (the company) into a circle (competitor’s business model).

 

Building The Right Business Model For Your Company

The types of business models available to you depend on the results of your work on the different components outlined above. This means a great deal more time spent on research and discovery as it is on selecting from a menu.

Even businesses that look similar at first glance could have dramatically different business models. Consider video game developers such as Electronic Arts and Epic Games. Electronic Arts have a traditional gaming business model and charge $60 per game up front. Epic Games uses a “freemium” model where games such as “Fortnite” are free to download and gamers then pay for in-game upgrades.

This has proven to be an effective strategy as Fortnite earned $300 million in April 2018, almost six times the first-month sales of EA’s highly anticipated Star Wars Battlefront II. Epic Games’ business model requires the company to engage customers over an extended period of time but Electronic Arts just need to make that first sale. Their respective business models don’t exist in a vacuum and are designed to achieve commercial objectives

It is also important to be mindful of potential pitfalls when building a business model. If the price is wrong, the analysis that follows will be fundamentally flawed. Targeting the wrong customers means that the business model will emphasize the wrong product attributes. Every assumption in a business model needs to be checked and rechecked.

 

Final Thoughts

A company’s business model is a key success factor in both the short- and long-term.

A good business model identifies the core customer, their pain points, and how specific products or services can address those issues. The best and most disruptive companies create not only amazing products but a business model that connect paying customers to their solution.

But success comes not only through the ultimate model these companies chose, but the fact that the model was uniquely their own, for their product and customers.

Business models might serve as a blueprint for a company’s future but those plans aren’t static. Business models evolve over time as companies better understand their customers, the value of their offerings, and their competitive positioning. Evolution doesn’t necessarily mean a complete overhaul. It is a commitment to making actionable adjustments (e.g. pricing, product offering) that meet the needs of the market for now and beyond.

 

Found this article helpful?

Sharing is caring. Share this on social – super easy 1-click share buttons on the 👈 left side of this page – or send this article to a colleague or friend who can learn something new to empower their company and hustle.

If you or your team is interested in learning more about rethinking how your company can grow, visit our blog for a range of articles from pricing to sales effectiveness or contact us to schedule a chat: contact@helloadvisr.com

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter, and LinkedIn.

A Easy Guide To Designing Customer Research

Whether or not the customer is always right, the customer is always the one who makes the purchase decision in the end. Over the past few years, more and more companies have shifted to a customer-oriented business strategy as the impressive performance statistics of these businesses roll in. CMO Magazine reported that customer-centric businesses have been 60 percent more profitable than their peers, and nine out of 10 CEOs surveyed in the US have agreed that they will invest in programs to strengthen customer engagement in the year ahead.


Building A Customer Focus Journey

The basic starting point is the customer focus journey. According to the Harvard Business Review, this journey generally follows along four stages:

  1. Info gathering – where the company uses a dedicated team or third party to collect information about their existing customers and desired customer segments.
  2. Data mining – where past customer behavior is analyzed to build a working model of customer motivation and a series of ideal customer personas.
  3. Predictive analytics – where a separate team builds on data analytics to discover and propose future pathways for customer-oriented product and service development.
  4. Active engagement – where customer wishes and preferences are accommodated collaboratively in real time.

One aspect of this journey that may come as a surprise is that many companies, especially startups and entrepreneurs, do not do their own customer research, especially in the early stages. For many, the process of what information to collect, why it is information and how will the information help to make better future decisions is often loosely constructed, if at all, early on.   

There is no question that customer research is a core component of a successful company. Unfortunately, companies that don’t put in the work to know who their customers are or what those customers want are at a substantial disadvantage in competitive markets.

Customer research helps company leadership teams figure out their competitive strategy, product development and go to market including their pricing strategy. Not speaking to your customers puts you in a position where you’re making pricing, product, sales and marketing decisions in a vacuum.


Best Practices For Designing Your Own Customer Research

When it comes to customer research, many entrepreneurs and business leaders share a perception that this is simply too difficult or time-consuming (read: not scalable). Fortunately, that doesn’t have to be the case as long as the research – like any good test – is well structured, well planned and well executed. Here is a useful template for launching your customer research project in the right direction:

1. Define your objectives

Create a clear set of goals your research must help you achieve. This might involve defining the customer segments, identifying customer attributes, preferences for specific features, pricing, etc. Limit yourself to the two or three highest priorities.

Here you want to think about the key questions that you either don’t know or assume to be true about your customers. Be precise in the language you use. Consider how customers would interact with your products/services and which factors would discourage them from engaging with you.

Think two steps ahead of the typical answers customers give. You are looking for insight that gets at what is really needed to move forward with your market strategy. As you build your objectives, consider how the insights from the research will be used. Ultimately, the goal is to design research that is directly actionable and aligned exactly with your top objectives.

2. Define your audience

The next step is to create a persona for the type of customer you want to speak to. Get as detailed as you can about the customer segment. Investigate who your customer are now and think about who you want to attract for the long term. When you find your target, look into where they are spending their time to determine how to attract them. If you can’t tell, ask.

If you still struggle defining your audience, one source of inspiration is ad targeting platforms like Google Ads or Facebook. Facebook’s ads platform is a useful guide on factor defining customer segments; even if you are not going to do Facebook ads.

3. Design your customer research tool

Customize existing tools to fit what you need. Gather data on great online surveys, in-person interviews, focus groups and industry trend reports. Then you can improve and refine them to suit your purposes. Each tool will offer different benefits for collecting the relevant data and insights that go into intelligent, actionable decisions.

While these examples were written with new product development in mind, this open-ended approach can also be helpful for more mature companies and products. Again, what you are really looking for are gaps in your knowledge and challenges to your assumptions about the market, customer, and product.

4. Build-Measure-Learn

The customization in the above point doesn’t end at the interview. You will very probably not get everything you want the first time, but by deploying the Lean Startup‘s methodology of Build-Measure-Learn, you’ll get better with each execution. Eliminate ambiguity from questions, beware of question fatigue, widen your sample and do it again.

Crafting your questions is an art. Don’t rush through the revision process, as this can mean the difference between nice-to-have interesting responses, and actionable insight. One common mistake to avoid are simple yes/no questions but code in structural limits on open-ended ones. Common question types include:

  • How do you do [a process, problem resolution] now?
  • How do you wish that process was different/better?
  • When during your day, do you see this as a significant problem?
  • What kinds of workaround do you currently use to address these and similar problems?
  • Why do you use those specific workarounds?
  • What issues did you face with the current solutions available in the market?

5. Analysis

The last step of this process is to design questions so that they can be analyzed easily. Whether quantitative or qualitative responses, you want to create a functional database of information that can be critically assessed and revisited for comparison over time. Treat your customer research project like a form of test.

From the beginning, you will need clarity on what you’re testing for and how you’ll measure whether this particular test was successful or not.


Final Thoughts

Designing customer interviews can be intensive, but it doesn’t have to be complex. Even the experts use the iterative model to build informed hypotheses, get answers, learn from the data and try again.

With just five steps – defining your objectives, defining your audience, designing your tool, mining the data and measuring the success of the tool – you can help create an agile organization that is customer-oriented and well ahead of the competition.


Found this article helpful?

Sharing is caring. Share this on social – super easy 1-click share buttons on the 👈 left-side of this page – or send this article to a colleague or friend who can learn something new to empower their company or hustle.

If you or your team is interested in having a hosted session on your pricing strategy and monetization model, please contact us at: contact@helloadvisr.com

Get our latest updates and insights by subscribing to our newsletter and following us on Facebook, Twitter, and LinkedIn.