Getting Into Customers' Heads

[email protected]©2004

Getting Into Customers' Heads

Rich Mironov23-March-04

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Themes

Most new products and services fail

Deeply understanding customers is the first step toward successful products Expect to be surprised

Get into customers’ heads early

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Agenda

Introductions War story: medication management Fitting products to customers or vice versa?

Failure modes Pricing for customer value Take-aways

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Rich Mironov

VP Marketing, AirMagnet Wi-Fi management software 42 employees, 1800

customers, profitable

Silicon Valley veteran (1981) Big companies: HP, Tandem, Sybase Start-ups: Wayfarer, iPass, Slam Dunk, AirMagnet

Product management, mentor consulting Worked with 15 start-ups in 2 years Monthly “Product Bytes” column

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Know What You Know

Things I know Enterprise computing and networking Corporate Internet services Security protocols and products Pricing for enterprise customers

Things I don’t know Consumer electronics and home computing Non-tech markets Fashion-driven buying behavior Large-scale advertising

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War Story: Healthcare

Concept-stage start-up Application to manage inventory and

re-ordering of patient medications

What should application do? Is there a market?

Wide-ranging one-on-one interviews… Long-term nursing facility Leading private-practice spinal surgeon Large acute care hospital

Lots to learn, many surprises

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Extended Interview Format

Get inside their heads 2 hour intensive in-person interviews Open-ended questions, lots of listening Record session if possible

Ask about… How their business works Terminology Natural units of work What keeps them awake at night (pain) Current solutions, alternatives, shortcomings,

competitors Unstated requirements Pricing and ROI dimensions

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Long-Term Care Facility

Stable group of 15-30 residents (patients) Elderly, chronic illnesses, complex mix of medications

Residents each have own doctor Families often pay for meds Several local pharmacies, varied ordering lead times

What keeps them awake at night? One patient runs out of something Lost meds, refused meds, stolen meds Notifying family of status, problems Low-wage workers, high turnover

Dream applications: auto-renew each Rx as needed, auto-notify families of changes in resident status

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Spinal Surgeon

Private practice, 100+ active patients Mostly on-the-job, Workmen’s Comp Chronic back pain notoriously hard to verify

Skilled and stable staff Doctor, 3 nurses, office manager, receptionist

Most meds are controlled substances Therefore, no refills without an office visit

What keeps them awake at night? No-shows, appointment reminders Drug seekers Scheduling office hours, surgery, pro bono

Dream app: auto-confirm appointments

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Large Municipal Hospital

Serves broad community Paying and non-paying patients

Many departments, complex processes Legacy systems

Doctors prescribe, pharmacy dispenses

What keeps them awake at night? HIPAA: Health Insurance Portability

and Accountability Act Avoiding supply “stock-outs” Cost containment Can’t “restock” meds if unused

Dream application: secure, integrated patient information tied to real-time dispensing & costing

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What Did I Learn?

Healthcare is wonderfully complicated Superficially one segment Endless opportunity to be surprised

Four interviews was not enough Postponed design and targeting

solution

More interviews or narrower target?

8 hours well spent

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How Much Interviewing is Enough?

Ready to move ahead when Starting to anticipate answers Spot “natural” market segments Understand customer’s internal

logic Priority of requirements are

obvious

You are now getting “insideyour customers’ head”

?

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“I can’t stop for gas or I’ll be late for the party.”

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Post-Course Corrections

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Take-Aways #1

Get out of your chair and find out what’s real

The world is a surprising, complex place

Climb into some customers’ heads

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Agenda



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Which Comes First?

Technical innovators:Find a market

Solution builders:Address a need

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When Products Come First

Typical Silicon Valley start-up: Brilliant technologists Innovative research Patent-pending algorithm 100 architecture slides Customers as after-thought

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With thanks to Ryan English, Ohio State Advanced

Computing Center for the Arts & Design

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Example, Circa 1996

PointCast: advertising-driven “push” Concept play Sponsored “channels” Banned from corporate nets

Wayfarer: internal corporate “push” Real-time alerting Internal database events Emergency browser pop-up

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Who Needed Corporate Push?

Find a market for new technology First step: define its features

Semi-real-time (0.5 to 2 seconds) …from a database … to a browser … for a human … occasionally

Second step: look for a fit Stock ticker? Heart monitor? Inventory update?

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Wait on In-Depth Interviews

Narrow the field quickly: Find diverse subject experts Tell technical story Listen for suspects Rapidly eliminate candidates

Then deep customer analysis

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Spotting Customer Problems First

Who: solution experts, consultants, integrators

Start with a problem Existing area of expertise Assemble simplest solution Incremental improvement, known

technologies

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“Subject Expert” Risks

Often not “product people” Assume all users are like them Broad needs vs. idiosyncrasies? Underestimate effort to completion Narrow exposure to technologies

May miss breakthrough solutions MRI came from physicists, not doctors

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Example: Residential Contractor

Successful builder and renovator of houses

Wrote unique planning software

Is there a market?

Homegrown, undocumented Unsupported freeware database First need to teach customers his approach Not enough time, money to “productize” it Not an ongoing business

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Take-Away #2

When products come first, need broad search for relevant problems

When problems come first, need broad search for solutions

Then climb into customers’ heads


BREAK

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Agenda



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Audience Poll

Worst requirements failure?

Best excuse for not doing customer research?

Shortest MRD deadline?

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Early-Stage Failure Modes

1. Build a product with no customer in mind

2. Validation via industry survey/focus group

3. Not a priority for buyer

4. Incomplete solution (ecosystem)

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How to tell: Everyone is in your target audience All segments look alike Sales doesn’t know how to qualify a prospect Objections are unrelated, surprising

1. No Customer in Mind

“Everyone should want one of these” Enterprise and SMB; novices and enthusiasts; teens

and retirees; US and Europe…

Technology-driven Field of dreams (“if we build it…”)

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Example: Wireless Access Points

First impression: wireless gear is all the same

Home wireless market Low price, low price, low price Simple to set up

Enterprise wireless Many security options Remotely configurable, manageable Rugged (long MTBF) Hot-swappable, field upgradeable

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2. Validation via Market Survey

“Gartner forecasts Wi-Fi up 200% this year, and every user will need encryption…”

Everyone receives the same report Trailing-edge data Ignores objections, barriers to entry Ignores existing and new competitors

What is your unique advantage or competence?

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…and Focus Groups

May be helpful, directional Image-conscious products Consumer goods

But First reactions only Capture marketing messages, not behavior A few speakers dominate Easy to hear what you want to hear

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Example: Interactive Television

Several rounds of trials since early 90’s Analyst forecasts, consumer research Major players convinced each other

Microsoft, Time-Warner, Oracle, Sun, Sybase… Read each others’ white papers

$100M’s spent

Cable and Internet are mostly good enough

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3. Not Enough of a Priority

More than just money Customer spends time, attention making a choice Ongoing effort and investment

Is problem important enough to solve? Budget Minimal objections Top 5 or 10 existing issues

Much harder to sell against unfelt need

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Example: Strong Authentication

Extensive academic research into identify verification Often funded by government grants

Simple passwords are easily bypassed Many alternatives

Long passwords Hardware token Biometrics (retina scan, fingerprint) Device restrictions …endless combinations

Usually combined with strong encryption

How well do these sell?

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Simple Passwords Still Dominate

Everything else is too hard Tokens and “dongles” get lost Long passwords forgotten

or written down Retina scans invasive, scary

Risk is mostly theoretical Corporate data leaks out other ways Usually something more important to buy

Different for military contractors

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4. Incomplete Solution (Ecosystem)

Products and services must fit in

Replace one part of broader framework

“Unplug, plug and play”

Easy to forget friction, barriers to substitution

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Every Product Architecture Chart…

Your NewProduct

Customer data

Legacy box

Partner app

Other stuff

Existingwidget

Existinggadget

Third party thingie

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…Like This One

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…Yet Customers Want This

Your NewProduct

Existingsystem core

Customer data

Legacy box

Partner app

Other stuff

Existingwidget

Existinggadget

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Example: All-Electric Cars

Many technical challenges Bigger infrastructure challenges

Where do I recharge it? Safe sharing road with fast gasoline-powered cars?

Working within the infrastructure Hybrid gas/electric cards

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Take-Aways #3

Pick a target customer group

Identify specific needs

Understand broader solution environment

Trust your own information first

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Agenda



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Customer-Friendly Pricing Units

Buying is a process1. Want the product2. Grasp the pricing model3. Haggle about the price

Easiest with “natural” pricing units How does customer size the problem?

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What is the Key Metric?

Hospitals are sized in “beds” Airlines in “passenger-miles” Pharmacies in “prescriptions” Hotels in “room nights” HR departments in “employees” Assembly plants in “trucks per day” Chip fabrication in “yield” and “wafer size” Sales force automation software in “seats”

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Car-Buying Units

Purchase (car) Bank loan (payment) Lease (month, mile) Rent (day) Taxi (1/5th mile) Share (trip) Borrow (hour) Steal (previous convictions)

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Long Distance Calling

Used to be in “minutes” and “state/country”

Now lots of possible plans Per minute Per month (MCI Neighborhood) Per call plus per minute (10-10-987) Per month plus per minute (AT&T One Rate) Local plus long distance Same provider (Friends & Family) …

Rearranges target audiences, competition

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Customer Commitments

No commitmentHigh variable costs

Lower volumeUncertain usageOptionalActively manage costs

MUST KEEP MARKETING

Big commitmentLow/no variable costs

Higher volumePredictable usage

Required (cost of business)Low cost control effort

HARD INITIAL SELL

“by

the d

rink”

“by

the

month

”

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Exercise: Consulting Services

Your last start-up just closed, so you are suddenly a consultant. A prospective client needs market analysis, MRD, pricing model.

What are your pricing objectives?

How to structure a project?

Risks for you? For client?

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Possible Objectives

Work at any price Food on the table

Loss leader Underprice first assignment, get follow-on work Good reference for other clients

Become indispensable Push for a full-time position later

Gain market experience What will the market bear? OK to lose assignment

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Possible Models for Consulting Project

Per hour, no limits Per project Fixed price for initial sizing

(“pay me to estimate”) Per hour with project ceiling Milestones (progress payments) Sweat equity (pre-IPO stock) Customer sets value at end Shared savings (portion of ROI) Free (experience, reference, try&buy) Barter

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Risks in Consulting Models

Client’s Risk Consultant’s Risk

Straight HourlyUnlimited cost,

quality, completionNone

Fixed project price (pay on completion)

Timely completionUnlimited effort, defining “done”

Fixed price milestones

Partial work not valuable, inspecting

Upfront analysis

Equity, portion of ROI

May overpay laterNo immediate cash

value

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Coming Back to Units

Customers justify purchases in their terms Can you follow their lead?

Recruiter: per hire Airline reservation system: per transaction Shop floor software: portion of savings Direct mail agency: response rate Shipper: on-time delivery results Academic tutor: SAT score

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Goldilocks Principle

Customers want a choice More than 3 is too complicated Lowest cost should feel “cheap”

Reason to upsell later

3 fully configured options: one will be “just right”

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Take-Aways #4

Think about how customers justify purchases

Use units that matter to them

Give them a few choices

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Wrap-Up

Requirements are more than a list of things

Context and fit are critical

Talking at length to real customers is essential

Get into your customers’ heads


Getting Into Customers' Heads

Rich Mironov23-March-04

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Getting Into Customers' Heads