All ventures, whether a new startup or an initiative for a new product inside a bigger company, should focus from day one on finding their target customers. This is key to avoid building something that nobody needs. Once you have identified a problem, you should focus on defining the potential target customers as precisely as possible.
Avoid targeting everyone
One common mistake that entrepreneurs make is to target their solution at everyone in the belief that the target group should be as big as possible. For example, you might hear something like this: “My target group is the entire population of Europe – because if I get even just 1% of that, my startup will be huge!”
Unfortunately this kind of thinking is problematic. Startups have very limited resources and the product in question needs to create significant value for their users – people don’t change their habits (and spend their money) for marginal improvements. Also, it’s usually easier for people to keep using whatever solution they have now compared with trying something new from a startup that nobody has ever heard of.
To create clear and great value for many different kinds of people is very hard (nearly impossible in fact), since different people have different needs. A solution that’s actually attractive for everyone would be very complex and difficult to communicate.
Because of the reasons listed above, it’s much smarter for a startup to first solve a problem for a more niche target group. You can still have a vision about solving the problem for a bigger audience in the future, but in the early years starting smaller is usually better.
For example, Facebook started as a social web application for students in a few universities. After reaching high market penetration in this smaller market, Facebook then moved on to new markets. Even today, the target group for Facebook is not “all the people in the world” (even if it might feel like it). Facebook's target group is people with internet access (which already excludes several billion people) and also a certain age group that leaves out the youngest and oldest.
Defining your target group
Now it’s time to define your initial target group. You can start by thinking about what kind of people suffer the biggest negative impact from your problem. This should be the target group for your first user interviews – and also one of the things you want to validate with the interviews. However, it’s also good to interview other kinds of people so that you have something to compare with. After you’ve done the first batch of interviews you should try to identify which groups of people seem to be most affected by and interested in the problem.
For example, let’s say that you’ve done 20 user interviews and find out that 10 of those people really seem to identify with the problem. Now your task is to understand what those 10 people have in common. It’s also great to understand what the 10 people who don’t identify with the problem have in common so you can think of ways to get them more interested. One possible end result of this process may be to leave the 10 “non-interested” people out of your core target group completely – but this should be only after careful consideration and tens of interviews.
Based on the results, you can also come up with new groups of people who might identify with the problem and interview them as well. One approach worth checking out is to create ideal customer profiles (a short description of who your dream customers are). By creating an ideal customer profile, it can be easier to keep in mind who you should focus on.
Insights from an Entrepreneur – Hypothesis and Validation
Charlotta Tönsgård is the founder & CEO of Kind. They provide an efficient and secure communication platform for healthcare providers and patients. Charlotta shares with us how they validated the problem & value for the customers.
How did you end up building Kind?
I spent over 10 years working in the telecom field after which I led a Swedish healthcare company for a couple of years. Through my past experience and interest in future trends I started to notice that we are still handling healthcare as a craft: the only way to perform better is to add more people. We got the idea that healthcare should be scaled exponentially, but also sustainably. Once I identified this problem, I realized it wasn’t just a local problem, but also a global one – it felt too important to not solve.
As I left my previous job, I spent almost six months just talking to people. I wasn’t sure what I was going to do, but I knew I wasn’t done with the healthcare field yet. This gave me the opportunity to meet different startups, healthcare providers and investors. I tried to approach the conversations very openly without a fixed idea. I had a gut feeling there was something that needed to be done – even though I wasn’t quite sure what it was yet.
I wanted to have as many valuable conversations as possible and actually the idea of Kind formed through those conversations.
Hypothesis & validation
First, we formed a couple of key hypotheses for Kind to become a significant success. These were the hypotheses we wanted to prove early. We also realized that we couldn’t do it by just building tech – we needed to do this together with customers. It’s one thing to build an amazing product, but if you don’t have customers that find it valuable, then you’re missing a key element.
So we started to talk to customers at a very early stage, even before we had a product.
After that, we started to validate the first version of Kind together with them. We had a very clear understanding of what we wanted to validate: is our way of communicating and sharing knowledge with patients valuable to the healthcare teams and can it eventually make healthcare more scalable?
Because our mandate was so clear, we were able to find the cheapest and the most efficient way to accomplish this. For us, the way wasn’t to sit in a basement and build the product for a year. For the first product version, we didn’t really build our own tech: we used products that were already available and built on top of that. By doing so, we were able to validate the core features without spending much money or time on the first product.
Especially in a strongly regulated field such as healthcare, moving forward is slow – you need to be the fastest turtle. If you find a way to tilt your product to make it faster-moving by avoiding regulations, you should do it. It’s all about moving fast. When validating the solution, it is easy to think positively: “why wouldn’t they use it – it makes their life better” when you instead should ask “what are the reasons they won’t use it and how can we overcome the obstacles?”
Creating clear value propositions for different stakeholders is important especially with products that are slightly complex in who they are serving. In our case, Kind is an end–consumer product. However, we knew from the beginning that the end-users are not the ones who are going to pay for it. We worked hard to establish a value proposition for the healthcare providers because they are ultimately the ones that need to purchase our product.
Even though our focus is on the end-user, for the next couple of years our customers will be clinics and healthcare teams. To succeed, patients need to take a backseat for now. Because if we don’t manage to sell the product to healthcare teams, it doesn’t matter what we do for the end-user. All in all, if your end-users are not going to pay for the product, you need to keep your main stakeholders in mind.
Value for different customer groups
It’s essential to have a clear focus on who your core customers are. An early-stage startup can’t serve several customer groups with totally different needs.
However, I believe that you can have customer groups that see the value of your product differently – as long as you’re serving them with the same product. For example, some of our customers work in a competitive environment where they need a differentiator and competitive edge. For them, Kind offers things like availability and better patient experience, which are crucial when you want to look like a modern healthcare provider. Then again for public healthcare, it is all about efficiency.
Kind is a general solution in terms of that it’s just a communication platform, so our customers can perform any type of healthcare and use the platform. We also want to always point out to our customers that we are not experts in healthcare – we are experts in communication. It’s important to remember your role: the clearer you can define that and communicate that to your customers, the smoother your journey will be. Especially if you’re introducing something that could change someone's way of working, they need to understand what you want to do and what they are expected to do.
How significant is the problem?
Once the target group starts to take shape, it’s worth considering how significant the problem is – in other words, how big is this target group and your eventual market? In most cases, it’s easiest to start with your home market (the country or area where you live). So, for example, if the initial user interviews show that 10 out of 20 potential users identify with the problem, you can estimate the total number of potential users in your home market as follows:
0.5 x all the potential users = the initial market
A more accurate way to estimate the market is to find what these 10 people have in common and research how many of these kinds of people live in your home market. It’s also essential to consider if your interview sample accurately represents the whole market.
When the home market seems clear, you can start to think about other countries. If possible, it can be beneficial to also interview potential users from other countries just to understand what factors make the situation different. How critical it is to start talking to users in other countries depends on how big the home market is. A startup from Finland (5.5 million people) should almost immediately consider if this problem exists in other countries. A startup from the US, China or some other large country can stay in their home market for quite a long time.
Another factor to consider when estimating the significance of the problem is the future. Will there be more users with this problem in the future or will the problem probably fade away? Even if the problem is not big now, if it’s clear that this will be a more common problem in five years, you’re very likely to be on the right track.
Defining the purpose
Why does your business exist? No investor will invest in your company unless you have a good reason to do the things you’re doing. No potential employee will join a three-person startup if you don’t have a purpose that resonates with them. And no potential customer will be one of the first customers for a startup if they don’t believe in the purpose. "Making money" is not an interesting enough reason for a company to exist.
Defining a startup’s purpose is something you should do in the very early days. Prioritizing and focusing on what matters is essential for startups given that they often have limited resources. When a startup can define its purpose precisely, it also helps in focusing on what matters.
There are many approaches to defining a startup’s purpose. However, the simplest way to describe the purpose of a startup can happen before building anything, before finding co-founders or before actually founding the company. By answering the question: “what problem am I solving”, you’ve just created your first version of the purpose.
Never fall in love with your product
“Don’t fall in love with your product – fall in love with the problem you are solving” is probably one of the most used phrases in the startup world. That’s because it’s true.
In the next chapter we will start covering how a startup can create a solution to the problem. The solution might change as the startup learns from its users and other stakeholders – and that’s totally fine. The mistake many first-time startup entrepreneurs make is that they fall in love with their first solution idea and don’t consider user feedback to make the solution better. Whatever you do, don’t make that mistake. Test.
Insights from an entrepreneur – Thingtesting
Jenny Gyllander is the founder of Thingtesting – an online consumer guide that reviews the latest up-and-coming brands and products. Startups can and should validate customer needs before building anything. Now Jenny shares us how Thingtesting did it.
How did you come up with the idea?
“It all started out of curiosity and a love for new brands. While testing different products I started to review them from two perspectives. From the customer’s point of view: “could this product work?” Then from an investor’s point of view: “what’s the market size, who are the players on the market etc.?
"Around that time I started to notice an absolutely overwhelming amount of products launched every day. Nowadays it's much easier than ever before to launch a brand. For example, you can use Shopify or other similar tools to start online. This has allowed a whole new generation of brands to digitally launch just in the past 5 years and even more slated for the future.
"It really made me think of the consumer and how could they discover all these brands in such a congested market. Currently, Instagram ads and influencers are curating most new brands. However, there is a lot of skepticism around new products that are popping up to your Instagram feed or Youtube influencers. I felt a need to provide honest reviews and build a true platform for dissecting everything out there. Also, the sustainability movement happening now is massive and people are not craving more things, they want better things."
"I ended up using Instagram as a platform for my minimum viable product (MVP) because I was used to producing content there and it was the most comfortable format for me. Back then I didn't have a long-term strategy or business idea, it was just me and a couple thousand followers.
"Around the fall of 2018, a venture capitalist in San Francisco found my Instagram account and caused the first peak of attention. Because of that, I got thousands of new followers in just a few days and then Forbes ended up writing about Thingtesting. It wasn’t until then that I thought, maybe I’m really doing something different here."
Validating the customer needs
"The problem I initially identified was that investors couldn’t find new consumer brands in an efficient way. Once I started writing and reviewing more and more, I realized that maybe the bigger opportunity here is to serve the end users – consumers.
"I did a large follower survey in which I interviewed hundreds of people: what do you like about Thingtesting, what is your problem with new brands, etc. The answers flooded back from my active followers. Like the famous case of Superhuman, I wanted to find out what people, who would be very disappointed if Thingtesting did not exist, thought about Thingtesting.
"I uncovered three major things. First, my audience appreciated the discovery of up-and-coming brands, so I decided to focus on new and emerging companies. Second, they really appreciated honesty and we have continued to feature brands solely based on merit, not for advertising profit. The third was a total surprise for me– they liked my photography!
"I also wrote an article saying that I left my daytime job. In the article, I simultaneously launched a close friend membership. This exclusive 100 dollar membership grants access to discount codes, factory tours, and specialized content. This is an MVP for sure because I’m using an inbuilt function on Instagram and we don’t want to be restricted to one platform."
Creating the solution
"Now we are building our own platform as a website – thingtesting.com. A major goal with the platform is to create a more scalable solution. E.g. in the early days I wrote all the reviews, but in the future, the idea is that the close friend community can write the reviews. The value to the user stays the same and the content output will be able to grow."