Entrepreneurship
Glossary
SECTION 3
PROBLEM - CUSTOMER - MARKET
There is a good reason why we start with problem, customer and market rather than the solution i.e. the technology or piece of research you are working on.
You will learn that you will need to take a step back from your science/technology and almost have to become obsessed with the problem that needs solving and your customers and market.
If nobody has the need to buy your solution or there are not enough people that will buy it, there is no point developing it. And to find that out, you need to get out of your lab and talk to people – the people whom you think have that problem.
These are the questions you are likely to be asked in this context:
-
What problem are you solving?
-
Whose problem are you solving and how many people/organisations have that problem?
-
Who is/are your customer(s) (those that will pay to get your solution)
-
How big is the market (growth?)
PROBLEM IDENTIFICATION
01
Every successful company starts by solving an important problem. The more accurately you articulate the problem and the pain that problem causes the customer, the more valuable the solution will be that you offer.
It is very important to give the problem more weight than the solution. If you don’t solve the problem of your customer, they will not buy your product/service.
“The single necessary and sufficient condition for a startup to succeed is a paying customer” —Bill Aulet, MIT on why investors need to see a strong problem statement or problem definition.
You will begin with your assumptions or hypotheses about what the problems might be, for example you or someone near you has the problem, you discover it through secondary research, through talking to people, specific reports etc.
You can imagine the problem as a process e.g. what steps to go through from deciding to go on holiday to remembering the experience after having been on the holiday. Each step has specific actions and comes with its own pains and gains.
TECHNOLOGY PUSH
02
Research and development in science and industry leads to new discoveries, which can be used to improve existing products or develop new ones. So the technology is there, and it happens before there is a market or consumer demand for a product. This is referred to as technology push.
Many researchers in academia are developing technologies which can have several applications, but the consumer / market need is not clear.
These are technologies looking for a problem to solve. A problem/need worth solving needs to be identified. Without it, the resulting product will not have a market.
MARKET PULL
03
Refers to the need/requirement for a new product or a solution to a problem, which comes from the market place.
The need is identified by potential customers or through market research. A product or a range of products are developed, to solve the original need. This gives confidence that customers will buy the product /service when you build and sell it.
PROBLEM VALIDATION
04
Problem validation is the process to test whether the problem that you have identified is reflects a real need in the market.
The process will begin with your assumptions or hypotheses about what the problems might be, e.g. you or someone near you has the problem, you discover it through secondary research, through talking to people, specific reports etc. It is important that you drill into the root cause of a problem identified so that the appropriate solution can be developed.
During the validation process, you may use a variety of research methods, usually involving directly questioning or observing sample customers / users to establish whether your assumptions are correct.
Tool to use: problem statement canvas:
https://www.metabeta.com/articles/process/problem-statement-canvas/
The process isn’t money intensive, you need to go out and talk with potential users/customers, listen and either validate that what you have identified is a real problem or change your solution to address the real problem that needs solving.
The next step involves ensuring are there enough people with that problem and that the problem is worth solving, i.e. that it is enough of a pain that people really want to solve it , and want to pay for it. Does not solving the problem cost them time, money etc. If these questions can’t be answered, you won’t know whether or not there is a market for your product.
CONSUMER
05
A person who consumes the service or uses the goods for personal use. Every end-user in the chain of buying or using services or products is a consumer. Consumer and user/end -user are interchangeable.
Consumer and customer are not interchangeable. Note that a customer could be a consumer at certain times, but and at other times not.
For Business 2 Consumer (B2C) businesses, your customers are consumers. For B2B businesses, your customers are other businesses, not consumers.
​
CUSTOMER
06
Customers are the people who are going to buy your product or service. They are not necessarily the users. for example for healthcare products, the surgeon would be the end user / consumer but not the customer. They don’t have the buying power. The hospital finance/purchasing department will be the customer as they buy based on the decision on overall value for money. They are not the end users/consumers.
CUSTOMER PROFILE/PERSONA
07
Fictional, archetypal characters created based on your research into the type of customers or end users who might buy or use your products or services in a similar way.
Typically a profile or persona is created for each segment of your market. It is usual to create backstories for your personas, find pictures to represent them and give them names. It also helps to identify the type of people who can be your user and/or customers and whom you will have to go and talk to, in order to uncover the specific problems and impact of that problem.
Personas can be used, for example, to further develop case studies, to analyse hypothetical behaviour in response to your product / solution, or to make your marketing materials come to life by providing real world examples.
CUSTOMER SEGMENTS
08
The process of grouping your customers into specific categories, based on common predefined characteristics (see customer persona). Typical ways of segmenting customers or markets include:
-
demographic including socio-economic
-
geographic
-
psychographic i.e. lifestyle, personality, interests, values etc
-
the different ways in which groups will benefit from your product / service
-
the amount they are likely to use that product / service
STAKEHOLDERS
09
The term stakeholder refers to a person, a group of people or organisation with an interest in your business. Stakeholder is not synonymous with customer or user.
Customers and/or users are among your stakeholders, but so are the owners, employees, investors, shareholders, suppliers, the environment, communities, government, competitors, etc.
BUSINESS TO BUSINESS (B2B)
10
The exchange of products, services and / or information between one business and another business (customer), rather than a direct exchange with consumers.
Such businesses may be resell customers i.e. customers who initially buy a product with a motive of reselling it to draw a profit. Wholesalers, manufacturers, trade customers, and retailers fall in this category. Here, they are not the end-user or consumer of the purchased goods.
B2B is shorthand to describe who your customer is and allows people to understand the various aspects of your business model.
PAINS AND GAINS
12
Pains – the negative experiences, emotions and risks that the customer experiences in the process of getting the job/task done.
Gains – the benefits which the customer expects and needs, what would delight customers and the things which may increase likelihood of adopting a value proposition.
Gains are not just the opposite of pains. They bring added benefit in the way they solve the problem.
Example: Your dog runs away a lot while out walking and doesn’t come back when called, which is a real pain point. A normal dog lead relieves that pain. But if you sell a dog lead that can light up in the dark, then that can be considered a gain because you can now safely walk your dog at night time too as the lead will be visible. You will always know where your dog is and the lead is less likely to trip up pedestrians and cyclists.
CUSTOMER VALUE PROPOSITION
13
When you are going through the problem identification / validation process, you can start testing whether the solution you are planning to develop addresses the problem. You can start developing an initial customer value proposition - which describes the benefits/value that customers will gain from using your product / service.
It is critical that you consult with others when working on your value proposition design journey. You will be too close to the idea which could lead to bias, and to only having partial understanding of customers’ pains and gains.
A powerful value proposition will help, for example, investors understand why your product is likely to succeed and customers understand why they should buy and use your product instead of others.
There is a good articular on value propositions, including a canvas for development here:
https://www.strategyzer.com/blog/achieve-product-market-fit-with-our-brand-new-
value-proposition-designer-canvas
​
You can download the canvas and watch a video on how to use the canvas here:
https://www.strategyzer.com/canvas/value-proposition-canvas
CUSTOMER RELATIONS
14
Customer relations are the methods that you will use to build up relationships with your customers, to engage with them and to ensure that their experience of your business is positive.
Acquiring new customers who purchase once from you takes a lot of money and effort. So building strong customer relations which will lead to repeat sales are essential to business success. You will develop customer loyalty and retain valuable, long-term clients, and increase revenue from repeat purchases.
Customer relations typically involves the sales, marketing, and customer service functions of a business. You may have different ways of engaging with different customer segments, depending on their needs and your business model.
There are many categories of customer relationships including personal assistance, self-service, automated service, user communities, and co-creation. Identify a few companies who may have similar products and services to yours and see what customer relations they use.
CUSTOMER CHANNELS
15
Customer channels are how you bring your product / service to the customers through communication, distribution, and sales.
Companies can reach their customer segments through a mix of channels to raise awareness, allow for purchase and delivery and provide customer support.
The channels can be both direct (e.g., through their sales team and web sales) and indirect (e.g., through own physical shops, or partner shops, and wholesalers), Identify a few companies who may have similar products and services to yours and see what channels they use.
The type of customer channels you use has an impact on where you need to devote funds to (e.g. recruit a sales team? develop a user friendly website? etc.)
MARKET
16
In a business context, the term 'market' describes the groups of individuals or organisations that make up the pool of actual and potential customers for the goods and services of a business.
These groups fall into one or more of the following categories:
​
-
geographic (e.g Asia Market, European market, global ..)
-
sector (e.g food and drink; pharmaceutical, energy etc,.
Defining these with reference to your business allows people to understand the type of market your business is going to pay a part in.
Investors like to know about the market potential for your business and how the market is projected to grow over the next 5 -10 years. You will hear the terms what is the total available/addressable market, the serviceable addressable market and the serviceable obtainable market for your business.
TAM, SAM and SOM
17
(Total Available or Addressable Market; Serviceable Available Market & Serviceable Obtainable Market)
The Total Available/Addressable Market (TAM) describes the entire market for products or services like yours. It is the number of customers or amount of money you could earn if you were 100% successful and achieved 100% sales to every potential customer.
This number tells you and investors if the potential market for your start up is big enough and therefore worthwhile starting a company, and is usually the first type of market size to calculate.
The Serviceable Available Market (SAM) describes the segment of that market that you will be targeting with your product / service. Understanding the SAM will help you make long term growth forecasts.
The Service Obtainable Market (SOM) describes the percentage of the SAM that you can realistically hope to capture as customers. Understanding your SOM will help you make short term growth forecasts. This is also called your market share.
You can calculate market size by doing secondary research to look for data in market/industry reports, company reports, and trends i.e. using a top down approach. You can also count potential customers you can reach based on speaking to experts in the market, surveying customers, and refining the information you used to calculate the total addressable market. You can look at sales of competing products etc.