Prelude: Segway
Segway's Cautionary Tale In 2001, inventor Dean Kamen unveiled the Segway PT, a self-balancing electric scooter hyped as the future of transportation. With endorsements from tech luminaries like Steve Jobs and Jeff Bezos, Kamen boldly predicted that Segway would reach $1 billion in sales faster than any company in history.
But there was one glaring problem – Segway had not validated actual customer demand. The company made grand assumptions about commuter behavior without evidence that people wanted this pricey, unproven device. Cities balked at allowing Segways on sidewalks and roads, further shrinking the addressable market.
Despite the revolutionary tech, target customers simply did not materialize as expected. Segway's annual sales peaked around 23,500 units, far short of the initial 50,000 to 100,000 projection. In 2009, the company was sold for a fraction of its $1B target valuation.
Segway's flop highlights the dangers of neglecting customer validation. No matter how groundbreaking your product seems, it will fail without a clearly defined target user with demonstrated, monetizable pain. Founders must resist the temptation to build on aspirational personas and put in the work to understand true customer needs and market realities.
Lesson Overview
- Learn how to clearly define your target customer
- Understand the importance of customer validation before launching
- Discover techniques for testing product-market fit with real users
Part 1: Some Theory! What is customer validation?
Customer validation means testing your business idea with real potential customers to see if there is true product-market fit and demand. It goes beyond theorising about who your target user is, what your branding should be, idea uniqueness, assessing your market size, and digs into their actual needs, behaviors and willingness to pay.
The goal is to answer critical questions like:
- What are the key demographics and psychographics of my target customer?
- What is my total addressable market (TAM) and serviceable available market (SAM)?
- What's the expected customer lifetime value (LTV)?
- What sales channels and tactics align with their buying habits?
- What marketing messages and positioning resonate?
This process helps focus your limited resources and improves unit economics by pinpointing your most profitable buyers. You can tailor pricing, distribution, and the entire customer journey to maximize conversion rates, loyalty and LTV.
Quantifying the opportunity
In addition to persona details, it's crucial to size the market opportunity. Key metrics include:
- TAM: Total # of potential customers X Avg. revenue per customer
- SAM: % of TAM you can capture based on factors like geo, price point, etc.
- SOM: % of SAM you can realistically get short-term
- LTV: Avg. revenue per customer over their lifetime with your product
- CAC: Cost to acquire a customer via marketing & sales
- CAC Payback: Months to recoup acquisition costs
Run a "napkin analysis" with rough estimates to quantify the business case. For example:
"There are 50M car commuters in the US (TAM). If we can get 5% of them to buy a $2,500 Segway (SAM) and capture 10% share (SOM), that's a $125M opportunity. At 20% margins, $500 profit per scooter, we'd need to sell 10,000 units to break even on $5M in startup costs."
Consider B2B vs. B2C
The customer validation process applies whether you're targeting individual consumers (B2C) or other businesses (B2B). But there are nuances to each:
B2C considerations:
- Larger prospect pool, but smaller avg. purchase sizes
- Shorter sales cycles, more transactional
- More emotionally-driven, influenced by brand affinity
- Expect on-demand info and seamless digital experiences
B2B considerations:
- Smaller addressable market, but higher avg. contract values
- Longer sales cycles with multiple stakeholders
- More ROI-driven, influenced by logic and business case
- Expect white glove treatment, customisation, and ongoing support
Adjust your validation tactics accordingly. E.g. For B2B, attending industry conferences to interview target buyers can be more fruitful than online surveys.
PART 2: Ok… Enough theory - let’s get into tactics.
How to validate your target customer
Ready to dig in? Here are ways to vet your target persona and quantify market potential:
- Get specific with segmentation
- Paint a vivid picture of your target customer(s) with a detailed persona template. Include:
- Basics: Name, age, location, occupation, income level
- Context: Hobbies, interests, life stage, common challenges
- Purchase criteria: What drives their buying decisions? Price vs. quality vs. brand? How do they research products in your category?
- Digital habits: Go-to sources for info/inspo, fav social channels, content/influencers they follow
Prioritize 1-3 core personas to pursue. As you scale, develop playbooks and assets to engage each one efficiently.
- Analyze comparative sales data.
- Find analogs for your product/service to estimate market size and penetration rates. Useful sources:
- Public company 10Ks and investor reports
- Market research firms like Gartner, Forrester, eMarketer
- Industry trade associations
- Tools like Google Trends, SEMrush, SimilarWeb
- IdeaFloat uses AI to build customer profiles for you, based on your business data.
Imagine you're launching a premium dog food brand. You might extrapolate TAM by looking at Petco's revenue divided by # of customers, avg. pet food spend/household, premium segment share, and projected category growth rate.
- Run a smoke test for B2C traction
- Create a simple landing page explaining your product/service and unique value props. Make the CTA a waitlist sign up or pre-order button. Then drive traffic via:
- Google/social media ads targeted to your persona
- Posts on relevant Reddit, Facebook, LinkedIn, Quora threads
- Outreach to influencers for social posts/newsletter plugs
A high volume of clicks and email opt-ins signals your offer resonates. Follow up with these leads. Ask what caught their eye, their purchase intent, price sensitivity, etc.
For B2B, try "cold call" outreach to a curated prospect list. Measure email open/reply rates and booked discovery calls.
- Interview targets 1:1
- Nothing beats in-depth chats with real potential buyers. While it can be nerve wracking, you’ll be surprised at how easy it becomes after the first call or two. Schedule interviews to dig into their needs, behaviors, and reactions to your concept. Customize questions to your business:
- Tell me about your role. What are your goals and challenges?
- Walk me through how you evaluate and buy [category] solutions.
- What vendors do you use today? What do you like/dislike?
- How much budget do you have? Who controls it?
- Here's what we're building. What do you think? Would you buy it? Why/why not?
- What would make this a must-have for you/your company?
- How would this fit into your life/business?
Remember, the goal is learning, not selling. Ask open-ended questions and let them share. Tackle any doubts head on.
- Map the buyer's journey
- Use your persona and research insights to outline the ideal customer experience:
| Customer Journey Stage | Customer Journey Question | Example Options |
|---|---|---|
| Awareness | How do they find you | Website, reviews, demos, trials, references |
| Evaluation | What info do they need to consider your product? | |
| Decision | What triggers a purchase for the customer? | Promo/discount, freemium model, 1:1 consultation, procurement process |
| Retention | How will you engage customers post-sale? | Onboarding, cross-sell, community, loyalty program? |
Define the comms, offers, and nurturing steps for each phase. This journey map will evolve, but sets a foundation to guide your go-to-market.
Bringing it all together
Segway's story is a master class in why customer validation matters. They spent millions developing an admittedly amazing technology, but failed to align it with a large enough pool of eager buyers. The commercial flop was a byproduct of targeting an aspirational persona without evidence that it was real or willing to spend on this product.
Putting assumptions to the test is a must. Digging into your target customer's world - through interviews, landing page tests, comparative data, and defining the buying journey - gives you confidence that you're pursuing the right segment in the right way. It determines your packaging, pricing, marketing message, channels, and every facet of your operations.
Don't let your idea fall victim to persona fantasies. Do the work to intimately understand your customer and the business fundamentals shaping your market. Leverage real data and insights to crystallise a clear, ‘monetizable’ niche. Only then can you build the right mousetrap and go-to-market engine to capture it.
Further Reading
- Rational B2B Buyer Is A Myth: Here’s Why & Here’s What To Do…
- Read more about Segway’s descent: The rise and fall of the Segway, the 2-wheeled scooter that was supposed to change the way we get around but instead became a meme
- How to Calculate Customer Lifetime Value (CLV) & Why It Matters
- The lean startup by Eric Ries is a fantastic book that is a ‘must read’ for any entrepreneur. It covers many of these topics.
Assignment
- Fill out a persona template for your target customer segments. Include behavioral, demographic, psychographic traits.
- Conduct a TAM/SAM/SOM analysis for your idea. Identify key assumptions and data sources.
- Interview 3 people who fit your target profile(s). Ask about their needs, buying behaviors, and reactions to your concept. Highlight insights and potential product/marketing tweaks.
Persona Interview Template
Name:
Company/Role (if B2B):
Goals:
Challenges:
Current behaviors/tools related to [your product category]:
Evaluation/purchase criteria:Reaction to [your product concept]:
Expected price/willingness to pay:
Knowledge Check
- How would your customer validation approach differ for a B2B vs. B2C business?
- What are key elements to include in a persona template and buyer's journey map?
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