Class 9, Week 5 – Customer Relationships

Picking up some initial traction

We are half way through the accelerator now (!!) and are starting to see some progress. Driven Analytics made their first sales to car dealerships to run a pilot of their program with ten cars. Levaté has a website up (levatelift.com), a video of a prototype (https://www.youtube.com/watch?v=xr8B6mkWaUw#t=27) and has started a funding conversation with i2e. Park Ave has made a big decision to pivot away from connecting buyers and sellers of parking spaces at big events in Norman after running a variety of experiments that did not turn up any customers. They are now going to start working on a device that can count cars going in and out of parking lots to help universities keep track of their parking spot usage rates. And within a few hours of making the pivot already had excited univeristy parking directors returning their calls!

Once a young company starts getting traction from potential customers, the feedback loop starts becoming much stronger and the company can focus on their niche, rather than spinning around trying to find a customer at all. They can also then start getting into other interesting questions beyond “Does anyone even want this?”

Stay the course

During the updates and news section that I start the first class of the week with, I urged and cautioned the teams to stick with the program. Running experiments and testing before building is the name of the game and needs to continue even after a few customers start nibbling on the hook. It is an exciting moment for sure but not a reason to abandon the game plan. I also told the teams their blogs are extremely helpful to me and to continue writing them and including as much detail about the experiments as possible.

Finally, I asked for a 60 minute 1-on-1 meeting with each team. One of my hypotheses from before the summer started was that the teams would take advantage of open office hours to discuss their experiments and progress with me. That hypothesis was invalidated, as to date I’ve only had a handful of office hours. My guess is the teams get enough of my feedback during our two scheduled class sessions and dinner each week and use their time out in the field. I will use this meeting to review the team’s business model canvas, recap the experiments they’ve run, make a plan for the final month, and give more personal feedback than I do in class.

Customer Relationships

Steve Blank defines customer relationships as the interplay of customers, sales channel, value prop and marketing. It’s the more holistic side of thinking about your customer and is highly relevant to the teams. Selling a wheelchair lift to an end user who expects it to simply work for 5-10 years after the purchase is a very different type of relationship than a drone team that wants to repeatedly engage with a construction company every week for the life of a large building project.

Another way to think about customer relationships is to consider everything that happens after the initial sale. Steve Blank provides a nifty chart for that, borrowed from the Lean Launchpad.

double funnel

Get, keep, grow

This is a generic customer lifecycle journey – first a company finds potential customers and adds them to the top of the funnel. Get – Then the customer learns about the company and the product and eventually buys or uses the product. Keep – This is basically customer service! The startup wants to provide the best possible experience for each customer. Grow – This phase includes two key components: (1) providing additional value to the customer so the customer purchases more from the company and (2) the customer enjoys the product so much she refers the company to other customers. #2 is also called a viral loop and allows a startup to achieve high growth.

One key point about scaling after finding traction is that one passed test does not create a business. The hypothesis-experiment-results model is still the best way to scale a business. Think validate, scale and repeat!

Another important idea is that any cost the company occurs getting a customer to purchase is the cost-to-acquire (CPA) and the value of the customer from purchase through referral is the customer’s lifetime value (LTV). At the heart of a business model is whether the CPA is less than the LTV.

Drawing

I once again had drawing the sales cycle and customer persona on the agenda but the teams didn’t think that would be a good use of class time. Since the start of the summer we’ve shrunk class time down to two hours from three. I still think drawing is a good way of making sure you have a grasp on these two ideas. One line I really liked from the lean launchpad in regards to building customer personas is – “Do you know what your customers read, what trade shows they attend, what gurus they follow, and where they turn for new product information?” The better you know and understand your customer, the more likely you are to build something they want to use or buy.

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