01. Ideal Customer Profile

Estimated Time

  • Reading: ~19 minutes
  • Video: ~44 minutes
  • Activities: to be completed prior to next week

Insights

  • Explain your startup in one simple sentence so anyone can understand what you do
  • Talk to your users!
  • Understand who you are building for and how they are using your product or service
  • Identify your ideal customer and find as many of them as you can to start using your product

Episode Date: October 17, 2021

Jason Calacanis | TWiST | Twitter | LinkedIn

Identifying your ideal customer profile

Do you know who you're building for?

  • A founder should distinguish their "first" users from their "ideal" users
    • A first user could be your friend from college, a neighbor, your grandma, etc.
    • Your ideal users are ultimately those for which your product offers a solution
      • This user is willing to pay to use it and uses it frequently
    • Both groups can offer insights especially in the early days
      • You want to prioritize your ideal users over your first users when you can
      • Hopefully, some of your first users will be ideal!
  • Here is a trick to identify potential ideal customers early:
    • Segment your users into cohorts based on an engagement metrics like
      • Time on site
      • Rides taken (Uber)
      • Workouts registered (Fitbod or Peloton)
      • etc.
    • Focus on the top 10% of users who use your product the most
      • Ask yourself:
        • What do these users look like?
        • What are their occupations?
        • Where are they located?
        • Why are they engaging with my product?
        • How much time are they spending on the platform?
    • Use this info to create a blueprint for a potential customer
      • For example, an ideal profile might be a small business owner in a major city that needs help with web design, but doesn't need to hire a full-time software engineer
      • This example would be a blueprint for an ideal customer of a marketplace of freelancers
    • Once you have a blueprint you can begin to target these users
      • Cold emails, advertisements, direct outreach, hang out where they are, etc.
  • Remember: Winning founders understand their customers deeply
    • Superhuman has an innovative approach of focusing only on potential customers that fit their ICP:
      • CEO Rahul Vohra only on-boards email "power users" due to his product's relatively high price point (~$360/year for an email client)
      • Rahul knows if he onboards a customer who is not the right fit, that customer will likely have a bad experience
        • They likely churn quickly, and the entire cycle of acquiring that customer will be a waste of time
        • Superhuman actually rejects potential customers if they are not a good fit
      • Instead, Rahul chooses to only spend time onboarding and acquiring customers they know will love and utilize their product
    • Now this might be an extreme example, (leveraged by the fact that Rahul has the successful track record to pull this off)
      • But the key takeaway should be - know your ideal customer profile and target them early and often

Can you explain your startup in one simple sentence?

  • Call this "Jason's OSS Rule" - One Simple Sentence.
    • Any great company can explain what they do in one simple sentence
  • As a founder, you need to be able to explain at its core - what your company does?
    • No buzz words; just a clean, clear, and crisp sentence that anyone could understand
  • As investors, we see convoluted, buzz-wordy company descriptions too often from startups - avoid these!
    • Here are some examples with popular companies:
      • Coinbase example:
        • Bad job: "We're leveraging the blockchain and decentralized technologies to allow any investor to get exposure into the world of cryptocurrency."
        • Good job: "We help people invest in crypto."
      • Uber example:
        • Bad job: "We use AI and machine learning to connect riders and drivers, disrupting the worlds of transportation and mobility as we know it."
        • Good job: "We help you get rides faster and cheaper."
      • Slack example:
        • Bad job: "We're a future of work startup leveraging software and integrations to improve workplace communications for the long-term."
        • Good job: "We sell communication software to startups."
  • Can every employee explain what you do in one simple sentence?
    • Does your sales team speak clearly about who you are as a company?
    • Starting with a single sentence explanation allows you to dive deeper, or stay at a high level depending on the context of the conversations
    • Everyone in your company should be able to answer the following question without hesitation:
      • Who is company XYZ and what do you do?
    • Brainstorming with people who aren't in the weeds building your product with you often helps come up with this description
  • Something else to keep in mind: Does all your branding align with your simple sentence?
    • Is the messaging consistent across your website, Twitter, Facebook, TikTok, etc.
  • You have very little time to make an impression on a user
  • Remember: Winning founders can explain their product simply
    • Einstein famously said: "Everything should be made as simple as possible, but not simpler"
    • Winning founders can do this in their explanation as well as with product development
  • If you can't say what your company does simply
    • Your customers won't be able to simply decide if they want to buy

Do you know where to find more customers?

  • Once you have your first 5 customers, you should immediately look for the next 5, 10, 50, 10,000!
    • You would be surprised how often founders find their first group of customers and then quit looking
      • Some founders assume the customers will continue to come
      • Some focus more on new features
      • Some begin to focus all their attention on the first few users
      • While other founders assume that members of their team will keep bringing customers in
    • Do not get caught in this trap
      • Do not get lost building new features or assuming the customers will keep coming on their own!
      • As founder your job is to find more customers!
        • Take the profile outlined above and target more look-alike groups of users
        • Without paying customers you do not have a product
  • Winning founders are obsessed with acquiring new customers
  • If you found a way to acquire new customers that works - keep doing it!
    • Jason always says that if you find oil (new customers), keep digging!
    • Striking oil typically means there is more oil - don't give up to start looking for diamonds!
  • So, how do founders go about finding their first users?
  • What are a few customer acquisition strategies in the early days?
    • Take advantage of your network
      • Are you solving a problem that your network suffers from?
      • Who do you know that could get you in front of your ideal customer?
      • Do you direct access to any ideal customers?
      • Do you have expertise that you can leverage?
        • Try writing educational blogs, creating tutorials, or sharing your journey on social media
    • Hangout where your users are
      • Attend live events (meetups) and expand your network
      • Look into online networking events [like these]
      • If you're selling developer tools to software engineers on a bottom-up basis...
        • Post on hacker news and subreddits to try and get early users and feedback
      • Talk to the users themselves
    • Build in public
      • Create a sense of community around your product
      • Being open and transparent on Twitter, Reddit, and other platforms is becoming more popular
      • It is a great way to find users via word of mouth
      • You can also build publicly on Indie Hackers or launch on Product Hunt to engage that community
    • Alex Tew, co-founder of Calm used a strategy to attract users by building an interesting viral site called donothingfor2minutes.com - it's still live today!
      • The virality of the non-product drives traffic back to the product
      • He did this before creating Calm by building a simple website that asked if you could sit still for 2 minutes
        • If you moved the mouse or touched the keyboard it would say "Try Again"
        • People shared the website, and he collected ~100k emails of engaged users in just a few days
          • This was before ever launching Calm
      • He saw that people were interested in a short meditation session
        • Now he had their emails to continue engaging
    • There is also the waitlist strategy
      • You need to create demand to create a waitlist in the first place
      • Companies like Superhuman have perfected the waitlist
      • You should create a waitlist if:
        • You want to gauge the level of interest before you have a product
        • You want to limit the number of customers you're onboarding at a specific time
        • You want to build up hype and demand for your product
      • Once you have a few hundred users on the waitlist, you can utilize growth hacks like:
        • Enticing users to move up the waitlist by referring other people to sign up
          • This creates a virtuous cycle

Do you have founder-product fit?

  • Ask yourself "Are you using your own product?"
    • Are your employees using your product?
    • Do you truly understand the problem you are solving for the end-user?
  • There are several benefits to "eating your own dog food" as this is called
    • 1. You can quickly help your team find bugs before they impact too many customers
    • 2. It strengthens your relationship with the customer because
      • Everyone at your company understands the customer experience
      • You'll build credibility by knowing all the workflows and pain points
      • Connect with the customer as they share the ways they are using your tool
    • 3. It keeps your company on the same page
      • The engineering team gets to hear feedback from users (even if they are internal)
      • The marketing team better understands how the product works to better strengthen campaigns
      • The sales team better relates to the problems of the customers
      • The executive team stays involved in the day to day functionality of the product
  • One portfolio company, Fitbod is a great example of this:
    • Fitbod's co-founders Allen and Jesse originally built their product for themselves
    • Or, in other words, they were their own ideal customers
    • This is one reason why building a company around a problem you understand first hand can be so valuable
      • The founders understand the pain points and they have credibility with their customers
  • Do you know your one key feature and how that feature is being used?
    • Does your main feature align with your one simple sentence?
    • Does everyone at your company know the main value you bring to your customers?
    • In other words, does everyone that works for you truly understand why your company exists?
  • What is the main way that you use your own product?
    • If everyone is using your product they'll have a better idea of the problem you solve.
  • What is the main way that your users are using your product?
    • Sharing the top customer examples helps your company align around the voice of the users.
  • You can build marketing campaigns and sales strategies around these markers when you know:
    • Who your ideal customer is, what your key feature is, and you use the product yourself regularly

Do you know how people are using your product?

  • We've established that you and your employees should be using your product.
    • But are your customers using it in the same way?
  • This goes back to the first point - do you know who you are building for?
  • Remember, winning founders understand their customers deeply
  • Are the features you think are most important the same ones that your customers think are most important?
  • Another portfolio company, STEEZY, uses their customer support tickets to inform their product roadmap
    • Are customers having to work around clunky UI/UX that is making their lives harder in your app?
  • If you are dogfooding your own app you'll identify issues sooner and prioritize a fix
  • Being able to proactively tell a customer something like:
    • "In our latest release, you can now do click here to immediately complete the task
      • You don't have to click this sequence of buttons anymore
      • It should save you 5 minutes every time you log in"
    • This builds trust when you hear their suggestions and understand their problems
  • Look at your product data often to help understand your customers and know which questions to ask when you meet face to face
    • Who logs in and when?
    • What pages are they on longest?
    • What actions are they taking?
    • Where do they get stuck or lost and log out?
  • Study patterns across users and cohorts
    • Grouping your users into cohorts to track trends is extremely helps
      • This allows you to better understand customer retention and churn
    • You can segment users based on when they signed up
  • Quantitative data like this is extremely valuable
    • But so is qualitative data... which leads us to:

Do you know how to conduct customer interviews?

  • Are you talking to your customers regularly?
  • Are you solving their problem?
  • Winning founders solve big problems for their customers
  • Use every interaction with your customers as a way to gather data
    • You do not need to provide a formal "interview" to gain valuable insights
  • A simple email to check in and see if they have any needs, thoughts, or questions can provide a lot of great information
  • When you release a new feature let your customers know about it and be excited for them to start using it...
    • "I think you'll love this new feature, it is going to make your life easier by doing XYZ - would love to know what you think! What did we miss, what works for you?"
    • You'll quickly get feedback without people even feeling the need to commit to an interview
  • Sharing blogs posts that are relevant to your customer or providing educational opportunities is another way to establish credibility
    • This credibility can lead to your customers thinking of you as the industry expert in the space
  • Building relationships and checking in with customers before you "need" anything also builds good faith and confidence
    • Offering additional value through your expert insights can be a huge addition
    • For example, if you are a cloud security tool your day is 100% consumed by cloud security
      • But for your customers cloud security might only be a fraction of their responsibility
      • Sharing key learnings with them cements yourself as a thought leader who cares about them as a customer
    • Providing a great customer experience by simply being available is another way to stand out from competitors
      • When a customer reaches out - make it a goal to respond to them quickly
  • Then when you want to conduct interviews, people are more willing to participate because you have a relationship
    • Often the customer will even feel they owe you a favor if you've provided service above and beyond their expectations
    • So, how do you find the right customers to interview?
      • Use the segmented customer engagement data we talked about before
      • Use the different cohorts and select a random sample of customers from each
        • This should range from your most engaged cohort to your least engaged
      • Reach out via email or phone
        • If necessary, offer them a gift card, or something relatively meaningful for their time
        • There are even some programs that can assist with this for a small fee
    • You want to hear from a wide variety of users
      • But make sure to weigh your "super users" input accordingly
        • The users who are using your product more than others, or paying you the most have shown to be more invested
  • What kind of questions should you ask?
    • Open-ended questions that get the user talking and help you understand how they are using your product
    • A few sample questions might be things like:
      • How often do you use our product?
      • When are you most likely to use it?
      • What do you think about the product?
        • What would you change about it?
      • What would encourage you to use the product more frequently?
      • What does our product allow you to do that you couldn't before?
      • How would you feel if you couldn't use our product anymore?
      • What should we stop doing?
      • Would you recommend our product to a friend or colleague?
        • Have you? Why or why not?
    • Listen to their answers and ask follow up questions that keep them talking
      • "Can you say more about that..."
      • "Can you explain what you mean by that..."
      • "Would you elaborate on why..."
    • It is often the answers to these follow up questions that contain the real value
      • People may give you a generic answer the first time (or speak at a high level) but if you ask them to elaborate often they will share more specifics
    • Do not interrupt your customer's feedback!
      • Always wait for them to finish before asking a follow-up question or for them to elaborate on an answer
  • You can also conduct listening labs
    • Where you have the customer test out the app and think out loud while they explore
    • This can be done as early as with your mockups or wireframes
    • You simply put the app (or designs) in front of them
    • You then ask questions like
      • "What would you do on this screen?"
      • "What are you looking for?"
      • “What do you think of that?”
      • "What do you need to do next?"
      • "Did that do what you expected it to do when you clicked on it... why?"
  • Essentially you are having them talk you through how they would use the product
    • Ask if it is okay for you to record the session and revisit the conversations with your team
  • You can also take interviews in another direction and create a Net Promoter Score survey...

Do you understand Net Promoter Score?

  • Net Promoter Score (NPS) is a way to measure customer experience
  • Winning founders are obsessed with meaningful metrics
    • Measuring, tracking, and making decisions based on data is important
  • Instead of the open-ended discussion questions, you ask users to answer on a scale of 1-10
    • This makes it easier to compare answers and group results by cohorts
  • You simply ask, "on a scale of 1-10 how likely are you to recommend our product?"
    • You can follow up by asking "why did you give the score that you did?"
  • Here is how it's explained at NetPromoter.com
    1. Promoters (score 9-10)
      • They are loyal enthusiasts who will keep buying and refer others, fueling growth
    2. Passives (score 7-8)
      • They are satisfied but unenthusiastic customers who are vulnerable to competitive offerings
    3. Detractors (score 0-6)
      • They are unhappy customers who can damage your brand and impede growth through negative word-of-mouth
  • You find your NPS score by taking your percentage of promoters minus your percentage of detractors
    • This means your NPS score can range from -100 to 100
      • 100 if you have 100% promoters and 0 detractors
      • -100 if you have 0 promoters and 100% detractors
    • You can use NPS results to anticipate churn or drive customer outreach
  • NPS for major brands (via customer.guru):
    • Starbucks: 77
    • Apple: 47
    • Facebook: -21
  • Delighting customers is the ultimate goal and NPS allows you to understand how delighted your customers are with a single number
  • NPS is a great benchmark that gives you an understanding of how your customers feel about you, but you must know your customers beyond their score
  • You need to know their answers to questions like:
    • What problem are you solving for them?
      • Do they feel you are solving it adequately?
    • What sets your product apart?
      • Which features do they love?
      • Which do they want to be removed?
    • Do you make their job or life easier, faster, or better?
      • Why do they use your product?
      • What do they wish was better?
    • Do the customers recommend your product to others?
      • Why or why not?
  • A savvy way to increase NPS through a growth hack is with referral programs
  • Another portfolio company, Robinhood had one of the best referral programs ever
    • You might know it as the "Free stock" program
    • Every time you'd refer a user to sign up, both you and the new user would get a free stock on the platform
    • This created a huge surge of sign-ups in the early days
    • No other brokerage had ever done anything like that before
  • Delighting customers is a vital part of the Startup Flywheel
    • Collecting customer feedback is a great way to gauge how you are doing early in the process
  • Talk to your customers early and often

Should you start with a free or paid product?

  • This is a very common question that is dependent first on your business model
    • Are you going to be a free app that generates all your revenue via ads?
      • Then a free product from the beginning clearly makes sense
      • Think, Google, Facebook, etc
    • Are you SaaS, consumer, or a marketing place that needs people to pay you to survive?
      • Your product is not going to be free forever (like with an ad-based model)
  • Another factor, other than the business model, is how much runway you have from the start
    • If you have only a few months to start making money, you can't afford to wait
  • In most cases, it is best to turn on revenue as soon as possible
  • Some founders will then ask... is growing a customer base or growing revenue more important?
    • Ideally, you're growing both!
    • Free users, without skin in the game often provide high frequency, low-value feedback
      • Free users speak with their words and their engagement but aren't invested
    • Customers who are paying, have skin in the game and are more invested in your product
      • These customers speak with their words, wallets, and engagement
    • Any kind of traction is good in the early days - double down on what is working
  • What signals should you look for that tell you it's the right time to turn on revenue?
    • You've figured out the pain point your company solves
    • You are seeing early signs of product-market fit
    • During customer interviews, they indicate that they would pay to continue using your product
    • You have a waitlist that includes a price users will pay for your product
    • You've run successful free or paid pilots with happy users that convert to paid customers
  • How do you shift from a free to a paid product?
    • There are multiple ways to roll this out and it depends on your product and your goals
    • A few common examples,
    • You could offer a freemium version of your product
      • This allows the free users to have access to part of your product
        • Users have a monthly limit on messages they can accomplish in your app
        • Your company branding is included on their downloads from your product
        • Only a few members of the team can have access to your solution
      • If they want full access they'll start paying
        • Now they have unlimited messages
        • They can white-label your product with their own branding
        • They invite more team members
    • You can also offer early users a discount to continue using your product
    • You could grandfather legacy users in at their original price point
    • You can also flip the switch, turn on the paid tier, and know that you might have high churn for the next couple of months
    • Whatever you decide clearly communicate the plan with your customers!
    • At least you will have identified those who stuck around as your ideal customers
      • When it comes to pricing Jason gives the example
        • If you have 10 customers paying $5/month and you raise the price to $10/month you only need to keep half your customers to break even
        • This also allows you to focus more of your time on the more serious user without a loss in revenue.
        • If you churn less than five customers even better!
  • Anytime you have free users you should work on ways to convert them to a paid plan
    • Let them know what they are missing regularly, and how it would be better if they paid a monthly fee
    • To continue the example from before; send a reminder with every message that they are nearing their monthly limit and give them the option to upgrade now

Do you understand the technology adoption curve?

  • Anytime you are creating new technology you need to understand it will take a while to win over all five of the individuals described in the technology adoption curve
  • The technology adoption curve was introduced by E.M. Rogers in 1962
    • And made popular in the book Crossing the Chasm by Geoffrey Moore in the early 90s
  • There are 5 stages to think about when it comes to technology adoption
    • Innovators, early adopters, early majority, late majority, and laggards
      • image
  1. Innovators
    • These are people that take risks with new technology
    • They typically support a transformation within the company around new tools
  2. Early Adopters
    • These people look to understand the technology fully before they support it vocally
    • They like to be at the forefront but care about their reputation
    • This is typically your group of beta testers - try it without going all-in from the start
  3. Early Majority
    • This group makes decisions based on data
    • They support technology but want to see the proof first
  4. Late Majority
    • These are the people that require even more proof than the early majority
    • They don't like risk and are often not that interested in change
  5. Laggards
    • They are skeptical of new technology
    • They give up when a new tool doesn't work and revert to their old way of doing it
  • Identify the innovators and early adaptors and market accordingly to those users if your product is a new concept
    • If you are working on an enterprise SaaS solution the innovators and early adaptors will be your allies
      • But you need to get the support of the early and late majority also

When should you fire a customer?

  • Do you know when to cut bait with disengaged users?
  • Referencing back to your NPS - these are your 0 to 6 users
  • These users that are taking away time from your promoters
    • These users are providing bad data in terms of feedback - you should not be building your product for them
    • A new feature will not save a disgruntled user - remember who you are building for!
  • How do you communicate that you are firing a customer?
    • Is it better to fire them or let them continue using your product - knowing they might churn anyway?
    • One way to do this is to let users know you will no longer support the plan they are on
      • Let them know the date that you are no longer supporting the service
        • This gives them enough time to transition from your platform or start paying for a different tier of your product
        • You might find that once these customers are paying (or paying more) to use the full product that they are actually a good fit
  • It is not uncommon that the people paying the least amount of money are the most needy and have the most complaints
    • Time is one of the most valuable resources a founder has - be aware of how you are spending your hours each day (and with whom you are spending those hours)
  • Remember the Superhuman example we covered earlier:
    • Superhuman actually "fires" potential customers during the on-boarding process
    • Meaning, if a user doesn't fit the specific qualities of an ideal user, they won't even bring them on as a customer in the first place
    • Superhuman can preemptively "fire" their customer because they understand their ideal customer profile so deeply
  • You should be spending the majority of your time finding early users and talking to them as soon as possible
    • As a first (or second, third, etc) time founder you might not have the luxury to reject users like Rahul,
    • However, the fact your ideal customer profile should always be at the front of your mind is applicable
  • Your priorities when identifying your ideal customer should be:
    • Who are you building for? and Who is using your product?
    • How are they using your product?
    • Where can you find more of these people?
      • And then do everything in your power to get more of them using your product

Additional Resources

Activities

Week 4

One simple sentence
  • Workshop and come up with a one sentence description of your company
  • Align this messaging on your landing page and within your team
  • Could a customer who visits your website for 10 seconds explain to someone else what you do?
Founder - product fit
  • As you develop your MVP use your own product
Create your ideal customer profile
  • Begin to test it out by reaching out to individuals who fit the description

Week 5

Interview questions
  • Identify questions relevant to your product or service that you will ask customers
Create a cohort analysis template
  • Create a template to easily track cohorts as you onboard customers
  • Having the template ready to use will make it more likely that you'll plug in the numbers as your number of customers increases
NPS Score
  • Revisit this in a couple weeks as you talk to more users and generate an initial NPS score