How to Find Your Ideal Customers

Trying to market your product without knowing whom you should market to is like walking blindfolded. You might still end up in the right place. But it’s not very likely.

Any Customers Vs. Ideal Customers

A new startup might try anything to get its first customers. At this exploration stage, you cast the net wide. You approach different individuals and companies and do whatever it takes. Any customer is a great customer.

But as the company grows, it learns that not all customers are created equal. Some are easier to acquire. Others benefit more from the product and are easier to retain. Yet others are easier to expand and upsell to.

This raises a question. How do you know who is your primary target audience?

At an early stage, you “just know” your ideal customer. Your ideal customer profile is whoever was willing to buy your first product or sign an agreement before you even developed a prototype.

Of course, you can always stop here.

But if you’re planning to become a world-class company, you might need to take it to another level and make sure that your marketing is also world-class. All top technology–, and more narrowly, Software as a Service (SaaS) companies have a very clear understanding of their ideal customer profile. Even though this post will be particularly relevant to this type of companies, the general principles can be applied to any industries.

A side-note on terminology: terms such as “ideal customer profile” and “target audience” are often used interchangeably. “Buyer Persona” is another similar term that emphasizes the focus on individuals – as opposed to companies.

Why Define Ideal Customer Profile (ICP)

An ideal customer is a customer that is more likely to like your product and pay for it. Knowing your ICP should help you grow revenue while investing less. This higher return on investment is achieved through better targeting among other things.

Imagine, you sell software that helps cities analyze traffic patterns and make better urban planning decisions. You could place a TV commercial and hope that the right people will see it. This would be utterly inefficient.

Alternatively, you could identify a subset of cities that are most likely to adopt this type of software, then identify the right officials who are most likely to be decision makers and target them with a proposal that addresses their specific pains and explains how your product can alleviate them. Needless to say, this would be infinitely more effective.

And, by the way, customers will also appreciate this targeted approach. See “Principles of Ethical Marketing” for more on this.

If you need more reasons:

Ideal Customer Profile benefits: marketing targets, sales enablement, customer-centric products

How to Develop ICP

The approach will depend on a number of things:

  • Company size and stage
  • Available resources
  • Available data

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How to Hire a CMO or VP/Head of Marketing

So, you’re a founder and a CEO with no or little experience in marketing who needs to hire a CMO, VP or Head of Marketing.

You know you want to grow revenue fast but you might be skeptical about marketing. How can you ensure that whoever you bring on board is going to help you build a rocket ship?

As with any key hire, the impact on the company success is hard to overstate. An “A” player will help the company achieve and exceed its goals. An “A player” will also build and continually develop a team of “A+” players. They, in turn, will help you fill key marketing leadership roles from inside.

A lot of smart and experienced people tried addressing this topic. I think I can bring unique perspective coming from marketing myself.

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Monthly newsletter: technology, startups, business growth and marketing

Monthly Newsletter: Issue 2

This is an issue of my monthly newsletter. Main topics: technology, startups, business growth, and marketing. See other issues on my blog or subscribe. ~Max


Now, get a cup of coffee and enjoy!

Technology and Startups

Growth and Marketing

  • Intercom on Marketing (ebook). A good intro to marketing and, in particular, product marketing that will be interesting to those who are relatively inexperienced.
  • How to Design Marketing Campaigns. Basics of marketing segmentation, messaging hierarchy, and campaign management – this article will be useful to those who’re new to marketing or looking for a refresher.
  • HubSpot’s Pricing Page Redesign → MQL Conversions 165%↑ & Free Sign-Ups 89%↑. How: research first – usability testing, internal feedback, and customer intelligence; then design based on insights and A/B test.
  • What’s next in growth?” (video) talk by Andrew Chen who leads the rider growth at Uber. Andrew recommends you ignore “growth hacks” and focus on fundamentals that worked for decades. E.g. user referrals, shareable content, and using discounts to jumpstart demand for new products.

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How to Develop and Validate a Value Proposition

If I asked you these questions right now, would you be able to answer them?

  • What does your company do?
  • What product does your company sell and how is it different from the competition?
  • Whom is this product for?

Seriously, stop reading right now and try to answer these questions aloud or in your head.

Can you answer these questions in 1-3 sentences and in a clear way that wouldn’t invite follow-up questions from an average customer?

Can everyone in your organization?

What is a Value Proposition?

A value proposition is simply a way to connect a product offering with customer needs in a clear way. It should resonate with customers and would motivate them to try or buy your product. Essentially, the value proposition is synonymous with unique selling proposition and product positioning.

In order to find its product-market fit, startups need to come up with value proposition statements for its products. At first, you start with a hypothesis or a guess if you will.

This hypothesis then needs to be validated with customers and refined as the product evolves and as the company acquires more knowledge about the market and customers.

A validated value proposition statement is the ultimate outcome of finding the product-market fit. This statement should encapsulate key insights you’ve gathered about customers, as well as unique product strengths.

Do You Need One?

If you don’t have one, you’re shooting in the dark. If you have one but it’s not validated, you might be deluding yourself.

Here are some practical benefits of developing a value proposition:

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Principles of Ethical Marketing

“Aww, it’s just marketing…”

You probably heard people use marketing as a derogatory term.

Admit it, you probably did too.

Why?

You can probably think of many examples when marketing wasn’t practiced ethically. It’s true that one doesn’t need to go far to find them. Spam emails that lack “unsubscribe” buttons, misleading packaging, annoying pop-up or video ads that you cannot skip.

Marketing can go wrong for all the same reasons business can go wrong: misaligned incentives, short-term focus, and tunnel vision.

But business is not inherently and inevitably net-negative to society – quite the contrary. So isn’t marketing.

The thing is not all marketing is created equal. It’s just that some people in marketing make wrong decisions. Just like some engineers ignore safety standards, some doctors overprescribe medications, and some businesses pollute the environment.

Essentially, marketing is simply helping organizations serve more customers.

More specifically, marketing is about finding the right customers who actually need your product, using their feedback to make the product better, and consistently communicating useful information through the right channels and at scale.

With this in mind, I decided to outline a few high-level principles of ethical marketing.

Principles of Ethical Marketing

  1. Create value before capturing value.
  2. Long-term over short-term optimization.
  3. Customer feedback over company politics.
  4. Educate customers instead of misleading them.
  5. Build products that people want instead of selling the ones you have.
  6. Target customers who can benefit from the product instead of targeting everyone.
  7. Measure NPS, retention, virality, and product usage in addition ROI, revenue, and growth metrics.
  8. Consider the impact of marketing decisions on employees, other companies, society, government, and environment.

Here you go, a small manifesto of sorts.

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Monthly Newsletter: Issue 1

This is an issue of my monthly newsletter. Main topics: technology, startups, business growth, and marketing. See other issues on my blog or subscribe. ~Max

Technology and Startups

  • Ten-year Futures – a presentation by A16z. New technologies enable new use cases. Seeing them, as well as non-obvious “second order” effects, is key. E.g. mobile enabled Instagram, Instacart, and ride-sharing.
  • Decrypting Crypto – another presentation by A16z. Bitcoin is a combination of three old technologies: hashcash, public key cryptography, and distributed ledger. Value of cryptocurrencies goes beyond the traditional store of value and medium of exchange. E.g. tokens can help bootstrap new protocol-level innovation and incentivize developers, customers, and investors to contribute.
  • AlphaGo Zero masters the game of Go from scratch. The ML algorithm learned the game without any pre-existing understanding of rules or strategies. Building a general or at least a-little-bit-less-narrow AI appears to be a big priority for DeepMind. Perhaps this can count as a small step in this direction?
  • Delivering blood with drones in Rwanda – a TED talk by the founder of Zipline. What an amazing application of new technology and a case study in social entrepreneurship.
  • Tacotron 2 is a new text-to-speech technology by Google that is (almost?) indistinguishable from a human voice. If Google manages to make it less computationally demanding and ship it as part of the Android OS, all kinds of interesting use cases will be made possible. I personally will listen to more of my Pocket articles in audio.
  • Magic Leap is launching its SDK, shipping in 2018. AR/VR is already quite a saturated market. It’s not entirely clear yet how hyped Magic Leap technology will compare to Microsoft HoloLens, as well as to VR headsets: HTC Vive and Oculus Rift.

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Key Growth Metrics, Part 2: CLV/LTV, and CAC

I wrote this blog post as part of blog series on growth and marketing. See more here: Growth Map: The Missing Guide That Connects Marketing Strategy, Research, and Campaigns.

Managing a business is a little bit like flying an airplane. Keep your eyes on the speed, altitude, drag, and fuel and you’ll get to your destination fast. Try flying blind and you’ll crash and burn.

Who Should Read This

Startup founders, marketing managers, and growth hackers who are new to the growth game. Anyone who’d like to understand basic business metrics tech startups use. Here is why you might care:

  • You’d like to grow your business faster and understand the highest-leverage areas to focus on
  • You’d like to evaluate performance of your marketing
  • You’re raising a new round and want to be ready for the questions VCs are going to ask

So, let’s dive right in.

What We’ll Cover

Last time we focused on user growth. We looked into acquisition, retention, and virality metrics, as well as interactions among these three. Today, we’ll assess the dollar impact one user has on our business. To do it, we’ll learn to calculate and use another metric: customer lifetime value.

Summary (TL;DR)

  • Customer Lifetime Value (CLV) = dollar value a company can earn from serving one customer.
  • Retention ↑ => CLV ↑
  • Price ↑ => CLV ↑
  • Discount rate ↑ => CLV↓

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Key Growth Metrics, Part 1: Churn/Retention, and Virality

I wrote this blog post as part of blog series on growth and marketing. See more here: Growth Map: The Missing Guide That Connects Marketing Strategy, Research, and Campaigns.

Managing a business is a little bit like flying an airplane. Keep your eyes on the speed, altitude, drag, and fuel and you’ll get to your destination fast. Try flying blind and you’ll crash and burn.

Who Should Read This

Startup founders, marketing managers, and growth hackers who are new to the growth game. Anyone who’d like to understand basic business metrics tech startups use. Here is why you might care:

  • You’d like to grow your business faster and understand the highest-leverage areas to focus on
  • You’d like to evaluate performance of your marketing
  • You’re raising a new round and want to be ready for the questions VCs are going to ask

So, let’s dive right in.

What We’ll Cover

First, we’ll focus on user growth. Here we’ll look into acquisition, retention, and virality metrics, as well as interactions among these three.

Second, we’ll focus on the monetary value associated with users. Here we’ll look into customer lifetime value and customer acquisition cost.

Summary (TL;DR)

  • There are multiple variables that will define business growth dynamics
  • Main ones are acquisition rate, retention rate, and virality coefficient
  • At any given time you might choose to prioritize some of these metrics over others
  • This decision will depend on the business strategy, available resources, customer feedback, stage of the product lifecycle, and hundreds of other factors
  • Models like the one shown here can assist you in making better decisions by letting you see where your business will be at in the future under different scenarios

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New KPCB Report and My Takeaways

In case you’ve missed the new (well, 1.5 months old) 2017 KPCB Internet Trends report, here it is. As always, it’s a fascinating 355-slide deck of charts and graphs that cover everything from advertising to macroeconomics.

Here are some less than obvious insights I noted. What did you find interesting?

  • Ads
    • Ads vary significantly in how much they annoy customers: mobile pop-ups are the worst
  • Social Media
    • Unexpected popularity of weird YouTube channels, e.g. people who record themselves unboxing stuff
  • Delivery / On-Demand Economy
    • Trending up across the board: from Amazon to Doordash
    • Amazon eating the world with Amazon Basics brand
  • Gaming and VR
    • Gamer’s average age: 35
    • More weird entertainment: the # of people watching other people play games keeps growing
    • Games have higher engagement in minutes/day than Facebook (per active user)
    • VR and gamification of the real world: Stanford Football, Peloton and all kinds of mobile apps
    • Virtual world simulations: Improbable
    • eSports growth
  • Media
    • Continued growth of the subscription model and personalization: Spotify and Netflix dominate
  • Enterprise Software
    • Interfaces become more humane as reflected in growing designer/developer ratios
  • China
    • On-demand bike sharing
    • AliPay + WeChat
  • Macro Trends
    • US Deficit
    • 60% of most valued companies started by 1st or 2nd generation immigrants
    • 50% of most valued companies started by 1st generation immigrants

Some screenshots:

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