As reported on Entrepreneur:
Most advice for aspiring entrepreneurs these days pays homage to the notion that they must get “out of the building” and talk to potential customers. Whether they subscribe to design thinking, lean startup, agile, or a similar school of thought, the argument goes that the only way you will know if you are creating something that people will end up paying money for is by asking them. Makes sense, right? Well, yes and no.
Advocates of involving customers are correct in claiming that only the customer knows what she truly wants, so asking them seems like a no-brainer. Of course, not all of that knowledge is readily communicable as some of it often lies in the subconscious. As such, each of these approaches provides a useful means by which the entrepreneur can find out what the customer wants, such as by co-creation sessions, A/B testing, and the like. In this way, customer involvement de-risks product development.
While each school of thought is right about the value of involving the customer during this process, they generally ignore at least four other risks that can cause a startup to fail even if it has developed (or is on the verge of developing) the next big thing. Here, I highlight these risks and provide some (hopefully) useful ways to balance the costs and benefits of involving customers.
1. How durable are your resources?
The two resources that are most essential to any startup are knowledge and cash. Both are at risk when you involve customers. First, loose lips sink ships, and the same goes for startups. Any time you engage customers in product development, you risk losing sole ownership of that knowledge. Yes, you can have your customers sign nondisclosure agreements, but they are hard to enforce. So, consider how proprietary the knowledge underlying your product is before involving outsiders.
Second, involving customers takes time, and time is money. So before embarking on a major customer involvement initiative, consider how much money you have on hand, what your burn rate is and whether you have follow-on investment on the horizon. If you are flush with cash, then go for it, but if money is tight, you may want to scale back your customer involvement efforts.
2. What does the competitive landscape look like?
Like most lucrative opportunities, it is unlikely that you will be the only one trying to exploit yours. In most (and perhaps all) cases, several startups will be chasing the same golden goose. And while getting it “right” is the ultimate goal, getting it “out there” might be a good interim strategy. While you certainly don’t want to go to market with a bad solution to a problem, a solution that is “good enough,” based on a quick, limited solicitation of customer knowledge, might enable you to whittle down the competition and allow some breathing room until you can improve your offering over time, perhaps with a second round of customer involvement.
3. How is customer demand evolving?
Windows of opportunity are constantly opening and closing due to myriad factors, the most important of which is customer demand. While it’s often a hard thing to predict, ask yourself whether demand is increasing or decreasing and at what rate. By mapping this data, you might suspect that demand is on the cusp of the holy grail of inflection points — the “hockey stick” — and that time is of the essence, meaning that a quick-and-dirty customer involvement process is all you can commit to without missing out on the exponential growth to come. On the other hand, you might believe that significant market growth is a ways off, allowing you more time to interact with customers and refine your product.
4. How radical is the product you’re developing?
This may sound like blasphemy, but for most products, customer involvement probably isn’t all that necessary. Yes, there are areas for improvement that customers can help identify for all products (at least on the margins), but for most run-of-the-mill products and services, we pretty much know what people want. So, if your startup is focused on producing hardware products or providing accounting services, the returns from involving customers might be too low to warrant the investment. If, on the other hand, you are developing a radical new, technologically-intensive product for which no known exemplar exists from which we can even begin to extrapolate customer preferences, then the return on investment might make more sense.
An informed decision
In the end, the decision to get out of the building and talk to customers is not one that entrepreneurs should take lightly. While it is quite en vogue these days, and for good reason, the risks this approach poses on a startup cannot be understated. Thus, before committing to the process, entrepreneurs would be well-served to take a hard look at their resources, the competitive landscape, customer demand and the innovativeness of their product. The call can be tough to make, and entrepreneurs may still get it wrong (which they will likely discover only after making it), but they will at least enter into it well-informed.
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Author: Scott Newbert
Date: 2021 02 08
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