CHAPTER 3

Understand Your Customer

Answer five key questions to define the customer you serve and why.

First, Understand Your Customers and Their Needs

Stop. Before you define requirements for (or further implement) your product solution or feature set, ask yourself these questions:

•   Does your team have a clear perspective and shared understanding of precisely who the solution is intended for?

•   Are you solving a significant problem, and is it important that the problem is solved? Are you clear about why this is a priority for your customer? Will they pay you for a solution to their problem?

•   Can you articulate exactly how customers will benefit? Is this a message that can be compellingly communicated to them?

•   Have you understood how to position your product as a unique improvement over the way customers solve the same problem today?

•   Do you have more than one type of end user or customer? If yes, do you know for which one you should optimize your solution?

•   Do you know what risks might derail your initiative? Do you know how to deal with them should they eventuate?

•   Do you have the agreement of all internal stakeholders on why, and for whom, the company is tackling this initiative?

•   Have you established useful constraints and context that will serve to focus your team, making sure to limit the project’s scope?

If you answered no to any of the questions above, then take a step back before proceeding.

In this chapter, I will discuss the importance of answering five questions (as outlined in Figure 3.1) about your customer and the problem you intend to solve for them—before you start defining and implementing a solution. Doing so for any major initiative is immensely beneficial and does not require an intensive, costly effort. And it need not delay your project. Rather, by using lightweight, informative, and focusing frameworks, you can save time and cost, and align everyone behind a common goal.

To illustrate, I will include excerpts for a hypothetical product called “Babylon,” a home-hydroponics system for growing herbs and seasonal vegetables in a convenient, space-efficient system. Target customers include urban professionals who rent apartments and developers who build units that they want to make more attractive to rent out. For brevity, the examples contain much less information than you will need to provide when you complete your analysis, but they show how to make the frameworks actionable. More details and examples for Babylon are available online at http://www.influentialpm.com.

 

Why You Should Ask (and Answer) the Five Questions

As covered in Chapter 1, ideas need to be rigorously explored and evaluated. Once a promising idea becomes a potential candidate for implementation, it can sometimes have so much momentum that less-experienced product managers, feeling a sense of urgency, jump straight into execution (solution mode). Instead, stay longer in problem mode, so you can:

•   Avoid opportunity costs—Uncover hidden assumptions that challenge your suppositions. Validate that you are working on a meaningful customer problem, and if you are not, work on something of more value instead.

•   Reduce later confusion and lack of clarity—You and your stakeholders may have different ideas of what the problem is, why it is important to solve, and what success will look like. Without establishing common understanding early on, your product initiatives may be disrupted as goals or plans are revisited. Provide context and a focused statement of intent to inform and align stakeholders and motivate your team toward a common purpose.

•   Establish principles for communicating to customers—Confirm a clear picture of who you are solving the problem for and why it is important to solve. This will help you to determine testing and validation strategies, build empathy toward your customer, and inform your marketing message.

•   Set a baseline for defining success—Draw a clear picture of why solving the problem is interesting for your business, along with the market environment and risks you face. As you learn new information, you’ll want to check periodically that your answers are still valid. Establish post-launch success criteria to determine whether you met your goals and to hold yourself accountable if the results are not to expectations. If you didn’t achieve your goals, what did you underestimate? What needs addressing to get your product on track?

However, answering the five key questions is not useful unless you follow these guidelines:

•   Do it before you start defining solutions—Don’t jump into solution mode without knowing the scope of the challenge. Ignore the product or features you already have in mind. Take a moment to fully comprehend why and for whom you are solving the problem before you commit to building a particular solution.

•   Do it for any and all initiatives—Conduct analyses when developing new products, making major product enhancements, taking existing products to new markets, undertaking anything of significance. Even if the issues seem to be well understood, if you are about to commit resources to a project, you owe it to yourself and your organization to define precisely why you should pursue the opportunity.

•   Remember it’s not a pitch—While your analysis can be used to explain an idea in a succinct and compelling way, it should not be viewed as an attempt to sell an idea to decision-makers. The intent is to gather data, organize your thinking, and communicate how best to proceed. Be objective and avoid emotional attachment. Embrace challenging questions with balanced, in-depth answers. Be willing to state assumptions and articulate risks, weaknesses, and unknowns.

Why only five questions? They’re probably not the only questions you should answer about your customer, but they will give you a useful starting point for establishing a baseline. You are creating a living document. As you proceed, update it with new information and answer other questions that come up along the way.

Keep Documentation Lightweight

As a rule—as with any documentation outlined in this book—try to keep your analysis to a few pages that are easy to comprehend and summarize.

Analysis needs to be informed by actual customer and market research. And you should make extensive use of expertise available to you—collaborate with teams involved in understanding the customer such as user experience, consumer insights, data analytics, product marketing, and sales. But don’t think you have to put everything on hold until you have completed lengthy, up-front research. Your goal is to state and support a direction and hypothesis—which might change, as you learn more as you go.

Use simple language, along with data, diagrams, and bullet points, and link to more extensive data if required. Producing a short, visual summary presentation for stakeholders is an effective way to communicate why your solution is necessary.

Some organizations favor Market Requirement Documents (MRDs). These are lengthy documents that include extensive market data (often with a list of customer and sales requests) and a business case to justify the investment. MRDs, as a rule, have become increasingly discredited as a useful means for evaluating and communicating opportunities for four primary reasons:

1.  Rather than offering a critical assessment of the opportunity, they are often written to impress and win over stakeholders. Rarely does an MRD recommend not pursuing an idea.

2.  MRDs take time to write—and they are usually too long to read. As a result, they are often ignored and go quickly out of date when business and market realities change.

3.  They are uninspiring and prescriptive. Lacking vision, they often preempt specific solutions and don’t leave room for learning and adapting. At worst, they define a wish list of customer “must-haves.”

4.  MRDs generally precede actual customer validation. A document is created based on scant research or third-party opinions, and then it moves quickly through approval, team formation, and kick-off. It is soon too late to seek out and substantially adapt the idea in response to new market insights.

Similarly, business plans outline the project-launch timeline, expected user growth, revenues, engineering and support resourcing levels, and profitability. They can be useful when analyzing future investment for existing, well established products—but not for new-product development. Full of “scientific wild-ass guesses” (SWAGs), they set unreasonable expectations around a mostly unscoped, untested, risky initiative. An attractive business case might mislead you into a false sense of security and into skipping validation. Business plans are rarely revisited after launch to ensure you delivered all you promised. So instead, use simple tools such as the Lean Business Model Canvas.

You can find an example stakeholder presentation and business model canvas-along with a basic overview on Profit and Loss (P&L) statements—online at http://www.influentialpm.com.

Who Is Your Target Customer?

Your target customers are those for whom you are solving a problem. Even though you may believe your product to be mass-market (and therefore everybody is your target customer), or your product is in its early days and its appeal within customer segments is unclear, you should not define your customer too broadly. Do so and your target customer becomes too abstract to inform your product-development decisions. Define your customer too narrowly, however, and you may fail to recognize that your product can appeal to prospects you hadn’t initially intended to serve resulting in an overly specialized solution with limited market potential.

Not everyone who is a customer of your product or service must pay you—although, obviously, some must. Your buyers are those who pay you—they may or may not be users of your product. Users utilize your product to achieve their goals—they may or may not pay you directly for this. For example, if you have a media or content website, advertisers are the buyers who pay you for access to your readers’ attention. Your readers are your users and are possibly receiving content for free. Similarly, in a business-to-business (B2B) example, the EVP of branch banking and CTO choose a bank’s branch software and teller automation solutions. They are the buyers. The branch employees and tellers are the users.

Your product must solve the needs of both buyers and users. When I discuss “target customers” throughout this book, I’m including both buyers and users (unless specified).

There are three main advantages in defining your target customer:

1.  Focus on exactly who you do (and do not) serve—As you evolve your product, you will prioritize many competing ideas and feature requests. Knowing precisely who you are doing what for, and why, is essential in providing clarity for you, your stakeholders, and your development team. If you don’t know who your target customer is, you risk one or more of five poor outcomes:

   Producing a one-size-fits-all product that isn’t sensitive to your specific customer’s preferences.

   Creating a product with too many features, but one that does nothing particularly well.

   Making product decisions that favor short-term business needs (often at the expense of your customer’s long-term needs).

   Over-optimizing for one customer type over the needs of others. This is particularly destructive in marketplaces (where you must balance the needs of buyers and sellers), in media products (where it might be easy to give way to advertisers’ needs over those of readers), and in enterprise services (where buyers may provide a long list of needs that are of little value to end-users).

   Creating the product you want (because you mistake yourself as a proxy for the customer).

2.  Draw attention to hidden customers and users—You may have an “obvious” target customer. But in conducting more thorough analyses, you may discover other types of users unexpectedly using your product. They need not be large in number but may indicate a new opportunity that you can explicitly address.

Second, beyond your primary target customer, you may also have other decision-makers and influencers, all with a say over where and how a product is used. This is particularly common in enterprise services, but it can also occur in consumer services.

For instance, consider a hypothetical product targeted to high-school students. In addition to this target user, you might consider the needs of (and the need to deliver value to) other influencers or decision-makers: parents, teachers, principals, and school districts. For a medical product, in addition to the patient, you might consider how nurses, doctors, hospital administrators, and insurance companies are also served by, or (if it is disruptive) perhaps are resistant to, the product.

3.  Build empathy with customers—By usefully describing your customers, their lives, and their environment, you can create a picture that will allow you to “walk in their shoes.” When making product and design decisions, you are then more readily able to reflect on the impact these decisions will have on your target customer. Furthermore, when conducting user testing, these attributes become useful for qualifying users or discovering additional unmet needs you might address.

It is critical at this juncture to emphasize that you cannot accurately define your target customer in a vacuum. It is essential that you seek to personally interview existing and prospective customers and study any customer-insights research your company has already undertaken, to validate your assumptions and iterate on your understanding. Interviews can be done informally (such as in a coffee talk with friendly customers) and formally (such as in structured consumer research).

Do so early and often—and start well before you invest in solutions. User-testing your product implementation is not the same as understanding your customer!

How to Define Your Target Customers

Defining your target customers is not a one-off exercise. As your product grows, you may acquire entirely new customer segments you hadn’t initially intended to attract. Or you may learn more information, identifying flaws in your original assumptions about who your customers are and what they need.

1. You Likely Have Multiple, Complementary Target Customers

Your product may simultaneously serve several target-customer types, with different but complementary needs. Each type will need to understand how your product addresses their needs, and you will need to design different parts of your product solution to meet these. Their interests may even compete with one another, demanding that you discuss trade-offs and perhaps rank one customer type as more important than another.

Customer combinations are often two sides of the same coin:

•   Enterprise services—The economic buyer makes the purchase decision. This person usually requires your product to serve a business need in both a secure and cost-effective way. The end user is the person operating or using the purchased system—perhaps employees of the company. End users need functionality to achieve their work goals efficiently and easily (much like consumers). End users may have little say, however, about which solution the company purchases. Poor enterprise services pay little attention to the end-user experience, optimizing primarily on delivering sales. Unfortunately, these products build a negative reputation, might go unused (shelf-ware), and struggle to retain customers when the product is up for renewal.

•   Media sites—Consumers of content from media, social media, gaming, and other ad-supported products make up your audience (otherwise known as readers, traffic, or visitors). They want to be kept interested, informed, and entertained. Advertisers pay to gain access to and get the attention of your audience, usually to promote their brand or to illicit a direct response (generally encouraging your readers to click on an ad and go somewhere of the advertiser’s choosing).

•   Marketplaces—Buyers want to find, purchase, and secure reliable delivery of quality merchandise or services at a reasonable cost. Sellers want trouble-free transactions, reasonable prices for their merchandise, minimal returns, and quick receipt of payment. Marketplaces are common and may not result in a direct financial transaction between the buyer and seller. Think, for example, of a job-search website: it provides candidates with the ability to search and apply for jobs, while businesses use tools to manage applicants and the recruiting process.

•   Nonprofits and social enterprises—The end user receives some service at a discount or for free. But to make these types of offerings sustainable, they require funding from agencies or donors. Agencies and donors are customers too—they are expecting value from their generosity (such as recognition or the achievement of a policy goal).

2. Sub-Segment Target Customers, Even If You Will Deliver the Same Product Solution to All of Them

For consumer products, the same product may serve different end-user segments, and each segment may use it to achieve different goals. GoPro, a light, water-proof camera, for example, serves sports enthusiasts, divers, hikers, and travelers. LinkedIn Learning, an online education subscription service, is used by hobbyists (such as amateur photographers), small-business owners, self-employed consultants, and creative professionals. While there may be much in common with these segments, their goals for using the product are different.

Another way to “slice” consumer product users into segments is to map them into their lifecycle stage. It may be useful to think about them in this way if you are undertaking specific enhancements to a product designed, say, for a highly loyal expert user versus a first-time novice.

Lifecycle segments might include the following:

•   A first-time visitor is someone considering your product, learning more about what you offer.

•   A trial user has completed some task that might later lead to purchase of your product, perhaps signing up for a free trial or setting up an account.

•   A paid customer is someone who values your service enough to pay you at least once.

•   A loyal or repeat customer is an ongoing payee for your service. They’re happy with the value you deliver and are adept at using your product and its advanced features.

•   A lapsed or former user is a user who has stopped using your product for any number of reasons. They can be a wealth of sobering insights and a target for re-acquisition.

Enterprise services can also be segmented (often by size). There is no definitive classification system for size: some define categories by employee headcount, others by revenue. Definitions vary by country and industry. Combining common definitions used in the United States and European Union, one might propose the following segments as shown in Table 3.1.¹

Sole proprietors, micro businesses, and small businesses make up 98 percent of all businesses in the United States. They often act more like consumers in their behavior and product-purchasing habits. The larger the enterprise, the more attractive it may appear to you as a lucrative, prospective customer. However, they can also be more demanding, take longer to progress from a lead to a paying client, and require you build a specialized sales and support organization.

A second method for enterprise segmentation is by Industry Classification. The North American Industry Classification System (NAICS), as of 2017, maps industries into 17 top-level and 99 second-level categories.²

For enterprise products, your target customer (or market segment) should have the following in common:

1.  They buy/need similar products that solve similar problems requiring the same benefits and features. Can you productize a single solution for them?

2.  They have similar sales cycles and decision-makers. Can you create a sales process that is largely standardized?

3.  When you gain key customers in a particular segment, others in the same segment view it as a validation of your product. Are prospective customers likely to respond well to your reference customers? Will they talk with each other (creating word of mouth)?

Keep segmenting until your target customer largely shares these three things in common. For example, “Fortune 500” is not as useful a segment as “financial institutions in the Fortune 500.” Fortune 500 financial institutions tend to have the same needs and similar processes for decision-making, and they will want to see that you’ve completed successful implementations for other companies like them.

3. Constrain Your Target Customer by Their Attributes

Broad and all-encompassing target-customer definitions, such as “students” or “parents with small children” are usually not useful. To focus on a more specific target, add qualifiers to your customer segmentation, as relevant. Here are some examples of such qualifiers:

•   Demographics such as age range, gender, and socioeconomic factors (education, social status, occupation, income, industry).

•   Geography if you are focusing on a location-specific market (country, state, city) or environment (urban, suburban, rural).

•   Goals and values such as aspirations and interests (relative to the problem you are addressing).

•   Motivators and inhibitors such as intrinsic factors such as personality, frustrations, incentives, or work culture.

•   Technology comfort and preferences, which may inform the kinds of solutions you should pursue.

When defining attributes, resist the temptation to do so in terms of your proposed solution—you’re not exploring your product at this point but rather the market opportunity. For example, “Babylon is for people seeking a home hydroponics solution to grow greens” is stated as a solution. Better—although still not perfect—is “Babylon is for affluent urbanites who want to eat better as part of a healthier, more sustainable lifestyle.”

4. Create a Persona to Bring Them to Life

Personas are intended to describe your target customer as a stereotype or archetypal user. They help you empathize with your intended target audience by describing their busy lives, their competing priorities, and their needs, wants, and desires. Personas help you look at the world—and your product’s role in it—through the customer’s eyes.

They also provide a reference for effective communication within your team. When designing and implementing your product, personas are a convenient shortcut to discuss trade-offs. Ask, for example, “What would Debbie think about that?” Immediately everyone can reference your persona, Debbie, and imagine her using your product.

Personas are closely related, but not identical, to your target market. Generally, the target market is much more diverse than the average or typical user. Personas capture many of the common attributes within that target, but not all target customers will have all attributes. For example, your target market might be in the 24- to 39-year-old range and be 70 percent women. Your principal persona should be 29 (assuming that is the median age) and be a woman.

Build secondary personas for one or two others—but only if they represent a large segment of your user base. (If they make up a small percentage of your revenue or usage, then you should not make explicit product trade-offs in favor of them.) In this example, the 24- to 39-year-old male may not be representative of the average user but might warrant a persona if they exhibit materially different behaviors or needs.

Personas aren’t just for consumer products. You can also use them when selling in enterprise environments (as you sell to people, not companies), to describe the economic buyer of your product (the person deciding to acquire your service, often a senior manager) or other influencers in the decision-making unit (DMU), including technology executives who support your product and your end users (employees who will use your product day to day). Each can be represented by their own persona.

End-user personas are particularly helpful in sales-driven enterprise companies where the client relationship centers on the economic buyer. When end users have little choice over whether they use your product, product priorities tend to favor the economic buyer’s needs. Create an explicit end-user persona, and you can raise awareness of their needs, making sure their experience and satisfaction is considered by your team too.

Internal users can also have personas. Think, for instance, of the people in your organization who are responsible for product support, marketing, business operations, and development and then create personas for them where warranted.

Base your personas on real research and be cautious of your own biases—made-up personas likely do not represent your actual user base. It is fine to propose personas as a hypothesis, so long as your customer research aims to validate and adapt them. Include only those attributes that are relevant to the decision to use your product and those that help your team empathize with your users.

Finally, when creating personas, don’t focus on how they will use your product. Keep specifics of the solution out of it—especially features. Concentrate on the overall context in which your target audience lives and works.

You can build personas using the framework and examples in the supporting online materials at http://www.influentialpm.com. In the framework, I have included descriptions of 27 attributes to spark your thought process and help you generate rich personas to bring your customers to life for both you and your team.

What Problem Are You Solving for Your Customer (Value Propositions)?

Value propositions articulate the benefits you promise to deliver to a specific target customer for the problem you aim to solve—in their terms.

They are a powerful way to turn “it” statements that focus on the product into “them” statements that are all about the customer. They change your perspective from the internal-facing “what” into the external-facing “why.” Using the customer’s point of view, they aim to confirm why your new product or product enhancement should exist.

Here are three advantages in using value propositions. They:

1.  Help limit scope—Prioritize only the features and functionality that will be core customer benefits. Anything that isn’t necessary to delivering on a value proposition is either superfluous or addressing a different need.

2.  Align stakeholders—Good value-proposition statements are compelling and exciting. Even before your product is defined, they can be used internally to provide context for the problem you will solve and the impact on your customers.

3.  Set the stage for talking to your customers—They describe why customers should buy or use your product. Whether getting validation from users that you are solving a meaningful problem or marketing your newly released product, you must be able to explain succinctly the benefits to potential customers at any time during the product development process.

How to Create Value Propositions

A simple approach for developing a value proposition is to start by summarizing the problem you will solve and then identify about three compelling statements that, together, deliver the benefits your customers seek. Frame your statements from the target customer’s perspective and avoid mentioning features.

1. Start with a Problem Statement

A problem statement explains precisely the pain point or unrealized opportunity the target customer experiences today. It should be supported by evidence. It sets the context for the problem you aim to solve and tells us why your solution matters. Writing out the problem statement clarifies your thinking and, with practice, can become part of a spoken pitch to stakeholders.

Here is a brief example for Babylon (though yours should be more thorough):

Finding and buying fresh, organic, GMO-free produce is often quite inconvenient and costly. While users desire a healthier lifestyle, supporting a healthy diet comes at a premium that many families cannot afford. Furthermore, when purchasing produce, shoppers can be challenged to know exactly what is in the food they buy. Urban apartment dwellers are particularly disadvantaged since they rarely have room for or access to a garden. There is a need for more affordable, more readily accessible, guaranteed organic produce.

In some cities, housing developers are hard-pressed to increase the value of their properties while differentiating themselves in the rental market—leading to downward pressure on rents. Renters expect amenities, yet it is difficult to find low-cost solutions that are also attractive, useful, and unique. New policies (some subsidized with tax incentives) aim to promote healthy and sustainable living.

An opportunity exists for a cost-effective solution to support a greener lifestyle, one that intercepts the needs of housing developers and urban dwellers.

For supporting evidence, include both quantified and qualified data. Data are essential to understanding the extent of the need or pain point; illustrating the problem has high impact and is common to your target audience. Qualified data might include imagery, quotes, or a walk-through of the daily struggles of your customer (in a world without your product).

In our Babylon example, we may include the following supporting evidence:

•   A chart showing the growth in awareness and consumption of healthier foods.

•   A summary of the costs of funding a healthier lifestyle.

•   Examination of the relative difficulty for urban dwellers to get homegrown food, compared to those who live in rural environments.

•   Examples of cities under rental-market pressure and data showing declines in rental charges.

•   Examples illustrating renters’ increased expectations for amenities.

•   Breakdowns of tax-incentive programs.

•   Quotes from renters frustrated with the choices available at grocery stores.

2. Don’t Assume You’re Addressing a Meaningful Need

Many well-designed, highly functional products fail simply because the problem they address isn’t actually that important to customers. While potential customers may say the problem is important, in practice, it may not be—not when compared to all the other demands on their time and money. Perhaps the problem doesn’t happen very often, and the difficulty is quickly forgotten. Or the value of resolving it just isn’t worth paying for.

Unless you already have a product in the market, it is difficult to be certain that solving a problem will impact your customers and business. And even if you do have a product in the market, evaluating which of the many potential enhancements would be of most benefit is equally challenging. Treat your problem statement as a hypothesis that requires constant data-gathering, validation, and challenging. Use the iterative methods outlined throughout this book to test them continually on potential customers—then practice, and present or pitch them just as you would with internal stakeholders to observe their reactions and gather feedback.

Potential problems belong to one of three categories, and knowing which category your proposed problem statement addresses can help you gauge how critical the problem is that you are solving:

•   An unmet need without a current solution—Have you spotted an opportunity that doesn’t have a solution? You may require intimate knowledge, firsthand experience, and unique new technology to address the opportunity. Tackling unmet needs comes with greater risk; solutions are harder to explore, evaluate, and market because customers are often unaware of the problem (and have learned to live with it or find manual workarounds). However, developing a solution to an unmet need can be very lucrative if you succeed.

•   A significant pain point with current solutions—Pain points can be rational or emotional. Many useful products have addressed deficiencies in current solutions—they solve the same problem in a better way.

Consider these common pain “motivators”:

   Too costly

   Inefficient/laborious/slow

   Unreliable/low-quality

   Inconvenient

   Inconsistent

   Unusable

   Uncertain/risky

   Lacks control

   Lacks transparency

   Discriminatory/unfair

   Designed for a different user/situation

The worse the existing alternatives are, the greater the opportunity. If the existing solution is “good enough,” you will run into significant barriers (switching costs) in your attempt to dislodge an incumbent or change customer behavior. To succeed, you must do an extraordinarily better job—not just a marginally better job.

•   A desire or want—These opportunities tend to be less compelling and may appeal only to a niche audience. Customers embrace your product for its technology or for its ability to act as a fashion statement, enhance their reputation, provide emotional satisfaction, or make a personal statement. If you are to be successful, brand, design, marketing, and uniqueness are of paramount importance. Early adopters may love your product, but this may not translate into success with a mainstream audience.

3. Define about Three Statements Per Target Customer

While not a hard and fast rule, a potential customer can easily comprehend a few value-proposition statements. Three is a good target—less, and you’re unconvincing or too vague; more, and you risk appearing unfocused and confusing.

Value proposition statements should do the following:

•   Start with “You” (or “I” or “We,” if written from the customer’s first-person view).

•   Be mutually exclusive—each one describing a compelling benefit, different from the other benefits.

•   Collectively deliver on the overall goal of the user.

•   Be relevant and important (not trivial) to the target customer.

•   Be singular (be careful not to link benefits together with “and”).

•   Do not confuse your own business goals with those of the target customer.

For example, say you have a subscription product and your business goal is to convert visitors into paid users. You should define a set of value-proposition statements in terms of the underlying benefits you deliver to customers, so that, in turn, they value the paid product enough to upgrade.

Each separate target-customer segment has its own set of value propositions—even if you are addressing both with what is more or less an identical product solution. They likely value different benefits or see similar benefits as deserving different priority. Our example, Babylon, has two customer segments, and what appeals to urban dwellers will not appeal to housing developers, even though the one product is offered to both.

For the urban professional, these value propositions are appealing:

•   You can save money compared to buying from grocery stores, by removing the middleman and harvesting only what you need.

•   You will save time with convenient access to a local source of greens and vegetables right in your apartment complex.

•   You control what goes into your food to deliver a healthy, sustainable lifestyle for your family.

For the urban developer, these value propositions are appealing:

•   You can increase the value and appeal of your housing developments with unique and differentiated amenities.

•   You will make the best use of limited, common apartment spaces and budgets.

•   You may qualify for tax incentives that are available for healthy urban-living policies.

A company’s value propositions are often evident in the messaging used in customer acquisition and channels, such as a website’s homepage, an email, a mobile-application download screen, marketing or advertising materials, white papers, or sales pitches. When communicating directly to users, the company may not use “you” statements, but the benefit to individual customers is implied in the visuals and language.

4. Value Propositions Are the Reasons People Buy—Your Features and Functions Make It Possible

Do not include specific features or details of the solution in your value propositions. Stick to “why” your target customers will benefit—not “what” or “how.”

If you already have specific features or a solution in mind, use a feature-benefit-value map (Figure 3.2). It will help you to group and link features to common benefits and, ultimately, to a high-level value proposition. You may find some features deliver against more than one benefit or value proposition.

How Are Your Customers Solving the Problem Today (Competitors and Alternatives)?

The purpose of understanding the existing market is to extend your understanding of your target customer, their needs, and how well they are being served.

If your company is an incumbent in a market, competitive intelligence serves to defend against threats, keeping you focused on maintaining and increasing your unique advantages over other solutions. If yours is a smaller company that’s new or yet to establish itself in the market, it helps you identify where incumbents fail to serve and satisfy customers—that could be your opportunity to be disruptive.

There are three key advantages in conducting competitor analysis. You can:

1.  Identify and benchmark your customers’ choices—Monitor customer satisfaction levels. Test competitor products with your users and your competitors’ users to learn what they like and don’t like about each one and to uncover hidden usability issues or functionality gaps in your solution.

When competitors invest in new functionality or technologies, or in entering new markets, it indicates potential growth opportunities or better ideas to solve customer problems. If you can get competitor business and product-performance data, you will have excellent benchmarks for your metrics and targets. You will also be able to focus on the areas of weakest product performance, and the data will help in prioritizing new features.

2.  Position yourself in the market—Your differentiators are crucial to establishing your market position relative to your competitors’. But you should also be aware of any differences in how you and your competitors view your target market and its needs. By reading, interviewing, and doing other research, you can discover how competitors talk to their customers and how they position themselves relative to other options, including yours. Where your solution is stronger or weaker, clarify your positioning.

3.  Prepare your marketing and sales teams—Your positioning and a summary of competitor strengths and weaknesses will help your product marketing team develop persuasive messaging. At the same time, avoid drawing attention to any problems with your solution.

In enterprise organizations, you may be expected to provide sales materials for training and objection handling. This is essential because customers often directly compare several similar offerings in their evaluation process.

How to Analyze Competitors and Alternatives

Define a broad competitive set. New entrants, players in adjacent geographic or industrial markets, solutions on different technology platforms, and even non-technology-based solutions—they are not always obvious, yet can be potential threats.

Maintain a healthy respect for competitors, but keep your primary interest in serving your customers. Competitive analysis is useful only if actionable, so focus only on information that can influence your product direction.

Your organization may have a competitive intelligence-gathering function, often conducted by a business strategy team or corporate development group. But don’t rely solely on them. You are likely, as a product manager, to be more focused on understanding your competitors’ products and comparing them with your own. You will have a unique customer-centric view of competitors.

A set of competitor-analysis frameworks for product managers is available online at http://www.influentialpm.com.

1. Define Your Competitive Set Broadly—Look for Alternatives Too

Uber and Lyft are direct competitors with similar technology platforms and end-user services. They both enable easy access to transport through a mobile application. However, that’s not the problem they are solving; that’s their solution.

The problem they are solving is getting people from A to B affordably, safely, and conveniently. That means they are also in competition with taxis, private cars, public transportation, bikes, carpools, and even people walking. Both have also realized that the emerging technology of self-driving cars is a huge threat, and they have taken steps to incorporate it into their strategy. In general, the same cannot be said of the taxi industry.

Alternatives can be created from dramatically different technology or without technology at all. Customers don’t care how you solve their problem so long as you solve it and do so efficiently.

In Babylon’s case, it might be tempting to limit their competitive set to grocery stores, especially up-market organic suppliers. However, a short brainstorm and a couple of user interviews later, this would likely be broadened to include

•   home, window, and community gardens;

•   restaurants and chains emphasizing organic, fresh produce;

•   healthful direct-to-home delivery services (premade food or recipes with ingredients); or simply,

•   higher-quality, pre-packaged food.

As a team thinks further about the landscape, the challenge ahead of them becomes clearer—but so do the ways in which they can position their product, preemptively address weaknesses where alternatives are stronger, refine their target audience, and conduct effective customer research.

2. Don’t Take Competitors Too Seriously—But Learn from Them

Strike a balance. You neither want to be ignorant of nor arrogant toward competitors. You also shouldn’t react with concern every time they make an unexpected turn. Some industry leaders claim to ignore competitors entirely, focusing only on their own innovations and customer needs.

But even if you have a superior solution or are the market leader, it is better to be modest. Keep tabs on how your competitor landscape is evolving. You might find that a competitor is nibbling away at a lucrative niche market, attracting loyal customers they can leverage to move aggressively into your market. Or perhaps new entrants are developing innovations that could be disruptive. While this may or may not be a problem, it’s always best to reduce the likelihood that you will be surprised.

At the other extreme, do not get caught up in time-consuming, exhaustive analysis. Do not allow competitor activities to distract you from your core purpose—to keep existing customers happy and attract new customers.

If a competitor does something innovative, learn from them and observe how they address customer needs. Don’t react with panic or denial if an existing competitor announces an unexpected initiative or appears to threaten your direction. Observe trends, but engage stakeholders and customers before taking considered action. Competitive analysis informs your understanding of the customer and provides team motivation, but it should not dictate your vision or roadmap.

Chase your vision—not that of your competitors.

3. Make Analysis Actionable

A competitor analysis is not a feature-parity matrix, showing a side-by-side comparison of who has what features. All this does is promote the idea that having more features equates to a stronger service (and all you have to do is “keep up” or “catch up”). Such thinking can distract you from working on the key initiatives that your customers need.

Use hypotheses-driven approaches and be clear on what you will do based on the outcomes. I recommend the following process:

1.  Research the competitor’s product—In addition to online research, product teardowns (where you use and detail every observation of their products) are particularly powerful. Capture details such as

   messaging and positioning;

   pricing, tiers, and trial offerings;

   first-time experience;

   discovery and navigation;

   learnability;

   steps to achieve goals;

   delighters;

   what use-cases they don’t support (perhaps deliberately);

   how they engage you outside of the product (such as through email and notifications); and

   overall, how well the product meets customer needs.

2.  Produce a “value summary”—Highlight high-level similarities and differences between your solution and theirs. Rather than focus on features, describe elements such as

   value proposition and pricing,

   target market/segments and key customers,

   differentiation and delighters,

   a summary pitch, and

   marketing and selling activities.

3.  Complete a SWOT analysis—Using a variety of lenses, evaluate your

   strengths (internal factors that give you an advantage over others),

   weaknesses (internal factors that put you at a disadvantage),

   opportunities (external factors you could take advantage of), and

   threats (external factors that could disadvantage you).

4.  Develop an action plan—Stick to a couple of recommendations at a time.

At http://www.influentialpm.com, you will find a thorough walkthrough, with examples of a process that is ideal for evaluating competitors. Included is a rich SWOT template with 21 attributes to consider.

Serve your customers well. If they are happy, they have little reason to leave you, and they won’t over just a few features. Instead, understand your competitor’s strategy, target market, value proposition, and differentiators—and use that to inform, but not dictate, your decisions.

Remember, imitation is the highest form of flattery. Don’t flatter your competitors.

What Is Unique in Your Approach to Solving Your Customer’s Problem (Differentiators)?

Your differentiators outline how you uniquely address your target-customer problem. They are the one or two key advantages you will offer customers that competitors do not, and they define your position in the market. Differentiators are sometimes called unique selling propositions (USPs).

Apart from customer communication, the major reason for defining a differentiator is to articulate your core competency. This is one of the most critical product decisions you will make. Much of your product development will focus on improving differentiation, putting as much distance between you and your competitors as possible. Knowing your differentiator will help you prioritize the features and functionality to deliver to customers—other features (which are similar to competitors’) can just be just “good enough,” or you may not even invest in them at all. A differentiator helps prevent your roadmap from becoming a race to feature parity with competitors.

That said, while differentiators capture a potential customer’s attention, delivery of your entire value proposition is why they stay. You will have to build a range of requisite features to ensure your product does not lag too far behind alternatives and that it keeps your customers happy.

How to Define Your Differentiators

Customers should see your differentiator as unique and substantive. A good differentiator is sustainable and provides you an “unfair” advantage over competitors. You want to make it hard for customers to stop using your solution and make it difficult and costly for competitors to replicate what you have.

1. Unique: Not Otherwise Available to Customers

Search for exclusive assets or approaches that you have or can develop. These may include

•   access to proprietary technology or infrastructure;

•   content that only you have or can produce;

•   exclusive access to partners, suppliers, vendors, or channels;

•   a large community of users (creating a network effect, where a product or service gains additional value as more people use it—meaning even if a competitor has all the same features, users will not switch);

•   data about your customers that allow you to deliver an exceptional, personalized experience;

•   a superior brand associated with quality, reliability, and trust;

•   organizational expertise, functions, processes, or relationships;

•   a platform with seamless product integrations across many tools or services (providing customers with a convenient one-stop shop for their various needs); and

•   a unique cost structure or scale (so you can be cheaper and more profitable than your competitors).

Don’t forget to state why these are of value to your end customers. Unique technology, for example, is not in itself a differentiator unless it allows you to do a better or cheaper job in solving your customers’ needs.

2. Sustainable Advantage: An Advantage Competitors Cannot Easily Replicate

If it’s easily copied, you won’t have a differentiator for long. Being “easier to use” (offering a better user experience) or less expensive (unless you have superior cost structure) aren’t sustainable differentiators. User experience can be readily copied, and undercutting on price alone will simply lead to commoditization. Cost and convenience offer temporary advantages, but do you have something that will maintain your edge?

If you are working on a new product, your differentiation might be more an aspiration than a reality. That’s fine—it just means you need to focus on execution, building your core competency quickly to capture a market position.

3. Substantive: Not Trivial, Too Broad, or Too Narrow

Your differentiation should neither be too broad nor too trivial. Don’t make the mistake of attempting to appeal to as many people as possible or being so specific that you will only attract a niche audience.

Ask yourself what the appeal is to potential customers and then directly test your assumptions with potential customers. Force-rank or place on a 1-to-10 scale some possible statements to get a relative sense of what matters most to them. If your differentiator is of interest to only a small segment of your target customers (and, in particular, if it is of interest to just early adopters), then it won’t be compelling enough to build a sustainable product.

Be careful not to define your differentiation factor purely around an advanced or rarely used set of functions. (There may be exceptions: for instance, when you have a “freemium” product that offers a basic service for free but aims to capture a small segment of power users ready to upgrade for premium features.)

Babylon’s differentiation statement highlights unique technology and customer experience. It describes a fully automated, end-to-end solution that, if executed well, will give the company an enormous lead over competitors in both convenience and quality control:

Babylon’s differentiation is its intelligent harvesting process, which is entirely automated, meaning that the only labor required by the user is to plant the seeds, track their growth progress, and collect the produce when it is ready. Automation decreases the risk of human error; guarantees fresh, organic produce; and eradicates the distrust often experienced with third-party produce exporters who can’t guarantee the absence of GMOs or the degree of cleanliness that affects the quality of the produce.

What Don’t You Know Yet about Addressing Your Customer’s Problem (Risks and Assumptions)?

The purpose of risk analysis is to identify the critical potential external disruptions that, if not monitored or mitigated, are the most likely causes for your product to fail.

There are three major advantages in completing risk analysis:

1.  You can prioritize early product-discovery activities—By surfacing risks in advance, you can identify development or research activities that should be addressed early in the project. You increase your knowledge of customer needs and are more confident in your decision as to how or whether to proceed with a project. You can save time or resources.

2.  You clarify your assumptions about the future—You have probably made a couple of assumptions that can only be proven once development of your product is more advanced. By calling out your assumptions, you can set boundary conditions. These effectively act as “trip wires”—if an assumption you made later turns out to be wrong, you can revisit your plans and make accommodations.

3.  You communicate to decision-makers—Most stakeholders are very comfortable with taking calculated risks. Explain the dangers and articulate your plan for addressing them. Include conditions, such as if a test fails, for reviewing further investment (to build their confidence in you and your product plans).

How to Assess Risks and Assumptions

Every product initiative has risks. New products tend to have significant risks since you must establish a new market and create a profitable, scalable business. But existing products also have risks—keeping customers satisfied, sustaining growth, and protecting an existing market from competitors and new entrants.

Risk assessment does not need to be complicated. You and your team’s knowledge and consensus opinion is often enough to surface your most significant concerns. So identify a few key risks, their implications, and how you will manage them. Then revisit as you learn more. The key is not to be “right” the first time but to keep validating your assumptions and surfacing new concerns as you progress.

A fun way to approach risk assessment is to hold a “pre-mortem” before kicking off a product initiative. Assume your product initiative failed. Then brainstorm why.

You’ll find a useful risk-assessment framework in the online materials at http://www.influentialpm.com.

1. Focus on Risks Not Readily in Your Control

A proper risk assessment does not focus on obvious or internal risks that are theoretically in the company’s control. Securing adequate resourcing, obtaining executive approvals, validating the product with customers, or testing secure and robust technology—none of these factors should be overlooked, but they are all within your control.

External risks may not be readily apparent, and if they are, you have probably figured out how to address them. Likely product risks include the following:

•   Customer comfort level or willingness to change behavior.

•   Customer interest and desire to pay.

•   Ability to market to or reach target customers.

•   Discoverability and adoption of product/features.

•   Invention of new technologies.

•   Systems, data, or technical complexity or stability.

•   Competitor reaction.

•   Partner or supplier cost or dependency.

•   Regulatory/legal guidelines.

2. Your Assumptions Are Also Risks

Don’t overlook assumptions you’ve made along the way, such as those in your target-customer and competitor analyses. Are you assuming how much your users will pay for your product? How many users you’ll convert into paying customers? How aggressively you can grow? Where the sensitivities are in your model? What, if wrong, could be problematic? Those are risks too!

As introduced in Chapter 1, it is natural to have cognitive biases (such as seeking data to support existing views or to be overly optimistic). This is particularly true when you are publicly advocating that your company is pursuing an idea—it’s natural to choose assumptions that put the product initiative in a good light. So balance those biases by objectively challenging your assumptions.

3. Prioritize Critical Risks and Have a Mitigation or Response Plan

Surface the risks that matter most—identifying and addressing a few (three to four at most) key risks. These tend to be risks that are both high in probability and impact.

A risk assessment is not valuable unless you make it actionable. Increase your chance of success by communicating the risks you are taking and how you plan to address them. Mitigating risks means acknowledging them beforehand—in your product discovery and development plan (for example, through testing early with users). Responding to risks means having a plan to address them if and when they occur (but not before).

4. Revisit to See Whether Things Have Changed

As you learn more, some risks will be replaced by new ones. Don’t become too focused on assessing risks, but occasionally revisit them. Look to see if anything has changed and whether further actions are needed. Critically, review your risks when you launch your product and monitor them closely.

Be proactive in communicating and responding to issues as they arise. Especially for new innovations, the risks might be high enough that stakeholders are concerned about dedicating resources towards the initiative. To address, start with a smaller scoped initial product, and ask decision-makers to commit enough to allow you to demonstrate whether the risks are material or not and then later to decide to invest in a complete product, should the initial step be a success.

If your risks are substantial, promise to do sufficient work to reduce or mitigate them, then go back for additional support. Don’t expect the full backing of decision-makers for a risky project without providing plans to mitigate or nullify the risks you’ve identified.

For example, in addition to gathering a small, but invaluable, amount of consumer insights from customer interviews and using the collective wisdom of the team and some trusted advisors, the Babylon team brain-stormed potential risks and scored them as shown in Figure 3.3. They identified issues with user confidence, local regulatory challenges, competitor moves, product predictability and stability, and supplier risk. They were then able to pursue customer discovery with more focus.