9 Tips for (Re)discovering Your Customer & Building a Successful Business Model
As cloud-based services and shrinking hardware margins continue to push evolution in the channel, many legacy partners are rethinking their business models, and new entrants are being creative in how they structure their company. The fact is that the needs and wants of the target customer for most channel partners are changing–and quickly making traditional reseller business models extinct.
For both channel newcomers and veterans rethinking their business models, the process of (re)discovering their customers can be daunting. Ten years ago, figuring out what customers wanted was pretty easy. They needed processors, storage hardware and Microsoft Office. Customers today are a completely different story. The rise of line of business (LOB) buyers, cloud applications and shadow IT is changing customer demands.
As the customer changes, partners are searching for a scalable, repeatable business model to fit their needs. The tricky part is that when you start a new business, or pivot an existing one, you're essentially operating on a series of guesses. You form well-researched hypotheses for how your business will execute your vision, but you need a plan to test customer reactions to those hypotheses and turn them from guesses into facts. This process is called customer discovery.
The good news is that countless startups and businesses executing a pivot have gone through this process before you, and therefore stumbled in most of the common pitfalls. You can learn from their mistakes–and successes. Here are nine tips for structuring your customer discovery process and getting your business from conception to reality.
1. Leave the conference room and talk to prospects in the field. You can theorize all day long about what business model will best execute your grand vision, but until you see your target customers in their native habitats, you don't have any evidence to support your hypotheses.
2. Embrace agile development processes. The entire point of customer discovery is to tweak your ideas until they fit what the market is demanding. If you have a rigid process that requires you to reinvent the wheel every time you make a change, you're going to run out of money before you get off the ground. Make sure your engineering and sales teams are able to iterate with speed and agility. When creating your business plan, make sure it's dynamic and flexible so it can react to what you're learning when you're talking to customers.
3. Embrace failure. If you're not failing at some point, you're not learning. Very few founders hit the nail on the head with their first vision. Failure is an essential part of success in business, so don't shy away from it. Admit when something isn't working, figure out what you should learn from it and soldier on.
4. Actively test your hypotheses. In order to know if you've landed on the right model, you have to see it in action. Testing during the customer discovery phase can be as simple as presenting your idea to a good sample set of customers and gauging their reactions.
5. Rethink your KPIs. If you're using the same metrics to measure success with your new model as you did your old reseller business, you're looking at the wrong numbers. When you're just starting out, your P&L or cash-flow forecasts will pretty much be useless. Instead, focus on iterating based upon your customer interviews and field tests, and then measure the success. Have you identified a clear problem and provided a solution that satisfies customers? Do you have a healthy mix of services that provide decent ROI on your time? Are your salespeople closing at a satisfactory level?
6. Choose your team wisely. Surround yourself with people who don't panic in the face of chaos. It's going to be a bumpy ride until you get the kinks worked out, so make sure your team has the confidence to weather the storm and stay positive despite mistakes and setbacks. They need to be passionate about your vision and comfortable with stepping in wherever they're needed, even if it isn't in their job title.
7. Don't get ahead of yourself. This is common sense, but it's worth saying. Don't hire a big sales team before you know what your offering is. Don't invest in an expensive marketing campaign before you're certain what your customers want. Save your cash until you've done your field research and developed the go-to-market strategy that executes on your vision. Then don't be afraid to double down on it with your reserves.
8. Communication is critical. You can't learn from your mistakes or successes if you don't talk about them with your team. Suggestions and feedback from customers, employees and investors is vital to getting you on the right path, so be as transparent as possible during your customer discovery process.
9. Make sure all stakeholders are on the same page. If you're operating on a basis of continual change and agility, but your engineering team is using a waterfall development system, you'll be stalled in the water. Investors need to know your timetable will change and your forecasts will fluctuate. Every person with their hands in your business needs to be on board with your iterative mindset.
You can read more about customer discovery in Steve Blank and Bob Dorf's excellent manifesto The Startup Owner's Manual, which is recommended reading for anyone trying to build a new business model.
In the rapidly evolving channel landscape, there's not yet a proven path to success, especially for resellers trying to turn their businesses to an MSP model. Partners need to be flexible in order to find the right model that works for their customers.