What is the purpose of this article?

Provide the board of directors, C-Suite, and investors with a framework to have the facts necessary to discuss the broad range of options to address customer loss.

You can download a PDF of this article from: What do you do if you’re losing customers V2

 What are the critical learnings in this article?

• You need facts regarding why customers are deciding to leave your company and fewer customers deciding to join. You will fail if you base your decisions on opinions and hopes.
• You need an understanding of how you ended up in this situation and then make the changes before you start the decision process on what to do. You will fail if the same people are using the same processes and approach to make decisions.

 What are your internal company facts regarding your cash paying customer loss?

• How many customers are you losing, by month?
• What is the churn rate?
• What is the lifetime customer profit you’re losing and what were the customer acquisition costs?

All of the above should be categorized by: target segment, cohort, customer persona, channel, and partner.

What has happened to the overall cash paying customer demand over time?  I.e. the market size

• What has been the trend in the overall number of cash paying customers?
• What has been the trend in their overall spending for your solution and the solutions from your competitors?

What is the cash paying customer and user perception of the value they obtain from your solution?

• Are your current customers recommending your company (if so why), or not recommend your company (if so, why not)? This is the NPS (Net Promoter) How does your NPS compare to your competitors and more broadly?
• When the customer began paying, what urgent problem or need did they have and what value were they seeking from your solution? Value can be tangible: (e.g. cost reduction, time savings) or intangible (convenience, feeling good, perceived risk reduction).
• When the customers left, what had changed in regarding the problems or needs they had and the value they were seeking from your solution?
• What reasons did the customer give for leaving?
• What are the benefits your customers obtain from your solution? These benefits can be tangible (e.g. cost reduction, time savings) or intangible (convenience, feeling good, perceived risk reduction)
• Why did your competitors’ customers not select you?
• How have the above changed over time.

 What have your learned from your competitors customers?

• Why did they not select you and why did they select your competitor? This requires historical and ongoing data collection.

How do you collect this data from customers

• You proactively engage with your customers, e.g. one-on-one interviews, focus groups, surveys, etc.
• What do customers ask and tell you in person; via emails they send; via questions, reviews and comments on your website or other social media; what they talk about when contacting customer service, etc.
• Analyze the value that customers achieve from your solution. How often do they use the functions which they have told you are of value? For example, if your company’s solution is helping customer teams to collaborate: how many teams are there, how many messages are they sending, etc. This assumes that you have built measuring tools into your products and service.
• Analyze what you observe of customer actions: e.g. retention rate, churn, etc.
• Analyse the financial aspects e.g. what is customer acquisition cost, customer life time profitability?

For all of the above data, analyse what have been the historical trends.  Whenever possible, benchmark your company against the competition.

How has your customer persona changed?

• What is the target customer persona?
• If you have a target customer persona, re-validate the facts in the persons.

Is the overall target customer market size shrinking?

• What will be the future market size?
• Will you still be able to grow the value of your company in this shrinking market? g. having 100% share of the target customers who want a physical keyboard on the phone results in a tiny company.
• Should you redefine who your target customers are?

Is the overall market size the same or growing?

The above data and analysis will reveal what changes are required in how customers perceive the value they receive from your solution. The new value proposition will then drive the internal changes your company needs to make.

What are your next steps?

• Collect and analyze the historical and current situation facts.
• Define the required talent (board of directors, C-Suite, advisory board, and external advisers) and decision making process.
• Assess your current decision talent and decision making process relative to the requirements.
• Make any required changes before beginning the decision making process.

There are many potential actions to take, including:

• Selling the company, doing acquisitions, doing divestitures, redefining who your target customers are, refocusing on what your target customers current urgent problems and needs are, changing channels, changing partners, making all of the internal changes necessary to achieve the desired actions and enable long-term success.
• Internal changes can encompass: company purpose, company values, morals and ethics, company decision making principles, composition of the board of directors, composition of the C-Suite including the CEO, composition of the advisory board, changes to corporate governance, changes to talent, processes, and technology.

 What further reading should you do?

What is the purpose of your company?

https://koorandassociates.org/corporate-governance/what-is-the-purpose-of-your-company/

How do you make strategic decisions?

https://koorandassociates.org/corporate-governance/how-do-you-make-strategic-decisions/

What are your company’s decision making principles?

https://koorandassociates.org/corporate-governance/what-are-your-companys-decision-making-principles/

Why are values and morals important?

https://koorandassociates.org/values-morals-and-ethics/why-are-values-morals-and-ethics-important/

The purpose of this article.

• Help the board of directors and C-Suite establish a common understanding of their cash paying customers and users. If your business model is a two sided market (e.g. Google would not have cash paying customers if there weren’t lots of free users of their search engine) you will need to understand both cash paying customers and users.
• This article provides an overall framework.
• This article applies to any business that depends upon cash-paying customers. This could range from:
  1. Early stage startups to long established global companies.
  2. Customers that are the general public to customers that are investors in investment funds.

You can download a PDF of this article from: Do you understand your customers V2

What are the critical learnings in this article?

• If your company’s customer understanding is less than your competitors, your company will fail.
• If your company’s customer understanding is out-of-date, your company fill fail.
• If your company and your competitors have little customer understanding, your company’s survival depends upon luck.
• Your need facts about how your customers perceive:
  1. Their urgent problems and needs.
  2. The financial and non-financial benefits they achieve from solving their urgent problems and needs.
  3. The benefits they are able to achieve from your solution vs the competition or status quo.
• You must continuously learn from your customers via:
  1. Customer Advisory Board;
  2. Surveys;
  3. Focus groups; and
  4. One-on-one interviews.
• Everyone in your company needs some understanding of your customers.

What is the process to understand your customers and users?

• The eight-phase process is set out below.
• The most critical part of the process is listening to what the customers and users are saying and observing what they are doing.
• You start out by listing your assumptions.
• Then you validate these assumptions via customer and user input.

Phase 1 Analyze third party market data.

• What have been the historical trends?
• What is the existing aggregate analysis of target segments e.g. geographic, social characteristics, demographic?

Phase 2 document your assumptions, whether or not you have existing cash paying customers and users.

Step 1: Define who your customers and users are.

• Identify the key members of the customers’ ecosystem? Users are most common.  There can also be influencers, recommenders, blockers, etc. e.g. Google’s cash paying customers are advertisers.  Google would not have customers if there weren’t a large number of free users doing searches.
• Who are your target customers and customer segments e.g. geographic, social characteristics, demographic?

Step 2 What does a day-in-the life of the customers and users look like?

• What are the points of the day when they have urgent problems, pains, needs which your solution may be able to help with. Rank these in terms of intensity and frequency of occurrence.
• What are the points of the day when they have problems or needs?  Rank the relevance in term of size of problem or need, and frequency of occurrence.
• What value would the customer achieve as a result of solving problems or meeting needs? g. time saving, saving money, making more money, reducing frustration, increasing happiness, increasing social standing, etc.
• At which points do they touch or become aware of your solution? These include: friends, colleagues, social media, conferences, publications, website, app, email, customer service, etc.
• How do the customers and users perceive the value of your solution vs the current situation and competitors?

Step 3 What is the market size?

Market size requires customers who realize they have an urgent problem or need, are willing to spend money to solve it, and can afford to spend the money.

• How many cash paying customers, and what would the revenue be, if you receive 100% of customer spending, regardless of distribution channels, and geographies?
• How many cash paying customers, and what would be the revenue you receive 100% of customer spending, with your current distribution channels and partners?
• What is your current market share? How many cash paying customers do you have, and what is the revenue? If you’re a startup, what are your assumptions for years 1,2,3?

Step 4 What is the customers decision making process and criteria?

• There may be several sets of decisions. E.g. whether or not to seek a solution, whose solution to pick, whether or not to exit a solution provider to move to another solution provider.
• There can be several roles involved (for customers who are individual consumers and for business customers). E.g. the decision by the person paying the cash, recommenders, influencers, etc.
• What is the decision making process? Who is playing what role?
• What are the criteria used by each person to assess: Is a solution required? Which solution should be selected? Should the current solution be exited and a new solution obtained?

Phase 3 Validate your assumptions by learning from your customers

You must learn from your customers:

• What do they think are their urgent problems and needs?
• What do they think are the financial and non-financial benefits of addressing their problems and needs?
• How do they perceive the benefits they can achieve from your solution vs the competition or status quo?

You learn from your customers via:

• Your Customer Advisory Board;
• Surveys;
• Focus groups; and
• One-on-one interviews.

The qualitative data you collect will require thematic analysis.

Phase 4 Additional input if you have customers and users

The single most important question is asking  “Would you recommend our solution to others?”  This metric is known as NPS (Net Promoter Score)¹.  Follow on questions could be “If so, why?  If not, why not”

A more detailed question would be: “How would you feel if you could no longer use our product or service?”²

• Very disappointed?
• Somewhat disappointed?
• Not disappointed – it’s not really that useful?
• I no longer use it.

At least 40% of your target customers must say “very disappointed”.  If it’s less than 40% you need to reposition/change your solution.  One approach can be to segment the answers to find a customer segment where the response is above 40%.

You must understand the group above 40%.  The 5 questions to ask them are: 1) who are you (demographically) 2) why did they seek out your product/service?  3) how are they using it 4) what is the key benefit 5) why is that benefit important?

Additional sources of customer input include:

• Follow up emails after customer and user interaction, customer purchase, or customer/user exit.
• Analysis of live chat discussions.
• Analysis of sales call logs.
• Analysis of app or website interaction.
• Analysis of customers and users postings in social media, including review sites.
• Survey kiosks at physical events.

Much of the customer input will require thematic analysis, because it will be qualitative and unstructured data.

Phase 5 Analysis of your company data

• What % of customers and users do you lose each month?
• What is the lifetime profit of a customer?
• What is the customer acquisition cost?

Phase 6 Combine all of the above data

• All of the above data may be combined and analyzed.
• You’ll have both quantitative data and qualitative data. The qualitative data will require ethnographic analysis.
• Different customer and user views include: by cohort, customer/user segment, geography, channel, partner, etc.

What is the value of all this data?

• It helps you reduce customer acquisition costs, increase lifetime profitability of cash paying customers, attract customers more quickly, and reduce churn.

How do you achieve this value?

• You prioritize your time and resources on what your customer would value, especially on the criteria which determine whether cash paying customers buy from you, your competitors, or remain with the status quo.
• Your team has a common understanding of customers, which enables more effective decision making and execution.
• Both your marketing and solution development are focused on enabling customers to achieve more benefits than the status quo or your competition.

Phase 7 Create customer persona for each target customer segment

What is a customer persona?

• It is an easy to read, no more than one page, description of the key characteristics of a target customer segment. It is based on facts you have directly collected from customers and from third party research regarding C&U.
• A persona is NOT hopes, dreams, wishes, personal opinion or individual anecdotes.

What is the value of a customer persona?

• A persona helps everyone in the company (from the most junior to most senior) to easily have a common understanding of the customer.
• Step 6 may produce a large volume of complex and hard to understand analysis.

How do you achieve this value?

• You communicate the persona throughout the company, including the board of directors, C-suite, and advisory board.

What does a simple cash paying business customer persona look like?

• The persona should be personal. Two aspects of the persona may be fictional: the photos and the names of the person.
• You may have more than one persona for a target segment, but then consider whether you in fact have more than one target segment.
• Remember that your cash paying customers may come from different backgrounds e.g. gender, race, etc.

What components could a simple cash paying customer business persona include:

• Photos:
• Name:
• Business role: e.g. Head of marketing and sales. decision maker, recommender, influencer
• Personal demographics : e.g. age 32-49, income: between $200,000 and $300,000 per year, Master degree, married with no children
• Urgent business problems: company is losing customers, attracting few new customers, customer feed back is that “terrible service”
• Criteria for making a decision: one hour meeting with the person leading and accountable for the solution. Building trust and connection with the advisor.

What could a complex cash paying customer persona look like?

• Photos:
• Personal background: age, marital status, number of children, education, location
• Job role: reports to xx; manages yy: key performance metrics for role; skills and knowledge
• Company or business unit information: industry, revenue, # of employees
• Business goals: what does success look like for this person e.g. bonus and promotion? What are the urgent problems and needs? What are critical objectives in the person’s business plan? What criteria are used to assess a solution provider
• What are personal goals and values: church volunteer, expedition travel, job security.

The Further Reading Section below has a link to an article with several examples of persona.

Phase 8 Continue the above 7 phases on an ongoing basis

• Understanding customers and users is an ongoing process not a one-time event.
• There are rapid and ongoing changes to: customer and user problems and needs, the competition, market sizes, regulation, the economy, new technology enable solutions, etc.

Your next steps

• Customize the above 8 phases to your specific situation. For example, the process to understand investors in an investment fund will be different from end consumers deciding to buy a $10 product once a week.
• Carry out the above 8 phases as quickly as possible. Don’t try to do a massive, 100% comprehensive and detailed effort. View this as a pilot, where you’re trying to get 80% of the value from 20% of the efforts. You might not even do all 8 phases nor every part of every phase.
• Establish the ongoing process. If this is not ongoing, sooner or later you will not longer understand your customers, resulting in your company’s failure.
• Assess the how much additional value could be achieved by improving the process. The best way to do this is via pilots and experiments.

Footnotes:

¹The Net Promoter Score concept was initially developed by Bain.  The following is a link to the Bain website homepage for Net Promoter Score, which contains several short articles:

http://www.netpromotersystem.com/about/why-net-promoter.aspx

The following is a quick overview of using Net Promoter Scores:

https://www.forbes.com/sites/shephyken/2016/12/03/how-effective-is-net-promoter-score-nps/#1b1391b423e4

 

² https://medium.com/swlh/in-search-of-a-better-way-to-measure-product-market-fit-584fa41d3840

What further reading should you do?

Customer persona examples

https://www.brafton.com/blog/strategy/persona-examples-from-around-the-web-and-why-they-work/

 Talk with 100 customers before launch your company or start thinking about potential major changes.

https://medium.com/build-something-cool/yes-you-should-talk-to-100-customers-before-launch-afa1962f5c7

Understand how your customers feel, by using a customer empathy map

https://www.futurpreneur.ca/en/resources/sales-and-marketing-skills/tips-tools/customer-empathy-map-understanding-your-customer/?path=pathway&section=explore

Make a list of customers and potential customers to talk to.

https://marker.medium.com/how-i-saved-my-startup-before-it-even-launched-32e565a166a1

The purpose of this article

• The goal is to help founders as they are launching their startup.
• The article is structured to help with potential customers interviews starting in the first week of the startup.
• The information in this article can be modified to help a later stage startup, a scaling company, or an established mature company.

This article is not intended to make you an expert in interviewing potential customers and analyzing interview notes.

You may download a PDF of this article from: How do you interview potential customers V2

What is a startup?

• A startup is a temporary organization designed to search out a repeatable, scalable and profitable business model with lots of potential customers who are willing and able to pay to solve their problems and needs.
• A business model describes how a company creates value for itself while delivering products or services to customers. What are you building and for whom.  What customer problems are your solving? What customer needs are you addressing?  What benefits and value are you enabling customers to achieve?

Why interview potential customers immediately?

You don’t want to spend time and money to build a solution for which there are no customers with a problem or needs for which they are willing and able to spend money.  You don’t want to build a cattle ranch for selling meat and then discover that your customers are vegetarians.

The following two articles illustrate the value of talking with customers before you launch a solution.

• https://marker.medium.com/how-i-saved-my-startup-before-it-even-launched-32e565a166a1
• https://medium.com/build-something-cool/yes-you-should-talk-to-100-customers-before-launch-afa1962f5c7

What must you learn about customers and users?

You need to interview both C&U (Customers and Users). Customers are those who give you money.  Users are those who use your solution but don’t give you money.  You must learn about both of those groups.  Google would not have advertisers if there wasn’t a large number of satisfied people doing searches.

What do you want to learn from your interviews?

There are 5 areas you want to learn about, in a variety of interviews.

• What are the C&U urgent problems and needs?
• What do the C&U believe is the value to them if their urgent problems and needs are addressed?  Value can be both financial and non-financial?
• When during the course of the day do C&U experience urgent problems and needs? How do they feel?
• How will the C&U daily experience change as a result of your solution?
• What is the decision-making process? E.g. who are influencers? Who are recommenders and advisors?  Who makes the financial decision?

The analysis of interview may reveal different C&U segments.

How do you analyze interview notes?

 Validating and invalidating assumptions as well as identifying new facts required thematic analysis of the interview transcripts. Two analytical approaches are used:

• Inductive – the data validates or invalidates assumptions
• Deductive – the data identities new facts or findings, other than the initial assumptions.

The Further Reading section has links to articles on how to analyze user interviews and how-to use excel in this analysis. As the number of your interviews increases, you’ll be able to analyze them by customer segment, and other characteristics.

The customer journey description in the initial interview is documented in the customer journey map.  The Further reading section has a link to examples of customer journey maps

 The analysis of your interviews, combined with 3^rd party market research, will help you determine the market size of each C&U segment.  E.g. Potential revenue = (number of customers with an urgent problem or need that they believe they must spend money on) X (what they are willing and able to spend).

 How do you document your interview learnings?

There are three sets of documents:

• The business model canvas, updated based on thematic analysis and customer journey mapping.
• The one-page summary thematic analysis of interview notes. This analysis validates or invalidates assumptions made in the business model canvas.
• The one-page page summary customer journey mapping, based on what the C&U say during interviews.

When do you interview C&U?

• You start interviewing as soon as you launch your startup, before you have spent any time or money to start build a solution.
• You continue to interview throughput the startup journey, as you start to build and validate that your solution addresses C&U problems and needs: Wireframe, proof of concept, functional prototype, pilot solution, initial MVP, enhanced MVPs, and product market fit.
• You continue to interview as your company grows.
• You never stop interviewing.

 What is the overall process?

• Day one of your launch:
  1. Create the business model canvas. It will likely be 100% assumptions.
  2. Create the customer journey map. It will likely be 100% assumptions.
  3. List the assumptions from the business model canvas you want to validate or invalidate, with the open-ended questions you’ll ask.
• Define the structure you’ll use for your customer journey map.
• Define the format of the one-page report you’ll create from your thematic analysis of interview notes.
• Schedule interviews with C&U, selecting C&U represented by your business model canvas. Before you start to build something, you will interview 100 people. Most people will likely decline to be interviewed which means you may be reaching out to 100s of C&U.
• Develop an interview guide, customized for the initial C&U interviews focused on their problems and needs.
• Two people must be on the interview, with one person taking detailed notes of what the interviewer said.
• Document each interview.
• After each day of interviews,
  1. Update your one-page summary thematic analysis.
  2. Update your one-page customer journey map.
  3. Update your business model canvas, based on your thematic analysis and customer journey map.
• The interview guides will need to be revised as you learn from interviews and as your startup goes through different stages.

What’s an example interview guide for the first problem validation interview with potential C&U?

• Start with 1-2 minutes of personal ice-breaking, based on your research of the interviewee.
• Set the stage for the interview. What are the objectives and how will the interview work.
• Collect some demographic information about the interviewee, focused on their business or lifestyle in the context of the problems you’re trying to solve.
• Set the problem context by telling the story of how you identified the problem and why you think the problem is important.
• Validate the problem by getting the interviewee to rank the urgency and frequency of their problems. Ask the interview if there were other problems which you did not identify.
• Test the solution. Go through each problem in urgency sequence and ask how the interviewee solves it today, what the value of a solution would be to them, and what this value would be.  This is a very free from discussion with you listening to the interviewee.  The interviewee may be begging for a solution may not care if there is a solution.
• Conclude by asking:
  1. if OK to come back to discuss your solution.
  2. if interviewee would refer other people for you to interview.

What are the dos and don’ts?

• Do define your target C&U and select potential C&U who are representative. For example, if you are creating a venture capital fund which will focus on providing investor exits within 3 years, do not interview potential investors who seek a 20+ year exit in-order to facilitate inter-generational wealth transfer.
• Do face-to-face interviews. Video calls are a distant second best.  Phone calls are a very distant third best.
• Do document the criteria for assessing the answers. This will avoid confirmation bias, in which you’ll ignore information which invalidates your hypotheses.
• Do not interview friends, family, or those you have a personal connection with. You need brutal honesty, rather than hearing from people who do not want to hurt your feelings.
• Do focus on the people who actually have the problem or need for which you are creating the solution.
• Do create questions which require quantitative answers or specific descriptions. Don’t ask for subjective or hypothetical feedback.
• Do create questions that help you understand how customers think, and why they take the actions they do.
• Do not talk about your solution in your initial meeting.
• Do not ask about price or what customers are willing to pay in the initial meeting. Do ask about the customers costs, budgets, etc.
• Do finish each interview asking “What should I have asked but did not ask?”
• Do create a data collection form for each interview. This will contain things such as: the description of the customer profile, your open-ended questions, which hypotheses were confirmed and why, which hypotheses were invalidated and why, which hypotheses you gained no insight into and why, what changes you should make for the next interview (target customer profile, hypotheses, questions to ask).

Other C&U understanding techniques to consider:

• Watch the C&U (or video record them) as they carry out their work.
• Actually do the C&Us work yourself.
• Focus on the C&U who is suffering the greatest pain and determine their work-around solution(s).
• Understand what the customers’ required outcomes are, as well the problems in achieving that outcome.

What are the challenges in interviewing potential customers

• The founders, or existing companies, passionately believe that they have created right solution. They believe there is no reason to interview potential customers. They are focused on building the solution and selling it. Their passion results in them being unable to listen to and understand what the customers are saying.
• The founders, or existing companies, believe any sales and marketing problems can be fixed by changing the sales deck and changing the website.
• The founders, or existing companies, are passionate that they have the right solution. Hearing brutal feedback from potential customers requires founders who are self-confident, self-aware that they don’t have all the answers, and have the ability to learn and adapt.  I’ve observed many people who are not able to learn and adapt.
• The founders lack the personality and skills to contact a large number of strangers to setup and conduct interviews.
• Doing interviews appears to be lack of progress. Building a solution is more fun and appears to be progress.

Your next steps

• Ensure your team has the skills and experience to interview C&Us and to analyze the results. These may reside either in team members or advisors.
• Build your interview plan in conjunction with your survey plan. You will be surveying far more people than you interview.

 Footnotes:

¹ “What is a business model canvas?”  The following is a link to my article https://koorandassociates.org/tools/what-is-a-business-model/

Further reading:

Creating an interview guide and interview process

The book “Lean Analytics – use data to build a better startup faster” by Alistair Croll & Benjamin Yoskovitz

Chapter 15 “Stage One: Empathy”

How to transcribe an interview

https://www.scribbr.com/methodology/transcribe-interview/

How to analyze user interviews

https://uxplanet.org/how-to-analyze-user-interviews-250fddb1e8d7

An example of using Excel and pivot tables for thematic analysis of user interviews

https://www.youtube.com/watch?v=P0gzlWNodKw

Some example of customer journey maps

https://blog.uxeria.com/en/10-most-interesting-examples-of-customer-journey-maps/