Getting Into Customers' Heads

1. Rich Mironov 23-March-04 Getting Into Customers' Heads

2. Themes • Most new products and services fail • Deeply understanding customers is the first step toward successful products • Expect to be surprised • Get into customers’ heads early

3. Agenda • Introductions • War story: medication management • Fitting products to customers or vice versa? • Failure modes • Pricing for customer value • Take-aways

4. Rich Mironov • VP Marketing, AirMagnet • Wi-Fi management software • 42 employees, 1800 customers, profitable • Silicon Valley veteran (1981) • Big companies: HP, Tandem, Sybase • Start-ups: Wayfarer, iPass, Slam Dunk, AirMagnet • Product management, mentor consulting • Worked with 15 start-ups in 2 years • Monthly “Product Bytes” column

5. Know What You Know • Things I know • Enterprise computing and networking • Corporate Internet services • Security protocols and products • Pricing for enterprise customers • Things I don’t know • Consumer electronics and home computing • Non-tech markets • Fashion-driven buying behavior • Large-scale advertising

6. War Story: Healthcare • Concept-stage start-up • Application to manage inventory and re-ordering of patient medications • What should application do? Is there a market? • Wide-ranging one-on-one interviews… • Long-term nursing facility • Leading private-practice spinal surgeon • Large acute care hospital • Lots to learn, many surprises

7. Extended Interview Format • Get inside their heads • 2 hour intensive in-person interviews • Open-ended questions, lots of listening • Record session if possible • Ask about… • How their business works • Terminology • Natural units of work • What keeps them awake at night (pain) • Current solutions, alternatives, shortcomings, competitors • Unstated requirements • Pricing and ROI dimensions

8. Long-Term Care Facility • Stable group of 15-30 residents (patients) • Elderly, chronic illnesses, complex mix of medications • Residents each have own doctor • Families often pay for meds • Several local pharmacies, varied ordering lead times • What keeps them awake at night? • One patient runs out of something • Lost meds, refused meds, stolen meds • Notifying family of status, problems • Low-wage workers, high turnover • Dream applications: auto-renew each Rx as needed, auto-notify families of changes in resident status

9. Spinal Surgeon • Private practice, 100+ active patients • Mostly on-the-job, Workmen’s Comp • Chronic back pain notoriously hard to verify • Skilled and stable staff • Doctor, 3 nurses, office manager, receptionist • Most meds are controlled substances • Therefore, no refills without an office visit • What keeps them awake at night? • No-shows, appointment reminders • Drug seekers • Scheduling office hours, surgery, pro bono • Dream app: auto-confirm appointments

10. Large Municipal Hospital • Serves broad community • Paying and non-paying patients • Many departments, complex processes • Legacy systems • Doctors prescribe, pharmacy dispenses • What keeps them awake at night? • HIPAA: Health Insurance Portabilityand Accountability Act • Avoiding supply “stock-outs” • Cost containment • Can’t “restock” meds if unused • Dream application: secure, integrated patient information tied to real-time dispensing & costing

11. What Did I Learn? • Healthcare is wonderfully complicated • Superficially one segment • Endless opportunity to be surprised • Four interviews was not enough • Postponed design and targeting solution • More interviews or narrower target? • 8 hours well spent

12. How Much Interviewing is Enough? Ready to move ahead when • Starting to anticipate answers • Spot “natural” market segments • Understand customer’s internal logic • Priority of requirements are obvious • You are now getting “insideyour customers’ head” ?

13. “I can’t stop for gas or I’ll be late for the party.”

14. Post-Course Corrections

15. Take-Aways #1 • Get out of your chair and find out what’s real • The world is a surprising, complex place • Climb into some customers’ heads

16. Agenda • Introductions • War story: medication management • Fitting products to customers or vice versa? • Failure modes • Pricing for customer value • Take-aways

17. Which Comes First? • Technical innovators:Find a market • Solution builders:Address a need

18. When Products Come First Typical Silicon Valley start-up: • Brilliant technologists • Innovative research • Patent-pending algorithm • 100 architecture slides • Customers as after-thought

19. With thanks to Ryan English, Ohio State Advanced Computing Center for the Arts & Design

20. Example, Circa 1996 • PointCast: advertising-driven “push” • Concept play • Sponsored “channels” • Banned from corporate nets • Wayfarer: internal corporate “push” • Real-time alerting • Internal database events • Emergency browser pop-up

21. Who Needed Corporate Push? • Find a market for new technology • First step: define its features • Semi-real-time (0.5 to 2 seconds) • …from a database • … to a browser • … for a human • … occasionally • Second step: look for a fit • Stock ticker? • Heart monitor? • Inventory update?

22. Wait on In-Depth Interviews Narrow the field quickly: • Find diverse subject experts • Tell technical story • Listen for suspects • Rapidly eliminate candidates Then deep customer analysis

23. Spotting Customer Problems First Who: solution experts, consultants, integrators • Start with a problem • Existing area of expertise • Assemble simplest solution • Incremental improvement, known technologies

24. “Subject Expert” Risks Often not “product people” • Assume all users are like them • Broad needs vs. idiosyncrasies? • Underestimate effort to completion • Narrow exposure to technologies May miss breakthrough solutions • MRI came from physicists, not doctors

25. Example: Residential Contractor • Successful builder and renovator of houses • Wrote unique planning software • Is there a market? • Homegrown, undocumented • Unsupported freeware database • First need to teach customers his approach • Not enough time, money to “productize” it • Not an ongoing business

26. Take-Away #2 • When products come first, need broad search for relevant problems • When problems come first, need broad search for solutions • Then climb into customers’ heads

27. BREAK

28. Agenda • Introductions • War story: medication management • Fitting products to customers or vice versa? • Failure modes • Pricing for customer value • Take-aways

29. Audience Poll • Worst requirements failure? • Best excuse for not doing customer research? • Shortest MRD deadline?

30. Early-Stage Failure Modes • Build a product with no customer in mind • Validation via industry survey/focus group • Not a priority for buyer • Incomplete solution (ecosystem)

31. 1. No Customer in Mind • “Everyone should want one of these” • Enterprise and SMB; novices and enthusiasts; teens and retirees; US and Europe… • Technology-driven • Field of dreams (“if we build it…”) How to tell: • Everyone is in your target audience • All segments look alike • Sales doesn’t know how to qualify a prospect • Objections are unrelated, surprising

32. Example: Wireless Access Points • First impression: wireless gear is all the same • Home wireless market • Low price, low price, low price • Simple to set up • Enterprise wireless • Many security options • Remotely configurable, manageable • Rugged (long MTBF) • Hot-swappable, field upgradeable

33. 2. Validation via Market Survey • “Gartner forecasts Wi-Fi up 200% this year, and every user will need encryption…” • Everyone receives the same report • Trailing-edge data • Ignores objections, barriers to entry • Ignores existing and new competitors • What is your unique advantage or competence?

34. …and Focus Groups • May be helpful, directional • Image-conscious products • Consumer goods But • First reactions only • Capture marketing messages, not behavior • A few speakers dominate • Easy to hear what you want to hear

35. Example: Interactive Television • Several rounds of trials since early 90’s • Analyst forecasts, consumer research • Major players convinced each other • Microsoft, Time-Warner, Oracle, Sun, Sybase… • Read each others’ white papers • $100M’s spent • Cable and Internet are mostly good enough

36. 3. Not Enough of a Priority • More than just money • Customer spends time, attention making a choice • Ongoing effort and investment • Is problem important enough to solve? • Budget • Minimal objections • Top 5 or 10 existing issues • Much harder to sell against unfelt need

37. Example: Strong Authentication • Extensive academic research into identify verification • Often funded by government grants • Simple passwords are easily bypassed • Many alternatives • Long passwords • Hardware token • Biometrics (retina scan, fingerprint) • Device restrictions • …endless combinations • Usually combined with strong encryption • How well do these sell?

38. Simple Passwords Still Dominate • Everything else is too hard • Tokens and “dongles” get lost • Long passwords forgotten or written down • Retina scans invasive, scary • Risk is mostly theoretical • Corporate data leaks out other ways • Usually something more important to buy • Different for military contractors

39. 4. Incomplete Solution (Ecosystem) • Products and services must fit in • Replace one part of broader framework • “Unplug, plug and play” • Easy to forget friction, barriers to substitution

40. Customer data Existing widget Your New Product Legacy box Existing gadget Partner app Third party thingie Other stuff Every Product Architecture Chart…

41. …Like This One

42. Customer data Existing widget Existingsystem core Legacy box Existing gadget Partner app Your New Product Other stuff …Yet Customers Want This

43. Example: All-Electric Cars • Many technical challenges • Bigger infrastructure challenges • Where do I recharge it? • Safe sharing road with fast gasoline-powered cars? • Working within the infrastructure • Hybrid gas/electric cards

44. Take-Aways #3 • Pick a target customer group • Identify specific needs • Understand broader solution environment • Trust your own information first

45. Agenda • Introductions • War story: medication management • Fitting products to customers or vice versa? • Failure modes • Pricing for customer value • Take-aways

46. Customer-Friendly Pricing Units • Buying is a process • Want the product • Grasp the pricing model • Haggle about the price • Easiest with “natural” pricing units • How does customer size the problem?

47. What is the Key Metric? • Hospitals are sized in “beds” • Airlines in “passenger-miles” • Pharmacies in “prescriptions” • Hotels in “room nights” • HR departments in “employees” • Assembly plants in “trucks per day” • Chip fabrication in “yield” and “wafer size” • Sales force automation software in “seats”

48. Car-Buying Units • Purchase (car) • Bank loan (payment) • Lease (month, mile) • Rent (day) • Taxi (1/5th mile) • Share (trip) • Borrow (hour) • Steal (previous convictions)

49. Long Distance Calling • Used to be in “minutes” and “state/country” • Now lots of possible plans • Per minute • Per month (MCI Neighborhood) • Per call plus per minute (10-10-987) • Per month plus per minute (AT&T One Rate) • Local plus long distance • Same provider (Friends & Family) • … • Rearranges target audiences, competition

50. Customer Commitments “by the drink” “by the month” No commitmentHigh variable costs Lower volume Uncertain usage Optional Actively manage costs MUST KEEP MARKETING Big commitmentLow/no variable costs Higher volume Predictable usage Required (cost of business) Low cost control effort HARD INITIAL SELL