This is Step 1 of “4 Steps to Develop a Strategy”, focused on identifying a buyer and a value pool/pain point.
(1a) Identify a buyer
Anchor on a customer (or start with a few and aim to narrow them down to one). Whom would you be selling to? What organizations do they work for?
For example, your customer can be the marketing departments of large corporations (as it is for Facebook and Google), COOs of hospitals (as it is for manufacturers of operating room beds), or busy professionals (as it is for Blue Apron). The best customers are ones you and your founding team know well. My personal experience is that later, when you’re building a product, raising money, and selling a product, there’s so much less risk if you can say “I’ve been serving this customer for over ten years and I personally know their opportunities and challenges.”
(1b) Identify a high $ value pool
What’s the pain point (or untapped opportunity) for the buyer? How big is the $?
The next step is to identify the areas of highest cost savings or revenue growth potential for that customer; often these are well-known.
A value pool is the $ amount representing how much you and your buyers expect your product to alleviate a major cost driver or open a new revenue opportunity for a customer. Ideally, it is one of the top five items on a C-level leader’s mind. Finding a large $ value pool is important. Investors have a saying that the success rate of companies is the same whether they go after a big market or a small one, so invest in those that go after big ones. I use the term “value pools” and not “markets” because product strategy focuses on building new solutions; the term “market” implies that many competing solutions already exist, which may not be the case.
The best value pools are ones which buyers are already measuring and reviewing every month. Examples for businesses may include metrics such as too many hours spent doing X, too high of a product return rate, too high of a customer churn rate, or too few sales leads.
Who on the CEO’s team is accountable for the value pool? If it’s an area that’s measured today but no one is personally held accountable for it, you may find the lack of a buyer who will clamor for your solution. One such example could be employee turnover. Is the VP of HR on the hook? Or are the individual managers? Or is no one? It may vary depending on how the CEO allocates accountability.
Second best are the value pools which are abstract, noisier, infrequently reported, or harder to measure. For these value pools, it can be hard to know if a solution deployed against them is having an impact at ninety days, or even a year in. Examples of these more abstract categories might include: doctors not being prepared enough for rare medical events, employee happiness and morale being too low, and customers not being aware of a buyer’s product. These may keep a C-level leader up at night… but how are they measured and how can we prove that our product will generate an improvement on them over time?
Will the value pool grow and persist?
Is the value pool likely to remain unsolved five years from now? Is there a time limit like the fixes for Y2K had? Is there an obvious solution that everyone will have implemented soon?
The question of how the value pool will change (i.e. Grow? Shrink? Persist?) is often overlooked. It’s harder to get an insight into, but interviews with forward-thinking buyers should illuminate the most likely trends. For example, TiVo was a company in the early 2000s. It allowed cable and satellite TV viewers to pause, delay, or record TV shows that were live-streamed for later on-demand viewing. The customer need was that people wanted to watch content when they wanted to, not when TV stations broadcast it. But the massive trend was in content becoming internet-based and on-demand. That trend removed this value pool and there was no obvious replacement that TiVo could pivot into.
I was talking to someone at a kid’s birthday party recently and shared the criteria above. I realized it was a lot to remember so I said I should get it printed on a bumper sticker to help. I decided against it, but I tested out what it might look like.
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This article is an abridged chapter from a book of mine, 4 Steps to Develop a Strategy