📂 Customer research is the cornerstone of marketing strategy

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📖 The following is an excerpt from my work-in-progress book, Founding Marketing. It's a (very) rough draft of thoughts, notes, and research... so feel free to reply with your feedback on what I should expand more on and what needs to be clarified. Enjoy!

News flash: the hard part about product/market fit isn’t the product, it’s the market.

At the end of the day, a business is an exchange of goods and services with someone (psssst: that someone is your market).

Everything is dependent on the customer.

And understanding your customers better than anyone else is a competitive advantage

Remember how much easier a video game became once you found a cheat code?

If you’re looking to build a product people love, sell it the way your customers would prefer, and grow your business, you need to invest in customer research.

It’s the ultimate startup cheat code.

What I’ve found is that there are two types of companies:

1. Companies that invest in customer research
2. Companies that guess

In today’s market, features are mostly undifferentiated, there are more options to choose from than ever, and new startups pop up every day. The major difference between you and the next business is how well you know your customers.

Still not convinced it’s necessary?

Sure, you could make your best guess, assume some things based on what you know, or just operate based on past experience. But the fact is that we all know less than we think we do.

Your guesses, assumptions, or past experience could even be dead wrong. And that’s a scary place to be in.

The magic of customer research is that you don’t have to guess. In fact, your customers will tell you everything you need to know. You just need to ask.

Let me repeat that one more time:

You don’t have to guess. Guessing is bad. Don’t stake your business on guesses.

Customer research helps you close the gap between what you know and what you think you know. Don’t you want to be able to predict what your customers will do or say, instead of just guessing?

A lack of customer research can be the cause of many startup woes:

• Customers are signing up but they’re churning out just as fast as they come in.
• Marketing experiments are expensive, inconclusive, or under-performing.
• Prospects are expressing a lot of interest but just aren’t closing into customers.
• New features and products don’t seem to be making a difference to revenue growth or product/market fit.

Customer research can help cure every single one of these issues. In fact, I’d go as far as to say that it can cure almost every business problem related to growth.

Customer research is necessary for every aspect of the business: product, marketing, sales, customer success, growth, operations. It informs the strategy for each of these components.

So when we go over the next lessons on how to do customer research, I need you to remember the importance.

It can be tempting to skim over, shortcut, or just skip this part altogether.

But I urge you not to. Please don’t.

This is a crucial step that will inform every other factor of growth: product, model, messaging & positioning, and channels. And as we go through each one, you’ll understand why.

I don’t expect you to go out and practice all of it right away. In fact, it’s probably best if you go through everything first and then come back to actually implement.

Recap:

• Understanding your customers better than anyone else is a competitive advantage
• You’re either doing customer research, or you’re guessing, and guessing is NOT good
• Many business problems can be explained by a lack of customer research
• Customer research will inform your strategy across the business and unlock the insights you need to grow

The market you’re in will determine most of your long-term growth.

On April 1st, 2011, a man named Sahil Lavingia tweeted this:

“Just had an idea for my first billion-dollar company. Tomorrow, I start building it.”

Notice how he said his “first billion dollar company” by the way…

But that weekend he would build the first version of Gumroad, an e-commerce platform for creators to sell digital products. And then a year later he had $8 million dollars in funding and a big team and everything seemed to be moving in the right direction towards becoming a billion-dollar company.

Except they weren’t growing fast enough.

Four years later, he had to lay off 75% of his employees just to keep the company alive.

But today, Gumroad is actually very profitable and growing.

Gumroad didn’t become a billion-dollar company, but their revenue also kept growing despite having a quarter of the team, major blow to morale, some bad publicity, and really when everything else seemed to be going wrong.

And they kept growing, because they were growing with the market.

So your market will influence your size, but also your growth velocity.

For Gumroad, it was a double-edged sword. They weren’t growing fast enough because the market just wasn’t big enough and the demand wasn’t there, which caused the business to basically implode. But even though the business was imploding, they kept growing with the market.

Now, what is a market?

There are a few different components of a market:

• Who is your product for?
• How many of them are there?
• How much are they spending on products like yours?

“SaaS companies” is not a market

“SMB’s” is not a market

“E-commerce stores” is not a market

“20,000 B2B SaaS companies spend $1B a year on CRMs” is a market

So let’s start with who your product is for.

It’s entirely possible that you have an amazing product that you’re marketing to the wrong group of people.

Without customer research, many make the mistake of either having a far too narrow view of who their product is for or a way too broad view of who their product is for.

It’s either “we only sell to CTO’s at startups with more than 10 million dollars in funding” or “everyone can use us!”

It’s hard to see this when you’re so wrapped up and invested in the product. You have your own opinions, biases, aspirations, and personal uses.

Targeting a market that’s too narrow happens especially to products with really specific uses, where you can be blinded by broader applicability.

Targeting a market that’s too broad happens especially to products with a wide variety of uses: project management apps, CRMs, email automation tools, databases, etc.

The ideal scenario is to create a product specifically for a market, rather than find a market for your product. Building a product specifically for a market guarantees that the product you’re building will actually be something they will pay for and use.

The less ideal, but vastly more common, is to find a market for your product. You might need to make some tweaks, but this is all part of the process, and why the market is the first factor of growth.

There are a few different ways you can start your investigation:

(1) Figure out who you really care about

(2) Find the people who make the most of your product’s unique features and benefits

(3) Figure out which market (or segment of the market) is the most likely to pay and who you can reach with a reasonable amount of time and money

Listen: It’s easier to find new customers for your existing product than it is to build a new product for your existing customers.

We’ve got a couple of different concepts here to typically describe a market. None of which I’m particularly fond of to be honest but I think there’s an important lesson.

TAM – your potential customer base if you had 100% of the market

SAM – your potential customer base knowing you’re not gonna get 100% of the market

SOM – your potential customer base of what you think you can capture over time, given competitors

And then we have a different concept of the minimum viable market.

Everyone wants to reach the maximum audience. To be seen by millions, to maximize return on investment, to have a huge impact.

But what about the minimum viable audience?

Here’s what Seth Godin says:

The solution is simple but counterintuitive: Stake out the smallest market you can imagine. The smallest market that can sustain you, the smallest market you can adequately serve. This goes against everything you learned in capitalism school, but in fact, it’s the simplest way to matter.

When you have your eyes firmly focused on the minimum viable audience, you will double down on all the changes you seek to make. Your quality, your story and your impact will all get better.

And then, ironically enough, the word will spread.

If you could pick the members of this audience, who would you choose? Their dreams, their worldviews, their energy, all up to you.

If you could pick them and needed to delight them because you had no one else available, would your product or service improve? If you had no choice but to ignore the naysayers (they’re not in the group) or the people who don’t think they need you or your work, would that force you to stop compromising and start excelling?

Two things happen when you delight your minimum viable audience:

1. you discover it’s a lot larger group than you expected
2. they tell the others

On the other hand, if you aim for mass (another word for average), you’ll probably create something average. Which gets you not very far.

When you seek to engage with everyone, you rarely delight anyone. And if you’re not the irreplaceable, essential, one-of-a-kind changemaker, you never get a chance to engage with the market.

Here’s how we find this audience.

1. Industry reports: Companies and investment firms will often publish annual reports or summaries of what they find. “State of SaaS” report, “State of e-commerce” report, “State of blogging” report. Things like that.
2. Industry magazines and publications: Not only do they contain expert opinions on the field, but they also know very well how large their market is, as they are sold directly to members of that market. The easiest way to find out numbers here is to ask for the number of magazines they circulate. That can often be done by asking to publish advertisements in one of their next issues. Asking for the cost of an ad and the number of people who will see it will give you two critical insights: the audience number you’re after and the amount of competition you will have to expect for your audience’s attention.
3. Industry podcasts: They often feature interviews with C-level executives from big companies, so they are packed with valuable information about the industry. Often, the people being interviewed will talk about the market they operate in, including market size and growth rates. The great thing about podcasts is that you can just reach out to the host, and you will likely get an answer. Ask them about what you are looking for and how you can find it, and they will give you pointers or even numbers they have access to. Asking about advertising on podcasts might yield the same kind of interesting numbers that asking about advertisements in industry magazines would.
4. Conferences: Just looking at the vendor map of a conference will give you great insight as to the size of the companies, their position in the market, and the kinds of customers they serve. It will also allow you to find smaller companies that are in the same field but who you may not have heard of yet. For any important industry conference, download or explore the conference vendor map.
5. Search engine keyword volume: Search volume can be an indicator of how many people are actually out there looking for these types of solutions. Using tools like Ahrefs, Moz, or SEMrush, you can see the search volume for branded keywords, or in other words, the names of the companies in the space, related keywords that describe the software category, and the total volume of keywords related to that software.
6. Digital watering holes: Finding these communities is essential in determining market size. Facebook groups are often a good indicator of size. If just a tiny niche of people from the market you’re interested in already resides in a Facebook group of over five thousand people, you can expect the actual market to be quite big. If you can barely find a group at all, your audience may be too small or just somewhere else. Make sure to ask people who work in the industry to lead you to the place where they gather. This also applies to subreddits, online forums, forums, and other online groups.
7. Industry experts and influencers: These people are often influencers, publicly communicating about the market and the developments within. They have YouTube channels, an Instagram following, a Twitter community, and much more. Those are the people who you will find on industry podcasts and giving interviews on the industry blogs. Reach out to them. They will know exactly what is going on, how big their audience is, and what the market is doing.
8. Sales reports (private and public companies): Most companies are private and thus don’t publicly expose their financial data. However, you can find some information on how they’re doing financially either by looking at sales reports those companies provide themselves or by investigating their tax reports with the authorities under which they operate. Those are often semi-public, and you can request them for a fee from the tax or commerce agencies in the country of founding.

Demonstrated demand

Your end goal should be to be able to specifically target a market with a dollar amount tied to it, even if it’s an estimate.

This way, you’ll have concrete evidence of “demonstrated demand’ — proof that there is a market for a product like yours and that it can sustain a business like yours and the growth you want to see.

A market is a group of people who will not only use your product, but will also pay. And how much will they pay?

It’s key to look for buying behaviors. Things that stand out and tell you if there is a group of people who will buy your product and spend money on it.

A couple of the key questions we’ll ask in customer research is “What have you been doing about this?” and “What happens if you don’t find a solution?”

If no one is doing anything about their problem. If there are no complaints. No consequences. No pain. Then there likely isn’t a market.

In the example of Gumroad, people were coding up their own digital e-commerce solutions or paying people to develop them for them. They were hacking together different tools. They were finding a way to make it work, though not optimal or perfect.

In the early 2000s, people were downloading music onto their phones and finding ways to access the internet. Then there was the palm pilot. And then the iPhone — the iPod/phone/internet browser.

As Justin Jackson, founder of Transistor, likes to say, “It’s a lot easier selling ice cream on a hot day at the beach.”

When Derrick Reimer built Level, an alternative to Slack, he started asking new users what they were doing to reduce the noise in Slack and found that Slack customers just weren’t dying for a new solution. Were they googling for slack alternatives? Did they look in the slack settings? Did they try to find extensions or bots to help? Did they try to build their own? Nope. Red flags.

To recap, finding the size of your potential audience will require you to gather a lot of information from a lot of sources. Sifting through this information will take time, so plan accordingly. It’s always worth it to be personal. Reach out to people who have some standing in the respective markets and communities. Be truthful about why you ask, and people will be helpful most of the time. Some won’t be. There will always be skeptics, and some markets are full of them.

But if you’re determined to find out if a market is a good fit and the right size for your business, you will get there eventually. Determination is vital here, as in most parts of starting a new business.

Remember that many founders give up at some point during this process. Stick with it, and you’ll be ahead of the curve for sure.

Now let’s get into the “micro” view of a market, which is customer research and development.

Customer research is the act of learning more about your current and prospective customers in order to better serve them with your products and services.

Customer research is often synonymous with market research, user research, customer development, and other terms. And while there are certainly some nuances, for the sake of this article we’re going to generally treat them as the same.

Customer research helps you thoroughly answer key questions like:

• Who is the best fit for my product(s) and service(s)?
• Where can we find and communicate with them?
• What are they trying to achieve?

Ask yourself this question, “How well do I know my customers?”

If the most you can say about them is their job title, industry, age, and company size, you might not know them at all. I would go as far as to say that most “personas” or “customer profiles” don’t even qualify as customer research.

There’s a difference between knowing someone and knowingabout someone.

Not only should you know your target customers’ job title, industry, age, and company size, you should also know their biggest challenges, their goals, how they make decisions, who they trust for advice, where they go to learn, which communities they’re a part of, who they see your competition as, why they chose your product, and much more.

That is customer research.

Sure, you could make your best guess, assume some things based on what you know, or just operate based on past experience. But the fact is that we all know less than we think we do.

How are you supposed to build a product people will pay for if you don’t know who you’re building for? How will you know how to charge them if you don’t know the value they get out of it? How will you know how to position it and the words to say if you don’t know how they think about it? And how will you know where to find them if you don’t know who you’re looking for?

I’ll give you two examples really quickly:

A lot of people think that Airbnb had rocket ship growth from the beginning.

What they don’t know is that they launched it and worked on it for a year without getting any traction at all.

Then they got accepted into Y Combinator, Silicon Valley’s most famous startup accelerator, and one of the very first questions that Paul Graham asked them was “who are your users?”

They couldn’t answer that, but they did notice that for some reason they had a lot of users in New York, so they flew to New York, pretended to be photographers, and then while one person took photos of the Airbnb to make it a better listing, the other would sit down and ask the host questions, ask them to show how they use it, get feedback about how it was going.

And that was what really what kicked off their growth as they learned things that made a huge difference for them.

And then every time the founders got stuck, they’d fly back to New York to talk to their customers.

They don’t talk about it much but they attribute those trips and conversations to being able to find product/market fit and get traction.

Mike Volpe, the previous CMO at Hubspot and now CEO of Lola.com, tweeted this recently and this is one of the best practical ways I’ve seen for implementing customer research for the whole company.

He says, “one of my favorite meetings we have at lola.com is our ‘voice of the customer’ meeting. Sales summarizes why they are winning and losing deals and product and engineering listen and ask questions to understand.”

I love this because it covers the positives and the negatives. It’s super hard for sales to talk about why they’re losing deals and super hard for product to hear why it’s falling short. But it’s absolutely invaluable data. And it’s also powerful to review why sales is winning and how the product is succeeding, so you can double down on those things.

You want to create a feedback loop between you and the customer and your product that’s constantly collecting and analyzing data. In fact, the shorter the feedback loop, the better.

Here’s what Ruhal Vohra said in an article he wrote for FirstRound:

“We had set up shop and started coding Superhuman in 2015. A year later, our team had grown to seven and we were still furiously coding. By the summer of 2017, we had reached 14 people — and we were still coding. I felt intense pressure to launch, from the team and also from within myself. My previous startup, Rapportive, had launched, scaled and been acquired by LinkedIn in less time. Yet here we were, two years in, and we had not passed go.”

Ultimately, they were stuck.

So he turned to a surveying method (which we will cover) that ultimately led him to find clarity and build the Superhuman we know today that has undoubtedly gotten traction.

It’s all because of customer research.

So I’m going to cover three ways you can do customer research:

• Surveys
• Conversations, and
• Online research in “digital watering holes”

The reason why I cover all three of these methods is because you want to diversify your information sources, and each offers something that the other doesn’t. Surveys are great for mass collection, but often lack depth and you have no way to really dig into what someone’s saying and feeling. Conversations are ideal, but are hard to do right and time consuming. Online research is very honest and insightful, but is incredibly time consuming and also needs to be taken with a grain of salt since people are finicky and emotional and oftentimes biased.

—Corey

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