According to Bloomberg, 8 out of 10 entrepreneurs who start businesses fail within the first 18 months. The three main causes are:
- Not being in touch with customers
- Not developing a business differentiator
- Not being able to communicate the value proposition in a clear, concise and compelling way
Over and over, new businesses fail because they don’t do their homework when it’s needed most and truly don’t understand their customer’s persona.
Over the years, I’ve met plenty of people with solid business ideas. What they do next is likely the ingredient that determines if their business can weather the storms that businesses face in the first 18 months.
There are no guarantees in life. But diligent, up-front research can improve the business’s chance to succeed while saving time, money, and heartache. There are three fundamental research concepts every new business should explore:
- Personas
- Total Addressable Market (TAM)
- Customer Validation
Personas Defined
With your idea in hand, think about who benefits from your product or service. Will this group view your business as a nice-to-have or a must-have?
In an ideal world, business owners define as early as possible their target market and the personas therein.
Most consumer-oriented businesses map out broad target market characteristics. This might look like “consumers between 18 and 34 with an annual income of $25,000-$50,000, who rent and are single with no kids.”
Business-to-business target markets might look like “business with annual revenue of $25M-$250M, fewer than 1,000 employees.”
Broad audience definitions help you hone in on the group most likely to buy your products and services, but it’s too shallow to help you understand the next layer of detail required to truly understand how consumers will use your product in everyday life.
To ensure your business isn’t another failing statistic, it’s imperative to develop personas. Then meet and talk with your target personas! Understand what they think about how your product will improve their personal or work life.
Below are a few examples of well-defined personas.
Catherine, CMO, A Buyer Persona
Job Experience
Catherine has been with the marketing department of a large financial services company for 21 years. She started as a marketing analyst for a satellite office. She grew the marketing for an extremely profitable product division. She was recently promoted as CMO but knows CMOs don’t last long – 2-3 years on average. But with her extensive experience, she hopes to last longer than average.
Education & Technical Background
Catherine has an undergraduate Degree in Marketing and an MBA. To stay current, she reads her LinkedIn page and Flipboard for industry trends, thought-leadership, and insight published by competitors and adjacent companies. She attends elite CMO events by Gartner and Forrester focused on innovating with data, orchestrating exceptional customer experience, and sourcing and structuring for success.
Product Background
Catherine has used many marketing products in her career. But it’s been years since she was a power user, and she lacks the first-hand experience with modern marketing software. She is the one to sign off on major software purchases to execute marketing strategies. Despite this, she relies on homegrown dashboards and team-generated reports from marketing systems of record. This is the information that she uses for designing strategies to carry out her vision.
Responsibilities
She keeps a constant eye on the marketing budget. Although her team of about 100 people hasn’t had a budget increase in years, their responsibilities continue to grow. Her team handles all marketing channels – website, direct mail, email, social media, and broadcast media like TV and billboards. She and her team must ensure consistent messaging and engagement across channels. In planning this year’s marketing strategy, she partnered with her CIO peer to ensure alignment across departments.
The company’s customers increasingly discover and buy through digital channels. This shift means she needs to keep constant track of all channels to find the best way to spend her annual budget.
Deborah, Director Digital Marketing, Buyer and User Persona
Job Experience
Deborah has 12 years of digital marketing experience — four years with a mid-market agency and eight with a large omnichannel retailer. With early digital marketing experience, Deborah has been an advocate and early adopter of social and paid media to expand cross-channel engagement strategy.
Education & Technical Background
Deborah has an undergraduate degree in marketing. She doesn’t consider herself to be technical, but she grew up with the web and is entrenched in technology. She taught herself to edit HTML templates and basic website DIV and CSS structures. She works with data scientists to model active and inactive shopper segments by digital channel. She’s a thought leader who frequently writes digital marketing ‘how to’ and ‘best practice’ articles for trade publications. She always reposts her work to LinkedIn. LinkedIn groups related to marketing, customer engagement, CMO, and technology help her stay informed. With client-side experience, Deborah is frequently asked to speak at top industry conferences where she’s learned to successfully network.
Product Background
To manage day-to-day execution at the agency, Deborah used point solutions like Google Analytics, Shoutlet, and MailChimp. Now she uses more sophisticated tools for messaging, analytics, and testing. She believes technology can improve her team’s workflow and throughput. She’s always looking out for tech innovations to improve engagement and drive rising revenue targets.
Responsibilities
Deborah’s staff includes the Email Marketing Manager, Search and Display Managers, several data analysts, and oversight of their digital agency. Her team leverages best-of-breed marketing solutions to execute Paid, Owned and Earn digital strategy.
She’s an expert in attracting and converting shoppers into web, display, and social. She interprets analytics to learn about shopper behavior across channels. She knows shopper demographics and how to address target segments with campaigns. Deborah knows how to turn merchant needs for promotions into successful messaging and campaigns.
A well-crafted persona provides a vivid picture of your buyers and users. A full appreciation for each persona’s daily life will suddenly simplify marketing. The intimate persona details are a map for sales and marketing talking points that speak directly to your audience. When it’s time to develop a marketing strategy, persona definitions will help you create accurate targets.
Total Addressable Market (TAM)
Calculate the total addressable market for your product. If you’re a local business, understand the size of the nearby target market population, how far people will drive, and their need for your service. If your business is extensible via the web, how many people or businesses that fit your target market are likely to buy your services? It’s important to spend time defining your total addressable market. You’ll need this information for revenue and growth projections.
Customer Validation
The last step is to speak with buyers and users about your offering. After you describe or show your offer to prospective buyers, try to understand how much or little they value it.
Questions to get you started:
- Do they see a need for the product?
- Is it something they can leverage frequently? How frequent?
- Do they have anything that offers the same or similar value? If yes, what do they like or dislike about it? If no, have they ever looked for something like it?
- How much would they pay for a product or service like it?
- Where would they expect to buy a product like this? E.g. Online, Store, both?
- Do they know anyone else who uses something like it?
- Do they think it would be valuable to other people in their circle?
So you’ve defined your total addressable market and persona types! The means you’ve laid the groundwork for revenue forecasting and market planning.
Don’t overlook or underutilize the feedback from prospective customers. Each conversation is a wealth of directional advice that’s hard to come by before the front doors open. In Digitile’s case, we have a small group of trusted advisors early access and asked for feedback on our unified view of all company documents. No matter where they’re stored. Their insight was invaluable. Before going live, we implemented loads of comments to improve user’s experience.
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