“On Finding a Market” Wiser Next Week for Business #5

Wiser Next Week for Business is a follow up to the original Wiser Next Week. Similar to its predecessor, it takes the knowledge of many and condenses it into one categorized book. This time, rather than focusing on the reader’s personal life, the matters of work and career are discussed in greater detail.

Wiser Next Week for Business will be released chapter by chapter.

“When you’re following your inner voice, doors tend to eventually open for you, even if they mostly slam at first.” -Kelly Cutrone

Why it Matters: Would you build a building in the middle of the Sahara Desert? No right? It’s basic supply and demand. There must be people wanting what you’re offering before it becomes a viable idea.

Competition is Good

The existence of competition means the existence of a market which proves the validity of your business model, so you can spend more time developing your offer instead of proving a market exists. You don’t have to worry about a dead end as you already know people are buying. Companies like Uber and Airbnb had competition long before the concept of these companies even existed. People had always needed to get from Point A to Point B and people need a roof over their heads. Taxis and hotels have existed for a long time to fill this need, but Uber and Airbnb arrived in the market and served certain sections better.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.” Sun Tzu, The Art of War

That is not to say that competitors are enemies, think of them as rivals. The best way to observe your rivals is by becoming a customer. Buy as much as you can of what they offer. Observing your competition from the inside can teach you an enormous amount about the market: this includes what value the competitor provides, how they attract attention, what they charge, how they close sales, how they make customers happy, how they deal with issues, and most importantly, what needs they aren’t yet serving. As a paying customer, you get to see what works and what doesn’t before you commit to a particular strategy. Learn everything you can from your competition, and then create something even more valuable.¹

In a competitive world, adversity is your ally. The harder it gets, the better chance you have of insulating yourself from the competition. If that adversity also causes you to quit, though, it’s all for nothing. When most people around you quit and you are among the last still standing, that is value. If you want to be a superstar, then you need to find a field with a steep barrier between those who try and those who succeed. And you’ve got to get through to the other side. If you can make it through when the system in place is designed to make you stop, you will achieve extraordinary results.²

Understanding Buyers

Asking good questions is the best way to identify what your offer is worth to your prospect. In SPIN Selling, Neil Rackham describes the four phases of successful selling:

1. Understand the situation

2. Define the problem

3. Clarify the short-term and long-term implications of that problem.

4. Quantify the financial and emotional benefits the customer would experience after the resolution of their problem.

Instead of barging in with a premature hard sell, successful salespeople focus on asking detailed questions to get to the root of what the prospect really wants. Seek first to understand, then undertake the challenge of winning them over to your way of seeing things.

For instance, say that your prospect is a college student that grew up without many of the luxuries that many of us take for granted. They arrive in college being only able to financially afford a college education because she received a full ride scholarship through sheer will and determination. The problem arises in that the city in which the university is located, Anywhere, USA, is heavily influenced by those students that come from families that are more well off. Individuals like our young scholar who come from an underprivileged background make up a sizable part of the student body, but their needs are relatively unmet. One such unmet need is the lack of fresh food markets (i.e. grocery stores, farmer markets) that are within walking distance.

Those students that are more well-endowed have no problems driving a car that their parents paid for several miles to the nearest Walmart. But those not so fortunate feel their options much more constricted in this “food desert.” Outside of hitching a ride from classmates, carless students are a captive audience to on campus eateries which are grossly overpriced and notorious for contributing to “Freshman 15.” Some students even think that the university does this on purpose to increase the school’s revenues. In the short-term students are more likely to put on a few extra pounds, but perhaps more damaging is that in the long term a lack of easily accessible healthy foods lead to poor eating habits after college as well as a larger burden of student debt from overpriced meals.

If you were to step in and add an easily accessible alternative to the pizza and burgers diet to the less wealthy students, not only will you be rewarded by fulfilling the unmet and neglected needs of a grateful market, but also the community in which you serve will be better off because of your contributions. There is no better way of leaving a lasting impact then by touching the lives of others.

By encouraging your prospects to tell you more about what they need, you reap two major benefits. First, you increase the prospect’s confidence in your understanding of the situation, increasing their confidence in your ability to deliver a solution. Second, you’ll discover information that will help you emphasize to the prospect just how valuable your offer is.

If you discover why, how, and how much your offer will benefit the customer, you’ll be able to explain that value in terms they’ll understand and appreciate. Understanding the value you can provide your customers is the golden path to a profitable sale.³

Find Someone Who’s Solved Your Problem

Ask yourself, “Who else is struggling with a similar problem, and what can I learn from them?” To break out of a narrow frame, we need options, and one of the most basic ways to generate new options is to find someone else who’s solved your problem. This is also known as synergy in some circles where 1+1=3. Others such as Napoleon Hill, author of Think and Grow Rich, call it the mastermind group where several people put their heads together which leads to new ideas being formed that previously wouldn’t have existed. When searching for others working towards the same pursuit as you are, keep in mind that sometimes the people who have solved our problems are our own colleagues.

To illustrate this point, let’s say for instance that you are working towards becoming an expert in the health and fitness industry. In order to build authority and legitimacy in your field, you are writing blog posts on different aspects of physical well-being such as diet, exercise and lifestyle. As a relatively new and untested website, you’ve been struggling to get your voice heard in a cyberspace that is crowded. Instead of trudging forward all by yourself, you look around in your industry and identify someone else who’s in your field but is a few years ahead of you. You like the results they’ve achieved and ask them for guidance. They advise that in a world where there are countless blogs on the web, no one will find yours if there is not already a brand behind it. He encourages you to repurpose your content. Use bite sized snippets of your blogs and post them on Linkedin. Take advantage of the visual aspects of your blogs by posting them on Instagram. Contact those in your industry and find anyone knowledgeable in the health and wellness field to interview in a podcast. Consolidate all those blog posts into one piece of cohesive content and publish it as a book. This is about incorporating new ideas and fusing them with your own.

At first, you’ll be replicating what others have done before you, but eventually you’ll get your creative juices flowing to the point where you’ll begin connecting the ideas you already have with ideas that suddenly pop up, this is how new ideas are formed. Ideas are derived from connecting old ideas in different ways which forms new ideas. The car for instance was created from connecting the already known fact that people need transportation, knowledge of the wheel and the use of crude oil as fuel.

Going back to the health and wellness example, say that you begin posting food for thought on Linkedin in a mainly text based format. Brand awareness becomes reasonably better than if you’ve posted strictly blog posts. As you progress, you become increasingly aware that visuals are far more captivating than a block of test, so you begin transitioning your content on Linkedin. You begin incorporating more and more video and picture material into your post which becomes more attention grabbing then that of your peers using mainly text. This gradual shift leads to an increased viewership and engagement with you and your brand.

When you need trustworthy information, go find an expert, someone more experienced than you. Just keep them talking about the past and the present, not the future. It’s what they have done in the past and what they are doing in the present that got them to where they are and the success they’re enjoying. The past and present are fixed and thoroughly grounded on facts, the future is filled with unpredictability.⁴

Take the First Shot

When you’re making a product for a market don’t wait for the perfect product. Create a MVP, Minimal Viable Product. Create a product that does not have all the fancy gadgets and features. Give the basics to early adopters. They are people that try a product, usually for a price and they give you feedback on it. This indicates to you whether people will actually use the product before you actually put it in the market.

Some companies spend excessive time to build a product that people don’t even want. Most of the features they add take months of planning and preparation. This is putting the 80/20 principle into effect. When creating a product, only put in 20% of the features that 80% of customers will use. Keep in mind you are focusing only on the bare minimum. Don’t assume the market wants anything you are creating. Instead, use a build, measure, learn feedback approach. This involves building something really cheap and fast and putting it in the market. Give it to a select few people. Learn what they like and don’t like. It is counterintuitive, but smaller batches are much better for new businesses

They appear inefficient but allow faster turnaround for the product leading to a more rapid iteration cycle. It helps in earlier detection of a problem as well as quick feedback from the customers. Adjustments for what the market wants and does not want can be made early on leading to less time spent on fruitless tasks and more time invested in building something people actually want. Toyota used the small-batch approach to compete with its much more capitalized American counterparts whose batch sizes were relatively bigger. A small competitor was able to outdo a more established player by detecting what buyers actually wanted and capitalizing on it. Start with an MVP, then learn what you can change about the product to make it better. Then you do this over and over to create the best product. You try to make the cheapest and fastest way to test it. This is to be the best in learning what the market wants.

After several cycles, there are two options, pivot or persevere. Pivot, as in keeping your big picture in mind, but changing the method in which you reach it, and persevering defined as keep doing what you’re doing. If your minimal viable product is working, keep going. If it is not working, pivot by changing the product, features and/or audience. Many entrepreneurs regret delaying the pivot. Vanity metrics, not having a clear success hypothesis, and being afraid of failure are the usual causes of the delaying the pivot.

Vanity Metrics: Taking the opinion that what you say and do defines your future and current success. It’s a matter of saving face essentially where you are unwilling to change because doing so makes you believe that you are wrong.
Unclear Success Hypothesis: If you don’t set clear standards on which you can evaluate whether an experiment is a success or failure, how will you know whether to pivot because things aren’t working out or persevere because things are going your way. Having unclear standards leads to the use of vanity metrics rather than cold hard facts.
Fear of Failure: Putting MVP’s out into the market means getting feedback that you don’t agree with because they’re not your ideas. But that’s part of the whole process. You are reconciling what you think your audience wants with what they actually want. The kinks and setbacks are discrepancies between the two, think of them not as failing to see wants and desires of your prospects, but as having discovered a better way in which to serve your market.

To give you more insight, here are several forms of pivots you can act on:

Zoom-in Pivot: Where a current feature becomes the new product. (i.e. Paypal originally supported payments via personal digital assistants, a predecessor to smartphones, as well as the web. After discovering their customers were primarily using email, they dropped support for PDA payments to focus on what the majority of their customers want.)

Zoom-out Pivot: Where the current product becomes a feature of the new product. (i.e. LinkedIn began as a popular, but limited platform allowing business professionals to post and share their positions, achievements and endorsements. But over time, the company added things like lists, groups and limited advertising among members to enhance the social network benefits of the product. This has the effect of users spending more time and more active time on the LinkedIn site, as opposed to simply using it as a static resume linking prospects and colleagues.

Customer segment Pivot: Where the target customers change (i.e. Eloqua launched as a chat/messaging application designed for the financial services industry. But that industry never warmed to the product and considered it non-essential. Eloqua pivoted to a different customer segment, focusing on companies needing an efficient way to increase lead generation. Eloqua was later acquired by Oracle for over eight hundred million dollars. They found a new core customer that really needed the product.

Customer needs Pivot: Where the customer base remains the same, but the product changes to suit them more (i.e. Starbucks began as a retailer of coffee beans, but of course ended up as a retailer of freshly brewed coffee and other foods. Today customers can buy whole bean or ground coffee by the pound at Starbucks locations, but the compelling need that still drives millions to the company’s stores daily is a cup of fresh brewed coffee on the spot.

Platform Pivot: Where the product changes from a single use product to a platform for the other products (i.e. Flickr began as an online role-playing game within which one feature was a photo-sharing mechanism. The platform of a roleplaying game never caught on, but people were interested in the photo sharing app, so much that the company was acquired by Yahoo!

Value Capture Pivot: Where the way business makes money changes (ie. Berkshire Hathaway, the sprawling holding company helmed by Warren Buffett was originally a textile manufacturer that took off in 1839. Buffett took control in 1962, though, and by 1967 he started to move outside of textiles into insurance and other sectors.)

The Engine of Growth Pivot: Where how business reaches new customers changes.

Channel Pivot: Where the distribution channel for the product changes (ie. The NFL recognized that many customers could not watch their favorite teams when they lived outside of the local TV market, the NFL created a for-pay channel called “Red Zone,” where fans can watch, commercial free, every second of every game live even if they couldn’t attend the games in person or watch it on local TV.)⁵

Who’s Getting Screwed?

Go where people are getting the short end of the stick. What would you find if you broke down business to an atomic level? At its core you’d see this: Each dollar earned is the result of a transaction. People pay money and in return receive a product or service along with a corresponding experience. Therefore, a fundamental question to ask is: “How can we improve people’s experience here?”

This is a viable first step when seeking to step foot in any industry. The truth is that the crummier the current experience of customers is, the easier it is for you to improve it. Wherever people are getting screwed over by the current system is an opportunity for you to strike. The worse it is and the longer it’s lasted, the bigger the opportunity. Take for instance Robinhood, which allows individuals to invest in publicly traded companies and exchange-traded funds listed on U.S. stock exchanges without paying commission fees. After the financial crisis of 2008, a lot of people felt screwed by the financial and banking sector. Robinhood stepped in to address these needs, their proposal was this: instead of lining the pockets of the big brokerage firms, buy and sell stocks for free. In essence it takes money that would have gone to the wealthy and gave it to everyday people. As a secondary feature, Robinhood also presented itself in a way that was appealing to the up and coming younger generation. Instead of needing large sums of cash to get involved in investing in the stock market and needing a desktop to place orders, you could do it all on your smartphone. Robinhood therefore found an untapped and underserved market and has been rewarded for it. Look around. Where are you getting screwed? How can you improve this?⁶

Whenever trying to bring someone into your business, keep your focus on people over profit. People are the cause, and profit is the end result. Profit comes from people endorsing what you have to offer, as a result you must win people over before they’re willing to support you. People’s hearts must open up before their wallets open. It’s about feelings just as much about needs. Here are some key overarching milestones when trying to win people over:

Empathy: Where you connect with other people to determine a real problem that they have and is within your ability to solve. A key part of empathy is understanding what they want first before trying to solve any of their problems with your offer.

Stickiness. Where you discover how to efficiently solve other people’s problems in a way where people would gladly say, “take my money!” People willingly transact because they believe they are getting more value out of what they’re buying than the hard-earned cash they are parting with. Give people more value than you’re earning in cash.

Virality. Here you build product features that keep people coming back and referring friends to make the product itself better. Give people something worth talking about with their circle of friends, family and associates. A part of that is having an offer that has a “cool” factor that people tend to like attaching themselves with. This can take the form of a discount of a product already on the market (i.e. commission free stock trading), a functional feature (i.e. a jacket that packs down to the size of a tennis ball, etc.

Revenue. This is when you start growing, expanding, and making sure you’re profitable. A sustainable business model needs more cash coming in then going out. Revenue is half of this equation.

Scale. When your company tries to enter new markets and starts hiring a lot, you know you’re scaling up. This often takes form in working on your current customer base, if someone has already bought from you and leaves with a positive experience, they’re more likely to buy other products from you as well. Earning repeat customers often leads to creating raving fans along the way that will advertise and promote your products on their own free will, especially if it boosts their social standing among people around them.

Let’s go back to our Robinhood example. The co-founders Vladimir Tenev and Baiju Bhatt were both 20-somethings in the aftermath of the financial crisis and saw the people around them getting dealt a bad deal by the major brokerage houses. To solve this, they created an app that allowed everyday people to trade commission free without enriching the financial system they felt cheated by. This encouraged more and more people to use the platform. With a solid basis, Robinhood added more features such an interest-bearing account, trading cryptocurrencies and stock options to build up their platform. More people and more features gradually meant more revenue, allowing them to continue pushing boundaries in new markets.

Building and scaling all starts by finding one pain point in the market and solving the issue. Find the one metric that matters most, depending on what stage you’re in, focus only on one, key metric at a time and give it your all. Robinhood focused on growing wealth inequality in American society, more and more equity (percentage wise) was being held by people in the top tiers in the socioeconomic class. By creating commission free trades, the cost of entry is virtually eliminated, and by creating a trading platform that focuses on mobile devices, younger generations are more likely to use the platform. You bring the creativity, and the data brings the measure that interprets the results of that creativity.⁷

Takeaway: A viable business plan all boils down to basic economics, supply and demand. Before you bring the supply of the product or service there has to be a demand first. Proof of demand can be in the form of competition already being present in the market, the question then is, can you do it better? Demand can also take form in people complaining about what is currently being offered in the market, can you give people what they want? Work over the solutions, not just with yourself, but brainstorm with others. You’ll come up with ideas neither one of you would have thought of on your own.

“The Personal MBA: A World-Class Business Education” Josh Kaufman
“The Dip” Seth Godin
“The Personal MBA: A World-Class Business Education” Josh Kaufman
“Decisive: How to Make Better Choices in Life and Work” Chip Heath and Dan Heath
“The Lean Startup” Eric Ries
“Finding My Virginity” Richard Branson
“Lean Analytics” Alistair Croll and Benjamin Yoskovitz