Startup Q&A Session with Brant Cooper, author of “The Lean Entrepreneur”
Brant Cooper, the author of The New York Times Bestseller “The Lean Entrepreneur”, gave an insightful startup Q&A session at Itnig.
Brant answers the following questions:
- What does ‘brand’ mean for a startup?
- How can a startup find its market segment?
- Should a startup focus on a large market or a niche market?
- How should a startup scale?
- How can a startup get more users?
- The problems of launching a product without being prepared
What does ‘brand’ mean for a startup?
What do most people think of when you think of a brand? You think of a logo, you think of the name of the company, you think of the colors that they use on their website… And for startups, none of that matters.
Part of what we redefining what a brand means is giving entrepreneurs control of what their brand is. In the US, you go and hire design agencies, super expensive creative geniuses who are going to ask you random questions and come up with what your brand story is, and suddenly “you’re going to be rich and famous” and it doesn’t work that way.
We want entrepreneurs to think of a brand being the relationship that you have with the customer. It’s a relationship that you have with a human being. In the old days, communication was one way. You heard of brands through radio or TV or newspaper. But now we know that communication is a relationship, that the customer talks back and the customer actually has more power. It’s not a one-way communication anymore.
You have to think of your brand as being everything that you purposefully do and even choose not to do in your relationship with a customer. Google, for instance, never offered tech support. You can’t talk to a human being. That’s fine, it’s part of their brand. Maybe it’s not bad and they’re very successful. And entrepreneurs get to make a choice like that.
Every decision is part of your brand. Think of everything that you do, the way you market, the way you sell, the quality of the products, or the cost of the products, everything establishes your brand. So once you start thinking of that in a very holistic way that it’s the relationship, then if you’re a lean startup, the fact that you maybe do real customer development and you go out and you interview your customers, that’s the first establishment of a brand.
Your customer thinks of you right from the beginning as somebody that cares about how they feel and wants to know what problems there are so they can solve them. That is the first establishment of the brand.
How to find the market segment
I think it’s critical that you not stay inside, that you go out and you meet your customers and you should be able to describe your customer. You need to hypothesize what your ideal customer looks like. What are their behaviors? What are their individual traits that relate to the problem that you’re trying to solve? Where do they hang out? Where can you find multiple of them?
When you’re thinking about market segments, it’s not about demographics. You’re not going after people who are “males between the age of 25 and 35 and live in Barcelona and drive BMW”. That’s not a market segment. What you want is a market segment to be is a group of people who share the same pain or passion and then speak the same language. I don’t mean that they all speak Spanish or English, but that they refer to each other to solve a problem or a passion.
You want to think about a brand as being somebody. All of the people that love to bike to work is a market segment because they share that same passion. Those people that are in that market segment will look to each other for the right kind of clothes maybe, or the quality of the bike or where do you get your bike repaired or all sorts of things that are related to this passion of biking to work together. That’s how you want to think of a market segment.
You should be able to answer the question of ‘who are these people?’ Then you should be able to go where those people hang out, and you can have a conversation with them and validate that you understand them and understand where they experience the problem that you’re trying to solve.
The deeper you understand the customers and the better the relationship you start to form with them, the more likely they’re going to become loyal to you. Hypothesize, who do you think could be your most passionate user? Describe who you think that person is. What makes people behave in some way? What is it about their character? You have to figure out where they hang out and that’s where you’re going to go market to.
It’s based upon your hypothesis of who that person is, what drives them, what motivates them, who are their friends, who influence their purchase? What kind of magazines do they read? What websites do they hang out on? You hypothesize that and then you go out into the real world and try to validate it.
Large market or niche market?
Usually, a niche is a subsegment of a larger segment. So by proving the value for that small subsegment, what you’re hoping is that you can take that win that you’ve had in the small segment and expand it out into the broader segment and then to the adjacent. But if you can’t do the small segment, you can’t do the bigger segment.
What you do with the niche market is that you’re finding among people a number of people that you can control. What is the value that I’m producing for them that they can get passionate about and creative about? And then you expand that market segment and you start testing whether that works outside of that niche market and you go to adjacent markets.
The mistake people make about thinking about niche markets is the assumption that you’re just going to stay with that niche market, hoping the niche market grows. Part of the niche market is to test and nail that core value proposition to find out who is the market segment that really loves it.
Who is Facebook’s original segment? It was kids in Zuckerberg’s dormitory. Isn’t that a new segment? I mean, the problem with that argument, which I hear all the time, of course, is you look at Facebook, and there are 1.5 billion active, engaged users. So people look at that stat, a multibillion-dollar company, and then they look at the start-up and they go “oh, shouldn’t the startup act like that one point five billion engaged user company?”
Facebook started as a startup. So the startup should actually act like the startup that was Facebook and not Facebook as a billion-dollar company. Facebook started with a narrow market segment, a dormitory, and then it went to the friends of the people in the dormitory and then it went to the college campus, and then it went to several other college campuses. And even by 2004, after Zuckerberg had moved to Palo Alto and Facebook was spreading around college campuses, Mark Zuckerberg was asked the question, what’s your vision for Facebook? And Mark Zuckerberg said: “Oh, well, some people want to change the world. I’m hoping to make a really cool college directory.”
How should a startup scale?
It depends on the type of business, but if you want a network effects business, it depends on viral coefficient, so you’re talking about exponential growth. You should actually see the exponential growth. If you don’t see the exponential growth, your product is not ready.
You should do what we call a velvet rope approach where you actually don’t allow the network to grow beyond what your test size is. So people have to request invitations or something like that. And so if your product is doing well, you actually should feel the pressure to give out more invitations. So if you nail it and people want to invite their friends and then you open it up, you should see this viral growth happen. And if it’s going to happen internationally, you should actually see that as well. You should see that it’s spreading.
But what really happens is, is that you see some growth and then you plateau again. You’ve got to run some more experiments to figure out what is the thing that’s going to get you to the next growth spurt. That’s how it really happens.
How can a startup get more users?
If you purposely use marketing to get as many people to sign up as possible, you might be completely bullshitting yourself that you’ve got a market because you worked hard to get a bunch of sign-ups.
You can go pay customers to come on board. You can give them something and they’ll come on board. But if they come on board and then they don’t become engaged users, then you’re wasting a lot of money on that marketing. You need to prove the value for that market, that people actually want to use that service with a very low cost for you to create new customers that you’ve measured their lifetime value.
That’s the equation: Is the lifetime value of my customer greater than the cost of acquiring the user? But if you’re acquiring users that don’t produce that lifetime value because you’re acquiring the wrong user or you haven’t proven the value to them, then you’re just spending a lot of money and not getting the lifetime value.
The problems of launching a product without being prepared
There’s a lot of non-lean startup stuff about Kickstarter campaigns these days. People spend a ton of money doing PR and marketing around a Kickstarter campaign when you don’t know if that’s going to be successful. People launch multiple Kickstarter campaigns now. They’ll do one that and test it out and learn from that before they go and try to do the big one.
The thing that gets people in trouble with Kickstarter campaigns is when they’re too successful. If they’re manufacturing something and suddenly they have one hundred thousand customers, they maybe have a couple of million dollars in the bank, but they have no infrastructure to deal with their customer support. They have no idea how to manage a million people that have just signed up for their product, they have no idea how to do manufacturing at scale or how to do international distribution, which is extraordinarily difficult.
People raise too much money on Kickstarter now because people are trying to raise as much money as they can. And really, you should be raising enough to prove that it’s viable. And actually, a lot of venture capitalists now will look at that as proof and fund companies that are successful at it. So if you do that, if it’s a piece of hardware especially, maybe you shouldn’t go after millions of dollars, you should go after a smaller amount of money that gets you to your next milestone.
This is like the premature scaling thing, like the TechCrunch bump. You can get on TechCrunch, it’s actually not that hard. They’re looking for stories and they can send you tens of thousands of visitors and you’re measuring the vanity metric of how many visitors you’re getting. And then after it sort of goes away, you’re left with what?
There’s actually a kind of a funny story. As I was judging a pitch competition in New York City, there was this guy that was building a Match.com for pets. And US media loves fluffy stories, so this was a great story. So he got on all of the morning shows with thousands of views. And this was all in his pitch.
“Here are all the TV shows I’ve been on. We’re getting hundreds of thousands hitting our website”. I was mean, I burst his bubble. I asked: How many users do you have? And he goes: Oh, ten thousand a thousand people sign up for the account. And so I asked: How many engaged users do you have? And the answer was “oh we have about one hundred people that are like logging on every week”. So my next question was: How many matches have happened? And the answer was “two”. So, there you go.
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