Okay, this is probably the most important single lecture in this course. This is where we talk about what the connection is between customer segments, value propositions, and product features. It's like a three legged stool and you have to understand this in order to do a good job of customer discovery in building your business model. The Problem. How do you find which customer segments will find value in my product or service? And how do you find out what else my product or service needs in order to offer a value proposition to some customer segment? And how do you find these things without spending millions? That's the problem. There are lots of customer segments. There is any number that can potentially find value in this product or service. Everyone of them is probably going to need more than just your product to find that value, although, I hate to tell you that. And you want to find this out without spending a million dollars. Here's how you could do it. You could spend $5 or $10 million to explore customer segment one, and you find out that they need something that your product doesn't have. You could then spend $5 to $10 million exploring customer segment number two and ditto, find out there's another thing missing. That would be a way to find it out, a kind of brute force way. But I think it doesn't need any emphasis to say that that's not a very good way. So, the starting point from our point of view is to figure out what kinds of jobs customers need done. If you think about customers in a segment, there's stuff they want accomplished. We call them jobs, jobs like they need to deliver product, they need to keep to their boss informed, they need to keep the tools in good repair, they need to learn stuff, they need to progress in their career. Not all jobs are physical and not all are work-related. Some of them are emotional. It's a job in some sense to feel special. It's a job in some sense to feel cool. The job that they want to do is sort of lined up with their tower of wishes and woes. Which jobs are important to them? Which jobs are unimportant to them? And ultimately it's a question of which jobs are crucial to them and which jobs are trivial. Because it doesn't take going very far down the tower of wishes and woes to get to a part where just don't care or they don't care very much in order to solve their problem. If you do find a job where you think your product or service could be of help, how's it going to help? There's one kind of help, one class of helpful things you can do is gain creators. A gain creator makes them gain something on one of their jobs. Do they get more of whatever it is they need? Do they get faster of whatever they need? Better? Cooler? Unique? Delightful? Easier? These are gain creators. These are things that make the job that they have to do more productive. You can walk around with an Apple iPhone and you will be ten times cooler than if you walk around with an old Motorola flip phone. You can use our software and you will be able to process ten times as many medical claims as you can process today. So, will they help you gain something? You have to assess the gain. Is it relevant to them, is it relative to their Intensity with which they use it and the frequency with which they use it? So a customer may get a gain from something, but if they gain only 10% and they need to gain 50% in order to look good to their boss, then that kind of gain is not going to be helpful to them. And frequency. If something makes it much much better, but it only happens once a year, that’s probably not going to be a key gain creator for that customer. So it’s the customer, it’s the intensity of the improvement you bring about, and the frequency with which they need it or want it. The opposite of gain producers is pain killers. Pain killers are things that make some customer pain or unpleasantness easier. And it's important here to talk about pains versus needs. Life is full of pains. But we are talking about the pains that are real needs. They are things people have to get rid of very, very urgently. And here as with gains, we're talking about intensity and frequency. Is it a really, really intense pain and can you help them with it, and how often do they feel this pain? If they feel the pain once a year or once a decade, probably not going to be that urgent to them. If they feel an intense pain every day, that's something that's where your painkiller might come in handy. And will it reduce and eliminate the pain? Will it make the thing cheaper? Will it make it simpler? Simpler is a huge one. When I look for an investments to make, I look for companies that are going to solve a big problem, but they're going to do it in a simple way. If they don't do it in a simple way, it's of no use to the customers who might use it. Fewer hassles is a variant of simpler. Are there time costs, negative emotions, risks, bad stuff that needs to be minimized? Is the thing entertaining or appealing? Will it make people less unhappy than they are now? Will it fix a bad solution? If there's a bad way of doing something, is this a good way of doing it? Does it undo a thing that's a big hassle to do now. And does it affect social consequences? Is it good to do? Does it make the world a better place? Not a big deal for many people but for the right people, for the right customer segment, that's an important pain killer as well. So, if you have a customer job and you have a gain creator or pain killer and the job is important to them, that’s a winning value proposition. It's a gain creator or a pain killer for an important customer job. I think when you look at that definition, you see why you need to talk to customers. You need to understand their jobs. You need to understand what they consider gains and what they consider pains. And you need to understand the intensity and frequency of their gains and pain wishes in order to figure out how to get the best thing for them. If you simply go in there saying, I've got this thing that I believe is a pain killer for something that you don't care about, that's a no op, that's not going to happen. If you are missing the value proposition, if you're talking to customers and the customers are not getting it, there's common ways to tell that. One of the things is it's just a feature. If you have something that is not something that they buy separately, but is an improvement to an individual feature, then you can't sell that to that customer segment. Let's say you were an automotive genius and you invented a better rear differential for a car. There's no way you could sell a rear differential to people who buy automobiles. They don't care. It's not that it's not a problem for them, but it's just a feature of a car to them. They don't want to get a rear differential, they want to get a whole car. You've gotta sell something that's not just a feature. The biggest problem with value propositions is usually they're just nice to have. And there's two ways something could be nice to have. One is that the job that it's directed at isn't important enough. Let's say you have something that makes a difference in world peace and you try to sell this product to everybody. Well, as we know from our tower of wishes and woes, people don't care all that much about world peace. They're certainly not willing to spend much money on it. So you might have the best solution to world peace since the sliced bread, but you are not going to have any way to sell that to people because the job's just not important enough. The other way that something can be nice to have is if the pain relief or the gain is not substantial enough. When I look at companies that are going to make something faster, better, cheaper, my rule of thumb is it has to be at least a half an order of magnitude better. So that's at least 50% better or it's not going to be substantial enough. And even that may not be enough. The only way you can find out what's a substantial enough gain or pain relief is to talk to customers about it and find out. Another problem with value propositions, nothing to do with the value proposition is they're just aren't enough customers for it. This is a big problem with orphaned diseases, like Lou Gehrig's disease, and things like that. You can find something that would be very helpful to patients with that disease, but there just aren't very many of them. And so it's not a compelling value proposition for anyone to pay you for it. There's just not enough payers. Another very common one is, we have a solution already that's good enough. Now, a lot of people, when they do customer discovery, don't find out about these things because they don't ask questions about, how do you do it now, what's wrong with it, what don't you like about it? And it's very important to get into that because often, they're pretty happy with what they've got. There's a lot of people who make enterprise software which is a complicated way of solving a big enterprise company problem. And what they say is that people are using Excel to solve that problem now. Well the people maybe pretty happy using Excel to solve that problem now. It may not be that much of a pain for them. You have to be very careful of wading in somewhere with something that's quote better, but we're already doing it fine. Finally, there are things that are just too hard to solve. There are some problems like that and if you're looking at a business where it looks like you might have a value proposition with a particular customer segment and no one's doing that now or no one's doing anything like that now, look deeper. The chances are that someone's tried to solve that problem in the past and the problem's too hard, or there's some gotcha you don't know about and customer discovery will help you find it out. Finally, an extremely common value proposition is that your product or service is just incomplete. You don't have a complete solution. When you look at a value proposition, you have to look at all the things that make it usable by customers. And often the product or the service on its own just isn't enough. In fact, you can make a rule that the product really only delivers part of the value proposition. There has to be some way to buy it. So there has to be a website or a store. There has to be some way to teach people how to use it. You got to have some kind of employee training or consumer training. You need to help people buy it sometimes. You need guarantees, you need financing, you need to secure the right licenses and copyrights, sometimes when you're selling a solution, and there's a whole bunch of surrounding services that you need. You have to deliver it, you have to give service before and after the sale, you have to accept returns, you have to do some kind of customer support. It's probably a good general rule that your product is only going to be part of the value proposition and you have to look at the whole value proposition in order to sell it to people. So, here are the main points about customer segment, value proposition and product. A winning value proposition is a gain creator or a pain killer for a major, an important, a vital, customer job. Nice to have does not cut it. If you hear people saying yeah, yeah, that'd be nice, that's not good. You need people saying when can I get one? Do you have them now? I'd like to buy one, here's my wallet. Give me one. That's the kind of thing you need to hear, nice to have just does not cut it. And, finally, any product, any service is really part of a complete value proposition, and you need to find out what the other parts are and stick them into your business model.
