When Being Customer Driven is Dangerous

Is Being Customer Driven Great?

Being customer driven is great. Tap into the voice of the customer, and channel his wants and needs into compelling products and messages for rapid business growth, high profits, and stellar performance.

How can that be dangerous?

Simple- the wrong customer. You don’t tap into the voice of your TARGET customer in your TARGET market. And the ideal customer for you is often hidden in the silent majority- people who aren’t talking to you now because you aren’t talking about their needs, busy as you are talking to existing, different, customers. This is often seen where companies struggle to grow by focusing on departmental solutions, whereas a competitor pops up, sells enterprise solutions focusing on a different pain, and rapidly grows dominant and displaces them.

Being  customer driven can be dangerous because ultimately you don’t want customers, you want markets. So, if you are going to be customer-driven, make sure you pick customers that define the market you want go after.

Most companies fail here because they chase revenue. A noble and necessary pursuit, but one that is often contrary to defining and owning markets. They get a few customers or potential customers and start building to those customer requests. Building specific features for a market segment is not done because they aren’t current customers and they aren’t the generic customer profile that encompasses the entire market.

Worse yet, companies don’t want to lose any potential revenue and builds products for ALL markets.

They are customer-driven, but by current customers and/or all potential customers when they should be driven by target-customers as defined by identified market segments and marketing and sales strategy.

The result: sales cycles stay long, sales repeatability is random, and your success or failure is based on randomness of a few lucky breaks in both leads (in a single year you close 4 large deals instead of expected 2) and talent (the sales person who can really find and develop customers for new technology).

Geoffrey Moore makes this point very well in Crossing the Chasm, where the chasm is where sales are hard and expensive due to there not being a developed market and it’s associated product awareness, sales pipeline maturity, and potential purchase budget allowances.

Moore defines market as a group of people who have the same problem, the same solution need, and who reference each other. Two doctors needing billing software is a market, a plumber and a dentist are not.

A Specific Market is Easier to Market and Sell for Many Reasons

1. Your message gets passed along and discussed among like-minded people
2. Your early wins become strong references and encouragements to other companies in that market
3. P.R. and advertising is more powerful due to the potential of multiple touches to the same audience and single touches being passed along
4. Your website inbound marketing activities can be optimized to that group of people, needs, and solution requirements.
5. Your product development efforts focus on unique needs for that market rather then the generic market as a whole, making the product more exciting and usable, and hence more desirable and likely to be purchased.

You can find lots of counter-examples to this: Microsoft desktop products being a large one. They sell to everyone, and the market is everyone.

But these counter-examples share some common attributes: low value, low risk and low complexity in both product and sales process (complexity being the main cause of risk). This results in short sales cycles, simple buying processes, and little formal budgeting or planning (excluding bulk buys and standardization decisions).

People don’t really use these tools for much other then basic activities- writing and tables of data with some minor calculations. They know what the product does quickly, and can evaluate it’s usefulness and value quickly. If Microsoft desktop products suddenly disappeared, most people (the ones not using macros) wouldn’t be that impacted. They would switch to another tool and grumble for a couple of weeks. You can see the proof of this now where people are switching to a Mac for fun and change of pace with no real sense of loss or significant impact.

However, if SAP or Oracle disappeared, companies would be in serious trouble. The global economy would collapse, businesses would lapse into chaos, and it would take three or four years to switch to other solutions and recover.

This kind of software is high value, high complexity, and high risk.

This is where unique segments exist in desktop software: high value. A market segment that uniquely needs some functionality that is valuable to them. WordPerfect has survived in  the legal market, and other new markets have emerged profitably: screenwriting software such as Final Draft, novel writing software such as Scrivener for Mac, and Journal writing software such as MacJournal or Evernote.

A unique pain offers a market segment that can be chased and owned. The problem arises when you are first to market or near first to market. All that opportunity! Go for it all!

The problem with this and complex software is the high risk and diverging needs:

1. It’s scary and expensive to buy a high cost software. Even if the ultimate promise is positive, the chances of failure are high. Look at the early days of ERP with tens of millions of dollars routinely being written off.
2. It takes many years to have a complete product. If you focus on what’s common, segments will be better addressed by vendors focused on the value in those segments. If that value is more urgent, that vendor will rapidly become bigger then you, and, possibly, expand into your other segments and crush you.
3. Your sales cycle will remain long and extremely expensive since your product is high risk for everyone instead of being more fully developed and proven in a smaller market segment. This is product, brand, and solution category awareness- all of which much exist for several years to allow faster creation and processing of sales pipelines.
4. Your reference accounts are in different businesses and don’t really talk to each other. And if they do talk to each other (through you rather then ad-hoc conversations, job changes, magazine articles or other PR magic), they’ve solved problems that are different enough to not mitigate the high risk that scares them.

So this gets back to listening to your customers. Your customers, in large, will be a bit random and opportunistic. They are bits and pieces of problems and needs and they are all over the map. They are not a market- a coherent, focused set of people with similar problems, needs and who talk to each other.

There is a simple answer: define your target customer. This should take a lot from your existing customers, but narrows the focus to target fewer markets, thus going to market with higher value (from focused product development) and greater trust and awareness (from references as well as market awareness of you and your product category).

But while the answer is simple, the execution is not. Revenue pressures break the discipline needed to chase markets rather then sales. While this can be unavoidable in some cases, it is often self-inflicted by trying to grow fast when finances, market models and sales cycle models don’t support those goals. Chasing outside of your target customer profile is often wishful thinking and risk is loss of critical time and financial resources. Some detailed analysis of your lead generation, sales pipeline, and web site analytics can lead to a right size model for your company. However, in enterprise software, there is often no answer that isn’t burning money- hence crossing the chasm requiring venture capital.