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Whether you are running a Fortune 500 corporation or bootstrapping a small business, finding new avenues for growth is challenging. Adding a new product or service can be time-consuming, expensive and risky. So before investing, you need to be sure the growth strategy offers value. The best way to test the waters is through customer-discovery research.
My experience working in high growth startups and now operating my own, CustomerDiscovery.co, has taught me the importance of building your startup around consumer’s pain points and goals. A customer-discovery campaign will expose where a business can improve and identify new areas for potential growth if executed correctly.
The majority of businesses find an opportunity for growth in four areas. Understanding your specific market is the only way to identify which strategy will work for your product or service.
Market penetration: starting fresh
Market penetration entails finding out what the business is doing well in an existing market and doubling down. Sometimes businesses need customer validation before they have the confidence to invest resources into a new product or service. Otherwise, they risk wasting time and money building something that users won’t find valuable enough to purchase.
Market development: venturing into a new market
Gap recently took a huge gamble to go after the uncharted resale market dominated by Nike, Jordan and Supreme with a $1 billion investment in Kanye West. Before the deal, no one could have ever dreamed of seeing Gap apparel on StockX. Today, all three of Kanye’s puffer jackets are listed north of $700 on the resale platform, and the stock is up 50% in the past year.
Product development: creating a new product in an existing market
Tesla’s strategy in the U.S. versus the rest of the world is a perfect example of product development. The EV giant is looking to expand EV adoption globally but is taking a different approach in the U.S. Telsa plans to release a Chinese-made $25,000 compact car to appeal to markets abroad while pushing the Austin-produced Cybertruck at home.
However, both plans could be derailed by the company’s latest proposal to end society altogether with the Tesla Bot. Hopefully, Will Smith is around to save the day.
Diversification: adding new products into an unexplored market
Big Tech companies are consistently attempting to expand their consumer base by offering new products or services. Apple AirTag, Facebook’s acquisition of WhatsApp and Twitter’s attempt to knock off Clubhouse are examples of diversification.
Using customer-research methods to find areas with growth potential
My expertise lies in helping companies identify which avenue they should take and how to execute the strategy. The process starts with creating a plan to get as much information out of their target audience as possible. Our approach is far beyond conducting multiple-choice surveys or card sorting: We use a combination of qualitative and quantitative analysis to find areas with growth potential through extensive customer-discovery research.
Our five-step customer-discovery process
Before diving into a new growth strategy to expand a company’s reach, we test the ideas through a five-step process. I’m going to use the example of a coffee-ordering app to explain our approach.
1. List your critical assumptions
What assumptions need to be validated for the new growth strategy to be successful? We ask operators to put their hopes, thoughts and doubts into writing before testing them.
In the case of a coffee app, they assumed people would want to order coffee before physically entering the store.
2. Convert to falsifiable hypotheses
Next, we convert the subjective statement from step one into a hypothesis by quantifying the interest needed for validation. Finally, the theory must be tested against minimum success criteria to determine if the growth strategy needs to pivot or move forward.
If we interview ten daily coffee drinkers and seven sign up for our coffee app’s waitlist, we move forward. However, if only one is interested in the idea, we pivot and explore other growth strategies.
3. Conduct customer-discovery interviews
We are moving forward with the growth strategy, and it’s time to hear from the early adopters of the new product or service. In this case, coffee drinkers who aren’t interested in standing in lines.
Interviews are where we get qualitative. We dig into the hopes, dreams and aspirations of the potential consumer. Getting quality results out of surveys or interviews isn’t as easy as asking a few questions. We use our experience to avoid swaying answers, ask open-ended questions and measure their pain. For example, “On a scale of one to ten, how frustrating is it waiting in line for your coffee every morning?”
4. Feedback analysis
Weigh the data against your hypothesis. During feedback is where you should find areas of growth that can be capitalized upon.
During a customer-discovery interview, we calculate a product-market (P/M) fit and net-promoter score (NPS). Feedback from two simple questions will deliver your P/M fit and NPS scores, respectively: “How disappointed would you be if this didn’t exist?” and “How likely are you to recommend this product to a friend or colleague?”
The product or market fit is established if greater than 40% of participants say they would be very disappointed if your product didn’t exist. NPS is calculated by ranking each answer and subtracting percent of detractors by the percent of promotors. We use the following to categorize each answer (<6 = detractor, 7-8 = passives, 9-10 = promotors). A NPS of above 20 is favorable, above 50 is excellent and over 80 is world class.
We recommend finding these metrics if you are operating a lean startup. Going in depth with methods such as affinity mapping and card sorting may not be necessary to find areas you can improve.
5. Focused iteration
As a startup, you are always looking to move as quickly as possible with limited resources. Conducting customer-discovery interviews is only half the fun; now, it’s time to use those insights to develop your product! Having real user feedback helps create a fine-tuned process for minimizing delta (the difference between what your product does and what your cusotmer wants it to do). Finding opportunities for growth may take multiple studies concentrated on specific aspects of the business.
Whether you are looking to identify a new growth strategy, validate the initial business idea or test your UI/UX, customer discovery is critical. All entrepreneurs need to keep a finger on the pulse of their potential consumers, and the only way to do it is by hearing from them. Identifying and testing growth strategies without customer discovery is possible, but you risk blowing through capital and, even worse, building something that nobody wants.