Transcript Agenda - Rich Mironov`s Product Bytes

Getting Into Customers' Heads
Rich Mironov
23-March-04
www.mironov.com
[email protected]
©2004
Themes
 Most new products and services fail
 Deeply understanding customers is the first
step toward successful products
 Expect to be surprised
 Get into customers’ heads early
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Agenda
 Introductions
 War story: medication management
 Fitting products to customers or vice versa?
 Failure modes
 Pricing for customer value
 Take-aways
3
Rich Mironov
 VP Marketing, AirMagnet
 Wi-Fi management software
 42 employees, 1800
customers, profitable
 Silicon Valley veteran (1981)
 Big companies: HP, Tandem, Sybase
 Start-ups: Wayfarer, iPass, Slam Dunk, AirMagnet
 Product management, mentor consulting
 Worked with 15 start-ups in 2 years
 Monthly “Product Bytes” column
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Know What You Know
 Things I know
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Enterprise computing and networking
Corporate Internet services
Security protocols and products
Pricing for enterprise customers
 Things I don’t know
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Consumer electronics and home computing
Non-tech markets
Fashion-driven buying behavior
Large-scale advertising
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War Story: Healthcare
 Concept-stage start-up
 Application to manage inventory and
re-ordering of patient medications
 What should application do?
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Is there a market?
Wide-ranging one-on-one interviews…
 Long-term nursing facility
 Leading private-practice spinal surgeon
 Large acute care hospital
 Lots to learn, many surprises
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Extended Interview Format
 Get inside their heads
 2 hour intensive in-person interviews
 Open-ended questions, lots of listening
 Record session if possible
 Ask about…
How their business works
Terminology
Natural units of work
What keeps them awake at night (pain)
Current solutions, alternatives, shortcomings,
competitors
 Unstated requirements
 Pricing and ROI dimensions
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Long-Term Care Facility
 Stable group of 15-30 residents (patients)
 Elderly, chronic illnesses, complex mix of medications
 Residents each have own doctor
 Families often pay for meds
 Several local pharmacies, varied ordering lead times
 What keeps them awake at night?
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One patient runs out of something
Lost meds, refused meds, stolen meds
Notifying family of status, problems
Low-wage workers, high turnover
 Dream applications: auto-renew each Rx as needed,
auto-notify families of changes in resident status
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Spinal Surgeon
 Private practice, 100+ active patients
 Mostly on-the-job, Workmen’s Comp
 Chronic back pain notoriously hard to verify
 Skilled and stable staff
 Doctor, 3 nurses, office manager, receptionist
 Most meds are controlled substances
 Therefore, no refills without an office visit
 What keeps them awake at night?
 No-shows, appointment reminders
 Drug seekers
 Scheduling office hours, surgery, pro bono
 Dream app: auto-confirm appointments
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Large Municipal Hospital
 Serves broad community
 Paying and non-paying patients
 Many departments, complex processes
 Legacy systems
 Doctors prescribe, pharmacy dispenses
 What keeps them awake at night?
 HIPAA: Health Insurance Portability
and Accountability Act
 Avoiding supply “stock-outs”
 Cost containment
 Can’t “restock” meds if unused
 Dream application: secure, integrated patient
information tied to real-time dispensing & costing
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What Did I Learn?
 Healthcare is wonderfully complicated
 Superficially one segment
 Endless opportunity to be surprised
 Four interviews was not enough
 Postponed design and targeting
solution
 More interviews or narrower target?
 8 hours well spent
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How Much Interviewing is Enough?
Ready to move ahead when
 Starting to anticipate answers
 Spot “natural” market segments
 Understand customer’s internal
logic
 Priority of requirements are
obvious
 You are now getting “inside
your customers’ head”
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?
“I can’t stop for
gas or I’ll be late
for the party.”
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Post-Course Corrections
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Take-Aways #1
 Get out of your chair and find out what’s real
 The world is a surprising, complex place
 Climb into some customers’ heads
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Agenda
 Introductions
 War story: medication management
 Fitting products to customers or vice versa?
 Failure modes
 Pricing for customer value
 Take-aways
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Which Comes First?
 Technical innovators:
Find a market
 Solution builders:
Address a need
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When Products Come First
Typical Silicon Valley start-up:
 Brilliant technologists
 Innovative research
 Patent-pending algorithm
 100 architecture slides
 Customers as after-thought
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With thanks to Ryan
English, Ohio State
Advanced Computing
Center for the Arts &
Design
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Example, Circa 1996
 PointCast: advertisingdriven “push”
 Concept play
 Sponsored “channels”
 Banned from corporate nets
 Wayfarer: internal
corporate “push”
 Real-time alerting
 Internal database events
 Emergency browser pop-up
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Who Needed Corporate Push?
 Find a market for new technology
 First step: define its features
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Semi-real-time (0.5 to 2 seconds)
…from a database
… to a browser
… for a human
… occasionally
 Second step: look for a fit
 Stock ticker?
 Heart monitor?
 Inventory update?
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Wait on In-Depth Interviews
Narrow the field quickly:
 Find diverse subject experts
 Tell technical story
 Listen for suspects
 Rapidly eliminate candidates
Then deep customer analysis
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Spotting Customer Problems First
Who: solution experts, consultants,
integrators
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Start with a problem
Existing area of expertise
Assemble simplest solution
Incremental improvement, known
technologies
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“Subject Expert” Risks
Often not “product people”
 Assume all users are like them
 Broad needs vs. idiosyncrasies?
 Underestimate effort to completion
 Narrow exposure to technologies
May miss breakthrough solutions
 MRI came from physicists, not doctors
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Example: Residential Contractor
 Successful builder and
renovator of houses
 Wrote unique
planning software
 Is there a market?
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Homegrown, undocumented
Unsupported freeware database
First need to teach customers his approach
Not enough time, money to “productize” it
Not an ongoing business
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Take-Away #2
 When products come first, need broad search
for relevant problems
 When problems come first, need broad search
for solutions
 Then climb into customers’ heads
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BREAK
www.mironov.com
[email protected]
©2004
Agenda
 Introductions
 War story: medication management
 Fitting products to customers or vice versa?
 Failure modes
 Pricing for customer value
 Take-aways
28
Audience Poll
 Worst requirements failure?
 Best excuse for not doing customer research?
 Shortest MRD deadline?
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Early-Stage Failure Modes
1. Build a product with no customer in mind
2. Validation via industry survey/focus group
3. Not a priority for buyer
4. Incomplete solution (ecosystem)
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1. No Customer in Mind
 “Everyone should want one of these”
 Enterprise and SMB; novices and enthusiasts; teens
and retirees; US and Europe…
 Technology-driven
 Field of dreams (“if we build it…”)
How to tell:
 Everyone is in your target audience
 All segments look alike
 Sales doesn’t know how to qualify a prospect
 Objections are unrelated, surprising
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Example: Wireless Access Points
 First impression: wireless gear is all the same
 Home wireless market
 Low price, low price, low price
 Simple to set up
 Enterprise wireless
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Many security options
Remotely configurable, manageable
Rugged (long MTBF)
Hot-swappable, field upgradeable
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2. Validation via Market Survey
 “Gartner forecasts Wi-Fi up 200% this year,
and every user will need encryption…”
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Everyone receives the same report
Trailing-edge data
Ignores objections, barriers to entry
Ignores existing and new competitors
 What is your unique advantage or
competence?
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…and Focus Groups
 May be helpful, directional
 Image-conscious products
 Consumer goods
But
 First reactions only
 Capture marketing messages, not behavior
 A few speakers dominate
 Easy to hear what you want to hear
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Example: Interactive Television
 Several rounds of trials since early 90’s
 Analyst forecasts, consumer research
 Major players convinced each other
 Microsoft, Time-Warner, Oracle, Sun, Sybase…
 Read each others’ white papers
 $100M’s spent
 Cable and Internet are mostly good enough
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3. Not Enough of a Priority
 More than just money
 Customer spends time, attention making a choice
 Ongoing effort and investment
 Is problem important enough to solve?
 Budget
 Minimal objections
 Top 5 or 10 existing issues
 Much harder to sell against unfelt need
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Example: Strong Authentication
 Extensive academic research into
identify verification
 Often funded by government grants
 Simple passwords are easily bypassed
 Many alternatives
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Long passwords
Hardware token
Biometrics (retina scan, fingerprint)
Device restrictions
…endless combinations
 Usually combined with strong encryption
 How well do these sell?
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Simple Passwords Still Dominate
 Everything else is too hard
 Tokens and “dongles” get lost
 Long passwords forgotten
or written down
 Retina scans invasive, scary
 Risk is mostly theoretical
 Corporate data leaks out other ways
 Usually something more important to buy
 Different for military contractors
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4. Incomplete Solution (Ecosystem)
 Products and services must fit in
 Replace one part of broader framework
 “Unplug, plug and play”
 Easy to forget friction, barriers to substitution
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Every Product Architecture Chart…
Customer
data
Legacy
box
Partner
app
Existing
widget
Your New
Product
Existing
gadget
Third party
thingie
Other
stuff
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…Like This One
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…Yet Customers Want This
Customer
data
Legacy
box
Partner
app
Existing
widget
Existing
system core
Existing
gadget
Your New
Product
Other
stuff
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Example: All-Electric Cars
 Many technical challenges
 Bigger infrastructure challenges
 Where do I recharge it?
 Safe sharing road with fast gasoline-powered cars?
 Working within the
infrastructure
 Hybrid gas/electric cards
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Take-Aways #3
 Pick a target customer group
 Identify specific needs
 Understand broader solution environment
 Trust your own information first
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Agenda
 Introductions
 War story: medication management
 Fitting products to customers or vice versa?
 Failure modes
 Pricing for customer value
 Take-aways
45
Customer-Friendly Pricing Units
 Buying is a process
1. Want the product
2. Grasp the pricing model
3. Haggle about the price
 Easiest with “natural” pricing units
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How does customer size the problem?
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What is the Key Metric?
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Hospitals are sized in “beds”
Airlines in “passenger-miles”
Pharmacies in “prescriptions”
Hotels in “room nights”
HR departments in “employees”
Assembly plants in “trucks per day”
Chip fabrication in “yield” and “wafer size”
Sales force automation software in “seats”
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Car-Buying Units
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Purchase (car)
Bank loan (payment)
Lease (month, mile)
Rent (day)
Taxi (1/5th mile)
Share (trip)
Borrow (hour)
Steal (previous convictions)
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Long Distance Calling
 Used to be in “minutes” and “state/country”
 Now lots of possible plans
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Per minute
Per month (MCI Neighborhood)
Per call plus per minute (10-10-987)
Per month plus per minute (AT&T One Rate)
Local plus long distance
Same provider (Friends & Family)
…
 Rearranges target audiences, competition
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Customer Commitments
No commitment
High variable costs
Big commitment
Low/no variable costs
Lower volume
Uncertain usage
Optional
Actively manage costs
Higher volume
Predictable usage
Required (cost of business)
Low cost control effort
MUST KEEP MARKETING
HARD INITIAL SELL
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Exercise: Consulting Services
 Your last start-up just closed, so you are
suddenly a consultant. A prospective client
needs market analysis, MRD, pricing model.
 What are your pricing objectives?
 How to structure a project?
 Risks for you? For client?
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Possible Objectives
 Work at any price
 Food on the table
 Loss leader
 Underprice first assignment, get follow-on work
 Good reference for other clients
 Become indispensable
 Push for a full-time position later
 Gain market experience
 What will the market bear? OK to lose assignment
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Possible Models for Consulting Project
 Per hour, no limits
 Per project
 Fixed price for initial sizing
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(“pay me to estimate”)
Per hour with project ceiling
Milestones (progress payments)
Sweat equity (pre-IPO stock)
Customer sets value at end
Shared savings (portion of ROI)
Free (experience, reference, try&buy)
Barter
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Risks in Consulting Models
Client’s Risk
Consultant’s Risk
Straight Hourly
Unlimited cost,
quality, completion
None
Fixed project price
(pay on completion)
Timely completion
Unlimited effort,
defining “done”
Partial work not
valuable, inspecting
Upfront analysis
May overpay later
No immediate cash
value
Fixed price
milestones
Equity, portion of
ROI
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Coming Back to Units
 Customers justify purchases in their terms
 Can you follow their lead?
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Recruiter: per hire
Airline reservation system: per transaction
Shop floor software: portion of savings
Direct mail agency: response rate
Shipper: on-time delivery results
Academic tutor: SAT score
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Goldilocks Principle
 Customers want a choice
 More than 3 is too complicated
 Lowest cost should feel “cheap”
 Reason to upsell later
 3 fully configured options: one
will be “just right”
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Take-Aways #4
 Think about how customers justify purchases
 Use units that matter to them
 Give them a few choices
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Wrap-Up
Requirements are more
than a list of things
Context and fit are critical
Talking at length to
real customers is essential
Get into your customers’ heads
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Getting Into Customers' Heads
Rich Mironov
23-March-04
www.mironov.com
[email protected]
©2004