Millions of start-ups
begin their operations every year in the world, but only 10% survive beyond 10
years and a very very few i.e. @1% reach the unicorn level. Since entrepreneurs
are trying out new and unique ideas, something which is new to customer,
something which can change the business perspective; a high failure rate is
expected. However, 90% failure rate looks very high and signifies higher risks in
investing in start-ups. If we are able to reduce it even by few % points, it
will benefit the customers, industry and investors to a great extent. The
additional money available with investors can trigger a new boom.
When we look at the
key reasons for failure, they can be categorized into 4 buckets
1 Product / Customer mapping (40-50%), which covers all the
transformational aspects the product is going bring to customers life. It could
be features, cost, delivery mechanism, when/how it is going to be launched, how
they are positioned/marketed, what is the competition, how it is better for
customer than its competition, if it is pathbreaking, then what are its unique
benefits to customer, what is going to change for customer after using the
product, what is the ultimate value customer is expected to get from the
product, etc. These all relate to failure in understanding the needs of
customer and/or failure to address them through the product. Sometimes, the
customer needs evolve over a period of time and product fails to catch up with appropriate
changes resulting in failure of capturing customer wallet share.
2 Financial challenges (25-35%), which cover lack of funding,
high cost, low volumes, low margins, cashflow issues etc. Poor cashflow
management creates significant challenges to operate and grow.
3 People / Relationship related
challenges (15-20%),
which covers non availability of skilled team, poor leadership, poor HR
practices, poor relations with investors, leadership getting distracted, lack
of agility to adopt to changes, etc. This stifles the organization and fails to
generate the enthusiasm as well as focus required in the early stage of the
life cycle.
4 Others (10-20%) which include Technology related
issues, Operational challenges, Legal Challenges etc.
As you can see, the
biggest bucket relates to customers and their needs being satisfied by the
product, which also presents biggest opportunity to improve the success percentage.
I am going to discuss a framework which can help start-up entrepreneurs and
their team understand customer better, validate their needs better and determine
whether the product they have in mind is viable or not early in the game. This
will result in creating a product which is better aligned with customer needs,
raising its chances of success. This framework is called as Differentiated
Needs Pyramid. It uses a principle that “customer has multiple needs
from a product / service and every need fulfilled by a product gives different level
of satisfaction / experience, and customer makes a decision based on aggregate
satisfaction score”. Certain needs once satisfied give overwhelming experience
where as certain needs do not move the needle for customer experience upon
satisfaction. The game is to identify these needs and satisfy the needs which
give higher level of experience. This helps creating a good bond between product
and customer increasing its chances of success.
Let us dive a little
deeper in to the framework and how it could be used by start-ups.
Differentiated
Needs Pyramid, the framework
Differentiated Needs
Pyramid provides a way for logical segregation of needs based on the impact
they create on customer satisfaction / experience resulting into a specific buying
behavior. The following picture illustrates the 5 levels of needs for a product
which is going to be launched by a start-up. The needs are stacked in a manner to
provide ascending level of satisfaction. Needs at level 1, when fulfilled, provides
lower level of satisfaction than those at level 4.
The first level covers
customer needs such as basic features / capabilities that a product should have;
without which they will not look at it. Also, one needs to look at how these
features / capabilities compare with competing products available to the
customer.
Once basic needs are
satisfied regarding features / capabilities, customer needs to understand how
secure they are or how / where they are made available or how data is handled
etc. customers will have specific needs in this area so unless these are
addressed, product is not aligned with customer.
The needs at first
two levels are simple and easy to identify; most of the competing products will
have them. They become table stakes rather than becoming a factor determining alignment
& purchase decision. So, the product being launched must have a way to
satisfy these. The next two levels i.e. Level 3 and Level 4 are the key levels
which drive the decision making for customer.
The third level will address
the customers needs to feel connected or be part of some community; The needs
to feel life simplified or enhanced; the need to feel camaraderie with like
minded people; the need to feel like family taking care of each other etc. e.g.
If your product has a feature which enables a transaction in a single click
instead of many complicated steps with data entries etc., you have addressed one
need of making life simple. The product customer alignment is a bit stronger now
and can influence the purchase decision.
Forth level talks
about the needs of customer to feel elated or free or strong or proud about
something. Do you know what your customer would like to feel proud about and is
your product satisfying this need in some form? E.g. If customer has a need to
feel unique amongst his peers, if your product can satisfy his need somehow,
then you are taking your customer on a high, elevating product customer
alignment to significantly which should result in purchase decision.
Fifth level is
ultimate, which means your product satisfies all the needs that customer may
have from such kind of product and he does not have to look anywhere else. This
is an ultimate state and normally not achieved.
How to use this
framework?
There are four simple
steps that the start-up should take so that they can achieve a better alignment
of their product with their customers. These are, Create consolidated list of
needs, Level wise segregation of needs, Map features v/s needs and identify
gaps and Create an action plan.
a. Create a consolidated list of
needs
First step is to list
down all the needs that customers can have from this product. They can talk
with potential customers, read journals, study competitor products and their
customers to see if you can find some needs that the products are not
satisfying. Each feature could be a need, some customer fears could translate
in to needs, some social media discussions can provide indication about needs,
some industry/technology challenge can suggest a few needs. All these needs are
consolidated in to a list. It is critical to identify the needs by grouping the
customers in to specific groups/segments who are likely to behave in similar
manner with respect to product consumption. If there are diverse groups, then
create the specific lists for each group.
b. Level wise segregation of Needs
Each need is then
analyzed to determine the level it belongs to. A simple feature in the product
could be part of level 1 needs, where as a simplified process (e.g. one click
operation discussed in earlier paragraph) could be a level 3 need. At the end
of this step, we have level wise list of needs of customer from our product.
c. Map product features /
capabilities with the needs and Identify Gaps
In this step, you map
your features / capabilities in the product with needs. Identify which needs
are getting fully satisfied with your product features, which are getting
partly satisfied and which are not getting satisfied. At the end of this step,
you have a level wise list of needs with understanding of degree of
satisfaction at each level and gaps that needs to be filled. This mapping portrays a clear picture about
alignment between product and customer.
d. Create action plan
If the alignment
between product and customer is tight, you can go ahead and move forward with
the product. If there are gaps, then a determination needs to be made about can
we fulfill these gaps through additional feature / capabilities? If yes, then
include these feature / capabilities in product spec and run the mapping again
to confirm. If gaps can not be fulfilled through any feature / capability, the
product most likely will not be liked by customers and may be dropped.
How to use this
framework in the start-up lifecycle
To be a successful
product, a start-up must apply the Differentiated Needs Pyramid
framework throughout its lifecycle. Its application at every stage provides a clear
picture of how the product-customer alignment is progressing and increases the
confidence of success in the end. It also provides a clear idea of challenges product
may face early in the lifecycle and enables mid-course correction. The results
of the framework application can also create a Go-NoGo decision point early in
the game to safeguard the investment.
a. Ideation
A start-up starts
with an idea of doing something differently / efficiently, or building something
new, or bringing in some new technology to transform certain processes /
functions etc. Typically, it starts with one core need of the customer that
needs to be fulfilled. Once the Idea gets groomed, features get added, clarity
regarding customer base appears. Once the feature bundle reaches basic comfort
level, it is time to build the first Differentiated Needs Pyramid and
perform gap analysis. This exercise will certainly provide more clarity on “target
customer” as well as “features in the product”. After a couple of rounds of adjusting
the features, MVP definition could be completed with clear understanding of
what goes in MVP and What goes in the final products with all the bells and
whistles.
b. MVP
After MVP is prepared
and checked with select users, we come to know how the product is actually
performing; is it really satisfying all the needs as it is supposed to? This is
another stage where the Differentiated Needs Pyramid is reviewed and Gap
analysis is made. Some actions might come out of this analysis, which can enhance
the product further
There is a chance
that customer needs might change while the product is being built due to some factors
like introduction of new technology, new product launched by competition, changes
in some regulations etc. These also needs to be captured while reviewing the Differentiated
Needs Pyramid and Gap analysis and addressed appropriately.
c. Launch
Once these fixes are
completed, product is launched and real customers start using the product.
Hopefully, we have understood the customer needs well and build the products
catering to these so we expect a good acceptance from customer. This is the
time where we review the Differentiated Needs Pyramid based on customer
feedback and create another Gap document which can help building next releases
of the product.
d. Scale Up
The product is
successful in a first customer segment and we are now ready to scale up to
include wider customer base and geographies. This is another point where Differentiated
Needs Pyramid needs to be redrawn. We might be scaling the product to different
customer segments based on culture, geographies, countries, languages, income
strata, etc. The Differentiated Needs Pyramid should be drawn separately
for each segment as the needs from each segment might be different. We will get
the gaps for each segment and an idea what needs to be done with product before
it goes big.
e. Continue the relevance in long
term
Once the product is
successful in wider customer base, it is a good practice to review the Differentiated
Needs Pyramid every six months to incorporate the changes in the business
environment, competitive scenario, and other changes. This will help the start-up
in keeping the product relevant to its customer and this alignment will drive
its success on the demand front.
Detailed explanation
about Differentiated Needs Pyramid, its construction and usage are available in
my book “Customer Experience Decoded” available on Amazon https://www.amazon.com/dp/8195052657.
You can always reach out to me for any discussion you may want to have about
your specific situation.
