Working in a company that doesn't know their customers
When knowledge creates more joy than free mineral water
The following is part of the material I teach in my new ICP cohort:
How to find your Ideal Customer Profile in B2B SaaS (30% off with this link) in September 2024
Knowing your Ideal Customer Profile (ICP) is a different phrase for “We know our customers and their problems.” In our first write-up on “How to find your first ICP”, we talked about the intricacies of how to find your first good profile.
But what happens if you, in fact, do not know your customers well enough? This is probably the case for most companies. You’re bleeding money, and working for them sucks.
How does that feel for the Product? Marketing? Sales? Really, everyone in the company?
Let’s map it out:
Listening to everyone makes you design for no one.
Knowing your customer means you know to whom you sell, what problems they’re dealing with, and most importantly, it’s a clear destination on what you build to address their problems.
Most Product teams struggle with this hard. I’d wager that they have no idea whether what they build is even remotely the best thing they could do with their time.
And while it’s not always their fault, they also started to develop bad habits and practices where we convinced ourselves that they are the best that’s possible.
The frustrating cycle usually goes like this:
Someone has a brilliant Idea of what to build. It’s simple, it’s amazing!
Everyone in the room thinks they are aligned with what they want to build. Spirits are high.
The product teams and their designers start to draft out solutions and maybe even get buy-in from leadership that this is in fact what everyone was talking about.
Somewhere else, someone else has a brilliant Idea of something else that needs to be built. It’s also for this team. Great stuff!
The team gets slowly buried under seemingly brilliant shiny ideas. They start to cut corners to deliver something with time as the pressure in the backlog rises.
The quality of work drops, tech debt starts to accumulate, and the product team starts to boil in their own mess slowly. Sentences from the CEO that go like “It can’t be that hard, FFS!” and “Why did we still not ship anything!” start to make the round.
If you’re looking at this typical process from the outside, you might think that this is a process problem. “We just need to organize our backlog better and pull the CEO in more. Align better with people.” → But this just masks the actual problem.
I want to be absolutely clear here:
You cannot design an efficient process with people if you don’t know whether what you do (focus) is having an impact (measurement) for the people you build it for (your customers).
It is impossible.
This is the crux of “being agile.” Agile disciples tell you how “talking to your customers” is important in agile processes, but they forget to tell you that this is not a product problem but a company one.
Without buy-in from the highest leadership on a specific definition for who your customers are, every team will build into a different direction.
Why can a company or product strategy without a well-defined Ideal Customer Profile not have any impact? Because the local solutions that you create as a product team are only as good as that overarching guidance.
Let’s look at it from a different perspective:
A specific definition tells you not only what something is but, more importantly, what it isn’t and that we are ok with that.
This is an absolutely crucial starting point for developing organizational focus.
The most common problem I encounter in almost every mandate I pick up is that leadership agrees on the concept of the ICP and is willing to draft out a definition, but hesitates to put it into action through a strategy that is uncomfortably specific.
Putting it into action means letting go of certain ideas that might be good for “someone” but not for your current ICP.
Whenever we get to that point in advising, I’m essentially asking my clients to stop good ideas for different people.
Focus is not about rearrangement; it’s about cutting and aligning.
It’s obviously not that obvious.
According to most CEOs I’ve worked with it’s clear to whom they sell. Sort of. While the entire company is completely guideless.
It’s like having a Christian, a Muslim, and a Hindu in the same room. They all believe in a God, so they have the same view of the world, right?
Obviously, that’s not how it works because the proverbial devil always lives in the details. In the details, we build solutions for our customers.
Building a product is often about making compromises. It’s not that it’s hard to create a simpler interface for your product for instance. It’s hard to create this new interface while you have your entire organization scream in agony over that change. There’s always someone who has a sound argument as to why you cannot do it right now and the way you want to.
A good Ideal Customer Profile gives you permission from all the way up to disappoint everyone that is not part of that profile.
The path to hell is paved with good intentions.
Ironically, this focus is lost because most B2B businesses struggle to get enough people to interview and measure, so they expand the number of people they listen to.
“We need to listen to our customers! Let’s become data-driven!”
While that sentiment is good and correct even it’s usually followed by:
“We’re only getting 20 respondents to our survey! Who else could we ask?”
It’s better to accept low amounts of responses than the wrong ones. Never ever compromise the validity of what you try to prove by softening up who you ask.
A good Ideal Customer Profile gives clear guidance on who to use for insights.
The data mess
If the product teams don’t know who they are really designing their things for, they will also have a harder time proving whether something is having an impact that matters, which makes discussions of prioritization afterward even harder.
Classical product teams suck at that for a multitude of reasons (like not understanding how your own business works) but one of them is to not know what to measure to make their cases.
Let’s take the example of a company that manufactures luggage for travelers. One of your Ideal Customer Profiles is “Executives who travel in business class once a week in the US”.
One obvious trait of their product has to be that their luggage fits into the overhead bin in planes for all American Airlines and that it is as light as possible.
With time, you will acquire more and more adjacent customers who use your product, but they are not your Ideal Customer Profile. Let’s say all kinds of musicians discover that your luggage is great for transporting their gear when they go to gigs.
A common complaint from these musicians might be that the luggage is not durable enough and breaks with intense use, so you decide to make it more durable by adding weight.
This is at clear odds with what you provided for your business travelers.
You’re starting to become generic slowly and give up differentiators that made you a clear recommendation for your initial customer profiles.
In a company where you only listen to your ideal customer profiles and measure their usage of the product instead of everyone else, this can’t happen. You probably won’t find validation in your initial profile that your luggage is not sturdy enough because they use your product differently.
The idea shouldn’t survive your validation process in that case.
Sales ICPs in product companies
It should be clear at this point that good Ideal Customer Profiles are more than a definition that looks like this:
Small companies
Medium companies
Big companies
That’s how classical Sales companies look at their pipeline but it does absolutely nothing for product teams outside of maybe deciding whether they should build on compliance features or not.
Salespeople can pivot their pitch to whoever they speak to somewhat and address a specific industry's problems (because they know who they talk to in the moment), whereas products can’t do that.
The product needs to work for all customers. Not having a focus on specific industries and use cases makes it impossible to get meaningful direction on what to build.
It’s the number one reason why it sucks for product people to work in sales-led organizations that do not understand this need.
Erosion
The monetary effect of the above example can be summarized with:
Wasted Marketing Spend: Instead of marketing to a very specific customer group, you have to be overly generic in your messaging in everything that can’t be clearly attributed to landing pages or industry-specific events. Marketing becomes icky.
Product-Market Misalignment: The conversion rate of people who you approach, who ultimately make a decision to evaluate or buy your product, drops. You’re losing product-market fit:
The cost per acquisition rises for every profile; it becomes harder to sell
Customer churn increases
You spend more and more to stay in place
Growth stops: Companies think they are becoming slow because they don’t have enough people to execute. They throw people at the problem becoming even slower instead of creating focus. The larger an organization is, the worse the effect of a blurry Ideal Customer Profile becomes and the problem amplifies itelf.
Increased Customer Churn: Reasons that made original customers stay with the product start to erode slowly and are hard to see in the sea of data you have. Competitors who nail their positioning will start to slowly acquire more of your existing customers because they simply serve them better by large margin.
In other words, you lose your competitive edge with time, and it’s hard to see why exactly because it happens so slowly but steadily.
Summary
You can accidentally create a company and stumble into some revenue without having a clear Ideal Customer Profile definition but you cannot scale a business indefinitely without sorting that out in time.
In other words:
Creating a successful, scaleable product without knowing your customers uncomfortably well is impossible.
The above is part of the material I teach in my new ICP cohort:
How to find your Ideal Customer Profile in B2B SaaS (30% off with this link) in September 2024.
Bring your team and get further group discounts at leah@productea.io
Great piece again. Recently read https://www.simon-kucher.com/en/insights/monetizing-innovation (which was far more interesting than I expected). C-suite adoption and company-wide promotion of clear customer types is a core part of their stuff on pricing too. Because obviously all this should be true, but so often isn't :\
good read, thanks for the article!