Customer Validation cheat sheet for a new product in an existing market

by graileanu on November 17, 2011

You may have your hypotheses about who will buy, why they will buy and at what price they will buy, but until you validate those hypotheses , they are all educated guesses.

It is impossible to build a sales pipeline without first having developed a sales roadmap.

Attempting to execute before you have a sales roadmap in place is pure folly.

The company`s founders and CEO need to be out in front of customers at least through the first iteration of the Customer Validation step.

Early sales are to Earlyvangelists, not Mainstream Customers.

Finally you should have answers to these questions:

– Do you have enough orders proving your product solves customer needs?

– Do you have a profitable sales and channel model ?

– Do you have a profitable business model?

– Have you learned enough to scale the business?

 

Phase 1

1. Articulate a value proposition

Elevator pitch – ideally one sentence and at most a few sentences.

For a new product in existing market, yout value proposition is about incremental performance . Incremental value propositions describe improvements and metrics of individual attributes of the product or service.

2. Prepare a Preliminare Collateral Plan

Prepare a complete set of sales materials, product data sheets, presentations (different ones for different groups inside a company), price lists, etc. Develop a “collateral plan”, a list of all the literature you will put in front of a customer in different phases of the selling process. Visionary customers require different materials than mainstream customers!

Website – should have a clear information on the vision and problem you are solving, but no detailed product information. You don`t want a customer to have enough information to make a decision not to buy without you.

Sales presentations – should be an updated and combined version of the problem and product presentations used earlier, except now add your value proposition.

Demos – all you need is a slide-based “dummy demo” to illustrate the key points.

Data sheets – if you are bringing a new product to an existing market, your focus will be on the product, so you should develop product data sheets.

Additionally you need a ROI white paper.

Price lists, contracts and billing system – you are going to need a price list, quote form and contracts.

3. Develop a Preliminary Distribution Channel Plan

4. Develop a Preliminary Sales Roadmap

Your goal is to determine who your true customers are and how they will purchase your product. You`re ready to begin building a sales team only when you completely understand the process that transforms a prospect into a purchaser and know you can sell the product at a price that supports your business model.

Organization and influence maps – create a matrix and plan of customer access map.

Sales strategy – questions

– At what level do you enter the account? Do you sell to high executives or low to the operational staff ?

– How many people on the organizational map need to say yes for a sale?

– Does each department perceive the customer problem in the same way ?

– In what order do you need to call on these people? What is the script for each?

– What step can derail the entire sale?

Implementation plan – the goal is to write down all the things left to happen before the sale is actualy finalized and the product delivered and to determine who will follow up to manage them ?

For example:

– Does the CFO or CEO need to approve the sale?

– Does the board need to approve the sale ?

– Does the customer need to get a loan to finance the sale ?

– Are there other systems/components from other vendors that need to be working first ?

5. Hire a Sales Closer

A sales closer is someone with a great Rolodex in the market you are selling into. Good sales closers are agressive, want a great compensation package for success, and have no interest in building a sales organization.

When you understand where the lack of sales skills is holding back progress, hire the closer.

Sales closers are invaluable in getting meetings set up, pushing to follow-up meetings, and closing the deal.

Hovewer having a sales closer is no way a substitute for getting founders to personally gather customer feedback.

6. Align your executives – they must review and agree on the following :

– Engineering schedule, product deliverables and philosophy

– Sales collateral

– Engineering role in selling, installation, and post-sales support

7. Formalize your Advisory Boards

Recruit only the advisors you need now, but make exceptions for “brand names” and “influencers” you want to cultivate.

Ensure key potential customers are on the “Customer Advisory Board” – they are great references for other customers.

Phase 2 – Sell to Visionary Customers

Your task is to see whether you can sell early visionary customers before your product is shipping.

Giveaways  do not prove customers will actually buy your product. The only valid way to test your assumptions is to actually sell the product.

Alpha and beta testing are Product Development functions that belong to engineering. They are about validating the product technically, not the market.

Customer Validation is not about having customers pay for products that are engineering tests. It`s about validating the entire market and business model.

Use the word “customers” only for people who pay money for your product.

1. Contact Visionary Customers

Use the same techniques you used in the Customer Discovery process: generate a customer list, an introductory email, and a reference store/script. Even with all the preparation, assume one out of twenty prospects you call on will engage in the sales process. Of those, depending on the economic climate, one out of three to one out of five will actually close when you get around to selling. That`s a lot of sales calls.

Don`t confuse early evaluators with paying customers.

2. Refine and validate the Sales Roadmap

One of the insidious traps for a startup is proising different customers a different feature set. This is creating custom products. Creating custom products is not a scalable business. Sometimes these custom features requests are good news. If enough customers have asked for the same set of “custom” features, then they are not custom at all.

You can`t know how well you are doing unless you keep win/loss statistics on sales calls.

The goal is to understand where in the sales process you get turned down (introduction, product presentation, organisational issues, not invented here issues, technical issues, pricing ) so you can refine your sales roadmap.

3. Refine and validate the Channel Plan

Channel partners do not create demand! Only your company can. Until customers become familiar with the brand, they are never going to look for the product.

Update your channel/service partner presentation with information about early customer orders. Then hit the street and present to them. Your goal is to come back with a committed relationship ( usually evidenced by an order ) .

Phase 3 – Develop Positioning for the Company and its Product

Positioning is the attempt to control the public`s perception of a product or service as it relates to competitive products.

Develop two positioning statements – one for the company and one for the product.

1. Product Positioning

For new product in existing market – compare your product to your competitors. Describe how some feature or attribute of the product is better, faster – an increment improvement.

2. Company Positioning

Product positioning focuses on the attributes of your specific product in a Market Type. Company positioning answers the questions, “What does your company do for me?” and “Why does your company exist and how is it different?”

For new product in existing market – compare your company to your competitors. Describe how your company is both different and credible.

3. Make presentation to Analysts and Influencers

In some technical markets a sale to a large company is very difficult until one of the large analyst firms (Gartner, Meta, Yankee) has blessed you.

You also need to line up industry analysts and influencers as references for the press you will be getting in the Customer Creation step.

Develop a short script explaining why they should meet with you. If you understand what they cover and why your company is going to shake up their market , and can explain  why your company is important, the “what`s in it for them” is obvious; they wont want to miss an influential and important company. When they agree to meet with you, ask them how much time you will have , what presentation format they like and whether the presentation should focus on technology, markets, customers, problems, or all of the above.

When you meet with the influencers and analysts, remember the goal is to gather feedback and learn from them what is critical for you :

– What other companies are doing anything like what you`re doing ?

– How does yout vision fit with market needs? With customer needs ?

– How should you be positioning your product, market, and company ?

– How should you be pricing the product?

– How do others price theirs?

– Who in a company should you be selling to?

– What kinds of obstacles will you face inside a company?

– What kind of obstacles will you face as you try to build your company: getting funded? hiring? competition?

– What do they think you should do next?

 

Phase 4 – Verify

1. The Product Solution

– Did you lose deals because of missing features?

– Did you lose because your product wasn`t important enough to buy until it was a “whole product” ?

– Does your plan for future releases have the right features in the right order ?

– Did you lose any deals over pricing? Was there any objection to your pricing? ( If not, your product may be priced too low – you should always get a modicum of grumbling ) .

The most important exit criterion is whether the sales closer believes other salespeople can sell the product as specified in a repeatable manner.

2. The Sales Roadmap

– Did you get the organizational or consumer map right ?

– Did you get the selling strategy right ?

– Did the organizational map and sales strategy result in a sales roadmap with a step-by-step sales forecasting process and sales pipeline ?

– Did you get orders ?

3. The Channel Plan

If you anticipate building a direct sales force, how many people need to be in a sales team (salesperson, technical presales, post-sales integration, technical support, etc.) ? How many teams will you need?

What kind of demand creation activities (advertising, PR, tradeshows, etc ) will be needed to drive customers into the channel ?

Customer acquisition cost need to be less than customer lifetime value !

4. The Business Model

The outcome of this testing process consists of two documents:

1) an updated sales and revenue plan

2) an operation plan to scale the company

Some key issues to address :

– How much additional funding to you need to reach profitability?

– Are the Product Development costs still the same?

– Is there any manufacturing involved in building the product?

– Is the projected selling price different from your initial business plan assumptions?

– Is it profitable enough for your needs?

5. Iterate, Return or Exit

In some cases there may be nothing wrong with the sales roadmap. The problem may be in the product itself. If you have exhausted all the options in selling and positioning, you might find you need to reconfigure or repackage the product offering. This requires a loop all the way back to the first step, Customer Discovery.
The end of Customer Validation is a major milestone. You have prove you have understood customer problems, found a set of early evangelists and delivered a product customers want to buy, developed a repeatable and scalable sales process, and demonstrated you have a profitable business model.

 

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