I’ve received numerous requests from readers to deconstruct entrepreneurship much like I have done for case interviews. Unlike case interviews where there’s a narrow range of “correct” approaches, entrepreneurship is infinitely vast in how one can succeed.
That being said, in my work with small business ranging from solo entrepreneurs to Inc 500 companies, I’ve certainly developed a perspective of the biggest mistakes new entrepreneurs make. While exceptions to these “rules” do exist (which is the wonderfully surprising thing about entrepreneurship), I’ve seen enough failures to be able to share some of them with you.
While the topic is much too vast for a single article, I addressed this topic in more detail in a recent issue of my monthly print newsletter.
Even if you have no interest in entrepreneurship, these thoughts are useful to anyone pursuing a business career. Many of the issues faced by entrepreneurs mirror those faced by a large company entering a new market segment. The main difference is entrepreneurs are further handicapped by a chronic shortage of resources.
To understand one of the biggest mistakes new entrepreneurs make requires introducing you to (or at least reminding you of) one key economic principle — the idea of supply and demand.
In economics, there is what customers “demand” and there is what companies in that industry are willing to “supply.” A market exists when what customers demand matches what companies are willing to supply.
One of the biggest mistakes entrepreneurs make is being supply-side driven. That is, they have an idea for an innovative new product.
The language of a supply-side driven entrepreneur is focused around the new breakthrough product or service. When someone says at a social function, “Tell me about your new company,” the supply-side entrepreneur spends the whole time talking about their new offering and how cool and amazing it is.
What’s noticeably absent (if you’re paying careful attention) in this kind of entrepreneur’s thinking and language is… the customer.
Quite often the supply-driven entrepreneur doesn’t actually know the customer very well at all. The customer has been identified in the abstract — men ages 25 – 35 years old.
In contrast, a demand-side entrepreneur is one that knows the target customer extremely well. When you ask a demand-side entrepreneur about his company, he’ll say, “Our customer is X, and they are really frustrated with Y. We solve that problem for X.”
The language and focus is on the customer and the problem the customer faces. What is secondary in focus is the product, which explains how the company solves the customer’s problem.
If you ask me which is more important (in terms of what should be focused on first in the entrepreneurial process), the customer’s problem or the solution, I’m heavily biased towards focusing on understanding the customer’s problem.
Here is why.
In many entrepreneurial circles, Silicon Valley especially, there have been thousands of companies who have created incredibly well-engineered solutions to problems that customers don’t care about!
You would think this would be somewhat fundamental, but it is a serious and common mistake. I have personally made this mistake multiple times, costing me my life savings more than once. Well-known entrepreneurs have made the mistake too. Nobody is immune.
If you want to be a successful entrepreneur, you must guard yourself against this overwhelmingly tempting bias to be product/service focused.
You must KNOW YOUR CUSTOMER.
(The alternative is to guess at your understanding of customers and hope you get lucky. It does work for some, but the odds are against you in this approach.)
Go out and meet your customer face-to-face. Shake her hand, look her in the eye, see if she gets excited when you propose to solve her biggest headache or if she just gives you a polite, “Oh that’s nice” response.
It’s interesting… when I see CIBs using the Business Situation Framework, they tend to think of the customer analysis as a step in the case interview process that they need to do to pass the interview.
When I think of customer analysis, especially for my own business, I think of customer analysis as an important step to avoid bankruptcy.
This reminds me of the old American idiomatic express between being involved in a decision or being committed. For making an American breakfast of scrambled eggs and bacon, the chicken that laid the egg is involved in breakfast, but the pig is committed.
When entrepreneurs do or don’t do customer analysis, they are committed.
My long-time entrepreneurial clients know me and my teachings on entrepreneurship well. They will often quote me as saying that the key to entrepreneurship is to find an audience to serve and create whatever product or service they need — as opposed to creating a product and then go looking for someone who wants to buy it.
When you’re obsessed with your vision of the product, there’s an enormous risk of ignoring what customers are telling you. Maybe you have a great product idea. Maybe they prefer to buy a service. Maybe you solve Step 3 of a 3-step problem. Perhaps they don’t care about Step 3 very much, but care a lot about Step 1.
There are always nuances and subtleties to pick up on if you’re looking for them.
There are practical aspects of asking customers for feedback on a product they’ve never seen before. For example, Henry Ford is often referenced as an example of ignoring what customers say. He’s famously quoted as saying, “If I asked customers for what they want, they would have said they wanted a faster horse.” Customer research does not mean asking customers what they want and taking their answer verbatim.