(Your Money Machine) Customer Development - Russell Colbourne

Programming Fact Sheet
Russell Colbourne : Your Money Machine

Season 5 Episode 4 – Customer Development

26 April 2021

INTRODUCTION
Your business is Your Money Machine.  Starting or growing a business has been likened to assembling an aircraft midway through its first flight. Having started and exited from a number of businesses including an Airline, I know what it takes to get your business off the ground. In this show, I’ll share some of the stories and lessons I’ve learned over my 30 years of entrepreneurial business experience as a Chartered Accountant with companies like Sir Richard Branson’s Virgin Group.  During season 5 we’ll be following a structured path to building a globally scalable, investable business based on the Founder Institute Pre-Seed Accelerator flagship program that will create a logical roadmap to success.  I’ll take you through some real life business building examples including my recipes for creating high performing organisations and we will take a look at some the mistakes I made along the way and the lessons I learned from them.

This show won’t build your business for you – only you can do that, but I will show you how to build your business efficiently and effectively, so you won’t have to waste time and money doing things out of sequence, back tracking over work already done or making the same mistakes I and many others have made before you.

Summary
Today’s show is all about helping you identify real customers and figure out whether they have a real problem that you can solve and what are the best tactics to identify target customers and encourage them to be interviewed for your market research. 

We will also discuss how you can process and respond to feedback from customer interviews.

What You Need to Know - The What

#1 (One Customer Problem) Identify One Customer Problem that you will focus on with your startup. 
#2 (Customer Archetype) Develop a Customer Archetype 
#3 (Financial Progress) Organise any work that you have done to date on financials. 
#4 (One Revenue Model) Select One Revenue Model to pursue. 
#5 (Customer List) Create a bulleted list of target customers based on your One Customer Archetype. 
#6 (Revenue Interviews) Interview customers about the pricing of your One Revenue Model. 
#7 (Interview Competitor Customers) Identify customers of competing or similar products or alternative solutions and encourage them to switch to your solution. 
#8 (Switching Costs) Based on your work to Interview Competitor Customers, consider your thoughts on the amount of time and any related costs that a target customer might incur by switching to your solution from alternative solutions. 

What You Need to Do - The How

• Listen to the Show
• Download the Show notes
• Follow the Podcasts and 
• Apply the principles to your business

#1 (One Customer Problem) Write one paragraph about the chosen Customer Problem with as much detail as possible based on the validation work that you have done to date. Ensure that the One Customer Problem is a real pain or need to be faced by your target customers. Also write one paragraph about other Alternative Customer Problems that you examined and why you will not pursue them. 

#2 (Customer Archetype) Write a detailed five paragraph Customer Archetype of the hypothetical individual that is your target customer, based on either your existing customers or your research work. The first paragraph should describe their demographic information. The second paragraph should describe their work and professional life. The third paragraph should describe their hobbies and interests. The fourth paragraph should describe why they need your solution. The fifth paragraph should describe how they will learn about and adopt your solution, as well as any steps that are needed to adopt your solution. Be as detailed and precise as possible with all of the above, and include sample photos and any other research. 

#3 (Financial Progress) Document and record your monthly accounting, financial models, estimates, conversion analysis, research or any other work that you have done to estimate revenues and expenses. 

#4 (One Revenue Model) Calculate the number of customers that you can realistically acquire over the next 18 months and write a few sentences on your strategy to obtain those customers. Determine what price you would need to charge those customers to earn USD $1 million in total revenue over the next 18 months from today under each revenue model. Assume that the number of customers will ramp up over time towards the end of the 18 months, and assume that you may discount your pricing for initial customers. Use the customer feedback and revenue analysis to select your One Revenue Model.

#5 (Customer List) Create a bulleted list of target customers based on your One Customer Archetype. Your Customer List can include any existing users or customers. If you are focusing on a business to business (B2B) Customer Problem, the list should include at least 3 names. If you are focusing on a consumer (B2C) Customer Problem, the Customer List should include at least 9 names. For each customer, ensure that you have their full contact details including their phone number and a couple of sentences describing their demographic information. 

#6 (Revenue Interviews) Interview customers about the pricing of your One Revenue Model. List three alternative prices for your solution, including a low price, a medium price and a high price. The medium price should be the price you need to charge to earn USD $1 million in 18 months. The low and high price should be at least two times lower and higher than the medium price. Describe the offering for each price point. For the low price, offer fewer features than you are currently planning to build. For the middle price, offer what you are planning to release. For the highest price, offer incremental value, such as customized support. For B2C revenue models, secure a brief call with at least 5 customers from your Customer List. For B2B revenue models, secure a brief call with at least 2 customers from your Customer List. Before discussing the pricing, ask the customer how they would solve the Customer Problem, how much time they dedicate to the solution and how much money they spend on the solution. Then, describe the One Revenue Model that you are considering. Outline the three price points you are evaluating and get their feedback. 

#7 (Interview Competitor Customers) Identify customers of competing or similar products or alternative solutions and encourage them to switch to your solution. If you are focusing on a business to business (B2B) Customer Problem, identify 1 customer of an alternative solution, and use email or a phone call to encourage them to switch. The ideal scenario would be to get them to actually pay you money for the solution now, or, if that is not possible, try to secure a letter of intent or LOI.

NOTE: an LOI normally includes (1) the name of the customer, (2) a statement of intent to buy, (3) with a contingency such as ‘if we are happy with the prototype’ or other words to make the statement non-binding and (4) possibly with a price and other terms. If you are focusing on a consumer (B2C) Customer Problem, identify 3 customers of alternative solutions, and use email or a phone call to get them to sign up for your solution. The ideal would be to have them agree to use the current minimum viable product (MVP), or, if that is not possible, have them agree to join a user group for feedback on product development. 

#8 (Switching Costs) Based on your work to Interview Competitor Customers, write a few sentences about your thoughts on the amount of time and any related costs that a target customer might incur by switching to your solution from alternative solutions. Write another few sentences on how your solution will be multiple times better, faster or cheaper than alternative solutions.

Shows 

• Previous: Episode 3 – Validating Your Business Idea
• Next: Episode 5 – Revenue Building

 
Written by Russell Colbourne, FCCA, GAICD
Your Money Machine

Russell is a CFO and Entrepreneur who has worked across a diverse range of industries over the past 30 years.  After a short service commission as a pilot flying Seaking Helicopters in the British Royal Navy, Russell studied business and qualified as a Chartered Certified Accountant (ACCA) in the UK. Since then he has been integral with the start-up of many successful companies and operations within larger organisations.  He has bought, sold and spun off business operations in the UK, Australia and the US. 

In 1994 Russell joined Sir Richard Branson’s Virgin Atlantic Airlines where he was responsible for a number of innovative services that were, at the time, ground breaking and helped revolutionise air transport.  From launching the world’s first limo boat on the River Thames to developing the world’s first handheld check-in device and implementing drive through check-in booths around the world, Russell has helped the Virgin Group deliver unparalleled customer service. In 2000 Russell was the first of the Virgin team to arrive in Australia to start a new low cost Airline, and within 8 months had built a team operating flights between Sydney, Brisbane and Melbourne.

Russell now works as a Part Time CFO for a number of SME businesses in South Australia.  He is the owner of www.chiball.com.au, a health and wellbeing business, and www.feesable.co a crowdfunding website for educational costs. In 2019 Russell and his business partner Peter Hattam created Feesable which graduated from the Founder Institute Program in 2020.  He is one of the local Directors of the Founder institute Program in Adelaide where he lives with his wife and 3 teenage sons. 
 
To find out more about the Founder Institute program and how you can take your idea to a globally scalable, investable business, please see www.fi.co  The material used in this show is based on the Founder Institute program and is used with permission.

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