Steve Blank

A week before I started I got inkling of really how deep I was in.  While I was waiting in the lobby to pick up my offer letter, the head of marketing communications (who was to be one of my direct reports) came up to me as I held my just signed employment agreement.  She said, “Oh I’m glad you’re coming, and I wanted to grab you before you started because we need to resolve the company’s biggest marketing problem.”  I was impressed; this was something so important that she couldn’t wait for my first day.  Was she going to propose a coherent communications strategy?  An in-depth reseller survey?  Or offer some real insights into our customers?   No.  “We need to decide immediately between which version of the new logo to use.”  Ignoring my dropping jaw, she pointed out the key differences in the Pantone colors between what appeared to me to be the two indistinguishable alternatives.

As her description receded to background noise it dawned on me that the color of the logo seemed to be the size of the marketing communications department’s universe.  It wasn’t a lack of competence or skill in her job; it was just that as far as she was concerned, her job had no connection to the rest of marketing, our customers or our ultimate success as a company.  “We need your decision now because we are about to spend $50,000 on new collateral.”

Coming out of the fog at the sound of serious dollars about to be spent, I politely suggested that the new collateral was on-hold, and we were going to spend the first few weeks of my tenure trying to understand who our customers were, and what we wanted to say to them.  And I hadn’t even started work yet.

My first day at work I found myself staring at a set of marketing faces, mostly holdovers from the previous version of the company that had gone belly up, some were bright and eager, some clearly hostile.  “OK, let’s start with the basics, who does marketing think our customers are?”  We went around the room and every one of them had an opinion. Unfortunately, all their answers were different.

By now, nothing surprised me. This was a company that had sold 15,000 graphics boards and monitors to consumers.  A large number of these customers had mailed back their registration cards (this was pre-Internet) with their names, phone numbers, job titles, etc.  So I asked the fatal question, “Has anyone ever looked at the customer registration cards?  Has anyone ever spoken to a customer?”  Silence.  Most just stared at me like the question was incomprehensible.  The one or two product mangers who should have known better glanced down at their shoes.  Then someone asked, “Well, who do you think our customers are?”  Ah, a leading question.  I said, “I don’t know. And if I tell you what I think we’ll just have one more uninformed opinion.  But what we need right now is some facts.  Does anyone know where the registration cards that the customers sent back are?”

Why did I ask these questions?  As a company with a past history, the company had a massive advantage over a typical startup – it had customers.  Normally in a startup you spend an inordinate amount of time and energy in Customer Discovery and Customer Validation.  Yet here was a “restart” with over 15,000 customers who by putting their money on the table had personally validated the market.  Now I was cognizant I might find a customers that hated the products or company.  Or I might have found that the company was in a business that wasn’t profitable and no way to get profitable (which I had concluded was the case with their commodity disk drive business.)  But this was an opportunity that needed to start with customer facts, and I was going to get them.

Twenty minutes later a cart rolls into my office with 10,000 unprocessed, unlooked at, and untouched registration cards.  All with names, addresses, phone numbers, job titles; all wonderful data longing for human contact.

Customer survey

Three hours later I had made up a three-page customer questionnaire.  I wanted to know some simple and not so simple things about our customers.  The obvious one’s were who were they?  What did they do that they needed an expensive color graphics card?  If you believed the opinions in the marketing department, the customers were in science, engineering, color desktop publishing, and a variety of applications with no single industry or application dominating the list.  I wanted to know the facts.

Within these applications how did our customers spend their day?  Were our products a small part of their life or large? And since the card was useless without any application software, what other software products did they use on it?  How important was the card to them getting their own job done?  What was the most important attribute about our graphics cards and monitors that made them buy it?  And by the way since we sold both the graphics card and a big screen color monitor did they buy both from us?  Did their choice of the card affect the choice of who they bought the monitor from or vice versa?

I also wanted to know if the marketing our company had been doing to date was effective.  So I asked a set of questions about how customers had heard about our company.  Do they know anything about us?  What did they think we stood for?  What did they know about our products?  If they had they heard anything about us where did they hear it?

I also wanted to know who our existing customers thought we competed with.  While I could have told them, it was more valuable hearing their perspective. Had they heard about our competitors and their products?  If so, where?  Who did they think were the leaders in the color graphics board and monitor market?  Why?  What did they think the leaders most important attributes were?

Since this was the marketing department, I was going to be planning to spend some advertising and public relations dollars.  It would be great to know how they got news and information about new products and new companies.  What magazines did they read?  What reviews did they trust?  Did they attend trade shows?  Which ones?   Had they seen any our ads?  Did they understand them?  Had they read any stories about us?  I wanted to know if marketing was getting any bang-for-the-buck in spending its demand creation dollars.

I wanted to understand how customers bought our products.  I knew we were selling through a multi-level indirect sales channel.  That’s a mouthful to say that our sales people didn’t sell our products directly to a customer.  Instead they managed rep firms (independent sales companies that carried multiple, non-competing products) that called on computer resellers that sold to the customers.  Since we weren’t talking to our customers directly I wanted to know if the message we were giving our sales people were coming out the other end. Kind of like the game of telephone you played as a kid.  You started a message on one side of a long line of people and passed it on, one-to-another until it came out the other end.  The result is usually hilarious.  The ending message sounds nothing like the one you started.  Market messages to indirect sales channels are just like that.  What I wanted to know is what kind of reseller did they buy from?  What product did they go into the store thinking they were going to buy?  Was it the same one they left with?

Finally, I also wanted to understand the resellers themselves.  These were the people who had the face-to-face interaction with our customers.  What did they think about our company?  Our products?  Was our compensation program good, great?  Were they making enough money with us?  Who did they think were buying our products?  Who did they think our competitors were?

Hypothesis to test

After writing up the questionnaire, and before I called the customers, I wrote a one page summary of who I thought the customers were, what markets they were in, how and why they bought, etc.  I was curious to see how close to my hypothesis the actual customer answers would be.

At the end I had a three-page questionnaire that I timed in a practice session with one of my marketing people.  I could get it done in twenty minutes.  Now the question was would anyone care to give me those twenty minutes.

With the questionnaire written I turned and stared at the cart full of registration cards.  They were in shoeboxes arranged by month and year they were received.  I figured that the newer ones were more relevant than those sent in years ago.  I took a deep breath and plunged in.  I grabbed 500 of the most recent cards, which were from the last four months, and I started calling.  Quite honestly since few customers ever get “hi, how are you doing calls” directly from an executive at the company who sold them a product, I didn’t know what to expect.  Would anyone take my call, would I get hung up on, would they answer this long list of questions?

Three hours and ten customers later I was beginning to feel like this would work.  It had taken about two registration cards to get one customer on the line.  And out of those, 9 out of 10 were happy to talk to me.  Actually happy is the wrong word.  Stunned was more like it.  They had never had anyone from any company, let alone a computer company call and ask them anything.  Then when I told them I was actually the VP of Marketing they were flabbergasted.   They were happy to give me everything I asked for and more.  And then to their surprise I offered them either a SuperMac coffee cup or T-shirt for their troubles. Now I had happy and surprised customers walking around with paid advertising for my company.

For the next three weeks I spent 8 hours a day calling customers and another 6 hours a day managing my new department.  I’m sure the CEO thought I was crazy.  But after three weeks and three hundred customer calls I was done.  I had been to the mountaintop and had gotten the message.

 Here’s what I found.

1. Market segment: While the company did have customers in a wide range of industries and businesses, the actual users were in a (then) new and emerging segment called color desktop publishing.
2. 80%: In fact, over 80% of the customers who turned in their reg cards were in this group.  This was a real eye-opener.  No one in our company knew this.  Now we could stop guessing about who our customers were.  We could even go further and talk about how they worked and what they needed to be successful in their jobs.
3. Key applications: At the time color desktop publishing customers used only four key applications: Page layout programs called Quark and PageMaker, a photo manipulation package called Photoshop, and a drawing program called Illustrator.  These were big ungainly applications and on the computers of the day, very slow in manipulating large color files.  (The dependence on these applications was another new and important fact for our company.)
4. Performance: What these customers cared about more than anything was graphics performance in these four key applications.  And by more than anything, I mean that the word performance came up time and again from these professionals.  Waiting for images to move around the screen were not only driving them crazy, but costing them money.
5. Performance over price: In fact, for over half of these customers performance was even more important than price!  (If you haven’t stopped reading, please do so.  To find a customer who says anything is more important than price is the Holy Grail for a marketer.  Few times in his/her life will they find such a market.)
6. Purchase driver: The color publishing customers were making their purchase based on the features of the graphics board, but they were buying the color monitor from whoever sold them the board.  That is none of the features of the monitor seemed to matter, it was the board that drove the monitor sale.  So much for all our efforts to promote our monitor features.  (What it meant is that instead of dividing our marketing budget, dollars and resources, we could focus all our energy in promoting the graphics board and let its sale pull the monitor with it.)
7. Three publications: In our market there were a myriad of magazines to read.  Yet our customers said they got their company and product information from only three publications: MacWorld, MacUser and MacWeek.  They said the product reviews in these publications were by far the biggest influence on which card to buy.   (This made our PR problem manageable and focused.  Now we knew what was a make-or-break publication and review and what we could pass on if we didn’t have the time or resources.)
8. Two trade shows: Customers who had bought our products only went to two trade shows (if they went to any at all): MacWorld, the general Mac trade show, and if they were true publishing professionals, perhaps the Seybold Publishing conference.  (Learning this meant that instead of attending every possible Macintosh tradeshow we now knew we only had to look like the biggest and best in two.)
9. The bad news: That was the good news.  The bad news is when I asked what had they heard about SuperMac, I got a litany of stories about the company going out of business, about how their dealers complained that they owed lots of money and that our ads were incomprehensible.  More importantly, no one knew what business the company was in.  “Aren’t you the cheap disk drive company?” This information coming from someone who had already bought our graphics boards.  Gulp.
10. Worse news: The worst news was that more than half of our customers had gone into their dealers to buy another brand of graphics board.  And it had been the dealers who had convinced them to buy ours.  (As we found out when we interviewed our dealers, our sales department was using extra commission payments – called Spif’s – to incentivize the channel to move our product.)  The good news was that the Spif strategy was working; the bad news is that it was costing the company our entire profit.  We were losing money on every board we sold.
11. The worst news: The worse news was what wasn’t said, less than 10% of our existing customers bought because of some proactive marketing campaign.  No one remembered our ads, saw our reviews or had read a positive article about us.  Yet outside my office door was a mass of people who thought they were in the marketing department and had honestly believed they were contributing to the success of the company.  Spending $4 million/year on marketing

After three weeks I stopped the customer survey when I started hearing the same stories again and again.  Looking at the customer data I realized there were some potential “gotchas”:

• This was a survey of those who had already bought product from us.  Those who didn’t buy from us might have completely different characteristics
• This survey could only reach those who sent back their registration cards.  Those who didn’t might be different.

As it turned out, large companies that bought graphics card for their publishing departments didn’t always send registration cards back, so my survey was skewed to smaller groups.

What did I learn so far?

• Organize questions about customers, channel and market
• Build a series of your own hypothesis about each area
• Test the hypothesis with real customers

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Filed under: Customer Development, Marketing, SuperMac | Tagged: Customer Discovery, Customer Validation, Steve Blank | 8 Comments »