The Building Blocks (Pt. 2)

In this piece we will cover:

• Defining an Ideal Customer Profile (ICP)

• How to Conduct Unbiased Customer Discovery Interviews

• First-Time Founder Mistakes & Lessons Learned

• The Importance of Defining an ICP

The Building Blocks (Pt. 1) Recap

In The Building Blocks (Pt. 1) we covered what an early-stage founder should be putting the majority of their time, energy, and effort toward (specifically in the ideation phase of their startup-building journey).

I listed these components as questions for you to ask yourself:

Ideation - Validating the Problem

1. Have you discovered a problem worth solving? 

2. Have you conducted unbiased customer discovery interviews with potential customers (who experience the problem worth solving)?

3. Have you outlined and established your Ideal Customer Profile (ICP)? 

Minimal Viable Product (MVP) - Validating the Solution 

4. Have you established a solution hypothesis (a potential solution to the problem you are looking to solve)? 

5. Have you built a minimal viable product (MVP) that will help you establish whether your solution is what your ICP wants and is willing to pay for?

In the previous edition, we covered question 1. In this edition, we will delve into questions 2 and 3.

Note

You might already be thinking to yourself, “but many products cater to many different types of customers.” You would be correct.

However, to provide an example directly from Koala, defining the target audience simply as ‘pet parents’ (which is what I did) makes it extremely difficult to hone in on who among pet parents is the most viable customer. There are a wide range of demographics that encompass the people on planet Earth who have a pet.

Suffice to say, a 35-year-old mom of two who lives in the suburbs might have different priorities and financial capabilities compared to a tech bro in the heart of San Francisco who adopted a Covid puppy.

While this doesn't imply that the ideal customer profile won't eventually expand to encompass various types of customers, defining one ICP in the early stages of the ideation process allows the founder to chart a focused course for the startup’s trajectory.

In some cases, the entire purpose of the company revolves around two separate ICPs - the distinction often being who uses the product and who pays for it.

For example, a product designed for infants must cater to the needs and preferences of the infants themselves, who are the users. Simultaneously, however, the product must also address the various concerns (such as ensuring safety) of the infant’s parent, who is the buyer.

Additionally, every company which creates a marketplace to facilitate relationships between entities by definition has more than one ICP. Most often the ICP categories are the seller and the buyer. The most classic examples being Amazon, Shopify, Etsy, Uber, and Lyft among many others.

Example: Customer Discovery Interview Questions

• Tell me how you currently do ___

• How is that process working for you?

• If you could do anything to improve your experience with ___ what would it be?

• What’s the hardest part about ___?

• What do you like / dislike about ___?

• How have you tried to improve ___?

• How often does ___occur?

• Tell me how a typical day in your life looks

First-Time Founder Mistakes & Lessons Learned

The following example is a continuation of the previous Building Block Series First-Time Founder Mistakes. In Part 1, we spoke about the necessity of conducting the problem validation process to ensure you have discovered a problem worth solving. In this section, we will talk about the issues that arise when you neglect to define an ICP.

Previously, on Avatar Here is where we left off:

During Koala’s ideation phase I discovered a challenge the pet industry was facing, and created a problem-hypothesis from the potential second-order effects of the challenge. I assumed that the problem was extremely painful and decided that it was the problem Koala would focus on solving. I completely bypassed the problem validation phase.

In doing so I never defined, or even tried to find, an ideal customer profile. After making the assumption that the problem I came across was worth solving, I then made up who was most affected by it. I used only data available on the internet to outline this entity - as opposed to customer discovery interviews.

Because I had not conducted customer discovery interviews with any of the potential entities this problem could have affected - I jumped immediately into the solution-validation phase of ideation. I started building an MVP.

Mistakes Made

Since I had not defined an ideal customer profile, it became extremely easy to fall prey to the idea that this proposed solution was relevant to everyone. In Koala’s case, it appeared to me as if the solution could be relevant not only to every pet parent ever, but also veterinarians, pet insurance companies, and even pet food companies.

Eventually, when I started conducting customer discovery interviews, I violated The Mom Test on all accounts, finding it extremely difficult not to pitch my premeditated solution. Additionally, because I did not have a baseline from which I could compare all interviewees (I never formulated a hypothesis around who my ICP might be) - I became swamped with mixed signals that confused me as to whether or not I was on the right track.

From a cognitive psychology (and behavioral economics) perspective, I was experiencing the sunk-cost fallacy. I was reluctant to abandon the problem I was solving, and the minimal viable product (MVP) created to represent the solution, because I had given months to its development. I spent so much time on the solution that was Koala, for the problem I assumed was worth solving, that I was determined to see evidence in my belated data collection that my assumptions had been correct (in complete violation of the scientific method).

To drive the point home, the only people I was speaking with in the beginning stages of Koala’s development were advisors and potential business partners. Although highly intelligent and experienced individuals, I started taking advice and implementing strategic initiatives from the data I gathered during these meetings. Essentially, I started charting a course for Koala based on data that was in no way representative of the venture’s (still undefined) potential customer.

Lessons Learned

If you’ve ever seen The Emperor's New Groove, this is where the tape comes to a screeching halt and present-me brings out a bright red sharpie on the whiteboard of past-me’s life.

WISHD = What I Should Have Done.

Mistake: I relied solely upon market research during Koala’s ideation process.

WISHD: Try to learn about the industry through 20% market research, and 80% customer discovery interviews. I would have possessed the insights to understand how the market data incorporated itself into the lives of the different players in the space (pet parents, veterinarians, pet insurance companies, etc).

Mistake: I did not start conducting interviews until after I had a problem in mind and had allowed myself to get carried away with an idea for a solution.

WISHD: Having come across a potentially worthy problem, I should have conducted a minimum of 100 (no, that number is not a typo) customer discovery interviews spread out across different demographics of pet parents, veterinarians, and any other entity the problem might be effecting.

From there I would have (via The Mom Test methodology) begun pattern-matching, slowly weeding out what type of entity this problem was the most painful for.

Following the problem validation method, and armed with interview data, I would have been able to discern not only whether the problem was worth solving, but also create an outline of my ideal customer profile.

During this stage, if I were to have discovered that the problem was not painful enough, or painful only to a very small number of entities (but did not possess the market potential to create a VC-backable startup) I would have been able to swiftly move on.

Ideal Customer Profile: Pet Parent

Market Research:

• Supply shortage: The number of veterinarians doesn't meet the growing demand, exacerbated by 160.5 million pets in the US and only 77,334 companion animal veterinarians.

• Humanization trend: Pet parents increasingly consider their pets as family members, leading to higher expectations for healthcare.

• Pet parent desires: A majority (79%) of pet parents in the US express a wish for more knowledge about their pet's health for preventative care, with 76% desiring personalized healthcare for their pets.

• Facebook usage: Over half of dog (56.2%) and cat (51.8%) owners receive health information through Facebook groups - these sources are considered useful but not entirely trustworthy by many pet parents.

• Cost escalation: Veterinary care costs are rising due to both a shortage of veterinarians in the industry and increased usage of advanced procedures like radiation therapy and CT scans.

• Financial strain: Many pet owners underestimate pet care costs, with a reported 47% having pet-related debt.

Hypotheses / Assumptions:

These were my hypotheses back in the day - notice how I categorize all pet parents into one large bucket, instead of creating subcategories based on demographics. Additionally, note that I automatically attribute these challenges as being highly painful to the pet parent, and something I believe they would be willing to pay to solve.

• A large portion of pet parents are going online to find answers to their pet health questions - but they don’t find these sources reliable and wish they were personalized.

• Getting instantaneous and personalized pet health information is of vital importance to pet parents.

• Pet parents would be willing to use an app that provided them instantaneous and personalized pet health recommendations.

• Pet parents would be willing to pay for such an app.

Ideal Customer Profile: Pet Insurance Company

Market Research:

• Wage pressure: Shortage of veterinarians and staff will drive up wages, squeezing practice margins and profitability.

• High claims expenses: Claims expenses are expected to constitute a significant portion (60.7%) of total industry revenue, with average loss ratios at approximately 55.0% (according to IBISWorld).

• Delayed help: Millennials aged 25 to 40 typically wait nine days before seeking assistance for their pet's health.

Hypotheses / Assumptions:

• The shortage of veterinarians coupled with expensive veterinary care costs increase the number and cost of claims.

• The primary objective of pet insurance companies is revenue growth.

• Pet insurance companies aim to attract clients who submit fewer claims (thus increasing their bottom line).

• Pet insurance companies would be willing to partner with a technology company to drive lead generation.

• Pet insurers offering Koala's app to millennial and Gen Z pet parents enhance their appeal by providing a free pet symptom checker.

Credit

The content in my newsletter is an amalgamation of the knowledge I’ve gathered from my own personal experiences making mistakes and learning lessons the hard way, as well as the various organizations and individuals that have provided me an invaluable amount of information, advice, and general knowledge.

Therefore I extend a very hearty thanks to:

• Danny Leshem, serial entrepreneur, investor, and lecturer at the Zell Entrepreneurship Program who first introduced me to the book The Mom Test on how to conduct unbiased customer discovery interviews.

• The Techstars Seattle Accelerator program in general and T.A. McCann specifically for his lecture on Customer Discovery which first introduced me to the model of defining an Ideal Customer Profile (ICP).