Small business strategy question: How do you define a customer?

In a previous blog post I listed 100 small business strategy questions that entrepreneurs need to ask and answer to grow their businesses. Then I’ve been occasionally examining each question and providing tips and advice on how to answer that question and then apply the answer to your business.

The small business strategy question I’m looking at today is: How do you define a customer?

The first part of the answer to this question has to do with the synonym you use in place of the word “customer”. I use the word “customer” to refer to anyone who buys when you’re selling but not every business uses the word “customer”. They might use words like “client”, “buyer”, “subscriber”, “patient”, “member”… or something even more specific (like “seller” for real estate clients who sell their homes or “insured” for someone who has purchased insurance). But for my purposes in this blog post, I’m going to use the word “customer” to refer to the group of people you sell to, regardless of what you call them in your day-to-day business.

That’s not the only way we define a customer. We also define a customer based on what commitments they make. Someone who subscribes to our free newsletter might not be a customer. But they are a subscriber. To some businesses, a subscriber is a customer; to other businesses, a subscriber is not a customer.

And, we define a customer based on when they become customers in your sales funnel will help you define your customer. For example, they might be a prospect until they commit to buying from you, even if they don’t pay until after they’ve received service. But that’s not the case for every business. Some businesses don’t have customers until that customer hands over cash.

It’s kind of a fuzzy line: When someone goes to McDonald’s, are they a customer when they drive into the parking lot or when they walk in the door or when they stand in line or when they order or when they pay their money or when they get their food?

WHY DOES IT MATTER?

You might be wondering why it matters how you define a customer, and why you should go through all this trouble for something that is apparently a very fuzzy definition.

There are a few reasons why it matters: Knowing who your customers are (and when they become customers)…

  • … helps you to market more effectively by shaping your marketing and sales efforts toward the value that the paying customer will receive (as opposed to some general value that people can get for free from you). This protects you from doing all that work to drive people to your blog or email newsletter only to have them think that you have given away everything of value and there is nothing worth paying for.
  • … helps you to work toward one specific goal in your sales funnel. (And, if you have other people on your team, you can align that goal so you’re all working together toward the same thing).
  • … helps you to measure your marketing and sales success so you can test the effectiveness of your marketing and sales efforts and improve for greater profitability.
  • … helps you provide better customer service by helping people who are actually customers (versus those who might be committed to your business but not a paying customer.
  • … helps you to innovate with simple things in your sales funnel like adjusting your paygate or delivery times

All businesses have customers but businesses define those customers differently. How do you define yours?

Where do you fit in your customer’s income statement?

I have a cell phone and I drop about $100/month on service. Yet, I refuse to spend $600 on a snowblower.

Why am I willing to spend twice as much on a phone but not spend a dime on a snowblower? This silly example illustrates a dichotomy on spending that everyone feels: Namely, my cell phone contributes to my life and my business (by keeping me connected and up to date) while a snowblower doesn’t really contribute to my life or my business. (well, it keeps the snow off my driveway but I don’t consider that a very valuable contribution).

Every customer weaves these same ideas into a type of “mental income statement”. Some expenditures feel like expenses and that’s all the customer sees. Some expenditures provide so much value that the customer sees the positive impact on the bottom line. (Note: Both are expenditures but one provides enough value to SEEM like it has a greater contribution to the bottom line).

So where does your business fall on this “mental income statement”?

  • If a customer can justify the expenditure, they gladly hand over their money to pay for whatever you’re selling.
  • If a customer can’t justify the expenditure, they seek out alternative solutions — perhaps a cheaper solution from a low-cost provider or perhaps a DIY solution or perhaps they just go without.

So the question is: How can you get a customer to justify the expenditure?

The answer is simple: Provide value. But don’t just provide a little bit of value. Use your sales and marketing (and post-sale communication) to show how the benefits your customers get from your product or service far outweighs the time/money/effort costs that the customer is putting into the purchase. And, of course, overwhelm your customer with your great delivery.

Provide enough of a benefit so that when your customers think of you, they don’t think of you as an expense or a cost but rather as something so valuable that it contributes to their bottom line.

This inspiration for this post came from Andrew Sobel’s blog post Are you part of your client’s growth or just a cost? It’s a great article, go check it out. Sobel asks some similar questions as I do above and then gives some tips for moving from being an expenditure to a significant contributor to your customer’s bottom line.

7 fast ways to discover new business opportunities

Businesses are more likely to survive, grow, and succeed when they fill a need. But sometimes finding that need isn’t always easy. You might know conceptually what the general need is but really zeroing in on the actual, tangible, hand-over-their-cash need is much more difficult to do.

Once you know and fully understand the need, and can articulate the problem and your solution, you have a business worth acting on.

If you want to start a business but have no idea who to sell to or what you want to do, I suggest you first think about that and narrow it down slightly. You just need some kind of loosely-defined boundary to get started (otherwise, you’ll have a hard time finding opportunities because you’ll be too busy ranging from one target market to another).

Or, if you are already in business and just want to explore some new opportunities (to the same market or to an entirely new market) you already have those boundaries set up.

Use the following 7 ways to quickly discover new business opportunities.

  1. Using Google’s Keyword Tool, search for some of the main words that your target market searches for. To zoom in even more, precede those keywords with words like “How to” or “How do I”.
  2. Check out a site like Quora or Yahoo Answers or Ask.com or Answers.com or LinkedIn Answers. These sites cater to different types audiences so make sure you check the ones that are most relevant to your audience. Pay attention to repeated or restated problems that appear multiple times.
  3. Visit forums related to your topic. There’s a forum on just about everything. Find the top forums for your topic (search for your topic plus the word “forum”). Then read like crazy. In many cases, you can read the initiating post to get a sense of what people are struggling with. Pay attention to repeated or restated problems that appear multiple times.
  4. Read magazines written for your target market. If possible, check out the back issues. Write down the top articles in each issue and watch for repeated topics. (This is my favorite way of doing market analysis).
  5. Go to Amazon and look for books written for your target market on the topic you are thinking about. Even just by looking at the titles and tables of contents, you get a pretty good idea of how authors are framing the problem and the solutions.
  6. Look at a site like About.com and see what topics they have. In your mind, restate those topics as problems requiring a solution.
  7. Go to a how-to site like WikiHow or eHow and see what other people are providing as how-to advice. Watch for advice that is very popular or is repeated/restated in different ways by many people.

Once you have some problems outlined, you are ready to build your business toward a solution that you can charge people for.

What a $110 lightbulb can teach about sales and customer satisfaction

A few years ago, I bought a brand new furnace/air conditioning system from One Hour Heating and Air Conditioning. I’ve been very happy with the furnace and air conditioning system itself, although the company has struggled with delivering good service. If it wasn’t a requirement of the warranty, I would have dropped them years ago.

As part of the annual maintenance, a technician came out earlier this year to inspect the furnace and (because it was too cold at the time) another technician came out to inspect the air conditioner this week. During his inspection, the air conditioning tech observed that the pilot light was out. “I can order another one for you. It will cost $110.”

Yes, $110. For a lightbulb.

I haven’t decided if I want to order the lightbulb yet. I get that things cost money and there are many industries where prices are more than the consumer wants to pay. But I think I’m galled by the high price from this company in particular, since I have had more than my fair share of frustrations from them.

But it was also a lesson in sales skills… or lack thereof. The technician was very nice and did their job quickly and professionally. But when it came to presenting me with the lightbulb, their sales skills fell far short. As a result, I am even more annoyed by this company than I was before.

When the technician want to hear. “Your lightbulb is out” and “It will cost $110 to replace“. Although these are both factual statements, they fail to point out why this is important. So instead of forcing me to consider the function of my furnace or the safety of my family (or whatever the purpose of the lightbulb is), all that is left out hanging in the air between the technician and I is the idea of a $110 lightbulb. I think about the other lightbulbs in my house — which might cost between a few cents and a couple of bucks, depending on the type of bulb — and all of them do a fine job. This furnace one is smaller and is some kind of indicator bulb… but I don’t even know what it indicates. And so I’m left with what seems to be an overpriced lightbulb of unclear purpose, and that just compounds the negative feelings I already have for the company.

How should the technician have handled the situation? This is where some sales skills come into play. It’s not that complicated, and the technician shouldn’t have to feel like they are forcing me to buy anything.

  1. The very first thing they should have done is highlight the importance of the indicator. (I’m not sure what this lightbulb indicates so I’m just making up the following example…) “Aaron, part of your furnace has an indicator mechanism that watches for poisonous carbon monoxide and alerts you to when those levels become too dangerous”.
  2. The second thing they should have done is highlight the consequences: “When carbon monoxide levels are too high, your family is in danger.”
  3. Then they can talk about the lightbulb: “The lightbulb lets us know that this carbon monoxide detector is working. When the light isn’t on, we’re not sure if it’s working or not.”
  4. And THEN they should talk about price, but they can soften the blow by forcing me to consider the cost of not fixing the light. And they should also soften the blog by making it seem like a pretty special lightbulb: “We have special long-life indicator lightbulbs that are installed in these, and your lightbulb has lasted 4 years — far longer than most household lightbulbs. But now it’s burnt out and it’s pretty important that you are aware that this unit is functioning. So I recommend that we order in a special bulb. The cost is $110, which some of our customers find a little steep but there isn’t a better bulb out there to do the important work that this bulb does.”

The tech doesn’t have to go into a hard sell on this. But with a $110 lightbulb, to a customer who is already on the edge about liking the company, they could do a better job of selling me on the bulb.

Small business strategy questions: What does your business do? And, What does your business sell?

Recently, I posted a list of 100 Small Business Strategy questions that every entrepreneur should ask themselves from time to time. The very first two questions of the list are…

  1. What does your business do?
  2. What does your business sell?

Those questions are related yet different, and you need to answer them at the same time.

Answering the question “What does your business do?” is describing why people buy from you.

Answering the question “What does your business sell?” is describing what they’re actually getting when they hand over your money.

The product or service they get (which answers your second question) should deliver the benefits they expect (which answers your first question).

The key is being able to articulate who you serve and what problems you solve or needs you fulfill and then how you deliver that solution to your customers.

Create a list to answer each of the questions. In general, your answers to the first question should be different than your answers to the second question, and your list of answers to the first question should be longer than your list of answers to the second question.

Not all of your products or services will necessarily achieve all of the things in the list of your first answer, but collectively they will all provide those things.

EXAMPLES OF THE DIFFERENCE BETWEEN THESE TWO QUESTIONS

Here are some examples. I’m going to show you first what the business sells (the answer to the second question) and then I’m going to show you what the business does (the answer to the first question).

A financial advisor sells portfolio management services. But what they do is provide advice, and a filter for crazy investing ideas, and access to the stock market.

A house painting company sells a paint-your-house service. But what they do is provide convenience, professional experience, time-saving and effort-saving value, high quality paint, and fast application to busy homeowners who don’t want to paint their house themselves.

A bookstore sells books. But what they do is provide an escape, a place to curate all the best books that a book-lover should read, advice and suggestions on reading, and a few minutes of peace and quiet in a fast-paced world.

WHAT HAPPENS IF YOU STRUGGLE WITH FINDING AN ANSWER

The answer to the second question is easy. We all know what we sell. The answer to the first question is much harder because we don’t always know what our business does (or how it’s different from what we sell). This is especially true if you sort of “fell” into your business or inherited from someone else or bought a franchise.
So if you are struggling to answer the question “What does my business do?”, try doing the following:

  • Try listing the benefits of your product or service. It doesn’t always give you a complete answer but it’s a good start.
  • Think about when people buy from you. What was the situation that inspired them to come looking for you?
  • Ask the question “Why do people buy from me?” and “What value do I offer?”
  • Ask your previous customers to tell you why they bought from you. Look at testimonials for hints, as well.
  • Examine your most successful marketing campaigns (or, if you’ve just started your business, examine your competitor’s marketing campaigns) to see what kind of language drove people to buy. What was promised?
  • Use a search engine keyword tool to find what your target market is searching for. (People will sometimes search for the name of the product or service they want, but many people will also search for the solution to their problem… and THAT is the answer you’re looking for.

WHAT TO DO WITH THE ANSWERS

Figuring out what your business does is essential to growing your business.

You’ll write a clearer business plan and increase the likelihood of finding investors because your business will be clearly articulated.

You’ll create more effective marketing campaigns because you’ll be focused on the reason your customers are likely to buy from you.

You’ll even discover new ways to make more money. For example, you can look at the answers to your first questions and figure out ways that you can provide the same benefits with new products or services. That’s why financial advisors often also sell other things besides strictly buying and selling investments for their clients – they also sell insurance or mortgage products, too.

Answering the questions “What does your business do?” and “What does your business sell?” are the first and most important questions any business owner should be able to answer.