Anchor customer: This has often been a very important and intriguing area for me in a startup. This discussion covers the use of an anchor customer, key areas to be aware of and of course product development.
I’ve been a huge fan of product development and have been very interested in understanding customer needs. As a start-up, I understand it is extremely important to have the first customer. It will not only help your commercial model to raise investment, but it will also help product validation and understanding customer needs.
When we talk marketing, we often talk about surveys, customer interviews, focus groups and recording customer behaviour. There are quite a few data agencies out there who pride in sharing these customer statistics.
These have always been a great source of intel for us to define the product model, customer sample and base a solution out of it. These stats not only helped us validate a market gap but also helped us to understand the type of product a customer might be interested in.
Later stages of surveys gave us an inclination of product pricing which in combination with competitor pricing was a great source of info to define the commercial models.
Early adopters for Product Development
Tuning my interest back to an area of passion – product development, I’ve been a massive fan of MVP for product development. You might have read our previous notes on using MVP for customer development and product improvements. In this discussion, I want to focus on customer development and the role an anchor customer plays in this.
A startup is either based on personal experience or a collective understanding of market needs. Both of these scenarios are a hypothesis until the same problem is faced by a sample market size that can be scaled. In our case, the market size turned out to be huge. Related: What is a startup?
We started with the notion that every company or person is our customer – a huge mistake. If you’re trying to develop a product for everyone, you’re necessarily trying to please each person which means you’re eternally stuck. An alternate option is to categorize your customer portfolio.
Customer Segmentation
As we highlight in a business plan, this categorization can be based on revenue, area of operation, type of market. This helps in segregation to a customer variety who in turn can manage segregation of customer profile and in turn provide you a sample area to consider on.
As a practice, you’d end up with 2-3 different customer or market profiles. The idea is to develop a product-specific enough for this segment but also general so that it can be scaled to allied markets. It’s pointless to design a product which only one customer can use.
The next step was to identify sample customers in each of those segments. As a startup, it’s not only difficult to convince a customer to buy a product, it is equally difficult to convince an anchor customer or your development partner.
You’ll have to do a fairly good job at convincing your viewpoint and the stages of development they can be involved in. It is a good idea to offer them discretionary rates for the first couple of years as goodwill for their aid in product development.
Once you have a sample profile, you can always use this sample as a customer development aspect or even market development as you progress with later stages
Developing for Early Adopters and Anchor Customers
As your customer development process continues, there will be requests for feature developments. These can range from simple integrations to complex developments which can be either generalized or for a specific customer.
It will get a bit more challenging when you can see a commercial model for these feature developments. It’s a tricky line to tread – keeping your existing customer happy while at the same time ensuring that you’re compromising on the product and making it specific only for one customer.
Beta and later customers for Product Market Fit
An important question to ask – will it help other customers? As a rule, we’d normally accept features that can aid other customers to prevent ourselves from being a customer-specific solution. Remember, one of the most common reasons why startups fail is inability to achieve product market fit.
It is a hard balance to keep, especially noting that there are so many exciting features to develop. The key differentiator is that the core features of the product will be challenged. In such a circumstance, the question to ask is whether you go for a short term or long term view. It is not necessarily easy, but that’s where your prioritisation comes into play. I’m quite a fan of the RICE approach for prioritisation which takes you through key parameters
- How many customers does this feature benefit?
- What’s the impact of this feature on your customers?
- How confident are you about this requirement to the customer base?
- The effort involved in making this change
The scores from here define the order and priority of your task. Of course, this is a mere pointer of where you need to go. But not necessarily a hard and fast rule about everything you develop.
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Insightful read- especially for me as i’m going through the product development process, and i’m at the product(MVP) release phase.
I’m currently working on an app. However, being a non-tech person, i barely have any idea about the back-end side of things where i’m sure a lot of work goes on. I have outsourced the development part of the app and i’m completely concentrating on what we do best- Content development and Marketing.
Do you think that’s a good way to go about the App development? Or should i consider hiring some tech professionals ?
Thanks Jayasurya, it is extremely nice to hear this from you. I am always fascinated to hear from entrepreneurs and people considering this journey. There is so much to share and learn.
I am a huge fan of the MVP approach and each time I think of a new feature or product extension, this is the first thought that comes to mind. Involving the customer at early stages has phenomenal benefit. Of course we need to be careful not to build a customer specific product and that’s always a careful balance. But the insight we get is absolutely phenomenal. It tells us what the customer is really looking for and helps us hone in the product key selling features.
It is a really good question abut outsourcing and developing in house. I am very tempted to make a post on it. In fact, I’ve noted this down and hopefully will come up with one shortly.
As an answer for the time being:
Doing it internally:
– If the product is completely new and there are no similar examples of it elsewhere
– If you have a specific design of the work which is sufficiently codified and is in a place where changes are minimal
– If the changes you need to make are smaller and easily managed
– Communication between you and the developers is very good.
With the above, outsourcing is a really good idea if the company has access to wide development resource. If the answer to any of the above is no, it is ideal to do it internal. the normal rule of thumb I’ve heard of between internal and external developer ratio is 3:1. For every 3 internal developers, you can look at 1 outsourced. I know that the number seems strange, but it is quite a bit of work managing external resources unless you are giving them specific projects and paying them only for the success of those.
Hope this helps, please do let me know your views.