Clustering: Identifying your customers

The typical strategy to cluster customers is to do so by demo- and psychographics. It is easy to separate by geographical region, age and academic background, but those clusters are rarely enough to segment a group of customers well. A deeper approach could be to look at customer behaviour, i.e. how the customer is using the product. This could be how often the customer uses your product, how sensitive he or she is to the price, etc. One can refer to this as Value-of-Customer (VoC). An even stronger measure is yet to look at the specific needs of customers, especially contextual needs, i.e. what needs a customer in a particular situation has. This could be specific needs some customers have on their way to work or generally in the evening.

As a practical example, consider you are launching a new brand for frozen dinner. You may look at people’s age and geography, but those won’t tell you much about the consumption and price point for your frozen dinner brand. You can also investigate how people use your product and separate those who use it frequently from those who don’t. But the most effective strategy will likely be to look at people’s needs. You might find that especially workaholics who need a quick dinner after work might be an interesting customer group. This may help you both with your customer discovery and your marketing.

In order to pick a right segment, you want to interview customers with different needs and verify your hypothesis based on needs rather than demographics. This means you should have hypotheses about who your customers are in terms of demography, behaviour and benefits and you should have a clear idea of which attributes qualify a certain customer to belong to a specific group. This is easy for demographics, but gets more difficult for benefits.

For quick customer discovery, it makes sense to trust your intuition and start with a theory on how you think your perfect customer looks like in terms of benefits, behaviours and demographics. After you’ve created your theory, select customers that fit your initial assumption and try to verify it by interviewing them.

We can call this method a who, what, why segmentation. The below checklist may help you do your customer segmentation.

  • Descriptor: Who?
    1. Age
    2. Income
    3. Education
    4. Profession
    5. Industry of profession
    6. Geography
  • Behavior: What?
    1. Usage patterns
    2. Sense of loyalty
    3. Prone to deals and promotions
    4. Responsiveness to different elements of the marketing mix
  • Benefits: Why?
    1. Needs
    2. Latent preferences
    3. Lifestyles
    4. Way customers derive at product decisions
      1. Emotional
      2. Product/price ratio

If you are wondering why that initial clustering is so important, I suggest you check out the sections on Beachhead Segments.

Another relevant section is Personas as they are a fantastic means to understand your customer beyond descriptors.

Beachhead Segments

Entrepreneurship Without Risk

This concept is a war-inspired metaphor referring to the idea that if you were to try to penetrate a bit of every army of your enemy you will likely fail. However, if you start with one adversarial army, likely the beachhead, you can conquer this segment fully and from there on move yourself to the next.

In entrepreneurship, this strategy has proven to be just as effective. Dr Geoffrey Moore has coined this term in his book Crossing the Chasm: Marketing and Selling High-Tech Products to Mainstream Customers in which he suggests to start with a small niche before moving on to the customer segment. Moreover, the notion of the beachhead is rather a need-based phenomenon than a demographical one. Most successful companies have started with an incredibly small niche and worked themselves up from there. Reddit has started with a very specific geek-like customer type but has expanded rapidly from there and is now used just as much by mainstream users. Facebook started with one single Tinder-like service for students only at Harvard. Later it spread to other Ivy-league universities and from then on it expanded its services and started tackling the mass market. Tinder also started only on the west-coast and only by targeting college students. They promoted their app on college parties and sororities – physically. You might be surprised how many successful apps started with physical promotion.

Benefits include

1.              You can use limited resources effectively

2.              Mistakes in one segment are usually not transferred to another

3.              Within a specific niche there is incredibly strong word of mouth

Reference to Niching

However, be aware that beachhead strategy is not niching. While niching refers to addressing a specific niche and staying with it, beachhead strategy starts with a specific need, but conquers the entire market from there. Some products work better with a niching strategy and some better with a beachhead strategy. While we’d love to give examples, their value is limited. You will need to assess your individual scenario and see whether your product may be altered towards mass adoption or not.

This article has 9 neat tricks to consider when targeting your beachhead segment:

Customer Interview

Interviewing customers sounds easy but is probably one of the most difficult tasks in finding and addressing customer’s needs for any kind of business. It is the task most often done wrong, even by experienced professionals who have years of sales experience.

Because this topic is so vital for entrepreneurship and for launching new products fast and successfully, entrepreneurs and researchers on entrepreneurship have come up with a new term: ‘customer discovery’. The term stems from Bill Aulets ‘Disciplined Entrepreneurship’ and is to date the most efficient way of starting a company. Before you define your product in detail, you should first know who your customer is and why that customer may use your product. You can do that without building the product in the first place, but it is difficult to find out.

There are few resources on this topic that certainly need to be checked out, but we definitely encourage you to read The Mom Test by Robert Fitzpatrick. It is an easy read and can be read and summarised in 2-4 hours.

After you’ve read this section, there are more advanced tactics to consider, mainly drilling down for customer interviews and customer observation as an alternative to customer interviews.

Resources

Robert Fitzpatrick: The Mom Test.

Giff Constable: Talking to Humans.

Customer Observation

Customer observation is different to customer interviews in that you do not speak to the customer, you merely watch her or him. This is more difficult but can be more useful in many regards.

This article explains perfectly the essence of the technique:

https://www.interaction-design.org/literature/article/how-to-conduct-user-observations

This article gives a couple of examples in combination with the entire design thinking methodology, developed by the world’s best design firm:

An in-depth analysis of observation in healthcare:

http://web.simmons.edu/~tang2/courses/CUAcourses/lsc745/sp06/observation.pdf

An approach to merge this with qualitative feedback from interviews can be found here:

https://www.researchgate.net/publication/283125576_Towards_Continuous_Customer_Validation_A_Conceptual_Model_for_Combining_Qualitative_Customer_Feedback_with_Quantitative_Customer_Observation

Drilling Down

If you want to conduct a proper customer interview, you need to be able to ‘drill down’ instead of ask broadly. Most beginners conducting customer interviews have a prepared questionnaire and move from one question to the next. With this tactic, you won’t do much but scratching the surface. Once a customer reveals interesting or unexpected information, your job is to dig deeper and adjust your mental questionnaire. With every answer from the customer, you learn something new which should alter the questions you want to ask. This is done very professionally in consulting.

To understand the idea of drilling down, The Mom Test by Robert Fitzpatrick is a good start.

However, if you want to be brilliant in conducting customer interviews, it is worth listening to a couple of mock interviews conducted by   The context is different, but the technique is entirely the same. You may use a similar strategy, producing different mental models and adjusting them while interviewing your customer. At one point, you’ll have arrived at the very root, a clear customer need within a given context. A ‘job to be done’ as coined by Clayton Christensen.

EWOR Education

As a consequence to what was described in the previous section, EWOR does not have a curriculum. EWOR does have a learning map instead. This means that our content is organised in a non-linear manner. You might start anywhere. A map doesn’t have a beginning. You might go from anywhere to anywhere, but some concepts are more closely related with one another while others aren’t. This is indeed a learning system inspired by the way our brain is organised. Researchers have found that our brain is organised in a topographical manner, which means that connected topics are located physically next to each other. ( Patel, G. H., Kaplan, D. M., & Snyder, L. H. (2014) ) Considering the billions of electrical signals in our brain, a tiny change in location of a neuron, if triggered regularly, can make a big difference.

This neurological, cybernetic way of learning has inspired us to create the EWOR learning map. Whenever you feel stuck in your approach, consider the right point to start within the EWOR learning map. Work yourself further from there as much as you believe is necessary, and then return back to your problem at hand. You do first and learn second, not the other way round as university education preaches.

Abraham Lincoln once said: “Give me 6 hours to chop down a tree and I will spend the first four sharpening the axe.” This is how we perceive learning. We want to ‘sharpen our axe’ now, to be more efficient in what we do afterwards. However, this example does not apply to practical subjects such as entrepreneurship. With every action and every failure, you will learn. Hence, with every hit you will sharpen your axe. A much better metaphor for this problem is to look at it like this – imagine you would have to fight a martial arts expert. You’ll surely need muscle and technique. And practising your technique separately or going to the gym to grow maximum muscle might help slightly, but will eventually lead to you failing to use your strength. Think about that bodybuilder who has biceps twice as big as average, but can’t even open a jar of jam. If you acquire your skills through actual fighting, in contrast, the muscles you build will be functional, i.e. they are specifically useful for the kicks and hits you want to perform. Moreover, your technique is contextual. You can use it to perform counter-moves to your opponents’ actions, not as a detached, cool-looking but meaningless facet.

University education, the way we perceived it, is like going to the gym and becoming that bodybuilder who’s incredibly buff, but functionally weak. He can’t use his muscles. How often have you seen an academic, who has an outstanding supply of knowledge, something to say about every topic, but none of it being practical in any manner?

Lastly, we acknowledge that we live in the age of content creation. Knowledge doubles every year (Schilling, 2013) and this creates new challenges. We cannot possibly know everything anymore. And we shouldn’t. To state this important principle again: We should only know what is relevant to solving our problem at hand. This is how learning has always been and will continue to be. But with content expanding so quickly, what we learned 10 years ago might not be an efficient way to solve the problem at hand anymore. EWOR has thus focussed on providing you with the most cutting-edge knowledge and tools out there and updates its content on a monthly basis. We provide you with the output of the best content-creators in this world and most of the videos you’ll watch or the books you’ll read will not be written by us. While university lecturers still cling to their own curation of content, we acknowledge that there are 1000s of YouTubers these days doing a better job in visualising and explaining content. Much of what you will see will be from third parties, but the selection will be done by the best in the world: professors from universities such as Cambridge and St. Gallen, industry leaders and established entrepreneurs.

Resources

  • This article explores the topographic organization in the brain, the searching for general principles and implications.
  • This blog post describes the exponential growth of human knowledge.

Internal Force

As for the internal force, both of us, the co-founders of EWOR, have been disappointed by the European education system. Europe clearly prepares us for academic and theoretical careers, excellently so, but does not for practical matters such as entrepreneurship and business. Computer science, too, which is on the intersection of practice and theory, suffers because of our overly theoretical education. The list goes on.

What do we mean exactly? The way we learn is simple. We have a curriculum, work through the curriculum, may apply it in a couple of theoretical settings and eventually complete an exam just to start with the next curriculum. We do so until our period of education is completed, may it be a bachelor’s or master’s degree, just to notice that in practice 95% of what we learned is irrelevant to our specific case.

As entrepreneurs, we learn differently. We do first and study afterwards. When we’ve experienced the task or problem first hand, our brain will retain the knowledge differently. It will firstly store it longer and secondly connect it to a practical event. Knowledge becomes implicit and action-driven. (Epstein, 2019).

To give a concrete example, I once endeavoured to create a tool that helps people lose weight. I had no idea of how this tool might look like and what it should do, and mostly wanted to leverage the knowledge I had gained as a coach in a scalable technical manner. The literature on doing so is way too vast and complex to be absorbed, so I decided to experiment with bot-technology. I researched the tools out there and built an initial chat bot on Dialogflow, an API built by Google. After playing around for several hours, I had a clear idea of what my chat bot should do. I phoned a couple of friends who were experienced in developing to verify my hypothesis and only then did I start to consume online content on bot building. I did a couple of video tutorials on backend development to understand the system architecture, as the endeavoured solution needed a webhook, a REST API and a Redis database, all of which were cryptic words to me back then. I didn’t even have to learn front-end development, such as coding in js, HTML, CSS, PHP or Java, because my architecture automatically integrated with Facebook, which supplied the front-end. Did I have to do a computer science bachelor to do this? Definitely not, it took me less than a month to acquire the skills necessary. Interestingly, I ran a similar project with master’s students from ETH Zurich later on, just to learn that they knew less about bot development than I did. They’ve learned a ton of maths and solved difficult theoretical problems, but none of them had much experience with practical use cases. This is one example of as to why the current education system fails, and why the most innovative countries in the world rarely translate their knowledge into practical, entrepreneurial endeavours.

With the world changing quicker and quicker these days, this notion of education becomes even more relevant. YouTube videos often display complex content in a much better manner than university lecturers. Lessons on Coursera and edX are mostly free and provide education at least as good as physical universities. Simultaneously, knowledge doubles every 12 months. Compared to the philosopher of the middle-age who was skilled in all of the disciplines out there, being an expert on every single subject has become factually impossible. Yet most importantly, we don’t need to. Jobs in the real world are about solving problems, and to solve those problems we need to become quick, adaptive learners, who absorb new knowledge and content quickly, but only that which is relevant to the problem at hand.

EWOR is about this new way of education.

Resources

  • This book analyzes how top performers are mostly generalists fand are able to make connections their more specialized peers can’t see.

External Force

There is an external and an internal reason which made us start this program.

As for the external force, consider the below diagram. Even though this graph focusses solely on unicorn start-ups, i.e. those with a valuation of over 1BN USD, it is worth having a look at it. China, which has had zero unicorn start-ups in 2013, already overtook Europe by a factor of three. Europe’s relative proportion of unicorn start-ups is shrinking, while that of China increases drastically. Compared to the 120 unicorn startups in the United States, the 20 unicorn start-ups in Europe don’t shed a good light on our continent. Europe fails to grow and scale start-ups effectively. This is especially interesting compared to the fact that 8 out of the 10 most innovative countries of the world are in Europe. Europe has the potential, but there are structural, psychological and financial burdens to solving this issue. EWOR aims to address all of them.

Source: Own representation