Know Your Customer

Market Research

February / March 2007 By: Betsy Gillette Volume 5 Number 1

Print this Article

E-mail this Article

Customers of industrial technology products are generally far fewer in number than consumers of mass market products. Therefore, it's vital that the entrepreneur try to capitalize on each opportunity to make sales, and market research can help maximize those opportunities. Industrial customers do not buy on whims and generally have some kind of structured process for buying solutions to problems. The more you find out about your customers, the better.

Entrepreneurs often have a technology product that they believe will be desired by customers, but they really don't understand potential customer operations. So, the first step is to understand the problems the customers are trying to solve—related to your product, of course—and to understand it from their perspective. Many common problems revolve around doing things faster, more accurately or with fewer problems. Find out how they deal with their particular problem now. Are there manual processes used to overcome issues? Do they need extra machinery? What is the cost of solving their issues? This could be extra human or monetary resources, lower production or revenues, environmental penalties, or a host of other costs. Make sure you understand the customers' terminology and use it going forward.

Once you understand the problem, the next step is to find out why and how customers buy. Who influences purchase decisions: the users, managers or senior-level executives? Or is it a combination? What role does the purchasing department play? This will of course, help determine how you sell to the customers. Once there's interest in your product, how are decisions made? Are there budget cycles, internal or external? Are there dependencies on federal budgets? How long do the purchasing decisions take?

There are other, subtler customer issues that you need to research. Do your potential customers have existing long-term contracts with your competitors? That would, of course, mean fewer near-term sales. Are there unions involved in operational processes that your product will impact, and will they need to be included in purchase decisions? If you have a piece of equipment that improves production processes, are there costs to switch out what the customer already has, or does it require extra maintenance or upkeep? Is your industry one that is simply happy with the status quo? All of these issues can impact your fledgling company, and the earlier you find out about them, the better your chances of trying to mitigate the issues.

Perhaps the biggest issue that entrepreneurs face is product dependencies. For example, imagine that a type of environmental monitoring is currently done by gathering manual samples that are then sent to a lab for analysis. If you have developed a remote sensor to replace the manual sampling process, what else needs to be in place for that automation to happen? The customer probably will need some software and communications capabilities in order to relay, capture and process the information from the sensor. If you have equipment that speeds up data collection, is there analysis software available that can handle the extra speed? Many entrepreneurs feel that anything beyond their product is not their responsibility, but if customers can't use products because ancillary products don't exist or are not suitable, they will not buy.

Admittedly, getting some of this needed information is difficult. You might get lucky enough to find some of it in an industry report or through trade associations, but that doesn't happen often. Your best bet for obtaining all of the information you need is to interview potential customers. In order to do that, you need a game plan.

—Make a list of potential customers, along with the names of people that you should talk with. It's best to contact small to mid-sized ones first, before attempting to talk with the largest prospects (or the ones with the most sales potential). You can get names on their web sites, through industry databases, or business databases like Hoovers or zapdata.com; check with your library or business organization for availability and cost.
—Develop a questionnaire to use during the interviewing process, being careful to cover all of the issues you need to address. Also be very cautious in how you phrase the questions, as you don't want to give away any proprietary information that might be passed on to your competitors. There are numerous books on the subject of interviewing if you don't feel comfortable with the process.
— Start dialing. Remember that this isn't a sales call, and if you ask people for advice and assistance they are usually more than willing to talk with you. Also remember that it's more important to listen than to talk; you may find that you need to stray from (and later revise) your questionnaire. Also, ask the people you interview if they have any suggestions for others you might speak with.
—This is a qualitative process, not a quantitative one, so the information you get won't be a "one-size fits all" summary. Keep that in mind going forward, and be flexible in addressing the needs of different customers.

You may find some product dependencies that don't exist in the marketplace. It's up to you to find solutions so that you can sell your product. Partnering might be a good solution, if you can find companies with products similar to those you need. If you can present a good business case, they might be willing to devote some resources to co-develop something with you. Who knows, you might even gain a partner for sales or distribution through this process! [See Innovation, December-January 2007 for more information on partnering.]

Betsy Gillette is director of market research and planning at Technology Ventures Corporation.