I have often seen ventures built on their owners' picture of what people need, only for them to be surprised that customers do not behave as expected. In this chapter we present the customer discovery method and the rules of a good interview, then explain market segmentation, estimating market size realistically, and analyzing competitors and alternatives.
After studying this chapter, you should be able to:
The most common mistake people with new ideas make is building their venture on their personal assumptions: "I need this service, so everyone needs it," or "This idea makes sense, so people will buy it." That assumption may be right, or it may be completely wrong. The only way to find out is to go to people and talk with them.
This is the idea behind the customer discovery method developed by Steve Blank, entrepreneur and Stanford professor. He sums it up in a famous phrase: "There are no facts inside the building, so get out of the building." He means that everything a team writes in its office about the customer (who they are, what their problem is, how much they will pay) is nothing but hypotheses (testable guesses), and they only become facts after being tested with the customers themselves.
Customer discovery follows clear steps:
You might think interviewing is easy: ask people what they think of your idea. The problem is that people usually try to be nice. Ask a friend "Do you like my idea?" and they will say yes to please you; ask someone "Would you buy this product if it existed?" and they will say maybe, because promising something in the future costs them nothing. You come out of your interviews convinced that everyone wants your idea, and discover at launch that nobody buys.
Rob Fitzpatrick tackled this problem in The Mom Test, named that way because your mother is the person most likely to flatter you and say your idea is wonderful. His core rule: ask questions that a person cannot flatter you on even if they want to. Three rules achieve this:
Instead of explaining your idea and asking for their opinion, ask about their experience with the problem. When you talk about your idea, the conversation turns into politeness; when you talk about their life, it turns into information.
Questions about the future ("Would you use…?", "How much would you pay…?") give you wishes. Questions about the past ("The last time this happened, what did you do?") give you real behavior. If someone says they suffer from the problem a lot but have never looked for a solution, the problem is not painful enough.
In a good interview the customer talks most of the time. Write down their words exactly as they say them, because they will help you later in marketing and pitching, and pay attention to emotions: annoyance, hesitation, enthusiasm.
| Weak question | Why it is weak | Better question |
|---|---|---|
| Do you like the idea of an app for booking sports fields? | It asks for an opinion, so it gets flattery | The last time you wanted to play with friends, how did you book the field? |
| Would you use the app if we launched it? | It asks about the future, and promises are easy | What is the hardest part of the current booking process? |
| How much would you pay for the service? | A hypothetical number that commits no one | How much do you pay now to book? Have you tried another way? |
| Don't you find the current booking tiring? | A leading question that imposes the answer | How would you describe the current booking experience? |
Another useful question is about frequency: "How many times have you needed this service in the past three months?" A problem that recurs every week is very different from one that comes up once a year, both in the size of demand and in the revenue model that suits it.
Whom should you interview? Do not settle for your friends; they flatter you and are similar to you. Interview people who actually live the problem, from different backgrounds. At the end of each interview ask: "Do you know someone else who faces this problem?" This leads you to real customers. And look for commitment as stronger evidence than words: the person gives you extra time, introduces you to others, pays in advance, or asks to be told when the service launches.
There is no product "for everyone." Even products everyone uses, like water and phones, are offered by companies in different forms to different groups. Market segmentation is dividing potential customers into groups with similar needs and behavior, so that each group can be served in a way that suits it. The best-known bases for segmentation are four:
| Basis | Example variables | Applied example |
|---|---|---|
| Demographic | Age, gender, income, education, marital status, occupation | Working mothers, or recent retirees |
| Geographic | City, neighborhood, region, type of place (urban, rural) | Residents of new neighborhoods far from the city center |
| Behavioral | Purchase frequency, loyalty, buying method, occasion | People who order food more than three times a week |
| Psychographic and needs-based | Lifestyle, values, interests, the job to be done | Fitness enthusiasts looking for high-protein meals |
After segmenting, you choose one target segment to start with. Choose one that is large enough to sustain you, feels the problem acutely, is reachable by you, and is not well served by competitors. Starting with a narrow segment is not weakness but focus; serving a small group excellently is better than serving everyone averagely.
A persona describes a typical customer who represents your target segment as if they were a real person: a name, an age, a daily routine, problems and motivations. Its benefit is that when the team makes a decision it asks "Does this suit Sarah?" rather than the vague "Does this suit customers?" It is built from interview findings, not from imagination.
Notice how this persona reveals things the label "small shop owners" does not: he does not want complex software, he is currently paying for an inadequate solution, and what he really wants is reassurance and clarity, not the accounts themselves.
Clayton Christensen and his colleagues developed a theory that people do not buy products; they "hire" them to get a job done in their lives. In the best-known example, a company studying why people bought a certain drink early in the morning discovered that many bought it to keep them company on the long commute and keep them full until noon. The "job" was not "drinking something tasty" but "making a boring commute better." That changes your view of competitors: the drink's competitor is not only another drink, but a banana, a muffin, and a podcast.
When you understand the real job, you understand what you need to improve. An employee buying morning coffee on the way to work may not necessarily want "coffee," but "to start the day focused and energetic." A shop owner who pays an accountant does not want "accounting entries," but "to know whether the shop is profitable." This opens up wider alternatives and ideas.
The question any investor or panel will ask you: "How big is your market?" Market size is usually estimated at three nested levels:
| Level | Meaning | Example: a simple monthly bookkeeping service for small shops |
|---|---|---|
| Total addressable market (TAM) | Total potential demand if you won every possible customer | All small businesses in Saudi Arabia that need to keep their books |
| Serviceable available market (SAM) | The part your model can actually reach | Small retail shops in your city that you can serve with your team, language and approach |
| Serviceable obtainable market (SOM) | The realistic share you expect to win in the near term | The number of shops you expect to actually subscribe in the first year, given your team's capacity and trial results |
The more accurate way to estimate is bottom-up: start from a small unit that can be verified, then multiply. Example: the number of retail shops in the neighborhoods you can reach (from a field count or chamber of commerce data) × the share without a regular accountant (from interviews) × the share willing to subscribe × the annual subscription fee.
The weak way is top-down with no logic: "Saudi Arabia has so many million people, and if 1% of them buy, we will earn this much." That number convinces no one, because it does not answer the important question: why would these people buy from you in particular, and how will you reach them?
Competition is not only whoever offers the same product, but anything the customer could choose instead of you to get the same job done. So competition is divided into three levels:
When a student says "My idea has no competitors," it usually means one of two things: either they have not searched well, or people do not need this solution at all. The presence of competitors is a sign that a market exists; what matters is knowing what makes you different from them.
To organize the comparison, make a simple table: competitors in the columns, criteria that matter to the customer in the rows (price, speed, proximity, quality, ease), then rate each competitor. The gaps where you can stand out will appear.
A common tool for organizing a picture of the venture in four boxes:
| Positive | Negative | |
|---|---|---|
| Internal (about you and your team) | Strengths: what you have and do better than others | Weaknesses: the resources or skills you lack |
| External (about the market and environment) | Opportunities: market changes you can benefit from | Threats: competitors, regulations or changes that could hurt you |
The real value of the analysis is not in filling the boxes, but in the next questions: How do I use my strengths to seize the opportunities? And how do I address my weaknesses before a threat exploits them?
The answers are on the Answers to Self-Assessment Questions page. On the interactive course page you can answer and check these questions directly, with practical tools linked to the chapter.
Write a persona for your venture in five lines: Who are they? What is their day like? Their problem? What do they do now? What would make them pay?