This Defining Entrepreneurship segment is a prequel to our segment on Types of Investment. We encourage you to watch this first to better understand our philosophy at Tech Ranch! Enjoy!
Hi, it’s Kevin Koym, Founder & CEO of Tech Ranch. Sometimes confusion comes about with all the popularity of lean startup practices that all the focus is on investment, but what I really want to talk to you about to day the importance of identifying and acquiring customers before going for funding.
Why is this? A lot of entrepreneurs that come into the Tech Ranch actually say “Investment, investment, investment, tell me more about investment.” And truth be told, a lot of them aren’t ready for investors. The difficulty is that they come in thinking we are going to do a talk about investors, but we start with a heavy focus on customers. Entrepreneurs should always should be “customer first”.
Here at the Tech Ranch one of the things that we’ve (especially the partners behind the Tech Ranch) always focused on is building customer relationships before the investor relationship. Why should you care? It’s because if you have something figured out about your customers, your investor’s going to be more interested in what you have to offer. So let’s take a concept called Crossing the Chasm. This is the Technology Adoption Life Cycle. It sounds really sophisticated but really it’s a concept that comes from Crossing the Chasm, which I would encourage you to read by Geoffrey Moore.
The Technology Adoption Life Cycle looks kind of like this, where the first section shows how the first section is made up of people who start looking at buying technology but will invent it themselves instead. The next section is the Early Adopters, then Early Majority, Late Majority and finally the Laggards. Now what’s interesting about this is these are different people that are adopting technology. Now technology can be of all types, it doesn’t have to be really advanced stuff. It might actually be a concept that’s new to the people that are engaging with it.
I’ll give you a couple examples. The cell phone is actually a great example. When Steve Jobs brought out the first iPhone, and he swiped across it there were a group of people that actually ran to the Apple Store as quickly as they could to say, “Hey, I want one,” and they slept overnight. These guys were Early Adopters. Innovators say, “Hey, I want to build something myself, I’m actually going to put together the parts myself.” But early adopters are the people that say “Hey, even though the product is not working all the time–” (you remember, those of you who had iPhones early on, you would touch it in the wrong place and it actually drops the call because there was a problem with the antenna?) Let’s just say for the sake of this discussion that 60% of the time it works. Maybe more, maybe less, depends on the type of technology. Whereas people who are Early Majority customers like to adopt technology early, but it has to work a 100% of the time. The thing that I find most entrepreneurs are not doing, is they are not differentiating between these sections of customers, the Early Adopters and the Early Majority.
Why is it so important? You will kill your company if you’re selling to those in the Early Majority if you haven’t got everything perfect. But the truth be told, many of your technologies are not ready for prime time unless you find the right kind of Early Adopter customer. We can see this as an example. Sometimes when I’m talking about this curve, about the different types of people that actually got involved in this, I like to discuss Facebook. Because of the Facebook movie, we all know that Facebook started at Harvard. The first few hundred students that used Facebook to find each other were at Harvard alongside the Innovator. Early adopters were then across the Ivy League and the colleges, and then it spread out across in different other segments where young professionals got involved, older professionals got involved and now even my mother uses Facebook. There’s no way that if you actually tried to sell my mother an application like Facebook back in the early days that she would have become a customer, it didn’t make sense. Same with cell phones, and any kind of early adopted technology.
In my case, one of my first startups was a piece of technology that was for connecting to heterogeneous databases. And 20 years ago when I was doing this, most people had no idea what it was to build object to relational interfaces to databases. Whereas now 20 years later anyone who is doing Ruby on Rails, is actually doing what we were doing way back then. The main concept that I want you to get about this is, before you ruin engaging with investors, you really need to figure out these people right here, these Early Adopters that love you versus the early majority of customers that only like you. And if I have you take away just one thing, the takeaway is find the customers that love you. Really focus on the markets that actually love you, and they’ll work with you even if your software only works 60% of the time.
The first $2 billion sold at Dell.com were sold on software that was built in my living room. They were Early Adopters, and although there were some problems with the software at the time, they were so far ahead of Compaq, Micron and Gateway, that they were able to do things that the rest of market wasn’t yet doing.
When we get to the next conversation, which is going to be about investment, it will make more sense. And actually if you solve this problem – being able to differentiate between the Early Adopters and Early Majority of customers – you’ll be able to solve a fundamental problem. With that, think about who are your Early Adopters – focus there. And that’ll set the tone for what we’ll cover in our next video: Types of Investors. Thank you.