Think Small: The Power of a Smallest Viable Audience
This article's has gotten out of hand and has become much more detailed than I intended. But there's a good reason for it. This is truly the hill I will die on, given I believe so strongly in the power of this concept. If you only read one thing written by me, let it be this one.
Of all the things you should be worrying about during product strategy for your consumer hardware product, none is as crucial as first selecting the correct customer. This will drive everything from positioning, to the right MVP, all the way through to crafting requirements and design and engineering.
I meet a lot of enthusiastic hardware entrepreneurs that are in love with their idea (or more typically their solution). When asked about who their customer is, more often than not I get the response "Everyone!" in their billowing enthusiasm. Which is only natural, they're convinced about their solution and the problem it solves that they feel everyone will be just as excited about it.
However, as I've written before, they're falling prey to a combination of confirmation bias and availability heuristic, leading them to overestimate the probability that others will be equally excited. And even in cases that are not that extreme, a lot of founders have trouble with focusing on a single customer type, feeling that they're "missing out" on potential revenue by making their focus too narrow and not capturing a larger market.
But what tends to happen when you're focusing on different customer types — each with different needs and values — is that it will lead to conflicting requirements.
Let's say you're launching a new smartwatch "for all", let's confine "everyone" in this case to athletes and business professionals. What will happen is that the needs of each of these will cannibalize those of the other.
For example: athletes might want a compact and lightweight design, which is fine since they only use it for a couple hours a day, so the battery can be nice and small, while a business professional might want to have an extremely long battery life and a jewel-like stainless steel finish with a heavy look and feel. The business person might require 24/7 connectivity, which requires more components space in the device, while the athlete might not mind trading that off for a lighter and smaller device and doesn't mind using a cable to upload his data.
What happens when you're trying to solve for all is that you end up with "feature shock", which looks a bit like a novelty swiss army knife.
How practical
Your product will be laden with an enormous amount of features, since you want to please all potential customers, each with their extremely varying needs and trying to jam all of that in a single product. But there are some issues with this, especially for hardware.
Hardware Economics 101
Let's say you want to reach as many people as possible, first off, this will mean you need to sell your device as cheaply as possible. Different people tend to have a different price sensitivity, and if you want to reach all of them, you need the lowest price possible . Keep in mind, there will even always be people that don't want your product, even if you're giving it away for free.
Next you want to please as many market segments as you can, accounting for as many user scenario's as possible, which will result in the most amount of features.
But here's the pickle, hardware is different when it comes to "feature real estate" as compared to software. Each feature will gobble up real world dollars in you Bill of Material Cost (BOM Cost). Ignoring the development cost, adding features still costs money that you directly have to charge to your customer!
Want GPS? That module isn't free. Want extra buttons? They add parts and complexity. More battery life? Better pony up.
Since you want to please everyone with a bazillion features at the lowest cost, you now end up with the lowest possible dollar amount to spend per feature, resulting in an overall poor quality product.
Prioritizing among features is already a hell of a job, let alone with so many. On top of that, with hardware, you can't just keep adding features after-market as you would with software, even if you try to build it future-proof.
What not to do
So essentially this is a race to the bottom, while also inviting way more competition since you've made your customer scope so broad, meaning there are a lot more alternatives.
E.g. if you're making a sports watch, that also tells time and also manages your calendar and also allows you to take calls, etc.… You're not just competing with activity trackers, but also with phones, actual, regular watches, generic smartwatches and jewelry (you only have so many wrists), … On top of that you can't compete on quality as we’ve just stated. Which might be a problem seeing there is already a lot of competition in terms of functionality (for more on why this is a problem,check out The Windermere Hierarchy of Needs)
Dr. Georg Tacke wrote: "A product that is all things to all people, pleases just a few". And it is exactly that: Nobody's buying a swiss army knife to cut down a tree in the yard or to remodel their kitchen. There's a reason why power tools all have a very specific function and are not lumped in together. Combining too many feature dilutes focus and individual feature quality.
The real MVP
You must remember that people do not want to pay for features they're not using. Going back to our smartwatch example: let's say you have a super generic smartwatch that does it all. The athlete doesn’t want to pay for being able to take calls and planning your calendar. The business professional doesn't want to pay for the weatherproofing and the extra biometric sensors.
Especially if the quality sucks, they will just find a product that only complies with their exact needs and has a better price-quality relation.
Introducing the SVA
Okay, so what to do instead? I say: make you first target audience as narrow and precise as possible. I really like using the term "Smallest Viable Audience", which I first heard from marketing legend Seth Godin.
There are variations on this with "Beachhead Market" and "Earlyvangelists" coined by Geoffry Moore and Steven Blank respectively, and of course finding a "niche", some call it your "smallest viable segment", hell even Peter Thiel talks about it extensively in Zero to One. But I really like the wording by Seth, since it makes it so clear what to pay attention to!
"Smallest" is crucial for you as a hardware startup, the smaller you can make that group, the more similar it will be and the easier it will be to serve them. One of the best advices you've probably already heard is: "For your first 100 customers, do things that don't scale". So again a smaller group will make this easier. But here are a ton of benefits towards product development as well.
Imagine — in fantasyland — you're building this hardware device for just a single user: They're a real person with a name, a job, a family, likes or dislikes, hobbies, … the list goes on. Imagine how perfect you can make your product market-fit if you get to know everything about this person's life, wants and needs? You could build the ideal product, with the exactly right set of features, at the exact right price, solving exactly the right problems in the exact right way. No conflicting requirements, no compromises, right?
But we're not in the business of bespoke products, are we? We do need a certain amount of scale to cover our development and operations and turn a profit. Here's where "Viable" pulls it in the other direction. The group needs to be as small as possible, but not so small it will not be viable.
Dan Burke, a former boss of Disney-exec Bob Iger, once said: "Avoid getting into the business of manufacturing trombone oil. You may become the greatest trombone-oil manufacturer in the world, but in the end, the world only consumes a few quarts of trombone oil a year!". Meaning if you go too small: you'll definitely corner the market, but it will not run a profitable business.
So try to find that line that hits both marks: how small can you make it before it become unprofitable? In my experience a lot of companies struggle more with going too small rather than too unprofitable due to the FOMO of untapped revenue.
Keep in mind we're talking about a first entry market. A larger corporation is able to launch 4-5 variations of the same product in order to cover a larger part of the market segment, but as a startup, that's not possible to finance. So choose wisely what the first step in your roadmap is.
Pictured here: not you
Back to Hardware Economics 101
You have tight niche, so you only have to create a handful of features and are able to do them really well since you have less conflicting requirements and are able to create a premium experience.
You're not trying to get everyone to buy, so you don't need to charge the lowest price. Both these things result in more dollars per feature, enforcing that premium quality cycle.
And even if you're doing a cost-play where you purposefully want a low cost, this still works: you're just giving up margin for market share.
In essence: the money you don't spend on the extra features outside of the scope of your customer can be used to create higher quality features they do use (or use to go down to a lower price point if you're doing a cost-play).
This is the way
To summarize:
- Compromise dilutes value: Trying to satisfy too many audiences often results in a product that is mediocre for all and excellent for none.
- People won't pay for what they don't need: Including too many features to appeal to diverse needs results in a complicated product that can confuse or frustrate users.
- Niche over breadthh: Defining a focused target audience ensures that the product addresses their specific needs exceptionally well, creating a loyal customer base.
- A narrow focus reduces competition: Having a very specific target market increase the chance that there are less competitors solving their problem as exact and well as you.
Who's hair is on fire? Finding your SVA.
Not literally of course
Now, that's all well and good, but how do you find the right SVA? Well it has certain characteristics as Geoffrey Moore points out in several of his books. The key things are that they:
Have a problem (duh)
Understand they've got a problem (not as obvious as you might think)
Are actively looking for a solution (but still haven't found what they're looking for)
Have created a homegrown solution (because nothing else exists that can solve it exactly as they want)
Have money to solve the problem (the best indicator is if they've already spent money on the problem before)
Are well positioned among other niches for future product growth (this is where your roadmap comes in)
My marketing professor once summed it up nicely with the phrase "who's hair is on fire?" Who needed a fix for this yesterday and is throwing cash at the problem?
Using this question is also a great way to discover an SVA when you're still exploring the market through multiple qualitative interviews. A few years back I found a great hack on how to extract a good SVA from random interviews, especially when dealing with consumer products.
Extreme Personas
This is a tool made popular by IDEO, I won't go in too much detail, but essentially it forces you think about the people that might use your device that sit at the end of the spectrum. In their example they were designing a kitchen robot which might have very different requirements for a top chef versus a child cooking for the first time.
Credit: IDEO
When I was running the team developing an eye care device while working for a leading design & engineering firm in the EU, our client was particularly stubborn about not wanting to choose a well defined target market, let alone a SVA (I've omitted any brand names of the client on any following visuals). Resulting in a lot of headaches for us.
The one time he allowed the team to do even just a semblance of stakeholder research — 5 interviews, which was all we got him to sign off on during the entire development — something clicked.
While we were interviewing a set of very "generic" users (since he was trying to appeal to all, and as result to no-one), none of them were especially excited about the product, as it wasn't really solving a big problem for them in a big way. But a few comments caught our eye. A few people mentioned that "they'd might see it being beneficial when exercising or travelling", but followed up quickly by the fact that they "don't do that often enough to warrant such a purchase".
This got us thinking: they might not do it enough to solve a problem, but who does? For who might this be a gamechanger? Who travels a lot? Who exercises a lot? Who has these problems to an extreme extent?
This allowed us to come up with two or three different, exciting, very defined extreme persona's. But the "backpacking mountaineer" was by far a favorite. It made so many things so clear: we could clearly imagine the use scenarios (using it in cold harsh weather conditions), leading to obvious requirements and a clear path to a visual brand language and positioning. We quickly mocked up some visuals to prove our point. On the left you see the "original, generic" product, on the right our mockup based on the extreme persona.
Left: actual final product / Right: mockup image
Seeing these two devices next to each other that essentially do the same thing, ask yourself this:
For which one exists more alternatives and competition in the market?
Which one sells at a higher price?
How many use case are there? What are the related requirements?
How will they be marketed? Where will they be sold?
Which one of these companies do you want to be?
Setting up a strong SVA provides a very clear guidance and provides a lot of answers during the strategic and development process and makes for a compelling product.
Unfortunately, the mockups never even made it to our client since they remained adamant about sticking to a generic market. With some schadenfreude (c’mon guys, I'm only human) I can tell you his product launch didn't go exactly great.
Now you might be thinking: this is simply too small of a target market, it would never have worked anyway. And yes, this was never validated so I'll never be sure, but consider this final quote by Blair Enns: "The target is what you aim for, the market is what you hit"
While, yes, purely selling it to mountaineers might have made for stunted growth in the long run, let's be honest: we all have that uncle with military grade camping gadgets "used by Special Forces" for who camping consists of sitting poolside on his butt at a South-French camping once a year.
This is something that has been well-researched and what is known as aspirational marketing, lifestyle branding or Vicarious Consumption: Sometimes used to describe how consumers derive satisfaction not from actual usage of a product or full participation in a lifestyle but by feeling connected to that lifestyle through their purchases. But I digress.
As you can see there are a lot of compelling arguments to choose an SVA. I'm a true believer that this is what sets you up for success, especially in consumer hardware where every extra feature just bleeds you time and money: it's a no-brainer.
