399: How to Create an Ideal Customer Profile?

The Startup Chat with Steli and Hiten

In today’s episode of The Startup Chat, Steli and Hiten talk about how to create an ideal customer profile.

Creating an ideal customer profile for your business is super important. It can help you build a better product, market it better and ultimately help you serve your customers better. But how detailed should you be when creating one of these?

In today’s episode, Steli and Hiten share their thoughts on what an ideal client profile is, why you should create one for your business, tips on how to create a good one and much more.

Time Stamped Show Notes:

00:00 About today’s topic.

00:24 Why this topic was chosen.

01:18 what is an ideal customer profile?

01:58 The goal of identifying your ideal client.

02:58 If you should pick an ideal client.

04:36 How understanding your ideal client can help you serve them better.

05:10 How companies sometimes misuse this concept.

06:10 How companies can use a customer profile.

07:15 If you should ignore a customer that doesn’t fit your profile.

07:37 Tips to help you create an ideal client profile for your business.

3 Key Points:

• Identify what segment of the market can get the most value out of your software.
• The goal of identifying your ideal client is to help you do better marketing.
• If you don’t know who your customer is, you won’t know what to build, sell or market.

[0:00:01]

Steli Efti: Hey everybody, this is Steli Efti.

[0:00:03]

Hiten Shah: And this is Hiten Shah.

[0:00:05]

Steli Efti: And today on The Startup Chat we may or may not tell you to create an ideal customer profile or not to create an ideal customer profile, but-

[0:00:12]

Hiten Shah: Yeah, we don’t know yet.

[0:00:14]

Steli Efti: But either way we are going to talk about the concept of an ICP, ideal customer profile. It’s a very popular idea and it’s one of those surprising topics that sometimes I can’t believe that we haven’t talked about something in almost 400 episodes. But we have not talked about this very specific topic, so I thought it would be fun to tackle this. Well, Hiten, maybe first we explain first to people what the concept is, like what is an ideal customer profile, why do companies do it? And then we might want to talk about why it’s overused or misused and how we really feel about this topic in 2019.

[0:00:55]

Hiten Shah: Yeah, why don’t you start. Why don’t you define it, at least in the classic sense, because I think that will help.

[0:00:59]

Steli Efti: Yeah, so I think the broad idea is not that complicated. The broad idea is to ask yourself as a company … There might be many, many different types of people or organizations that decided to purchase your software, but not all of them are created equal and I think the the idea with an ideal customer profile is to identify what type of customer, what segment of the market can get the most value out of our software? Who is the most ideal customer that exists out there, and what do they have in common? And the goal of defining and writing down an ideal customer profile is to help you do better marketing, do better segmentation, do better product development, because you’re not taking on a broad group of people in terms of the feedback they give you, or a broad group of potential customers in terms of what channels would be most effective in terms of acquiring them. But you segment it down and you focus yourself and the entire company and team on the best ‘customer,’ the ideal ‘customer.’ You define it, you write it down so everybody in the company and the team understands it, and then you go after those customers above all others. Does that make sense? Is that a definition that you would agree with?

[0:02:23]

Hiten Shah: Yeah, I mean if you don’t know who your customer is, you won’t know what to build. You won’t really know what to do, even. You won’t know how to sell, you won’t know how to market, you won’t know how to do any of that. So this idea of an ideal customer profile is super valuable, super useful. I think where people get confused is at do I have to pick one? Right? And so my thought is no, you don’t have to pick one. Some products, like many of the ones I work on, are either focused on many different types of customers or they’re focused on basically like … They’re a free product and so anyone literally can use it as long as they fall under a certain criteria. That being said, when you’re early on in a product, you’re looking for what everyone calls an early adopter. And so I look at this concept as a more malleable concept than other people do. There’s also a lot of people out there that think through from a design and product standpoint, they think about personas, right?

[0:03:19]

Steli Efti: Yeah.

[0:03:20]

Hiten Shah: And then there’s rallying against personas and then other are excited about personas and there’s a debate. But to me the ICP, ideal customer profile concept actually comes from a classic sales methodology in general. And that’s fine, that’s cool. To me, it’s like what you’re really trying to do is when you see a customer or see a prospect you’re trying to identify how do you serve them, and how do you speak to them, and how do you show them the value of your product. Whether it’s in the product because it’s self service or something like that, or a free trial they can sign up for, or it’s a more like give them a demo and there’s a whole sales process to the product. Either way, you’re trying to deliver whatever value they need to them. And without understanding them deeply, I don’t think you can do that. And so to me, the concept is just that simple, which is if you don’t understand them, then you won’t be able to deliver value to them at a high enough rate that enough of them are coming to you and converting. So yeah, I mean in some ways it’s like to me 101, like these are the basics. You need to know your customer. You need to have a deep understanding. You need to define who they are, it it’s relevant to the demographics, if it’s relevant to you, their behavior. If it’s relevant to you, the other tools they use or whatever it is that helps you understand them so well that when they come in you are able to either fill it out or already know about them because they’re signing up with a company email or something like that. And then you can start really servicing them in a way that they feel like this product or this service that you’re providing is for them.

[0:04:54]

Steli Efti: Yeah, I love that. I think that I’ve seen a few interesting trends when companies and teams misuse the whole concept. And sometimes they go overboard, where the exercise becomes more important than the goal of the exercise, and so they pour so much creativity in the persona that they make sketches and they put together a board of like this is Mary Johnson and she lives at exactly this street in this city and this is what she eats for breakfast. They go really, really crazy which can be fun, but at times I wonder what is the utility of this? And how accurate is this, is really everybody that’s your customer eating the same breakfast and living in this one specific neighborhood in this city? Or is this just somebody going wild with an idea and not really staying practical with it? And then the other thing is that sometimes when companies create an ideal customer profile it’s not its purpose for you to ignore everybody that doesn’t 100% fit that. But sometimes the practical implication of it is that, and that’s surprising. So a company will define an ideal customer profile for the very first time, and then instead of using this as a way to clarify who we want to double down on, individuals and team members in that company will use the ideal customer profile as an excuse to ignore customers that don’t perfectly fit into that profile, or dismiss them.

[0:06:27]

Hiten Shah: Oh, yeah.

[0:06:28]

Steli Efti: Or not pay attention to them. Well, you know, we said a customer with 17 seats, a 17-seat license, is an ideal customer. And this is a customer with 18 licenses so they requested this feature but I don’t think they’re an ideal customer. And it’s an easy way to not pay attention and not listen. Instead of asking yourself, is it really that different, somebody that has 16 users on our platform versus 17 or 18? Are we just going nuts here? Is this just dumb? Or is there really a difference between those two customers? And should we really ignore a customer just because they’re a little big bigger or a little bit smaller than whatever we, in one session, sat down and wrote on a piece of paper as ideal. There is an application of this and this is advice that I have given to companies, especially in the super early days, is that sometimes I’ll give founders the advice to create a non-ideal customer profile. And this specifically goes to in the very early days there might be some customers that are harmful for you to go after. The classic example here is self-funded/bootstrapped startup, small tiny team, three people, having some traction let’s say in the professional or the SMB space, and then a big, large enterprise clients comes around and waves a bit of money and says, ‘Hey, we found you, your solution is really interesting. We’d like to buy 1000 licenses of this, but don’t worry we’re going to be a really uncomplicated customer for you.’ And now the startup that has no experience in enterprise sales, doesn’t know how to deal with a customer this size, has not built a product that fits, kind of goes, ‘Well, we didn’t go after them, they came to us.’ So of course the lure of all this money and this big, shiny logo as a new customer made us go down this rabbit hole that oftentimes can derail a startup, and sometimes even kill them. So I have advised startups in the early days to potentially ask themselves what is the type of customer that we really want to turn down, because we think we’re going to do a terrible job servicing them? Or they’re going to do a terrible job being customers of ours. So that can be useful, but it’s always funny to me when I see a company that writes down an ideal customer profile and then uses that in a very inflexible way to dismiss customer feedback, to not pay attention, to not listen, to not care for customers that don’t fit that profile. Versus use it for its original purpose, which is to clarify who do we want to double down on, who do we want to focus on more in maybe our customer acquisition, our marketing, our positioning or whatever else, our product development cycle. So this might just be one of so many other ideas that it needs to be used so thoughtfully and it’s easy to just read a blog post online, call in an emergency meeting in your startup and write down a one-pager and then you think now that we have this thing, everything surely is going to just magically become better in our company. And as always, it’s never as easy as that.

[0:09:45]

Hiten Shah: Love it. Yeah, I think that’s so true.

[0:09:49]

Steli Efti: Beautiful. All right, I think that’s it for us for this episode. If you have struggles with identifying your ideal customer, if you have done this exercise and it worked out particularly well or poorly for you, we always love to hear from you. Just send us an email with your thoughts, questions, feedback, to steli@[inaudible], [e-mail]. We always love to hear from you and hear more feedback and get more questions from you guys. And until next time, we’ll hear you very soon.

[0:10:19]

Hiten Shah: Later.

[0:10:19]

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