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Using Data to Understand Your Customers


Julie Shields

Interim Executive Director, United States Association for Small Business and Entrepreneurship

“Digital tools help determine whether your product or service is needed in the world. At the end of the day, entrepreneurs solve problems for real people.”

In an increasingly digital world, we forget that in many cities there are still dusty markets where purveyors and consumers meet to barter and trade goods for money. That concept might seem foreign to those who deal in bytes and billable hours, but all cultures grew out of ancient marketplaces where people came to trade and do business. Business owners got immediate feedback on the desirability of their product, and the viability of the price in the place in which it was being sold.

So here we are in the 21st century, where a majority of our transactions are electronic, and entrepreneurs must use the tools available to them –both physical and digital –in order to test product and market fit to determine if their business is viable. Technology offers the ability to collect copious data points, and we may have devalued the physical connection to the customer. Regardless, it is important for aspiring entrepreneurs to balance the two.

Consumer data

Entrepreneurs need to be particularly cautious to not take potential customers at their word. “Would you be interested in this product?” or any variant with “would or could” are particularly dangerous questions when exploring market validation. People want to support innovation, and many would buy something to support a startup if the conditions were right. The “if” is the problem, though, because an entrepreneur cannot control the “ifs.” Past customer behavior is a solid indicator of future customer behavior. This is why large companies spend millions to develop a brand.

For small business owners who have less capital to spend on developing a brand, consumer predictability can be leveraged a different way. All those product bar codes being scanned as well as credit card usage represent data collected into databases, many of which have a version available even through public libraries. These databases blend census data and consumer buying behaviors, collect business insights and trends and even reference key business ratios. While digging into reference databases might not sound as fun as talking with potential clients, it is a critical step to see what customers have actually spent their money on in the past, and how various customer segments (retirees, young families with college-educated parents, etc.) prioritize their spending.

Behavior prediction

Past data is critical to consider, but does not truly predict if consumers will want a particular product or service today. For that kind of testing, there are two very good –and inexpensive –digital ways to test to see if a value proposition has legs.

The data collected by the Facebooks and Instagrams of the world are truly phenomenal. Sponsoring advertisement is a perfect and inexpensive way to see if people are interested enough to click, read about and even preorder a product. It’s even possible to differentiate messages to distinct customer segments and disparate geographic areas. It is optimal to leverage advertisements to test various hypotheses tied to a product’s value proposition for diverse customer segments. Do not expect that the words, images and even the price will effectively drive interest. Savvy entrepreneurs will be open to pivoting and flexing based on the interest (or lack thereof).

Secondly, utilizing a crowdfunding campaign for a new product or service may help drive customer interest and appreciation in addition to much-needed capital. Defining what success looks like for a campaign is important. If the primary goal is just the money to start your business, then it is important to have all the existing research at hand. There are a lot of excellent web resources for designing a successful crowdfunding campaign, and proper planning and resource allocation will ensure that you derive the most value. Choosing a platform that provides as much customer data as possible is important when choosing a crowdfunding platform. If the campaign is unsuccessful, utilize as much real-time data through the platform as possible to determine why the message did not resonate.

Digital tools help determine whether your product or service is needed in the world. At the end of the day, entrepreneurs solve problems for real people. Shaking hands and showing heartfelt appreciation, even virtually in a digital world, go along way in navigating new marketplaces.

Julie Shields, Interim Executive Director, United States Association for Small Business and Entrepreneurship, [email protected]

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