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Startup Customer Development: Applying Evolutionary Game Theory to Meetings with Potential Customers

For almost any startup, getting in front of potential customers is incredibly important. This not only leads to early adopters and paying customers, it can also provide valuable insights that improve a startup’s probability of success. As customer development guru Steve Blank highlights in 4 Steps to the Epiphany, getting in front of customers is critical in the early stages of a startup’s life.

In this article we will be developing a framework based on applying the basics of evolutionary game theory to startups doing customer development which are looking to get quality intros to potential customers. This framework is valuable because it provides us with a better understanding of how to achieve a positive outcome for all parties involved, helping to ensure that a regular supply of valuable intros keeps coming. In subsequent articles, we will build upon this framework and apply it to using Twitter as a powerful tool to fuel the growth of your startup.

Getting Started

Let’s briefly cover a few basic concepts in evolutionary game theory to prepare us to analyze intros and customer development.

If you would like a more in-depth explanation and analysis of modern evolutionary theory — how it applies to interactions between individuals and impacts society — Richard Dawkins‘ book, The Selfish Gene, is a great place to start.

Evolutionary Framework

Concept #1

We all work to maximize our accumulation of resources over time for our own benefit.

Concept #2

Since we operate in a social system that has us continuously interacting with the same people, it is in our own self interest to form reciprocal relationships with people for the efficient exchange of resources.

Concept #3

Since the cost and benefit of a resource is dependent on the situation of the individual, the value and cost of exchanging a resource can vary between individuals.

Concept #4

To maximize personal gain in a reciprocal relationship, we tend to give resources that have a low cost to ourselves, but a high value for the person receiving them.

Value of Intros

When a startup is introduced to potential customers, the value created for the startup can be huge. Those intros will hopefully lead to valuable insights, early adopters and paying customers. For startups, where resources are scarce, introductions can save a lot of time and money that would otherwise be spent on networking.

Source of Intros

One of the easiest ways to get intros to potential customers for your startup is from friends, family, colleagues and advisors. It is usually relatively easy for startups to motivate this group of people to make an intro.

Value or Cost

If we look at the resource cost to the person providing the introduction for your startup to a potential customer, it is often very low. However, the real cost for the person providing the introduction is determined by the potential customer. If the potential customer gets something of value out of the conversation with your startup, the cost for the person providing the referral is low. If the potential customer finds no value from the conversation with your startup, the cost to the person providing the referral is much higher.

Factors Influencing Value and Cost

The value and cost derived by the potential customers from talking with your startup can be influenced by a variety of factors. One of the primary factors in the potential customer’s analysis is the value or cost associated with the time spent talking with your startup. This is usually dependent on what your startup brings to the table in the meeting.

As long as your startup provides valuable information, insights or the opportunity for a competitive advantage that is relevant to the potential customer, the cost should be vastly outweighed by the value created.

If the potential customer receives nothing of value from interacting with your startup, the situation changes. Instead of the potential customer owing a debt of value to the person who provides the intro (for what they receive from meeting with your startup), the person who provides the intro incurs a debt. This debt is the consequence of the time the potential customer wasted meeting with your startup.

If this cost is communicated by the potential customer back to the person providing the intro, it is going to alter the perceived cost of continuing to provide intros for your startup.

Keys to Mutual Value Creation

To maximize the value for all parties involved and ensure that the intros keep coming, your startup should consider trying to always offer something of value to potential customers irrespective of being a good fit for your product or service.

Knowledge is Valuable

Hopefully, most of the potential customers you receive intros to have been in their industry for a number of years. If so, they have most likely accumulated a wealth of knowledge. Some of this knowledge only comes after putting in hundreds to thousands of hours on the job. For your startup, accessing this knowledge can be very valuable and can save you considerable time and resources.

Industry Expertise

Since it is not realistic for your startup to always have as in-depth an understand of an industry or market as a potential customer, how do you make sure that you have something of value to offer in order to improve the chance that a potential customer will view the interaction as valuable?

Focus on Strengths

Startups thrive on identifying new opportunities, innovating and disrupting existing markets. If your startup has done its homework intelligently, you should be able to offer something that the potential customer will find of great value.

This can include:

  • A New Perspective
  • Insights on New Trends
  • Disruptive Ideas
  • Emerging Opportunities

Exchange Valuable Information

When in meetings with potential customers, try establishing common ground and focus on creating a mutually beneficial exchange of valuable information. If you’re successful in doing so, the meeting will be creating value for all parties involved: the potential customer, the startup and, as a consequence, the person providing the intro. All of this value will be created irrespective of the potential customer becoming an early adopter or paying customer.

Summary of Concepts

In summary, your startup can improve its chances of receiving a regular supply of quality intros by ensuring that potential customers feel like they have received value from the time they spent with your startup irrespective of their interest in your product or service. By focusing on your strengths as a startup and taking the time to do intelligent homework, it is possible to almost always create value for all parties involved.

In the Next Article:

Getting intros, meeting with potential customers and doing homework takes time and resources away from other important work at your startup. In the next article in this series, we will discuss:

  • How we improve the value created by our investment in intelligent homework
  • How we maximize the value we create by applying the framework based on evolutionary game theory that we have established in this article
  • How we attract thousands of Followers on Twitter every month who serve as an even bigger pool of potential customers

Author: Matt Fields

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I have been bootstrapping and investing in web/mobile startups for the last 7+ years. During this time I've done it all. I've built and led teams, driven sales, marketing, social media, product development, project management, and web development. View Profile

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