What are lead users?

Discussions About Lead Users

Dawn Lepore, former CIO for Charles Schwab, told us that everything—from defining your space to defining and analyzing your market, to creating the perfect product or new service—starts with a focus on the customer.

Segmenting the marketplace is one of the most important strategic moves that can be made by start-ups, high-tech companies, industrial companies, and firms that sell services to other businesses. However important, defining and segmenting a market is often overlooked by entrepreneurs.

For example, we found out from Marc Lautenbach, an IBM Business Partners vice president, that small- and medium-size businesses account for some $300 billion in IT spending around the world each year. It would be incorrect to boldly state in a business plan for a new computer that the total potential market is $300 billion. Obviously, the market opportunity needs to be further defined.

Philip Kotler, the marketing guru of our generation, helps in defining and segmenting markets. According to Kotler, the market is the set of all actual and potential buyers of a new product or new service.

– The potential market is the total set of buyers who have sufficient level of interest.

– The available market is the set of buyers who have interest, the cash, and access to buying the new product or new service.

– The qualified available market consists of buyers who have interest, the cash, access, and qualifications for the new offer.

For example, they have the right computer operating system that is required for a new software application. He describes the target market as the part of the qualified available market that the venture decides to pursue, and the penetrated market is the set of buyers who have already bought the new product or new service.

Identifying and Working with Lead Users
A common pitfall for a new business enterprise is the assumption that a large and interested market of potential customers is eagerly awaiting its arrival and offerings. Since venture capitalists do not want to be the first to validate a new business idea, start-ups that will be successful tomorrow are those that can get closest to their customers’ needs today.

In fact, the single most important task in the new product development process is managing the “external integration” between the new product development team and the “sources of information about future consumption.” Guy Kawasaki of Garage Technology Ventures simply calls this “Know Thy Customer,” as in “Grill the Customer,” and “The Art of Pressing Flesh.” But external integration is more than being “close to customers,” “market-oriented,” or even “customer driven.”

There needs to be a very close connection and dialog with potential customers, and the new product developers must be capable of “translating subtle clues of latent customer needs into visions of future products and markets.” In a sense, these “lead users” must become another “department in the organization” whose “concerns and interests need to be integrated.”

In his book The Sources of Innovation, Eric von Hippel, professor of business at the Sloan School of Management at MIT, describes lead users as those who are ahead of the majority of the marketplace. The “lead-user phenomenon” is that lead users are in a unique position to provide accurate, insightful data on needs related to future conditions of the industry, and they are also in a position to benefit significantly if they find a solution to their particular problem.

According to von Hippel, because they often have had to struggle with the inadequacies of existing products, lead users are often able to articulate their emerging needs in new verbiage and concepts. And since they have such an urgent need to solve their immediate problem, they may have already created some sort of solution, parts of a solution, or can provide insights to a product platform that was not considered by the new product development team. In essence, von Hippel observed that “so much practical innovation comes from a small number of imaginative people who tinker with the latest technology.”

Working with lead users is very different from a sales call. The goal is to elicit an honest expression of needs, not to convince a user of what they need, or what they might be doing wrong. For example, Research In Motion (RIM) developed their successful BlackBerry in part by simply asking corporate users what they wanted from a remote e-mail system. It is possible to get valuable information through simple observations. The U.S. Honda automotive design team spent an afternoon in the parking lot at Disneyland observing how people loaded and unloaded the trunks of their cars. They ultimately came up with the design that lowered the opening down to the bumper, a first in automotive design.

There are only a few really important questions that you need to ask lead users:
– What is the real problem here or put another way, what if the product did not exist?
– What are the current attitudes and behaviors of the lead users toward the product?
– What product attributes and benefits do they want?
– What are their dissatisfactions, problems, and unfulfilled needs?
– How are they defining, in their own unique verbiage, what they see, need, and want?

The research with lead users does not have to be expensive or complicated. Abbie Griffin and John Hauser state that as a practical guideline, conducting fewer than ten interviews or observations is probably inadequate, and fifty interviews are too many.

Finding Your Lead Users
Lead users for new products and services can be found in existing customers, application laboratories in manufacturing partnerships, custom product groups run by industry and trade groups, and other nonprofit user groups.

SOURCE: Roadmap To Entrepreneurial Success