Entrepreneurial Strategy
Lecture 3 - Choose Your Initial Customer
Prof. Toke Reichstein
Department of Strategy and Innovation
Copenhagen Business School
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Introductory perspectives
Remember: Value creation and value capture
Customers: Often opportunities may be fine-tuned to serve a multitude of
different customer segments but cannot at the onset due to
resource scarcity
Technology: Technologies can come in all sorts of shapes and often multiple
technologies are choice candidates
Opportunity/Organization: Circumstances that allow a potential founder to
create and capture value through the establishment of a new
business - we will couple this with organisational issues
Competition: Standard strategy insinuates a formal analysis of the state of things
- but entrepreneurs are in a position to formally shape it or choose
not to compete
These choices are not independent but rather interlinked
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Choosing Customers and Lean Start-up
Lean start-up emphasize the need to quickly approach customers
Lean Start-up is some what popular in entrepreneurship environments
Lets consider the current framework in relation to lean start-up
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Lean Start-up
Principles of Lean start-up
• The Business Model Canvas
• Formulating hypotheses for different building blocks of a business
• Projecting how a business creates value for its customers and itself
• Customer Development
• Testing hypotheses with potential custome
• Agile development
• Revising hypotheses based on customer feedback and
• Developing products iteratively and incrementally
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Business model canvas and Customers
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Value Creation and Value Capture
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Case: Estée Lauder
Case: Estée Lauder
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Case: Estée Lauder
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Using Estée Lauder as a tool for learning
Choosing and Developing Customers
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Where did Estée Lauder begin?
• Estée Lauder was born in 1908 in Queens, NY.
• Her uncle opened a small business in Manhattan NY to sell beauty products,
e.g., skin care cream.
• Estée Lauder was fascinated by the beauty side of the business, and spent all
her free time after school in the business.
• She helped and learned from her uncle how to create a secret formula to
produce the beauty miracles.
• She also learned how to apply the products to a customer’s face in 3 or 4
minutes.
• She tinkered with her uncles formulas and cooked up pots of cream on her
kitchen stove.
• In 1933, she decided to set up her home-based business.
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1920s Setting
• The American economy experienced its postwar prosperity.
• There had been critical advancement in women’s political, social, and
economic status.
• Women played increasingly important roles in decisions about household
consumption.
• More and more women began working outside the home.
• As women spent more time in the public eye, many devoted more time and
attention to their appearance.
• In New York City, there were countless urban women wearing cosmetics.
• There were also many women who had not previously worn make-up were
curious about it.
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1930s Setting
• The Great Depression started after the stock market in the US crashed on
October 29, 1929.
• In the first four years of the Great Depression, real gross national product per
capital fell by more than 32%.
• During the same period, unemployment soared to 25% and almost 13m
people were out of work in 1933.
• Consumption of food, fuel and other daily essentials fell.
• People still purchased small luxuries. E.g., Per capita movie sales in the 1930s
were about six times as high as in the 1990s.
• These expenditures brought people moments of enjoyment, an escape from
everyday problems, or just a means to pass the time.
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Estée Lauder and the Early Years
• Target customers:
• More than 4,400 beauty shops in
NY in 1935.
• Beauty shop visits were more than
a necessary errand.
• Approaching them:
• One-on-one encounters
• A place where women exchanged
insights, humour and gossip
• Early adopters and the reference
group
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Entrepreneurial Strategy Framework
Fundamental Premise: Sequencing of Customers
• Effective customer choice requires an understanding of how customer choice
interacts with overall customer sequencing
• Question: How to identify which customers to prioritise at the earliest stage
of the venture, so that it allows the flexibility to transition towards other
customer segments over time?
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Types of customers across time
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Tablets to illustrate challenge
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How to Cross the Chasm?
• Identify and secure a beachhead market in the mainstream market
• Nurture it with the whole product (products + services)
• Ensure that:
• the first set of customers completely satisfy their buying objective
• this first set of consumers later will serve as a pragmatist customer base that is
referenceable
• Establish a strong word-of-mouth reputation among these customers
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Four steps process of choosing early customers
1. De-selection and prioritisation of beachhead alternatives
2. Strategic ranking of alternative beachheads
3. Test two
4. Choose one
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Using Estée Lauder as a tool for learning
Back to Estée Lauder Case
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Estée Lauder and and the Post War period
• As World War II ended, Estée lauder’s products were popular in New York
beauty shops. But the entrepreneur wanted a larger market
• The war had jolted the US economy out of the Depression. Per capita income
rose
• The number of working women increased during the 1940s. They had more
disposable income, and greater potential for individuals self-expression
• Cosmetics consumption grew slowly in the immediate postwar years, and
then accelerated
• Many new companies entered the cosmetic industry. Established firms were
planning to expand production.
• Competition among cosmetics manufactures intensified
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Estée Lauder’s Key Questions
1. What would you do to cross the chasm and make your products appeal to
the mass majority of customers?
2. Who would be your target customers?
3. Which channel would you take to reach them?
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Estée Lauder New target customers
1. Increasing number of middle-class and wealthy consumers
2. Who wanted beauty offerings to make them feel feminine, sophisticated and
elegant
3. Who were willing to purchase upscale, relatively expensive cosmetics
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Estée Lauder - Strategic position on customer side
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Estée Lauder - Strategic position on customer side
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Takeaways from Estée Lauder
• Startups do not have the resources to serve all potential customers.
• The choice of earlier customers is important.
• The distinctions between customer segments raise a tradeoff for
entrepreneurs. Thus, it is important to prioritize.
• Earlier customers should serve as credible references for the subsequent
customer segments.
• The choice of customers shapes the kind of company that entrepreneurs
build.
• It is entrepreneurs’ task to come up with innovative marketing strategies to
connect to customers.
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Case and guiding questions
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Guiding Questions on Collabrys Inc.
• What does Collabrys Inc. offer?
• What is their core business?
• Who are Collabrys’ main customers and are those customers sensible as a
first choice?
• What are the advantages and disadvantages of the Collabrys Approach?
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Epilogue
Today’s Lecture
• Customer Choice is essential to build a high growth potential
• Lean start-up can be great but has flaws
• Customer choice cannot be seen separate from other choices
• The importance of getting customer choice right from beginning
• Identifying the right customers may be more difficult than one might think
• Sequencing of customers may easily become essential
• Key customer segments will change as the firm develops
• Be sure to identify a beachhead segment and get more value than what
meets the eye
• The four steps in building up a sensible customer choice
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Thank you
Question or Clarifications?
Thank You
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