Orracle Analytics

How to Find Your First 1,000 Customers (a $100 million case study)

In 1993, Jeff Miller took over as CEO of Documentum, a document management company that had been stagnant at $2 million in revenue for the past several years. This might seem like a good problem to have, except that companies that aren’t growing are usually dying.

Something had to change.

So Miller started at the beginning – “who is our target customer?”

As it turned out, Documentum served everybody. Or at least anyone who would pay.

After analyzing their sales data, the state of the market, and evaluating their current customers, Miller made the controversial decision to redefine their target customer.

Instead of serving everyone, Documentum would focus on executives within pharmaceutical companies that relied on efficient and effective document  management for new drug proposals (which was worth about $1 million a day to these companies).

The Power of Focus

Documentum went from a target customer group of millions to focusing on less than 1,000 people worldwide.

Documentum put all their energy into these 1,000 potential customers, focusing specifically on the executives of these pharmaceutical companies, the ones who recognized the pain most clearly and who were capable of purchasing and implementing Documentum’s solution. The promise Documentum made: their technology would speed up new drug proposal documentation and submittals, thereby freeing up millions in cashflow for these companies.

Documentum was able to deliver on their promises and within one year 30 of the top 40 pharmaceutical companies bought in.

This alone generated $25 million in revenue and the first profitable year for Documentum (or about 1,250% growth in two years).

The Domino Effect

At this point, Documentum had found their niche, but they didn’t stop there.

Instead, their initial success created a compound effect.

Word spread about Documentum’s technology. It quickly made its way to other departments within these pharmaceutical companies, from IT, to the regulations department, to the manufacturing floor. From the manufacturing floor the software spread to factories in related industries, including the oil industry.

Because Documentum’s technology improved the bottom line of companies in the oil industry, it caught the attention of Wall Street. It didn’t take long for Wall Street to see that implementing Documentum’s tech would improve their bottom line as well, and soon even Wall Street companies were customers of Documentum.

In the end, this chain reaction generated over $100 million in revenue for a company that was about to go under.

The Single Choice That Made All the Difference

This is a summary of just one of many masterfully told stories from Geoffrey Moore’s Crossing the Chasm, a book about startups making the leap from initial market penetration (early adopters) to the early majority (the beginnings of the mainstream market).

While there are dozens of lessons to take away from this story, the most profound is Miller’s commitment to a tiny, almost insignificant target customer (executives of pharmaceutical companies). Yet by unapologetically reducing and defining their target customer, Documentum was able to capture a foothold in the market, which created a domino effect, eventually capturing their biggest and best target customer – Wall Street.

But, as Moore writes in Crossing the Chasm:  while Wall Street was their best target customer, they were, importantly, not the first target customer. Had Documentum gone after Wall Street first, they would have failed. Wall Street wouldn’t try something that wasn’t proven.

For Documentum to find their best target customer, they had to start with building a loyal fanbase of customers in a small enough niche to become the go-to solution that everyone talks about. Only then would the niche market saturation be enough to create a domino effect, capturing a broader, mainstream demographic.

How to Find Your First 1,000 Customers

Documentum’s story is not unique.

Every major tech startup that has achieved mainstream acceptance started small – almost absurdly small. Facebook started at Harvard. Airbnb started with apartments in New York (with the founders actively helping their first customers create profiles, going as far as to take pictures of their apartments for them). Spotify started in Sweden (niche, right?).

Each one started small and focused on the first 1,000 customers.

So the question is, how do we apply the same strategy to our business (or art or writing)?

The answer lies in properly defining your target customer.

To do this, it helps to reference the question Moore poses in Crossing the Chasm:

“Is there a single, identifiable economic buyer for this offer, readily accessible to the sales channel we intend to use, and sufficiently well funded to pay the price for the whole product?”

There’s a lot going on in this statement. Read it once and it’s easy to gloss over just how powerful this question is.

Breaking this question down, there are six steps you need to take to properly identify a target customer, one that can help you get traction as a startup (or solo artist or creative), and one that will set you up for mainstream success.

6 Steps to Find Your First 1,000 Customers

Step 1. Focus on One Customer

Have you done your research and can you define a single customer? Not seven, or 32, or 100. Just one?

This is the biggest sticking point for so many writers, artists, and entrepreneurs – we want to sell to everyone. Of course, this never happens.

What’s worse – when you try to serve everyone, you effectively serve no one.

For example, when I published the book: The Growth Hacker’s Guide to the Galaxy, I knew our customer would be anyone interested in growing a business, big or small (whether corporate or startup). This is too broad a group. To refine it, we focused on the individuals who would be able to put the book into use right away and achieve the biggest return on investment – Digital Marketers working in small companies (from 1 to 5 employees), with a close second being small business founders (especially those trying to do all the heavy lifting themselves). We knew that if we could reach this group, these customers would be our biggest fans and spread the word the fastest because of the results they were achieving.

Ultimately, we see our best target customer as marketers in mid to large sized businesses and corporations, but many of these marketers will need a referral and proof, much like the Wall Street customers from the Documentum case study, which is why we’re starting in a very targeted way.

Step 2. Make Sure They Have Bought Products Like Yours Before

Can you define this person, his or her characteristics, interests, pains and desires? And is this person someone who buys new products or services every year?

Remember, the majority of the people in the world do not buy new things. Even people from first world, western nations generally stick to what they know (that’s why you still see major brand names on every store shelf – people are comfortable with brands they’ve grown up with).

For The Growth Hacker’s Guide to the Galaxy, we knew marketers would buy new products and we knew the best marketers buy the latest and greatest books in the genre. I consider myself part of this demographic (as the CEO of a small business, I’m lead sales and marketing, so I need to be on top of this stuff), and I’ve read a dozen marketing books this year alone, including Traction, Hacking Sales, and Zero to One being some of my favorites.

The point is, those of us in this world need the latest and greatest to be one step ahead of potential competitors and copycats. I’m 100% certain our target customer has purchased marketing books before, which means we’re on the right track…

Step 3. Clarify Your Offer

Do you have a product or service ready to go, with a well-designed sales pitch, and a way to process the transaction?

Clearly articulating what it is you offer, both features and benefits, may seem like common sense, but it’s not common practice (sadly). Unless you have a clear offer (clear to your target customer, not to you), you won’t be able to sell your product or service.

For The Growth Hacker’s Guide to the Galaxy, the authors made sure the marketing was on point by testing the premise of the book in the form of a Sourcebook. This experiment resulted in 30,000 views, thousands of Tweets and shares, and lots of press (including being highlighted on Producthunt.com and Growthhackers.com, among others).

Having proof that there’s value in what you’re doing before you invest a ton of time and effort into it is the premise of the lean startup methodology, and something I love to do for every book launch. The Growth Hacker’s Guide to the Galaxy is no different, and we know the offer is clear (and proven).

Step 4. Define the Sales and Marketing Channels

Where does this person hangout or go to purchase products or services like yours? Do you have access to this place (digital or physical)?

Sales and marketing channels make or break a business. Find cost effective sales and marketing channels that deliver new customers (with profit margin) and you’re gold; don’t find them and you’re finished.

For our The Growth Hacker’s Guide to the Galaxy, we focused on digital marketing blogs and podcasts. We started with the question: who wants to learn how to grow their business? Specifically: what blogs and podcasts teach people how to grow their businesses fast, effectively, and cheaply?

We then compiled this list into a comprehensive book marketing promotional list, identifying several hundred potential marketing channels.

We then prioritized our list of hundreds of contacts in order of market fit and reach.

Our book would resonate more with some blogs and podcasts, and we wanted to focus on those that would drive the greatest amount of quality traffic (i.e. marketers interested in improving their skills and growing their business).

The final part is the outreach. Everything we do is personalized and takes a lot of time. It’s the opposite of scalable, but the results can’t be beaten.

Step 5. Make Sure Your Customer Can Afford Your Price

Does this customer have enough money to pay for your product or service (or at least access to, and a willingness to use, credit)?

For The Growth Hacker’s Guide to the Galaxy, we know anybody looking to grow their business has money  – they just need to know they’ll make a return on investment.

More specifically, we know that every single Digital Marketer looking to grow his or her business (whether their own or someone elses), would have the $10 or so to order the book. We also estimate that more than a few of them will want to contribute at a higher level to get even more bonuses that will directly lead to growth in their businesses.

Growth is something that is generally correlated with revenue, which means it is not a hard sell for us to say preorder The Growth Hacker Package for $97 because we’re confident you will make 10 times your money back from what you learn in this book and bonuses.

Step 6. Make Sure You Can Deliver the Full Solution

Within your price range, can you deliver your product or service and fully solve the target customer’s problem?

For our book, we already know we can deliver the full solution. The book itself is composed of market-tested, proven growth hacks used by the best digital marketers, startups, and growth hacker in the universe (get it?). Further, we had already tested it in a small way with the sourcebook mentioned previously.

With The Growth Hacker’s Guide to the Galaxy, we’re merely putting growth hacking on steroids, and making it accessible to marketers around the world (no engineering degree needed).

Better Than 1,000 True Fans

There’s an idea that rose in popularity a few years that went something like this: all you need are 1,000 true fans and you can make a healthy living as a sole proprietor.

While there’s some truth to this, it doesn’t tell the whole story…

Just look at Documentum before Miller took over. They almost certainly had 1,000 true fans who were committed to their technology before they shifted focus to pharmaceutical companies. This didn’t matter though because these 1,000 fans weren’t part of a niche market where they could achieve market penetration (i.e. control 50% or more of the niche market).

When it comes to building something bigger than yourself, 1,000 true fans isn’t enough.

But…

1,000 true fans who:

  1. you know intimately
  2. have bought products or services like yours before
  3. have the money or credit to pay full price for your complete solution – which you’re able to deliver completely and entirely, no strings attached
  4. and are concentrated in a single niche market that you can access and sell to…

Those 1,000 true fans do matter.

In fact, they’re the only ones that really do. Everyone else should be ignored.

(it’s not as quotable, but it’s the truth)

Your Turn

Who are your 1,000 true fans (or who do you want them to be) and how do you plan to reach them?

Share your thoughts below.

18 comments

  • Good work here, Tom.

    I was actually just contemplating this conundrum in my head, and this post helped me come to a solution.

    I’m preparing to re-launch my personal platform to promote a book I’m writing specifically to help people who grew up without a father overcome the challenges that are keeping them from fulfilling their potential. While this audience is very important to me, they are not the only audience I hope to reach through my platform. This post helped me to see that niching down my audience in the beginning doesn’t mean limiting my reach in the future.

    My first 1,000 true fans will be the target audience for the topic of my new book, “Fatherless Anomaly- Your Action Plan to Deviate from the Norm & Start Fulfilling Your Potential Today”.

    I’m still developing my plan to reach them. I’ve got some ideas I’ve gleaned from your free course (alternative marketing channels, etc), but this is a widely varied audience (over 20 million in the U.S. alone) and I’m still learning their ways lol!

    • Robert, really appreciate the comment. Sounds like you’re on the right track – glad the book launch course helped!

      Keep me posted if I can help going forward.

  • Thanks Tom! One of the most clear and actionable descriptions of niching I’ve seen. Really helped with the WHY behind clear niche choice. This helped me further narrow down a currently evolving niche in my business.
    My first 1,000 people in my next launch will be people experiencing chronic digestive issues with IBS type symptoms. Thanks!

  • Hello Tom
    I do hope that the weather has been kind to you in Ireland!

    Thank you so much for this post – super useful and at the same time challenging as all the best posts should be.

    I am a writer and presenter and I know my target market and niche very well, since I work in that niche myself. My direct practical experience informs all of the information products that I am working on and my readers know that I have authority and expertise in these areas.

    My challenge is that there is only a small percentage of my niche market who can afford professional training and information products and certainly not 1000. The majority do not buy products or services like mine and do not have the money or credit to pay full price for the complete solution.

    That is why I am working on two projects – one low cost which serves my niche market, offers great value and helps to build me list, and a higher price premium product for a much wider more general group of writers and authorpreneurs who are outside of my narrow niche but who share the same needs. This wider group is where I will find my first 1000 true fans.

    I do hope that makes sense. Thanks again, Nina.

  • Hai Tom, Waoh ! Thanks for making ME aware of other ways of Building audience . My Book though a biography will capture those out there who have hidden talents and do not know what to do with their talents .

    However, Imust confess that i am still making effort to develop a strategy to form my audience.

    • It takes time to build an audience…for Documentum, shifting focus was just step one – then they had to connect with and serve this audience. That’s the real hard part.

      Keep at it – you’ll get there.

  • Tom,
    Great article and couldn’t have been better timing. With our consulting proposal heading out shortly, we’ve been struggling to pinpoint one customer when we feel capable of helping so many. But now, we’re going to focus on the one. Thanks.

    trevor

  • Hi Tom,

    I think this is the best article I have read on identifying my niche. If you had a second to reply to this it would be awesome. I want to teach those early in their career the skills they need to succeed in the workplace and in life and having a really hard time niching down as I know this is a very broad niche.

    Would it be wise just to start with a broad niche like this and see where it takes me and hopefully insight will come further down the line of where I should focus or do you think its important spend the time getting more specific before I start.

    The most specific I got to was helping business graduates land jobs in leading technology companies like Google, LinkedIn and Microsoft but I am unsure is that really where my heart is as I eventually landed a job in Microsoft and left after 4 months because a big corporate just wasn’t for me.

    All the best,
    Richard (I am Irish and my mother was born close to dingle ;))

    • Right now, the bottleneck for you is identifying your target audience / target customer. You should attempt to figure out as fast as possible who your target customer is. Start general right now but get as quickly as possible to a defined target audience. You’re on the right track!

      (btw – Dingle was one of our favorite spots in Ireland – loved the coastline – truly epic)

  • Great post again Tom!

    My target right now is 1,000 Entrepreneur Husbands who spend $300+/year on Personal Development books, training, coaching, etc.

    I think I’ll be working with Husbands of all types, but my original intention was/is to serve those described above specifically.

    The main way I plan to reach them is through guest posting and podcasting. Secondary is paid and unpaid social media promotions, which would mainly be promotions of the guest posts and podcasts.

  • Tom,
    I finally got a chance to read this article and couldn’t agree with it more. My 1,000 customers are my readers on my emailing list (actually not quite 1,000 right now) but I right for them, and they are dedicated. When they all buy and recommend my new releases it launches my books for me! It is easy to build an audience on reader at a time. Slow and steady year after year. One key is to not worry about those who don’t like your product too much. We want to listen for opportunities to improve, but there will always be someone who doesn’t match with what a company or brand is offering. If we can’t improve from their feedback, just let it go.
    Keep up the great work!
    Jason

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