Step 3 & 4Customer Profile

& TAM

MIT Global Startup LabsPeru 2018

Peru2018

Why now?You have identified your beachhead market

Now, let’s understand our BHM in detail & size it

What is the singular necessary and sufficient condition to have a

company?

What is the singular necessary and sufficient condition to have a

company?

A PAYING CUSTOMER!!!

Step 3: End User Profile

Step 3: End User Profile● Demographics - age, gender, income level, geographic location, etc.● Psychographics - values, fears, attitudes, aspirations, heroes

○ “How do they behave based on what they believe?”

● Proxy Products - what products does the customer already buy?● Watering Holes - where your products can spread through word of mouth● Day in the Life - what is it like to walk in your end user’s shoes? Be detailed!● Biggest Fears and Motivators - what keeps them awake at night? Top 5

priorities

Do not guess! Find through PMR

Source: Bill Aulet’s Disciplined Entrepreneurship

1

Why build an End User Profile?

Focus on the customer

Validate your beachhead market and deepen your understanding of the end user

Provide necessary information to calculate Total Addressable Market (TAM)

2

3

Source: Bill Aulet’s Disciplined Entrepreneurship

Example 1: Baseball Buffet ● Wanted to make a one-stop site for sports fans - to get info and interact with

other fans● Hypothesis: young online males between 18 and 34

Source: Bill Aulet’s Disciplined Entrepreneurship

Example 1: Baseball Buffet Target Audience:• Males• 18-34 years old• Online• Making $75K+• 26-30 million

Target Audience Interests:• Females (70%) • Sports (50%)

Source: ComScore Media Metrix

Source: Juniper Research, “Demographic Profile of Young Affluents”

Source: Bill Aulet’s Disciplined Entrepreneurship

BONUS!

Is there someone on your team who fits the End User Profile?

If so, they’ll have insights about what your customer actually wants and how they feel.

Assignment● Complete the End User

Profile Worksheet to understand your End User Profile

Source: Bill Aulet’s Disciplined Entrepreneurship

Step 4: TAM for BHM

What is TAM?How much annual revenue there is available to you for your product if you achieved 100% market share.

Start with estimate # of end users in BHM

Then estimate the annual revenue that each end user is worth to your company

TAM = (# of End Users) x (Annual Rev per user)

# of users - top down analysis

Top-Down vs. Bottom-Up Analysis

Top-Down

Bottom-Up ● “Counting noses”● Very specific, you know where

each potential customer is● Sources for information: customer

lists, trade associations, etc.

● Difficult to acquire information● Time consuming

● Easier, often based on secondary research

● You will likely overestimate # of users because you are not being specific

● You will focus more on a spreadsheet than the actual user

Advantages Disadvantages

You should try to calculate using bottom-up methodology to show you understand your customer base. You can do a secondary top-down analysis to support your findings.

Annual Revenue per customerOnce you have the # of end users, calculate the Average Revenue per Customer:

1. The current spenda. How much does each product cost?

b. How many of each product does the customer buy for the end user?

c. What is the average lifetime of the product before it’s replaced? (ex: $15,000 car with 5 year life

span; Annualized Revenue = $15,000/5 years = $3,000/year)

2. Available budgeta. When you look at the market today, how much is being spent overall to solve the problem that

you are looking to solve for a typical user?

b. How much money does the customer have (household income, business revenue, etc.)?

c. What fraction of that amount could you see being allocated to solve this problem?

3. Comparable products

TAM: OnDemandKorea Example

# Koreans in US: 2.5 million

Census said 1.7M, but through interviews with bizcommunity, learned did not include international students and others not

registered with census.

Users watching Korean dramas:

1.2 million Identified 89 websites that illegally

showed Korean dramas, and then used service to determine traffic to those sites.

Adoption:

o.4 million

TAM = $15/year x 0.4M users=

$6M/year

# of Potential Users

# people who watch

Korean dramas

60:40 female:male

1. What OnDemandKorea know through primary research:

a. Loyal followingb. 1 hr/day on site

2. Revenue source: Advertisinga. Researched rates,

estimated $1.25 per user per month

Revenue Per User Estimate $15/ year

Target Customer

Subset of Koreans in US who watch Korean TV

Age: 20-35 Females

Nationality: Korean

Residency: USA

Hobby: Watches avg. 2 hrs per day Korean dramas through illegal websites

Note: Not satisfied with the illegal websites’ service and content quality

Target Dem.:0.7 million

Ran test to determine % female and age distribution

55% 20-35 range

Avg. Revenue per UserHow much would these customers pay

each year?

Source: Bill Aulet’s Disciplined Entrepreneurship

What should your TAM be?TAM is what your annual revenue could be if you had 100% market share of that market.

● TAM < $5M: your beachhead market may be too small; it would be difficult to become cash flow positive

○ Exception: you could capture market quickly and have high margins (don’t have many

employees)

● TAM $20M-$100M: this is a good target

● TAM >$1,000M: raises red flags

Assignment● Start Top-Down and

Bottom-Up exercises in the TAM for BHM worksheet

Source: Bill Aulet’s Disciplined Entrepreneurship