The Customer Segment(s)

Having the opportunity to work with technology entrepreneurs in the Fit Startup Factory and now social entrepreneurs via Social Change Labs has afforded me a unique perspective into the startup journey of each segment, and the unique challenges that they face. I want to take a moment to explore those differences.

In my previous post, I discussed the differences regarding the starting point of entrepreneurial ideas, technology vs. social, and how that impacts the development of the business model. Today we’ll examine the difference in focus when it comes to customer segments.

The Customer Segment

Residing in the cornerstone of every startup sits the ever-powerful, mythical customer, and it is the ability of the startup to serve this customer in a unique and highly valuable manner which transforms it from a promising startup idea into a sustainable corporation. When it comes to social startups, one of the key struggles involves serving multiple customers, or multiple stakeholders, each with their own unique needs, wants, and restrictions. Fundamentally, it is the capability of a social startup to cater to and bring these disparate groups together that forms their core value and drives impact.

Some well-known examples of social startups that have navigated this treacherous slope successfully:

  • Kiva: individual micro-donors, micro-finance institutions, and local entrepreneurs
  • Samasource: large corporations, local training partners, and unemployed youth, women, & refugees
  • Tom’s Shoes: fashion and socially-conscious consumers, local non-profits, children in Africa without shoes

Obviously, multiple customer segments are not unique to social startups. With the rise of internet platform business and social networks, technology entrepreneurs are often dealing with two or more customer segments as well. Consider Giysicini, a Fit Startup Factory tech startup, which serves individual fashion-conscious consumers and well-known clothing brands. For the individual user, they offer the ability to create a digital wardrobe, try different clothing combinations, and get recommendations for what to wear; for clothing brands, they offer the opportunity to connect with highly segmented markets, explore fashion preferences and observe user trends.

But, for social entrepreneurs, it is the ability to manage the complexity of multiple markets that makes or breaks the idea, making the entire endeavor a very careful balancing act. Each market requires its own value proposition; each market require its own channels and relationships. And sometimes each market’s needs or values can be in conflict with other segments.

Multiple Customer Segments: an example

Developer Factory, a Social Change Labs semi-finalist, has a very straightforward value proposition: help unemployed youth develop employable skills by teaching them how to code. However, their model is far from straightforward.

Normally, one could just open training courses and charge the students. But because of their focus on social impact, i.e. access to unemployed youth, charging students for the full costs of such a course would be counterproductive. Therefore, the team is working on different models, trying to understand different values that are being created and who would actually pay for those values. Currently they are working with three different customer/stakeholder segments:

  • Corporations or firms looking for programming talent
  • Unemployed youth with some theoretical training but no practical experience
  • Seasoned programming professionals looking to give back to the community

As a team, their goal is get corporations to outsource programming projects to the venture, then work on those projects with the students, using them as practice-based training and experience, which is a key gap in most university undergraduate programs. Seasoned programming professionals will serve as volunteer mentors and teachers (crowdsourcing) to increase the knowledge base and expand the reach of the program. Corporations get projects done as well as early PR with potential future hires; students get hands-on, fundamental programming skills at below-cost prices; programming professionals have a chance to give back to the ecosystem and gain further notoriety in the sector.

Fundamentally, the model looks good on paper, but there are some key questions:

  • Corporations
    • Will the corporations see the added value of working with students, and potential future hires, rather than the disadvantage of inexperience?
    • How much are corporations willing to pay for/support such this endeavor if they have no guarantee to hire and retain that talent later?
  • Programming Professionals
    • How committed with programming professionals be to the course as volunteer mentors?
    • How can they be motivated? What can serve as suitable rewards?
  • Programming Students
    • How much can they charge students in order to maximize access while ensuring commitment to finish the course?
    • What is the minimum level of theoretical knowledge necessary before adding practical training?

And the conflict in needs and values becomes apparent. Expanding the scope to serve more, but less-talented students would expand social impact, but probably not satisfy corporate clients looking for high-quality work and frustrate volunteer mentors who want to coach eager, talented individuals. Placing graduates directly in companies after the course would create strong value for corporations, but take away freedom and flexibility from students. Also, charging more for the courses would decrease the venture’s dependence on corporate sales but then may discourage many youth that need the training. And so forth.

It is the ability of the Developer Factory to solve these myriad of issues to everyone’s mutual benefit that will be its ultimate determinant of success.

Finally, more than just the challenge of multiple markets, with the focus on social impact and social change, social entrepreneurs aim to expand the depth and reach of their core value without losing sight of sustainable financial objectives. But that’s something we’ll save for the next post. Let me know what you think.

Summary: social startups are often challenged by the need to serve multiple customer segments, but it is the ability to bring those groups together via a creative model that creates their core value and drives social impact.