From the Customer Canvas to Pricing - An Interview with Adam Lorant and Doug Lyons

Steven Forth is a Managing Partner at Ibbaka. See his Skill Profile on Ibbaka Talent.

At Ibbaka we believe that pricing is based on a deep understanding of customers and the customer’s customers. This is the foundation of value-based pricing and it is the path to pricing innovation. So we are always looking for better ways to help our customers understand their own customers.

Adam Lorant and Doug Lyons are two of the most successful marketing and business development people in Vancouver. They were key people on the teams of major successes like Abatis Systems (acquired by Redback Networks, now part of Ericsson) and OctigaBay (acquired by Cray, now part of Hewlett Packard). They have gone on to be important angel investors and coaches to startup and growth companies. Recently they partnered to create The Evidology Group.

Central to their approach is understanding customers, and they have developed a Customer Canvas to shape and organize the foundational work that all companies need to do on customer understanding. At Ibbaka, we have found many of the different canvases being used to be helpful, and as understanding the customer is the foundation of pricing we were intrigued. We reached out to Adam and Doug to learn more.

Please share your background and the experiences that led you to develop the customer canvas?

Adam: I think we all know that the startup statistics are pretty grim. Ninety five percent of startups don’t generate a million dollars of revenue, 70% fail in years two-to-five, 90% don’t return VC investment. So here we are in the startup community, and despite all of the mentors, accelerators, incubators and so on, still only one percent of startups are successful. We have seen this ourselves. We have been investing in mentoring, coaching hundreds of startups, over the past twenty years or so, and what we see continually is that technical founders love their technology, its potential impact, but invariably they get frustrated when it comes to commercialization. Again, we have been there before, in our first startup years ago we were getting glazed eyes when we presented feature benefits and it wasn’t until we brought in a consultant that helped us change how we were talking about our product and got us to stop selling and start learning about our customers. It got so that instead of glazed eyes Doug was getting to ‘this is fantastic how do we make this happen.” Flash forwarding to our second start up, we very early went out and started to engage with customers, one in particular was wonderful for us and told us in a nice way how naive we were about how we were trying to solve the problem. He told us to go away and think about these three things and come back with an answer. Through that, we saved ourselves an enormous amount of time and frustration and frankly I think it would have killed the company if we had continued down the path we were on.

Through these discussions, we were able to partner with our customers so that when we launched at a trade show people were coming to our booth and saying ‘it’s as if you read my mind’ and they would go away and bring back their colleagues and they would present our product to our colleagues. We got an offer to acquire the company at the show.

It is that kind of engagement that we want to bring to other technical founders and new product introductions. We want to help our clients work with their prospective customers to turn those glazed eyes into ‘wow I need to have that’ and onto ‘you designed the perfect product for me.’

That is the origin of The Evidology Group and the Customer Canvas.

The Evidology Group Customer Canvas

Doug: In addition to companies Adam mentioned, I have worked in business development at a number of early-stage companies launching new products and I have lived through so much pain where sales estimates did not match the business plan. So much of the pain and frustration can be traced back to insufficient understanding of the customer, the market and how that market consumes the offering. Often this lack of customer adoption is viewed as a Sales problem and is seen as lack of execution by the sales people. At the same time, product development and marketing spend is often being ramped up and there is a tremendous amount of stress. There is a high burn rate and without the sales comes layoffs, loss of momentum and a huge loss of capital. Some companies recover but many don't. Having seen this over and over many times Adam and I think that we can help and that the Customer Canvas is how we can do this. 

So you have talked about this in the context of early stage companies, and I know that is a world that the three of us frequently live in, do you also see this with larger companies?

Adam: Absolutely. Both Doug and I have worked for some very large companies and this is a universal problem. “How do you talk with your customers to understand what they need?”

The Customer Canvas is a framework for how to talk with your customers so that you can design a meaningful product.

Doug: It takes me all the way back to my early days at Nortel where I was in product management and I remember asking marketing, who owned the customer relationship, if I could talk to customers to see what their needs were and they said ‘Oh no, you don’t need to talk to them. We know what they need.

OK, you have defined the problem for us. How is the Customer Canvas a solution?

Doug: To give you a sense of what it is, it is a set of templates and a process that are focussed on validating a set of concepts, an ‘offering’ if you will for a product or service, and it flips the questions from ‘How do I sell this?” to ‘How do customers actually buy?’

It is a practical step-by-step approach to discovery using customer conversations to build a profile of their needs, and by having numerous customer conversations that are highly structured we can look at it from a market perspective and see the trends and the insights and find the things that allow you to say how the customers perceive value, what drives value, and this is how they make the decision to actually buy.

The Lean Canvas is an excellent summary of your business plan, now let Evidology's Customer Canvas take your strategy one layer deeper. It flips the perspective upside down from what you're trying to sell to what the customer wants to buy. Here's a snapshot of the Customer Canvas and the evidence-based methodology to build your customer engagement strategy.

There is a mindset thing here too. You have to pause the sell button to first get feedback and advice from your customers and then use that to build the business plan that you can actually execute against.

A big side benefit to taking this approach is that conversations can turn into sales.

Adam: The key theme here is learning. People make a lot of assumptions about what a customer needs, but we want to pause on those assumptions, challenge them, and flip it around to a learning based approach.

I have spoken to so many product owners who, when I ask them if they have gone out and talked to customers, answer ‘Yeah, they loved it.’ That sort of superficial understanding of the customer is what we have to rip apart. We have to find out what it is the customers like and what is the economic value delivered by the solution. It is really about shining a spotlight into areas that you have not thought about as a product manager.

The role that Doug and I play is about highlighting where the gaps are, what the assumptions are, what underlying issues need to be addressed.

We are providing a framework for what the questions are and how to ask them so that you can really learn from these engagements. Customers are not homogenous, so you have to talk with many different types of customer and within each customer to many different personas. That is where we come in. 

Doug: By having many of these conversations. One-to-three customers does not make a market. Sometimes products are unique to a specific customer and won’t scale.

I’m going to give you a bit of a curve ball now, and ask how the Customer Canvas is different from all of the other canvases floating around the world. There is the Business Model Canvas, the Lean Canvas and so on. How is the Customer Canvas different and how does it fit in with the other canvases?

Adam: The Business Model Canvas was an inspiration for the Customer Canvas. It is a good way to summarize the business model, but it takes the perspective of what you are going to be selling to a customer.

We want to do two things. First we want to flip this upside down so that it is about what is the customer buying? Why are they buying? Who is buying? And what problem do they want solved. The Customer Canvas goes a layer deeper than the Business Model Canvas and it takes a very different perspective.

I look at the Lean Canvas and the Business Model Canvas to be the first stage. What is the business you are going to enter. Once you have made that decision you have to validate that there are customers, that they will buy, what will they buy, why will they buy and how. The Customer Canvas is more detailed and it flips the perspective.

Doug: There is a template that we include as part of the process around value and positioning that needs to be leveraged. The Customer Canvas goes a lot deeper into this key area that is not as well covered by other tools.

Adam: In many cases people see this as customer discovery, something that comes early in the innovation process. But the Customer Canvas is much broader than that. It remains critical all across the product lifecycle. Understanding customers is not something that is once and done. It is an ongoing process.

OK, once I have developed and validated my customer canvas, what comes next? Could my Customer Canvas lead me to change my Business Model Canvas?

Doug: Absolutely. What you are going to learn will ripple through everything. 

Adam: As we all know it is not a linear process. It is about constantly learning and constantly challenging assumptions and revising along the way.

If your Customer Canvas is not impacting your business strategy then either you have a crystal ball or you are not thinking deep enough.

How are people using the Customer Canvas now?

Doug: I am going to give you some classic examples with our lead customers. We began by using this on ourselves.

There is one organization that has been going at this for several years and they have had difficulty gaining traction. They recently uncovered a different market segment and wanted to validate it in a rigorous way before adapting the product and redirecting their sales and marketing. 

It is important to validate the decision before committing a lot of capital.

Another of our clients is at an earlier stage, they have a brand new product with some lead customers overseas, and they want to know what the opportunity looks like and how to approach the North American market.

Adam: The trial and error approach that many product owners take is time consuming; it burns a lot of capital; employees get frustrated; investors get frustrated. It is a classic problem we’ve seen with many of our clients. We help our clients understand how to talk to customers. Don’t try to sell to them but instead take a learning approach to how you engage. Start with learning and discovery, then move to a partnership type model, and as you get enough experience then you can move on to a sales type customer engagement. Too often people start with the sales. We get them to take a step back and start with learning, then partnering before you try to get to sales.

Basic interview skills are important. What questions to ask. How to ask them. How to use open ended questions. Make sure you are spending less than 50% of the time talking. Ask probing questions. We teach the product owner to not talk about the technology but to listen first.

Doug: It is only natural that people are passionate about their technology and they want to pitch it, so we change how they approach the conversations. It is about asking for advice, it is not about pitching the product. Through this you find that people want to be helpful. They are willing to share more information the more they see that the founder is there looking for their help and advice and not trying to convince them of anything.

Have you had cases where you have tried to use the Customer Canvas and it has failed?

Doug: A lot of it is the openness and the mindset of the founders. Are they coachable? There is a class of people out there who are so convinced they are right  and are not going to be open minded. They have a filter that can get in the way of finding out what the customer really thinks. They can’t hear when the customer says I would not buy that. How open minded are the founders when it comes to listening to the customers? That is part of the value we bring. We help our client’s hear clearly. But not everyone is willing to be challenged.

Adam: The other thing we have seen is that this takes time and it takes thought. Sometimes product owners are so busy with their day job that they take short cuts. They take the easy road and spend their time on what they enjoy doing. They don’t pause to spend the time necessary to do this and to do it right. But you do that at your own peril.

Let’s say we have taken the time, been open to listening and developed the Customer Canvas. What comes next?

Adam: There is the Customer Canvas itself and then there is the validation. The validation is as important or more important than the Customer Canvas itself. There is a lot of value in working with somebody who is neutral and plays the role of challenger coach. Someone who really listens and identifies gaps and assumptions. The coach can listen in on the customer conversations and guide the process forward. 

Once you have gone through the process, the Customer Canvas is used in many ways. It will impact the feature requirements for the MVP (Minimum Viable Product). It will help you pick up on the messaging so that you can adapt and evolve your campaigns so that you will get the kind of response that Doug was getting, where customers are helping you to sell. You get that ‘Wow we need that’ response by listening to people and then playing back what they said. Your first five or ten early adopters will want to work with you.

You will learn the economic value that your product provides specific customers. This impacts how you price your product. You will collect evidence that you can use when you go to fundraising. Investors want to understand how well you understand your customers and they may want to speak to some of those customers.

Doug: Going through this process with us should help people get better at making decisions in general and help them tell the difference between when something is put forth as an opinion and when it is backed up with evidence. 

As you know, Ibbaka does a lot of work on pricing. How can I use the Customer Canvas to inform my pricing strategy and design?

Adam: At the heart of pricing is understanding the value that your product brings to a customer. So how you go about building trust with potential customers so that you can go about finding out what the economic value really is is important. Value based pricing is based on trust. The Customer Canvas helps to build trust. You need to understand the current state, what the problems are and the way you can solve them. Being able to quantify the value of solving these problems is an important output of the Customer Canvas.

Understanding the differentiators that you bring to the table through your product offering is essential to any new product introduction. This is also an important part of how you go about pricing your solution.

Doug: I think it is also about getting foundational information about the value points without which you can’t really price. I think this feeds into the Ibbaka approach as well. It is almost as if the Customer Canvas gives a starting point for that process of understanding value from the customer’s point of view and for seeing that different people see things differently. 

When the Customer Canvas approach is successful it will accelerate the ability of companies to adopt Ibbaka’s approach to pricing strategy and design.

Have you had cases where once people have done their Customer Canvas they have gone back in and rethought their pricing?

Doug: We’ve gone through this ourselves and it had a huge effect on how we thought about our own pricing!

Adam: We have one client where we are getting down to this level. They understand the value they provide at a strategic level but not at a quantitative level. You need to get to the quantitative level to really know how to price. We are now having discussions where our client is talking to their customer to tease out the customer’s KPIs (Key Performance Indicators) and this is the missing link that will connect customer perceived value to pricing.

When I look at most companies today, pricing seems to be based on a gut feel. This leaves a lot of room for error. By taking this KPI driven approach you can really connect price to value. 

Doug: A lot of people take a trial and error approach to pricing. People set a price and when they are told the price is too high they shave the price. The decisions are not based on any sort of systematic discussions with a number of customers, but just on their internal discussions. The Customer Canvas helps base these pricing decisions on external, that is to say customer, perspectives.

If people who are reading this interview want to engage on the Customer Canvas and the process around it, what are their next steps?

Adam: Our website is a good place to start. There is a lot of information there. People can work with the Customer Canvas directly or with their own advisors.

We also work with companies directly, either as coaches or as embedded executives, where we work side by side with the product owners. Very often they don’t have the time or the expertise and we can bring additional resources to the table.

Thank you. I think there will be lots of opportunities for us to work with you and to take advantage of the insights from the Customer Canvas and apply them to pricing strategy and design.

These are interesting times for most of us. How are you your family and community coping with COVID 19?

Adam: Well, I notice all three of us have scruff beards.

Doug: We are all going grey too.

Adam: My family has been having baking competitions, so I’ve put on a lot of weight. So now I am going out early every morning for a couple of hours for a bike ride. The roads are empty so it is easy to keep a suitable distance.

Doug: Overall I think we are adapting well. I had been working out of the house before. I have had to give up skiing at Whistler, which was pretty social and I miss going out and having coffee with friends. I was getting a bit socially isolated but now am having some more social Zoom meetings.

One thing we did that was a lot of fun, was to set up a mini putt through the house and out into the yard. 

Now that is innovation.