Effective Customer Feedback Strategy For Startups

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Is your business relatively new?

Then the odds are high that you still have some misconceptions about what matters to your dream customers. And that’s okay!

As entrepreneurs, we all start out by making our best guess as to what will resonate with our target audience and then calibrate our approach over time based on customer feedback. 

In fact, the more customer feedback you get, the faster you’ll be able to iterate and the sooner you’ll find product-market fit. 

That’s why today we are going to discuss how to gather and analyze customer feedback in the early stages…

Why You Should Adopt the Lean Startup Methodology

What is a Lean Startup?

Lean startup is a business methodology that focuses on quickly validating ideas through the shortest possible product development cycles.

It applies the principles of Japanese lean manufacturing philosophy to building software startups.

This approach was originally developed by Steve Blank, the author of the 2005 book “The Four Steps to the Epiphany”.

Then, it was popularized by Eric Ries, the author of the now-classic book “The Lean Startup” which was published in 2011.

Arguably, Peter Levels’ book “Make” is the successor to “The Lean Startup”. It was published in 2018 and primarily focuses on building software products as a bootstrapped solopreneur. 

We are going to discuss some of the key principles of this methodology in the subsequent sections, but we recommend reading the books if you want to get the full picture. 

Also, while these books focus on software startups, the general principles can be applied to other types of businesses, so don’t disregard this methodology just because you aren’t selling software!

What is a Minimum Viable Product?

The minimum viable product  – also known as “MVP” – is probably the most important concept in the Lean Startup methodology.

You want to build a product that has the core functionality required to solve the problem and that it addresses as quickly as possible, and then put it in front of your dream customers.

This is especially important in the startup context where entrepreneurs tend to focus on innovative business ideas.

After all, if you want to do something that has never been done before, it’s wise to validate your idea with an MVP to see whether there’s any demand for what you have in mind.

Otherwise, you risk pouring a ton of time, energy, and money into something that was doomed from the start!

However, the concept of an MVP can also be applied in the context of regular businesses that offer products or services that already have proven demand.

In that case, instead of using this approach to validate the business idea itself, you can use it to launch your business quickly so that you can start learning from customer feedback ASAP.

For example, we know someone who has an established mattress-cleaning business that he operates with his co-founder.

Their company has a website, that shows up on Google for related keywords, they use special equipment and chemicals, offer a range of services, and even sell anti-allergic mattress covers. In other words, it’s a “proper” business.

However, it all started with him going door-to-door offering people to clean their mattresses and then doing it with a regular vacuum cleaner that he already had at home.

That can be considered a “minimum viable service”, the service business equivalent of the “minimum viable product”. Not glamorous but it worked!

Another example could be the people who dream about opening a restaurant but start with a food truck instead, which allows them to get into the food industry with less risk.

Their initial food truck menu is their “minimum viable product” that they can then iterate on based on customer feedback.

Regardless of what your business model is, think about how you can create a minimum viable version of your product or service and then start selling it and learning from customer feedback!

The Build-Measure-Learn Feedback Loop

Another important concept is the “Build-Measure-Learn” feedback loop that describes the lean startup approach to product development. 

The first cycle of this loop is building an MVP, putting it out there, and getting customer feedback. But it doesn’t end there.

You then take that feedback, make adjustments to your product, and put the updated version of it out there.

Then you take the new feedback, make adjustments to your product again, and put it out there again. And so on and so forth. It never ends!

This is arguably the least risky approach to business. Why?

Because instead of making big changes based on unproven ideas you make a small change, get customer feedback, and then adjust accordingly.

That way, when you fail, you fail small, which means that you can stay in the game and keep improving your product or service!

Implicit Customer Feedback vs. Explicit Customer Feedback

Customer feedback – the feedback that you get from potential and existing customers – can be broken down into two categories:

1. Implicit customer feedback
2. Explicit customer feedback

But what’s the difference between them?

Implicit Customer Feedback

Implicit customer feedback is their observable behavior.

That includes whether or not they buy your product or service, how they use it, how often they use it, for how long they use it, whether they buy something else from you, etc.

Explicit Customer Feedback

Explicit customer feedback is what people say about your product or service.

That includes customer support queries, customer reviews, customer survey responses, customer interview answers, social media posts, review articles, review videos, etc.

Which Type of Feedback is More Valuable?

Implicit feedback is more valuable than explicit feedback. Why?

Because behavior is typically a more accurate reflection of how someone really feels than their words. This is especially true if the former is inconsistent with the latter.

Explicit feedback can be valuable as well but you should always give more weight to implicit feedback when making business decisions!

How to Gather and Analyze Implicit Customer Feedback

Pitch Your Product or Service to Your Dream Customers

Aspiring entrepreneurs often ask people questions like “Would you pay for something like this?” as a way to validate their ideas.

There are two problems with this approach, though:

1. People sometimes say things that they don’t mean in an attempt to be polite, protect their feelings, or avoid conflict.
2. People often don’t know what they want and cannot accurately predict their future behavior.

If you interpret them saying that they would totally buy your product as both a guarantee that they will indeed buy it and as a general sign that there’s a demand for it, you might be in for a rude awakening once you launch it.

In addition to that, it’s worth noting that what beta testers and free users say also may not be an accurate reflection of market demand.

For example, here is some of the feedback that Dan Norris received regarding his app Informly:

Despite getting 4,000+ free users, Dan only managed to convert 15 of them into paying customers. Informly failed.

Ultimately, the only way to validate a business idea is to create an MVP, put it in front of your target audience, and charge for it. Are your dream customers willing to pay you? That’s what matters!

Observe How Customers Use Your Product

You also want to collect as much product usage data as you can.

It will show you:

• Where customers tend to drop off during the onboarding process. Fixing those issues can help you improve retention.
• Which features do your customers use the most? You should prioritize them in your product development roadmap.
• Which features do your customers use the least? You might want to consider removing them altogether. Having fewer features can help you improve your user interface.
• Whether your customers understand how to use your product. You are probably too close to it to accurately estimate how intuitive its user interface is. Data might reveal that what is obvious to you seems confusing to your customers!

If you are selling physical products and therefore can’t track usage data, you might want to invest in a focus group so that you can at least observe how people in your target audience use them.

Your focus group activities should resemble the actual use cases of your products as closely as possible. Say, if you sell hiking backpacks, take your focus group participants on a hike. That can help reveal various issues that you weren’t aware of!

Monitor the Customer-to-Repeat-Customer Conversion Rate

The customer-to-repeat customer conversion rate is an important metric if you want to gauge how happy your customers are with your product or service.

If you have no problem converting visitors into leads and then converting those leads into customers but struggle to convert those customers into repeat customers, that’s a bad sign.

Typically, it indicates that you are great at marketing and sales but the product or service itself is a let-down.

Considering this possibility may be unpleasant but it’s also necessary. If that’s indeed what the problem is, you need to fix it ASAP before the negative word-of-mouth starts gaining momentum!

Pay Close Attention to Returns, Refunds and Churn

Return rate, refund rate, and churn rate are also great metrics for estimating how happy your customers are with your product or service.

You will never get these rates down to zero, but if yours are way above the industry average, it’s likely that there’s a quality issue that needs to be addressed.

A quick note on e-commerce returns, though: it’s becoming increasingly popular to just order a bunch of stuff, see which products you like, and then return the rest.

This is especially true in the clothing and shoes industries because customers might want to try things on before making the final decision.

That’s why if you have an e-commerce business, you should look not just at the return rate itself but also at the return patterns.

For example, if people keep ordering a particular dress and then returning it, there’s probably some sort of a quality problem with that dress.

However, if people keep ordering a particular dress in several different colors and then returning some while keeping others, then they probably just wanted to try them on and there’s nothing to worry about!

How to Gather and Analyze Explicit Customer Feedback

Catalog Unsolicited Customer Feedback

Sometimes people will just email you, DM you, or tag you unprompted to let you know what they think about your product or service.

Make sure to catalog this feedback in some sort of centralized database so that you can analyze it later once you accumulate a lot of it.

Catalog Customer Support Queries

Start cataloging customer support queries as soon as you start receiving them so that you can begin identifying patterns as early as possible. This will help you prioritize the most pressing problems.

Conduct Customer Surveys

Customer surveys can be a good way to solicit feedback.

The simplest possible survey is an automated email with one question where you ask the customer how they like your product or service and encourage them to answer it by clicking a smiley face, a neutral face, or a frowny face.

If you want to do a more extensive customer survey, you should let the customers know how long it will take to complete and also offer them a reward of some sort to motivate them.

Note that Amazon gift cards might work better as rewards than freebies from your company.

Conduct Customer Interviews

Customer interviews are also a good way to solicit feedback.

Ideally, you want to interview both happy and unhappy customers.

Interviewing happy customers can help you understand the strengths of your product or service so that you can double down on them.

You can recruit happy customers for interviews by reaching out to people who have:

• Been doing business with you for a while
• Provided positive feedback in a survey
• Expressed positive sentiments on social media

Meanwhile, interviewing unhappy customers can help you understand the weaknesses of your product or service so that you can address them.

You can recruit unhappy customers for interviews by reaching out to people who have:

• Churned faster than usual
• Were noticeably angry in a customer support interaction
• Have expressed negative sentiments on social media

Of course, when it comes to unhappy customers, especially the ones who are angry about something, you need to tread carefully so that you won’t upset them even more.

You want to validate their complaint, reassure them that you are taking the matter seriously, and say that you would like to hear about what happened in more detail so that you could ensure that it doesn’t happen again.

Not only can this approach help you get valuable feedback but it can also be a great way to make the unhappy customer feel heard and de-escalate the situation!

Pay Attention to Customer Reviews

Pay attention to customer reviews on both your own website and on third-party review websites if they exist in your industry (e.g. Capterra, TrustRadius, and G2 for software).

Generally speaking, you are probably going to find the most valuable feedback in the 3-star reviews because reviewers who give your product or service that rating are likely to provide a fair assessment of both its strengths and weaknesses.

Meanwhile, 1-star and 2-star reviews tend to be dominated by people who weren’t in the target audience to begin with, didn’t understand what was included in the price or were unhappy about something unrelated to the product quality (e.g. their package got lost en route).

Of course, if there’s some specific issue that keeps coming up in these 1-star and 2-star reviews, it needs to be addressed!

Monitor Brand Mentions

You can use brand monitoring software to get phone or email notifications whenever someone mentions your brand online.

Eventually, that will become unsustainable, but it can work really well in the early stages when you are still only getting a few mentions a day at most.

When you see someone mention your brand, make sure to reach out to them.

If the feedback is positive, thank them and give them some type of freebie.

If the feedback is negative, thank them, validate them, and see what you can do to make things right… And also give them some type of freebie!

Never Argue With Your Customers!

The absolute worst thing you can do when you receive negative feedback is get defensive and start arguing with your customers.

First of all, the chances are that the criticism you are getting is valid, especially if a bunch of people are saying the same thing.

In that situation, arguing with them is going to make you look terrible and alienate both existing and potential customers.

Secondly, if the customer is complaining about something that is legitimately their own fault, arguing with them is still not a good look.

Instead, you want to respond to them in a professional manner: thank them for their feedback and give them a refund or a replacement or whatever is needed to solve the problem.

That way, you’ll both de-escalate the situation and leave a positive impression on the observers who can see that the person you are dealing with is obviously in the wrong.

Of course, there are situations where you need to draw a line, for example, when a customer is being abusive to your staff.

But even then you shouldn’t argue with them. Instead, politely give them a refund and make it clear that you won’t do business with them again because their behavior is unacceptable!

Word-of-Mouth: The Dark Matter of Business

You may be familiar with the dark matter concept in physics: scientists cannot observe it directly but they believe that it exists because they can see its influence on what they can observe.

Word-of-mouth is the dark matter of business. You cannot observe it directly because most of it happens in private conversations between family members, friends, and colleagues.

However, you can observe its influence on various business metrics, most notably on the relationship between your marketing spend and sales:

• If you have positive word-of-mouth, you will see an increase in sales that cannot be attributed to an increase in marketing spend.
• If you have neutral word-of-mouth, you will have to maintain the same marketing spend to get the same number of sales.
• If you have negative word-of-mouth, you will have to increase your marketing spend to get the same number of sales.

Keep in mind that the vast majority of people don’t send businesses feedback, leave customer reviews, or share their thoughts on social media.

That applies regardless of whether they are happy or unhappy with the product or service in question, though unhappy customers tend to be more vocal.

That’s why if you want to get the full picture, you need to not only look at what you can see but also try to infer what you cannot see, most importantly the word-of-mouth sentiment!

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