Connor McCarthy, an angel investor wrote an article on LinkedIn in 2021 on using mental models to come up with your first clients. Koala AI, summarised the ten models below, then I added some further observations that may help if you’re just starting out.
- Initial Conditions: The Butterfly Effect, a concept from Chaos Theory, suggests that small variations in the starting point of a process can lead to significant differences in outcomes. This concept is particularly relevant when seeking your first ten customers, as their feedback can significantly influence the direction and success of your product or service. In short, ask customers why they buy. Dig deep. This one is a bit of a dilemma, since the whole point is to find your first customers! However, having got your first using the other mental models below, this model becomes available.
- First Principles Thinking: To gain a deep understanding in any field, it’s essential to grasp its fundamental principles. Charlie Munger, the vice chairman of Berkshire Hathaway and a renowned investor, is a strong advocate for using mental models and rational thinking when making decisions. He emphasizes the importance of understanding the fundamental principles that govern a situation, which aligns with the concept of first principles thinking. First principles thinking involves breaking down complex problems into their most basic, foundational elements and building up from there. It’s a method of inquiry that seeks to get to the core truths and reason up from there, rather than relying on analogies or conventional wisdom.
- Inversion Principle: This principle involves approaching problems by considering how to ensure their persistence and then avoiding those actions. It’s a method that helps avoid poor decisions by focusing on what not to do. Warren Buffett’s entire investing philosophy was based on this one as far as I can tell. It goes something like this “err on avoiding losses rather than finding gains”.
- Incentives: Understanding the real problems your customers are motivated to solve is crucial. It’s important to discern between the issues customers will pay to address, versus those they deem insignificant. This understanding can guide more effective customer conversations and business strategies.
- Pareto Principle: This principle, also known as the 80/20 rule, posits that a small number of causes typically leads to the majority of outcomes. In the context of acquiring customers, this could mean that a minority of your efforts will produce the majority of your results. The problem with this one is it ignores the vast majority of a potential audience. Nature doesn’t work in a vacuum. It needs all of it. Everything depends on everything else. The pareto principle is fine for short term thinking only.
- Simplify: Keeping your value proposition simple and easily understandable is key. Customers are primarily interested in solutions that effectively address their problems without unnecessary complexity.
- Multiply by Zero: Failure to act on an idea, regardless of its potential, renders it valueless. It’s crucial to address and test your assumptions to avoid nullifying your efforts. I remember a great quote on exactly this. It went something like “all ideas, no matter how great, are worth diddly-squat unless action is taken, and even then, that idea may still result in nothing, but that’s better than not taking your shots at all”.
- Confirmation Bias: It’s important to seek out information that challenges your preconceptions to ensure you’re not just confirming existing beliefs. This can be especially valuable when identifying and understanding your target customers. It’s exceptionally hard to be 100% objective when the entire world revolves around the subjective. The best most of us can do is to be aware of our biases. I believe, that is enough.
- Selection Bias: Targeting your audience effectively requires focusing on those who have already shown an interest in what you’re offering, rather than attempting to appeal to everyone. This is why #1 matters.
- Discomfort Razor: Embracing discomfort can lead to growth, while comfort often results in stagnation. Taking bold actions, even when they feel uncomfortable, is essential for finding your initial customers and building your business. This is the only one that really moves the needle.
Charlie Munger claimed his multi-billion dollar fortune was created by selecting the right mental models for each investment choice. He had 90 of these he relied on, and around 5 that he always used. If those first few models passed the test on an investment, then he would go through the rest to ensure a better chance of success.
The mental models advocated by McCarthy above, may or may not help you get your first clients, but they’re all worth thinking about.
If you take action, no matter how daunting it feels (#10), quiz your customers about their reasons for buying (#1), keep it simple (#6), and start everything using first principles (#2), you will be streets ahead of most people starting out in business.