Y Combinator Question 19 + How To Answer: Which Customers Should You Run Away From?
This provocative question from Y Combinator tests a start-up’s ability to discern which customer segments may not be beneficial or could even be detrimental to the growth and success of the business.
Part of the series:
Y Combinator: 40 Questions and 40 Answers
Y Combinator: 40 Questions and 40 Answers
1. Why Y Combinator Asks This Question
Y Combinator wants to ensure that founders have a strategic understanding of their target market, including recognizing which customers are not a good fit for their product or service.This insight helps to focus marketing efforts, refine product development, and avoid the pitfalls of serving customers who may demand too much while offering too little in return.
It also shows that the start-up is making calculated decisions based on long-term growth rather than pursuing every possible opportunity that comes their way.
2. How to Answer the Question
To answer this question well, describe specific characteristics of customers who are not ideal for your product or service. These could be customers who do not align with the core values of your company, those who are too costly to acquire relative to their lifetime value, or those whose needs differ significantly from what your product is designed to meet.Explain how engaging with these customers could distract or detract from your primary business objectives.
For instance, if your start-up offers high-end, customized IT solutions for large enterprises, you might identify very small businesses as customers to avoid because they typically seek off-the-shelf, low-cost solutions and lack the budget and infrastructure for a high level of customization.
3. How NOT to Answer the Question
Avoid responses that come across as dismissive or that categorize broad groups without clear justification.Do not imply that you would turn away customers based on arbitrary or discriminatory criteria.
Always ground your response in strategic business reasoning and focus on how certain customer segments do not align with your business goals or product offerings.
4. An Example, Based on a Tech Startup
Let’s consider a tech start-up, CloudSecure, that provides advanced cybersecurity solutions tailored for medium to large businesses. Here’s how they might address which customers to avoid:- Non-Ideal Customers: “We should avoid startups and small businesses as customers, not because they don’t deserve security, but because our solutions are designed for larger scale operations and are priced accordingly. Small businesses typically require less complex, more affordable cybersecurity solutions, which are not within our product suite.”
- Strategic Focus: “Engaging with these smaller companies would divert our resources from the enterprises that benefit most from our high-level customization and would dilute our brand’s speciality in serving larger organizational needs. This misalignment would likely lead to customer dissatisfaction and increased churn, which could harm our business reputation and growth.”
Y Combinator challenges start-ups to identify which customer segments they should avoid, ensuring that they focus their efforts on those who truly benefit from and value their product, thus preventing resource wastage and potential business setbacks.