Ever heard of Everpix? How about Google Wave? No? Well, it’s not surprising – the first one is an application that organizes and sorts photos on your phone. It was launched in 2011 and went broke in 2013 because people didn’t buy the product. And Google Wave is a universal communication platform that appeared in 2010 and was closed in 2012, as nobody could understand what it was or how to use it.
It’s obvious that these tools were developed with little or no customer participation. The authors relied on their intuition or professionalism, and didn’t account for the most important factor in product creation – the product/market fit. Everpix and Google Wave didn’t satisfy the market. Customers didn’t understand the app’s value, and sales were low. In this situation, it doesn’t matter who creates the product, whether it’s two fellow developers or a corporation giant like Google – or how much money is invested. There’s always a chance the product will fail. But it’s possible to avoid this outcome with a crucial and effective methodology called customer development.
The Customer Development Model and How to Apply It
“There are no facts inside the building, so get the hell outside.” This is a famous quote from Steve Blank, the founder of the customer development approach. It precisely describes the core of the concept and partly explains the startup curve model.
After coming up with a seemingly brilliant idea, a group of developers and designers gather to create a new product. They keep the whole process secret, which is a big mistake – they don’t get any feedback to understand whether or not they’re on the right track. It continues until some massive media outlet like TechCrunch announces the launch, which generates thousands of registrations and subscriptions. However, when novelty fever declines, only 10-15% of the users are left and the product hasn’t made its sales target. That’s when the trough of sorrow begins. After that, the startup is pushed to get outside the building and use real customer feedback to improve the product. If the implementation is successful, the promised land is not far away.
Blank defines customer development as a process of obtaining customer insights that can be used to create, review and optimize the ideas in product development. The most important aspect of custdev is that it helps to find customers and create a product and messaging specifically for them. It’s a strategy that avoids or, at least, speeds up the rollercoaster of the startup curve, and provides a leaner tactic for creating the best solutions for specific users with help from their insights. It is applied to discover whether:
- the product hypothesis has the right to exist;
- the offered solution really solves the customer problems;
- the product will be used by the target audience;
- the concept for a new function for the existing product will be effective;
- the customers will pay the specified price for the product;
It’s essential to keep in mind that customer development can be used not only for the product launch, but during the whole product whole lifecycle. It can be introduced at any stage of creation, as it neither requires huge resources nor interferes with other processes.
Customer development itself consists of customer discovery, customer validation, customer creation and company-building. We will look at each stage in detail to learn how to reap maximum profits from the gathered information.
Customer development is very useful – but, oddly, a great many startups and long-standing companies skip this step. Why? Because they’re afraid that users won’t accept their ideas or use their product. That’s exactly what they might be faced with during customer discovery.
Customer discovery is all about getting to know your potential customers and testing your product hypotheses. In the early stages, it allows you to determine whether your initial concept is functional and what must be improved/removed/added.
State Your Hypotheses
It’s difficult to work out clear hypotheses that can be tested with the help of customers. However, difficult doesn’t mean impossible – Steve Blank discovered that a business model canvas can be a powerful tool for developing these kinds of assumptions.
This is a 9-block strategy created by Alexander Osterwalder, a business theorist, and Yves Pigneur, a computer scientist. The two men are both included in the list of 50 world’s most high-profile management influencers, so their theories are surely worthy of consideration.
The business model canvas makes you ask the right questions at each step of this business formula, and compose answers that will eventually become your hypotheses. Here how it works:
- Value proposition: What kind of problem will your product solve, and what kind of need will it satisfy? What are the main features of the product? What benefits do the customers get?
- Customer segmentation: Who are you customers? What is their geography, demographics, social environment, etc.? What does your typical customer look like?
- Channels: How are you going to sell your product? How will you communicate with your customers?
- Customer relationships: How do you obtain, keep and grow your customers?
- Revenue streams: How does company profit from every segment of customers? Which value of your product is the most profitable one?
- Resources: What kind of resources do you need to make your plans work (capital, credit, assets, etc.)?
- Partnerships: Do you really need partners? What key benefits do you get from them? What are their key functions?
- Activities: What are the most important things your team must do to realize your plans?
- Costs: What is the full cost of your product development? Which resources or activities are the most expensive?
By answering these questions and creating a potential business model canvas, you produce the main market and product hypotheses that are important to the initial stages of concept development. You also gain opportunities to reach your customers and work on the product they really need.
Test Your Hypotheses
This is when the fun begins. In order to find out whether the customer wants or needs the product, it is actually necessary to find several representatives of the target audience and talk to them in planned and organized interviews. This is the core part of the whole customer development process, because during conversations with real people you can obtain valuable feedback. Interviews can save you from developing a product that no one will care about – but only if you ask the right questions.
There are 2 main types of queries that you can take advantage of while talking to a customer: closed-ended and open-ended questions. The former ones presuppose true/false, yes/no or a very limited range of replies. That’s why the open-ended inquiries are a much more effective means of obtaining elaborate answers. They are designed to:
- Gather qualitative data;
- Identify deeper connections between different concepts;
- Discover insights that might be missed during the survey development;
- Lead to a better understanding of customers;
- Determine the bottlenecks of the product or its features.
Open-ended questions are vital for the success of customer development. So, it’s significant to integrate them into the planning and preparation process.
Steve Blank suggests that you organize it this way: go through your own network and gather a list of 50 people (colleagues, former colleagues, friends, accountants, lawyers, business contacts, etc.).
After you compile this group of potential customers, create a presentation consisting of the previously created hypotheses. The presentation shouldn’t be aimed at selling; it must trigger feedback about the customer’s problems, expenses, etc. It is very important to remember that your main purpose is not to persuade someone that your concept is correct. On the contrary – it is to gather information and opinions that you wouldn’t have come up with yourself. And the interview is exactly the tool that will help you with that.
Another important part of testing your hypotheses is learning more about customers’ habits, jobs, businesses, and routines to better comprehend their problems. These insights are crucial to the success of your product concept, but not the only ones. Together with customer data, you have to scan the market opportunities, get to know your competitors, learn about the trends and so on, to determine your position when you hit the market with your product.
When you have checked your hypotheses and gathered information, it’s essential to compare the assumptions you made before with the results you received. And here, the 9-block strategy will come in handy once again.
Create a Business Model Canvas
Retrace your steps back and develop a new business model canvas based on the new data you acquired during customer discovery. According to Strategyzer.com, the sheet with this technique has been downloaded from their website more than 5 million times, and users mostly apply it to clarify their ideas and define their strategy. In combination with customer discovery, it becomes much more than a theory built on assumptions. When you rewrite the business model canvas using your new information, first of all, you have solid principles on which you can build and develop your business. What’s more, by comparing “before” and “after”, you see how some of your hypotheses and suggestions might be right or wrong. This shows whether you can rely on your speculations in the future or not.
Now, let’s get down to details to grasp the theory better. Let’s imagine you want to enter the selfie drones market. You have created a business model canvas and, as a result, hypotheses listing the features that solve your customers’ problems and distinguish your product among competitors:
- Weight – 200 g, so no FAA registration;
- Wi-Fi control;
- GPS control;
- Video quality – 720p (better than in other drones in the same price range);
- Portable – hands fold into the body of the drone;
- Easy-to-use smartphone application (free to download and use);
- New feature: direct download from smartphone to the computer;
- New feature: 20-minute flying time.
You compile a list of potential customers using friends, some Facebook users, real drone users, etc., and when you test your hypotheses, it appears that people really like the concept of a small, portable selfie drone with advanced features. Yet, it turns out that your potential users are concerned with the fact that it can fly 20 minutes, because it will increase charging times (up to 4 hours compared to the regular 120 minutes). In the process, you also discover that customers would like to have a different range of colors for drones, as the majority of these devices are produced in white, black and dark blue/green.
Then you study your competitors (JJRC, Zerotech, Xiro Xplorer or Yuneec Breeze) and their offers to determine your market potential. After reviewing the results, you recreate the 9-block model again and end up with a polished and reviewed business concept and a product development strategy.
Of course, this is a short version of customer discovery that gives you a general idea of the process. But it also explains the importance of this stage and shows how simple and NOT resource-intensive it can be. Nevertheless, it isn’t where you stop looking into customer matters. You need to validate the information you’ve obtained to decrease the risk of entering the market or working on the existing product with ineffective positioning.
According to the latest CB Insights research, 42% of startups fail because there is no market need for their product, 18% fail because of pricing issues, and 14% fail because they ignored their customers. So, if you think you have completed the customer discovery stage and have enough information to launch full production and sales, think again. You need to test the data you received in a real environment, and this is usually done through customer validation.
Customer validation is the process of making sure that you’ve understood your customers correctly, and that you’re developing proper corporate and product positioning. It is tightly connected with the Lean Startup concept created by Eric Reis in 2008. The concept consists of business experimentation based on hypotheses, iterative releases of different product versions and learning based on validation. So, as with Lean Startup, customer validation through creating the least resource-consuming product with basic features (MVP) and gathering feedback from real people helps to:
- Determine whether you’re ready to hit the market;
- Understand your customers better;
- Build a sales roadmap;
- Identify whether it’s time to scale up sales and marketing.
This is exactly the “work smarter, not harder” approach that prevents you from running out of money, failing and having to integrate costly changes into the completed product.
Minimal Valuable Product (MVP)
Don’t be misguided – MVP is not a product, but version created with a number of minimum features to solve customers’ problems. It is developed using minimum resources to validate the economic efficiency of the business idea. The final variant of the product is released only after gathering feedback about the MVPs.
If it appears that some part of the information hasn’t been interpreted correctly or has been simply misunderstood, the efficiency of customer development process lies in the fact that you can pivot back to customer discovery and start all over again without needing a large budget.
Using customer validation on a selfie drone is a step-by-step process, and many things can go wrong. Just imagine a situation where you release the first version of the app with minimal functionality to control the drone, film a video or take shots. You don’t add resolution control, different flight modes or face tracking, because these are additional features. There are presumably 3 scenarios that can unfold:
- Everything is good, the customers’ problems are solved and their needs satisfied. The app is easy to use, and it’s simple to control the drone. So, your next app release will contain some of those advanced features to test how they work.
- The app is not intuitive, or the button for taking a shot is not visible enough, etc. Here it is very important to listen to feedback and iteratively implement the changes.
- The app doesn’t meet the customer needs completely, the satisfaction rate is low and sales aren’t booming. So, you return to customer discovery and review it all over again.
These outcomes actually prove that custdev works at any stage of the product development. So, use it to get the maximum benefit with minimum effort.
This is the stage that can’t exist without the two previous ones. Customer creation means reaching out to a wider base of customers. After you discover and validate them, you have a clear understanding of who the people using your product are and where to look for them. So, you now need to power up your marketing and take the following steps:
- Prepare for launch. It is essential to get the name of the product out there, and you can do this using a well-planned and organized media strategy. Through it, you will communicate with your customers and the media itself to make your product visible to the target audience as well as for so-called evangelists. These are major influences on who uses your product, who is satisfied with it and who will tell their friends/family about it on social media. They are vital for your sales, development and success, so be sure to reach them through the proper channels.
- Position your product. This step requires determining what kind of market you are going to enter: the existing, niche, lowcost or a new one. After you identify the direction, you will either need to follow certain rules and try to stand out from the crowd (in the existing markets), or invent your own ones and find the right strategy for customers who don’t yet know that they need your product (in new markets). So, here you need to figure out how to present your product in the best light possible.
- Launch your product. This is the stage where you connect your evangelists and experts with key messages with the help of PR. It is crucial to avoid any miscommunication on the way, and for this you need to understand the audience, have a clear step-by-step launch strategy, and to know your depth of coverage and key objectives. This is the time when you finally act, and the outcome will depend on the quality of your preliminary preparations.
- Create demand for your product. You think that with a successful launch and the buzz around your product, you wouldn’t need to create demand. But that’s a misconception that may lead to a crash. The average American family buys the same 150 goods that meet 85% of their needs. Do you think it’s easy to break those habits? No, it isn’t. That’s why you must go a little bit further to create demand. There are different strategies that can help you with that:
- Limited-time offers;
- Teasers (just small tidbits of information to create hype);
- Promotion with the help of user-generated content;
Customer creation is the sum of the execution of your strategies, implementation of your plans and the start of real sales. This is an intense period where you really find out whether you have properly defined your product and customers. It will require a great deal of time and effort to carry it out successfully. Be ready for it.
And back again to our selfie drone. In order to start the customer creation process, you find a marketing team that can keep up with your plans and understands the true value of your product. It helps you to develop a media strategy to reach out to evangelist customers and target audience through the most appropriate channels. For instance, they might post press-releases on Businesswire.com, Neurala.com, DPreview.com and Personal-drones.net; YouTube reviews by Quadcopter 101, Drone Camps RC and Tech Best, and so on.
The product enters the existing niche market, which has rather high competition. Thus, the positioning must contain features that differentiate and distinguish your selfie drone among the other devices. So, you adopt a value statement: “A light selfie drone that flies 2 times longer than you’re used to.” This way you show that your product can endure longer flights than all your competitors’ drones.
When you launch your selfie drone, you can create additional demand by encouraging your customers to create videos and post them online. The content will attract extra attention to the product and you won’t need to spend large sums of money on expensive marketing (just like GoPro).
This is the final stage of customer development, which turns a startup into a full-scale company. The focus shifts from research and discovery to long-term planning and mission development. Of course, this is not something that happens by itself – it is you and your team who take more control of company management and look further into the future. This is a serious change that requires step-by-step action. You will find some hints on them below.
Reach Out to Your Customers
In the previous 3 stages, you cooperated with early adopters who want an instant solution to a complicated problem. However, the issue is that they constitute only 5% of the full market. Now you need to broaden the circle of consumers and make the product more visible to mainstream customers. To achieve this goal, you must hire competent sales managers who precisely understand consumer psychology:
- Mainstream users don’t look for an immediate solution; they will settle only for a reliable and stable product;
- They are not hooked by early-adopter reviews – they consider only feedback from pragmatists like themselves;
- They keep the company afloat much longer than early adopters, who will jump at the next big thing the moment it hits the market.
Create Your Mission
Let’s have a look at PayPal’s mission statement – “to build the Web’s most convenient, secure, cost-effective payment solution.” After reading it, you clearly grasp the vision and main objectives of the company, even if you’re not a person who works there. And that’s exactly what you should be after.
The mission gives staff the understanding of where they are heading and why they need to complete these tasks, and not others. This is a goal that unites people in a team and allows them to achieve success faster and at a higher-level. That’s why you should take your time to come up with a statement that determines what your employees must do when they are at work, what they work for, how they will know when they have reached the goal, and what the company’s revenue and profit objectives are.
Review Your Company Structure and Management
Developing your product with creative employees who live purely on enthusiasm and spend sleepless nights fixing flaws is a great experience. But if you want to take your business to the next level, you have to be sure that they are ready to scale up and following the same mission as you are.
It is also crucial to identify whether the people at the steering wheel are reliable, pragmatic, shrewd and agile. It would be great if the board of your company reviewed your management appointments, because opinion from that side will help you analyze your choices.
Set up Your Departments
In the startup environment, it is common for team members to complete all kinds of tasks even if they are not working in their specialization. However, when you’re company-building, this doesn’t work, because you can’t settle for partial solutions. That’s why reasonable steps here would include:
- Creating departments based on your general mission;
- Stating clear responsibilities of every department;
- Developing mini-missions for all departments to make them narrower and more focused;
- Setting up a fast-response culture from the start.
Make Sure Everything Is Agile
Bureaucracy and great dependence never boost growth. On the contrary, they slow down the company processes and development, and kill the notion of agile. To avoid such a situation, make sure that your employees are capable of decision-making “on site” and don’t depend on solutions coming from the top.
This is a decentralized model of management that promotes sharing, working in a team and being a leader. These relationships within the company must be built on mutual trust and understanding – only then you can maintain the pace of your agile success.
Research shows that companies with a customer-centric policy gain 60% more profit than the ones who don’t put users/clients in first place in their strategies. You can see the proof of such tactics’ success by looking at famous corporations like Zappos and Amazon, which spend millions of person-hours to determine who the customers are, what their problems are, and how these problems can be solved. These numbers and facts speak to the efficiency of customer development, and you will definitely see it for yourself if you include it in your project.
Tools for Customer Development
When you finally get out of the building, it’s essential to use the proper instruments to get the most out of your customer development. The most common tools to achieve the goals that you’ve set are:
- Customer interviews. We mentioned before that real-life conversations with people are of key importance to the overall customer development approach. They are the main means of gathering reliable information you can use to improve the product and its features. The interviews can be carried out through calls, one-on-one meetings or online conversations. Depending on your objectives, choose the type that suits you best. The most important things to remember here are to always prepare before the interviews, focus more on what people do than on what they say, and listen/read carefully.
- Experiments. Try different strategies to create demand for your product, do as many MVPs as necessary and don’t be afraid to experiment (to a reasonable extent).
- A/B testing. Involve your customers in everything, especially when you need to choose, say, between different interfaces for your drone control app or to test the button. Create it for the users, not for your team. Keep that in mind.
- Applications/technical support. Use chat bots (Chatfuel), video chats (Skype), communication platforms (Intercom), etc. They will optimize the processes and boost the customer development methodology.
Avail yourself of all the possible tools to obtain the maximum benefits from customer discovery, validation, creation and company-building. They are accessible, cost-efficient and easy to use.
Customer Development Bookshelf: Books about CustDev
For a deeper understanding and better focus, it is smart to reread the best books on customer development out there. They will help you to learn the true value of this process and will provide you with practical tips.
The Four Steps to the Epiphany by Steve Blank
Well, this is actually the book that started it all, so it’s a kind of your duty to go through its ideas.
The Lean Startup by Eric Ries
Given the fact that the concepts of customer development and lean startup are so interlaced, successful implementation of the former idea is almost impossible unless you read the book on the latter.
Lean Customer Development by Cindy Alvarez
This work contains useful insights on interviews, research and validation. It definitely enriches the knowledge of customer development and combines it with lean techniques of implementation.
The Entrepreneur’s Guide to Customer Development by Brant Cooper & Patrick Vlaskovits
If Steve Blank himself states that this is “a must-read for all startups and stakeholders”, it is clearly worth reading. It breaks down the processes of finding the product/market fit, developing an MVP and enhancing marketing strategies.
The Mom Test by Rob Fitzpatrick
This is a fundamental and short guide that will tell you how to talk to customers to obtain the data you really need. It is based on practical tips and examples of how to learn from conversations with customers and use this knowledge to boost sales.
Before diving into the world of customers, it is necessary to research how to do it properly. So, spend as much time as possible on becoming proficient at it.
The concept of customer development appeared back in 1990s, and so far it has helped launch 10 000 startups and different new ventures. It is a powerful tool in all markets, but it is necessary to always remember that it must be implemented simultaneously with product development. Concentrating on just one of the processes won’t be effective and won’t reduce risks the way it is supposed to. This is exactly the strategy that enables you to work smarter, not harder. So, adopt it to the maximum.