All things Customer Development
A primer on Steve Blank's Customer Development model - Customer Discovery, Customer Validation, Customer Creation, and Company Building
Have you heard about Google Wave or Google Glass?
Google Wave is a universal communication platform that became visible in 2010 and disappeared in 2012, as nobody could understand what it was or how to use it.
Even after creating some initial buzz, Google Glass failed because of the same reason - people didn’t understand why it exists and what are the value propositions.
Google Wave and Google Glass lacked the Product-market fit, which is the most common cause of failure for many startups. A popular study says lack of product-market fit contributes to nearly 42% of all failures.
Steve Blank, a silicon valley entrepreneur, vividly discussed all the nuances of this problem and proposed a framework called “Customer Development” in his book the 4 steps to the epiphany.
This article will go deeper into the Customer Development frameworks and see how a startup can benefit immensely by following this approach.
The problem with the traditional Product Development model
Most startups follow the Product development model to launch their products. Starting with a concept/seed, these startups go through the R&D, then Alpha/Beta test, and finally launch the product.
Credits - Steve Blank
The typical problem with this model is that there is no customer in this workflow. Often many startups spend a ton of money and energy on building something that nobody wants. Steve Blank says a startup does not usually fail because of a lack of product but fails because of a lack of market/customers.
The customer development model focuses on the customer from the very beginning. It places the customers as the focal point for all decisions and activities. Let’s see how -
The Customer Development Model
“How narrow the gate and constricted the road that leads to life. And those who find it are few.” — Matthew 7:14
The customer development model defines four steps in a startup journey -
Customer Discovery,
Customer Validation,
Customer Creation, and
Company Building.
The key characteristic of this model is that every step revolves around the customers and the market.
Customer Discovery focuses on understanding customer problems and needs,
Customer Validation on developing a sales model that can be replicated,
Customer Creation on creating and driving end-user demand, and
Company Building on transitioning the organization from one designed for learning discovery to a well-oiled machine engineered for execution.
Credits - Steve Blank
Customer Discovery
The goal of Customer Discovery is just what the name implies: finding out who the customers for your product are and whether the problem you believe you are solving is important to them. More formally, this step involves discovering whether the problem, product and customer hypotheses in your business plan are correct.
- Steve Blank
Startups are usually formed based on a bunch of hypotheses on target users, their needs, value propositions, competition, differentiation, business model, customer acquisition, etc.
NB: If you are wondering if there is any framework that captures these hypotheses, you can use the Business model canvas or product-market fit hypotheses framework by Sachin Rekhi.
The customer discovery process talks about building and testing these hypotheses through multiple steps -
Credits - Steve Blank
Customer Validation
Customer validation is where your product is out in the market in front of your early adopters. “This is where the rubber meets the road.”
The goal of this step is to build a sales and marketing roadmap to follow later. The sales roadmap is the playbook of the proven and repeatable sales process that has been field-tested by successfully selling it to early adopters.
Customer validation proves that you have found a set of customers and a market who react positively to the product.
Customer Discovery and Customer Validation corroborate your business model. Completing these first two steps verifies your market, locates your customers, tests the perceived value of your product, identifies the economic buyer, establishes your pricing and channel strategy, and checks out your sales cycle and process.
- Steve Blank
One important point to notice here is that Customer discovery and validation go hand in hand and works as a feedback loop iteratively. It’s all about getting feedback from the market and customers and re-adjust(pivot) your hypotheses that you defined in the customer discovery phase.
Customer Creation
The customer creation step builds on the early success that you had in the previous two steps. Its goal is to create end-user demand and drive that into the company’s sales channel.
Depending on the startup and its market, the customer creation strategy and process could be different. There are primarily three different types of startups based on their market entry strategy -
A new product in a new market
A new product in an existing market
A new product attempting to resegment an existing market(cost leadership and niche)
Credits: Steve Blank
Each of these Market type strategies requires a very different positioning and launch strategy.
Company Building
Company Building is where the company transitions from its informal, learning, and discovery-oriented Customer Development team into formal departments with VPs of Sales, Marketing, and Business Development. These executives now focus on building mission-oriented departments that can exploit the company’s early market success.
- Steve Blank
A word of caution here. In contrast to the incremental process, premature scaling is the bane of startups. A business is scaling prematurely if spending significant amounts of money on our growth before discovering and developing product-market fit. Thus, it is imperative to figure out the product-market-fit first and then plan for your growth.
“Premature scaling is putting the cart before the proverbial horse…As an entrepreneur there’s always the temptation to grow the sales team at the first sign of revenue traction, but there is always the danger that this early traction is coming from the subset of the market that are early adopters and not the actual market itself. Additionally, too often I’ve seen startups ramp up sales before they’ve figured out the most efficient way to achieve profitability. A vicious cycle ensues wherein the more a company grows, the more it farther away from profitability it becomes.”
In summary, The Customer Development model complements the product development model and brings the customer into the equation. It enables startups to validate key hypotheses early in the process.
The Customer Development model consists of four well-defined steps: Customer Development, Customer Validation, Customer Creation, and Company Building. The first two steps are all about forming the right hypotheses, and the last two steps are all about the execution.
Sincerely,
Arkapravo
That’s all for this article. Thanks for reading. If you wish to read more, please check out the catalog to discover other articles.
To receive more such articles in your email, consider subscribing. 👇
Click here to learn more about the Product Hub Newsletter.
Reference -
The four steps to the epiphany, Steve Blank
Very well written Arkapravo.Customer centricity is a paradigm shift in the mindset.Many failures are due to designing products in a non-customer centric manner.