The path to company creation and growth is filled with pitfalls that can undermine your goal of finding product/market fit. These are just a few of the usual suspects:
- Choosing a target market in order to back into a pre-defined financial/valuation goal
- Shopping an existing (but failing) product around various markets in hope that it will resonate with one
- Believing that asking customers what they want stifles “true” innovation
Fortunately, several decades of entrepreneurship, primarily in technology-related industries, has produced insights and methods that can help us avoid such mistakes and increase our chances of creating products and services customers will value.
The Customer Development Process
Steve Blank’s name has become synonymous with the idea of product/market fit. In his 2005 book “The Four Steps to the Epiphany: Successful Strategies for Products that Win,” Blank posed a foundational question:
“If startups fail from a lack of customers, not product development failure, then why do we have a process to manage product development, and no process to manage customer development?”
In this now seminal work which inspired the creation of the Lean Startup movement, Blank distilled decades of entrepreneurship, VC, and board experience into a system designed to provide a “true and repeatable path to success, a path that eliminates or mitigates the most egregious risks and allows the company to grow into a large, successful enterprise.” The four steps in Blank’s Customer Development process are:
- Customer Discovery
- Customer Validation
- Customer Creation
- Business Creation
When followed methodically, the customer development process helps organizations minimize initial cash burn by deferring extensive product development or expensive hiring decisions until the following criteria have been validated:
- Understanding of the customer’s problem(s)
- The ability of the product or service concept to address those problems
- Confirmation of the customer’s ability/willingness to pay
- Validation of a repeatable sales and marketing roadmap
By preserving cash (and credibility), the startup or organization is able to give itself more “bites at the apple” in its efforts to establish product/market fit.
This article is the first in a twelve part series on growth marketing which explores the foundations of customer development, revenue operations, and growth culture creation. Here, we will focus on Customer Discovery, the first stage of Blank’s Customer Development model (each of the other stages will be covered sequentially in separate posts).
The Customer Discovery Process
While established enterprises may use methods like focus groups and surveys to inform ongoing product development efforts, they already possess a core of information about the customer that startups do not. In addition to testing hypotheses about what features the customer desires, startups must develop a deep sense of the customer’s needs and motivations. So, even before product concepts are tested, the customer discovery process seeks to validate and refine hypotheses about the customer and his/her problems.
Phases of Customer Discovery
Customer discovery is a methodical process of documenting initial assumptions and hypotheses and testing those hypotheses through discussions with prospective customers and market players.
The customer discovery process begins with the founders’ initial hypotheses regarding product concepts and customer needs and methodically tests them in four steps:
- Stating hypotheses regarding the customer’s problems, product specifications, channels, pricing, demand, market type and competition.
- Testing qualifying hypotheses through prospective customer interviews and engagement with market players.
- Testing and qualifying product concepts with prospective customers.
- Verify that the organization has identified a problem that the customer wants to be solved, that the product solves the customer’s needs, and that the business model is profitable.
Characteristics of the Customer Development Team
During the customer discovery stage, Blank emphasizes the importance of avoiding conventional business titles such as VP of Marketing, VP of Sales, or VP of Business Development as there is, at this point, nothing validated which can be marketed, sold, or channeled through partners. Instead, he advises that the startup create a Customer Development Team staffed with individuals comfortable working in uncertain and rapidly-changing environments. Most fundamentally, Blank says “The Customer Development Team must have the authority to radically change a company’s direction, product, or mission and the creative, flexible mindset of an entrepreneur.”
The Importance of Market Type
To successfully conduct the customer discovery and other stages of the customer development process, a business must understand what type of market they hope to enter.
- New Product, Existing Market (performance-based competition)
- New Product, New Market (new products or new classes of users)
- New Product Resegmenting Existing Market: Low Cost
- New Product Resegmenting Existing Market: Niche
Understanding the type of market you are in is essential for setting expectations for how long it will take to find product/market fit. Companies attempting to create new markets or resegment existing markets face more unknowns than those attempting to compete on performance in existing markets.
The Importance of Leadership Team Buy-in
Even though we are now more than a decade into the Lean Startup movement, the Customer Development model is still new to many business executives, boards, and investors. Because the situational dynamics and needs of a given company can vary so dramatically, it is important to discuss and obtain buy-in early on. If the approach fits within the overall needs of the company and its investors, it will be important to focus near-term definitions of success on progress toward validating a scalable business model.
In cases where the approach is unfamiliar to a company’s board and investors, company leaders may succumb to pressure to build and sell the solution as quickly as possible. Unfortunately, this often undermines the interests of both the business leaders and its investors as rushing to create and sell a solution that does not yet have a validated market and business model is, essentially, a low-probability strategy of hope.
Conclusion
When creating a new product, service, or business, setting expectations with business leaders, investors, and other key stakeholders is essential to effectively plan resource use and preserve runway and support. The Customer Development process helps by making clear the degree of uncertainty the organization faces (market type) and by deferring cash burn on extensive product development and organization building until there is clear evidence that the concept product effectively solves a real customer problem around which a profitable business model can be built.