Customer Development – Develop with and close to your customers

Customer Development is the topic underlying the concept of „The Four Steps to the Epiphany“ by Steve Blank. Lean Startup Methodology , the one that gets the ball rolling for so many successful businesses, has existed for more than ten years, and now, in the time of faster product development, this methodology is getting more important and topical than ever before. In order to make sure your business gets traction in the course of time it is essential to establish an ongoing customer analysis at an early stage.

About Steve Blank

One of the most experienced and influential Silicon Valley tech entrepreneurs and investors Marc Andreessen describes Steve Blank in his Blog in the following way: in short, Steve suggests that businesses need customer development process which complements the product development. So, he offers a road map to Product-Market-Fit.

Phase 1 – Customer Discovery

In this phase our goal is to understand the problems and challenges of our customer. During an open conversation some additional subliminal data may be revealed that helps to understand to what extent your customer is ready to pay for the solution provided.

• stop selling and start listening instead
• it is required that we should leave the office building sometimes
• we test our assumptions

We draw a sketch of a day in the life of our customer. This way we can see how customer’s life looks with our product/service and without it. So, we are building an Org Chart for customers.

Phase 2 – Customer Validation

In this phase we find out what a viable and effective Sales Roadmap is. We are going to examine it through further tests, checking on the pricing models, traction channels, and client acquisition, sales cycle and customer lifetime value, return on investment, among other things. This way we can get a clear picture whether our business model is generally reasonable and whether it makes sense to develop our product. So, we come up with two roads:

• we develop a repeatable sales process.
• only „earlyvangelists“ are crazy enough to buy.

At the end of this phase we establish if we have a market for this product, who our primary buyers are and what is the value of this product at the existing market. This is the moment that proves whether your assumptions are correct before you spend too much money. And if you are right, this is the moment to set the pivot.

Phase 3 – Customer Creation

Proof of Sales phase is followed by Customer Creation phase. Here we step across the chasm; we overcome the gap and reach out for an image. It mainly involves strategy, not tactics.

Big Ideas

• Increase the number of customers
• 4 steps to build a client base

1. One year goals
2. Positioning
3. Launch
4. Demand Stimulation

The creation of demand requires different approaches in three market types

Market differences

Existing Market

• Are there presently customers who want the highest performance?
• is there, at the present moment, a scalable business model?
• Is there a defensible, an Unfair Advantage keyword, which can help you compete against the established market players?

Resegmented Market

Lower Market Segment

• Are there customers in the lower market segment, who would like to buy a product that may be inferior in terms of functionality but “good enough” to solve their problem as long as the price is low enough?
• Is there a profitable company in this segment?
• Are there any barriers that would not allow competing with the established market players?

Niche

• Are there in the existing market customers who would buy a product if this product could address their specific need, in a situation when the prices are similar, or when the price is higher than of the currently available alternatives?
• Is there a secure business model currently available?
• Are there barriers as compared to the competition represented by the current market leaders?

New Market

Do customers have to go to some inconvenient centralized place?

Are there barriers as compared to the competition represented by the current market players?

Phase 4 – Company Building

Here we are actually creating the organization and management of our new business and, once again, we look carefully at our mission.

Big Ideas

• As the company is expanding management has to undergo change as well
• Sales growth hast o fit the market type

In this phase you need focus. Does your sales growth plan fit into the canvas of the market type you are working in and do we have a mission oriented culture?

3 Reasons for Customer Development

Okay, you have this special mind-blowing idea. You’re super excited about it and you expect to raise serious money from it and you believe will change the world. You want to breathe a new life into your vision. I have to say, customer development is pretty hard. You will have to go out and talk to your customers a lot. It is time consuming and requires you to step out of your comfort zone. You understandably don’t want to be proven wrong.
From a number of truly relevant reasons to practice customer development I chose three most important for me and you.

Avoid spending time and money developing something no one wants

Starting your own company requires a significant amount of time and money. It doesn’t matter whether you are going to provide your services as a freelancer or sole proprietor, or you want to get some product at the initial stage. Life is short and money is often in short supply, so you don’t want to waste any of that. It may turn out that you can’t get to talk with this or that customer anymore. That’s frustrating, of course.
But you know what will be really frustrating to find out in the end? That you have spent a bunch of time and money on a business with no potential!

Gain insights to help you build the most valuable product possible

If you already have an outline of a product, customer development can help you to develop it into a fully-fledged “dream come true” for your customer. Your initial hypotheses are often only about little percentage correct , and to make things work you really have to in-build your customer into the development process.

Get some ideas for you startup, projects, products and services

Customer development is designed for and used to test ideas. In any conversation with our potential customers we should stay attentive and focused, listen carefully. This way you will probably hear and understand what your business, product or service should look like. When you ask the right questions, you have people talk about their issues, challenges and pains; you start to better understand their needs and how your product or service can satisfy those needs.

Conclusion

Sitting in a quiet chamber and developing “genius” ideas does not bring you anywhere. Let us learn to develop products and services in a dialogue with customers where we can ask a lot of questions.