A Quick Guide to Customer Development Process Pt1

Quick Guide to Customer Development Process Pt1

In this age, starting new business venture is easier than ever before. We have unlimited access to resources such as Lean Startup and other methods how to discover new business opportunities. However, there are some parts that are more complicated than others, or they appear to be. Customer development process is one of them. Many entrepreneurs or want-to-be entrepreneurs find themselves stuck on this subject not knowing how to continue. In this post, you are going to learn what customer development is, what it is not and what parts does it contain.

Quick Guide to Customer Development Process part 2.

What Customer Development is

Let’s begin with clarifying all the confusions about customer development and finally understanding what it is. In simple words, customer development is a four-step framework entrepreneurs use to discover and validate that they have identified the right market for their product, built the right product features that solve existing customers’ needs, tested the correct methods for acquiring and converting customers, and finally deployed the right resources in the right amount to scale their business into larger company.

To make this definition even easier, from an abstract level, Customer Development is simply about questioning your core business assumptions and hypothesis by testing them “in the field”. It uses various developed and time-tested scientific methods to create and build new business. Your process of customer development will resemble these scientific methods by following couple of specific steps.

These steps are, first, observing and describing a phenomenon on the market. Second, formulating a hypothesis to explain this phenomenon. Third, using the hypothesis you formulated to predict the results of new observations. Fourth and last, measuring the prediction performance based on experimental tests you will make. This process is used to discover and validate if your product solves a problem for specific group of users (step one – Customer Discovery), if the market is viable and large enough that you can build sustainable business on it (step two – Customer Validation).

You will also use this process of customer development to test whether the business you created or want to create is scalable through a repeatable sales and marketing roadmap (step three – Company Creation) and, finally, to test if company departments and operational processes are created to support scale (step four – Company Building).

In the end, implementing customer development process is all about two desired outcomes. First of these outcomes is creating (building) and maintaining thriving, successful company. In other words, all customer development process can promise is to maximize the company’s potential to succeed. Paradoxically, the second desired outcome is the realization that the market is not sufficient enough to sustain the business you want to create or there is actually no market at all.

Even though it may sound weird, both of these outcomes are beneficial for you. If the first is right, you have discovered opportunity to build a business and so you can move to another step in the process. On the other hand, if the second outcomes is right, you just saved yourself from wasting your resources (time, energy and money) on an idea that is not viable to sustain a business. One more thing … You might find yourself in a situation where the answer you will get from the customer is “maybe”. That is the worst answer you can get. Go for straightforward “yes” or “no”.

The customer development process is designed to eliminate the possibility you will fall into the middle ground between these two outcomes. Meaning, at each phase, when you will realize something is not working as it should you will “pivot” (change your assumptions) and test another path. In other words, when plan A fails, you don’t have to start completely from scratch. You can just modify some of the parts of the plan (assumptions, solution, funnels) and test it again. Through this process, you either find the path and succeed, or realize that there is no opportunity.

What Customer Development is not

Now, when you know what Customer Development is, let’s also address what it is not. Customer development is neither a rigid set of actions that lead to business success, nor is it a philosophy that requires deep thinking and strict following of laws brought down from the skies, otherwise you will be cast away into startup hell. Customer development is not dogmatic or authoritative.

Customer development grew out of Steve Blank’s experience: “distilled from things I got right, and things I screwed up,” as well as by his observations of the practices of successful companies. Understand that successful implementation of customer development will not guarantee success for your business. Customer development will help you make better decisions based on tested hypotheses, rather than untested assumptions. The results of the customer development process may indicate that the assumptions about your product, your customers and your market are all wrong. Then, it is your responsibility, as the entrepreneur, to interpret the data you have collected to modify your assumptions and iterate.

Where customer development is different from other methods and “business books” is that these books advise entrepreneurs to never give in. These books tell entrepreneurs to persist in their dreams of building a great company and developing groundbreaking products no matter what the odds are or what the market might be yelling at them. Their message is that the success is just around the corner. This message is often wrapped up in inspiring stories of entrepreneurs who simply refused to throw in the towel and succeeded against all odds.

Sure, being persistent is great advice and necessary trait every entrepreneur needs to have along with immense willpower. On the other hand, customer development methodologies created by Steve Blank and included in lean startup are designed to give you actionable data and feedback you may not want to hear. These data speak clearly and distinctly stripped of any decoration or softness. It is incumbent upon you to listen otherwise you are just playing lottery.

Understand, that there are no billion-dollar companies who will proclaim to you that customer development was the model they used to achieve success. Why should they? It is not that sexy such as the story of entrepreneur going against all. On the other hand, most billion-dollar companies existing today have practiced some part or element of customer development in their history, no matter if they knew what it was or what they may have called it.

Customer Discovery

Let’s start with the first step or part of customer development process that is called “customer discovery”. This step is known in the world of startups thanks to “Getting out of the building” phrase. This phrase what Steve Blank uses to tell you that you should not accept your business assumptions as true without testing them. Your goal, as an entrepreneur, is to go and speak in person, if possible, with real customers to determine the validity of your assumptions.

I understand that for many people, speaking with customers is difficult job to do. I was on that place too. When we are afraid to talk with people (customer or not) we will look for any excuse or rationalization so we don’t have to undertake this task. The same thing applies to uncomfortable cold-calling (even cold-emailing) or speaking on the phone with strangers. You have to understand that the biggest reason for this reluctance is simply our fear of rejection. Nothing else.

Unfortunately, some entrepreneurs would rather keep their doomed prized possession, their grandiose idea, rather than learning quickly that there is no real market for it. Part of the purpose of “getting out of the building” act is to learn whether you have a viable business idea and so you have found land fertile enough to grow your business on. If you don’t, then you need to move on to something else as quickly as possible, no strings attached.

You have to keep in mind that “getting out of the building” is designed to minimize your real and opportunity costs. Meaning, activities what you could have been doing if not building a product no one wants. Some of you may start to argue that today, in the age of Internet, we have a bunch of tools we can use while staying in our comfortably equipped home or office. Sure, tools such as analytics, surveys, and other automated testing tools are good, but they are only complementary. They cannot replace “getting out of the building” part of the process.

Remember that customer discovery part begins with gaining empathy. Meaning, you have to develop a deep understanding of what your customer’s needs, pains and motivations are. It happens quite often that entrepreneurs will be biased by their own envisioned solutions, products, or ego. As a result, they will and end up searching for validation of these personal assumptions rather than staying open to a real discovery process. How can you avoid falling into this trap?

One step you can start with is developing as many specific personas for various segments of your assumed customers as possible. I am talking about sketching out a profile of a person as real as possible. This profile should include specific character traits, assumed motivations, demographics, assumed behaviors, how are they spending their time and don’t their available budget. Your next goal is to generate a set of assumptions and hypotheses about the tasks your customers are trying to perform and complete, the problems they are trying to solve, the pains they are trying to get rid off, and the needs they are trying to fill.

Following this, you have to start talking to customers to create a specific customer archetype by collecting more anecdotal evidence. Prepare for “in the field” customer interview and generate a list of questions based on your assumptions before you will meet with them. Then, abstract the context of your questions to disguise what you would otherwise ask directly. Remember, you never want to influence a customer’s response, so avoid using leading questions (yes or no questions).

Customer discovery is not about putting together some kinds of focus group. Keep in mind that people don’t always understand their own problems. Meaning, asking them directly on what their pain points are or what do they think about this or that is only waste of your time. You must go much deeper and search for unconscious cues. You are looking for specific stories about their day-to-day experiences that can surface insight about their real needs and motivations. You have to listen closely and watch for any bold statement the person makes, an inconsistency between what they say or do, silence, or strong gestures.

The only way to get good in customer discovery through practice. You can immerse yourself in number of books and study its theory forever, but without putting your knowledge into practice you will never understand it completely. Remember that customer discovery is an intuitive process. It relies on your ability to recognize commonalities expressed among the people you speak with and whether or not you can fulfill one of these learned needs or motivations.

Customer Validation

The second step of the customer development is “customer validation”, you can find more about it in book The Four Steps to the Epiphany. The overall goal or objective of customer validation is to validate your sales process and the assumptions your business model is based on. In other words, to quote Steve Blank, customer validation is “method that allows you to develop a predictable sales process” and suggests that you should not scale the business until you have developed a solid understanding of a repeatable sales process.

In short, the customer discovery process will help you build and validate your value proposition as well as your target customer profile and product solution–create the product-market fit. Customer validation consists of four phases.

First phase of customer validation is preparing to sell. This is about using all the data and insights you generated and gathered in the customer discovery, starting with your value proposition. You should put together all the sales materials required in order to present what do you want to sell to your customers. These materials include your website, price lists, product data sheet, list of marketing material, customer presentation, your distribution channel strategy and so on.

Second phase is selling to visionaries. The main goal and purpose of selling to visionaries phase of customer validation is to get number of deals big enough to validate your value proposition and sales roadmap. Steve Blank calls your target customers “Earlyvangelists”. They are also known as “Visionaries” (in book Crossing the Chasm by Geoffrey Moore). It’s important to keep in mind that you don’t have to sell out the whole stock. Making just a few deals will provide sufficient validation. Also, use feedback as an opportunity to learn and improve your solution.

Third phase is about determining your positioning. This phase an essential part of launching your product in the market and building your company. It is important to remember that positioning is what your company does to a target customer’s mind. Simply said, it provides the most effective answer to the question, “What do you do?” This question should not be answered from your point view, but from the point of view of your customer. It should clearly state what the product does for the customer, what task does it help him complete.

Fourth and last phase is verifying your validation process. This phase of the customer validation process is designed to implement what you learned in the first three phases and let you examine the progress you have made so far. The main goal at this point is to check whether you achieved your objectives for customer validation. For example, did you make enough sales to validate your value proposition? Have you discovered viable sales and business model that is sustainable? Did you develop sufficient insights to scale your business? If all of the answers are positive, you are ready to move to the next step of customer development process.

Closing thoughts on customer development process

Let me close this first part of customer development process here and keep the rest for the next post. Today you have learned what the customer development process is and what it is not. You know understand the first two parts of this process that are “customer discovery” and “customer validation”. In second part, you will learn about last two steps of the process–“customer creation” and “company building”. Until then, have a great time and practice what you’ve learned today.

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By Alex Devero

I'm Founder/CEO of DEVERO Corporation. Entrepreneur, designer, developer. My mission and MTP is to accelerate the development of humankind through technology.

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