The Customer Development Model

Steve Blank

Stanford School of Engineering /

UC Berkeley, Haas Business Schoolwww.steveblank.com

Eric Ries

The Lean Startup

Startuplessonslearned.blogspot.com

More startups Fail from a Lack of Customers than from

a Failure of Product Development

Conundrum

• We have process to manage product development

• We have no process to manage customer development

An Inexpensive Fix

Focus on Customers and Markets from Day One

How?

Build a Customer Development Process

Concept/Bus. Plan

Product Dev.

Alpha/Beta Test

Launch/1st Ship

Product Development

Customer Development

? ? ? ?

Customer Development and Product Development

Concept/Bus. Plan

Product Dev.

Alpha/Beta Test

Launch/1st Ship

Product Development

Customer Development

CompanyBuilding

CustomerDiscovery

CustomerValidation

Customer Creation

Customer Development: Key Ideas

• Parallel process to Product Development (agile)

• Measurable Checkpoints

• Not tied to FCS, but to customer milestones

• Notion of Market Types to represent reality

• Emphasis is on learning & discovery before execution

• Stop selling, start listening– There are no facts inside your building, so get outside

• Test your hypotheses – Two are fundamental: problem and product concept

Customer Discovery: Step 1

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

Customer Discovery: Exit Criteria

• What are your customers top problems?– How much will they pay to solve them

• Does your product concept solve them?– Do customers agree?

– How much will they pay?

• Draw a day-in-the-life of a customer (archetypes)– before & after your product

• Draw the org chart of users & buyers

Customer Validation: Step 2

CustomerDiscovery

CustomerValidation

Customer

Creation

CompanyBuildin

g

• Develop a repeatable and scalable sales process

• Only earlyvangelists are crazy enough to buy

Customer Validation: Exit Criteria

• Do you have a proven sales roadmap?– Org chart? Influence map?

• Do you understand the sales cycle?– ASP, LTV, ROI, etc.

• Do you have a set of orders ($’s) validating the roadmap?

• Does the financial model make sense?

Sidebar

Market Type

New Product Conundrum

• New Product Introductions sometimes work, yet sometimes fail– Why?– Is it the people that are different?– Is it the product that are different?

• Perhaps there are different “types” of startups?

Three Types of Markets

• Who Cares?• Type of Market changes EVERYTHING• Sales, marketing and business development

differ radically by market type• Details next week

Existing Market Resegmented Market

New Market

Type of Market Changes Everything

• Market– Market Size– Cost of Entry– Launch Type– Competitive

Barriers– Positioning

• Sales– Sales Model– Margins– Sales Cycle– Chasm Width

Existing Market

Resegmented Market

New Market

• Finance• Ongoing Capital

• Time to Profitability

• Customers• Needs

• Adoption

Definitions: Three Types of Markets

• Existing Market– Faster/Better = High end

• Resegmented Market– Niche = marketing/branding driven– Cheaper = low end

• New Market– Cheaper/good enough can create a new class of

product/customer– Innovative/never existed before

Existing Market

Resegmented Market

New Market

So What Does Engineering Do?

Problem: known Solution: known

Waterfall

Traditional Product DevelopmentUnit of progress: Advance to Next Stage

Requirements

Design

Implementation

Verification

Maintenance

Problem: Known Solution: Unknown

“Product Owner” or in-house customer

AgileUnit of progress: a line of working code

Problem: Unknown Solution: Unknown

Product Development at Lean StartupUnit of progress: validated learning about customers ($$$)

Minimize TOTAL time through the loop

IDEAS

CODEDATA

BUILDLEARN

MEASURE

So What Do I Do?

Really

First Steps

• Fact-based culture, built to learn• Decide on business model

– What are the "fundamental drivers of growth”

• Create a decision loop (build-measure-learn)

• Write your hypotheses down (3 diagrams)– Business model, distribution channel, demand creation

• Prove it in micro-scale

Execution

• Relentless execution• Team needs to be true believers not employees • Focus on the few things that matter • Don’t confuse your hypothesis with facts• Continuous customer contact • Only you can put your company out of business

General Principles

• If you think entrepreneurship is about the money become a VC

• If everyone else thinks it’s a bad idea that may be a good sign

• The better your reality distortion field the more you need to get outside the building

• Ethics and values are about what you practice when the going gets tough

Further Reading

Course Text at: www.cafepress.com/kandsranch

Blogs www.steveblank.com

http://startuplessonslearned.blogspot.com/

There’s much more…

IDEAS

CODEDATA

BUILDLEARN

MEASURE

Code FasterUnit Tests

Usability TestsContinuous Integration

Incremental DeploymentFree & Open-Source Components

Cloud ComputingCluster Immune System

Just-in-time ScalabilityRefactoring

Developer Sandbox

Measure FasterSplit TestsClear Product OwnerContinuous DeploymentUsability TestsReal-time MonitoringCustomer Liaison

Learn FasterSplit TestsCustomer InterviewsCustomer DevelopmentFive Whys Root Cause AnalysisCustomer Advisory BoardFalsifiable HypothesesProduct Owner AccountabilityCustomer ArchetypesCross-functional TeamsSemi-autonomous TeamsSmoke Tests

Funnel AnalysisCohort Analysis

Net Promoter ScoreSearch Engine Marketing

Real-Time AlertingPredictive Monitoring

Thanks!

• Startup Lessons Learned Blog– http://startuplessonslearned.blogspot.com/

• Webcast: “How to Build a Lean Startup, step-by-step”– May 1, 2009 at 10am PST– http://www.oreillynet.com/pub/e/1294

• The Lean Startup Workshop– An all-day event for a select audience– May 29, 2009 in San Francisco– Sign up at: http://bit.ly/a5uw8