3/27/10 2
Customer Development in the High Tech Enterprise
MBA 295-F/EMBA 295-F
Customer and Agile Development
Steve Blank [email protected]
Class 3: Agenda
! Logistics/Questions ! CASE: E-Ink ! Product Development ! Boyd & the OODA Loop ! Customer Development
It Started With a Question
If Startups Fail from a Lack of customers not Product Development Failure
Then why do we have: • process to manage product development?
• no process to manage customer development?
I Started Reading • Lead User Research - Von Hippel • Crossing the Chasm - Moore • Entrepreneurial Mindset - McGrath/MacMillan • Innovators Dillema - Christensen • Profitable Value - Lanning • Lanchester Strategy - Yano • High Tech Marketing - Davidow
• OODA Loop - Boyd • Question-based Selling - Freese • Solution Selling - Bosworth • Conceptual/Strategic Selling - Heiman • Spin Selling - Rackham • US Marine Corps Warfighting Manual • Tipping Point - Gladwell
Company Building
Customer Discovery
Customer Validation
Customer Creation
All We Had Was 30 Years of This
Concept/ Seed Round
Product Dev.
Alpha/Beta Test
Launch/ 1st Ship
Product Development Model
7
What’s Wrong With This?
Concept/ Seed Round
Product Dev.
Alpha/Beta Test
Launch/ 1st Ship
Product Development
- Create Marcom Materials - Create Positioning
- Hire PR Agency - Early Buzz
- Create Demand - Launch Event - “Branding”
Marketing
What’s Wrong With This?
Concept/ Seed Round
Product Dev.
Alpha/Beta Test
Launch/ 1st Ship
Product Development
- Create Marcom Materials - Create Positioning
- Hire PR Agency - Early Buzz
- Create Demand - Launch Event - “Branding”
• Build Sales Organization
Marketing
Sales • Hire Sales VP • Hire 1st Sales Staff
What’s Wrong With This?
Concept/ Seed Round
Product Dev.
Alpha/Beta Test
Launch/ 1st Ship
Product Development
- Create Marcom Materials - Create Positioning
- Hire PR Agency - Early Buzz
- Create Demand - Launch Event - “Branding”
• Hire Sales VP • Hire 1st Sales Staff
• Build Sales Organization
Marketing
Sales
• Hire First Bus Dev
• Do deals for FCS Business
Development
10 Things I Hate About Product Development
1. Where are the Customers? 2. The Focus on First Customer Ship 3. Emphasis on Execution vs. Learning & Discovery 4. No Customer-centric milestones 5. Product dev. to measure Sales 6. Product dev. to measure Marketing 7. Premature Scaling 8. Death Spiral 9. Three Types of Startups 10. Unrealistic Expectations
! Sales & Marketing costs are front loaded
" focused on execution vs. learning & discovery
! First Customer Ship becomes the goal
! Execution & hiring predicated on business plan hypothesis
! Heavy spending hit if product launch is wrong
! Financial projections, assumes all startups are the same
= You don’t know if you’re wrong until you’re out of
business/money
Chasing The FCS Date
An Inexpensive Fix
Focus on Customers and Markets from Day One
How?
Boyd’s OODA “Loop”
Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback and other phenomena coming into our observing window.
Feed Forward
Cultural Traditions
Genetic Heritage
New Information Previous
Experience
Analyses & Synthesis
Feedback
Feedback
Orient
Decision (Hypothesis)
Feed Forward
Implicit Guidance & Control
Decide
Action (Test)
Unfolding Interaction
With Environment
Act
Competitive advantage comes from quickness over the entire “loop,” not just from the O-to-O-to-D-to-A sequence.
Feed Forward Observations
Implicit Guidance & Control
Unfolding Interaction
With Environment
Outside Information
Unfolding Circumstances
Observe
Build a Customer Development Process
Customer Development
? ? ? ?
Concept/ Seed Round
Product Dev.
Alpha/Beta Test
Launch/ 1st Ship
Product Development
Company Building
Customer Development
Customer Discovery
Customer Development is as important as Product Development
Concept/ Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/ 1st Ship
Product Development
Customer Validation
Customer Creation
Company Building
Customer Development
Customer Discovery
Customer Development is as important as Product Development
Concept/ Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/ 1st Ship
Product Development
Customer Validation
Customer Creation
Customer Development Heuristics
! There are no facts inside your building, so get outside " Founders in front of customers
! Find a Market for the Product as spec’d " I.e Develop for the Few, not the Many
! Learning and Discovery versus linear execution ! Earlyvangelists make your company ! Market Types Matter
Customer & Product Development Synchronization
Concept/ Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/ 1st Ship
Product Development
Scale Company
Customer Development
Customer Discovery
Customer Validation
Customer Creation
Product Development
Concept/ Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/ 1st Ship
Product Development
But really, how does this work?
Customer Development: Big Ideas
! Parallel process to Product Development
! Measurable Checkpoints for the entire company
! Not tied to FCS, but to customer milestones
! Iterative to represent reality
! Executed by a small team including CEO
It Resulted in a Few Hypotheses
• Startups weren’t small versions of large companies • They were about learning/discovery, not execution • Entrepreneurs and their VC’s were executing on
guesses • But the facts were outside the building
Which Turned Into A Model
Concept/ Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
Customer Development
Company Building
Customer Discovery
Customer Validation
Customer Creation
+
Eric Ries Extends the Model
• Took my class at U.C. Berkeley • Co-founded IMVU
- 1st implementation of Customer Development - Paired it with an Agile Development Model
• Observed that the sum of the two was powerful
Eric Ries: Insight - 1 Startups assumed development was “known”
Solution: known
Waterfall
!"#$%&"'"()*+
,"*%-(+
.'/0"'"()123(+
4"&%56123(+
71%()"(1(6"+
Problem: known
Concept/ Seed
Product Dev.
Alpha/ Beta
Launch/Ship
• I understood the problem was unknown
• Eric observed the solution was unknown in a startup
Eric Ries: Insight - 2 Agile matches the Customer Dev speed
Concept/ Seed
Product Dev.
Alpha/ Beta
Launch/Ship
• Agile was the development methodology to use when the
solution was unknown
Solution: unknown
Eric Ries: Insight 3 Customer + Agile + Commodity = Lean
Problem: Unknown Solution: Unknown Source: Eric Ries
• Solving for both unknowns is the “Lean Startup”
Jon Feiber @ MDV Insight Not all Need Customer Development
• Market Risk vs. Technical Risk? - Web is about customers & markets - Biotech is about science & invention
John Boyd - Insight The OODA “Loop”
Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback and other phenomena coming into our observing window.
Feed Forward
Cultural Traditions
Genetic Heritage
New Information Previous
Experience
Analyses & Synthesis
Feedback
Feedback
Orient
Decision (Hypothesis)
Feed Forward
Implicit Guidance & Control
Decide
Action (Test)
Unfolding Interaction
With Environment
Act
Feed Forward Observations
Implicit Guidance & Control
Unfolding Interaction
With Environment
Outside Information
Unfolding Circumstances
Observe
Iteration versus Execution
Customer Discovery
Customer Validation
Iteration
The Search for a Business
Company Building
Customer Creation
Execution
The Growth of a Business
Product/Market Fit
Iteration versus Execution
Product/Market Fit
Business Model Affects Metrics and Exit Criteria