Customer Development

You have a great idea and write a business plan. You get funding and build a team. You work and work and work and finally build something. But when you launch your product or service, no one comes!

This is a typical problem faced by start-ups: to be completely focused on product development.  What start-ups need is a parallel process of customer development to reduce the risk of building the wrong thing.

At its core, customer development is about getting out of the building (and your head) and testing your core business assumptions with actual customers.  Few business plans survive first contact with the customer, so you should discover and validate your customer while developing your product.

At a high level, Customer Development is about questioning your core business assumptions. In other words, Customer Development teaches that rather than assume your beliefs about your business to be true, you should apply an engineering, or scientific method, to what is really not a scientific endeavor (building a business), in order to validate the ideas.

The primary advantages of implementing the framework are that you don’t spend gobs of money discovering what works, but rather save the money for executing and scaling what you have already shown to work. An organization applies a learning process, rather than merely executing what you assume to be the right business model.  If implemented properly, Customer Development helps a business become highly focused, capital and resource efficient, and while not a guaranteed success, more likely to find Product-Market Fit and market traction.

- Brant Cooper, Author of The Entrepreneur's Guide to Customer Development

Pioneered by Steve Blank in The Four Steps to the Epiphany, customer development follows 4 stages: customer discovery, customer validation, customer creation, and company building.  These stages give entrepreneurs a framework to keep the appropriate customer focus.  For example, the most common mistake internet start-ups make is to scale (Stage 3) before finding product / market fit (Stage 2).  Customer development keeps start-ups focused on customers, their source of survival.

I created the following table to simplify the 4 stages of customer development:

Stage Definition Goal Key Question
1. Customer Discovery A specific product solves a known problem for an identifiable group of users Problem / Solution Fit Do I have a problem worth solving?
2. Customer Validation The market is saleable and large enough that a viable business might be built Product / Market Fit: find a repeatable and scaleable business model Have I built something people will pay for?
3. Company / Customer Creation The business is scalable through a repeatable sales and marketing roadmap Scale How do I accelerate growth?
4. Company Building Departments and operational processes are created to support scale Sustain Growth How do I support growth?

Customer validation is often the most difficult and important stage in determining the success of a startup.  Getting through this stage means getting your first customers and identifying a scaleable business model.  If you are unable to find product / market fit, you must pivot and test a new business model, potentially with a new market segment.  This could necessitate going back to Stage 1, Customer Discovery.  Yes, a pain.  But the principle here is that your precious resources should be spent on getting product / market fit right first, not on scaling efforts with an unknown business model.

I have found customer development framework useful for asking the right questions – and taking the right action – at the right time. Customer development is about building while testing your assumptions, instead of blindly “just doing it” or sticking with a business plan whose world or assumptions are no longer valid.

Figuring out the right thing to build is the most important task of start-ups. This can only be done by “getting outside the building” and testing your value hypothesis with actual customers as soon possible.

Reading List

Steve Blank, The Four Steps to the Epiphany
Brant Cooper, The Entrepreneur’s Guide to Customer Development

Web

Brant Cooper’s summary of customer development  (author of The Entrepreneur’s Guide to Customer Development)
Eric Ries’ summary of customer development (author of The Lean Startup)
Steve Blank  gives a lecture about customer development. (Audio, Slides, Videos)
Ash Maurya's Customer Development Checklist for a Web Startup (Discovery, Validation)
Acquire Convert's Customer Development for Copywriting