Mateusz Rączka

Customer Development From The Inside Out

Customer Development process

The days of linear product development and launch are long behind us. Today, in many industries, competition is formidable and products are multitudinous. Therefore, in order to build a profitable business it is already worth inviting the most important person in the business plan – the customer – into the process of inventing and constructing the product. This is the essence of Customer Development. What does building a great company look like step by step?

Introduction – Linear Product Development vs. Lean Customer Development

Most people have a very simple, cascading model in their minds for building a business:
  • someone comes up with an idea for a product or service (Concept);
  • builds their solution (Development);
  • tests that everything works (Testing);
  • finally, launches the product or service, kicks off advertising and sales (Launch).
And usually somewhere along the way, a company is founded. This, at first glance, common-sense model has two very serious flaws:
  1. We rely primarily on unverified assumptions that we know what the customer's problem is and how to solve it.
  2. We focus on executing our plan step by step, instead of learning and making changes on an ongoing basis.
Such an approach is a simple recipe for sinking significant resources into developing something for which... there will be no takers. Or willing ones will be found, only without the willingness to pay for the solution offered.
Development Process

Today, few are willing and able to afford such a risk. That's why lean startups have been using the Customer Development model for more than 20 years – an entire process that organizes the search for an effective, scalable business model. What makes Customer Development different from the cascading process? A person can acquire new knowledge and skills by cramming – repeating them aloud again and again or reading a passage repeatedly. However, they are acquired much more effectively by applying the Kolb's cycle:

  • outlining the theory (e.g., according to books – fire burns);
  • putting it into practice (so how I put my hand to the burner);
  • experiencing the results (and I will burn my hand);
  • drawing conclusions (that's what I'll remember for the rest of my life, that fire burns).

In an identical way, Customer Development revises the hypotheses made in business at each stage of development. All this is done to weed out incorrect assumptions, draining time and money, as quickly as possible, and to nurture and develop pertinent ideas. And in all this, our compass, polar star and reference point is the customer.

Customer Development approach

Stage 1 – Customer Discovery – Discovering The Ideal Customer & Product

Our journey begins with a long-term process of designing a business model (Business Model Design). The idea born in the founder's head is transferred to a piece of paper, such as the Business Model Canvas recommended by Steve Blank. At the stage of market reconnaissance (Customer Discovery), we build a first, hypothetical, idealistic business model. What we will do, for whom, how we will deliver it and how we will make money from it. While a standard business gets down to building a product right away – a business using the Customer Development method immediately sets out to meet a potential customer. For what purpose? To recognize the market. Market reconnaissance is needed to confirm and better understand the problem facing the audience and whether the product or service actually solves that issue. It is a good idea to prepare an action roadmap.
  • We prepare the two types of conversations we will have – about the customers' problem and then about the solution. We gather answers to what problems our potential customers are facing. Are they actively seeking solutions to these problems?
  • Suggested methods are face-to-face meetings and structured interviews of an open, conversational nature.
  • Creating a database of potential customers and updating it regularly, or at least developing personas to provide us with information.
Market verification carried out in this way gives us enough qualitative information to make a decision – whether we continue to work on the product in its current form, or whether it is necessary to make a pivot (a deep, significant change in the product or business model). This stage is when the startup founders are closest to their „baby” – they operate on a small scale, based on qualitative information from a relatively small number of customer interviews. The goal of this stage is not to make money, but to test ideas and find a successful business model. Is outside help needed at this stage, or is it possible to delegate certain tasks? When our baby is taking its first steps – the presence of parents (founders) and their personal involvement is essential. What you can do is:
  • consult with more experienced startups and benefit from their experience (in 1-on-1 meetings or various events);
  • nlist the help of consultants to support us in Customer Discovery;
  • hire freelancers or an agency to organize customer meetings, summarize and draw conclusions, perform surveys, etc.
Customer Development methodology: Customer Discovery

Stage 2 – Customer Validation – The Sales Machine Is Running!

Have you successfully validated your hypotheses about the problem and its solution, and collected a lot of valuable information about your real customers? Does your product prototype (MVP, Minimum Viable Product) solve the given problem effectively enough to convince your audience and encourage them to buy? Congratulations! Not many startups get this far. Having already got the sparrow in the hand (small, but able to fly), we can prepare to attach bigger wings to it. We are entering the market verification (Customer Validation) phase.

Market Validation is the time to test the defined business model and evaluate its repeatability and scalability. This is the time when:

  • we refine the sales funnel and its various elements;
  • we look for more early adopters (people eager to buy an imperfect product and promote it to their friends);
  • we are honing our positioning;
  • we conduct more advanced tests on a larger scale, and the nature of these tests slowly changes from qualitative to quantitative.

At the second stage of the Customer Development process, our „sparrow” catches early traction. If the business model developed makes sense, the number of orders and revenue slowly and steadily increase. For our „bird” to soar higher and higher, we usually need to expand the team with:

  • an analyst;
  • a technical marketer – to help build the sales funnel (or as we call it in Growth Marketing, a growth engine);
  • a content person (graphics, copywriting);
  • salesman;
  • additional marketing, sales, analytical, business advisors (e.g., Skalski Growth).

What kind of competencies should they have? At such an early stage of development, it is good to have versatile people on board, capable of performing several roles. This way, instead of five separate specialists, we only need two or three. Thus, we save our startup money, and invite on board innovators capable of finding unconventional solutions.

Still, the Customer Validation stage is a stage of exploration, just like Customer Discovery. So it is necessary to keep a close eye on customer reactions to our product and how our business model behaves all the time. We are constantly answering the same questions as in the previous phase – do we continue the work, or is a pivot needed after all?

Customer Validation – Product Development process vs. customer's problems

The Halfway Point – What Will We Get Out Of Such A Long Exploration Phase?

The first two stages of Customer Development, which every lean startup goes through, separate the wheat from the chaff. A business model tested by such a baptism of fire confirms that:
  • we have a product or service that first customers are willing to pay for – it meets, in their eyes, the requirements they set for it;
  • we know who our customers are and where to find them, and how to reach them;
  • our pricing and sales strategy has been received positively;
  • we know how to manage the company well through careful management of time and limited cash resources.

Stage 3 – Customer Creation – Keep The Heat On!

We did it! We passed through the sieve where most companies fail. We confirmed the sense of our business model. The product and team have matured and – like probably many people in their 40s – know what they want out of life, i.e. the customer value proposition has been clarified, the market and pricing policy defined, the distribution channels tested, and the sales and marketing team is confident. We are beginning the implementation phase of the business model – the „Growth” phase.

This is the time to unleash our machine, by spending specific sums to create demand among potential end users. We are drawing more and more interested parties into our sales funnel. We are expanding our network of sales channels. We are building more and more brand awareness through:

  • mailings;
  • social media;
  • website;
  • blogs, vlogs, podcasts;
  • industry and aggregation portals;
  • events (conferences, trainings, webinars);
  • traditional and online advertising;
  • partnerships with other brands and influencers.

Of course, it's not that in the previous stages we don't reach out to these solutions to reach target groups, for example. However, in the Customer Creation phase, we have much more resources at our disposal and can afford to be bolder.

In order to grow faster and faster we need more hands to work aboard our sizable „ship”. It is necessary to expand the team with more specialized employees, but the reinforcement of external experts is still advisable.

Customer Creation process – getting paying customers and receivig customer feedback

Stage 4 – Company Building – Build A Lasting Legacy

Congratulations! You are at the stage of reaping the rewards, the Company Building stage. The lean startup is transforming into a solid company, focused not on finding a customer and surviving, but on five up and executing plans. The few founders who made it here sell their mature companies at a huge profit. Others continue to build a sustainable enterprise, focused on maintaining and developing the business model developed.

Individual company departments are expanding formal structures, including a sales or marketing department. They also have their „lieutenants”, „captains” and „colonels”. For example, in marketing itself, we already have specialists in strategy, management, Google Ads, web development, social media and marketing automation. Ongoing cooperation with specialized agencies and companies (such as PR agencies) is also common.

Customer Development process: Company Building

Reaching The Target! – Summary

At ease wanderers! You have a long way behind you – occupied by many efforts, full of mistakes and frequent returns to the beginning. However, it is a wise path, because it provides you with benefits such as:
  • prudent handling of resources;
  • saving time and money from testing and avoiding wrong or poor decisions;
  • keeping your wits about you and not falling into assumptions and unsupported beliefs;
  • increasing the attractiveness of the venture in the eyes of good mentors, advisors, business partners and investors.
However, there is the other side of the coin. The Customer Development process has several drawbacks that are worth being aware of.
  • By developing a product with the help of potential customers, we may lose the element of surprise. Our competitors, for example, may hear about our product or company, which will take counter-measures and not make our business life easier. However, we are usually irrelevant to the competition in the initial stages.
  • Customer Development is a process that quickly reveals mistakes and ignorance. The proud, impatient, ignorant or overconfident experienced specialists are people who may downplay certain premises, fall into false assumptions or resist product development in a different way than they are used to.
  • Customer Development never really ends, which means that constantly validating activities and investing resources in it can become annoying and very time-consuming. Remember, however, that the ultimate verifier always remains the market and the financial viability of the venture.
Customer Development strategies for better understanding customers problems

For those of you who want to delve into all the ins and outs of Customer Development yourself and learn more – I strongly encourage you to follow our blog.

Also get acquainted with the item „The Startup Owner's Manual: The Step-By-Step Guide for Building a Great Company” by Steve Blank and Bob Dorf – a powerful volume exhausting the subject, full of helpful diagrams and checklists.

Author

Mateusz Rączka

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