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?
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:
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.
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:
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:
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?
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:
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.
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.
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.