What is Customer Development?
Steve Blank coined the term “customer development” to describe a process for gathering customer feedback about product, channel, price, and positioning. At its core, customer development is a continuous feedback loop that is constantly running in parallel with product development. The goal is to receive feedback from customers and use it to improve the product. It is a highly iterative, non-linear process aimed at finding a repeatable and scalable business model.
According to Cindy Alvarez, “customer development is a hypothesis-driven approach to understanding:
- Who your customers are
- What problems and needs they have
- How they are currently behaving
- Which solutions customers will give you money for (even if the product is not built or completed yet)
- How to provide solutions in a way that works with how your customers decide, procure, buy, and use”
Get Out of the Building
- Failed startups often build products based on the founders’ initial hypotheses. They successfully execute the “business plan,” failing to realize that they built a product nobody wants. Hypothesis is just a fancy word for “guess”. Customer Development recognizes that we need to turn guesses into facts, validating every aspect of the business model with real customers. As our initial hypotheses turn out the be wrong, we need to get back to the drawing board and modify our business model accordingly.
- At the end of the process, we can be confident that we have built a product that a large number of customers will buy. —> at that point, we achieved “product-market fit.”
- “Getting out of the building means acquiring a deep understanding of customer needs and combining that knowledge with incremental and iterative product development.”—Steve Blank
Misconceptions About Customer Development
- Customer development is not just for startups. Established companies can also benefit from this process.
- Customer development is not product development. The two processes are complementary. “Product development answers the question “When (and what) can they buy?” Customer development answers the question “Will they buy it?”—Cindy Alvarez
- Customer development does not replace product and/or company mission. Everything starts with the founders’ vision. Customer development is the process of continuously refining and redefining that vision based on customer feedback and iterating until we build a product or service customers will buy.
The Four Phases of Customer Development
STEP 1: Customer discovery
In the customer discovery phase, we test the customer problem and our proposed solution.
- Are customers aware that they have a problem? Are they actively trying to solve that problem?
- Does our solution elegantly solve customers’ problem or fill their need? Will our proposed solution persuade lots of customers to buy?
When customers have a significant problem or a must-have need AND they enthusiastically confirm our solution the customer discovery phase is complete. —> At this point we achieved PROBLEM/SOLUTION FIT.
STEP 2: Customer Validation
Customer validation confirms that we have a repeatable and scalable business model. It proves the existence of a set of customers who accept our solution and validates serious purchase intent among those customers.
STEP 3: Customer Creation
“It’s where the company steps on the gas, spending large sums to scale by creating end-user demand and driving it into the sales channel.”
STEP 4: Company Building
At this point, the organization is no longer a startup. It found a repeatable and scalable business model, transitioning from “search” mode to “execution” mode. The unstructured and cross-functional startup environment becomes a structured one with functional departments, such as marketing, sales, etc.
Source: Patrick Vlaskovits, and Brant Cooper: The Entrepreneur’s Guide to Customer Development
- Customer Development is a process for gathering customer feedback about product, channel, price, and positioning, all of which can be modified and tested in near-real-time.
- There are no facts inside your building, so get the heck outside.
- Validate every aspect of the business model with real customers. Iterate continuously, and redefine your business model based on customer feedback.
- “If you don’t learn what customers really want, you’re at a very high risk of building something that no one wants to buy.”—Cindy Alvarez
- In today’s ever-changing marketplace, customer development is an essential tool for any business that wants to succeed.
- Blank, Steve, and Dorf, Bob. The Startup Owner’s Manual: The Step-By-Step Guide for Building a Great Company. United Kingdom, Wiley, 2020.
- Alvarez, Cindy. Lean Customer Development: Building Products Your Customers Will Buy. United States, O’Reilly Media, 2017.
- Blank, Steve. The Four Steps to the Epiphany: Successful Strategies for Products that Win. United States, Steve Blank, 2013.
- Vlaskovits, Patrick, and Cooper, Brant. The Entrepreneur’s Guide to Customer Development: A “cheat Sheet” to The Four Steps to the Epiphany. United Kingdom, Cooper-Vlaskovits, 2010.