Customer Development Model: Understanding Company Building
In the first three steps of the Customer Development model, you focused on learning more about your customers and validating your assumptions. You then learned how to capture some early customers in order to prepare yourself for creating your market and your product demand. All of this was absolutely essential for moving into the final phase of the Customer Development model: company building.
Company building is the final step of Blank’s process for a reason. When the majority of businesses begin the company building phase before they have understood their markets and their customers, chaos ensues. This chaos then results in a death spiral for too many startups.
In this article, we explore 1) what company building is, 2) how to build a mainstream customer base, 3) building company’s infrastructure to scale, 4) the stages between a startup and large company, and 5) the four phases of company building.
WHAT IS COMPANY BUILDING?
Company building occurs only at the end of the Customer Development model. This is when the business can transition from a startup that is focused on learning and discovery into a fully-fledged business. This business will include formal departments and a scaled business development model. It is only at the end of the Customer Development model when a company can begin to appoint departments that potentially include a Vice President of Sales or a Vice President of Marketing.
When these departments have been opened, the executives that lead then can move away from a learning and discovery methodology and towards a mission-oriented method. This mission-oriented method helps the company exploit the information that it validated during the first three steps of the Customer Development model.
The reason that company building occurs now is because your startup needs to understand its place among its customer and in its market. If you build your company too quickly, the end result is often burning through all of your cash. Without cash or the knowledge you would have gained in the first three steps, it is nearly impossible to save your company from self-imposed destruction.
To begin to build a company from an organization that is learning about customers and markets into a company that is attracting mainstream customers, you will need to do three things:
- You will need to begin to build your mainstream customer base that extends beyond the initial early adopters.
- You will need to ensure that this building also occurs within the company. You need to build the management, organization and company culture to support your new growth.
- You will need to create departments that are nimble enough to respond quickly to the company’s growth. The goal is to have formal departments that can pivot and turn as quickly as you did during the learning and discovery phases that preceded company building.
At the end of the day, company building is only successful if it is consistently flexible. Once it begins drawing in its mainstream customer base, it cannot become complacent. It must remain as flexible and alert as it was before it began to grow.
Watch this talk of Steve Blank discussing how to build a company.
BUILDING A MAINSTREAM CUSTOMER BASE
It sometimes seems like the only difference between your startup and your competitors established business is revenue. This is not true. Your revenue does not just come from a large number of sales. It comes from understanding your business, marketing and sales strategies within the market context that you operate in.
These strategies should all be based on the Market Type that you focused on in customer creation. New market sales growth is distinctively different to sales growth in an existing market. Even when you have moved beyond customers and into the mainstream market, you will still see different rates of adoption because of the nature of the market.
As a result, everything you do in this stage depends on your market type. The staff you hire and the money you spend will depend on the market you are in. But understanding your market type does not necessarily mean that your work is over.
If you followed the model correctly, you determined your market by seeking out early adopters for your product. But the transition between selling to early adopters and selling to a mainstream market is not as fluid as you might assume. There is almost always a gap between the early adopters and the mainstream market. This gap will vary depending on the market type that you are in.
BUILDING THE COMPANY’S INFRASTRUCTURE TO SCALE
As sales grow, the company itself will need to grow with it. Growth rarely occurs without change. Two of the most important changes that will occur in the company building phase include a change in the corporate management and corporate culture. There is also change that comes from the creation of functioning departments.
The first changes will occur in the corporate management of the company. The management changes should also include a development of company culture. Many startups think of company culture in terms of whether or not they should wear jeans to work. They assume that as they grow, they must then turn into a top-down large scale operation with an execution mindset.
This is a problem because it often results in a bureaucracy being established far too early. Just because you are mimicking a large, successful company does not mean that you are one. This is actually dangerous. Imposing this kind of change before a company has grown can actually inhibit its growth. If you tried to do this when you initially started the company, the company would have never been able to get off the ground. The change that occurs here is the change discussed earlier. This is where the company begins to adopt a mission-centric culture.
In a mission-centric culture, all of the new leaders and executives that you have appointed must realize that the work is not yet complete. At this point, the mainstream market is still an uncertain place. Focusing on organization over the mission itself can stifle the innovation, creativity and mobility that you need to not just mimic a large business but to become one.
The second changes will occur when you create functional departments to support the management. These departments are important because it is important to divide up labor at this point in the company. However, these departments should not just be created because you believe that every good company needs them. At this stage, it is important to create the departments that make the most sense for your business. When you do this, you will help ensure that these departments are not only functional but helpful for your business.
THE STAGES BETWEEN A STARTUP AND LARGE COMPANY
In his book, Steve Blank created an outline that described how companies transform from startups to large organizations. There are three primary stages in this outline: Customer Development, Company Building and Large Company.
Stage One: Customer Development
Stage one is the stage where a startup will undertake the first three phases of the Customer Development model: customer discovery, customer validation and customer creation. This stage focuses on both customer development and product development.
Stage Two: Company Building
Stage two is the company building phase of the Customer Development model. This is, again, where the company moves form the learning and discovery activities and becomes a mission-centric organization.
To make the leap between company building to becoming a large company, you have to maintain the speed you has a startup but with a larger number of staff.
In order to do this, the mission of the company must remain clear.
This is why installing a top-down management system or a bureaucracy in a company too early can be bad for the company. You can hire as many staff as you can afford. But if they are not all working towards the same goals via the mission, you will struggle to keep your forward motion.
You will find that you get bogged down in a process heavy infrastructure instead. Creativity and innovation can be strangled by bureaucracy if you are not careful. This is why you need to make sure that the organization that you have built thus far is justified.
Stage Three: Large Company
This stage is about building departments. But you need to justify the department’s existence with your mission before you build it. There needs to be a clear and strategic need for a role or department before you add it.
Building a large company does not mean that you need to replicate a model. You need to build a company that makes sense for your mission. In this case, your mission serves as your strategy.
The difference between a large company and a startup is not bureaucracy. It is process. Many entrepreneurs believe that you do not need a process for innovation or success. But a process is necessary for building a large company.
Instead of building a company from a cookie cutter outline, entrepreneurs can build “fast-response” departments. These departments offer a process without the stagnation that becomes characteristic of a tangled bureaucracy or a top-down management system.
These “fast-response” departments allow you to keep the speed and agility of your early days. Yet, it still allows you to keep the organization and process that any large company needs.
THE FOUR PHASES OF COMPANY BUILDING
All of what you read so far can be broken down into four succinct phases of company building. Each of these four phases are necessary for the successful transformation of a startup into a large company. It is important to keep both the mission and the process in mind as you move through each of these four steps.
Phase One: Reach Out to Your Mainstream Customers
In the first phase of company building, you are working to adapt from selling only to early adopters to your mainstream customers. You will do this by hiring new sales staff according to the sales growth curve that you are experiencing.
You also need to notice the subtle and distinct differences between your early adopters and your mainstream customers.
For example, most early adopters want an immediate solution to a difficult problem. They are more often than not looking for a revolutionary solution to their problems. They will be able to withstand minor flaws in the product, as long as it does its job.
These early adopters will also rely on other early adopters for advice regarding products and solutions.
Mainstream customers, however, are pragmatists. They have a problem. But they do not want to be disrupted by a revolutionary solution. Instead, they look for evolutionary solutions. They do not want minor flaws. They want use to be straightforward, simple and reliable.
Mainstream customers rarely have any interest in what early adopters have to say about a product. They want reviews and references from other buyers who are just like them. In other words, they want to hear from other pragmatists.
Reaching out to your mainstream customers is an essential part of company building. It can be easy to get comfortable with a small group of loyal, early adopters. In fact, it may feel more satisfying to have a small number of customers that you know that you can count on.
The problem is that you can and will eventually exhaust this market. It is important to remember that they are visionaries. They are always looking for the next big thing. Holding their attention for very long is a Herculean feat.
Adopting your strategy to pull in mainstream customers is an important part not only of company building but of survival. It requires that you take more risks. However, these risks are not as scary as they sound.
The far bigger risk is not trying to understand how to reach the main market or, even worse, seeing the main market but neglecting to adopt your sales strategy.
Phase Two: Review Your Current Management and Create Your Mission
In the second phase, you will take a hard look at the staff you have hired thus far. It is important to determine whether the staff you have can grow to scale. This does not mean assessing whether you have enough people, per say. It means that you need to be sure that everyone is working seamlessly on the same mission.
This unity is essential for scaling your company. You can hire as many people as you can afford. But if everyone in your company is running in a different direction, they will seriously hinder your growth.
This phase requires that you do something that you have rarely done thus far on your journey. In phase two, it is important that you look inward at your company.
To do this, you will often ask the board of your company to review both the CEO and the executive staff that you have appointment.
What you need to succeed during this phase of your company is not charisma. You need leaders who are pragmatic, resilient and agile. They must be able to see clearly enough to not only create a compelling vision but to find their way down a path according to that vision.
What distinguishes this revision is not looking at the staff’s track record. This review needs to focus on the future. It must look at what the leaders of the company are capable of in the future.
In some cases, past successes actually indicate future failures. It is important to distinguish this before these failures happen.
When you know that you have the right people, you can then begin to focus on growing company culture.
This culture includes stating your corporate mission which consists of four main elements:
- Your mission needs to state what your employees are working for.
- Your mission needs to state what they are supposed to be doing while they are at work.
- Your mission needs to state how your employees will know that they have succeeded.
- Your mission needs to describe both your revenue goals and your profit goals.
Phase Three: Begin Your Transition to Functioning Departments
Phase three allows you to begin to use all of the learning that you did in the first three steps of the Customer Development model. By now, you will know a lot about building repeatable sales. You will also have knowledge about your channel roadmaps.
The reason that this stage comes third in the process is because you need good people on your side in order to implement it correctly. You cannot scale without the right people in place.
This is where you begin to set up your departments according to your mission statement and your strategy. Remember that having a process and a mission is key for setting up departments. Arbitrary departments waste time and burn money.
Before these departments take shape, you must state what these departments do. This means that you need to create and write down goals for each department.
A great way to do this is to create another mission statement for each of your departments. These mission statements should complement the overall mission statement. However, they should be finely adapted to each specific department.
You can find some insights on the benefits and how to structure your organisation in the following slides.
Phase Four: Maintain Your Moment with Agile Departments
In the last part of company building, you will ensure that everything that you have built thus far is agile, scaled and capable of being a “fast-response” department.
There is nothing worse than creating a department that must answer to another department. Especially when the second department must wait for an answer from someone else who makes the “big decision”. This is incredibly dangerous for any company that is trying to grow.
This is sometimes referred to as “executive leadership”. Admittedly, this works for some companies. But as a general rule, employees on the ground often make better decisions than executives who are detached from the daily situation on the ground.
To combat this, you want to create a culture that is mission oriented. You also want a decentralized management style that does not rely on a seal of approval from the CEO in order to make small decisions.
This management style will speed up decision making. In turn, it will allow the company to operate in a “fast-response” and agile manner. These are both of the things that you are working for at this point in your growth.
You also want to work on creating a culture that values information gathering and sharing. This culture should naturally also be a culture that promotes leadership.
This is because success it not just determined on the information that executives find. You need the whole company to be working for information and solutions.
All of this comes down to creating a culture in which people trust each other. The executives must trust their employees in order for employees to trust to executives. It is only when there is mutual trust and cooperation that true leadership can really happen.
Finally, you must remember that while the formal learning process is over, you are never really done learning. If you want to continue to grow successfully, learning will be an ongoing process for your company.
Staying Alive after Customer Development
The Customer Development model is a pathway to success for many businesses. But not every business that successfully completes the model manages to see long-term growth or success.
To make it out of the Customer Development model alive, you need to remain alert and focused. You need to make sure that your company responds to changes in your market, customer and competition.
Companies that become stagnant are companies that fail. Waiting too long can make you irrelevant in your market and can change your customer’s perception. This can be a death sentence in today’s markets. The only thing that is constant in your company should be change and your reaction to change.
In order to be successful both in business and in life, entrepreneurs must realize that success is not a condition. Success is a process. Rather than searching for an end point on a map, a successful company will mark milestones along a path that only ends should the company be dissolved.
Company building comes at the end of the Customer Development model for a reason. Without all of the information that you have gleaned from the first three phases, company building simply isn’t possible. Trying to create a large organization without a market, customer base, product or a great team will almost always result in the failure of any company.
What any entrepreneur can take away from the Customer Development model is that building a business is a process. From beginning to end, you need a process and goals that match each other. Success does not happen in vacuum. It happens to those who methodically seek it, prove it and then continue to seek it once more. To end, you need a process and goals that match each other. Success does not happen in vacuum. It happens to those who methodically seek it, prove it and then continue to seek it once more.