Customer Development Model: Understanding Customer Validation
Customer validation is the second part of the Customer Development model. This phase is important because you find out whether your assumptions regarding customers are true or false. Customer discovery was all about figuring out who your customers are and how to reach them. Customer validation is about making sure that your research is correct and developing your business model to reflect that information. Essentially, if you can validate your customer related assumptions then you have potentially found customers who will buy your product.
In this article, you will learn 1) what is customer validation, 2) what assumptions you need to validate, 3) common mistakes businesses make during customer validation, and 4) the customer validation process.
WHAT IS CUSTOMER VALIDATION
Customer validation is the phase of the Customer Development model where you obtain hard evidence regarding the possible success of your business model. You cannot just assume that customers will buy your product – even if they tell you they might! Dealing in hypothetical scenarios does not help you affirm whether you have a solid business plan. This is why you must validate all of the information that you think you know.
Customer validation proves whether your assumptions are correct before you spend too much money. This is essential for the process because it is what sets it apart from any other type of development model. According to Steve Blank, the reason that too many businesses fail is because they work based on their assumptions. Many businesses either do not know how to validate their knowledge or skip the process all together. If you do not validate your knowledge, you only push failure off into the future.
Customer validation helps you avoid building a product that no one wants. This is because it forces you to get out of the building and talk to real customers. Talking to your friends, family, industry companions and employees is fine. But they are not thinking like your customers do. They all have a vested interest in your and your business and want to see it succeed. So naturally, they do think that you have a great product.
Your friends, family and acquaintances may not actually be members of your target market. Asking their opinion is hazardous because if they think that your idea is not worth much this can be damaging to your confidence. If they are not natural customers of yours, they have no idea how much your idea is worth because you’re not solving one of their problems.
For these reasons, it is essential to get out of the building. Directing your efforts at your target customer base is more effective for your learning than talking about your product with people who might not even have the problem your product solves.
Another key benefit of the customer validation step is that it allows you to change your methods early. Iteration is key in this model and it is okay to get it wrong. Failing early is better for you because it gives you the opportunity to try again. If you fail before you have launched or shipped, you will have inevitably have spent far less money than you might have otherwise.
Finally, customer validation tells you whether customers will really buy your product. Hearing customers say that they would buy your product is nice but it is ultimately meaningless. Your customers need to actually put their money where their mouth is for this sentiment to be worth anything.
Learn more on customer validation by reading through this workshop notes.
WHAT YOU NEED TO VALIDATE
Knowing what to validate is just as important as understanding the importance of customer validation. There are three essential things that you must validate during this process. However, it is important to remember to keep each of these things separate from each other.
The first thing that you need to do is validate the market. It is important to determine your total market potential as well as the amount of that market that you may be able to reach. It is important to be realistic when validating your market because you need to make sure that the market that you serve is large enough and that there will be people willing to buy your product.
To learn more about your market, you can use several different tools. First, you might consider using industry reports for your industry as a whole to get a sense of the broader market. You can also use free tools like Google Trends to evaluate your market over time. You can also do a comparison of the traffic of competitor’s websites to figure out how many people are currently active in your market.
You should avoid market forecasts during the validation process. Many forecasts are based on assumptions. In the validation process, you are trying to avoid assumptions in favor of hard data.
You also need to validate the problem. The problem is at the heart of the validation process because potential customers would come to you to solve their problem. Solving a problem that is important to your market is what the success of your business is all about.
Validating the problem means that you need to make sure that the problem is real. It requires you to go out and speak to potential customers about this problem. When you ask customers the right questions about their problems, they will provide you with a wealth of information. At this stage, some of the most important information that you can take away from speaking to customers is what their problem really is and how important solving this problem is to them. This will also help validate your market.
Finally, you need to validate your product. This is the last thing that you should do because finding your market and solving a problem has less to do with your product and more to do with establishing the need for your product. When you are validating your product, you are trying to establish whether the product you offer complements the information that you learned when validating the market and the product.
COMMON MISTAKE BUSINESSES MAKE DURING CUSTOMER VALIDATION
Validating your customers is not easy. It is not that the process itself is complicated. Interviewing your customers with good questions is simple if you know what to look for. The hard part of customer validation is the fact that you must accept that you might be wrong. Clinging too tightly to assumptions causes people to make mistakes during the customer validation process. These mistakes can actually make all of the new information worthless to the business. This is because these mistakes will ultimately lead to the business missing out on truly valuable information.
The biggest mistake that a business makes during customer validation is when they think they know their target market. When a business thinks they know what is going on out in the real world, they are less likely to prioritize proving it. There is nothing wrong with going after hard evidence to prove your assumptions. If you are correct, there is no harm in proving it.
Another mistake that people make is that they take people’s opinions on the product as gold. Friends, family, colleagues and even customers are happy to tell you that you have a great product most of the time. This is exactly what a business wants to hear. Too often, customer validation stops when this answer is given. But this is not credible evidence that validates your customer base. There is a difference between a customer who thinks you have a great product and a customer who would buy your product. In order for a customer to buy your product, it has to solve a problem that is important to them.
Finally, too many businesses are afraid of changing their products. Whether the product is too close their heart or they are just afraid of rejection, it can be hard for businesses to hear that their product does not quite measure up. To avoid being rejected by strangers, businesses try hard to ask only the questions that they already know the answers to. This is because they want to protect themselves from disappointment or embarrassment.
Unfortunately, there’s no room for fear in customer validation. If you go out to validate your market and you are afraid of what they are going to tell you, you will naturally try to protect yourself and your business. This is incredibly common and many businesses are guilty of it. But in order for customer validation to work, you need to be comfortable with the possibility that you are wrong.
Being wrong is perfectly fine. No one is right all the time. It is better to be wrong before you’ve spent all your money on a product that nobody wants. At least then you have a chance to start again.
THE CUSTOMER VALIDATION PROCESS
Once you understand the importance of customer validation, the methods that you use to make the process work will begin to make more sense. Using a methodology for the customer validation process is essential because without a plan, you cannot measure your results. Your data is worthless if you can’t examine the context in which you obtained it. You might consider using the following process when you are going through customer validation.
Your hypothesis is a summary of everything that you assume about your market, their problem and your solution.
You might take Coke Zero’s hypothesis as an example. Coke Zero sees its target market as men between the ages of 18 and 25. They believe the problem that this market has is that they want to cut calories but they don’t want to drink Diet Coke for various reasons like taste and the “diet” label. The solution to this problem is a new product: Coke Zero. Coke Zero offers a low calorie product with a different taste and brand association than Diet Coke has.
What Coca Cola should do in this case is develop questions targeted to these customers regarding this problem. They could then return to the hypothesis for comparison later to see whether or not they were right about their assumptions.
You need to figure out the channels that you will use to reach your customers. These may be paid or free channels. However, you should not consider big advertising strategies yet. You are looking for customers who are looking for you.
Coke Zero is designed for male millennials. Coca Cola had the budget to take its new product right to the customer. As a result, Coke Zero used cross-channel marketing to create engagement with customers. Coke Zero also focused heavily on getting out of the building by showing up at rock concerts, college sports games and other places where they were likely to find their target market. They took the opportunity to arrange taste tests at these events but also gather large amounts of data from potential customers.
Of course, Coca Cola has a budget that is equivalent to the GDP of a small country. Therefore, they have a lot of channels available to them even in the product launch phase. But this is a good example of ways that you can use certain channels, or a combination of channels to get right to where your potential customers live.
Sell to Early Customers and Product Evangelists
Early customers will be validating everything you think you know about your business model by spending their money with you. They will also be validating your unique selling proposition.
Your early customers can become your product evangelists if you are solving their problems well. However, in order for them to become product evangelists, you need to give them the tools to help you sell your product for you. Many of those tools will be set up online.
There are few things that you need to have set up online to help your early adopters spread the word about your product. All of these should be built into your product website:
You need a landing page for your product. Your landing page is where you can really excite potential customers. You can also include a demo of the product. Of course, you also need a strong call-to-action to convert your traffic into real customers.
You also need a price page. It is important to forget about the sales advice that you heard about putting price off until the last moment. Online customers want transparency and this includes adding a breakdown of how much your product costs.
- Do not just include a pricing page and leave it at that. This works for companies like Apple but few businesses will ever have this kind of luxury. You will want to soften the blow for new buyers by offering free trials, guarantees or even discounts.
- Avoid giving your products away for free. Giving away free products only works well for social media companies like Spotify where the number of users they have is more important than revenue. Besides, the point of the customer validation phase is to prove that people will buy your product, not accept it when you give it away for free.
Finally, you need a sign up page to convert traffic into to potential customers. This needs to be relatively painless and include very few steps. It is a good idea to set up your registration page to be compatible with Facebook or Google+ (to capture Gmail accounts). This allows customers to register with the click of a button.
Your sign up page is a valuable tool. Some of your market may not be ready to dive in immediately but that does not mean that they are not valuable. When they become more familiar with your name through association, they will remember that they discovered your business early. This will add legitimacy that will influence purchasing decisions significantly.
Increase Your Spending
If your initial sales are successful, you can also begin loosen up your wallet at this point. Once you know that your market is real and their problems are important to them, it is okay to begin to push sales and marketing further. Customer acquisition costs money and it is okay to spend money here once you’ve validated your key assumptions.
However, this is not yet the step where you begin growing your business. Increasing your burn rate to the scale of company building is not yet relevant here because you have not optimized your process. Ramping up your marketing and sales efforts is great at this step. But do not start looking for new office space in New York, London and Sydney just yet.
You have learned a lot about your customers and your product by this point. You need to take this information and learn from it to make your product and methods better than ever. Even if it is measured and analyzed, customer data is useless if you don’t learn from it! Take what you’ve learned thus far and make changes or corrections to your strategies.
Iteration is key in both the customer validation process and the Customer Development model as a whole. Optimizing your product for the wider market will usually take several iterations.
Iteration is good and does not just take place while the product is being developed. You will need to make changes as your market grows and changes. You can even hold on to old models to see if they work somewhere down the line, even if they don’t work right now.
Customer validation is an essential step for the Customer Development model. However, it will be useless if you do not approach it with an open and inquisitive mind. The methods, money and efforts used to gain valuable customer insight will be useless if you still believe that you know what is best for your customers. This is a valuable time to learn from the most important people in your business: your customers. Remember that you might have a great product but if you do not have any customers, you do not have a business.
In the first three steps of the Customer Development model, you focused on learning more about your …