Difference between Customer Development and Product Development
In this article, you will learn about 1) the product development model, 2) the customer development model, 3) the downsides of the product development model, and 4) where the customer development model is superior.
Every company that offers a product to the market needs to use some kind of product development process. Without this process, there would not only be no product but there would be no funding for the product. Having a model for the engineering and production of a new product is essential for the actual creation of the product.
But what about a model for developing a customer base? The truth is, too many startups either wait until too late in the game to get started on a process for finding their market. Some startups never bother to create a customer at all. The result is that they bring a product into the wrong market. Then, companies must desperately work to purchase customers until they eventually run out of money.
Worse still, many companies will use their product development model to try to grow their customer base. Not only does this not work but the product development is not a substitute for the Customer Development model because they work differently.
It is important to understand the differences between product development and customer development. But it is also important to understand how these two processes can work together to help create customers and success for any startup.
THE PRODUCT DEVELOPMENT MODEL
The history of the product development model goes back a long time. This model has been in use since the early 1900s. It was perfect to be used in manufacturing industries. By the 1950s, those who created consumer goods began using the model. By the end of the 20th century, it had taken over the tech world. Any company that brings a new product to the market today uses some kind of product development model.
According to Steven Blank, the product development model is useful, but only for certain groups of businesses. These businesses understand their market, their customers and their competition. Essentially, in order for the product development model to be useful to anyone, it needs to be run alongside or after the Customer Development model.
The typical product development model looks like this:
- In this stage, people use their vision to come up with the ideas that the product is first based upon. Then, the team begins to confront the issues surrounding the product. They need to understand what the product is and if it can even be built.
- The second part of this stage involves developing a basic understanding which customers might be interested in the product. This step involves using market research but rarely, if ever, involves getting out and talking to potential customers.
- The third part of this stage involves determining whether anyone will be willing to distribute the product so that it reaches the customer. This is the part of the concept stage where the company has to consider its competitors and any other products currently on the market. From here, the company can also begin to establish some preliminary pricing for the product.
- The concept/seed stage is all about the planning process. But the product development stage is where all of that planning turns into reality. During this stage, the product is built by engineers.
- At the same time, the business develops the marketing plan and begins to start selling the unfinished product to its first customers. The marketing plan may require focus groups, sales demos and a lot of PR specialists.
- Now that the product has been built, it is time to test it before it hits the market for the first time. Assuming that the product is free of major issues and errors, the product is now ready for launch.
- While the product is being tested, advertising and PR specialists are working diligently to position the product in the market. The goal of this step is to build up the hype and gain traction with the first customers before the product is officially released.
- The final step of product development is the official launch. This is the phase that all three of the previous phases have been gearing up for.
- After the initial build, this is where a huge amount of the money goes. The company uses this time to build up a large sales organization that is in line with its sales goals. The marketing budget is also large because it is trying to gather initial awareness in the wider market.
- This phase is also heavily monitored. The company watches the sales figures like a hawk to make sure that the actual results are in line with the initial predictions made in the business plan.
THE CUSTOMER DEVELOPMENT MODEL
By comparison, the history of the customer development model is relatively short. The model was first published in a book written by Blank after his retirement in the late 1990s. The Customer Development model came to be because Blank realized that too many businesses were failing for the same reason. It was not because they had a bad product or a lack of money. It was because they did not have a strategy for finding customers before launching their product.
The customer development model is a process for finding customers and locating markets. It is also figuring out whether companies are right about what they assume about these customers. Ultimately the customer development model helps businesses grow in a meaningful and measurable way.
The Customer Development model looks like this:
- This step involves figuring out exactly who the customers are for the product that the business is offering. When the group thinks they have found the right customers, they then consider whether their product currently solves the problems that this customer group has.
- In the Customer Development model, there is no guess work. The model involves actually talking to potential customers about their problems and what they would like to see solved. With this information, the business can then hone their vision. This vision will be sold back to customers later in the model.
- Customer validation is the step where all of the information gathered in the customer discovery step is validated to ensure that it is true. It should involve initial customers purchasing the product.
- When a customer is willing to purchase the product, this validates all of the things that the customer may have said in the first step. This step is important because it is one thing for a customer to say that they like your product. It is another thing entirely for them to put their money where their mouth is.
- If the customers aren’t willing to buy your product then you may have the wrong customer group. This is the iterative part of the model because you are sent back to the first customer discovery step to find the right customers.
- It is okay to start all over again after you have reached the second step. Not only does the model permit it, but it expects it from you.
- Once a business has validated their assumptions regarding customers, they can then move on to drive the demand for their product through their sales team.
- The idea behind putting customer creation after customer validation is that it prevents businesses from spending all of their marketing and sales money on the wrong customers.
- According to Blank, this is where many businesses start to go truly wrong. When they waste all their money on customers who are not right for them, they do not have any money left to start over and find the customers who are right for them.
- Company building is the final step of the model. This is where the company really begins to focus on their sales and marketing teams. In too many cases, companies begin to spend huge amounts of money on these two teams from the beginning. But in Blank’s Customer Development model, the company building phase comes only after the initial market has been established and exploited.
WHERE THE PRODUCT DEVELOPMENT MODEL FALLS SHORT
The Product Development model is not a bad model. Not all those who follow it will see catastrophic failure. However, the product development model falls short when it is used on its own. The reason is usually because it cuts corners by trying to gather customers by using a model that is not designed to establish a customer base. But there are several other reasons that the Product Development model does not work for most business.
It ignores customer development.
- A business is nothing without its customers. Disregarding the customers’ real-world needs so early in the business is often damaging. This is because the business creates a product that it would buy. But this is not necessarily a product that a customer would purchase.
- At the end of the day, you may have the most cutting edge product on the market but if you don’t have any customers, you don’t have anything.
It fixates on the launch date and works backwards.
- Setting a launch date is useful only for engineers. It is good for setting production milestones and other things that the business can control. However, this is not useful if you reach the ship date and have no orders placed.
It ignores discovery and focuses on execution.
- Execution is an important part of product development. Staying on track saves time and money when it comes to engineering and producing a new product. But why make such an effort to stay on track if there is no one to order the product?
It doesn’t incorporate meaningful goals.
- Production goals and business development goals fall into two different categories. The reason that so many businesses focus on production goals is because they think that it is easy to measure them. If a feature of a product does not work, this is easy to quantify. If the marketing plan is not working, this is less black and white.
- The truly meaningful goals for a startup are not so hard to measure. In fact, these goals are being able to successfully answer the important questions like:
- What is the customers’ problem and how well do we understand it?
- How valuable is the solution to the customers’ problem?
- Will the product solve the problem?
- Have we found the customers who will buy our product immediately?
It doesn’t measure customer development.
- You cannot use the product development model to measure sales initiatives. This goes back to the way that the model sets a ship date and works backwards. You should not be setting up a sales team if the product is not ready.
- Similarly, you cannot set up a successful marketing strategy before the sales team has had a chance to get the product in front of customers.
It buys customer support after the product is developed.
- Ultimately, it is difficult to buy customers when you do not know who they are or if they exist.
It focuses on getting bigger, faster.
- Getting bigger, faster is often what kills a new startup. You cannot predict how many customers you will have from inside the office. If you do not know how many customers you have, then scaling up will be premature.
- Premature scaling quickly gets out of control. All of the overhead and infrastructure costs will cut into the company’s cash flow and ultimately prevent them from doing what they need to be doing: selling products to customers.
- In order to make up for the high costs, businesses will throw more and more money into customer acquisition. But if the company doesn’t know who its customers are, this only exacerbates the problem.
It assumes that all startups are the same.
- Not all start-ups are the same. The Product Development model focuses purely on the product and not the market which it is entering. There are four different markets that a product might enter and each of them are radically different.
- It is easier to get a product into an existing market using only the Product Development model. However, those who are entering a new market are not awarded this luxury. They do not know who their customers are. This is where the Customer Development model comes in.
WHERE THE CUSTOMER DEVELOPMENT MODEL WINS
According to Steve Blank, the Customer Development model is intended to be all of the things that the Product Development model neglects or leaves behind. This is because this model focuses on what is at the heart of the business: the customers. Without customers, there is no business. The Customer Development model achieves this goal several ways.
The Customer Development model offers common sense to the product development model.
It doesn’t make sense to go into product development without an engineering strategy. In fact, it would be hard to find any funding if you couldn’t provide a solid product strategy. So why would businesses try to develop a customer base without a strategy? The Customer Development offers a solid framework and strategy to find customers.
Customer Development focuses on discovery and learning about the customers.
Instead of focusing on features and designs, the Customer Development model focuses on learning as much as possible about customers as early in the entire development process as feasibly possible.
Customer Development also focuses on setting up meaningful and impactful goals that cannot be bought.
You cannot buy your way into a solid business model. You also cannot purchase customers who do not exists.
Customer Development learns about problems early and fixes them before launch; not after.
This is one of the key parts of the model because it is the part that prevents catastrophic failure. The costs of making mistakes and not fixing them until after you’ve run out of money is what kills too many startups. This is also the part of the model that is most intuitive. If you see a problem, you need to fix it. There is not enough money to buy your way out of the major problems that you face as a startup.
The Customer Development model is designed to work side-by-side with the Product Development model. This is because the business needs a product but it also needs a vision. Customers and markets help to develop this vision. Without this vision, the product is just another gadget or service that is meaningless to customers.
Customer Development addresses all the issues that the Product Development model leaves behind. When you use these two models together, you can create a product that your customers will love.
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