How Does Customer Development Model Work?
In this article, we start with 1) an introduction to the Customer Development model so that you can learn then about 2) who the customer development process designed for is, 3) the four-steps framework, 4) how to use Customer Development model, and 5) a conclusion.
INTRODUCTION TO CUSTOMER DEVELOPMENT MODEL
Customer Development is a theoretical framework created by Steve Blank. Blank served in the Vietnam War before arriving in Silicon Valley in 1978, right around the beginning of the first major tech boom. He worked in tech companies for around 21 years before retiring in 1999. Some of the projects he worked on include SuperMac, a supplier for military intelligence systems and Rocket Science Games, a video games company.
After he retired, Blank wrote a book called The Four Steps to the Epiphany. The book was designed for use by entrepreneurs. The book is about how to build up a company while it is still in the early stages. What Blank didn’t realize is that his retirement project would start entire movement in business known as the Lean Startup movement.
After the book came out, Blank began teaching entrepreneurship at the University of California Berkley, Columbia, Stanford and NYU. One of the major themes that is taught in his classes is called the Customer Development model. This model was first outlined in his book Four Steps to the Epiphany, the work that created one of the biggest shifts in entrepreneurship in the late 20th century. It has since become the center piece of both Blank’s teaching and the Lean Startup Movement.
WHO IS THE CUSTOMER DEVELOPMENT PROCESS DESIGNED FOR?
Blank initially wrote the book for startups but realized that his models were also useful for established organizations.
- He realized that it was not just startups that failed to launch products. Even big organizations with huge amounts of funding and established identities were also liable to use the wrong approach when taking new products to the market.
- For example, when Motorola launched its satellite-based phone system, it spent $5 billion on engineering and launching satellites. But no one at Motorola thought to stop and think about whether or not the customer would want this product. As a result, Motorola made a very expensive mistake.
The book’s official audience is any team that is launching a new product.
- At first, the model may not seem pertinent to established CEOs or executive teams. However, the task of finding customers and defining markets is the same whether the company is a new startup or a large corporation.
- The teams that can benefit from includes founders, executives, engineers, marketers and anyone who struggles to find the right customers and the right markets.
Blank recognizes that most startups, and even some large organizations, do not have a structured process for locating customers and markets. The Customer Development model will help users develop a useful process for discovering customers. It will also bring discipline to the process to make sure that it works for each team. The model is strict but it is not limited to specific industries like tech. Almost any team developing a product can use this model to discover new customers. The model is designed to not only bring teams where they want to go in terms of developing customer markets but it helps improve the chances of success for the venture. This is because it adds room for learning and growth before money is spent on an unsuccessful launch. Without this customer development process, businesses have no way to validate their assumptions about their customers or grow their business. Hence, without this process, businesses will risk failure every time because they don’t know who their customers are.
THE FOUR-STEP FRAMEWORK
The Customer Development model is based on a four step framework. However, this framework is not linear. The non-linear nature of the model is actually the key to its success because it does not force a team to move forward with an idea if the customer data is not there to support it. In fact, the model is designed for the user to fail at least twice before moving on.
Step 1. Customer Discovery
Customer discovery is the first part of the four step framework. Its goal is simple. This step is for teams to figure out exactly who their customers are. Figuring out who the real customers are requires a lot of research. However, it is not about determining the features of a product or testing the product on focus group. In fact, there is little need to talk about the product at all during the customer discovery phase.
Blank recommends that the team “get out of the building” to find their markets and customers. This means avoiding paid focus groups and doing research in the real world, with real potential customers to see what is happening on the ground.
But at the end of the day, the customer discovery phase is all about the vision behind the product. You need to develop a full understanding of the problem that the product solve. This vision is more emotional than practical. This is where people can envision themselves using the product to solve the problem, not where customers can picture themselves enjoying certain features. The problem is the real point of departure for customer discovery.
Step 2. Customer Validation
Customer validation is the second part of the process. It can only take place once the target customer and market have been identified. This is because this step is designed to help you create the map that you need to reach those customers.
The unique aspect of the customer validation process in the Customer Development model is that if it doesn’t work, the team must start over again with customer discovery. Iteration is actually built into the model.
Step 3. Customer Creation
Customer creation is the third step and it is integral to the process because it acknowledges that not all businesses enter similar markets. There are four primary types of startup markets:
- Some businesses enter markets that are pre-existing.
- Some businesses enter markets that are completely new.
- Some businesses enter the existing market as a low cost alternative.
- Some businesses aim to carve a new segment in an existing market as a niche.
It is worth noting that these markets are not mutually exclusive. In some cases, businesses will enter a market that is a hybrid of two of the markets listed above.
Customer creation occupies the third step of the Customer Development model because it encourages businesses to avoid over-spending on marketing until after the first customers are already acquired. This prevents teams from continuing to spend on markets and customers that do not exist and cannot be created.
Step 4. Company Building
Company building is the final part of the process because this signals the transition from an informal learning experience into a fully-fledged department that works to formally take advantage of any early success the company has had in its market.
This is also the part of the process when the business can begin to spend more money on marketing and driving customer sales. It is important that this scaling happens at the end of the process because pre-mature spending can put the company in a vulnerable financial position. If the development team starts spending huge amounts of money on customers they haven’t identified yet, it will struggle to keep up financially and physically if and when business does pick up.
HOW TO USE THE CUSTOMER DEVELOPMENT MODEL
This model does not replace the Product Development model, it works in conjunction with it.
- Blank says that Customer Development and Product Development must work as parallel processes if they are to be successful. It is essential that both the customer and the product be considered during the early phases of building the business. This is especially true for startups.
- The reason that there is such a large focus on the Customer Development model is because it is the most neglected of the two processes. For those who are design and engineering minded, it can be difficult to remember to develop the vision as well as the features of the product. This vision, which is a part of Customer Development, is essential for developing a strong, long-term business plan.
- However, these processes will not work in tandem when the business is fully developed or has reached the status of a large company. Rather than developing the vision and the product simultaneously, the two models work together to add on different features for the established customer base. Essentially, large organizations will use these models to tailor products to an already established customer base.
The Customer Development model is different because it is iterative. It is okay to fail several times before getting it right.
- The model assumes that you will move back and forth between customer discovery and customer validation at least twice before proceeding. Teams who implement this model must accept that failure is an important and natural part of the process. If they do not, they won’t get the most from the model. This is because they will continue to push products into a target customer market that is not the right fit. This only leads to the same crippling failure that they would have experienced if they haven’t used the Customer Development process at all.
- This is where the inherent value of the process lies. In business, it is essential to create room for measured failures.
The model makes it okay to fail because it prevents businesses from moving forward even if it hasn’t found the right customer.
- With this model, failure is inevitable. But it is better to fail early, with a small team and little money spent, then to push a product to the market and fail then.
- Failure that ruins businesses is failure that is not recognized until it’s too late. Continuing to throw money at it rarely saves it. In fact, it often makes the failure worse.
The Key Points
There is a lot of information in this article about the basics of developing a customer base. Some of it is complicated and other parts of it are hard to swallow for some people. It can be hard to think about failure when starting a new business or developing a new product. What is the point of dedicating valuable time to Customer Development if you are just going to fail anyway?
This is the wrong way to approach failure. Instead, you should meditate on the key points of the Customer Development model to see why controlled or anticipated failure can actually help the business.
Customer Development minimizes the risk of failure.
Although there is a lot of time spent talking about failure in the first two steps of the process, Customer Development actually minimizes the risks associated with failure.
- When you fail in the initial stages of the Product Development and the Customer Development processes, you have invested a lot less time and a lot less money into the business.
- This leaves you free to re-group and try again. When you fail early, you will have more resources to start over. You will also be able to carry that knowledge with you from the previous failure into the new attempt.
It is easier to fail a product and re-develop it before it hits the market. Selling to new customers is hard enough without having to re-sell a product that failed publically.
You need to understand the market you are in.
Understanding the market that you are in grows in importance with every step of the process.
- During customer discovery, you are getting to know the market that you are working in.
- In customer validation, you are figuring out what steps must be taken to successfully reach your market.
- By the time you reach the customer creation phase, understanding market type is an essential part of the process. If you reach this phase and do not understanding your market, then you must start over. You cannot proceed from here if you don’t understand the market. This is the point where many businesses go wrong because they choose to over-spend to make up for the lack of information acquired regarding their markets.
You need to find the minimum feature set that you need to gain early customers.
- Customer Development is not about throwing together a huge amount of features and asking customers if they would use them.
- Actually, creating the minimum amount of features for a product works better when you use Customer Development and Product Development together. This allows you to focus more on the vision of the product rather than special features.
- For example, if the product is a toothbrush that offers a better user experience and has qualities that clean teeth better, it is these qualities that should be focused on. Don’t worry about adding Bluetooth connectivity between the toothbrush and mobile devices during these initial stages. This will only distract your team and your customers from the problem that the product solves.
Avoid spectacular failures in execution by learning before you launch and not after.
- The biggest theme that Blank tries to get across is that you need to avoid failing after you have already launched. These failures become spectacular because not only did the team burn a huge amount of resources in an unproductive manner but they continue to burn more resources to try to make up for it.
- Essentially, you need to know there is a market that wants your product. If there isn’t, you have a lot of work to do before you even consider setting a launch date.
When applied correctly, the Customer Development model can help provide your business with a tried and tested model for your customers. Customer Development works by helping you discover, validate and grow your business before you launch your product. It is a model that should be used alongside your Product Development model. When your team implements these models, you will find that you have a sure way to track, test and grow your customers and make sure that your product is going into a market that has room for it.