Customer Development: Understanding Customer Discovery

Based on Customer Development Model created by Steve Blank

In this article, you will find and learn 1) an introduction to Customer Development Model, 2) what customer discovery is, 3) methods for utilizing customer discovery process, and 4) a conclusion.

INTRODUCTION TO CUSTOMER DEVELOPMENT MODEL

The role of the vision for a business is huge. This vision offers a new product, service or experience that will reach a specific group of customers who does not just want what you offer but need it as well.

But in the beginning, the vision that most businesses have is just guess-work. The vision often revolves around a product and how great it is and all of those people who might want to buy it. Developing a vision is important but that vision only serves you well if you can prove it to be true.

If you want to turn your vision into a profitable business, you need to begin to develop and test your vision. This is what the Customer Development Model is all about. Your customers are out there; but only if you are willing to go out and find them.

Customer discovery is the first part of the Customer Development Model. Customer discovery is the first of four steps in which you turn your vision into more than just a pipe dream but cold, hard facts that are eventually converted in sales figures and profitability.

WHAT IS CUSTOMER DISCOVERY

In order to make the most of the customer discovery process, you need to understand what it is as well as what it is not. Without this understanding, too many businesses work to get the information that supports their beliefs about their business rather than the information that will help their business.

The goal of customer discovery is figuring out who your customers are and whether your idea will appeal to them. You are not trying to figure out what every customer wants or needs. When you are looking for your initial customers, you are not looking for the masses. You are really looking for those few customers who your product is suitably designed for right now. These customers, often called product evangelists, are those who will adopt your product early and then share it with all your friends. They will be the most important and most valuable customers that you can ever have.

These early customers are different from the rest of your market. Not only do they have a problem but they know that they have a problem. In fact, they are so upset about their problem that they are actually trying to solve it by any means possible. They may have temporary solutions of their own that work but are not ideal in the long-term.

In the customer discovery phase, you need to figure out what problem your product solves and whether your customer actually has these problems and will use your product to solve them. Finding these early customers shows that your problem is real for someone. You will then use these early customers to help you iterate the product to suit their needs.

It may seem counterintuitive to create a product that solves the needs of only a few customers. But chances are, the problems you want to solve do not happen in a vacuum. In too many cases, problems are widespread. However, not everyone realizes they have a problem until they are offered a solution. This is when the customer has the “Aha!” moment where they realize that a task could have been so much easier if only they had this solution before.

Early customers have pain that is measurable and useful for you. Because of this, customer discovery is not about running focus groups. Focus groups have their value but they are not ideal for searching these early customers. A focus group will tell you more about the general issues that a mass customer base has. However, you are less likely to find a future product evangelist in these groups.

Customer discovery is also not about pointing out which technical aspects of a product solve the customers’ problem. When you are going out to discover your customers, they are worried about their problem and finding a solution. Initially, they will want to know that you understand the problem and can offer a solution. But you will not be able to find these customers by spouting a list of features. These features are important to some customers. However, during the customer discovery phase, it is the overall narrative of the solution that people are interested in. When you have a narrative or vision that offers a solution to a problem, you can establish whether or not there is a market that will ultimately share your vision.

METHODS FOR UTILIZING THE CUSTOMER DISCOVERY PROCESS

Once you spend some time thinking about it, you can begin to see why the customer discovery process is important. But how do you go out and find those initial customers? For many, this seems to be the impossible part of the process. Almost all of the sales training that is delivered is focused on identifying wider markets and huge swaths of faceless customers, not the individual, passionate customer.

Blank has developed a process that businesses can use to implement customer discovery. It does not include anonymous surveys or focus groups. Instead, it involves taking a measured approach to discovering customers that can be broken down into four main stages:

Stage 1: State Your Hypotheses

Your hypotheses is part of the vision of your whole business. Hypotheses are a summary of all the things that you already believe about your market, the problem and your solution to the problem.

You need to have formalized predictions in your business plan. These predictions must be in writing. Having these predictions documented is helpful because it is practical. When they are written down, it is far easier to adjust them upon further research.

  • This practicality also offers psychological benefits. It is easier to avoid readjusting your hypotheses as you work. When you do this, it is harder to keep up with changes. Not writing them down can also lead to unsuccessful testing.
  • Being able to pivot and change during Customer Discovery and further steps of Customer Development Model is essential. But these changes need to be made in controlled settings based on real information. Making changes on the fly is often the result of inferences. Inferences are just different predictions. You need to wait until you have the whole story before you start making changes. This prevents confusion and offers more reliable results.

After you have settled on preliminary predictions, you need to develop potential customer segments. Once you have your customer segments, you can create a contact list of customers.

Once you have found potential customers, you should reach out to them. You will do this in the next step when you test your model.

However, to proceed to your next step, you need to make sure that your hypotheses are testable. To make your theories as testable as possible, you need to make sure your information is very specific. The more specific it is, the easier it will be to determine whether it is true, false or somewhere in between. To make sure that your information is specific, use exact numbers and exact problems.

Stage 2: Testing Your Model

You want to make sure that you are testing your hypothesis as quickly as possible after it is formed. Depending on your market, customers, products and trends may move very quickly. If you wait too long between developing your initial ideas and testing them, the market may have moved on. This can lead to you missing out. Testing quickly also helps ensure that you are getting your products to your customers faster. This is the ultimate goal of a start-up.

You can use your own network to make your first contacts. You might want to contact your friends, people who you have worked with before, potential investors or fellow professionals in your field. All of these people might be potential customers. As such, they are the ideal people to test your hypothesis on.

You will then create what Blank calls a “problem presentation”. A problem presentation is a presentation that is based on the problem that is outlined in your hypothesis. This presentation should not be highlighting your solution to the alleged problem. It is designed to focus in on the problem itself.

  • The information that you can get about your problem is very valuable to your solution. The feedback you get will tell you specific details about the problem, including how important the problem is to your customers. This is important because the more pain that people have from their problem, the more they will pay for a good solution.
  • The goal of the problem presentation is not to tell everyone about your amazing product and encourage them to buy it. The focus must be solely on learning. Without this focus, the testing results will be skewed and won’t help you develop the right product for the right market.

You will then gain better customer understanding and market knowledge. When you have more knowledge about the customers’ problem, you can ask leading questions around their problem. For example, you can ask about how they currently deal with the problem and how well the temporary solution works.

In addition to reaching out to potential customers, you should also be reaching out to the wider industry to see what others are doing. You will need to know who your competitors are and what they are doing. You will want to know what companies or individuals have influence in your market. You will also want to know what trends are currently happening in the market.

Once you have all of this information, you will be able to come up with the Blank’s “problem statement”. This may reflect your initial hypothesis but ideally it will be far more specific.

Stage 3: Testing the Product

Now that you have learned more about your customers and their problems, you can begin to test your solution. This is something that you can do only after you have a firm understanding of the problem, the customer and the market. Without this information, the information you learn testing your product will mean little. The Customer Development Model is all about putting your solution in its wider context.

You will then test your model again with a presentation of your product. This presentation will not be for your customers. Instead, you will use this time to share all of the information you have gathered with the product team. As a team, you can use this information to consider how the product itself will support the customer and the problem statement.

This is the part of customer discovery where things begin to become iterative. You may find that your product as it stands does not fit within the market that you are trying to enter. As a result, you will need to make a decision about whether minor or fundamental changes need to be made to the product.

  • If your product is a good fit for the market generally but requires changes, you can reconsider certain features of the product. Once you have made these changes, you will need to present the product a second time to validate the changes and measure the success of the changes against the customer problem.
  • If you realize that there are fundamental issues with your product when compared to the customers you have identified, you may need to begin again and identify a new market.

Once you have presented the original product, and possibly the modified product, you will have gathered enough data to be able to begin putting together several key parts of your business. You will need the following four documents in order to move into the final step of customer discovery:

  • Your sales revenue plan
  • Your business plan
  • Your product plan
  • Your product requirement document

Stage 4: Verify Your Model and Moving Forward

In the final stage of the customer discovery process, you will compare the information that you learned in the previous two stages.

The result of this comparison will tell you one of three things. Either you will be ready to move forward to customer validation or you will need to iterate this process. In some cases, you may find that you need to stop work altogether.

After you have looked at all of the data that you have gathered earlier in the process, you should find that you can identify the following three things:

  • The Problem:
    • You should be able to identify the problem that customers have. You should also know how important that problem is to your customers. If you are unsure of the problem or of the customer pain, you will need to begin again.
  • The Product:
    • You should be able to come up with a summary of the information that you got from customers about your product concept. By the end of the customer discovery phase, you need to know if the solution you offer actually solves your customers’ problem.
    • If your product does not solve you customers’ problem, you can review and iterate your product.
  • The Business Model:
    • You should also be able to pull together enough information to create a solid business model for your product. The information that you have gathered from customers, the market and your product team should help inform you of the following key components of the business model:
      • Sales process
      • Price
      • Delivery
      • Service requirements
      • Partners
      • Customer relationships
      • Any costs associated with maintaining partners and acquiring customers

CONCLUSION

At the end of these four stages, you will find that you are either ready to move on to the second part of the Customer Development Model. Alternatively, you may also have to start all over again. In order to make the most of the customer discovery process, you need to be willing to be wrong. There is no point in moving forward with the process if you know that you are forcing your solution into a market that has no room for it. If you cannot come up with real answers that can be reflected in a real business model, you are not ready to move forward.

In the next step of the Customer Development Model, you will take all of the information that you have learned in customer discovery and validate it.

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