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Product Management: Customer Development

Customer development is the portion of the Lean Startup methodology aimed at understanding the problem. This requires first fully vetting the opportunity and validating that the proposed solution will indeed meet customer needs and demand. Customer development runs counter to typical product development processes that begin with the ideal solution in mind and dive right into execution.

What is Customer Development?

The Customer Development framework was developed by Steve Blank as part of the Lean Startup methodology. It is typically the middle step of the process (preceded by Business Model Design and followed by Agile Engineering).

Following this process allows companies to understand the market needs and come up with multiple potential solutions. From there, the process calls out the assumptions behind the various hypotheses (operating under the assumption that the company is starting with no facts prior to this exercise) and then validating those assumptions. After delivering an MVP, begin continual reevaluation to ensure the solution is optimized to deliver value and achieve the business’s goals.

What is the customer development process?

There are four steps to customer development:

  1. Customer discovery harnesses the founders’ vision and creates a series of hypothetical business models. Then, it creates a strategy to test and validate those hypotheses with real/potential customers.
  2. Customer validation examines the scalability and repeatability of the viable hypotheses.
  3. Customer creation creates/accesses the marker by building demand and awareness for the solution by activating sales channels.
  4. Company building transforms the organization from the “startup” mentality to an ongoing, execution-focused company.

Who is involved in customer development?

Customer development should be a cross-functional exercise involving marketing, sales, engineering and, of course, product management. Marketing and product management are the best candidates to lead the initiative as their expertise lies in talking to customers; synthesizing that input and turning it into market requirements.

Founders and executives should also play an important role in Customer Development. While their involvement in the minutiae of every customer interaction isn’t necessary, their buy-in and biases will go a long way in determining the ultimate success or failure of the process. Team members must be comfortable presenting findings that contradict the beliefs and hypotheses of founders. Otherwise, staff can compromise the entire process by trying to appease founder egos in opposition to the reality in the market.

But more important than any particular employee is actual customers. The old adage of “get out of the building” is never more apt than during Customer Development. Interviews, conversations, observations, surveys… all these methods of collecting information about the challenges, concerns and desires of current and potential customers are integral to the process.

Benefits of customer development

Customer Development has tremendous benefits for organizations as it delays investing significant resources into building solutions until there is a proven, justifiable need for them and an assurance that the product will actually benefit the customer. With this upfront exercise, companies avoid spending money and time on products that might work versus products that should work.

Customer Development also helps companies from making the mistake of falling in love with a product or solution without truly testing if it’s the best approach. The rigorous validation that comes with Customer Development can remove much of the emotion from the decision making process and allow facts and data to drive the process.

By design, Customer Development should be a relatively “cheap” affair, so companies can conserve cash and/or delay additional fundraising during this time period. Not only can it extend the runway for the company, but it can also provide a much more attractive investment to future investors when it’s obvious the company has done its homework and validated both the opportunity and the viability of the solution.

This also often results in much simpler solutions; by truly understanding the market and customer requirements, companies can focus on building what companies actually need (ranked by customer priority) instead of trying to solve every possible issue the company thinks customers care about.

Pitfalls to this approach

Of course, there are downsides to utilizing Customer Development. When done thoroughly, it will delay the product development process and may impact time to market. It may also ruin the “stealth” nature that some companies value, since it’s hard to have a ton of conversations with customers and not have people realize you’re at least investigating a particular market or area.

Successful Customer Development also requires the team to admit they don’t know everything already; which can be challenging when people consider themselves subject matter experts thanks to decades of related experience. While that may all be invaluable, it doesn’t replace what real paying customers have to say and can often create stronger biases and false assumptions than someone brand new to the space.

Another common shortcoming is companies thinking they’re “done” Customer Development after an initial round of research and a successful MVP. But Customer Development is an ongoing, iterative process that never truly ends. Not every company has the appetite for both investing those resources on a continual basis or having to repeatedly validate that they’re on the right track.

Examples of customer development

Customer Development consists of asking potential customers open-ended questions and presenting them with hypothetical solutions to evaluate just how on or off target they might be. It is not a sales pitch or a way to nurture leads; it is 100% information gathering, discovery and confirmation of assumptions.

Dropbox

For Dropbox, their challenge was solving a problem customers didn’t realize they had. Because there wasn’t anything quite like it at the time, customers used other ways to deal with their file saving/access/sharing problems that were far from ideal. But customers weren’t dreaming up new ways to make their life easier; they just settled for a kludgy array of workarounds from what was already available.

During Customer Development, Dropbox learned that word of mouth was the most effective way to build awareness, precisely because there wasn’t an existing market for their solution. They also discovered that delivering a product with limited functionality was enough to hook users rather than trying to build out a fully-featured solution. And they were able to escape the trap of “traditional” marketing channels where the cost of acquisition exceeded their actual price point.

Buffer

At Buffer, even though the company had plenty of paying customers they realized they still didn’t understand the “why” behind many of their customers’ decision to purchase and use their solutions. Now, not only do they put every hypothesis and assumption through the Customer Development process to validate it, but they also rely on a social media network to accelerate the process.

Using Twitter, Buffer simply puts out a call for users of a particular feature or in a certain market to hop on a virtual call and provide input. This cuts down on the time to set up interviews and manage extensive contact lists, giving them same-day Customer Development input.

Conclusion

Customer Development should result in more products solving real problems for real customers in acceptable ways for a reasonable price point. It should likewise avoid the investment in and creation of products that fill a nonexistent need, address a miniscule market or are incompatible with real-life workflows and environments.

Investing time and resources into Customer Development is one of the best ways a company can spend its initial capital. In fact, most companies should have done this before they even became companies at all, but it’s still an essential step for early stage initiatives.

The value of validating assumptions may be greatest when a new product is being conceived, but it continues to serve companies well throughout its entire lifecycle. There’s no substitute for talking to customers about what they need versus what you want to sell them.

At the end of the day, there’s no more important question to answer than “will people buy this?”