customer development


22
Jan 12

How should Innovators Really Talk to their Customers?

Sarah Louis-Jean, an aspiring dancer from Vancouver

Sarah Louis-Jean, an aspiring dancer from Vancouver

It’s an invigorating feeling to be the driving force behind bringing something new to the world.  Alas, innovation happens under conditions of extreme uncertainty.  Especially because your goal goes beyond just creating something new. You are trying to discover, build and tune the fine mechanics of a business model. A machine that will repeatably acquire increasing number of customers, and delight them enough to part with their hard earn money.

At the center of this discovery process is a very human customer. And a very human activity: talking to them. Here’s couple of thoughts on how to do that (and how not to do it). Continue reading →


2
Oct 11

Techies vs. “Industry” Founders: who’s Right?

I once talked to a dozen startup founders about getting out of the building to validate their startup idea with actual customers. About half of founders were techies and half non-technical industry people. I’ve played both roles in the past, and could understand where each get stuck.

For techies, getting out of the building often falls outside their comfort zone, and they rather focus on building their product first. Unfortunately, the longer you wait to ship, the more you postpone learning. Shipping sooner is better, but is not a panacea.

If you ship a product to see what happens, you are guaranteed to succeed – at seeing what happens. Something will always happen (Eric Ries)

For industry guys, going out of the building is what they’re used doing. But after probing a bit I realized that most actually either asked their customers what they wanted and brainstormed about product features, or did a sales talk. There’s nothing wrong with sales (I am a big fan of sales myself), and as a founder, you should be your product’s first salesperson. As salespeople however, we are instinctively going for a yes, and especially if we are used to selling a service (as many with an industrial background are), we go for a total customer solution. There’s also nothing wrong with a service business, but  it requires a fundamental mindset shift to go from building a service to a building a product. From building what a customer asks (basically, custom software development),  to building a product for a market (one product for many).

As a founder, you own the solution (vision), and customers own the problem. 

So who is right, the techies or the industry people?

That’s exactly what I like about customer development: it teaches us how to combine the best of both worlds. Did you ever wonder what does it mean to develop customers?

Customer development is about finding a market for the product as specified.

The techies were right about this: you specify your product as you envision it. You even start building it. But so were the industry people, because  then you need to go out looking for customers. You look for a market for the product as specified. When you see something is not working as assumed, you go back, change an aspect of your business model (“pivot”) and go back out to check your new assumption.

In other words, your startup assumptions are an essential tool in your toolbox. Actually, there’s probably no other  way to create something new, something that didn’t exist before. Building a startup requires a huge leap of faith and an ability to envision a brighter future for your customers. Customer development does not remove this step, it builds on your vision as a fundament, adding steps that help you find customers for your product.


12
Sep 11

Pin Down your Startup Hypotheses

As all you really have at the beginning of your startup are a bunch of educated guesses, your highest priority is to figure out what you’re guessing wrong. In other words: can you build a viable business around your idea?

Those coming from an industry will start from verified market insights. However, by definition, startup is a learning organization, searching for a repeatable business model. Unless you are repeating something previously proven, you can never be sure that you have all the pieces right. Coming from a consultancy business myself, and knowing the pain of my customers well, I was really surprised by the assumptions I was making once I put them on paper and examined them with my customers. 

The first step in validating your guesses is to make them explicit, or put fancier: document your hypotheses. I’ll give you some ideas on how you can do this.

In his book Four Steps to Epiphany, Steve Blank recommends you write a number of briefs, each documenting a different hypothesis (about the product, customers, channels, market, etc). Each is described in a subsection of the chapter “Customer Discovery” (the first of the four steps of customer development). They provide useful questions to ask yourself.

But there’s an easier way.

The easier way: business model canvas. If you haven’t heard or used Osterwalder’s business model canvas, I highly recommend to learn more about it (the first 72 pages of Osterwalder’s best selling book are free to download from his website).

What’s cool about the business model canvas is that it collects 9 essential building blocks of a business on a single sheet of paper. Miss one and you got no business. Go on, fill one out. These are your hypotheses.

In addition to being a lean way to document your hypotheses, business model canvas is also a great brainstorm tool. Print the canvas on a big sheet, and brainstorm around it with your team.

Business Model Canvas, 1 page summary of your business

Business Model Canvas, an easy way to document your hypotheses

What to fill in? Steve Blank ran a hands-on customer development course with his Stanford students: the Lean Launchpad. The students had to form teams around concrete ideas, and actually perform customer development of their idea during the curriculum. To do so, they had to get out of the building and talk to actual customers. The students used the business model canvas as a score card, and blogged about their lessons learned in interviews.

What’s cool about this course is the bunch of resources and examples it provides, all free and well documented on Steve’s blog. Each post in the Lean Launchpad series zooms in on a different aspect of business model providing.

  • A theoretical checklist for the specific business model aspect
  • Lessons learned: you get to see how the students put this theory in practice

I collected them for you below.

Business Model Checklists Lessons learned
Value proposition checklist, a useful deck urging us to think about the problem statement, technology/market insight (why is this problem so hard to solve), competition and the (minimum viable) product. Lessons students learned by testing value proposition hypotheses
Customer checklist: different types of customers and markets, multisided platforms, different types of customer roles and customer problems. Lessons students learned by testing customer hypotheses
Customer relationship checklist: it’s about demand creation. Lessons students learned by testing customer relationship hypotheses
Channel checklist: direct and indirect sales channels, channels as customers, differences between physical and digital products and channels. Lessons students learned by testing channel hypotheses
Revenue model checklist: what are the customers paying for and how much can they pay, how will you package and price your product, different types of revenue streams. Lessons students learned by testing revenue model hypotheses
Bonus material: a slide deck on 7 different SaaS revenue streams (skip to slide 27 for the juice),  a free e-book on software pricing Don’t Just roll the Dice (disclaimer: still on my to-read list).
Key partners, key resources and expenses: two separate slide decks, the latter by Osterwalder. Lessons students learned by testing key resources and expenses hypotheses

Helpful alternative geared towards customer development: lean canvas. Ash Maurya proposes an alternative version of the business model canvas: Lean Canvas. I find it simpler to use, and a slightly better fit for customer development. What I really like about it is that it has explicit fields for Problem (top 3 customer problems) and Solution (top 3 features of your product). Focusing on your customer, the problem and the solution is a good way to initiate your research. This is what Ash has to say about documenting hypotheses. He also provides an online lean canvas tool, allowing you to share your lean canvas with your partners or mentors.

Go ahead, fill one in. Start from the business model canvas you filled in before. I found that I tend to use the business model canvas as a (quick) brainstorm tool to think up alternative business models. Once I get serious about testing one of them, I will dive in deeper and fill all the fields of a lean canvas.

Lean Canvas, no-nonsense alternative way to document your hypotheses

What now? What you now have is a list of hypotheses about your business. If any of the things on your canvas mismatch reality, there is a chance you don’t have a viable business (yet). So you see why it’s so important to validate the hypotheses.

And you don’t have the answers – your customers do. So you need to get out of the building and get the answers from them.

In the next posts, I’ll write on how to do that.



8
Sep 11

The Startup Guessing Game

It all starts with a vision. You are the startup founder, with this brilliant idea for a new product that will change the way people <insert something painful/inconvenient here>. You build it, promote it, and users flock to you shiny new product. And yeah, you figure out how to make money off of it once you get the users. Right?

It turns out there is a problem with this strategy. The problem is that all you really have at the beginning are educated guesses.

You are guessing who your customers are. Even what your product is.

Flickr started off as an MMO. Photo sharing was a side feature, and started picking up faster than the game. They fought for a while trying to stick with their original idea, but it soon became obvious where the real interest was (founders did eventually decide to come back to the root idea launching Glitch).  

You are making guesses about what your customers value.

IMVU (an online 3D-avatar chat & gaming tool) started off by a 6 month coding marathon to make their 3D avatar chat run on top of existing chat protocols. It was a clever idea. Their initial guess was that people will never want to rebuild their chat buddy lists. So they developed a technology that allows them to hook into existing buddy lists of existing chat clients. 

But guess what: their early users (primarily teenagers), did not want to invite their friends, as they weren’t sure if the thing was cool enough yet. This is what the young lads and lassies value: being cool. So IMVU threw away 40k+ lines of code. They then implemented a feature where the users could invite another random user for a trial chat session. It’s turned into a major feature. Read their tagline: “Play, Meet People, Have Fun”. 

And are you really only building a product, or a complete viable (and hopefully scalable) business around it? And since your product is not the product, you are actually making guesses about the complete business model.

You are making guesses about the whole business around your product

 I borrowed the image above from Steve Blank, the father of of Customer Development. He proposes a different approach, treating entrepreneurship as a science. According to Customer Development, the founder goes through the following steps:

  • Document their vision
  • Identify the riskiest guesses (hypotheses)
  • Define and carry out a series of rigorous experiments to validates the hypothesis outside of the building, with the actual customers
  • Every time a hypothesis is invalidated, the founder goes back to the drawing board to adapt their vision

This process turns the startup into a learning organization. Steve’s definition of a startup:

Startup is a temporary organization designed to search for a repeatable and scalable business model.

The concept is very simple. Applying it in practice requires some creativity, and lots of stepping out of your comfort zone. That is why this blog is started: to share our experiences as we search for viable business models. We’ll try to make it as hands-on as possible.

You can see Eric Riese’s presentation about his lessons from IMVU in an invited lecture to Steve Blank’s students.