Henrik BerglundChalmers University of Technology

Center for Business Innovationhenber@chalmers.se

www.henrikberglund.com@khberglund

Business Models/Customer Development

2013-02-15 1

by Steve Blank and Bob Dorf

More info: www.steveblank.comBuy the book: http://www.amazon.com/gp/product/0984999302/

Presentation based on

developed by Steve Blank and Bob Dorf

http://www.slideshare.net/sblank/

Using slides from

Agenda

1. Startups 2. Business Models (briefly)3. Customer Development

Part 1

Startups(What We Used to Believe

What We Now Know)

What We Used to Believe

Startups are a Smaller Version of a Large Company

What We Now Know

Startups ≠ Small companies

Startups Search Companies Execute

What We Used to Believe

Strategy

Start by developing a Business Plan…

…make the financial forecasts…

…then Execute

What We Now Know

Strategy

5-Year Plans

Develop and Execute the Business Plan

Why?

No Business Plan survives first contact with customers

“Everybody has a plan until they get punched in the face” Mike Tyson

Searching for a Business Model comes before

Executing a business plan

Key activities Value proposition

Customer relationships

Customer segments

Cost structure

Key resources

Revenue streams

Channels

Key partners

Business Models

http://www.businessmodelalchemist.com/

Business Model Hypotheses

Search

Strategy

Execution

Operating Plan +Financial Model

What We Used to Believe

Process

We Built Startups by Managing Processes

Product Management+

Waterfall Engineering

Traditional Development Process

Concept Product Dev. Alpha/Beta Test

Launch/1st Ship

Traditional Development ProcessHas Two Implicit Assumptions

Concept Product Dev. Alpha/Beta Test

Launch/1st Ship

Customer Problem: known

Product Features: known

Works well for incremental development projects targeting existing customers.

Tradition – Hire Marketing

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

Marketing

Concept Product Dev. Alpha/Beta Test

Launch/1st Ship

Tradition – Hire Sales

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

- Build Sales Organization

Marketing

Sales - Hire Sales VP- Hire 1st Sales Staff

Concept Product Dev. Alpha/Beta Test

Launch/1st Ship

Tradition – Hire Business Development

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

- Build Sales Organization

Marketing

Sales - Hire Sales VP- Hire 1st Sales Staff

Concept Product Dev. Alpha/Beta Test

Launch/1st Ship

- Hire First Bus Dev - Do deals for FCSBusiness Development

Examples - Recognize these?

What’s wrong with this picture?

• Both Customer Problems and Product Features are hypotheses

• Emphasis on execution rather than learning and discovery

• No relevant milestones for marketing and sales• Often leads to premature scaling and a heavy

spending hit if product launch fails

You do not know if you are wrong until you are out of money/business

Concept Product Dev. Alpha/Beta Test

Launch/1st Ship

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

- Build Sales Organization

Marketing

Sales - Hire Sales VP- Hire 1st Sales Staff

Concept Product Dev. Alpha/Beta Test

Launch/1st Ship

- Hire First Bus Dev - Do deals for FCSBusiness Development

What We Now Know

Process

Product and Customer Development

Product Development

Customer Development

CompanyBuilding

CustomerDiscovery

CustomerValidation

Customer Creation

+

Concept Product Dev. Alpha/Beta Test

Launch/1st Ship

Problem: unknown Solution: unknown

Product and Customer Development

Business Model Hypotheses

Strategy

Process Customer &Agile Development

Operating Plan +Financial Model

Product Management& Waterfall Development

Search Execution

What We Used to Believe

Organization

Hire and Build a Functional Organization

What We Now Know

Organization

Founders run a Customer Development Team

No sales, marketing and business development

Business Model Hypotheses

OrganizationCustomer

Development Team, Founder-driven

Customer Development,Agile Development

Operating Plan +Financial Model

Product ManagementAgile or Waterfall Development

Functional Organization by Department

Search ExecutionStrategy

Process

Part 2

Business Models

Key activities Value proposition

Customer relationships

Customer segments

Cost structure

Key resources

Revenue streams

Channels

Key partners

Business Model

http://www.businessmodelalchemist.com/

Key activities Value proposition

Customer relationships

Customer segments

Cost structure

Key resources

Revenue streams

Channels

Key partners

Business Model

A framework for making your assumptions explicit

Customer Segments

Who are the customers?Why would they buy?

Customer Segments

Who is the customer?Multi-sided market?Different from user?

http://www.businessmodelalchemist.com/2012/08/achieve-product-market-fit-with-our-brand-new-value-proposition-designer.html

Customer Segments- jobs to be done

What functional jobs is your customer trying get done? (e.g. perform or complete a specific task, solve a specific problem…)

What social jobs is your customer trying to get done? (e.g. trying to look good, gain power or status…)

What emotional jobs is your customer trying get done? (e.g. esthetics, feel good, security…)

“What jobs are the customers you are targeting trying to get done”

Customer Segments- customer pains

What does your customer find too costly? (e.g. takes a lot of time, costs, effort)

What makes your customer feel bad? (e.g. frustrations, annoyances)

How are current solutions under-performing for your customer? (e.g. lack of features, performance, malfunction)

What negative social consequences does your customer encounter or fear? (e.g. loss of face, power, trust, or status)

“What are the costs, negative emotions, bad situations etc. that your customer risks experiencing before, during, and after getting the job done.”

Customer Segments- customer gains

Which savings would make your customer happy? (e.g. in terms of time, money and effort)

What would make your customer’s job or life easier? (e.g. flatter learning curve, more services, lower cost of ownership)

What positive social consequences does your customer desire? (e.g. makes them look good, increase in power, status)

What are customers looking for? (e.g. good design, guarantees, features)

What do customers dream about? (e.g. big achievements, big reliefs)

“What are the benefits your customer expects, desires or would be surprised by.”

Value Propositions

What are you building?For whom?

Value Propositions

What are your products and services?

How do they create value for the customer segments?

Value PropositionsCan your product/service:

• Produce savings?

• Make your customers feel better?

• Put an end to difficulties?

• Wipe out negative social consequences?

Value PropositionsCan your product/service:

• Outperform current solutions?

• Produce outcomes that go beyond their expectations?

• Make your customer’s job or life easier?

• Create positive social consequences?

Product Market FitGetting this right is essential!

Product Market Fit

Getting this right is essential!

Channels

How does your product get to customers?

How Do You Want Your Product to Get to Your Customer?

60

Yourself

Through someone else

Retail

Wholesale

Bundled with other goods or services

üüüüü

Web Channels

61

Physical Channels

62

How Does Your Customer Want to Buy Your Product from your Channel?

63

• Same day

• Delivered and installed

• Downloaded

• Bundled with other products

• As a service

• …

üüüüüü

Customer Relationships

How do you get/keep/grow customers?

Customer Relationships

Revenue Streams

How do you make money?

Key Resources

What are your most important assets?

Key Activities

What activities are most important for the business?

Key Partnerships

Who are your key partners and suppliers?

Cost Structure

What are the costs of operating the business model?

Visualization of the business model

framwork

Key activities Value proposition

Customer relationships

Customer segments

Cost structure

Key resources

Revenue streams

Channels

Key partners

What’s a Company?

What’s a Company?

A business organization, which sells a product or service in exchange for revenue

and profit

How are Companies organized?

How are Companies organized?

Companies are organized around Business Models

How are Companies organized?

Companies are organized around Business Models

What’s a Startup?

What’s a Startup?

A temporary organization designed to search

for a repeatable and scalable business model

What’s a Startup?

A temporary organization designed to search

for a repeatable and scalable business model

What’s a Startup?

A temporary organization designed to search

for a repeatable and scalable business model

Guess Guess

Guess

Guess

Guess

Guess

Guess

GuessGuess

The goal is not to remain a startup

Startup Large Company

The goal of a startup is to become a large company!Failure = failure to transition.

Transition

Part 3

Customer Development

To repeat

More startups fail from a lack of customers than from a failure of

product development…

To repeat

… because they think startups = small companies…

…they focus on executing the plan…

• Both Customer Problems and Product Features are hypotheses

• Emphasis on execution rather than learning and discovery

• No relevant milestones for marketing and sales• Often leads to premature scaling and a heavy

spending hit if product launch fails

You do not know if you are wrong until you are out of money/business

Concept Product Dev. Alpha/Beta Test

Launch/1st Ship

… so they scale on untested assumptions…

… and end up going bust.

“We have been too visionary. We wanted everything to be perfect, and we have not had control of costs"

Ernst Malmsten(BBC News, May 18 2000)

So what to do?

Customer Development: Key Ideas

• Parallel process to Product Development (agile)

• Measurable checkpoints not tied to FCS but to customer insights

• Emphasis on iterative learning and discovery before execution

• Must be done by small team including CEO/project leader

Customer Development Heuristics

• There are no facts inside, so get out of the building!

• Earlyvangelists make your company, and are smarter than you!

• Develop a minimum viable product to maximize fast learning.

•Customer Discovery Articulate and Test your Business Model Hypotheses•Customer Validation Sell your MVP and Validate your MB & Sales Roadmap•Customer Creation Scale via relentless execution and fill the sales pipeline•Company Building (Re)build company’s organization & management

Customer Development: Four Stagessearch

execution

Customer Discovery

• Articulate and test your BM hypotheses(value prop/customers key)

• No selling, just listening• Must be done by founder

building

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building

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buildingblock

buildingblock

building

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buildingblock

buildingblock

buildingblock

Sketch out your business model!

But,Realize it’s just Hypotheses!

Guess Guess

Guess

Guess

Guess

Guess

Guess

GuessGuess

”Do you have this problem?”1.2.3.

Test Customer Problem Hypotheses

”Do you have this ”Tell me about it, how problem?” do you solve it today?”1. 1.2. 2.3. 3.

Test Customer Problem Hypotheses

”Do you have this ”Tell me about it, how ”Does something like thisproblem?” do you solve it today?” solve your problem?”1. 1. 1.2. 2. 2.3. 3. 3.

Listen carefully to what they say at each step!

Focus on learning - Don’t try to sell them on your idea!

In the process you find out about other BM parts as well: workflow, benefits (to users & others), preferred channels, critical influencers, respected peers etc…

You want to become a domain expert!

Test Customer Problem Hypotheses

Finding people

Introductions (ask everyone you know)

• Provide the exact text that they can copy and paste into a tweet or email (They’re doing you a favor! Make it as easy as possible for them)

• Tell them exactly how you are going to communicate with their contacts (They’re risking a bit of social capital for you. Be very clear that you won’t spam or annoy people)

• Tell them your goals (What do you think you’ll get/learn if they make this intro for you? People want to know that they’re contributing to a bigger picture!)

Finding people

AdWords, Facebook Ads, Promoted Tweets

Summarize your idea and get it in front of people who have expressed an interest in it by having searched for your keywords and clicked your ad – get conversations (and/or test hypotheses using landing pages).

http://www.cindyalvarez.com/best-practices/customer-development-interviews-how-to-finding-people

Finding people

Twitter Search

Look for people who have already discussed a similar product, problem, or solution and address a tweet directly to them:

“@username Would love yr feedback on [product/problem/solution] – shd only take 2mins [URL] thanks!”

Finding people

Google Alerts

Set up Google Alerts for your product/problem/solution – when it finds relevant blog posts or comments, email and ask for feedback:

“I read your [post/comment] about [product/problem/solution]. I’m currently working on a related idea and I think your opinion would be very valuable to me – could you take 2 minutes and check out [URL]? Thank you – I’d be happy to return the favor any time.”

Interview tips

http://www.giffconstable.com/2011/07/12-tips-for-customer-development-interviews-revised/

Much faster to build => get quantitative feedback sooner.

Use a low-fi landing page as substitute for – and introduction to – conversations.

Key to drive traffic through AdWords/Facebook Ads/Promoted Tweets etc.

Build (design test), measure (run test) and analyze (evaluate test)!

Web

http://blog.kissmetrics.com/landing-page-blueprint/

Landing page design

Reality check!

CustDev and ProdDev teams meet and discuss the lessons learned from the field.

”Here is what we thought about customers and their problems, here is what we found out”

BM hypotheses, product specs or both are jointly revised.

Test Solution Hypothesis

1) ”We believe you have this important problem” – listen (check). 2) Demo how your product solves the problem. Focusing on a few key features.

Include workflow story: ”life before our product” and ”life after our product” – listen!

3) ”What would this solution need to have for you to purchase it?” Listen, ask follow up questions.

Dropbox

• 1st solution test: a three minute video made in the founder’s apartment before a complete code was written.– Generated valuable feedback from visionary customers.

• 2nd solution test: another video of the product that was posted on a social network.– Waiting list jumped from 5 000 to 75 000.

• Dropbox’s original intent was to build and ship their product in eight weeks.

• Instead, they gathered feedback and launched a public version 18 months later.

Test Product Hypotheses

After demoing, ask about other things: Positioning – how do they describe the product?Product category (new, existing, resegmented)CompetitorsFeatures needed for first versionPreferred revenue modelPricingAdditional service needsMarketing – how do they find this type of product?Purchasing processWho has a budget?etc.

Build out a high-fidelity web page with “functioning” back-end, based on lessons learned.

“Mechanical Turk”-solution.

Ask for money: first “pre-order” then charging.

Continue to test, measure and analyze!

Web

Reality check!

CustDev and ProdDev teams meet and discuss the lessons learned.

”Here is what we thought about product features and here is what we found out”

BM hypotheses, product specs or both are again jointly revised.

What are your customers top problems?How much will they pay to solve them?

Does your product concept solve them?Do customers agree? How much will they pay for it?

Can you draw a day-in-the-life of a customer?Before & after your product

Can you draw the org charts of users, buyers and channels?

Customer Discovery: Exit Criteria

Customer Validation

• Develop and sell MVP to passionate earlyvangelists• Validate a repeatable sales roadmap• Verify the business model

Based on your insights from Customer Discovery, sell the smallest feature set customers are willing to pay for!

• Purpose 1: Reduce wasted engineering hours (and wasted code)

• Purpose 2: Get something into the hands of earlyvangelists as soon as possible => maximize learning!

Minimal Viable Product

The Apple I, Apple’s first product, was sold as an assembled circuit board and lacked basic features such as a keyboard, monitor and case.

The owner of this unit added a keyboard and a wooden case.http://en.wikipedia.org/wiki/Apple_Inc.

The MVP is not the goal = Requires commitment to iteration!

• “A complex system that works is invariably found to have evolved from a simple system that worked.”

• “A complex system designed from scratch never works and cannot be made to work. You have to start over, beginning with a working simple system.”

Minimal Viable Product

Not helpful

Jackpot!

1. Has a problem

2. Understands he or she has a problem

3. Actively searching for a solution

4. Cobbled together an interim solution

5. Committed and can quickly fund a solution

Types of earlyvangelists

Do you have a proven sales roadmap?Organization chart? Influence map?No staffing until roadmap is proven!

Do you have a set of orders ($’s) of the product validating the roadmap?

Is the business model scalable?LTV > CAC, Cash

Customer Validation: Exit Criteria

If yes – Start executing

If no – Pivot!

• The heart of Customer Development

• Change without crisis (and without firing executives)

“The idea that successful startups change directions but stay grounded in what they've learned”

Pivot

Adapt the Business Model until you can prove it works

search

execution

• Grow customers from few to many

• Comes after proof of sales

• Inject $’s for scale

• This is where you “cross the chasm”

• “Growth Hacking”

Customer Creation

• (Re)build company’s organization & management• Dev.-centric Mission-centric Process-centric

Company Building

•Customer Discovery Articulate and Test your Business Model Hypotheses•Customer Validation Sell your MVP and Validate your BM & Sales Roadmap•Customer Creation Scale via relentless execution and fill the sales pipeline•Company Building (Re)build company’s organization & management

Summary – Customer Development

Don’t do a Boo!Concept Product Dev. Alpha/Beta

TestLaunch/1st Ship

“We have been too visionary. We wanted everything to be perfect, and we have not had control of costs"

Ernst Malmsten(BBC News, May 18 2000)

Henrik BerglundChalmers University of Technology

Center for Business Innovationhenber@chalmers.se

www.henrikberglund.com

@khberglund

Tack!

2013-02-15 143

by Steve Blank and Bob Dorf

More info: www.steveblank.comBuy the book: http://www.amazon.com/gp/product/0984999302/

Presentation based on

developed by Steve Blank and Bob Dorf

http://www.slideshare.net/sblank/

Using slides from