Customer Development at Startup2Startup
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The Customer Development Model
Steve BlankStanford School of Engineering /
UC Berkeley, Haas Business Schoolwww.steveblank.com
Eric RiesThe Lean Startup
Startuplessonslearned.blogspot.com
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More startups Fail from a Lack of Customers than from
a Failure of Product Development
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Conundrum
• We have process to manage product development
• We have no process to manage customer development
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An Inexpensive Fix
Focus on Customers and Markets from Day One
How?
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Build a Customer Development Process
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
Customer Development
? ? ? ?
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Customer Development and Product Development
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
Customer Development
CompanyBuilding
CustomerDiscovery
CustomerValidation
Customer Creation
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Customer Development: Key Ideas
• Parallel process to Product Development (agile)
• Measurable Checkpoints
• Not tied to FCS, but to customer milestones
• Notion of Market Types to represent reality
• Emphasis is on learning & discovery before execution
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• Stop selling, start listening– There are no facts inside your building, so get outside
• Test your hypotheses – Two are fundamental: problem and product concept
Customer Discovery: Step 1
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
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Customer Discovery: Exit Criteria
• 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?
• Draw a day-in-the-life of a customer (archetypes)– before & after your product
• Draw the org chart of users & buyers
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Customer Validation: Step 2
CustomerDiscovery
CustomerValidation
Customer
Creation
CompanyBuildin
g
• Develop a repeatable and scalable sales process
• Only earlyvangelists are crazy enough to buy
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Customer Validation: Exit Criteria
• Do you have a proven sales roadmap?– Org chart? Influence map?
• Do you understand the sales cycle?– ASP, LTV, ROI, etc.
• Do you have a set of orders ($’s) validating the roadmap?
• Does the financial model make sense?
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Sidebar
Market Type
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New Product Conundrum
• New Product Introductions sometimes work, yet sometimes fail– Why?– Is it the people that are different?– Is it the product that are different?
• Perhaps there are different “types” of startups?
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Three Types of Markets
• Who Cares?• Type of Market changes EVERYTHING• Sales, marketing and business development
differ radically by market type• Details next week
Existing Market Resegmented Market
New Market
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Type of Market Changes Everything
• Market– Market Size– Cost of Entry– Launch Type– Competitive
Barriers– Positioning
• Sales– Sales Model– Margins– Sales Cycle– Chasm Width
Existing Market
Resegmented Market
New Market
• Finance• Ongoing Capital• Time to Profitability
• Customers• Needs• Adoption
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Definitions: Three Types of Markets
• Existing Market– Faster/Better = High end
• Resegmented Market– Niche = marketing/branding driven– Cheaper = low end
• New Market– Cheaper/good enough can create a new class of
product/customer– Innovative/never existed before
Existing Market
Resegmented Market
New Market
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So What Does Engineering Do?
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Problem: known Solution: known
Waterfall
Traditional Product DevelopmentUnit of progress: Advance to Next Stage
Requirements
Design
Implementation
Verification
Maintenance
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Problem: Known Solution: Unknown
“Product Owner” or in-house customer
AgileUnit of progress: a line of working code
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Problem: Unknown Solution: Unknown
Product Development at Lean StartupUnit of progress: validated learning about customers ($$$)
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Minimize TOTAL time through the loop
IDEAS
CODEDATA
BUILDLEARN
MEASURE
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So What Do I Do?
Really
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First Steps• Fact-based culture, built to learn• Decide on business model
– What are the "fundamental drivers of growth”
• Create a decision loop (build-measure-learn)
• Write your hypotheses down (3 diagrams)– Business model, distribution channel, demand creation
• Prove it in micro-scale
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Execution
• Relentless execution• Team needs to be true believers not employees • Focus on the few things that matter • Don’t confuse your hypothesis with facts• Continuous customer contact • Only you can put your company out of business
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General Principles
• If you think entrepreneurship is about the money become a VC
• If everyone else thinks it’s a bad idea that may be a good sign
• The better your reality distortion field the more you need to get outside the building
• Ethics and values are about what you practice when the going gets tough
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Further Reading
Course Text at: www.cafepress.com/kandsranch
Blogs www.steveblank.com
http://startuplessonslearned.blogspot.com/
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There’s much more…
IDEAS
CODEDATA
BUILDLEARN
MEASURE
Code FasterUnit Tests
Usability TestsContinuous Integration
Incremental DeploymentFree & Open-Source Components
Cloud ComputingCluster Immune System
Just-in-time ScalabilityRefactoring
Developer Sandbox
Measure FasterSplit TestsClear Product OwnerContinuous DeploymentUsability TestsReal-time MonitoringCustomer Liaison
Learn FasterSplit TestsCustomer InterviewsCustomer DevelopmentFive Whys Root Cause AnalysisCustomer Advisory BoardFalsifiable HypothesesProduct Owner AccountabilityCustomer ArchetypesCross-functional TeamsSemi-autonomous TeamsSmoke Tests
Funnel AnalysisCohort Analysis
Net Promoter ScoreSearch Engine Marketing
Real-Time AlertingPredictive Monitoring
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Thanks!
• Startup Lessons Learned Blog– http://startuplessonslearned.blogspot.com/
• Webcast: “How to Build a Lean Startup, step-by-step”– May 1, 2009 at 10am PST– http://www.oreillynet.com/pub/e/1294
• The Lean Startup Workshop– An all-day event for a select audience– May 29, 2009 in San Francisco– Sign up at: http://bit.ly/a5uw8