The Customer Development Model

Steve Blank
Stanford School of Engineering /
UC Berkeley, Haas Business School
www.steveblank.com

Eric Ries
The Lean Startup
Startuplessonslearned.blogspot.com
 More startups Fail from
a Lack of Customers than from
a Failure of Product
Development
 Conundrum

• We have process to manage

product development

• We have no process to manage

customer development
 An Inexpensive Fix

Focus on Customers and Markets

from Day One

How?
Build a Customer Development Process

Product Development

Concept/ Product Alpha/Beta Launch/1st

Bus. Plan Dev. Test Ship

Customer Development

? ? ? ?
 Customer Development and
Product Development
Product Development

Concept/ Product Alpha/Beta Launch/1st

Bus. Plan Dev. Test Ship

Customer Development

Customer Customer Customer Company

Discovery Validation Creation Building
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

 Customer Discovery: Step 1

Customer Customer Customer Company

Discovery Validation Creation Building

• 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: 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

 Customer Validation: Step 2

Customer Customer Customer Company

Discovery Validation Creation Building

• Develop a repeatable and scalable sales process

• Only earlyvangelists are crazy enough to buy
 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?

 Sidebar

Market Type
 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?
 Three Types of Markets

Existing Market Resegmented New Market

Market

• Who Cares?
• Type of Market changes EVERYTHING
• Sales, marketing and business development
differ radically by market type
• Details next week
Type of Market Changes Everything

Existing Market Resegmented New Market

Market

• Market • Sales • Customers

– Market Size – Sales Model • Needs
– Cost of Entry – Margins • Adoption
– Sales Cycle
– Launch Type
– Chasm Width
– Competitive • Finance
Barriers • Ongoing Capital
– Positioning • Time to Profitability
Definitions: Three Types of Markets
Existing Market Resegmented New Market
Market

• 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
So What Does Engineering Do?
 Traditional Product Development
Unit of progress: Advance to Next Stage
Waterfall

Requirements

Design
Problem: known Solution: known
Implementation

Verification

Maintenance
 Agile
Unit of progress: a line of working code

“Product Owner” or
in-house customer

Problem: Known Solution: Unknown

 Product Development at Lean Startup
Unit of progress: validated learning about customers ($$$)

Problem: Unknown Solution: Unknown

Minimize TOTAL time through the loop

IDEAS

LEARN BUILD

DATA CODE

MEASURE
So What Do I Do?

Really
 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
 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
 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
 Further Reading
Course Text at:
www.cafepress.com/kandsranch

Blogs
www.steveblank.com
http://startuplessonslearned.blogspot.com/
 There’s much more…

IDEAS

Learn Faster Code Faster

Split Tests
LEARN BUILD Unit Tests
Customer Interviews Usability Tests
Customer Development Continuous Integration
Five Whys Root Cause Analysis Incremental Deployment
Customer Advisory Board Free & Open-Source Components
Falsifiable Hypotheses Cloud Computing
Product Owner Accountability Cluster Immune System
Customer Archetypes DATA CODE Just-in-time Scalability
Cross-functional Teams Refactoring
Semi-autonomous Teams Developer Sandbox
Smoke Tests

Measure Faster
MEASURE
Split Tests Funnel Analysis
Clear Product Owner Cohort Analysis
Continuous Deployment Net Promoter Score
Usability Tests Search Engine Marketing
Real-time Monitoring Real-Time Alerting
Customer Liaison Predictive Monitoring
 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