customer-development

Customer Development In A Nutshell

Customer development is a formal process of identifying potential customers and determining how to meet their needs using testable hypotheses. Entrepreneur and business professor Steve Blank highlighted the Customer Development Manifesto principles in The Startup Owner’s Manual as the core principles for modern startups.

Introducing the customer development manifesto

customper-development-manifesto-steve-blank
The Customer Development Manifesto (Source: steveblank.com)

The customer development manifesto is the foundation of the lean startup.

lean-startup-vs-corporation

Understanding customer development

Customer development is one of the three foundational elements of a lean start-up. However, many start-ups allocate too many resources to product or service development without first considering the needs of their target audience. Who is the ideal customer and what do features do they need? How can they be reached?

Ultimately, no product or service will ever be successful if no consumers are lining up to buy it. Even if the product in question does satisfy a need, is the size of the addressable market large enough to support it? Indeed, does the business have the ability to scale to meet demand if required?

Customer development addresses all of the above questions by discovering, testing, and validating assumptions that many organizations fail to verify.

The four steps of customer development

Customer development is built on the premise that the business must understand market needs and come up with multiple potential solutions. These solutions must have the capacity to be evaluated by testable hypotheses.

This is performed by implementing these four steps.

1 – Customer discovery

First, the vision of the start-up must form the basis of several purely hypothetical business models. Then, the hypothesis of each model should be tested and validated by understanding the needs of real or potential customers. The focus in customer discovery must remain on customer needs and not on technical features.

2 – Customer validation

As noted earlier, a product or service has to address customer needs and be viable. Customer validation is any method that allows the business to develop a predictable sales process.

Viability can be assessed by considering scalability, market fit, market size, feasibility, and repeatability. Furthermore, what is the weight of the problem? Is the product important? That is, will consumers be willing to part with money to own it? Hypotheses that fail customer validation are scrapped and the business must return to the first step.

3 – Customer creation

During the third step, the business must create demand among end-users and direct them through the preferred sales channel. Only after initial sales are made should efforts be made to increase product awareness. This helps control the cash burn rate and ensures that start-ups avoid spending money trying to attract customers from the wrong target audience.

Of course, every market is different. Some start-ups will need to put more thought into product positioning if there is pre-existing competition.

4 – Company building

In the final step of the customer development process, the business moves from an exploratory and testing phase to a phase of execution.

In other words, the business must fill roles in newly created departments such as sales, marketing, customer service, and business development. This naturally leads to the business beginning to scale up, spending more money on marketing and advertising to drive sales.

With a high demand for a product or service, the business moves from a start-up to a company executing on a verified and validated model.

Key takeaways

  • Customer development is a foundational element of a lean start-up involving the identification and verification of a target audience using testable hypotheses.
  • Customer development is a means of formally validating common business assumptions such as market size, market demand, and scalability.
  • Customer development is based on four steps that describe how an emerging start-up can transition to a fully-fledged company with a verified business model.

Read Next: Lean Startup, Continuous Innovation, Design Thinking, Business Design, Value Proposition Design, Jobs-To-Be-Done.

Connected Business Concepts

lean-methodology
The lean methodology is a continuous process of product development to meet customers’ needs. It was in part borrowed by the auto industry and its roots are found in the Toyota Production System, which was heavily influenced by Henry Ford’s assembly line system. The lean methodology is, therefore, an evolution from lean manufacturing, based on continuous improvement.
minimum-viable-product
As pointed out by Eric Ries, a minimum viable product is that version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort through a cycle of build, measure, learn; that is the foundation of the lean startup methodology.
leaner-mvp
A leaner MVP is the evolution of the MPV approach. Where the market risk is validated before anything else
engines-of-growth
In the Lean Startup, Eric Ries defined the engine of growth as “the mechanism that startups use to achieve sustainable growth.” He described sustainable growth as following a simple rule, “new customers come from the actions of past customers.” The three engines of growth are the sticky engine, the viral engine, and the paid engine. Each of those can be measured and tracked by a few key metrics.
product-market-fit
Marc Andreessen defined Product/market fit as “being in a good market with a product that can satisfy that market.” According to Andreessen, that is a moment when a product or service has its place in the market, thus enabling traction for the company offering that product or service.
north-star-metric
A north star metric (NSM) is any metric a company focuses on to achieve growth. A north star metric is usually a key component of an effective growth hacking strategy, as it simplifies the whole strategy, making it simpler to execute at high speed. Usually, when picking up a North Start Metric, it’s critical to avoid vanity metrics (those who do not really impact the business) and instead find a metric that really matters for the business growth.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"