Start Up Customer Development Process

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The Customer Development Model

Steve Blank

Stanford School of Engineering /

UC Berkeley, Haas Business Schoolwww.steveblank.com

Eric Ries

The Lean Startup

Startuplessonslearned.blogspot.com



More startups Fail from

a Lack of Customers than froma Failure of Product

Development



Conundrum

We have process to manageproduct development

We have no process to managecustomer development



An Inexpensive Fix

Focus on Customers and Marketsfrom Day One

How?



Build a Customer Development Process

Concept/Bus. Plan

ProductDev.

Alpha/BetaTest

Launch/1stShip

Product Development

Customer Development

? ? ? ?



Customer Development and

Product Development

Concept/Bus. Plan

ProductDev.

Alpha/BetaTest

Launch/1stShip

Product Development


CompanyBuilding

CustomerDiscovery

Customer Validation

CustomerCreation





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

Customer Validation

CompanyBuilding

CustomerCreation



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

CustomerDiscovery

Customer Validation

CustomerCreation

CompanyBuilding

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 theroadmap?

Does the financial model make sense?



Sidebar

Market Type



New Product Conundrum

New Product Introductions sometimeswork, yet sometimes fail

± Why?

± Is it the people that are different?

± Is it the product that are different?

Perhaps there are different ³types´ of startups?



Three Types of Markets

Who Cares? Type of Market changes EVERYTHING

Sales, marketing and businessdevelopment differ radically by market type

Details next week

Existing Market Resegmented

Market

New Market



Type of Market Changes Everything

M arket

± Market Size

± Cost of Entry

± Launch Type

± CompetitiveBarriers

± Positioning

Sales ± Sales Model

± Margins

± Sales Cycle

± Chasm Width

Existing Market Resegmented Market New Market

Finance

Ongoing Capital

Time to Profitability

Customers Needs

Adoption



Definitions: Three Types of Markets

Existing Market

±F

aster/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 ResegmentedMarket

New Market



So What Does Engineering Do?



Problem: known Solution: known

W

aterfall

Traditional Product Development

Unit of progress: Advance to Next Stage

Requirements

Design

Implementation

Verification

Maintenance



Problem: Known Solution: Unknown

³Product Owner´ or in-house customer

AgileUnit of progress: a line of working code



Problem: Unknown Solution: Unknown

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



Minimize TOTAL time through the loop

IDEAS

CODEDATA

BUILDLEARN

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 its 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 whenthe going gets tough



Further Reading

Course Text at:www.cafepress.com/kandsranch

Blogswww.steveblank.com

http://startuplessonslearned.blogspot.com/



There¶s much more«

IDEAS

CODEDATA

BUILDLEARN

MEASURE

C ode Faster

Unit Tests

Usability Tests

Continuous Integration

Incremental Deployment

Free & Open-Source Components

Cloud Computing

Cluster Immune System

Just-in-time Scalability

Refactoring

Developer Sandbox

Measure Faster Split Tests

Clear Product Owner

Continuous Deployment

Usability Tests

Real-time Monitoring

Customer Liaison

Learn Faster

Split Tests

Customer Interviews


Five Whys Root Cause Analysis

Customer Advisory Board

Falsifiable Hypotheses

Product Owner Accountability

Customer Archetypes

Cross-functional Teams

Semi-autonomous Teams

Smoke Tests

Funnel Analysis

Cohort Analysis

Net Promoter Score

Search Engine Marketing

Real-Time Alerting

Predictive Monitoring



Thanks!

Startup Lessons Learned Blog ± http://startuplessonslearned.blogspot.com/

Webcast: ³How 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

Documents

Start Up Customer Development Process