A Modern Approach to Customer Development

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The focus on this set of slides are on customer development, mainly motivated by Steve Blank's "4 Steps to Epiphany", and centered a lot on customer discovery & validation. Based on a three hour session I have conducted on customer development for a summer school between Nanyang Technopreneurship Centre, Nanyang Technological University & Chonnam University, Korea on 18 June 2013.

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A Modern Approach to Customer Development

  1. 1. Bernard LeongFor Tech-SummerProgram, ChonnamNational University inNanyangTechnopreneurshipCentreA Modern Approach to Customer Development1
  2. 2. Steven Blank & Bob Korf“The Startup Owner’s Manual”A startup is a temporary organization designed to searchfor a repeatable and scalable business model.2
  3. 3. The primary objective of a startup is tovalidate its business model hypotheses(and iterate & pivot until it does).3
  4. 4. Minimum Viable Products4
  5. 5. Successful Companies originate from pivots.5
  6. 6. Introduction: Customer Development6
  7. 7. 7
  8. 8. Customer Development foran early stage company• Step 1: Customer discoverycaptures the founders’ vision &turns it into a series of businessmodel hypotheses. Then itdevelops a plan to test customerreactions to those hypothesesand turn them into facts.• Step 2: Customer validationtests whether the resultingbusiness model is repeatable &scalable - otherwise go back8
  9. 9. Customer Development foran early stage company II• Step 3: Customer creationstarts the executionprocess, builds the end-user demand & drives intosales channel to scale thebusiness.• Step 4: Company-buildingtransitions the start-up intoa company focusing onexecuting a validatedmodel.9
  10. 10. What not to do for customer discovery• Please note that you are not going to do the following:• Understand the needs & wants of all customers.• Make a list of all features customers want before theybuy your product.• hand Product Development a features list of the sumof all customer requests.• hand Product Development a detailed marketingrequirements documents.• run focus groups & test customers’ reactions to yourproduct to see if they will buy10
  11. 11. Customer Discovery Process11
  12. 12. 12
  13. 13. Served AvailableMarket (SAM)Target MarketTotal AddressableMarket (TAM)TAM = How big is the universeSAM = How many can I reachwith my sales channelTarget Market (for a startup) =Who will be the most likelybuyers13
  14. 14. Customer Types• End Users• Influencers• Recommenders• Economic buyers• Decision markers• Saboteurs14
  15. 15. Earlyvangelists:Willing or eager accceleratorsof your viral growth15
  16. 16. Characteristics of a EarlyvangelistHas a problemIs aware of having a problemBeen actively looking for a solutionAssembled a solution out of partsHas/Acquired a budget16
  17. 17. Market Type• Is there an established, well-defined market with largenumbers of customers?• Would some part of an existing market buy a productdesigned to address its specific needs?• Are there customers at the low end who will buy “goodenough” performance?• Is there a “new market” to be created?• Can you adopt/borrow/copy an already successfulbusiness model & company from US and adapt it tolarge local market (China, India, Brazil, Indonesia,Russia)?17
  18. 18. Existing MarketResegmented Market(niche or low cost)New Market Clone MarketCustomersProduct PerformanceCompetitionRisksExisting Existing New/New usage NewBetter/Faster1. Good enough at thelow end.2. Good enough forthe niche.Low in “traditionalattributes”, improvedby new customermetricsGood enough for localmarket.Existing Incumbents Existing IncumbentsNon-consumption/Other startupsNone, foreignoriginatorsExisting Incumbents1. Existing Incumbents2. Niche strategy fails.Market Adoption Cultural AdoptionMarket Type Trade-offs18
  19. 19. 9 Deadly Sins of New ProductIntroduction Model• Assuming “I know what the customer wants” - On day 1, a startup is afaith-based initiative• The “I know what features to build” flaw• Focus on launch date.• Emphasis on execution instead of hypotheses, testing, learning &iteration.• Traditional business plans presume no trials & no errors.• Confusing traditional job titles with what a startup needs toaccomplish.• Sales & marketing execute to a plan.• Presumption of success leads to premature scaling.• Management by crisis leads to a death spiral.19
  20. 20. 20
  21. 21. Business Model Canvas• Market Size: How big the opportunity is.• Value Proposition: Product/Service, its benefits & minimum viableproduct• Customer Segments: who the customer is & what problems the productsolves• Channels: how the product will be distributed and sold.• Customer Relationships: How demand will be created.• Value Proposition, Part 2: Market type hypothesis & competitive set/differentiation.• Key Resources: Suppliers, commodities or other essential elements ofthe business.• Key Partners: other enterprises essential to the success of the business.• Revenue Streams: revenue & profit sources & size.21
  22. 22. Source: http://www.businessmodelgeneration.com/downloads/business_model_canvas_poster.pdf22
  23. 23. Source: http://www.businessmodelgeneration.com/downloads/business_model_canvas_poster.pdfHave we found a Product/Market fit?Who are ourcustomers & How dowe reach them?Can we make money & grow the company?23
  24. 24. Customer Validation• Can the business scale?• Is there a repeatable and scalable salesroadmap? Does the company know the rightprospects to call on or acquire & what to say tothem to consistently deliver sales?• Is the sales funnel predictable?24
  25. 25. 25
  26. 26. Customer Development Manifesto 1• Rule 1: There are no facts inside your building.So get outside.• Rule 2: Pair customer development with agiledevelopment.• Rule 3: Failure is an integral part of the search.• Rule 4: Make continuous iterations & pivots• Rule 5: No business plan survives first contactwith customers.26
  27. 27. Customer Development Manifesto 2• Rule 6: Design experiments & tests to validate yourhypotheses.• Rule 7: Agree with market type: it changes everything.• Rule 8: Startup metrics differ from those in existingcompanies.• Rule 9: Fast decision-making, cycle time, speed &tempo.• Rule 10: It’s all about passion i.e. startups demandexecutives to be comfortable with uncertainty, chaos &change.27
  28. 28. Customer Development Manifesto 3• Rule 11: Startup job titles are very differentfrom a large company.• Rule 12: Preserve all cash until needed.Then spend.• Rule 13: Communicate & share learning.• Rule 14: Customer development successbegins with buy-in.28
  29. 29. References• Eric Ries, “The Lean Startup”• Steve Blank & Bob Dorf, “The Startup Owner’sManual”• Alastair Croll & Benjamin Yoskovitz, “LeanAnalytics: Use Data to Build a Better StartupFaster”• Business Model Generation by AlexanderOsterwalder & Yves Pigneur29
  30. 30. Contact Me• You can connect with me viaLinkedIn with my emailbleongcw@gmail.com• You can check out my blog:http://www.bernardleong.com• You can follow me via twitter:@bleongcw30

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