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

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?

Focus on Customers and Markets from Day One

How?

Build a Customer Development Process Concept/ Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship Product Development Customer Development ? ? ? ?

Customer Development and Product Development Concept/ Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship Product Development Customer Development Company Building Customer Discovery Customer Validation Customer Creation

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

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

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 Customer Discovery Customer Validation Company Building Customer Creation

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

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 Discovery Customer Validation Customer Creation Company Building Develop a repeatable and scalable sales process Only earlyvangelists are crazy enough to buy

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?

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?

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 Who Cares? Type of Market changes EVERYTHING Sales, marketing and business development differ radically by market type Details next week New Market Resegmented Market Existing 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 Market Market Size Cost of Entry Launch Type Competitive Barriers Positioning Sales Sales Model Margins Sales Cycle Chasm Width Finance Ongoing Capital Time to Profitability Customers Needs Adoption New Market Resegmented Market Existing Market

Market

Market Size

Cost of Entry

Launch Type

Competitive Barriers

Positioning

Sales

Sales Model

Margins

Sales Cycle

Chasm Width

Finance

Ongoing Capital

Time to Profitability

Customers

Needs

Adoption

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 New Market Resegmented Market Existing 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 Problem: known Solution: known Waterfall Requirements Design Implementation Verification Maintenance

Agile Unit of progress: a line of working code Problem: Known Solution: Unknown “ Product Owner” or in-house customer

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

Minimize TOTAL time through the loop IDEAS CODE DATA BUILD LEARN 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

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

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

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 CODE DATA BUILD LEARN MEASURE Code 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 Customer Development 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: “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

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