Customer Development 4: Customer Discovery Part 1

Customer Development in the High Tech Enterprise MBA 295-F/EMBA 295-F Customer Discovery: Part 1 Steve Blank sblank@kandsranch.com 1

Agenda Case: WebVan  Startup Hypothesis  Testing the Problem  Customer Development Team  Testing the Product Concept  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Webvan Case 3

Customer Discovery: Step 1 Customer Customer Customer Company Discovery Validation Creation Building Existing Market: 1 Month – 1 Year Resegmenting a Market: 6 Months – 3 Years New Market: 1 Year – 3 Years MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Customer Discovery: Step 1 Customer Customer Customer Company Discovery Validation Creation Building Existing : 1-6 Months Resegmenting: 3-12 Months New: 1-2 Years MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Methodology Customer Development can take months or years  Each Step has a set of phases  Plan what you need to learn in writing so everyone knows:   what they should be doing  when they should do it  If they succeeded  If they need to do more These are checklists, not the inviolable commandments  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Before You Start Board and Management Buy-In  Learning and discovery not execution  Customer Development Team  Not traditional hires  Sufficient funding for 2-3 passes  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Modify the Process for Your Company Text Example = Enterprise Software Co.  You need to develop your own  Specifically for your company/market  Don’t quibble about details but understand there is a  process MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Discovery = Hypothesis Testing What are Hypothesis?  Where do Hypothesis come from?  Why Test them?  How do you test them?  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Customer Discovery: Step 1 Customer Customer Customer Company Discovery Validation Creation Building Stop selling, start listening  Test your hypotheses  Two are fundamental: problem and product concept  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Customer Discovery Phase 3 Phase 4 Customer Test Verify, Iterate & Discovery Product Expand Hypothesis To Validation Phase 1 Phase 2 Author Test Hypothesis Problem Hypothesis MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Customer Discovery Hypotheses Customer Distribution Demand Market Type Product Competitive & Problem & Pricing Creation Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis Test “Problem” Hypothesis “Problem” Customer Market Friendly Presentation Understanding Knowledge First Contacts Test “Product” Hypothesis “Product” Yet More Second First Reality Presentation Customer Reality Check Check Visits Verify Verify the Iterate or Verify the Verify the Business Exit Problem Product MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 Model

Customer Discovery Hypotheses Inside the Building Customer Distribution Demand Market Type Product Competitive & Problem & Pricing Creation Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis Test “Problem” Hypothesis “Problem” Customer Market Friendly Presentation Understanding Knowledge First Contacts Outside the Building Test “Product” Hypothesis “Product” Yet More Second First Reality Presentation Customer Reality Check Check Verify Visits Verify the Verify the Iterate or Verify the Problem Business Exit Product MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 Model

Phase 1: Author Hypothesis One-time writing exercise Phase 3 Phase 4  Product Iterate & Concept Expand All other time spent in  Testing front of customers Assumes you’re smart but Phase 1  guessing Phase 2 Author Test Problem Hypothesis Hypothesis MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Hypothesis Product  Customer/Problem  Distribution/Pricing  Demand Creation  Market Type  Competition  Customer Distribution Demand Market Type Product Competitive & Problem & Pricing Creation Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Product Hypotheses Features  Benefits  Product Delivery Schedule  Intellectual Property  Total Cost of Ownership  Dependency Analysis  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Intermission The Customer Development Team 17

Traditional organizations and titles Fail Typical Startup CEO VP Engineering VP Marketing VP Sales VP Business Dev People equate their titles with their functions  But standard titles describe execution functions  We need new titles = learning & discovery functions  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Customer Development Team Tasks Not Titles Customer Development Driven Startup CEO VP Product Dev Technical Visionary Business Visionary Business Execution In Front of Customers MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

End of Intermission 20

Customer/Problem Hypotheses Types of Customers/Archetypes  Magnitude of the problem  Visionaries  A Day in the Life of a customer  Organizational impact  ROI Justification  Problem Recognition  Minimum Feature Set  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Distribution/ Pricing Hypotheses Distribution Model  Distribution Diagram  Sales Cycle/Ramp  Channel strategy  Pricing (ASP, LTV)  Customer Organization Map  Demand Creation  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Demand Creation Hypotheses How do competitors create demand?  How will you?   Dave McClure’s AARGH model Who are influencers/recommendors?  Key trade shows?  Key trends?  Start assembling advisory board  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Type of Market Hypotheses Positioning and Differentiation  Existing Market  The product is the basis of competition  New Market  Creating the market is the basis of competition  Redefine Existing Market  Resegment the existing market is the basis of  competition MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Competition Hypotheses Who is out there?  Why are they important?  How do customers use them today?  What don’t customers like about them?  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Next Week: Discovery Part 2 Read  Christensen  Discovering What Has Already Been Discovered  Note on Lead User Research  Blank  Four Steps to the E.piphany – Chapter 3  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

XP Phases (Extreme Programming) XP by far most common agile method  Exploration   customers write story cards  Project team becomes familiar with tools, technology and practices Planning   set priority of stories & contents first release Iterations to Release   iterations before releases Productionizing   extra testing & checking before release to customer Maintenance and Death   new iterations and no more more customer stories MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

XP Practices (Extreme Programming) Planning game   programmers estimate effort of implementing cust stories customer decides about scope and timing of releases  Short releases   new release every 2-3 months Simple design   emphasis on simplest design Testing   development test driven. Unit tests before code Refactoring   restructuring and changes to simplify Pair Programming   2 people at 1 computer MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

XP (Extreme Programming) Roles and Responsibilities Programmer   writes tests and then code Customer   writes stories and functional tests Tester   helps customer write tests and runs them Tracker   gives feedback on estimates and process on iterations Coach   person responsible for whole process Consultant   supplies specific technical knowledge needed Manager   makes decisions MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

XP (Extreme Programming) Practices Collective ownership   anyone can change any part of the code at any time Continuous integration   new builds as soon as code ready 40 hour week   maximum 40-hour week. No overtime On-site customer   customer present and available full-time for team Coding standards   rules exist and are followed Open workspace   large room small cubicles Just rules   team has own rules but can be changed any at time MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Scrum Phases Pregame  Planning - define system. Product Backlog  Architecture - high level design of system  Development  Iterative cycles (sprints) - new/enhanced functionality  Postgame  Requirements satisfied - no new items or issues  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Scrum MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Scrum Practices Product Backlog   Current prioritized list of work to be done Effort Estimation   iterative on Backlog items Sprint   30 day iteration Sprint Planning Meeting   decide goals for next sprint and how team will implement Sprint Backlog   Product Backlog items for sprint Daily Scrum meeting   what doing, what will do, and any problems Sprint Review Meeting   present results of sprint MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Scrum Roles and Responsibilities Scrum Master  project following rules and practices  Product owner  officially responsible for project  Scrum Team  project team  Free to organize as they see fit to achieve goals of each sprint Customer  participates in Backlog items  Management  Makes final decisions  MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

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Customer Development 4: Customer Discovery Part 1

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