Customer Development and Keyser Soze

Customer Development: Kool-Aid, Case Studies and a Book Patrick Vlaskovits @vlaskovits, CustDev.com Los Angeles Lean Startup Circle Meetup at Coloft in Santa Monica May 18, 2010 Hashtags: #LeanStartup #CustDev #LeanLA

A Few of the (many) Insights from The Four Steps to the Epiphany and Steve Blank
Most startups don’t fail because they haven’t developed a product – they fail because they haven’t developed customers/markets.
A startup’s goal is to find a repeatable and scalable business model. Full stop.
Customer Development is the process of founders “getting out of the building” and searching for that model. It is designed so that the founder gathers first hand experience about customer and market needs.

Steve Blank’s Four Steps of Customer Development

Customer Development = “Nor Cal Kool-Aid”?

Case Study #1: ProProfs.com (Over 300,000 registered users.)

“ Paper is the enemy.” ProProfs online quizzes replace paper quizzes.

New design is rolled out. Users complain.

Founder gets on the phone with paying customers.

Something missing.

Founder has “Keyser Soze” moment.

Guess what? Everything you know is wrong.

Results?!
Value proposition and use cases for paying customers are revealed.
Changed features, positioning/marketing, pricing and copy.

Case Study #2
My startup: event-specific business/social networking web app. (Conferences, conventions, and trade-shows)
Value prop: Event attendees can find each other before, during and after an event.

Assumed Pain(s)
Event Organizer
Attendance and sponsorship is down for foreseeable future.
Event Attendees
Want to know who will be attending and not rely on chance to meet relevant attendees.

Assumed Benefits/Solutions
Event Organizer
Provide more value/reason to attend or sponsor event. Unlock value within event. Charge more for event and increase sponsorships.
Event Attendees
Give them reason to attend. See who is attending and get in contact with them.

Validation & Testing (before coding)
Is there a problem? If so, is our app the solution?
Will people pay us for this? If so, how much?
Who are these people, anyway? And how do we sell to them?
My original (anonymous) case study on LSC can be found here: http://bit.ly/CustDevCaseStudy

Screenshot in Photoshop: #1

Letter of Intent text available at: http://bit.ly/CustDevLOI

Discovery and Learning
Pricing and price discovery.
Intention discovery. Do they actually want to buy our product?
Terms. Can we sign them up for 18 months? 24 months? 3 months? Month-to-month? Per usage?

And we’re off….
Had 2 signed LOIs in hand before coding started.
Building something that people will use and intend to pay for.
Sales cycle underway.
Found some early adopters.
Learning about positioning/marketing and channels. (e.g. “web app” means nothing to our target clients.)

I continue drinking the “Nor Cal Kool-Aid”.

Then I have a “Keyser Soze” moment.

Out of a CustDev conversation:
“ I love the idea, but you are missing one big thing. We don’t care about event attendees, we care about sponsors. Make that product and name your price.”
-Event Organizer

Get it at CustDev.com – use promocode: LEANLA

Blogs you should be reading
Steve Blank SteveBlank.com
Eric Ries StartupLessonsLearned.com
Sean Ellis Startup-Marketing.com
Dave McClure 500hats.typepad.com
VentureHacks VentureHacks.com
Brant Cooper MarketByNumbers.com
Mine? Vlaskovits.com
(Not a blog, but very useful):
Rich Collins Lean Startup Circle on Google Groups

How to get a hold of me
Email: [email_address]
Twitter: @vlaskovits
Blog at vlaskovits.com

Get it at CustDev.com – use promocode: LEANLA

Key Concepts
Get out of the building
Engage customers not for “feature mongering,” but to test if particular segment has pain and will pay for resolution
MVP (Minimum Viable Product)
Build minimum functionality that resolves problem to degree such that customer will pay
Product-Market Fit
40-50% of customers would be “very disappointed” if product no longer available
Learn before burn – achieve P-M fit before scaling

Key Concepts (cont)
Sales and Marketing Roadmap
Identifying, testing, prioritizing, measuring, and optimizing customer segment acquisition and conversion funnels
Market Type
How you scale depends on your market position
Existing markets (fighting incumbents directly) & New markets (brand new product type ) requires Millions in marketing spend
Re-segmented markets (low cost or niche functionality) require less money, but careful positioning
Pivot
Disciplined change to business model based on market facts

Figure from the Entrepreneur’s Guide to Customer Development: Lean Startup: Customer and Product Development Interrelatedness

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Customer Development and Keyser Soze

by Patrick Vlaskovits on Jun 09, 2010

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