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bobdorf@gmail.com
twitter: @bobdorf
www.bobdorf.nyc
some slides © Steve Blank
An Introduction and DobroPozhalovat!
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This is not a Fad…
•Many thousandsof startups
•Moscow GVA Startup Academy…7th time!
•USA National Science Foundation
•400+ leading Universities
•Many major corporations
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More startups fail from a lack of customers than from a failure of product development
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Why are we here??
•The odds are very much againstyour success
•We want to reduce the risk of failure
•And provide a method to help you and your team build a strong, enduring company!
…What really matters most:
•GREAT companies with long-term potential
•Excited CUSTOMERS who tell their friends
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500 startup misteaksin 608 pages….
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7=2+2-3

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27=7+6

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why math matters:

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650,000!

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12? (or 0.2%?)

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A great iPhone appto manage recipes??

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your investment: >20,000++ hours

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YOUR startup will likely FAIL…

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YOUR startup will likely FAIL… the most likely cause: a lack of customers

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make your startup MATTER

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It’s MUCHharderhere in Russia: -web penetration-online credit use

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It’s MUCHharderhere in Russia: -web penetration-online credit use-available investment

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It’s MUCHharderhere in Russia: -web penetration-online credit use-available investment-marketing talent-oh, and did I say…

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What do I dodifferently? CUSTOMER DISCOVERY

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What do I dodifferently? CUSTOMER DISCOVERYREFINE, IMPROVE YOUR IDEA

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What do I dodifferently? CUSTOMER DISCOVERYREFINE, IMPROVE YOUR IDEAGO SLOWER AND FASTER

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What do I dodifferently? CUSTOMER DISCOVERYREFINE, IMPROVE YOUR IDEAGO SLOWER AND FASTERRAISE AS LITTLE AS YOU CANWORK AS HARD AS YOU CAN

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Key question #1: be Google??

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Key question #1: be Google?? Or be happy?

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Startups are a Smaller Version of a Large Company

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Startups Search Companies Execute

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All You Need to Do: Execute the Plan

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You Just Need to Make the Forecast

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If it were all so easy, we’d all be Oligarchs!

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PAUSEQUESTIONS??

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The New, Better Wayto build Great Startups: CUSTOMER DEVELOPMENT

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Your Partner (I hope):
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•a step-by-step process guide
•~200,000 copies in ~18 languages
•taught at ~ 400 Universities
•7x, many successes GVA Startup Academy
•Amazon’s #1 entrepreneurship title
•“test driven” by many thousands of startups

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The Better Way: no plan. Start with aBUSINESS MODEL!

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cartoons (c) Steve Blank

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The canvas: before we move on
•The “Mad Russian” approach
•Powerful tool designed for ANY business
•Use it to audit your, competitors businesses
•Use separate canvases for each segment!!
•Use it to figure out what to go out and test
•BE SURE your investors, team, understand!
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But, Realize They’re Hypotheses

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images by JAM
customer segments
key partners
cost structure
revenue streams
channels
customer relationships
key activities
key
resources
value proposition
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3key Discovery phases
1: Does anybody care?
…are we solving a serious problem?
…are we filling a “big” need?
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3key Discovery phases
1: Does anybody care?
…are we solving a serious problem?
…are we filling a “big” need?
2. Become Your Own Customer
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3key Discovery phases
1: Does anybody care?
…are we solving a serious problem?
…are we filling a “big” need?
2. Become Your Own Customer
3: Does our product do the job?
…do they grab it out of your hands?
…are they eager to tell their friends?
(product/market fit)
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Customer Discovery RULES:
…DON’T talk to friends or family!
…FOUNDERS must do this themselves
…Unstructured, peer-to-peer chats
…DO NOT SELL!!!

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When it doesn’t work: The Pivot
•The heart of Customer Development
•Iteration without crisis
•Fast, agile and opportunistic
CustomerDiscovery
CustomerValidation
Pivot
Search

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When it still Doesn’t Work(hint: that’s most of the time…)

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DO IT AGAIN!

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What do I dodifferently? CUSTOMER DISCOVERY

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Product/Market Fit: Why do we Care so Much?
•It ain’ta business without it
•It usually takes quite a few tries
•(sadly, right now, you have the time!)

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images by JAM
customer segments
key partners
cost structure
revenue streams
channels
customer relationships
key activities
key
resources
value proposition
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VALUE PROPOSITIONS
images by JAM
What are you offering them?
What are you doing for them?
Does anybody care? 54

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Product/Market Fit: Why do we Care so Much?
•It ain’ta business without it
•It usually takes quite a few tries
•You can’t settle for 3’s and 4’s…
•…if the goal is Compelling, Scalable, Profitable!

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Product/Market Fit: Why do we Care so Much?
•It ain’ta business without it
•It usually takes quite a few tries
•You can’t settle for 3’s and 4’s…
•…if the goal is Compelling, Scalable, Profitable!
…”If we can do this for Ford, Schwab, BA…”
…When we tell our friends as a favor to them!
…There’s NO ALTERNATIVE

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What does your product do? Pain Killers vs. Gain Creators

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Pain Killers
Reduce or eliminate wasted time, costs, negative emotions, risks… during and after getting the job done

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Pain Killers -Hypotheses
•Perform better?
•Produce savings? Time, money, or effort
•Fix underperforming e-solutions?
new features, better performance, better quality, speed
•Ends customers’ difficulties/challenges
make things easier, help them get done, eliminate resistance
•Eliminate risks/enhance vs“old way”
•educational, social, technical risks, what could go awfully wrong
•Make your customers feel better?
e.g. kills frustrations, annoyances, inefficiency, stress, headaches
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Pain Killer –Problem or Need?
•Are you solving a serious, painful Problem?
•Are you fulfilling a Need?
•For who? How many users/customers/seats?
•How often do I have this problem???
•Will I lose my spouse, house, grant, job?
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Pain Killer Ranking
•Rank each pain your products and services according to their intensity for the customer.
•Is it very intense or very light?
•For each pain indicate its frequency
•Is it intense/frequent enough to be a business?
•Angel cleaner
•Is the core product a passing grade or an attempt?
•Where is it “needed” or “painful”
•Is it worse for certain segments?
•Is it different selling to parents vsschool systems?
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Gain Creators:
Do they create benefits customers expect, desire or get surprised by?
•functional utility
•enhanced value to client’s product
•cost savings
•Improved productivity

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Gain Creator-Ranking
•Rank the gain your product or service creates
•Base rank on relevance to the customer(who?)
•Compare ASAP to established/installed options
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Gain Creator-Ranking
•Rank the gain your product or service creates
•Base rank on relevance to the customer(who?)
•Compare ASAP to established/installed options
•Is gain substantial or insignificant?
•How frequently does the gain occur?
•How much “incremental gain” do you deliver?
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Value Proposition: WHAT’S IN IT?
1.Product
a.Long-term Product Vision
b.Features
c.Benefits
d.MVP spec!!!!
2.Competitive Set and differentiation
3.Market Size
4.Relative Pricing SWAG
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What’s a Minimum Viable Product?
•Diapers.comwithout diapers
•Googlewithout ads
•Zapposwithout inventory
…Fewest possible features to make the point!
…Why? Powerpointfeedback is blurry.
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Minimum Viable Product in your world?
•It works! Acceptable to customers
•It could sell! Acceptable to management
•Adequate to demonstrate value
•“not embarrassing”
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Common Value Prop Mistakes
•Is it just a feature or a product?
•Is it a product or a business?
•“nice to have” vs. “got to have”
•Who wants this? My customer/my boss?
…Customer ENTHUSIASM:
–“Not 3’s or 4’s…” seek “buy it now”
–If viral, marketing more economical
–Sell direct or thru existing channel, partners
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Common Value Proposition Mistakes
•Is it just a feature or a product?
•“nice to have” vs. “got to have”
•Can it scale to become a company?
•Who wants this? My customer/my boss?
…Customer ENTHUSIASM:
–“Not 3’s or 4’s…” seek “buy it now”
–If viral, marketing more economical
–Sell direct or thru existing channel, partners
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Step 2: What’s the Digital MVP?
NOW “low fidelity” web/app for customer feedback
–First, tests your understanding of the problem
LATER, “high fidelity” web/app tests the solution
–Proves that it solves a core problemfor customers
–Minimum set feature set to learn from earlyvangelists
-Avoid building products nobody wants
-Enhance feature sets, usability on the fly
-Maximize product learning vs. time spent
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Step 2: Testing the Digital MVP
•Smoke testing with landing pages using AdWords
•In-product split-testing
•Prototypes (particularly for hardware)
•Removing features
•Continued customer discovery and validation
•Sell it!!
•Trial offers, future offers
•RikersIsland vs. “Revenue now”
•…Mailbox.comand the $100mm smoke test!
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Step 2: Testing the MVP: Tactics
•Interview ALL customer types (no substitute)
–make sure they have a matching core problem
–Understand who owns the problem and its severity for them
–Probe willingness to pay, budget cycle, competition
•Set up test web site landing page
–What offers needed to drive customer trial/adoption
–Use problem definition as described by customers to identify key word list –plug into Google search traffic estimator - high traffic means there is problem awareness
•Drive traffic to site using Google search and see how well customer registration process works
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CUSTOMER SEGMENTS
images by JAM
which customers and users are you serving? which jobs do they really want to get done?
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Who’s a CUSTOMER?
•They give you money or clicks or post stuff
•They may buy it to giveto others to use
•If they sell to others, they’re a channel!
•If they recommend, they’re a partner!
•If they blog about it, they’re a “get tool”
And if that’s not bad enough…
…there are lots of customer TYPES!
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What do they want you to do?
•Decrease costs?
•Increase productivity?
•Add competitive or new efficiency?
•Reduce failure points?
•How important is it?
•Problem or a Need?
•…what else could they want you to do??
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Clues from the Customer Problem
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Customer Problem
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Who’s the Customer, really?
•User?
•Influencer?
•Recommender?
•Decision Maker?
•Economic Buyer?
•Archetypes for each one!
•Can you find the Saboteur?
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How Do They Interact to Buy?
•Organization Chart
•Influence Map
•Sales Road Map
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CanScan
Hospital / Clinic
Reimbursement Model…EXAMPLE
Oncologists
CMS
Private payer/MACClass 4 -Update 2.13.2012
ASCO / NCCN
Lab Advisory Committee
Influence
Payment
Sets rate
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1
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2
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5
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Generate physician interest
Physician lobbies payer/hospital
Regional payer reimburses
National CMS coverage decided
Hospital reimburses CanScan

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How Do They Hear About You?
•Demand Creation
•Network effect
•Your Sales organization
•Other locales?
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When the customer is a parent!!
•How do I reach them through the student?
•How do I collect or encourage the purchase?
•What are school system rules/policies?
•Who am I selling to? Mom or kid?
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If It’s a Multi-sided Market Diagram It!! HINT: YOURS USUALLY IS!

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MammOptics
Hospital purchasing decision tree
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Who’s The Customer?
•B-to-B, often not the end user
•Who’ll be in the room after your pitch?
•(Arlene and the $200,000 “wangkiller”)
•Who’s the customer for kids’ toys?
•Who buys?
•Who pays?
•Who gets asked?
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Who’s The Customer?
•B-to-B, often not the end user
•Who’ll be in the room after your pitch?
•(Arlene and the $200,000 “wangkiller”)
•Who’s the customer for kids’ toys?
•who buys? Who pays? Who gets asked?
FEAR THE WORST:
•Multiple, Distinct Discovery efforts
•Beware “false positives”
•Follow the people…then follow the money
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Multiple Customer Segments
•Each has its own Value Proposition
•Each has its own Revenue Stream
•One segment cannot exist without the other
•Which one do you start with?
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When it Doesn’t Work(hint: that’s most of the time…)

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DO IT AGAIN!

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LET’S TAKE A BREAKYOUR QUESTIONS

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30 MINUTE BREAKYOUR ASSIGNMENT
When we come back…
We welcome a few
brave volunteers!

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Once you have a business model,thehard work starts! Customer Development
Get Out of the Building
The founders

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TWO key Discovery phases
•FIRST: Does anybody care?
…are we solving a serious problem?
…are we filling a “big” need?
•THEN: Does our product do the job?
…do they grab it out of your hands?
…are they eager to tell friends?
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Customer Discovery: MUCH more than “do you like it?”
•How big is the market? Not today…eventually!
•Who’s the customer?
•Does product solve the problem?Fill the need?
•Who else solves it? Cheaper? Better? Faster?
•How do you create demand?
•How do you deliver the product?
•Will the customer let you make money?
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Customer Discovery: FIRST, Some Ground Rules
•MUST be done by Leaders, not researchers
•You’re never selling, always asking, probing
•The customer steers the conversation
•No customer can answer every question
•Ask for 5 minutes (consumer) 20 (b-to-b)…
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always remember rule #1: NO SELLING ALLOWED
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2. You’re Hypothesis Testing!
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2. Define hypothesis “success” so youknow it if you find it
•Define discovery pass/fail tests
•Results cannot just be anecdotes
•…what does success look like?
–4 of ten get really excited/want to buy
–One appointment in five calls
–2/3 would learn about it where I’m headed
–Half would tell >3 friends
REMEMBER: recomputethe financial model based on this feedback…it changes LOTS
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Customer Discovery: Before your First Interview
•Know your subject…memorizeyour questions
•“Dress for success,” make them comfortable
•Consider/Rehearse your “Opening Line”
•ALWAYS stress “this is not a sales call”
•NEVER get caught following a script
•Be curious, dig deeper, don’t push an agenda
•Let the customer guide the conversation
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3. Discovery: ROUND ONE!
•PRIMARY MISSION is “test the problem”
•Anything else is gravy…get what you can
•Avoid details on product much as you can
•…how do you solve it now
•…anyone solve it well for you
•…problems with current solutions
…but mostly: do customers care??
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Who Do I Call On?
•WHO is your “customer” here?
•Do NOT do Discovery with friends, colleagues
•Use existing company customers, contacts
•Get referrals from sales, alumni, edu’s, pals
•Don’t worry about titles or the right person
•Can you really talk to anyone?
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I Have a Meeting –Now What?
•The goal is to test all hypotheses but…
•ALWAYS get to product/market fit
–Does the value proposition match the segment?
–Do the customers seem to genuinely care??
•THEN move to other issues
–How do they buy?…How to get their attention?
–How much might they pay? Do they pay today?
–How horrible is the budget cycle?
–Who pays? Teacher? Kid? Parent? System?
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I Have a Meeting –Now What?
•The goal is to test all hypotheses but…
•ALWAYS get to product/market fit
–Does the value proposition match the segment?
–Do the customers seem to genuinely care??
•THEN move to other issues
–How do they buy?…How to get their attention?
–How much might they pay? Do they pay today?
–How horrible is the budget cycle?
–Who pays? Teacher? Kid? Parent? Boss? CFO?
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What Do I Say?
•Remember 1sttest the problem
•“Hi, I’ve been told you’re the smartest...
•Don’t try to get all the answers at once
•Every sentence is a question
•Use “Stack ranking”
•3 columns…Dummy Boxes…“Dry test”
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Conversation Starters
•Does the person match the Target Segment? Yes/No
•Objective 1: Problem Exploration
–Learn if they have the Problem, and how much of a problem it really is by hearing about their Existing Behavior/Usage
•Objective #2: Influence, Control, Cash?
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Conversation Starters: Beginner
Beginner: I’m working on an idea around…
–Have you ever…?
–Tell me about a time you’ve…
–I hear many in my customer segmenthave this problem of…
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Finding the Customer’s Level of Pain
•How frequent? How often a problem?
•Looking for any other solutions?
•What would your ideal solution be?
Remember: its just a simple, unstructuredchat with another person, people love to talk!
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During the Interview:
DO
Take notes
Smile
Ask open-ended questions
Get their story
Shut up and listen
DON’T
Talk about your product
Ask about future behavior
Sell
Ask leading questions
Talk much
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After “Problem” Discovery: Become YOUR Own Customer
•How’d you find this?
•I need solution RIGHT NOW
•Search articles, not just sites
•Line up all the competitors
•…and find your “white space!”
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After “Problem” Discovery: Google and Industry Research
•How big is the market?
•Who’s the customer?
(how’s their problem/need solved today?)
•How do you create demand?
•How do you deliver the product?
•Googleyour product/category 8-12 hours
•CONFIRMyour findings w/industry info
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4. Research Done. Now what?
•Did you meet enough customers?
•Did the answers become consistent, repetitive?
THEN: Assemble all the data, organize/rank responses
•Slam it against industry, third party resources
•Get a tighter, more concise view of the market
•…and adjust your Business Model as you go!
Next:
•Test the “solution” in a very similar way
•It’s more like “test selling”…but not hard-selling!
•…and determine if you “pivot or proceed”
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Testing the Solution:
Dreaded Questions
•Will people use it?
•Why won’t people use it?
•What will they compare it to?
•What’s wrong with it?
•How could I make it better?
•Do people like it?
•Can people find it?
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always remember rule #1: NO SELLING ALLOWED
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FIND the EARLYVANGELISTS
Customers “FOAMING AT THE MOUTH”
1)Have the problem
2)Know they have the problem
3)Searched for solution
4)Hacked a solution
5)Paid for a solution
…when you find these people, you have likely found product/market fit!
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To build a great company, remember: GET OUT OFTHE BUILDING!
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…and when it doesn’t work…
(HINT: THAT’S MOST OF THE TIME)

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The Pivot
•The heart of Customer Development
•Iteration without crisis
•Fast, agile and opportunistic
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Three Great Pivots
•Steve Blank: “Page 6”
•Perimeter: “there are 9000 of us”
•Groupon: the $12billion pivot
•…and hundreds more!
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How do you know when Discovery is “done?”
Key Partners
Who are our key partners/ suppliers
Key Activities
Which key activities does the biz model require
Value Proposition
What value do we deliver to the customer
Customer Relationships
What type of relationship does each segment require of us
Customer Segments
For whom are we creating value
Channels
Through which channel does each segment want to be reached
Revenue Streams
How much is each segment willing to pay and how would they like to pay us this amount
Cost Structure
What are our cost drivers
Key Resources
Which key resources does the biz model require
identify key market segments (geography/application) and customer segments (e.g. operator versus owner)
how many customers in each segment and estimated potential volume for each customer
how do customers make money … key customer pain/gain points in each segment
how are buying decisions made in each segment -id process, hurdles, decision makers
what does an Earlyvangelistlook like in each segment
who influences purchases in each segment (trade groups, key resellers, trend watchers)
key distinctive product features & benefits for the target customer segment
total cost of ownership for segment versus alternatives
why will segment buy Durathonversus alternatives (i.e. value proposition)
minimum feature set (i.e. our launch configuration) and ultimate feature set
opportunities to claim IP or trademark / is there freedom to practice
what regulatory/ certification/ transportation/ customs requirements should be met or could be differentiator
which segments can only or best be reached through a channel partner
which channel partners are important to optimize sales in each segment
what are channel partners' requirements and cost to become a proactive sales channel
initial channel partner response to value proposition & customer segments
What are price /performance characteristics of competing technology
What is the 2013 price target for 1 MM cells
What is the 2015 price target for 10 MM cells
what is optimum sales method for each segment (asset sale, lease, pay for performance, etc.)
product positioning/elevator pitch for each segment
Prospect roadmap: how to get face- to-face with right person at prospects in each segment
key competitors in each segment and their market share
key competitors' characteristics & dynamics
What outbound marketing/ advertising/ promotion activities are needed
support tools required by segment (white papers, TCO calc., tradeshow)
pipeline of leads
x
x
x
X = number of in depth customer data points / data sources used to validate hypothesis
red = low hypothesis confidence
yellow = medium hypothesis confidence
green = high hypothesis confidence
25
25
4
50
3
Complete regional overview
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Populate life cycle data for performance guarantees
Educate market on metric: $/kWh- day delivered over life of asset
Establish strong partnerships with channel partners
Integrated power system engineering –compatibility for retrofit and optimized system solutions
Financing options for Power services operators
Launch reliability
0
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3 Questions to “DONE:”
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Customer Validation
CustomerDiscovery
CustomerValidation
Customer Creation
Company
Building
•Repeatable, scalable profitable?
•Passionate first paying customers?
•Pivot back to Discovery if not!
Pivot
Execution
Search
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118.
Validation is VERY DIFFERENT
•“Test selling” vssearch and exploration
•Is the business “repeatable, scalable”
•Do the “ratios hold up” as you accelerate
•Is it a “Pachinko machine” yet?
(we’ll do lots of team-by-teamwork on this!)
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When It Doesn’t Work(REPEAT: that’s most of the time…)

120.
do it again!

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this is howGREATcompaniesare built!!!

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QUESTIONS?? @bobdorfwww.bobdorf.nyc
tools/more: www.steveblank.com
online canvas: www.canvanizer.com