1. Customer Development in the
High Tech Enterprise
Customer Discovery
Parts 2 & 3
Steve Blank
sblank@kandsranch.com
9/23/09 1

2. Class 5 & 6: Agenda
 Logistics/Questions
 Customer Discovery
 Customer Development Team
 CASE: E INK
Customer Development in the High-Tech Enterprise Fall 2009 2

3. E INK Case

3

4. 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
Customer Development in the High-Tech Enterprise Fall 2009 4

5. Customer Discovery
Customer Phase 3 Phase 4
Discovery Test Verify, Iterate &
Product Expand
Hypothesis
To Validation
Phase 1
Phase 2 Author
Test Hypothesis
Problem
Hypothesis
Customer Development in the High-Tech Enterprise Fall 2009 5

6. Customer Discovery
Hypotheses
Product Customer Distribution Demand Market Type Competitive
Hypothesis & Problem & Pricing Creation Hypothesis Hypothesis
Hypothesis Hypothesis Hypothesis
Test “Problem” Hypothesis
Friendly “Problem” Customer Market
First Contacts Presentation Understanding Knowledge
Test “Product” Hypothesis
First Reality “Product” Yet More Second
Check Presentation Customer Reality Check
Visits
Verify
Verify the Verify the Verify the Iterate or
Product Problem Business Exit
Customer Development in the High-Tech Enterprise
Model Fall 2009 6

7. Customer Discovery
Hypotheses
Product
Hypothesis Inside the Building
Customer
& Problem
Hypothesis
Distribution
& Pricing
Hypothesis
Demand
Creation
Hypothesis
Market Type
Hypothesis
Competitive
Hypothesis
Test “Problem”
Friendly
First Contacts
Hypothesis
“Problem”
Presentation
Customer
Understanding
Market
Knowledge
Outside the Building
Test “Product” Hypothesis
First Reality “Product” Yet More Second
Check Presentation Customer Reality Check
Verify Visits
Verify the Verify the Verify the Iterate or
Product Problem Business Exit
Customer Development in the High-Tech Enterprise
Model Fall 2009 7

8. Phase 1: Author Hypothesis
Phase 3
Product
Phase 4
Iterate &
 One-time writing exercise
Concept Expand
Testing  All other time spent in
front of customers
Phase 1  Assumes you’re smart but
Phase 2
Test Author guessing
Problem
Hypothesis Hypothesis
Customer Development in the High-Tech Enterprise Fall 2009 8

9. Hypothesis
 Product
 Customer/Problem
 Distribution/Pricing
 Demand Creation
 Market Type
 Competition
Product Customer Distribution Demand Market Type Competitive
Hypothesis & Problem & Pricing Creation Hypothesis Hypothesis
Hypothesis Hypothesis Hypothesis
Customer Development in the High-Tech Enterprise Fall 2009 9

10. Product Hypotheses
 Features
 Benefits
 Product Delivery Schedule
 Intellectual Property
 Total Cost of Ownership
 Dependency Analysis
Customer Development in the High-Tech Enterprise Fall 2009 10

11. Customer/Problem Hypotheses
 Types of Customers
 Magnitude of the problem
 Visionaries
 A Day in the Life of a customer
 Organizational impact
 ROI Justification
 Problem Recognition
 Minimum Feature Set
Customer Development in the High-Tech Enterprise Fall 2009 11

12. Distribution/ Pricing Hypotheses
 Distribution Model
 Distribution Diagram
 Sales Cycle/Ramp
 Channel strategy
 Pricing (ASP, LTV)
 Customer Organization Map
 Demand Creation
Customer Development in the High-Tech Enterprise Fall 2009 12

13. Demand Creation Hypotheses
 How do competitors create demand?
 How will you?
 Viral
 Advertising
 PR
 Trade shows
 Who are influencers/recommendors?
 Key trade shows?
 Key trends?
 Start assembling advisory board
Customer Development in the High-Tech Enterprise Fall 2009 13

14. 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
Customer Development in the High-Tech Enterprise Fall 2009 14

15. Competition Hypotheses
 Who is out there?
 Why are they important?
 How do customers use them today?
 What don’t customers like about them?
Customer Development in the High-Tech Enterprise Fall 2009 15

16. Intermission
The Customer Development Team
16

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
Customer Development in the High-Tech Enterprise Fall 2009 17

18. Customer Development Team
Tasks Not Titles
Customer Development
Driven Startup
CEO
VP Product Dev Technical Visionary Business Visionary Business Execution
In Front of Customers
Customer Development in the High-Tech Enterprise Fall 2009 18

19. End of Intermission
19

20. Customer/Problem Hypotheses
 Types of Customers
 Magnitude of the problem
 Visionaries
 A Day in the Life of a customer
 Organizational impact
 ROI Justification
 Problem Recognition
 Minimum Feature Set
Customer Development in the High-Tech Enterprise Fall 2009 20

21. Distribution/ Pricing Hypotheses
 Distribution Model
 Distribution Diagram
 Sales Cycle/Ramp
 Channel strategy
 Pricing (ASP, LTV)
 Customer Organization Map
 Demand Creation
Customer Development in the High-Tech Enterprise Fall 2009 21

22. Demand Creation Hypotheses
 How do competitors create demand?
 How will you?
 Viral
 Advertising
 PR
 Trade shows
 Who are influencers/recommendors?
 Key trade shows?
 Key trends?
 Start assembling advisory board
Customer Development in the High-Tech Enterprise Fall 2009 22

23. 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
Customer Development in the High-Tech Enterprise Fall 2009 23

24. Competition Hypotheses
 Who is out there?
 Why are they important?
 How do customers use them today?
 What don’t customers like about them?
Customer Development in the High-Tech Enterprise Fall 2009 24

25. Phase 2:
Test & Qualify Problem
Hypothesis
Phase 3 Phase 4
Test
Product
Iterate &
Expand
 Get out of the building
Hypothesis
 Test the problem
 Become the customer
Phase 1
Phase 2 Author  Solve a real problem
Test Hypothesis
Problem
Hypothesis
Customer Development in the High-Tech Enterprise Fall 2009 25

26. Test & Qualify
Problem Hypothesis
 Friendly First Contacts
 “Problem” Presentation
 Customer Understanding
 Market Knowledge
Friendly “Problem” Customer Market
First Contacts Presentation Understanding Knowledge
Customer Development in the High-Tech Enterprise Fall 2009 26

27. Test & Qualify Problem:
First Contacts
 Build a Rolodex
 Develop “Innovators” list
 Create reference story/sales script
 Schedule Customer Visits
Customer Development in the High-Tech Enterprise Fall 2009 27

28. Test & Qualify Problem:
Create Problem Presentation
 Not a Sales Pitch
 Test of your understanding of the customers
problem
 Problem/Solution – Slide
 Problems column 1
 Today’s solution column 2
 Your solution column 3
 Capture other missing data
Customer Development in the High-Tech Enterprise Fall 2009 28

29. Test & Qualify Problem:
Customer Understanding
 Become a Domain Expert
 Understand their “Day-in-the Life”
 Understand their problems/pain
 Get a feel of how this impacts their life/work
 Who has similar products that solve this problem
 How do they learn about new solutions
 Can they be helpful later
Customer Development in the High-Tech Enterprise Fall 2009 29

30. The Big Idea
 What is the problem?
 Who has the problem?
 How important is the problem’s solution to the
customer?
 How valuable is the problem’s solution to the
customer?
Customer Development in the High-Tech Enterprise Fall 2009 30

31. Test & Qualify Problem:
Market Knowledge
 Get a feel for the “lay of the land”
 Adjacent Market players
 Industry Influencers
 Key Analysts
 Attend Conferences/Tradeshows
Customer Development in the High-Tech Enterprise Fall 2009 31

32. Phase 3:
Test Product Hypothesis
Phase 3 Phase 4
 First reality check
Test Iterate &
Expand
w/product development
Product
Hypothesis  The product hits the street
 Lots of customer visits
Phase 1
Phase 2 Hypothesis  More doses of reality
Test
& Qualify
Hypothesis
Customer Development in the High-Tech Enterprise Fall 2009 32

33. Test Product Hypothesis
 First Reality Check
 Product Presentation
 Yet More Customer Visits
 Second Reality Check
First Reality “Product” Yet More Second
Check Presentation Customer Reality Check
Visits
Customer Development in the High-Tech Enterprise Fall 2009 33

34. Test Product Hypothesis:
First Reality Check
 Build a Workflow Map of customer
 Before and after your product
 Problem scale
 Key insights
 How did the product spec match needs?
 Re-review product feature List
 Why are you different
Customer Development in the High-Tech Enterprise Fall 2009 34

35. Test Product Hypothesis:
Product Presentation
 Questionnaire
 Start w/Problem Presentation
 Then describe the Product
 Demo if you have one
Customer Development in the High-Tech Enterprise Fall 2009 35

36. Test Product Hypothesis:
Yet More Customer Visits
 Set up More Calls
 Validate Solution
 Validate Product
 Validate Positioning
 Understand Customer and Org. Pain
 Validate Pricing and Budget
 Understand “Whole Product” needs
 Understand Approval Process
 Update potential Advisory Board candidates
Customer Development in the High-Tech Enterprise Fall 2009 36

37. Test Product Hypothesis:
Second Reality Check
 Does the product solve a problem?
 Serious problem?
 For a large scalable market?
 How did the product spec match needs?
 Re-review product Feature List
Customer Development in the High-Tech Enterprise Fall 2009 37

38. Phase 4: Verify, Iterate & Expand
Phase 3 Phase 4
 The Problem
Test
Product
Iterate & The Product
Hypothesis Expand
 The Business Model
 Iterate or Exit
Phase 1
Phase 2 Hypothesis
Test
Problem
Hypothesis
Verify the Verify the Verify the Iterate or
Product Problem Business Exit
Model
Customer Development in the High-Tech Enterprise Fall 2009 38

39. Verify, Iterate and Expand:
The Problem
 Problem Hypothesis Testing
 Magnitude of customer needs
 Rank customer problems
 Summary of customer problem input
Customer Development in the High-Tech Enterprise Fall 2009 39

40. Verify, Iterate and Expand:
The Product
 Product match Problem?
 Feature list
 Quantify customer problem
 Summary of customer product input
 Why are you different?
 Review Product Spec
Customer Development in the High-Tech Enterprise Fall 2009 40

41. Verify, Iterate and Expand:
The Business Model
 Customer Model
 ROI
 Market Size
 Service
 Development
 Manufacturing
 Customer Acquisition
Customer Development in the High-Tech Enterprise Fall 2009 41

42. 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
 before & after your product
 Draw the org chart of users & buyers
Customer Development in the High-Tech Enterprise Fall 2009 42

43. Verify- Iterate or Exit
 Summarize
 Iterate
 Exit
Customer Development in the High-Tech Enterprise Fall 2009 43

44. Webvan Case
44