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Customer Development at Startup2Startup

Steve Blank and Eric Ries at Startup2Startup Customer Development Presentation 30 April 2009, Palo Alto California

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Customer Development at Startup2Startup

  1. The Customer Development Model Steve Blank Stanford School of Engineering / UC Berkeley, Haas Business School Eric Ries The Lean Startup
  2. More startups Fail from a Lack of Customers than from a Failure of Product Development
  3. Conundrum • We have process to manage product development • We have no process to manage customer development
  4. An Inexpensive Fix Focus on Customers and Markets from Day One How?
  5. Build a Customer Development Process Concept/ Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship Product Development Customer Development ? ? ? ?
  6. 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
  7. 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
  8. • 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
  9. 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
  10. 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
  11. 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?
  12. Sidebar Market Type
  13. 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?
  14. Three Types of Markets • Who Cares? • Type of Market changes EVERYTHING • Sales, marketing and business development differ radically by market type • Details next week Existing Market Resegmented Market New Market
  15. Type of Market Changes Everything • Market – Market Size – Cost of Entry – Launch Type – Competitive Barriers – Positioning • Sales – Sales Model – Margins – Sales Cycle – Chasm Width Existing Market Resegmented Market New Market • Finance • Ongoing Capital • Time to Profitability • Customers • Needs • Adoption
  16. 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 Existing Market Resegmented Market New Market
  17. So What Does Engineering Do?
  18. Problem: known Solution: known Waterfall Traditional Product Development Unit of progress: Advance to Next Stage Requirements Design Implementation Verification Maintenance
  19. Problem: Known Solution: Unknown “Product Owner” or in-house customer Agile Unit of progress: a line of working code
  20. Problem: Unknown Solution: Unknown Product Development at Lean Startup Unit of progress: validated learning about customers ($$$)
  21. Minimize TOTAL time through the loop IDEAS CODEDATA BUILDLEARN MEASURE
  22. So What Do I Do? Really
  23. 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
  24. 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
  25. 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
  26. Further Reading Course Text at: Blogs
  27. There’s much more… IDEAS CODEDATA BUILDLEARN 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
  28. Thanks! • Startup Lessons Learned Blog – • Webcast: “How to Build a Lean Startup, step-by- step” – May 1, 2009 at 10am PST – • The Lean Startup Workshop – An all-day event for a select audience – May 29, 2009 in San Francisco – Sign up at:

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Steve Blank and Eric Ries at Startup2Startup Customer Development Presentation 30 April 2009, Palo Alto California


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