1. The Customer Development Model
Steve Blank
Stanford School of Engineering /
UC Berkeley, Haas Business School
www.steveblank.com
Eric Ries
The Lean Startup
Startuplessonslearned.blogspot.com

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:
www.cafepress.com/kandsranch
Blogs
www.steveblank.com
http://startuplessonslearned.blogspot.com/

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
– http://startuplessonslearned.blogspot.com/
• Webcast: “How to Build a Lean Startup, step-by-
step”
– May 1, 2009 at 10am PST
– http://www.oreillynet.com/pub/e/1294
• The Lean Startup Workshop
– An all-day event for a select audience
– May 29, 2009 in San Francisco
– Sign up at: http://bit.ly/a5uw8