Customer Development in the
             High Tech Enterprise



             MBA 295-F/EMBA 295-F

          Customer and...
Class 3: Agenda

!    Logistics/Questions
!    CASE: E-Ink
!    Product Development
!    Boyd & the OODA Loop
!    Custome...
It Started With a Question

  If Startups Fail from a Lack of customers
        not Product Development Failure

         ...
I Started Reading
•  Lead User Research - Von Hippel                  •  OODA Loop - Boyd
•  Crossing the Chasm - Moore   ...
All We Had Was 30 Years of This


  Concept/     Product        Alpha/Beta   Launch/
 Seed Round     Dev.             Test...
What’s Wrong With This?

                           Product Development

     Concept/          Product            Alpha/B...
What’s Wrong With This?

                          Product Development

    Concept/          Product               Alpha/...
What’s Wrong With This?


                            Product Development

      Concept/          Product               A...
10 Things I Hate About
          Product Development

1.     Where are the Customers?
2.     The Focus on First Customer S...
Chasing The FCS Date
!    Sales & Marketing costs are front loaded
     "    focused on execution vs. learning & discovery...
An Inexpensive Fix

Focus on Customers and Markets
          from Day One

            How?
Boyd’s OODA “Loop”
         Observe                                    Orient                                Decide       ...
Build a Customer Development Process


                 Product Development

  Concept/    Product      Alpha/Beta   Launc...
Customer Development is as important
      as Product Development

                        Product Development

      Conc...
Customer Development is as important
      as Product Development

                        Product Development

      Conc...
Customer Development Heuristics

!    There are no facts inside your building, so get
     outside
      "    Founders in ...
Customer & Product Development
              Synchronization
                 Product Development

  Concept/      Product...
Product Development

                Product Development

    Concept/    Product      Alpha/Beta   Launch/
    Bus. Plan ...
Customer Development:
                  Big Ideas

!    Parallel process to Product Development

!    Measurable Checkpoin...
It Resulted in a Few Hypotheses

•  Startups weren’t small versions of large companies
•  They were about learning/discove...
Which Turned Into A Model

               Product Development

Concept/       Product         Alpha/Beta   Launch/1st
Bus....
Eric Ries Extends the Model

•  Took my class at U.C. Berkeley
•  Co-founded IMVU
  -  1st implementation of Customer Deve...
Eric Ries: Insight - 1
    Startups assumed development was “known”


 Concept/   Product    Alpha/   Launch/
   Seed     ...
Eric Ries: Insight - 2
           Agile matches the Customer Dev speed


Concept/    Product    Alpha/   Launch/
  Seed   ...
Eric Ries: Insight 3
   Customer + Agile + Commodity = Lean

•  Solving for both unknowns is the “Lean Startup”




    Pr...
Jon Feiber @ MDV Insight
    Not all Need Customer Development


•  Market Risk vs. Technical Risk?
  -  Web is about cust...
John Boyd - Insight
                                           The OODA “Loop”


          Observe                        ...
Iteration versus Execution

            Iteration                        Execution

Customer            Customer        Cu...
Iteration versus Execution
         Product/Market Fit
Business Model
Affects Metrics and Exit Criteria
Customer Development/Lean Startup 020210 Class 3
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Customer Development/Lean Startup 020210 Class 3

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Customer Development/Lean Startup 020210 Class 3

  1. Customer Development in the High Tech Enterprise MBA 295-F/EMBA 295-F Customer and Agile Development Steve Blank sblank@kandsranch.com 2 3/27/10
  2. Class 3: Agenda !  Logistics/Questions !  CASE: E-Ink !  Product Development !  Boyd & the OODA Loop !  Customer Development
  3. It Started With a Question If Startups Fail from a Lack of customers not Product Development Failure Then why do we have: •  process to manage product development? •  no process to manage customer development?
  4. I Started Reading •  Lead User Research - Von Hippel •  OODA Loop - Boyd •  Crossing the Chasm - Moore •  Question-based Selling - Freese •  Entrepreneurial Mindset - McGrath/MacMillan •  Solution Selling - Bosworth •  Innovators Dillema - Christensen •  Conceptual/Strategic Selling - Heiman •  Profitable Value - Lanning •  Spin Selling - Rackham •  Lanchester Strategy - Yano •  US Marine Corps Warfighting Manual •  High Tech Marketing - Davidow •  Tipping Point - Gladwell Customer Customer Customer Company Discovery Validation Creation Building
  5. All We Had Was 30 Years of This Concept/ Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship Product Development Model
  6. What’s Wrong With This? Product Development Concept/ Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship -  Create Marcom - Hire PR Agency - Create Demand Marketing Materials - Early Buzz - Launch Event - Create Positioning - “Branding” 7
  7. What’s Wrong With This? Product Development Concept/ Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship -  Create Marcom - Hire PR Agency - Create Demand Marketing Materials - Early Buzz - Launch Event - Create Positioning - “Branding” •  Hire Sales VP •  Build Sales Sales •  Hire 1st Sales Staff Organization
  8. What’s Wrong With This? Product Development Concept/ Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship -  Create Marcom - Hire PR Agency - Create Demand Marketing Materials - Early Buzz - Launch Event - Create Positioning - “Branding” •  Hire Sales VP •  Build Sales Sales •  Hire 1st Sales Staff Organization Business •  Hire First •  Do deals for FCS Development Bus Dev
  9. 10 Things I Hate About Product Development 1.  Where are the Customers? 2.  The Focus on First Customer Ship 3.  Emphasis on Execution vs. Learning & Discovery 4.  No Customer-centric milestones 5.  Product dev. to measure Sales 6.  Product dev. to measure Marketing 7.  Premature Scaling 8.  Death Spiral 9.  Three Types of Startups 10.  Unrealistic Expectations
  10. Chasing The FCS Date !  Sales & Marketing costs are front loaded "  focused on execution vs. learning & discovery !  First Customer Ship becomes the goal !  Execution & hiring predicated on business plan hypothesis !  Heavy spending hit if product launch is wrong !  Financial projections, assumes all startups are the same = You don’t know if you’re wrong until you’re out of business/money
  11. An Inexpensive Fix Focus on Customers and Markets from Day One How?
  12. Boyd’s OODA “Loop” Observe Orient Decide Act Implicit Implicit Unfolding Guidance Cultural Guidance Circumstances & Control Traditions & Control Genetic Heritage Analyses & Observations Feed Forward Synthesis Feed Decision Feed Action Forward Forward (Hypothesis) (Test) New Previous Information Experience Outside Unfolding Information Interaction With Unfolding Environment Interaction Feedback With Environment Feedback Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback and other phenomena coming into our observing window. Competitive advantage comes from quickness over the entire “loop,” not just from the O-to-O-to-D-to-A sequence.
  13. Build a Customer Development Process Product Development Concept/ Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship Customer Development ? ? ? ?
  14. Customer Development is as important as Product Development Product Development Concept/ Product Alpha/Beta Launch/ Bus. Plan Dev. Test 1st Ship Customer Development Customer Customer Customer Company Discovery Validation Creation Building
  15. Customer Development is as important as Product Development Product Development Concept/ Product Alpha/Beta Launch/ Bus. Plan Dev. Test 1st Ship Customer Development Customer Customer Customer Company Discovery Validation Creation Building
  16. Customer Development Heuristics !  There are no facts inside your building, so get outside "  Founders in front of customers !  Find a Market for the Product as spec’d "  I.e Develop for the Few, not the Many !  Learning and Discovery versus linear execution !  Earlyvangelists make your company !  Market Types Matter
  17. Customer & Product Development Synchronization Product Development Concept/ Product Alpha/Beta Launch/ Bus. Plan Dev. Test 1st Ship Customer Development Customer Customer Customer Scale Discovery Validation Creation Company
  18. Product Development Product Development Concept/ Product Alpha/Beta Launch/ Bus. Plan Dev. Test 1st Ship But really, how does this work?
  19. Customer Development: Big Ideas !  Parallel process to Product Development !  Measurable Checkpoints for the entire company !  Not tied to FCS, but to customer milestones !  Iterative to represent reality !  Executed by a small team including CEO
  20. It Resulted in a Few Hypotheses •  Startups weren’t small versions of large companies •  They were about learning/discovery, not execution •  Entrepreneurs and their VC’s were executing on guesses •  But the facts were outside the building
  21. Which Turned Into A Model Product Development Concept/ Product Alpha/Beta Launch/1st Bus. Plan Dev. Test Ship + Customer Development Customer Customer Customer Company Discovery Validation Creation Building
  22. Eric Ries Extends the Model •  Took my class at U.C. Berkeley •  Co-founded IMVU -  1st implementation of Customer Development -  Paired it with an Agile Development Model •  Observed that the sum of the two was powerful
  23. Eric Ries: Insight - 1 Startups assumed development was “known” Concept/ Product Alpha/ Launch/ Seed Dev. Beta Ship Waterfall !"#$%&"'"()*+ Solution: known ,"*%-(+ •  I understood the problem .'/0"'"()123(+ was unknown Problem: known 4"&%56123(+ •  Eric observed the solution 71%()"(1(6"+ was unknown in a startup
  24. Eric Ries: Insight - 2 Agile matches the Customer Dev speed Concept/ Product Alpha/ Launch/ Seed Dev. Beta Ship Solution: unknown •  Agile was the development methodology to use when the solution was unknown
  25. Eric Ries: Insight 3 Customer + Agile + Commodity = Lean •  Solving for both unknowns is the “Lean Startup” Problem: Unknown Solution: Unknown Source: Eric Ries
  26. Jon Feiber @ MDV Insight Not all Need Customer Development •  Market Risk vs. Technical Risk? -  Web is about customers & markets -  Biotech is about science & invention
  27. John Boyd - Insight The OODA “Loop” Observe Orient Decide Act Implicit Implicit Unfolding Guidance Cultural Guidance Circumstances & Control Traditions & Control Genetic Heritage Analyses & Observations Feed Forward Synthesis Feed Decision Feed Action Forward Forward (Hypothesis) (Test) New Previous Information Experience Outside Unfolding Information Interaction With Unfolding Environment Interaction Feedback With Environment Feedback Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback and other phenomena coming into our observing window.
  28. Iteration versus Execution Iteration Execution Customer Customer Customer Company Discovery Validation Creation Building The Search for a Business The Growth of a Business Product/Market Fit
  29. Iteration versus Execution Product/Market Fit
  30. Business Model Affects Metrics and Exit Criteria

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