This document discusses customer discovery and the lean startup methodology. It begins by explaining why customer discovery is important for lean innovation and avoiding business failures due to a lack of customers rather than inability to build a product. It then outlines the three key phases of customer discovery: 1) determining if the problem being solved is important, 2) identifying existing solutions, and 3) testing what differentiates the proposed solution. Additional sections provide principles of customer discovery, challenges that can be faced, and how to determine if product-market fit has been achieved. The document emphasizes the importance of getting out of the building to talk directly to customers throughout the discovery process.

1. CUSTOMER DISCOVERY:
the power behind lean
innovation…
…and a different way to THINK!
Bob Dorf
allegedly retired serial entrepreneur
@bobdorf www.bobdorf.nyc
some slides © Steve Blank

2. Most new business
initiatives fail from
a lack of customers
not from failures
to build product

3. Our Job Today:
1. WHY do Customer Discovery
2. Customer Discovery Principles
3. The Three Key Discovery Steps
4. The Road to Product/Market Fit
5. Corporate Rules and Tools
6. AMA

4. Hi!
• 7 Startups over 40 year span: 2+2-
3=7
• A decade of Angel Investing(=7-6=27)
• A decade (almost) of “Lean Startup”
• E-I-R and lecturer, Columbia B-
School
• (Not-so) Lean Coach for GE, Merck,
NewsCorp, Carvajal SA, governments, colleges…a
zillion startups

5. Part 1:
WHY CUSTOMER DISCOVERY
HOLDS THE KEY TO
LEAN INNOVATION

7. 200,000 taste tests couldn’t’ be wrong!

9. 95/16/2017
BLAME THE MBA’s!!

10. 94 years later:
CUSTOMER DISCOVERY
the foundation of lean startup
…a differernt way to THINK!

11. CREDO 1:
Test everything you can
with the only voices
that matter:
YOUR CUSTOMERS

12. CREDO 2:
Break It, Fix It, Break it
Again…Til Customers Say
“Make it!”

13. CREDO 2:
Break It, Fix It, Break it
Again…Til Customers Say
“Make it!”
…and coach you on features,
pricing, channels, acquisition…and
more!!

14. CREDO #3:
so…..
GET OUT OF THE BUILDING!

15. Built for startups BUT:
Equally powerful when testing,
optimizing new ideas, ventures in
big, high-growth companies
Used by GE, Inuit, Merck, USA,
Carvajal, many more to fail fast

16. Built for startups BUT:
Equally powerful when testing,
optimizing new ideas, ventures in
big, high-growth companies
Used by GE, Inuit, Merck, USA,
Carvajal, many more to fail fast
Rules are different in major,
established companies!

17. When did YOU last…
…Proactively reach out
to talk to a bunch of
customers?
…Show or discuss a new idea
outside of a focus group room?

18. How do YOU do this now?
Call market research
Call McKinsey
Assign Interns
Survey Monkey et al
Shopping Mall Intercepts
Focus Groups
Intermittently

19. What do YOU miss out on?
Use case storytelling
Body language
Honest measures of enthusiasm
Corner case “wild” ideas
Feature
prioritization/enthusiasm
Survey overload
…what else?

20. Part 2:
QUICK DISCOVERY PRINCIPLES

21. YOU work at a startup!
“Inoculate” your thinking, your attitude, your inquiry
• It’s YOUR JOB to be Disruptive
• Be Bold, Test Everything
• “Fail Up,” Fail Fast, and Fail
Often
• Question Every “Plan” Assumption
…that’s why we’re all here today

22. Five Core Principles:
1. You’re not a
“smaller version”
2. Customers don’t
read Business Plans
3. Without legacy, we
Search, then execute
4. GET OUT!! Only One set
of Opinions Matter
22
5.Scrap that Business
Plan…Start with a Business
Model

23. But Inside established enterprises:
1. It’s clearly not all “guesses”
2. New Markets,Customers,Channels?
3. Test new ideas, features, innovations
4. Optimize use of owned resources
5. Assess competitive issues/opportunities
6. …And corporations have RULES!
235/16/2017

24. Just a few corporate rules I’ve seen:
1. Never show a customer an MVP
2. No code departs HQ without full QA
3. Talk to corporate buyers only via sales
4. Exec sponsor must participate
5. NDA’s required to show new products
6. HIPAA
7. Your favorites?
245/16/2017

25. Part 3:
THE THREE DISTINCT PHASES
of CUSTOMER DISCOVERY

26. First, Remember the Goal:
Product/Market Fit
26

27. The CustomerDiscovery Goal:
Product/Market Fit
…THE CONSISTENT, REPEATABLE MATCH
BETWEEN:
A CUSTOMER SEGMENT
WITH A HIGH LEVEL OF BUYING INTEREST
IN YOUR VALUE PROPOSITION
27

28. Begin With Two Core Elements:
• Value Proposition
• Customer Segments
285/16/2017

29. Begin With Two Core Elements:
• Value Proposition
• Customer Segments
• …then work your way toward a
repeatable, growable match between
VALUE PROP+ CUSTOMER SEGMENT
295/16/2017

30. Start with “Hypotheses”
Guess Guess
Guess
Guess
Guess
Guess
Guess
GuessGuess
305/16/2017

32. 3 key Discovery phases
1: Does anybody care?
2: Who Else Solves it Today?
3. Product Discovery
32

33. 3 key Discovery phases
1: Does anybody care?
…are we solving a serious problem?
…are we filling a “big” need?
…(is there a big market opportunity?)
33

34. Phase 1: Test the Problem
• No discussion of product or company
• Focus only on the problem or need
• Strive to be among the “top five”
• Look for frequent, painful, costly…
34

35. Phase 1: Challenges
• Problem Described properly?
• Avoid Discussing the Solution
• Who’s affected by the problem?
• Talking to the “Empowered Solver?”
BUT:
…when you’re ranked low,understand why
35

36. Phase 1: PAYOFFS
• Logistica, Colombia
• GE Energy, in the Freezer
• OTC Pharma: Arthiritis
• YOU??
36

37. 3 key Discovery phases
1:Does anybody care?
…are we solving a serious problem?
…are we filling a “big” need?
…(is there a big market opportunity?)
2: Who Else solves the Problem Today?
37

38. Phase 2: Competitive
Analysis
• Unlikely you’re the first/only one…
• Where do we fit in the Universe?
• Identify current solution approaches
• Understand strengths/weaknesses
• Narrow Interest: company size, job title, geography
38

39. Phase 2: HOW TO
• “Get in the Customer’s Shoes”
• HOURS of Google search
• Dig Deep to find failures, “sub products”
• Shop for it the way a customer would
• Spy/Intercept at Bricks’n’Mortar
• Look at e-commerce product presentation
39

40. Phase 2: Challenges
• Identify Strong, Weak Competitors
• Identify how Customers Seek/Source
• Beware “Embedded Competitors”(IBM,SAP)
• Beware “Not my Job”
• “I think this is handled/incuded”
• Seek Positioning Ideas: Yours vs Theirs
40

41. 3 key Discovery phases
1: Does anybody care?
…are we solving a serious problem?
…are we filling a “big” need?
…(is there a big market opportunity?)
2: Who Else solves the Problem Today?
3: What Differentiates our Solution?
…better/cheaper/faster?
…differentiated to whom?
…standout features/benefits to stress?
…genuine enthusiasm/intent to purchase
41

42. Phase 3:
Way beyond “do you like it?”
• How big is the market opportunity?
• Who exactly is the influencer/user/approver?
• Which features most useful/distinctive?
• How do you create demand?
• How do you deliver the product?
• Will the customer let you make money?
42

43. Phase 3: GETTING STARTED
1. DEFINE SUCCESS before you start
2. WHO is my segment…how to define
3. HOW will I find them in volume
4. WHAT is my opening question…and script
5. WHERE is my MVP?
43

44. Phase 3: GETTING RESULTS
1. “One comment per sticky”
2. Use one color per key trait(title, size, age)
3. Sort comments, NOT colors(use a wall)
4. Look for patterns, threads, outliers
5. Compare results to expectations…
44

45. Phase 3: UNCERTAIN RESULTS
1. DO IT AGAIN!
2. Narrow the customer segment definition
3. Reframe Value Prop from learning, Retest
4. Expand inquiry with a “power tool”
45

46. Alpha: a complete discovery system…

47. Refine or confirm live discovery!

48. Customer Discovery:
Ground Rules
• The “ugly baby” rule
• No interns or consultants(at least to start)
• No automation without initial validation!
• You’re never selling, always asking, probing
• Let the customer steer the interaction
• No customer can answer every question
• Never fear refining and testing again
• DON’T STOP asking til you’re celebrating!
48

49. You’re Always Hypothesis Testing!
49

50. Part 4:
THE (LONG) ROAD
to PRODUCT/MARKET FIT

51. Product/Market Fit:
…THE CONSISTENT, REPEATABLE MATCH
BETWEEN:
A CUSTOMER SEGMENT
WITH A HIGH LEVEL OF BUYING INTEREST
IN YOUR VALUE PROPOSITION
51

52. “dental school:“
Drilling Down to Product/Market Fit
• Do customers understand our “FAB” proposition?
• Match the Hot Customer to the Value Prop
• Which features, benefits are most valued?
• Is it compelling vs. other (or no) Solution?
52

53. “dental school:“
Drilling Down to Product/Market Fit
• Do customers understand our “FAB” proposition?
• Match the Hot Customer to the Value Prop
• Which features, benefits are most valued?
• Is it compelling vs. other (or no) Solution?
Our job:
1. Be sure customers understand our Value Prop
2. Seek ehnanced resonance with targeted segment
3. Learn how Value Prop differs from User to Buyer
4. Assure proper prioritization of FAB sell points
5. Identify attributes that make you stand out
53

54. “dental school:“
Drilling Down to Product/Market Fit
1. Enthusiasm for Value Prop as Stated
2. “Who is” buyer, recommender, approver
3. Prioritize Features/Benefits in buyer’s eyes
4. Potential to Improve Results vs status quo
5. Probe for most valuable, missing features
6. If available today at fair price, want to buy?
54

55. Product/Market Fit:
TESTS to Launch
Example: Uncovering Missing or Desired Features
TESTS:
1. Talk about your personal use case
2. Estimate time using each key feature
3. Talk about business improvements sought
4. What other features/functions would you like?
5. “If money were no object, what else?”
6. Select from List of Potential Features
55

56. Product/Market Fit:
Ways to Drill Deeper
• Validate/reaffirm vs. largest user segment
• Get referred to boss; probe priority with her
• Test VP match by job title, company size
• Split users based on experience, education
• Drill down based on purchase enthusiasm/lack
• Drill into enthusiasts for feature prioritization
• WHAT ELSE?
56

57. PRODUCT/MARKET FIT:
DID YOU FIND IT?
1. A PREDICTABLE % SAY YES!
2. ARE THEY TARGETABLE? HOW?
3. CAN YOU MAKE MONEY AT THAT %?
4. IS SEGMENT STILL BIG ENOUGH?
57

58. PRODUCT/MARKET FIT:
DID YOU FIND IT?
1. A PREDICTABLE % SAY YES!
2. ARE THEY TARGETABLE? HOW?
3. CAN YOU MAKE MONEY AT THAT %?
4. IS SEGMENT STILL BIG ENOUGH?
5. IF SO…
TEST IT A SECOND TIME
DOES MATCH HOLD UP IF BROADER?
…MOVE FORWARD TO “GET” TESTS!
58

59. PRODUCT/MARKET FIT:
WHEN YOU DON’T FIND IT…

60. 2 Roots of Most FAILURES
1. BAD OR WEAK VALUE PROPOSITION
• DOESN’T SOLVE AN URGENT BIG NEED
• NO CLEAR COMPETITIVE ADVANTAGE
• SOLUTION NOT “POINTED” ENOUGH
• PRICING SEEMS UNREASONABLE
• SOLUTION NOT INNOVATIVE,
IMPRESSIVE
60

61. 2 Roots of Most FAILURES
1. BAD OR WEAK VALUE PROPOSITION
• DOESN’T SOLVE AN URGENT BIG NEED
• NO CLEAR COMPETITIVE ADVANTAGE
• PRICING SEEMS UNREASONABLE
• SOLUTION NOT INNOVATIVE,
IMPRESSIVE
BUT Maybe:
…you exposed it to the wrong people
…you didn’t explain it to customers well
…your pitch stressed wrong features/benefits
61

62. VALUE PROPOSITION: FIXING IT
1. CHANGE THE PRODUCT, FEATURE SET
2. FOCUS ON OTHER F-A-B’s
3. CHANGE THE PITCH
4. A/B TEST COPY APPROACHES
5. A/B TEST OTHER REVENUE MODELS
–RENT VS BUY
–FREEMIUM WITH IN-APP PURCHASES
–FREE TRIAL BEFORE PURCHASE
62

63. VALUE PROPOSITION: FIXING IT
1. CHANGE THE PRODUCT/FEATURE SET
2. RESTACK BENEFITS/CHANGE THE PITCH
3. A/B TEST DIFFERENT COPY APPROACHES
4. A/B TEST DIFFERENT REVENUE MODELS
– RENT VS BUY
– FREEMIUM WITH IN-APP PURCHASES
– FREE TRIAL BEFORE PURCHASE
5. CHANGE THE PRICING, CHANNEL,
6. TRY SELLING A PART OF THE SOLUTION
63

64. 2 Roots of Most FAILURES
2. MIS-TARGET CUSTOMER SEGMENT
• TALKING TO USERS INSTEAD OF PAYERS
• TALKING TO KIDS…NOT THEIR PARENTS
• MISUNDERSTANDING SALES CHANNEL
• CONFUSING INTEREST WITH ENTHUSIASM
64

65. 2 Roots of Most FAILURES
2. MIS-TARGET CUSTOMER SEGMENT
• TALKING TO USERS INSTEAD OF PAYERS
• TALKING TO KIDS…NOT THEIR PARENTS
• MISUNDERSTANDING CHANNEL or ROLE
• CONFUSING INTEREST WITH ENTHUSIASM
BUT Maybe…
…they think it should be free(i.e. content)
…”not my problem” or “not my authority”
…the company should pay, or “I have this already”
…yawn
65

66. CUSTOMER SEGMENTS: FIXING
IT
1. AIM AT DIFFERENT AUDIENCE
2. NARROW JOB OR COMPANY TYPE
3. FOCUS ON 1-2 COMPETITORS/SOUTIONS
4. NARROW(OR EXPAND) GEO TARGET
5. START A “SEARCH FOR 20”
66

67. CUSTOMER SEGMENTS: FIXING
IT
…and never hesitate to TRY AGAIN!
67

68. Your turn:
DISCOVERY EXPERIENCE??

69. Part 5:
CORPORATE DISCOVERY
RULES AND TOOLS

70. Ideal Rules for Internal Startups
1. Run multiple experiments in parallel
2. Isolate the team(s) from the parent
3. “Protect” team(s) from normal rules
4. Keep the corporation “out of it”
- Protect the brand, reputation
- Avoid the
5. Recruit bold, risk tolerant curious folk
6. Give them the freedom to explore….

71. Guidelines for Internal Startups
1. Obtain senior leaders’ sponsorship
2. Assign a “disruptor coach” to intervene
3. Establish “venture board” checkpoints
4. Write down vision, expectations, goals
5. Metrics are “facts” proven, not dollars
6. Measure learning, not calendar dates

72. What Rules do You Have?
• “Be profitable in 90 days”
• Stay in close contact with legal
• Keep doing your “day job”
• What about YOUR company?

73. What TOOLS do You Have?
1. www.talkingtohumans.com

74. 2. Managing Multiple Initiatives
www.launchpadcentral.com

75. 3. Qualitative Discovery at Scale
www.alphahq.com

76. 4. And, if you haven’t already…

77. Your turn:
YOUR Discovery??
YOUR Questions??

78. Thanks!
@bobdorf
www.bobdorf.nyc
bobdorf@gmail.com