1. Customer Development
in the High Tech Enterprise
MBA 295-F/EMBA 295-F
Customer Discovery: Part 1
Steve Blank
sblank@kandsranch.com
1

2. Agenda
Case: WebVan

Startup Hypothesis

Testing the Problem

Customer Development Team

Testing the Product Concept

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

3. Webvan Case
3

4. Customer Discovery: Step 1
Customer Customer Customer Company
Discovery Validation Creation Building
Existing Market: 1 Month – 1 Year
Resegmenting a Market: 6 Months – 3 Years
New Market: 1 Year – 3 Years
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

5. Customer Discovery: Step 1
Customer Customer Customer Company
Discovery Validation Creation Building
Existing : 1-6 Months
Resegmenting: 3-12 Months
New: 1-2 Years
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

6. Methodology
Customer Development can take months or years

Each Step has a set of phases

Plan what you need to learn in writing so everyone knows:

 what they should be doing
 when they should do it
 If they succeeded
 If they need to do more
These are checklists, not the inviolable commandments

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

7. Before You Start
Board and Management Buy-In

Learning and discovery not execution

Customer Development Team

Not traditional hires

Sufficient funding for 2-3 passes

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

8. Modify the Process for
Your Company
Text Example = Enterprise Software Co.

You need to develop your own

Specifically for your company/market

Don’t quibble about details but understand there is a

process
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

9. Discovery = Hypothesis Testing
What are Hypothesis?

Where do Hypothesis come from?

Why Test them?

How do you test them?

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

10. 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

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

11. Customer Discovery
Phase 3 Phase 4
Customer
Test Verify, Iterate &
Discovery
Product Expand
Hypothesis
To Validation
Phase 1
Phase 2 Author
Test Hypothesis
Problem
Hypothesis
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

12. Customer Discovery
Hypotheses
Customer Distribution Demand Market Type
Product Competitive
& Problem & Pricing Creation Hypothesis
Hypothesis Hypothesis
Hypothesis Hypothesis Hypothesis
Test “Problem” Hypothesis
“Problem” Customer Market
Friendly
Presentation Understanding Knowledge
First Contacts
Test “Product” Hypothesis
“Product” Yet More Second
First Reality
Presentation Customer Reality Check
Check
Visits
Verify
Verify the Iterate or
Verify the
Verify the
Business Exit
Problem
Product
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009
Model

13. Customer Discovery
Hypotheses
Inside the Building
Customer Distribution Demand Market Type
Product Competitive
& Problem & Pricing Creation Hypothesis
Hypothesis Hypothesis
Hypothesis Hypothesis Hypothesis
Test “Problem”
Hypothesis
“Problem” Customer Market
Friendly
Presentation Understanding Knowledge
First Contacts
Outside the Building
Test “Product” Hypothesis
“Product” Yet More Second
First Reality
Presentation Customer Reality Check
Check
Verify Visits
Verify the Verify the Iterate or
Verify the
Problem Business Exit
Product
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009
Model

14. Phase 1: Author Hypothesis
One-time writing exercise
Phase 3 Phase 4 
Product Iterate &
Concept Expand
All other time spent in

Testing
front of customers
Assumes you’re smart but
Phase 1 
guessing
Phase 2
Author
Test
Problem
Hypothesis
Hypothesis
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

15. Hypothesis
Product

Customer/Problem

Distribution/Pricing

Demand Creation

Market Type

Competition

Customer Distribution Demand Market Type
Product Competitive
& Problem & Pricing Creation Hypothesis
Hypothesis Hypothesis
Hypothesis Hypothesis Hypothesis
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

16. Product Hypotheses
Features

Benefits

Product Delivery Schedule

Intellectual Property

Total Cost of Ownership

Dependency Analysis

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

17. Intermission
The Customer Development Team
17

18. 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

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

19. Customer Development Team
Tasks Not Titles
Customer Development
Driven Startup
CEO
VP Product Dev Technical Visionary Business Visionary Business Execution
In Front of Customers
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

20. End of Intermission
20

21. Customer/Problem Hypotheses
Types of Customers/Archetypes

Magnitude of the problem

Visionaries

A Day in the Life of a customer

Organizational impact

ROI Justification

Problem Recognition

Minimum Feature Set

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

22. Distribution/ Pricing Hypotheses
Distribution Model

Distribution Diagram

Sales Cycle/Ramp

Channel strategy

Pricing (ASP, LTV)

Customer Organization Map

Demand Creation

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

23. Demand Creation Hypotheses
How do competitors create demand?

How will you?

 Dave McClure’s AARGH model
Who are influencers/recommendors?

Key trade shows?

Key trends?

Start assembling advisory board

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

24. 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
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

25. Competition Hypotheses
Who is out there?

Why are they important?

How do customers use them today?

What don’t customers like about them?

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

26. Next Week: Discovery Part 2
Read

Christensen

Discovering What Has Already Been Discovered

Note on Lead User Research

Blank

Four Steps to the E.piphany – Chapter 3

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

27. XP Phases
(Extreme Programming)
XP by far most common agile method

Exploration

 customers write story cards
 Project team becomes familiar with tools, technology and practices
Planning

 set priority of stories & contents first release
Iterations to Release

 iterations before releases
Productionizing

 extra testing & checking before release to customer
Maintenance and Death

 new iterations and no more more customer stories
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

28. MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

29. XP Practices
(Extreme Programming)
Planning game

 programmers estimate effort of implementing cust stories
customer decides about scope and timing of releases

Short releases

 new release every 2-3 months
Simple design

 emphasis on simplest design
Testing

 development test driven. Unit tests before code
Refactoring

 restructuring and changes to simplify
Pair Programming

 2 people at 1 computer
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

30. MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

31. XP (Extreme Programming)
Roles and Responsibilities
Programmer

 writes tests and then code
Customer

 writes stories and functional tests
Tester

 helps customer write tests and runs them
Tracker

 gives feedback on estimates and process on iterations
Coach

 person responsible for whole process
Consultant

 supplies specific technical knowledge needed
Manager

 makes decisions
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

32. XP (Extreme Programming) Practices
Collective ownership

 anyone can change any part of the code at any time
Continuous integration

 new builds as soon as code ready
40 hour week

 maximum 40-hour week. No overtime
On-site customer

 customer present and available full-time for team
Coding standards

 rules exist and are followed
Open workspace

 large room small cubicles
Just rules

 team has own rules but can be changed any at time
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

33. Scrum Phases
Pregame

Planning - define system. Product Backlog

Architecture - high level design of system

Development

Iterative cycles (sprints) - new/enhanced functionality

Postgame

Requirements satisfied - no new items or issues

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

34. Scrum
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

35. Scrum Practices
Product Backlog

 Current prioritized list of work to be done
Effort Estimation

 iterative on Backlog items
Sprint

 30 day iteration
Sprint Planning Meeting

 decide goals for next sprint and how team will implement
Sprint Backlog

 Product Backlog items for sprint
Daily Scrum meeting

 what doing, what will do, and any problems
Sprint Review Meeting

 present results of sprint
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

36. Scrum Roles and Responsibilities
Scrum Master

project following rules and practices

Product owner

officially responsible for project

Scrum Team

project team

Free to organize as they see fit to achieve goals of each
sprint
Customer

participates in Backlog items

Management

Makes final decisions

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009