a modern approach to customer development

Bernard Leong

For Tech-Summer Program, Chonnam

National University in Nanyang

Technopreneurship Centre

A Modern Approach to Customer Development

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Steven Blank & Bob Korf “The Startup Owner’s Manual”

A startup is a temporary organization designed to search for a repeatable and scalable business model.

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The primary objective of a startup is to validate its business model hypotheses

(and iterate & pivot until it does).

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Minimum Viable Products4

Successful Companies originate from pivots.

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Introduction: Customer Development

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Customer Development for an early stage company

• Step 1: Customer discovery captures the founders’ vision & turns it into a series of business model hypotheses. Then it develops a plan to test customer reactions to those hypotheses and turn them into facts.

• Step 2: Customer validation tests whether the resulting business model is repeatable & scalable - otherwise go back

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Customer Development for an early stage company II

• Step 3: Customer creation starts the execution process, builds the end-user demand & drives into sales channel to scale the business.

• Step 4: Company-building transitions the start-up into a company focusing on executing a validated model.

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What not to do for customer discovery

• Please note that you are not going to do the following:

• Understand the needs & wants of all customers.

• Make a list of all features customers want before they buy your product.

• hand Product Development a features list of the sum of all customer requests.

• hand Product Development a detailed marketing requirements documents.

• run focus groups & test customers’ reactions to your product to see if they will buy

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Customer Discovery Process

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Served AvailableMarket (SAM)

Target Market

Total AddressableMarket (TAM)

TAM = How big is the universeSAM = How many can I reach

with my sales channelTarget Market (for a startup) =

Who will be the most likely buyers

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Customer Types• End Users

• Influencers

• Recommenders

• Economic buyers

• Decision markers

• Saboteurs

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Earlyvangelists:Willing or eager acccelerators

of your viral growth

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Characteristics of a Earlyvangelist

Has a problem

Is aware of having a problem

Been actively looking for a solution

Assembled a solution out of parts

Has/Acquired a budget

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Market Type• Is there an established, well-defined market with large

numbers of customers?

• Would some part of an existing market buy a product designed to address its specific needs?

• Are there customers at the low end who will buy “good enough” performance?

• Is there a “new market” to be created?

• Can you adopt/borrow/copy an already successful business model & company from US and adapt it to large local market (China, India, Brazil, Indonesia, Russia)?

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Existing Market Resegmented Market (niche or low cost) New Market Clone Market

Customers

Product Performance

Competition

Risks

Existing Existing New/New usage New

Better/Faster

1. Good enough at the low end.2. Good enough for the niche.

Low in “traditional attributes”, improved

by new customer metrics

Good enough for local market.

Existing Incumbents Existing Incumbents Non-consumption/Other startups

None, foreign originators

Existing Incumbents 1. Existing Incumbents2. Niche strategy fails. Market Adoption Cultural Adoption

Market Type Trade-offs18

9 Deadly Sins of New Product Introduction Model

• Assuming “I know what the customer wants” - On day 1, a startup is a faith-based initiative

• The “I know what features to build” flaw

• Focus on launch date.

• Emphasis on execution instead of hypotheses, testing, learning & iteration.

• Traditional business plans presume no trials & no errors.

• Confusing traditional job titles with what a startup needs to accomplish.

• Sales & marketing execute to a plan.

• Presumption of success leads to premature scaling.

• Management by crisis leads to a death spiral.

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Business Model Canvas• Market Size: How big the opportunity is.

• Value Proposition: Product/Service, its benefits & minimum viable product

• Customer Segments: who the customer is & what problems the product solves

• Channels: how the product will be distributed and sold.

• Customer Relationships: How demand will be created.

• Value Proposition, Part 2: Market type hypothesis & competitive set/differentiation.

• Key Resources: Suppliers, commodities or other essential elements of the business.

• Key Partners: other enterprises essential to the success of the business.

• Revenue Streams: revenue & profit sources & size.21

Source: http://www.businessmodelgeneration.com/downloads/business_model_canvas_poster.pdf

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Source: http://www.businessmodelgeneration.com/downloads/business_model_canvas_poster.pdf

Have we found a Product/Market fit?

Who are our customers & How do

we reach them?

Can we make money & grow the company?

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Customer Validation• Can the business scale?

• Is there a repeatable and scalable sales roadmap? Does the company know the right prospects to call on or acquire & what to say to them to consistently deliver sales?

• Is the sales funnel predictable?

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Customer Development Manifesto 1

• Rule 1: There are no facts inside your building. So get outside.

• Rule 2: Pair customer development with agile development.

• Rule 3: Failure is an integral part of the search.

• Rule 4: Make continuous iterations & pivots

• Rule 5: No business plan survives first contact with customers.

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Customer Development Manifesto 2

• Rule 6: Design experiments & tests to validate your hypotheses.

• Rule 7: Agree with market type: it changes everything.

• Rule 8: Startup metrics differ from those in existing companies.

• Rule 9: Fast decision-making, cycle time, speed & tempo.

• Rule 10: It’s all about passion i.e. startups demand executives to be comfortable with uncertainty, chaos & change.

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Customer Development Manifesto 3

• Rule 11: Startup job titles are very different from a large company.

• Rule 12: Preserve all cash until needed. Then spend.

• Rule 13: Communicate & share learning.

• Rule 14: Customer development success begins with buy-in.

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References• Eric Ries, “The Lean Startup”

• Steve Blank & Bob Dorf, “The Startup Owner’s Manual”

• Alastair Croll & Benjamin Yoskovitz, “Lean Analytics: Use Data to Build a Better Startup Faster”

• Business Model Generation by Alexander Osterwalder & Yves Pigneur

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Contact Me• You can connect with me via

LinkedIn with my email bleongcw@gmail.com

• You can check out my blog: http://www.bernardleong.com

• You can follow me via twitter: @bleongcw

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