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What is Customer Development?
Customer development is an approach to understand who your customers are and whether or not the product you create satisfies their needs. It was first developed by Steve Blank. In Lean, the customer development process is aimed at understanding the problems faced and solving them accordingly. This process allows companies to identify the market needs and create solutions that fulfill these needs.
Usually, in Lean startup methodology, the customer development phase follows the business model design phase, and precedes the agile engineering phase. The customer development method is used when you aren’t aware of the problem, and agile engineering is useful when you aren’t aware of the solution. Lean methodology makes use of both approaches and helps identify problems and validate assumed solutions through feedback. You’d also be solving questions around whether the market is large enough to support your product and how effectively you can scale it.
Past instances of customer development
The customer development approach was introduced by Steve Blank in his book ‘The Four Steps to the Epiphany’, in 2005. He wrote the book based on what he observed in several startups that launched products.
In 2011, Eric Ries published the book ‘The Lean Startup’. In this book, he called Customer Development as a key piece of Lean Startup along with agile development. Post this, the term was accepted among a wider audience and is now commonly used.
What is the customer development process?
The customer development process is a 4 step process used to identify the market needs and create solutions that work.
The 4 steps in the customer development process, split into search and execution, are summarized as follows:
- Search stage
- Customer discovery - Here you identify the customers and the needs they have which you may be able to fulfill.
- Customer validation - In this stage you have a product which is expected to satisfy the customer’s needs. It is sometimes also referred to as product/ market fit.
- Execution stage
- Customer creation - This is the phase where you generate demand among end-users for your product. It is when you actually start execution in the customer development process.
- Company building - The last step of the customer development process. The company building phase is when you spend more money to grow your business and support the demand for the product you offer.
Users or customers find, create as well as validate how well the idea will work in the marketplace. Besides this, the features that your product should deliver are also defined in the customer development process. In a way, customers take part in testing and organizing your resources to scale the product.
Who is a part of the customer development process?
Since all branches of a startup are involved in gaining, building for and keeping customers, the customer development process becomes a cross-functional exercise. It involves product management, marketing, sales and engineering.
Since talking to customers, understanding their inputs and formulating marketing requirements is the forte of product management and marketing, these branches are the most involved. Besides this, the founders and executive board also give inputs as their decisions will affect the long-term success or failure of the company.
More importantly, the customer’s input is a must in the customer development process. The customer’s input needs to be collected using a number of possible ways. For example, interviews, surveys, simple observations and actual conversations with the customers can help gain insights. These ways of collecting information from the customers about their experiences with the available products, their concerns and any other inputs are vital to the customer development process.
Customer Development process in detail
Now that you know all the basics about the customer development process, it’s time to actually understand how it happens. In the next section, we’ve expanded on all the four stages of the process and steps involved.
In the customer discovery step, you formulate a hypothesis about what the customer’s problem is and what solution could possibly solve the problem. Basically, you gain info about the customers for the product you want to create. You find information about these customers, the problems they face and the overall market at large.
It’s very important to do a good job determining who the customers are going to be. These are the ones who will actually give you all the information about solving the problem and building your product.
In this stage, you’d talk to customers and identify a few things such as the customers’ most prominent pain points; the amount they are willing to pay to solve the problem; whether your product or service is capable of solving it and if potential customers have faith in your concept. Once you obtain the complete needed info in this stage, then you can start thinking about customer validation.
In the customer validation stage, once you have verification from potential customers for your concept, it’s time to prepare to sell the product. This is when you develop a sales process that can be repeated and scaled to sell to early stage customers.
The information you collected in the customer discovery phase can be used here. Precisely, this info is used to develop a business model canvas, sales collateral, value propositions, and product positioning among other things. Note that market types (existing, new, resegmented) can significantly affect the initiatives you take in sales, marketing and business development.
Steve Blank noted that this step is when you determine if your business is viable. Factors such as overhead costs and capital also affect this decision. If you feel that it’s not, this is when you can go back to the first stage and come up with a better solution.
This is when you create a demand for your product in the marketplace. Your focus will inherently be on getting more customers to try your product. You’d have to figure out how to scale or function well with growth so that you see profits.
Listening to your customers and understanding how the market is behaving is essential at this stage. This helps you offer the best solution to your customers and retain them in the long run. Your aim is to guarantee that your business will be sustainable and not so much to explore at this point.
The last stage of the customer development process is the company building stage. Here you would focus on creating roles, establishing departments and hiring people to build your company.
Often, due to the nature of startups, this stage isn’t immediately achieved. You might need to turn around and revalidate some of the earlier stages to finally arrive here with a suitable product.