Customer Development: Kool-Aid, Case Studies and a Book

Patrick Vlaskovits @vlaskovits, CustDev.comLos Angeles Lean Startup Circle Meetup at Coloft in Santa MonicaMay 18, 2010

Hashtags: #LeanStartup #CustDev #LeanLA

A Few of the (many) Insights from The Four Steps to the Epiphany

and Steve Blank• Most startups don’t fail because they haven’t

developed a product – they fail because they haven’t developed customers/markets.• A startup’s goal is to find a repeatable and

scalable business model. Full stop. • Customer Development is the process of

founders “getting out of the building” and searching for that model. It is designed so that the founder gathers first hand experience about customer and market needs.

Steve Blank’s Four Steps of Customer Development

Steve Blank’s Four Steps of Customer Development

Customer Development = “Nor Cal Kool-Aid”?Customer Development = “Nor Cal Kool-Aid”?

Case Study #1: ProProfs.com(Over 300,000 registered users.)

Case Study #1: ProProfs.com(Over 300,000 registered users.)

“Paper is the enemy.” ProProfs online quizzes replace paper quizzes.

“Paper is the enemy.” ProProfs online quizzes replace paper quizzes.

New design is rolled out. Users complain.New design is rolled out. Users complain.

Founder gets on the phone with paying customers.

Founder gets on the phone with paying customers.

Something missing.Something missing.

Founder has “Keyser Soze” moment.Founder has “Keyser Soze” moment.

Guess what? Everything you know is wrong.Guess what? Everything you know is wrong.

Results?!

• Value proposition and use cases for paying customers are revealed.

• Changed features, positioning/marketing, pricing and copy.

Case Study #2

• My startup: event-specific business/social networking web app. (Conferences, conventions, and trade-shows)

• Value prop: Event attendees can find each other before, during and after an event.

Assumed Pain(s)

• Event Organizer– Attendance and sponsorship is down for

foreseeable future.

• Event Attendees–Want to know who will be attending and

not rely on chance to meet relevant attendees.

Assumed Benefits/Solutions

• Event Organizer– Provide more value/reason to attend or

sponsor event. Unlock value within event. Charge more for event and increase sponsorships.

• Event Attendees– Give them reason to attend. See who is

attending and get in contact with them.

Validation & Testing (before coding)

Is there a problem? If so, is our app the solution?Will people pay us for this? If so, how much?Who are these people, anyway? And how do we sell to them?

My original (anonymous) case study on LSC can be found here: http://bit.ly/CustDevCaseStudy

Screenshot in Photoshop: #1Screenshot in Photoshop: #1

Screenshot in Photoshop: #2Screenshot in Photoshop: #2

Screenshot in Photoshop: #3Screenshot in Photoshop: #3

Screenshot in Photoshop: #4Screenshot in Photoshop: #4

Letter of Intenttext available at: http://bit.ly/CustDevLOI

Letter of Intenttext available at: http://bit.ly/CustDevLOI

Discovery and Learning

• Pricing and price discovery.• Intention discovery.  Do they actually

want to buy our product?• Terms.  Can we sign them up for 18

months?  24 months?  3 months?  Month-to-month?  Per usage?

And we’re off….

• Had 2 signed LOIs in hand before coding started.

• Building something that people will use and intend to pay for.

• Sales cycle underway. • Found some early adopters.• Learning about positioning/marketing

and channels. (e.g. “web app” means nothing to our target clients.)

I continue drinking the “Nor Cal Kool-Aid”.I continue drinking the “Nor Cal Kool-Aid”.

Then I have a “Keyser Soze” moment.Then I have a “Keyser Soze” moment.

Out of a CustDev conversation:

“I love the idea, but you are missing one big thing. We don’t care about

event attendees, we care about sponsors. Make that product and

name your price.”-Event Organizer

Get it at CustDev.com – use promocode: LEANLA

Blogs you should be reading

• Steve Blank SteveBlank.com• Eric Ries StartupLessonsLearned.com• Sean Ellis Startup-Marketing.com• Dave McClure 500hats.typepad.com• VentureHacks VentureHacks.com• Brant Cooper MarketByNumbers.com• Mine? Vlaskovits.com

(Not a blog, but very useful):

• Rich Collins Lean Startup Circle on Google Groups

How to get a hold of me

Email: hello@CustDev.com

Twitter: @vlaskovits

Blog at vlaskovits.com

Get it at CustDev.com – use promocode: LEANLA

Key Concepts

• Get out of the building– Engage customers not for “feature

mongering,” but to test if particular segment has pain and will pay for resolution

• MVP (Minimum Viable Product)– Build minimum functionality that resolves

problem to degree such that customer will pay

• Product-Market Fit– 40-50% of customers would be “very

disappointed” if product no longer available– Learn before burn – achieve P-M fit before

scaling

Key Concepts (cont)• Sales and Marketing Roadmap– Identifying, testing, prioritizing, measuring, and

optimizing customer segment acquisition and conversion funnels

• Market Type– How you scale depends on your market position– Existing markets (fighting incumbents directly) &

New markets (brand new product type) requires Millions in marketing spend

– Re-segmented markets (low cost or niche functionality) require less money, but careful positioning

• Pivot– Disciplined change to business model based on

market facts

Figure from the Entrepreneur’s Guide to Customer Development: Lean Startup: Customer and

Product Development Interrelatedness

Figure from the Entrepreneur’s Guide to Customer Development: Lean Startup: Customer and

Product Development Interrelatedness