Customer Development Past Present Future Steve Blank 111909
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Transcript of Customer Development Past Present Future Steve Blank 111909
The Customer Development Model
Past, Present, Future
Steve BlankStanford School of Engineering /
UC Berkeley, Haas Business School
www.steveblank.com
Lean Startup Circle - San Francisco19 November 2009
No Time To Think
• Eight startups 1978 -1999– Semiconductors, video games, signals
intelligence, supercomputers, Macperipherals, enterprise software
• Training instructor to CEO• Four IPO’s, one a “go home” and stay
It Started With a Question
If Startups Fail from a Lack of customersnot Product Development Failure
Then why do we have:• process to manage product development?
• no process to manage customer development?
All We Had Was 30 Years of This
Concept/Seed Round
ProductDev.
Alpha/BetaTest
Launch/1st Ship
Product Development Model
I Started Reading• Lead User Research - Von Hippel• Crossing the Chasm - Moore• Entrepreneurial Mindset - McGrath/MacMillan• Innovators Dillema - Christensen• Profitable Value - Lanning• Lanchester Strategy - Yano• High Tech Marketing - Davidow
• OODA Loop - Boyd• Question-based Selling - Freese• Solution Selling - Bosworth• Conceptual/Strategic Selling - Heiman• Spin Selling - Rackham• US Marine Corps Warfighting Manual• Tipping Point - Gladwell
CompanyBuilding
CustomerDiscovery
CustomerValidation
CustomerCreation
It Resulted in a Few Hypotheses
• Startups weren’t small versions of large companies• They were about learning/discovery, not execution• Entrepreneurs and their VC’s were executing on
guesses• But the facts were outside the building
Which Turned Into A Model
Concept/Bus. Plan
ProductDev.
Alpha/BetaTest
Launch/1stShip
Product Development
Customer Development
CompanyBuilding
CustomerDiscovery
CustomerValidation
CustomerCreation
+
Eric Ries Extends the Model
• Took my class at U.C. Berkeley• Co-founded IMVU
- 1st implementation of Customer Development- Paired it with an Agile Development Model
• Observed that the sum of the two was powerful
Eric Ries: Insight - 1Startups assumed development was “known”
Solution: known
Waterfall
Requirements
Design
Implementa1on
Verifica1on
Maintenance
Problem: known
Concept/Seed
ProductDev.
Alpha/Beta
Launch/Ship
• I understood the problem was unknown• Eric observed the solution was unknown in a startup
Eric Ries: Insight - 2Agile matches the Customer Dev speed
Concept/Seed
ProductDev.
Alpha/Beta
Launch/Ship
• Agile was the development methodology to use when the solution was unknown
Solution: unknown
Eric Ries: Insight 3Customer + Agile + Commodity = Lean
Problem: Unknown Solution: UnknownSource: Eric Ries
• Solving for both unknowns is the “Lean Startup”
Jon Feiber @ MDV InsightNot all Need Customer Development
• Market Risk vs. Technical Risk?- Web is about customers & markets- Biotech is about science & invention
John Boyd - InsightThe OODA “Loop”
Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedbackand other phenomena coming into our observing window.
FeedForward
CulturalTraditions
GeneticHeritage
NewInformation Previous
Experience
Analyses &Synthesis
Feedback
Feedback
Orient
Decision(Hypothesis)
FeedForward
ImplicitGuidance& Control
Decide
Action(Test)
UnfoldingInteraction
WithEnvironment
Act
FeedForwardObservations
ImplicitGuidance& Control
UnfoldingInteraction
WithEnvironment
OutsideInformation
UnfoldingCircumstances
Observe
Iteration versus Execution
CustomerDiscovery
CustomerValidation
Iteration
The Search for a Business
CompanyBuilding
CustomerCreation
Execution
The Growth of a Business
Product/Market Fit
Appendix B: Business ModelChecklist
• The Four Steps had:– Business model flow for Enterprise Software– Business model summary for each step– Checklist for Enterprise Software
• It said, “modify it to fit your business”
Test Problem Hypothesis
DemandCreation
Hypothesis
Market TypeHypothesis
ProductHypothesis
Customer &Problem
Hypothesis
Distribution &Pricing
Hypothesis
CompetitiveHypothesis
State Your Hypotheses
MarketKnowledge
FriendlyFirst Contacts
撤roblem�Presentation
CustomerUnderstanding
First RealityCheck
�Product�Presentation
Yet MoreCustomer
Visits
Test Product Hypothesis
Iterate orExit
Verify theProblem Verify the
ProductVerify theBusiness
ModelVerify
1st AdvisoryBoard Second
Reality Check
The Flow
Customer Discovery Summary Phase Goals Deliverables 0. Get Buy-In Investors/founders agree on Customer Development, key hires, and values. Buy-In, Core Values 1. State Hypotheses Set product specs, develop detailed hypotheses of product, first customers, channels and
pricing, demand, market, and competition. Hypothesis Briefs
A. Product Hypotheses Get agreement on product features, benefits, and release schedules. Product Brief B. Customer Hypotheses Describe customers, their problems, and why they will use the product. Customer Brief C. Channel & Pricing Hypotheses Develop a channel strategy and pricing model. Channel and Pricing Brief
D. Demand Creation Hypotheses Identify demand creation strategy, influencers, and trends. Demand Creation Brief
E. Market Type Hypotheses Describe what market you are in (new, existing, resegmented). Market Type Brief F. Competitive Hypotheses Develop competitive analysis that fits your Market Type. Competitive Brief 2. Test & Qualify Hypotheses Test hypotheses from phase 1. Understand customers’ “day in the life” Validate A. First Customer Contacts Create customer list and schedule the first customer contacts. Customer List B. Problem Presentation Develop presentation of problems, current solutions, product solution. Problem Presentation C. In-Depth Customer
Understanding Understand how customers work, their problems and who else influences their decisions. Customer Brief
D. Market Knowledge Understand the market: meet w/analysts & media, trade shows, research. Positioning Brief 3. Test & Qualify Prod Concept Test product concept. Do customers’ needs match the product? Hypotheses A. First Reality Check Review customer/product feedback & test phase 1 customer problem assumptions. Revise Product
Customer Briefs
B. Product Presentation Create product presentation on how product solves customers’ problems. Product Presentation C. More Customer Visits Expand customer list to include five new potential customers. Customer List D. Second Reality Check Review product feature feedback and test. Updated Feature List E. First Advisory Board Members Spot and recruit first advisory board members. Advisors on Board
4. Verify Found the right market? Have a profitable business? Validate A. Problem Verification Verify that you have identified a problem that a customer wants solved. Problem Statement B. Product Verification Verify that the product solves customers’ needs and its ROI. Product Requirement Doc C. Business Model Verification Verify that you have a profitable business model. Updated Revenue/Sales
Plan
D. Iterate or Exit Decide whether you have learned enough to go sell. Business/Prod Plan
The Summary
Customer Discovery Hypothesis: The Customer Worksheet 1-b
Goal of phase 1b: Develop a hypothesis of who the customer is and what problems they have that will drive them to use your product, before you leave the building. Author : Business Execution, Business Visionary Approval: Founding Team and Executive Staff Presenter: Founding Technical Team
Time/Effort: 3-5 days of authoring by VP Business Execution or Business Visionary, day presentation/ strategy meeting with founding team and executive staff
1. Define the different types of “customer” 2 . W ho will be the actual day-to-day user of the product? 3 . W ho are the influencers and recommenders? 4 . W ho is the “Economic Buyer?” (I.e. whose budget paid for it?) 5. Do you think the Economic Buyer has an existing budget for this product or do they need to get
one approved? 6 . W ho are the “Decision Makers?” 7 . W ho else needs to approve the purchase? 8 . C u s tomer Visionaries understand they have a pain and can visualize that there is a solution. Where do you
think you will find them? 9. In what title or function? 10. In what company type? 11. In what industry Segment? 12. R eminder: a visionary is a paying customer 13. Where in an organization you think your first customers are? 14. What departments 15. What are their titles? 16. How do they differ from later customers? (Hint: Lots in a new market, little in an existing
market.) 17. What problem does the customer have? 18. What do you think the biggest pain is in how they work? 19. I s it the same on all levels of the company? 20. I f they could wave a magic wand and change anything what would it be? 21. Since your product doesn’t exist, what do people do today to solve their problem? Don’t do it ?Do it badly? Don’t recognize the need? 22. Where on the “problem recognition scale” is each type of customer (users, recommenders, economic
buyers) • L a t e nt Need (you recognize that the buyer needs your product but they don’t…yet) • A c tive Need – the Buyer is in pain (they recognizes a need but doesn’t know how to solve it) • H a s a vision of a solution (the buyer has a vision of how to solve their problem) 23. What is the organizational impact of this pain? 24. Individual? 25. Departmental? 1 . C orporate?
Demand Creation
Hypothesis Market Type Hypothesis
Product Hypothesis
Customer & Problem
Hypothesis Distribution &
Pricing Hypothesis
Competitive Hypothesis
Verify the Product
Verify the Channel
Roadmap
Iterate or Exit
Verify the Sales
Roadmap
Verify the Business
Model
Customer Validation V e r i f ication: Sales Worksheet 4-b
Goal of phase 4b: You’ve gone all around the Customer Validation circle. You assembled your sales materials, found visionary prospects and tried to sell and close 3 to 5 customers. In this phase you summarize everything you learned from selling. Author: Sales Closer, Business Execution Approval: A l l Presenter: Sales Closer
Time/Effort: 1-3 days of authoring by VP Business Execution or Business Visionary, day presentation/strategy meeting with founding team and executive staff
1. P r o s p ecting 2. H o w easy was it to get an appointment? 3. Did customers understand what you wanted to sell? 4 . P r e s e n t i n g 5. Did you understand the real pain the buyers had? 6. H o w did your solution match their needs? 7. Did you understand the impact on others in the company? 8. Did you need a demo or prototype to sell? 9. W h e r e the sales materials adequate? 10. Customer Organizational Issues 11. Did you identify the right decision makers? 12. Did you understand the other key players in the organization? 13. Did you lose deals because others in the organization objected? 14. Pricing 15. Did you lose deals over pricing? 16. Do you have the right pricing model? 17. What is the Average Selling Price? 18. Over the next 3 years how many units will a customer buy? 19. What is the lifetime value of each customer? 20. Was their any objection to your pricing? (If not, your product may be priced too low—you should
always get a modicum of grumbling.) 21. Besides the absolute price of the product, do you have the right pricing model? 22. R O I Model 23. Do you understand the ROI for a customer? Revenues? Costs- reduction or containment?
Displaced costs? Avoided costs? Productivity improvements? Time-savings? Intangible? 24. Is the ROI demonstrable or provable? 25. Distribution Model • Are your assumptions about distribution channel correct? 26. What will the cost of the distribution channel be?
The Workbook
The Metrics
• Goals to be accomplished to exit steps• Quantitative
– Talk to 50+ customers in Discovery– Close 5 orders in Validation
• Qualitative– Develop product & company positioning– Choose Market Type
Dave McClure - InsightMetrics for Web Marketing
Website.com
Revenue $$$
Biz DevAds, Lead Gen,Subscriptions,ECommerce
Retention
Emails &Alerts
System Events &Time-‐basedFeatures
Blogs, RSS,News Feeds
ACQUISITION
SEOSEM
Apps &Widgets
Affiliates
PR Biz DevCampaigns,Contests
Direct, Tel,TV
SocialNetworks
Blogs
Domains
From Dave McClurehttp://500hats.typepad.com/
Maples Investments - InsightFunding the Lean Startup Model
• Mike Maples was a business school case• Started a venture firm
– 1st VC adoption of Customer Development– Introduced Mike to my Stanford Teach Asst– Ann Miura-Ko now Mike’s partner
Business Model IterationThe Pivot
CustomerDevelopment
Agile ProductDevelopment
Tactical
BusinessModel
Iteration
Strategic
Source: Ann Miura-Ko Maples Investments
Type of Market Changes Everything
• Market– Market Size– Cost of Entry– Launch Type– Competitive
Barriers– Positioning
• Sales– Sales Model– Margins– Sales Cycle– Chasm Width
New MarketResegmentedMarket
Existing Market
• Finance• Ongoing Capital• Time to Profitability
• Customers• Needs• Adoption
Definitions: Types of Markets
• Existing Market- Faster/Better = High end
• Resegmented Market- Niche = marketing/branding driven- Cheaper = low end
• New Market- Cheaper/good enough can create a new class of
product/customer- Innovative/never existed before
New MarketResegmentedMarket
Existing Market
What Can the Lean Startup CircleContribute?
• Enumerate Business Models- I.e. Dave Cohen/Techstar’s list
http://www.coloradostartups.com/2009/11/07/internet-business-models-of-the-techstars/
• For each Business Model develop:- Business Model Flow- Summary- Checklist- Metics