Customer development (abbreviated as custdev) tests an idea or prototype of a future product on potential consumers. The term was coined in the 1990s by American serial entrepreneur Steve Blank. In his book Four Steps to Insight: Strategies for Building Successful Startups, he formulated customer development, a customer-centric approach to building a business. According to this concept, the product must necessarily solve the client's problem. First, the problem is identified, then the product is developed, and not vice versa.
Let's start with the value proposition
Every entrepreneur who starts a new project among the first challenges faces creating a concise value proposition stage. It has a lot to consider: it should be important to every participant of the project process, starting with stakeholders and investors and through all staff and finally - customers.
What is the product's value proposition? Shortly - that's the benefit your product brings to your customer, the solution for his problem.
To know your customers' needs, you have to know them personally.
And you'll have a chance to get to know them during the customer discovery process. The primary task of this process is to distinguish your first customers. It would be best to turn your assumption about who your customers are and how they reach you into the hypothesis for testing via interviews.
Not necessarily you should aim to gather numerous focus-group. It's a widespread fact that a group of first customers for the startup is natural to be a limited number. They are sometimes called "Earlyvangelists." And they are united with five typical features:
1. They have a problem in their business.
2. They are aware of this problem.
3. They are in search of a solution.
4. They have tried to create the solution themselves.
5. They can afford to purchase a solution you've created.
Having created your focus group, you can move to the customer discovery process. It consists of four phases:
1. Forming of your hypotheses: for subsequent testing, you need to create a basis: a set of briefs describing your main business assumptions.
2. Testing your hypotheses: validate your hypothesis while talking with your focus group at discovery interviews, target market representatives, analysts, and the media. Here try to be curious but not to sell.
3. Testing your product concept: now, when you deeply understand your customer's problem, check whether the product is attractive and relevant to them. Introduce your customers' opinions and requests to your development team.
4. Evaluate the results of the previous phases and plan the later steps: sum up all the information you have already got to come up with your core business assumptions. Is it enough to define what next steps you have to take? If no - repeat the previous stages emphasizing the previously missing parts. If yes - you can finalize your product overview.
Customer discovery process step by step
FORMULATE YOUR HYPOTHESIS
It is challenging to articulate hypotheses clearly in order to test them with the help of users. Difficult does not mean impossible. Steve Blank has found that Osterwalder's business model is a powerful tool for testing these kinds of assumptions.
BUSINESS MODEL CANVAS
This nine-block strategy was developed by business theorist Alexander Osterwalder and computer scientist Yves Pigne. Both authors are on the list of 50 influential management theorists.
In Osterwalder's business model, you ask the right questions at each stage and then write the answers that should eventually become a hypothesis.
1. Proposed value. What problem does the product solve, and what need does it satisfy? What are the main characteristics of the product? How will consumers benefit?
2. User segmentation. Who are your users? What is their geography, demography, social environment? What does your typical consumer look like?
3. Channels. How will you market your product? How do you intend to communicate with consumers? What will the interaction with consumers be like? How to build, maintain and develop relationships with consumers?
4. Sources of income. How much profit does each consumer segment bring to the company? What are the most profitable values in your product?
5. Resources. What resources are needed (capital, loans, assets, etc.) for the plan to work?
6. Partners. Do you really need partners? What are the benefits of interacting with them? What are their main functions?
7. Activity. What steps should the team take to implement the plan?
8. Cost structure. What is the total cost of the product? What types of resources or activities are the most expensive?
Starting work with building a business model on these blocks, you will immediately determine the target market.
Next, you need to start testing your hypotheses. To do this, find representatives of the intended audience and interview them. This is an essential step in customer discovery. Take questions responsibly and think through them in advance.
Remember: A closed-ended question can be used to "put out feelers" or generate statistics, for example, "Do you use mobile applications for learning a foreign language?".
An open-ended question is used to get an opinion and create a more precise portrait of the target audience, preferences, and wishes. These could be such questions as "What educational mobile applications do you use?", "What mobile applications do you use?", "Please let us know if mobile devices help you learn a foreign language?". The degree of openness of the question may be different, determined by the situation. When testing hypotheses, give preference to open-ended questions.
Good work at the customer discovery stage does not determine 100% success. However, bad work will 100,000% lead to failure.
It is also essential that you track the market of competitors. It will allow you to avoid working in vain - repeating someone else's product. Explore what users lack, what doesn't suit people in existing products similar to yours, etc. Never drop out of the information field. It can be costly.
Write the answers to these questions on your business model canvas. You will identify the primary market for the product and the important hypotheses for the initial stages of development. You will also reach your potential customers and work on the product they really need.
And answering the very first question is already really helpful itself, as it helps find out what exactly you want to do in the market.
The cyclicity of the process is important. The customer discovery model consists of 3 stages: Create - Measure - Learn. In this order, hypotheses put forward are checked, the desired target audience is found, their pain is determined, and a solution is proposed. Below we will consider how to conduct customer discovery.
Selected hypotheses need verifying. You can do this with a team or on your own. It is important to remember: validation and tests should be cyclical. A one-time contact with the audience will not provide a complete understanding. All further work will be meaningless.
When all these phases are positively over, you can improve your startup significantly. As now you:
Know the nature of your potential customers' business problem
Have a document of a product requirements
Can plan your sales revenue
Can finalize your business and product plan
Is MVP important at a discovery phase?
Start by building a test version - MVP. It should have a minimum of functions, reflect the idea of the product, and fix the main customer pain points based on customer discovery. Give test versions of the product to colleagues and friends. You need to interview them and write down all the comments. Analyze the statements, add new functionality to the product, and give it out to your friends again. After the second edition of the comments and their consideration, proceed with developing the final version. Naturally, don't forget about testing as part of the development process. When putting forward the usability hypothesis, do not forget to do usability testing at the end. Everything should go like clockwork.
When the product is ready, plan, coordinate and start marketing and PR campaigns. Introduce the product to the target audience and the "evangelists". Bear in mind that you need to decide which market is yours: mass market, middle market, luxury, or niche. Explore the markets, once again analyze the target audience. If you don't have competencies in building promotion campaigns, we recommend outsourcing them to the agency. But prepare a brief carefully and answer the questions as honestly as possible! Once you have decided what to do, launch the product.
Customer discovery examples
Have you heard of Everpix, Google Wave? If you haven't, then it is not surprising. The first example is an app that was created in 2011 that organizes and sorts photos on the phone. It lasted until 2013 because people didn't buy this product. The second is a universal communication platform, which appeared in 2010 and closed in 2012, as no one figured out how to use it. If you miss customer discovery, apparently, you miss the project in general.
The creators developed Everpix and Google Wave with little or no user involvement. They relied on intuition or professionalism but did not take into account the factor of product-to-market relevance.
Users didn't understand how to use the features of the app, and sales dropped. It doesn't matter who creates the product in this situation: two developers or a giant corporation, how much money the company has invested. There is always a risk that the service will not work and users wouldn't like, for example, usability. Below we will discuss an effective customer development model to avoid negative outcomes.
What is Customer Development and how is it connected with the topic?
In more than 50% of cases, our customers themselves do not imagine what the audience needs in REAL life. They do not conduct detailed market research and do not try to find out the user. As a result, the product does not live up to expectations. But this is not even the worst. The worst thing is that the product does not pay off.
Without understanding the pain of the client, it is difficult to fix it. A customer-oriented approach demonstrates your concern for the customer and user. Compare the dry request for technical information with a detailed survey about the product's goals, vision, and mission. Answer yourself what you would choose.
Customer discovery, discussed above, is just the first stage of the process of customer development.
There are four stages of customer development identified by Steve Blank to prove that you have recognized your customers' needs and created the product, which can satisfy them. Also it this process proves you tested your product correctly and prepared to the increasing of the demand.
There are four steps of customer development:
1. Customer discovery – here, you have to understand your potential customer persona and their demand.
2. Customer validation – you have to check whether your product satisfies your potential customers' needs at this stage.
3. Company creation – when you are sure that your product fulfills the customers' needs.
4. Company building – at this stage, you start growing your organization to support the demand for your product.
The goal of customer development is to identify the pains and needs of the customer. Better consumer knowledge helps streamline the process and sometimes not to start software development at all.
Basic principles of customer development
Customer development defines a methodological approach to the creation and development of a new project / startup / business / company / software, which is based on several important principles:
1. At the center of everything is the client with their problems and pains, which are to be found by drawing up and researching problem hypotheses.
2. All ideas of the leader or founder of a project or business are, first of all, unverified hallucinations and hypotheses that need to be formulated, confirmed, or refuted.
3. Development takes place interactively and begins with the search and confirmation of the client and then continues with their attraction and creation / development / scaling of the company.
4. "There are no facts in the office" - this means, in order to test a problem hypothesis, you need to go outside the office, literally or figuratively.
5. Understanding human psychology, identifying behavior patterns, and finding insights are essential ingredients for the success of any project or business.
The cyclical nature of the customer development process is determined by observing the following stages: Build—> Measure—> Learn, which means Create—> Measure—> Learn. You can hardly overestimate the importance of these cycles and the speed of their passage. Thanks to them, the entrepreneur tests hypotheses and finds the right client, their true problem, and the corresponding solution.
The customer development model often contrasts with the product-oriented approach ("make a great product, and there will be a buyer"). If a startup gets too caught up in product improvement and has forgotten about consumers, the project usually fails. In practice, you must strike a balance between product development and customer research.
Why do you need customer development?
Determine the presence or absence of demand. Do you need to run a project? According to the principles of customer development, attention should be focused on the potential user of the product: their pain, needs, and difficulties. The main task is to discover them, explain and develop an action plan;
Determine the adequacy of the client's idea: is it possible to implement it? It is necessary to understand the level of competence of the customer, whether he understands the market and how he represents his potential user;
Find and determine if the product is suitable for the selected target audience. The customer must understand that everything before testing is assumptions and hypotheses. They need to be checked by addressing a real audience;
Understand their customer, his character. This will be useful for further cooperation with the person. If you explore the manner of thinking, worldview, and communication of the client, your relations will become more productive
Study the market and consumer demand. This information will be useful not only to the client but also to you, to earn more on the product.
Do not forget about constant development. Even if everything is calculated and done correctly, the market is changing, and modern people are finicky. However, it is on pragmatic and critical users that the global IT market rests.
Show customer and user care, so they get back to you. Customers remember the work process no less than the result. Therefore, customer discovery will help create a demanded product and leave a positive impression on you.