Customer development (abbreviated as custdev) is testing 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.
How to Use the Customer Discovery Process [Complete Guide].
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Customer development is often contrasted 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, a balance must be struck between product development and customer research.
Customer development has become one of the key principles of the Lean Startup movement. Steve Blanc's student Eric Rees formulated these principles in the blog of the same name, and then in the book “Business from scratch. Lean Startup Method for Rapid Testing of Ideas and Choosing a Business Model ”.
Who and why need customer development?
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.
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 goals, vision of the product and its mission. Answer yourself what you would choose.
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 patterns of behavior and finding insights are essential ingredients for the success of any project and business.
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. Knowing 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.
How to do customer discovery?
To conduct Customer development, as a rule, a cross-functional team is organized, whose task is to iteratively and cyclically test pre-formulated hypotheses. Customer development divides the process of creating a product and a business into four stages.
- The first stage is finding your client, which consists in finding a match between the problem and the solution.
- The second stage is customer confirmation, which is expressed in checking the business model, finding the match between the product and the market, and creating a marketing and sales roadmap.
- The fourth stage is the construction of the company, which is expressed to scale the organization and operations.
The cyclical nature of the Customer development process is determined by observing the following stages: Build—> Measure—> Learn, which means Create—> Measure—> Learn. The importance of these cycles and the speed of their passage can hardly be overestimated, because it is thanks to them that the entrepreneur tests hypotheses and finds the right client, their true problem and the corresponding solution.
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 a 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.
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. In this situation, it doesn't matter who creates the product: 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 technique to avoid negative outcomes.
How to Apply the Customer Development Model
"Nothing is happening inside the building, so go outside." This is a famous quote from Steve Blank, founder of the customer development approach. It is the heart of the concept and part of the explanation for the startup curve model.
After identifying a seemingly brilliant idea, a team of developers and designers come together to create a new product. They keep the development process under wraps, which is a big mistake. Feedback is needed to understand if they are moving correctly.
Media outlets like TechCrunch are out of the blue to announce a product launch that generates thousands of registrations and subscriptions. When the novelty rush passes, only 10-15% of users remain and sales drop. A period of disappointment begins. This forces the startup to go out and use real user feedback to improve the product. If successful, the promised land is just around the corner.
According to Steve Blank, knowledge gained from customer development is used to generate and optimize an idea for product development. Use customer development to find customers and create a product and communication strategy specifically for them.
Use rational tactics to find the best solutions based on your understanding of specific users and their expectations. This avoids the startup curve, or at least accelerates its growth. Thanks to the technique, some things can be revealed, namely that:
- the original hypothesis is correct;
- the proposed product solves the problems of users;
- the target audience will use the product;
- the concept of a new function for an existing product will be effective;
- consumers are willing to pay the specified price of the item.
It is important to keep in mind that the customer development methodology is used for the launch of the product, as well as throughout the entire life cycle. It is suitable for any stage of development, as it does not require huge resources and does not affect other processes.
Customer development includes customer discovery, customer validation, customer creation, and company building. Let's look at each step in detail to learn how to use the information gathered to maximize your profit.
Customer Discovery step by step
Customer development is hugely beneficial, but many startups and companies skip this step. They are afraid that users will not accept their ideas or use the product. This is what they encounter during the customer discovery phase.
Customer discovery is essential to get to know potential users and test your product hypotheses. Customer discovery methodology allows at an early stage to determine the viability of the initial concept, what needs to be improved, what to remove, what to add. What is the customer discovery process?
Formulate your hypothesis
It is difficult 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?
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?
Write the answers to these questions on your business model canvas. You will identify the main market for the product and the hypotheses that are important for the initial stages of development. You will also reach your customers and work on the product they really need.
How to use the client discovery process in practice?
The cyclicity of the process is important. As has been mentioned above, 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.
Search for an audience: confirmation or refutation of the client's hypothesis.
It is important to find the right way to fix the customer's pain.
It is not always that a direct user is the one who really chooses a product or service. Suppose a customer is developing a paid application for teaching children a foreign language. Obviously, the target audience is a child, and you need to do short interactive lessons, use a lot of pictures, animation, music, etc. to teach a child a language. So, the main thing in the app’s development is to attract and hold the children’s attention.
Such a focus can lead to a conclusion that the main target audience of the app is children. However, this is the wrong understanding. The true audience of the application is the children’s parents. They will not pay for the lessons if they do not see the result. Therefore, in addition to a bright interface, it is necessary to plan the content: lessons and linguistic games. In this case, they are more important. No parent will pay for ineffective education.
So think again before saying that you are sure. Remember, the decision is not always made by the immediate user.
Confirmation of the target audience. Check the business model. Search for conformity between product and market.
Selected hypotheses need verifying. This can be done 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.
It is necessary to create a business model. As a basis, it is recommended to use a 9-block strategy. This strategy was created by the business theorist Alexander Osterwalder and computer scientist Yves Pinier. In 2017, they shared the 7th place in the ranking of the world's most influential business thinkers, Thinkers50.
block 1 - product value. The questions are aimed at identifying the product as a way to satisfy the user and receive advantages. In other words, why does the audience need this?
block 2 - user study. It is necessary to find out everything about a person: who they are, where they come from, what social and age group they belong to, what they look like;
block 3 - product promotion. Questions should help to understand how it is more profitable to sell and promote development
block 4 - communication with the audience. It is recommended to ask questions about how to start, maintain and improve communication
block 5 - sources of profit. What income does each segment of the audience bring? What exactly is appreciated by users? Where is the "gold mine" of the product?
block 6 - attachments. Questions about what resources are needed for the business system and product to function. This may be capital, loans, assets and other means
block 7 - partners. Are they needed at all? If so, how soon the cooperation will be profitable, who these partners will be, etc.
block 8 - actions. Questions on what the team must do to complete the plan
block 9 - expenses. When asking questions, you need to identify the entire cost structure. What is the most expensive thing in development or any other process? Is it possible to reduce production costs without losing product quality?
Starting work with building a business model on 9 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 important 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, create a clearer portrait of the target audience, its 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 this 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 very expensive.
Creation and product scaling
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. Give test versions of the product to colleagues and friends. You need to interview them and write down all the comments. Analyze the comments, 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 the development of 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 that you outsource 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.
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 not only to create a demanded product, but also leave a positive impression about you.