Lesson: Customer Development with Steve Blank

Step #1 Hypothesis: Leave the building, test your guesses, and look for insights

Now, one of the interesting things about Customer Development that makes startups very different from large companies, is that Customer Development is done by the Founders. Well, why the Founders? It turns out that there's a couple of interesting things. This is about human nature, there's no technology involved.

In a traditional startup in the old days, you would hire a VP of Sales who would go out and because you were smart, this was your idea, and you'd say, "Go, go try to sell this. Go talk to the customers. I'll just hire somebody to do this." Remember, a hire, an employee, doesn't have the vision. They're just executing what you told them.

Guess what happens if they go out and talk to people who say, "This is the worst idea we ever heard of. No, we won't buy it." What happens is, they'll come back and tell you. The first time they do this, you'll say, "Well, you're just not describing it right."

You'll send them back out for another couple days, or weeks or months, they'll come back again. If you're like any passionate Founder, you'll go, "I hired the wrong executive. You're fired."

Now, just imagine we run the exercise, this time not with a proxy, a head of sales or marketing, but we force you to get out, you the Founder, to start talking to customers. If you got that same exact feedback, it might take you 3 customers, or 5 or 30, but eventually, smoke will start coming out of your ears, because cognitive dissonance is now coming into effect, is that you might realize that your story or vision isn't right.

Unlike a proxy, a VP of sales or marketing, you have the power to change the company strategy. You have the power to change the entire value proposition, to say, "Well, what if we had these features?" Customers might say, "Nah, nah, nah, still not a..."

Then if you said, "But what if we had this?" They might say, "Oh, if you can do that, you could have my check right now." Now, if you are a smart Founder, you'd say, "Let me get right back to you."

What you'll do is you'll go test that new feature with five or ten other customers, and all of a sudden, you realize that you had the wrong feature set and just by adding this small little change, you could now actually get a whole series of paying customers. Only Founders could do that.

What we did in the past, is we would wait till the first customer ship, we'd wait until sales didn't match the revenue plan, and we'd actually make these changes by firing executives instead of actually having the Founders engage in day one.

So, it's the Founder who could change the product, make pivots and hear customer feedback first hand. And that's the idea of getting the Founder outside of the building.

The next piece about customer development to understand is, what is it that you're actually doing outside of the building? What I think about is you're really testing on the highest possible level your understanding of the customer's problem or need. You implicitly had a hypothesis, I want to extract from implicit to have you make explicit.

Here is what the pain and the gain we're actually doing for these hypothetical customer segments that I've written down in my canvas. Great. So, how are we going to go do that? So, literally, we're going to get out of the building, take our hypotheses and we're not just getting out of the building and randomly talking to customers because if that was the case, we could have just send them a letter, or sent an email.

What we're looking for is not just data, is insights. How this process will work is we'll get out of the building, and then as we find those new insights, we'll actually change the canvas. Big idea, we'll change the canvas by marking it up, and saying, "You know we thought the customers were these kinds of people? Holy cow! They're actually these kinds of people. We thought the features we need, well, they're kind of different, they're actually these features."

So, what you're doing outside the building is you start with this hypothesis, in this case let's just take an example. The customers will be male, 24 to 35, live in urban areas, and then we're going to design some experiments. Let's go figure out maybe a Google AdWords campaign, or if it was a physical product, go out and meet them, personally, and then run some tests and take a look and analyze the data.

It's not just the data. We're trying to understand do the results match the hypothesis. And if not, just don't give up and say, "Well, it didn't, let's try another segment". Understand why your initial hypotheses were wrong because it's this "why not" that might give you some insight.

So, what you might find out in this case is, oops, we kept getting teen girls in suburbia, and you can either keep deciding, "No, no, I want men", or you might go, "Oh, wait a minute, the teen girls are actually enthusiastic. In fact paying money, trying to figure out how to buy our product right now."

The other interesting thing about the customer development process ties back into actual engineering and actual development hand-in-glove. Basically, it's this notion of the minimum viable product.

Back in the old days, what we used to do is specify the entire feature set of the product from beginning to end. Now, this makes sense when you're in a large company releasing version 2.0, 3.0 and 4.0 because you kind of have a feeling of who the customers are and what they need.

So, a product manager can be pretty accurate about, you know, "I've been interacting with customers the last year and a half, and I think I know what they need."

But in a startup, you're really kind of guessing and the odds are you're going to be guessing wrong. So rather than waste a whole ton of time and money, why don't we actually get outside the building before we build something and waste a ton of engineering time.

And more importantly, cash, because that's what puts startups out of business, is running out of money. We want to make sure that we actually listen to the people who will actually buy this product. We want to make sure we satisfy their wants and needs.

So, why don't we just figure out how to build the minimum viable product, build the minimum features in order to get feedback? Now, feedback could take the form of input verbally or they give you early orders, or they gave you anything that was valuable in helping you come to closure off, what should we be building, in what order?

By the way, an MVP can be something as simple on the web as a wireframe or a PowerPoint slide, or for physical product, it could be a physical mock-up or it could be a working part of the system.

As you get more feedback, you can start adding more features. So one caveat is a comment I always get is, "Well, Steve Jobs didn't build the iPhone by asking customers, and we really doubt Henry Ford asked customers do they want a car before one existed, in fact, in his case, if you would ask people about what they wanted, they would have said a faster horse, or one with six legs".

So, the immediate response is, "Well, therefore, for new products you just don't get out of the building at all." And that's just a fallacy. There is a type of startup, in what we call a new market, and we'll be describing new markets in the Customers Segments lecture.

Just understand that in new markets of course you don't get out and ask people what features they need, but you do want to understand, how is their day in the life different today versus the day after you give them your new product? How does their world change?

There's no possible way sitting locked in your conference room or your office you would know that, without talking to customers.