Customer Development

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Customer Development is a customer development methodology that focuses on validating business hypotheses and understanding customer needs. It was developed by Steve Blank, a Silicon Valley entrepreneur and professor, and has become a popular methodology for startups.

The Customer Development process consists of four stages

1. Discovery: At this stage, key business hypotheses are identified and defined, such as the problem to be solved and the proposed solution. Then, potential customers are sought and data and feedback about the product or service is collected.
2. Validation: at this stage, the hypotheses identified in the discovery stage are validated. Concept testing and customer interviews are conducted to obtain feedback on the proposed solution.
3. Creation: at this stage, a minimum viable product (MVP) is created and launched in the market. Additional customer feedback is obtained to refine the solution and the MVP is adjusted accordingly.
4. Scaling: At this stage, the business is scaled up. A growth strategy is created and the business is expanded based on customer feedback and data.

The Customer Development methodology focuses on understanding customers and validating key assumptions before investing large amounts of time and money in creating a product or service. This helps to reduce the risk of failure and increase the likelihood of long-term success.

How to apply customer development in a new company?

To apply the Customer Development methodology in a new company, the following steps can be taken:

1. Define the problem: identify the problem that your product or service aims to solve. This may be a need that is currently not being met in the market or an opportunity to improve something that already exists.
2. Identify customer segments: Identify customer segments that might be interested in your product or service. Understand their needs, challenges and expectations.
3. Conduct interviews: Conduct interviews with potential customers to validate your assumptions about the problem and the customer's needs. Listen carefully and ask questions to better understand their views and get a clear idea of what they want.
4. Create a prototype: create a minimum viable prototype of your product or service. This can be a simplified version of the product that customers can use to give you feedback.
5. Validate the solution: conduct proofs of concept and obtain customer feedback on the proposed solution. If necessary, make adjustments based on the feedback received.
6. Launch: launch your product or service to the market and get additional feedback from customers. Use this information to refine the solution and make improvements.
7. Scaling: create a growth strategy and expand your business based on customer feedback and data.

In short, the Customer Development process involves understanding customer needs, validating key assumptions and adjusting the proposed solution accordingly. By following this process, you can reduce the risk of failure and increase the likelihood of long-term success of your new venture.

Examples of customer development by well-known companies

Below are some examples of how some well-known companies have used the Customer Development methodology:

1. Dropbox: Once Dropbox's founders came up with the idea of a cloud storage service, they conducted interviews with potential customers to better understand their needs. They discovered that users were looking for an easy and secure way to share and store files. Dropbox launched a minimum viable prototype and shared it with a small group of users to get feedback and make improvements. The company then launched the final product and has grown significantly since then.
2. Airbnb: the founders of Airbnb launched a website offering accommodation on an inflatable mattress in their flat. They then conducted interviews with guests to understand their needs. They discovered that users were looking for an authentic and unique experience, so the company expanded its offering to include a wide variety of accommodations. Airbnb also focused on developing its platform to facilitate accommodation booking and communication between guests and hosts.
3. Zappos: Zappos founder Tony Hsieh began developing the idea of an online shoe shop in the 1990s. Initially, he focused on understanding customer needs and quality customer service. The company offered free shipping and no-questions-asked returns, which set it apart from other online shops. Zappos also focused on creating a strong company culture to ensure that employees were committed to the company's vision.

These examples demonstrate how companies can use Customer Development to understand customer needs and create solutions that meet those needs. In doing so, they can differentiate themselves from their competitors and increase the likelihood of long-term success.

Case study for an entrepreneur to apply customer development in his new venture

Here is a case study for an entrepreneur to apply Customer Development in his new company:

Suppose an entrepreneur wants to launch a mobile application that offers a healthy food delivery service. The entrepreneur can follow the following steps to apply Customer Development:

1. Define the problem: the entrepreneur identifies that many people do not have time to prepare healthy meals at home and instead choose to order fast and unhealthy food. The problem the app aims to solve is to provide a healthy and convenient meal option for busy people.
2. Identify customer segments: the entrepreneur identifies customer segments that might be interested in the app as people who work long hours, busy parents, athletes and health-conscious people.
3. Conduct interviews: the entrepreneur conducts interviews with potential customers to validate his hypotheses about the customer's problem and needs. He listens carefully and asks questions to better understand their views and get a clear idea of what they want.
4. Create a prototype: the entrepreneur creates a minimum viable prototype of the app. This can be a simplified version of the application that customers can use to provide feedback.
5. Validate the solution: the entrepreneur carries out proofs of concept and obtains customer feedback on the proposed solution. If necessary, he/she makes adjustments based on the feedback received.
6. Launch: the entrepreneur launches the application in the market and obtains additional feedback from customers. He uses this information to refine the solution and make improvements.
7. Scaling: the entrepreneur creates a growth strategy and expands the business based on customer feedback and data.

By following this process, the entrepreneur can validate their key assumptions, understand customer needs and adjust their solution accordingly. This helps reduce the risk of failure and increases the likelihood of long-term success.

WHAT IS CUSTOMER DEVELOPMENT??

Traditional entrepreneurship methodologies point to product development as the essential variable of entrepreneurship.

• Success will come if there are customers in the market who need the product and are willing to pay for it.
• This is certainly a simplistic view that ignores other fundamental aspects of entrepreneurship.
• The very sporadic success of this model fails to hide the high failure rate of the vast majority of start-ups.

THE CAUSES ARE CLEAR:

• In reality, they did not have a validated business model or a product tailored to the real needs of the supposed target audience.
• Moreover, these failures had dire consequences for the entrepreneur who had already incurred a lot of investments and expenses.  

In this context, Steve Blank proposed that what is essential in the early stages is the discovery and development of customers to test, without incurring significant costs as yet, whether the product designed is the most suitable product to meet the needs identified, whether there is a real market for it and whether customers will be willing to pay for it. The customer development ('customer development') has in a few years become a powerful tool in the service of the startups because it resituates the focus on the customer, allows the business model to be corrected and validated, reduces the margin for error and allows the complete identification of potential customers. And this is, after all, what is sought after in any venture.

The old Henry Ford formula does not apply:

"The customer can choose the car in any colour he wants, as long as it is black"..

It is better to think that the first task of any company is to "create customers". and that, therefore, if only one colour is to be offered, it is better that it is the one they prefer and not the one the employer likes.

GET OUT ON THE STREETS!

Traditional entrepreneurship methods started with a long process of intensive study and planning. Today we know that it is essential to get out on the streets as soon as possible and start talking to as many real customers as possible. But this new method of customer development takes a radically different approach. It starts with some initial hypotheses about the product and customers, and then enters a trial-and-error learning process, in which real customers will help the company design a repeatable, scalable and profitable business model.

Customer Development is therefore, a methodology suitable for developing startups subject to high degrees of uncertainty and business risk. The central objective is to meet the real needs of the market rather than the assumed ones. Sith trial and error and by iteration, learning from the customer is necessary to develop a suitable product and a well-conceived business model.

THE FOUR PHASES OF CUSTOMER DEVELOPMENT

Customer Development is based on the sequential development of four phases. These phases are repeated as many times as necessary until an optimal knowledge of the customers is obtained to successfully redesign and launch the product.

THE FOUR PHASES OF CUSTOMER DEVELOPMENT THAT YOU SHOULD APPLY ARE:

CUSTOMER DISCOVERY

The first objective is to find out if there are potential customers for the pre-designed product. To do this, it is necessary to discover whether or not the hypotheses about the problem to be solved, about the product to be developed and about the customers to be targeted are valid or not.It is essential to get out there and start talking to as many potential customers as possible. But not to obtain lists of required product characteristics, but for something more ambitious: to find out if there are already customers willing to buy the pre-designed product.

For this purpose, the so-called "minimum viable product (MVP). In addition, you can use questionnaires, both of which are addressed to the so-called "target groups". early adoptersearly vangelists or early adopters.

In other words, people who are predisposed to buy and pay for unfinished or untested products. Or who have and know that they have a problem or need that they have hitherto covered by some kind of proprietary solution.

• It is a stop-gap solution, a stop-gap, and they are waiting for a definitive solution.
• The search for and contact with these first clients must be the non-delegable task of the entrepreneurs or founding partners.

 CUSTOMER VALIDATION

The objective of this second phase is to create a sales roadmap to which the company can later conform, which is proven and repeatable and which is supported by sales to the early evangelists. It also aims to test whether a market segment that reacts positively to the developed product has actually been found. But, although it is called "customer validation", what it is really about is validating the business modelto prove that there is a business, a profitable, proven and repeatable way to bring our product to the customer that we have found in phase 1, and to do it in an economically profitable way.

Once these first two phases have been completed as many times as necessary, it is confirmed that you now have a business model that really works, as you have verified the existence of a market, effectively located the potential customer, tested the hypothesis, established a price, selected the sales channels and, finally, confirmed the sales cycle. Only if the company finds a repeatable group of customers who follow a repeatable sales process can it move to the next stage, where it will look for scalability of the business.

CREATION OF THE CLIENT

Building on the success of the previous stages, the objective is to create effective demand and direct it to the selected sales channels. The bulk of the marketing and sales expenditure begins at this stage and not before, as it is now, after validating the business model as viable, that we finally face the mass market.

CONSTRUCTION OF THE COMPANY

At this point, it is assumed that the company has found its business model and has reached a certain size and complexity. startup informal to structured business. From this moment on, the company finally changes from a customer discovery orientation to an orientation towards the tasks and objectives of each area. This will result in a healthy and scalable business without the often unnecessary and wasteful costs of the traditional method in the early stages.

Another of the most important advantages of this methodology is the clear reduction of the margin of error of the enterprises that, whatever their original model, are shaping their structure and their optimal objectives step by step. The Customer Development methodology strives to know what your customer is like, what problems they have, in order to know what they want and, therefore, to be able to offer them an appropriate solution to their problem.

What is the What are the differences between customer development and design thinking?

Both Customer Development and Design Thinking are customer-centric approaches and methodologies for solving problems and developing products or services. However, they have some key differences:

1. Objectives: the main objective of Customer Development is to validate the hypothesis about the problem and the solution, identify and understand the customer and design the business model. On the other hand, the main objective of Design Thinking is to create innovative user-centred solutions to complex problems.
2. Process: The Customer Development process focuses on validating hypotheses and consists of four main stages: discovery, validation, creation and growth. The Design Thinking process focuses on deep understanding of users and their needs, creative idea generation, prototyping and user testing.
3. Focus: The Customer Development approach focuses on business model validation and market understanding. The Design Thinking approach focuses on the creative solution of complex user problems.
4. Participants: Customer Development primarily involves entrepreneurs, founders, investors, developers and potential customers. Design Thinking primarily involves designers, researchers, engineers, end-users and other relevant experts.

In a nutshell, while both approaches are customer-centric and focused on problem solving, Customer Development focuses more on business model and market validation, while Design Thinking focuses more on deep user understanding and the creation of innovative solutions.