What is the Customer Development model? How use it to build successful start-up?
In today’s business world many startups haven’t become full-fledged organisation. We have many reasons for this situation: from the insolvency of ideas or lack of funds to poor customer analysis. The Customer Development model allows to identify all the actions associated with the customer at early stage of company formation.
What is Customer Development model?
Customer Development Model(CDM) is a set of objectives and milestones that are meaningful for a startup. CDM is a way of questioning the assumptions underpinning a startup by systematically testing them in the marketplace.
The main objective of the CDM is to reach a deep understanding of customers and their problems. The depth of this understanding allows entrepreneurs to strengthen the focus of their product development as well as their marketing and sales activities.
The Customer Development Model tests the key assumptions that underpin your initial ideas about your product and its market. One of the main idea of this model is to treat those assumptions as hypotheses that need to be tested and validated.
Through this systematic process, a learning and discovery loop will be created that will help you prioritise your work and improve the timing of when to launch and scale your startup. Given the fragile nature of most startups, a better understanding of who the customers will be, what problem you will solve for them and how they will buy your product are outcomes that appeal to entrepreneurs.
THE FOUR-STEP FRAMEWORK
The CDM process consists of four distinct but connected steps:
CUSTOMER DISCOVERY
Customer discovery is the first part of the four step framework. Its goal is simple. This step is for teams to figure out exactly who their customers are. Figuring out who the real customers are requires a lot of research. However, it is not about determining the features of a product or testing the product on focus group. In fact, there is little need to talk about the product at all during the customer discovery phase.
Blank recommends that the team “get out of the building” to find their markets and customers. This means avoiding paid focus groups and doing research in the real world, with real potential customers to see what is happening on the ground.
But at the end of the day, the customer discovery phase is all about the vision behind the product. You need to develop a full understanding of the problem that the product solve. This vision is more emotional than practical. This is where people can envision themselves using the product to solve the problem, not where customers can picture themselves enjoying certain features. The problem is the real point of departure for customer discovery.
CUSTOMER VALIDATION
Customer validation is the second part of the process. It can only take place once the target customer and market have been identified. This is because this step is designed to help you create the map that you need to reach those customers.
The unique aspect of the customer validation process in the Customer Development model is that if it doesn’t work, the team must start over again with customer discovery. Iteration is actually built into the model.
CUSTOMER CREATION
Customer creation is the third step and it is integral to the process because it acknowledges that not all businesses enter similar markets. There are four primary types of startup markets:
- Some businesses enter markets that are pre-existing.
- Some businesses enter markets that are completely new.
- Some businesses enter the existing market as a low cost alternative.
- Some businesses aim to carve a new segment in an existing market as a niche.
It is worth noting that these markets are not mutually exclusive. In some cases, businesses will enter a market that is a hybrid of two of the markets listed above.
Customer creation occupies the third step of the Customer Development model because it encourages businesses to avoid over-spending on marketing until after the first customers are already acquired. This prevents teams from continuing to spend on markets and customers that do not exist and cannot be created.
COMPANY BUILDING
Company building is the final part of the process because this signals the transition from an informal learning experience into a fully-fledged department that works to formally take advantage of any early success the company has had in its market.
This is also the part of the process when the business can begin to spend more money on marketing and driving customer sales. It is important that this scaling happens at the end of the process because pre-mature spending can put the company in a vulnerable financial position. If the development team starts spending huge amounts of money on customers they haven’t identified yet, it will struggle to keep up financially and physically if and when business does pick up.
The CDM is presented on Figure 1
You can learn about customer development, and quite a bit more, in Steve Blank’s book The Four Steps to the Epiphany.
HOW TO USE THE CUSTOMER DEVELOPMENT MODEL
This model does not replace the Product Development model, it works in conjunction with it.
- Blank says that Customer Development and Product Development must work as parallel processes if they are to be successful. It is essential that both the customer and the product be considered during the early phases of building the business. This is especially true for startups.
- The reason that there is such a large focus on the Customer Development model is because it is the most neglected of the two processes. For those who are design and engineering minded, it can be difficult to remember to develop the vision as well as the features of the product. This vision, which is a part of Customer Development, is essential for developing a strong, long-term business plan.
- However, these processes will not work in tandem when the business is fully developed or has reached the status of a large company. Rather than developing the vision and the product simultaneously, the two models work together to add on different features for the established customer base. Essentially, large organisations will use these models to tailor products to an already established customer base.
The Customer Development model is different because it is iterative. It is okay to fail several times before getting it right.
- The model assumes that you will move back and forth between customer discovery and customer validation at least twice before proceeding. Teams who implement this model must accept that failure is an important and natural part of the process. If they do not, they won’t get the most from the model. This is because they will continue to push products into a target customer market that is not the right fit. This only leads to the same crippling failure that they would have experienced if they haven’t used the Customer Development process at all.
- This is where the inherent value of the process lies. In business, it is essential to create room for measured failures.
The model makes it okay to fail because it prevents businesses from moving forward even if it hasn’t found the right customer.
- With this model, failure is inevitable. But it is better to fail early, with a small team and little money spent, then to push a product to the market and fail then.
- Failure that ruins businesses is failure that is not recognized until it’s too late. Continuing to throw money at it rarely saves it. In fact, it often makes the failure worse.
See more information here:
It is necessary to watch
1.The presentation “Customer Development Methodology”
I recommend you watch the following presentation about the model. This presentation contains information about:
A) differences between the Product Development and Customer Development models;
B) the basic “big ideas” for each CDM model step;
C) “exit criteria” for each CDM model step;
D) other relevant and useful information for each step of CDM.
2. Steve Blank about The Customer Development Process
In this video the founder of Customer Development model Steve Blank discusses about the Customer Development Process
3. Customer Development and the Business Model Canvas
This video explains how to correlate Customer Development Model and Business Model Canvas
Summary
To sum up, to increase the chances of startup success it is necessary to use the Customer Development model, which is described in this article, to analyse customers. It should be note that four steps of the Customer Development model have to be implement consistently and according to the algorithm it is prohibited to skip steps.
