How to Failure-proof your Business with Customer Development

Evergreen is a weekly collection of links to the best learning resources in business, collected by a group of managers, founders, and investors. We contribute resources about one topic each week, which are synthesized and shared in this Weekly Edition. The aim is to learn more efficiently through increased context and focus.Join here to receive the next Edition of Evergreen Business Weekly.

Remember, these are designed to feel like short books, you’re meant to meander and spend ~3 hours on this topic this week. Save some of these links and read them throughout the week. Immerse yourself in this topic and leave the week smarter than you started it!


Why Customer Development?

Well, because it works. Customer Development is the process of discovering problems experienced by potential customers, and solving them. The idea is that if the process is done correctly, products will create value for customers because of the exhaustive research and testing and go on to be successful.

This process is displayed in almost every successful business, from loose trial-and-error to a more formalized interview process. This skillset seems to be present in all entrepreneurs in some form. There was an interesting study done about how corporate executive thought patterns differ from the entrepreneurs, and the differences hint at this inherent process of Customer Development:

Brilliant improvisers, the entrepreneurs don’t start out with concrete goals. Instead, they constantly assess how to use their personal strengths and whatever resources they have at hand to develop goals on the fly, while creatively reacting to contingencies.

With limited resources, the Customer Development cycle helps entrepreneurs validate (or more importantly, invalidate) ideas quickly. This means that products don’t get developed or launched until they’re virtually assured to have a customer base ready and waiting for them.

The ultimate book on Customer Development, and what it means to start a company around it, is Steve Blank’s Four Steps to the Epiphany. While it’s not light reading, it contains case studies and exercises that show why this is an important methodology, as well as what to do and how to do it.

Here’s the central graph of the book:

Broadly speaking, Customer Discovery focuses on understanding customer problems and needs, Customer Validation on developing a sales model that can be replicated, Customer Creation on creating and driving end user demand, and Company Building on transitioning the organization from one designed for learning and discovery to a well-oiled machine engineered for execution.

This is a high-level look so that we can see the role the Customer Development plays in creating a successful product. So let’s get into the details of how to make Customer Development work for you:

  • How to Find Customers
  • How to Conduct Customer Interviews
  • How to Interpret Responses and make Decisions

Here we go!

How to Find Customers

Without a focused group of people to interview, results aren’t likely to be meaningful. The more tightly we can define our interviewees, the faster we can validate or invalidate a hypothesis. For any product, there are likely to be a broad set of possible customers, in different use cases. Each of these customers are going to use the product in different ways, and receive a very different level of value. We want to start with the high-value and high-paying customers.

The Most Valuable Customers First

This 10-minute exercise can help you get oriented amongst all of the various customer segments that might be available to you, so you’re assured your starting with the most valuable.

Who you talk to is as important as what you ask and what you take away.

The framework is covered in this very brief post by Customer Dev Labs, called The SPA Treatment. It’s a trivial amount of time for what seems to be an extremely helpful exercise. I’m going to do it as soon as I’m done writing this.

Where to Find your Customers

The next step is to find the people who will be your subjects in your interviews. If you’re at all unsure about where to start with that challenge — do not worry about that ever again. This post by Jason Evanish collects 95 methods of finding and reaching prospects.

It’s an absolute beast of a post that is definitely one to keep on file, because it will come in handy along your path. For best results, source from multiple places that are working for you — but don’t try to tackle all 95 at once!

How to Conduct Interviews

The Customer Development Interview is a subtle art. Many people mistake it for a veiled pitch or believe that a survey is a reasonable substitute. A true Customer Interview involves a 1-on-1 interaction, ideally in person, and emphasizes asking questions in order to draw out information.

What you should be learning in Interviews

Cindy Alvarez has a fantastic post called “What you should be learning” that gives a brilliant mindset for going into these interviews.

It’s really important to understand the philosophy behind the customer development interview, particularly because it runs so counter to entrepreneurial instincts.
Why? Because people are too polite to say ‘no’. Because people can’t imagine technologies that don’t exist yet. Because people overestimate how much effort they’re willing to put into something. Because people think incremental, not disruptive.

This isn’t about validating your solution. It’s about understanding the customer’s problem.

Cindy’s post is a great read that teaches us a lot in a few minutes about how to think about this process and orient our thoughts around learning as the ideal outcome, and what specifically we need to learn. Give it a read.

Making it Happen

My friend Diana Kander wrote a very original book called All In Startup that has a lot of lessons in it about Customer Development. It’s a short novel, which makes it fun to read, and it teaches us about the context and applications of interviews through story.

Pick it up! It’ll be a fun few hours and you’ll learn quite a bit about this process.

This book stuck with me, and the imagery and narrative makes it easy to relate to the characters in their discovery process. If you’ve ever read The Goal, it’s a similar premise, where a mentor in the book teaches the main character and the reader.

How to Structure Customer Interviews

Where do we start, what do we ask, and how do we follow-up? All of that is info is in this post, another from Jason Evanish on How to Structure (and get the most out of) Customer Development Interviews.

In Jason’s words, here is his format: “I structure my Customer Dev interviews in 3 parts — People, Problems, and Solution.” This post is a great place to get a framework for these interviews. There are also great points on the subtle details: the manners involved in following up, ending with an ask, etc.

Dissenting Opinions on Solutions in Interviews

There are a few dissenting opinions on whether or not to present a solution to a customer during the interview. Some say yes, some say maybe, and others say never. Here’s an interesting excerpt from a post by Customer Dev Labs on why he recommends not even thinking of your idea during the interview:

Once your idea pops into your brain during an interview, your body will literally turn against you. It will start looking for validation that the idea is good. Your interpretations of statements, intonation, body language will all be skewed. What’s worse, the person you’re talking to subconsciously knows what you’re looking for, and based on our desire to build relationships, will want to help you.
They’ll be your unwitting accomplice and provide the “validation” you’re looking for — leading you in the wrong direction. To the best of your abilities, avoid even thinking about your idea during the interview — and certainly avoid talking about it. These interviews are about your customers and their problems. Do your best to keep the conversation focused there.

It’s curious that I couldn’t discern any argument around context (“It’s best not to include a solution in your interview If […]” or vice versa). Would love to read more on this — link if you find a resource that digs deeper into this debate!

How to Interpret Data & Make Decisions

The work isn’t done after the interview — the answers aren’t going to manifest themselves magically in front of you. Remember Cindy Alvarez noting that customers won’t give you the solutions, only the means to arrive at them.

How Twitch.tv won through customer interviews

In a session of the Stanford class called How to Start a Startup, Emmett Shear, founder and CEO of Twitch.tv explains how Customer Development Interviews led to the creation of the product that was ultimately successful for them.

It’s a great talk that includes his stories, as well as some practical exercises:

Think really hard and use your judgement to figure out who you’re building this for.

He’s got some great insights on how to interpret and act upon the answers that people give. It’s a whole extra step to dissect and reassemble these lessons into products that can becomes successful solutions to the customer problems we just learned about.

When they say… What they mean is…

This is possibly the most helpful post in this collection, in terms of the experience it is relating. Only hundreds of interviews can yield the kind of insight that Cindy Alvarez supplies in this post: 10 things I’ve learned about Customer Development.

Translating customer’s kind-hearted responses into objective truth is tough, and Cindy’s posts does a great job giving us a guide. Here are a few of the gems from this post:

If someone says “maybe it’s just me, but…” — it’s not. Especially if it pertains to your product being hard to use or your marketing being unclear. So: This is an indicator that the person is trying to be polite. No! To get useful information, you need honesty, not politeness. Give the person ‘permission’ to tell you just how awful your product is by saying “other people have also said…”
The answer to any question that starts with “do you want” or “are you concerned about” will always be “yes”. So: Don’t make “wanting” free! Instead, ask people to rank potential solutions, or ask what they would sacrifice in order to solve a problem.

This post is a short read filled with awesome pointers like this. Use it to guard against deluding yourself with the soft no’s that people throw you.

The harsh reality of Customer Development: Remember that stretching the truth here will only cost you more money and effort on a product that may be flawed from the basic hypothesis.

Open Questions

While there’s a lot out there about the mechanics of executing Customer Development Interviews, there wasn’t a lot that turned up in my research about CD in some other contexts or formats, which I’d love to see. If you know of any, comment here!

When does Customer Development turn into ‘Market Research’?

Do large companies do Customer Development? If so, how?

When does Customer Development become ‘User Testing’?

Does anyone release transcripts of their CD Interviews as part of larger Case Studies?

Where are all the write-ups on invalidated Hypotheses? Would be as, if not more, instructive than success stories!


Thank you

Massive appreciation for all contributors to this Edition of Evergreen: Aaron Wolfson, Teddy Zetterlund, Jason Evanish, Mohamed Dafalla, and Itamar Goldminz.

Many thanks for being a part of this project! Not every suggestion is able to make it to the final edit, but every single suggestion is read and appreciated.

Never Enough

As my Father always says: “There’s always room for the best.” There’s always a better resource out there. These collections can always get better, and I hope that they do. If you can think of anything that was missed, I welcome you to share it.

To share your thoughts, improvements or additions: Email or Twitter.


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Inspirations

This Edition of Evergreen, along with all of my others and the ideas behind this project, are inspired by the excellent content created online every day. To name a few that hold particular places in my heart:

If you liked this, check out previous Editions of Evergreen:
Building the Business:
How to get good business Ideas: Mental Alchemy of Ideation
Product/Market Fit: What it really means & How to Measure it
How to Failure-proof your business with Customer Development
How Strategy and Psychology Work Together to Perfect Pricing
The Most Important Equations in Business - CAC (Part 1)
The Simple Math Behind Every Profitable Business - CLV (Part 2)
How Psychology behind Word-of-Mouth Works
The Secret Core of Every Successful Business--Distribution
The Most Important Lessons in Sales
Strategy and Competitive Advantage:
How to Master the Craft of Strategy
Competitive Advantage: How to Build a Winning Business
The Power of Network Effects
How Cost Leadership Builds Powerful Businesses
Why the Best Brands Stand Out
Building and Managing a Team:
How to Find and Recruit the Team you Need
How Not to Hire like a Clownshow
Compensation Rules Everything Around Me
Why Employee Onboarding is holding you back
How to Boost Employee Retention
Secrets to Perfecting Organizational Communication
How Performance Reviews can be Reinvented
How to Fire an Employee
How to be a Great Employee:
How to Start a New Job: Handling Career Transitions like a Boss
How to Master the Discipline of Product Management
I've also written about How & Why we started Evergreen:
How a prototype's failure created the next iteration
Mission & Method of Evergreen
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