is a fluid, nonlinear search for a business model that can sometimes last for years.
The Customer Development process is different to its core.
Customer Development changes almost every aspect of startup behavior, performance, metrics, and, as often as not, success potential. It’s not just a “nice to do” while executing the revenue model in the back of the business plan. Customer Development reinvents the business model on the fly, iterating often and pivoting whenever indicated. Founders need to have the commitment of the team and board before embarking on Customer Development. Ensure that all understand and agree that it’s iterative, necessary, and worthwhile and that it changes the benchmarks and metrics along the way.
Comments such as “The product is already spec’ed, and we can’t change the features since development is already underway,” or “We already have the factory (or sales team or marketing materials) built,” or “We have to launch to make the numbers in the plan,” are all red flags. To succeed at Customer Development, the company must abandon the old model’s emphasis on execution of a fantasy business plan. Instead it must commit to a Customer Development process stressing learning, discovery, failure, and iteration in the search for a successful business model. If you’re ready for this process, this book will tell you how to do it.
Summary: The Customer Development Process
The Customer Development process reflects the best practices of winning startups. It is the only approach for web-based businesses where failure is certain without constant customer feedback and product iteration as they search for their audiences. Customer Development’s fast cycle times and inherent cash conservation gives all entrepreneurs more chances to pivot, iterate, and succeed before the bank account runs dry. Describe this model to entrepreneurs who have taken companies all the way to a lucrative exit and beyond, and heads nod in recognition.
While each step has its own specific objectives, the process as a whole has one overarching goal: discovering the repeatable, scalable, and ultimately profitable business before running out of cash. This transforms the company from a set of founding hypotheses into a moneymaking endeavor.
Customer Development is damn hard work. You can’t fake it.
Customer Development is damn hard work. You can’t fake it. You can’t just do the slides or “do” the process in a weekend. It’s a full-time, full-body-contact sport. It’s a long-term commitment to changing the way a startup is built. But it’s also proven to increase the chances of startup success.
II Step One: Customer Discovery
An Introduction to Customer Discovery
Customer Discovery, Phase One:
State Your Business Model Hypotheses
Customer Discovery, Phase Two:
“Get Out of the Building” to Test the Problem: “Do People Care?”
Customer Discovery, Phase Three:
“Get Out of the Building” and Test the Product Solution
Customer Discovery, Phase Four:
Verify the Business Model and Pivot or Proceed
Overview of the Customer Discovery Process
CHAPTER 3 An Introduction to Customer Discovery
No startup business plan survives first contact with customers.
—Steve Blank
A journey of a thousand miles begins with a single step.
—Lao Tzu
IRIDIUM WAS ONE OF THE BIGGEST STARTUP gambles ever made—a bold and audacious $5.2 billion bet. Founded by Motorola and a global partnership of 18 companies in 1991, Iridium planned to build a mobile telephone system that would work “anywhere on Earth,” from ships in the middle of the ocean to the jungles of Africa to remote mountain peaks where no cell towers existed.
How? With an out-of-this-world business plan. First, the company bought a fleet of 15 rockets from Russia, the U.S. and China. Next, it launched an armada of 72 private satellites into orbit, where they acted like 500-mile-high cell towers providing phone coverage to any spot on Earth. Seven years after Iridium’s founding, its satellites were in place. But nine months after the first call was made in 1998, the company was in Chapter 11 bankruptcy. When Iridium crashed back to Earth, it ranked as one of the largest startup failures on record. What went wrong?
When Iridium was founded in 1991, worldwide cell-phone coverage was sparse, unreliable and expensive. Cell-phone handsets were the size of lunch boxes. Iridium put together a business plan that made assumptions about customers, their problems and the product needed to solve those problems. Other assumptions about sales channel, partnerships, and revenue model all added up to a set of financial forecasts that Iridium would soon be printing money.
One of the largest startup failures on record as they executed their business plan.
But in the seven-plus years it took Iridium to go from concept to launch, innovation in mobile- and cell-phone networks moved at blinding speed. By the time Iridium launched, there were far fewer places on the planet where cell-phone service was unavailable. Traditional cell-phone companies provided coverage in the most valuable parts of the world. Prices for cell service shrunk as fast as phone handsets did. In contrast, Iridium’s satellite phone was bigger than a brick and weighed about as much. Worse, Iridium’s cell phone couldn’t make calls from cars or buildings, since it required line-of-sight “connection” to the satellites. Instead of 50 cents per minute for a regular cell call, Iridium’s calls cost $7 a minute, plus $3,000 for the handset itself.
Iridium’s potential market shrunk nearly every day. Instead of a massive worldwide market of potential users, it had drawn only a small group willing to pay its prices and put up with the product’s many limitations. But Iridium’s business model assumptions and plans were firmly fixed as if it was still 1991. The company spent $5 billion building a business over eight years without ever focusing on four key questions:
Have we identified a problem a customer wants to see solved?
Does our product solve this customer problem or need?
