profitable business model?
Have we learned enough to go out and sell?
Answering these questions is the purpose of the first step in the customer discovery process. This chapter explains how to go about it.
(Twenty years later, Iridium emerged from bankruptcy. In 2000, an investor group bought $6 billion worth of its assets for $25 million. After a long climb back, the company celebrated its 500,000th customer in September 2011.)
Customers don’t behave like your business plan.
The Customer Discovery Philosophy
A startup begins with the vision of its founders: a vision of a new product or service that solves a customer’s problems or needs and of how it will reach its many customers. Customer discovery lowers the odds of spending zillions and getting zeros in return as the Iridium team did. So the No. 1 goal of customer discovery amounts to this: turning the founders’ initial hypotheses about their market and customers into facts.
Get Out of the Building
Facts exist only outside the building, where customers live, so the most important aspect of customer discovery is getting out of the building, in front of customers. And not for a few days or a week, but repeatedly, over weeks if not months. This critical task can’t be assigned to junior staffers and must be driven by founders. Only after the founders have performed this step will they know whether they have a valid vision or just a hallucination.
Sounds simple, doesn’t it? But for anyone who has worked in established companies, the customer discovery process is disorienting. All the rules about new-product management in large companies are turned upside down. It’s instructive to enumerate all things you are not going to do:
understand the needs and wants of all customers
make a list of all the features customers want before they buy your product
hand Product Development a features list of the sum of all customer requests
hand Product Development a detailed marketing-requirements document
run focus groups and test customers’ reactions to your product to see if they will buy
What you are going to do is develop your product for the few, not the many. Moreover, you’re going to start building your product even before you know whether you have any customers for it.
On a startup’s first day, there’s limited—if any—customer input.
For an experienced marketing or product management executive, these ideas are not only disorienting and counterintuitive but heretical. Why aren’t the needs of all potential customers important? What is it about a first product from a new company that’s different from follow-on products in a large company? What is it about a startup’s first customers that make the rules so different?
Search for the Problem/Solution Fit
The customer discovery process searches for problem/solution fit: “have we found a problem lots of people want us to solve (or a need they want us to fill)” and “does our solution (a product, a website, or an app) solve the problem in a compelling way?” At its core, the essence of customer discovery is to determine whether your startup’s value proposition matches the customer segment it plans to target.
Problem/solution fit is virtually identical to what’s sometimes called “product/market fit,” as the previous paragraph indicates. As a result, we use the terms somewhat interchangeably throughout the book. Do realize, however, that in multi-sided markets, there may be multiple value propositions and multiple customer segments. But problem/solution fit is only achieved when the revenue model, pricing, and customer acquisition efforts all match up with the customers’ needs.
Develop the Product for the Few, Not the Many
In existing companies, the goal of traditional product management and marketing is to develop a market-requirements document (MRD) for engineering that contains the sum of all possible customer feature requests, prioritized in a collaborative effort among Product Management, Marketing, Sales, and Engineering. Marketing or Product Management hosts focus groups, analyzes sales data from the field, and looks at customer feature requests and complaints. This information leads to the adding of requested features to the product specification, and the engineering team builds them into the next product release.
While this process is rational for an established company entering an existing market, it’s folly for startups. Why? Startups aren’t small versions of large, existing companies where there’s plenty of customer knowledge and input. In established companies, the MRD process ensures that engineering will build a product that appeals to existing customers in a known market, where customers and their needs are known. On a startup’s first day, there’s limited—if any—customer input for creating a formal product specification.
In a startup, the first product is not designed to satisfy a mainstream customer. No startup can afford to build a product with every feature a mainstream customer needs all at once. The product would take years to get to market and be obsolete by the time it arrived. Instead, successful startups solve this conundrum by focusing development and early selling efforts on a very small group of early customers who have bought into the startup’s vision. These visionary customers will give the company the feedback necessary to add features to the product over time.
Earlyvangelists are willing to make a leap of faith and buy an early product.
Earlyvangelists: The Most Important Customers of All
Enthusiasts who spread the good news about your product to friends, family or co-workers are often called evangelists. But a new word is needed to describe the early adopters—the visionary customers—who buy unfinished and untested products, because they want to be “first,” whether it’s for the sake of gaining a competitive edge or winning bragging rights. We call these early adopters earlyvangelists. Unlike “mainstream” business or consumer-product customers who want to buy a finished, completed, tested product, earlyvangelists are willing to make a leap of faith and buy an early product from a startup. Every industry has a small subset of visionaries willing to take a leap of faith on an early product.
One of the mistakes that startup founders make is to give away or heavily discount early alpha/beta products to blue-chip customers. In single-sided markets (where the user is the payer) earlyvangelists will be happy to pay for early access to the product. If they won’t, they aren’t earlyvangelists. Their willingness to pay is a critical part of the customer discovery process. You’ll use it to test the entire buying process.
Figure 3.1 Earlyvangelist Characteristics
