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Customer development for a startup

Customer development for a startup

14 Jan 2020

This succinct term means nothing else than testing an idea and product prototype on a potential client. Customer development definition was interposed by an American entrepreneur Steve Blank at the end of 90th, and soon this laid the foundation to a complete methodology of client-oriented approach in business creation. What is the difference between Customer development and more succinct term Custdev, what Customer development can give to your product and how to build a business by using this methodology? The answers can be found in this article.

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Custdev and сustomer development

The main issues of product failures are most commonly hidden in the fact that at some point founders didn’t take any effort in finding the answers to the following questions:

  • Who is the user of the product?

  • Is he interested in the product?

  • Does he need another solution to his product problem?

  • What price is he willing to pay to solve the problem?

Customer development (CD) is a methodology of creating startups and new products, when hypotheses about user’s problem, its solution, market and attraction channels are validated through the interaction with potential clients. The methodology describes the whole way of startup development — from the idea, creation of a prototype to the launch of a company and entrance to the new markets.

The approach contemplates the obligatory solution to the user’s product problem. It means, that a product is created due to the demand, not vice versa. Many startups are getting carried away with their products and forget about real users’ exigencies, customer development helps to avoid this through a possibility to get feedback from a user as quickly as possible.

Customer development implies a constant generation of hypotheses about the product. With this, the methodology underlines the importance of failed product experiments, taking into account the fact that humans are most likely to learn from their own mistakes. By using the methodology, the startup gets to know:

  • facts, how people define their exigencies;

  • information about the pains of potential customers;

  • emotions and insights;

  • information about internal market regulations — from the point of view of the target audience.

Unlike from customer development, custdev is a more narrow term, which implies testing hypotheses with the help of in-depth interviews and it is a tool for client communication. In the English speaking environment, a synonymous term is more likely to be used — “user research” or “client research”.

The Amazon case

The CD methodology helped to launch and to achieve success to 10 000 startups. Amazon is one of such companies. Today, Amazon is one of the leaders in the world internet trade with $500 billion capitalisations, the company sends 3 000 000 orders. And everything began from an internet book store.

Jeff Bezos, the founder of Amazon, left one free seat at meetings, as he explained, for the most important participant of the meeting — the client. This is the work with customers, where the company’s soaring success is hidden.

Amazon keeps track of everything that the user does on the website, so as a result, they work individually with every customer: people see product selections that may be of their interest, they see the new arrivals and recommendations. Amazon put emphasis on low prices and high service quality, and attracts more buyers and increases the sales volume by this.

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Customer development for a startup

Customer development principles

Customer development is built on the following principles:

  1. Centre of the project is the client and his customer’s problem, that should be defined and solved.

  2. All founders’ ideas are untested assumptions, that should be formulated, proved or controverted in real cases.

  3. The development goes through iterations: it begins with the search and confirmation of the client’s needs, then a team is formed, a company is created, the product is released, improved and scaled.

  4. All hypotheses are tested on a real customer.

  5. The work is based on the client’s psychology, behaviour patterns, a search of the insights.

The creation of a new product is based on feedback. The CD methodology is used both at the project’s launch and during the whole lifetime of a project.

Fun fact: Companies, that are customer-orientated, receive 60% more profit than those, which don’t set a customer as a priority. And the case of Zappos, an online shoe and clothing retailer, is a good proof of this formula.

The Zappos case

The startup was founded in 1999 in Las Vegas, the USA. Today, the company is considered as one of the brightest examples in terms of its business model and intercommunication among clients and employees.

Thanks to the researches on customer needs, the company managed to increase the sales volume from zero to $1 billion a year in 10 years. And this with a minimum investment in advertising. The startup reached success by constant work on their service culture. By the way, it is Zappos, that owns a record for the longest incoming call-centre call: the call between customer and operator lasted for 10 hours and 43 minutes.

From the very beginning, managers relied on long-term relationships with customers, sought to find out both the current needs of consumers and those that arise over time. The company has developed its own service culture program — Zappos Insights.

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Customer development for a startup

Customer development steps

The work, according to the methodology, is divided into 4 gib steps. Those are customer discovery, customer validation, customer creation and company building. Now, let’s look in scrutiny each of these steps.

Customer discovery

At this stage, you will learn about potential consumers of your product, test the product hypotheses, define the viability of the product’s original concept.

Advice №1: before testing the prototype, pass your product through the Osterwalder business model — these are basic questions that you must answer with your product.

  1. The proposed value. What problem does your product solve and which demands does it satisfy? What profit will the client receive from its use?

  2. User segmentation. Who are your customers? How does your typical client look like — his age, social status, geography, income?

  3. Channels. How will you distribute your product?

  4. Interaction with customers. How will you communicate and develop customer relationships?

  5. Income sources. Which values of your product are the most profitable to the startup? What profit does each consumer segment bring to the project?

  6. Resources. What is necessary to achieve product goals? What resources (human, financial) does the project have now?

  7. Partners. Who will support you in product development and promotion? What do our partners do? What risks does a particular partner/supplier help you reduce?

  8. Activities. What has to be done so the product development plan can be implemented? What kinds of activities are required to realise the value proposition? And which one to increase the income?

  9. Expense structure. What is the cost of manufacturing the product? How much does each type of resource/activity cost?

In the end, answers to these questions form a specific hypothesis.

Customer development for a startup

Advice №2: inquire 50 friends of different age and scope of activity and define their customers’ problems in spheres that your product will cover.

Customer validation

It happens at the stage of creating and testing the MVP. You collect comments and offers from the client, develop the MVP, test it again and upgrade. At the end of the day, you get the product which can solve the problem of the target user.

In other words, customer validation is the creation of the product’s version with basic functions (MVP), using minimal resources, studying the reaction of consumers to the product.

At this stage, we test whether the product ready to enter the market or not. Customer validation helps to understand the customer, build the sales plan, it shows when it is better to increase marketing expenses.

Customer creation

At this stage, you mastermind and realise the marketing strategy, and in such a way, you affirm about your product. You determine how the product will position itself and create demand for it.

A piece of advice: mastermind a media strategy for the product, conduct a PR-campaign, present your product so that both the target and near-target audiences learn about it.

Company building

You define the main goals of project development on short-term, mid-term and long-term periods. At this stage, the company’s mission is formed and the vision of how you will behave on the market in relation to competitors and consumers is finalized in relation to potential partners: it is important to lay the foundation at once, so that will help you gradually develop in the right direction and not rush from side to side — the latter is bad for the image of the company.

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Customer development for a startup
 

Customer development instruments


In CD there are several major tools: an interview with a user, an experiment, A/B-testing, and a specialized soft.

An interview — a conversation about the real problem of a potential client, it can happen via phone, online or during a face-to-face meeting. The interview gives detailed information about the reaction to a product, introduces you to the client’s language and way of thinking. The aim of the interview is to get proof that the user has a problem and get to know how he solves this problem, why he is not satisfied with the current solution.

This tool allows you to assess the degree of the importance of the problem and calculate the cost of its solution.

Here are a few recommendations on how to conduct an interview:

  • do not sell your product during the interview, the aim of your conversation is to learn about the customer’s experience;

  • do not tell about your product at the beginning of an interview, at first, talk about the client’s problems;

  • questions have to be open — give a person a possibility to speak out and tell about the problem;

  • do not ask conventional questions — enquire the real experience, not the hypothetic one;

  • make emphasis on the numeric data — budget, time spent, possible losses;

  • during the conversation, try to enquire the origin of client’s problem;

  • after a number of interviews, upgrade your question-list, so you will be able to further discover the client’s problems in depth.

An experiment. Each time you get to know and validate another customer problem, you make changes in your prototype, after that, you study the reaction to the upgraded product, and then make reinforcements again. These iterations will continue till the moment when your product will completely correspond to the customer needs. Only after this very moment, you can introduce the product on the market and scale the business.

А/В-testing — a marketing research method, when customers are randomly divided into two segments: segment “A” is offered a standard version of a product, and segment “B” — a modified one. After the test, you track the conversion, economic metrics, if there are such, study the customer behaviour in both segments. For the foregoing reasons, you conclude to what extent is it practical to implement changes to a product. It is important to remember that the product is created for the customer, not for the team, and this has to be kept in mind while preparing the test samples.

Software. You can use different chatbots, video-chats and special communication platforms to communicate with potential customers. Find the description of some of them below.

  • SurveyMonkey — an online survey development platform for polls, feedback and research data collection. The tool will help you to inquire about the target audience when your product is at the idea-stage. Such tools as Pollfich, ForeSee, Mopinion and Apptentive can also be used for these purposes.

  • UserTesting — user testing tool, that is used to study the customer reaction to the prototype. The software makes it possible to get the first results within a few hours. A nice feature — a provided ability to automatically decrypt the interview. Other similar tools: Applause, Lookback, UberTesters.

  • Appsee — an analytical tool for mobile apps, it helps to obtain user session records, creates heatmaps with customer actions on every screen. Analytical tools from the same category — Hotjar, FullStory.

  • Amplitude — another analytic tool that identifies user behavioral cohorts, helps you identify customer preferences, and identifies actions that can help improve key product metrics. Similar programs: Kissmetrics, Heap, Keen.io.

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Conclusions

Customer development — an approach to working on a startup based on identifying a client’s problem and working on creating a product to solve this problem. The methodology proposes constant communication with a user, defining his demands and pains. The CD is on the front burner throughout the whole work on the product — from the moment when the idea appeared to the prototype creation, release of the real product and its scaling. Customer development tools are interview, experiment, A/B-testing, and also a range of specialized programs for polling and collecting the analytical data.

The CD methodology fits to startups that are aimed at long-term work and result. At the outset, implementing the approach requires a lot of time, however, this will be paid off from sales, after launching the product on the market.

14 Jan 2020

 

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