Jocelyn Starting A Company
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Steve Blank is a well-seasoned serial entrepreneur and has drafted a new model for plotting the path between good idea and market success. In Four Steps to the Epiphany, Steve Blank lays out a customer development process that complements a startup’s product development process.
I feel that customer development is the most important when I am starting a company and hence, have done some research on it to guide me when I start a company.
The traditional method of doing a start-up is following the product development model.
But why is it that when some companies become successful while using this model, while others do not? Is there any where to predict success and failure? How to avoid the risk of failure?
The biggest observation is that everybody in the company will be focused on the launch, the 1st shipment, the 1st customership. Everyone seems to be hiring and staffing the marketing sales and business development staff based on the timing of events of the product development model. As the time of the first launch grows closer, its time to start hiring sales staff to sell the product and secure deals.
However, with this model, all the company is heading towards is the 1st shipment. Once the first product is sold, its time to party! But the job is not complete! Steve Blank made an observation that companies start sales and marketing, and business development activities way too early, before understanding their market and customers. They are focused on execution rather than learning and discovery.
Steve highlights that “ninety-percent of Silicon Valley's start-ups fail not because of faulty product, but because they don't tap the right market and they don't know their customer’. With so many methodologies that help to get the product right, there was no methodology to get the market and customers right, which led him to creating the Customer Development Methodology to use in tandem with the product development model.
The Customer Development Methodology aims to reduce risk for companies that depend on getting the right customers and market in order to succeed. It has measurable checkpoints and instead of being tied to first customer ship, it is tied to customer milestones. It also emphasizes on learning and discovery before execution. The process is iterative. Which means that if we get stuck, we go back and repeat the steps based on what we have learnt.
Outside the building, we should be thinking about how do I turn every hypothesis into a fact about customers. A hypothesis is a guess. The odds are, anything we are thinking about our customers and the market are nothing more than guesses.
Hence, the first step is figuring out if our hypotheses about the customers, the market, and our product are correct. We have to get out and talk to people to test if the fundamental hypotheses we have are true. In addition, we can also build a minimal viable product (MVP) with just enough features to address the pain for people to test.
There are two hypothesis that are the most important:
- We are creating a service/product to solve a problem/need that a customer has
- There are customers out there that have agreed with us and will actually pay for it.
Hence, right from the beginning, we can start to get a sense of who the customers of our product might be, how we will reach them and what their needs ars.
Customer development is not an excuse to slow down or change the plan everyday, but rather to minimize the risk of failure by checking our theories against reality.
At this stage, the type of customers we are targeting at are early adoptors as they are customers who are feeling the pain in us entrepreneurs’ area of expertise. They may be customers who have tried to solve the problem themselves with no success. These early adopters will be able to give us the most useful and actionale feedback at this stage.
In this step, we sell our product, and it is the early adopters (on the product adoption lifecycle) who will buy our product. If they buy our products, we know that it is a valid product. Steve encourages the founders themselves to go out there and try selling the product, as they are the ones who have the ability to make major strategic changes.
Customer validation sometimes require us to reengineer the product. Once we’ve gathered valuable feedback from the users, we will have a deeper understanding of their needs, and at which part of our solution worked, which part did not. However, we need to be convinced that we are making improvements on our product for the market, not just making changes for random customers.
Customer creation comes after proof of sales. Creation is where we “cross the chasm”. On top of targeting early adopters and innovators, we grow and start to target the majority, and it is at this point where we start investing in marketing.
Customer creation is a strategy, not a tactic. How do we create demand for our company?
In this step, we focus on growing our customers from a few to many. It involves the Four Customer Creation activities:
- Year One objectives
- Demand Creation
We also need to know that creation is different for each of the startups in the different markets.
There are three types of markets:
- Existing Market
- Resegmented Market
- New Market
The type of market changes everything! From sales, to marketing to business development!
Hence, we need to know which market we are in in order to use the right strategy to create customers.
Existing Market: Faster and better products are introduced.
Resegmented Market: Catered for a niche market and is marketing/branding driven. Can also be catered for the low end market.
New Market: Cheaper/good enough to create a new class of product/customer. Innovative/never existed before.
For example, if we are entering an existing market, how does our product differ from competitors? Is it faster? Is it better? Is our business model scalable? Are there sufficient barriers to competition from incumbents?
If we are entering a resegmented market (low end), how do we reach out to this group? Are there customers who will want to buy our product with lower performance for a lower price? Is it profitable? If we are entering a resegmented market (niche), are there customers who would buy if it addressed their specific needs if it was the same price or higher?
If we are entering a new market, is there a large customer base who could not do this before? Why not? Was it costly or inconvenient etc.?
There are also some products which may fall into hybrid markets, which combine the characteristics of both new market and low end resegmentation.
The last step is about company building, where we (re)build our company’s organisation and management, and re look at our mission.
The process can includes the following phases:
- Reach mainstream customers
- Review/Manage/create mission and culture
- Transition to functional departments
- Build fast response departments
The idea is that the management needs to change as the company grows. We need to see if the company should be development centric, mission-centric, process-centric etc.
At the same time, the sales growth needs to match the market type.
- Helps startups to adopt a mindset of learning and iteration before they try to launch, when they can collect facts and make changes before the world knows
- Increases credibility which in turn increases valuation due to the lessons learnt from our customers which can be presented to various stakeholders
- Answers the implicit questions about the viability of the business