Customer Development for Startups

bobdorf@gmail.comtwitter: @bobdorfwww.bobdorf.nyc

some slides © Steve Blank

An Introduction and Dobro Pozhalovat!

1

This is not a Fad…

• Many thousands of startups

• Moscow GVA Startup Academy…7th time!• USA National Science Foundation

• 400+ leading Universities

• Many major corporations

2

More startups fail from a lack of customers than from

a failure of product development

3

Why are we here??

• The odds are very much against your success• We want to reduce the risk of failure• And provide a method to help you and your

team build a strong, enduring company!

…What really matters most: • GREAT companies with long-term

potential• Excited CUSTOMERS who tell their

friends

4

500 startup misteaks in 608 pages….

5

7=2+2-3

27=7+6

why math matters:

650,000!

12?(or 0.2%?)

A great iPhone app

to manage recipes??

your investment:

>20,000++

hours

YOUR startup

will likely FAIL…

YOUR startup

will likely FAIL…

the most likely cause:

a lack of customers

make your

startup

MATTER

It’s MUCH harder

here in Russia:

- web penetration

- online credit use

It’s MUCH harder

here in Russia:

- web penetration

- online credit use

- available investment

It’s MUCH harder

here in Russia:

- web penetration

- online credit use

- available investment

- marketing talent

- oh, and did I say…

What do I do

differently?

CUSTOMER DISCOVERY

What do I do

differently?

CUSTOMER DISCOVERY

REFINE, IMPROVE YOUR IDEA

What do I do

differently?

CUSTOMER DISCOVERY

REFINE, IMPROVE YOUR IDEA

GO SLOWER AND FASTER

What do I do

differently?

CUSTOMER DISCOVERY

REFINE, IMPROVE YOUR IDEA

GO SLOWER AND FASTER

RAISE AS LITTLE AS YOU CAN

WORK AS HARD AS YOU CAN

Key question #1:

be Google??

Key question #1:

be Google??

Or be happy?

2511/24/2014

Startups are a Smaller Version

of a Large Company

Startups Search Companies Execute

All You Need to Do: Execute the Plan

You Just Need to Make the Forecast

If it were all so easy,we’d all be Oligarchs!

PAUSE

QUESTIONS??

11/24/2014 32

The New, Better Way

to build Great Startups:

CUSTOMER DEVELOPMENT

Your Partner (I hope):

34

• a step-by-step process guide

• ~200,000 copies in ~18 languages

• taught at ~ 400 Universities

• 7x, many successes GVA Startup Academy

• Amazon’s #1 entrepreneurship title

• “test driven” by many thousands of startups

The Better Way:

no plan. Start with a

BUSINESS MODEL!

cartoons (c) Steve Blank

The canvas: before we move on

• The “Mad Russian” approach

• Powerful tool designed for ANY business

• Use it to audit your, competitors businesses

• Use separate canvases for each segment!!

• Use it to figure out what to go out and test

• BE SURE your investors, team, understand!

4011/24/2014

But,

Realize They’re Hypotheses

42images by JAM

customer segments

key partners

cost structure

revenue streams

channels

customer relationships

key activities

key resources

value proposition

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3 key Discovery phases

1: Does anybody care?…are we solving a serious problem?

…are we filling a “big” need?

4411/24/2014

3 key Discovery phases

1: Does anybody care?…are we solving a serious problem?

…are we filling a “big” need?

2. Become Your Own Customer

4511/24/2014

3 key Discovery phases

1: Does anybody care?…are we solving a serious problem?

…are we filling a “big” need?

2. Become Your Own Customer

3: Does our product do the job?…do they grab it out of your hands?

…are they eager to tell their friends?

(product/market fit)

4611/24/2014

Customer Discovery RULES:

…DON’T talk to friends or family!

…FOUNDERS must do this themselves

…Unstructured, peer-to-peer chats

…DO NOT SELL!!!

When it doesn’t work: The Pivot

• The heart of Customer Development

• Iteration without crisis

• Fast, agile and opportunistic

CustomerDiscovery

CustomerValidation

Pivot

Search

When it still Doesn’t Work(hint: that’s most of the time…)

DO IT AGAIN!

What do I do

differently?

CUSTOMER DISCOVERY

Product/Market Fit:

Why do we Care so Much?

• It ain’t a business without it

• It usually takes quite a few tries

• (sadly, right now, you have the time!)

53images by JAM

customer segments

key partners

cost structure

revenue streams

channels

customer relationships

key activities

key resources

value proposition

5311/24/2014

VALUE PROPOSITIONS

images by JAM

What are you offering them? What are you doing for them?

Does anybody care?54

Product/Market Fit:

Why do we Care so Much?

• It ain’t a business without it

• It usually takes quite a few tries

• You can’t settle for 3’s and 4’s…

• …if the goal is Compelling, Scalable, Profitable!

Product/Market Fit:

Why do we Care so Much?

• It ain’t a business without it• It usually takes quite a few tries• You can’t settle for 3’s and 4’s…• …if the goal is Compelling, Scalable, Profitable!

…”If we can do this for Ford, Schwab, BA…”…When we tell our friends as a favor to them!…There’s NO ALTERNATIVE

What does your product do?

Pain Killers vs. Gain Creators

Pain Killers

Reduce or eliminate wasted time, costs, negative emotions, risks… during and after getting the job

done

Pain Killers - Hypotheses• Perform better?

• Produce savings? Time, money, or effort

• Fix underperforming e-solutions?new features, better performance, better quality, speed

• Ends customers’ difficulties/challenges

make things easier, help them get done, eliminate resistance

• Eliminate risks/enhance vs “old way” • educational, social, technical risks, what could go awfully wrong

• Make your customers feel better?e.g. kills frustrations, annoyances, inefficiency, stress, headaches

59

Pain Killer – Problem or Need?

• Are you solving a serious, painful Problem?

• Are you fulfilling a Need?

• For who? How many users/customers/seats?

• How often do I have this problem???

• Will I lose my spouse, house, grant, job?

60

Pain Killer Ranking• Rank each pain your products and services

according to their intensity for the customer.

• Is it very intense or very light?

• For each pain indicate its frequency

• Is it intense/frequent enough to be a business? • Angel cleaner

• Is the core product a passing grade or an attempt?

• Where is it “needed” or “painful”

• Is it worse for certain segments?

• Is it different selling to parents vs school systems?

61

Gain Creators:

Do they create benefits customers expect, desire or get surprised by?

• functional utility

• enhanced value to client’s product

• cost savings

• Improved productivity

Gain Creator- Ranking

• Rank the gain your product or service creates

• Base rank on relevance to the customer(who?)

• Compare ASAP to established/installed options

63

Gain Creator- Ranking

• Rank the gain your product or service creates

• Base rank on relevance to the customer(who?)

• Compare ASAP to established/installed options

• Is gain substantial or insignificant?

• How frequently does the gain occur?

• How much “incremental gain” do you deliver?

64

Value Proposition:WHAT’S IN IT?

1. Product a. Long-term Product Vision

b. Features

c. Benefits

d. MVP spec!!!!

2. Competitive Set and differentiation

3. Market Size

4. Relative Pricing SWAG

65

What’s a Minimum Viable Product?

• Diapers.com without diapers

• Google without ads

• Zappos without inventory

…Fewest possible features to make the point!

…Why? Powerpoint feedback is blurry.

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Minimum Viable Product in your world?

• It works! Acceptable to customers

• It could sell! Acceptable to management

• Adequate to demonstrate value

• “not embarrassing”

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Common Value Prop Mistakes• Is it just a feature or a product?• Is it a product or a business?• “nice to have” vs. “got to have” • Who wants this? My customer/my boss?

…Customer ENTHUSIASM:– “Not 3’s or 4’s…” seek “buy it now”– If viral, marketing more economical– Sell direct or thru existing channel, partners

68

Common Value Proposition Mistakes

• Is it just a feature or a product?• “nice to have” vs. “got to have” • Can it scale to become a company?• Who wants this? My customer/my boss?

…Customer ENTHUSIASM:– “Not 3’s or 4’s…” seek “buy it now”– If viral, marketing more economical– Sell direct or thru existing channel, partners

69

Step 2: What’s the Digital MVP?

NOW “low fidelity” web/app for customer feedback– First, tests your understanding of the problem

LATER, “high fidelity” web/app tests the solution– Proves that it solves a core problem for customers

– Minimum set feature set to learn from earlyvangelists

- Avoid building products nobody wants

- Enhance feature sets, usability on the fly

- Maximize product learning vs. time spent

70

Step 2: Testing the Digital MVP

• Smoke testing with landing pages using AdWords

• In-product split-testing

• Prototypes (particularly for hardware)

• Removing features

• Continued customer discovery and validation

• Sell it!!

• Trial offers, future offers

• Rikers Island vs. “Revenue now”

• …Mailbox.com and the $100mm smoke test!

71

Step 2: Testing the MVP: Tactics

• Interview ALL customer types (no substitute)– make sure they have a matching core problem

– Understand who owns the problem and its severity for them

– Probe willingness to pay, budget cycle, competition

• Set up test web site landing page– What offers needed to drive customer trial/adoption

– Use problem definition as described by customers to identify key word list – plug into Google search traffic estimator -high traffic means there is problem awareness

• Drive traffic to site using Google search and see how well customer registration process works

72

CUSTOMER SEGMENTS

images by JAM

which customers and users are you serving? which jobs do they really want to get done?

73

Who’s a CUSTOMER?

• They give you money or clicks or post stuff

• They may buy it to give to others to use• If they sell to others, they’re a channel!• If they recommend, they’re a partner!• If they blog about it, they’re a “get tool”

And if that’s not bad enough……there are lots of customer TYPES!

74

What do they want you to do?

• Decrease costs?• Increase productivity?• Add competitive or new efficiency?• Reduce failure points?

• How important is it?• Problem or a Need?

• …what else could they want you to do??

75

Clues from the Customer Problem

76

Customer Problem

77

Who’s the Customer, really?

• User?• Influencer?• Recommender?• Decision Maker?• Economic Buyer?• Archetypes for each one!

• Can you find the Saboteur?

78

How Do They Interact to Buy?

• Organization Chart

• Influence Map

• Sales Road Map

79

CanScan

Hospital / Clinic

Reimbursement Model…EXAMPLE

Oncologists

CMSPrivate

payer/MAC

Class 4 - Update 2.13.2012

ASCO / NCCN

Lab Advisory Committee

InfluencePaymentSets rate

1

1

1

2

2

3

3

3

2

2

5

4

4

5

Generate physician interest

Physician lobbies payer/hospital

Regional payer reimburses

National CMS coverage decided

Hospital reimburses CanScan

How Do They Hear About You?

• Demand Creation

• Network effect

• Your Sales organization

• Other locales?

81

When the customer is a parent!!

• How do I reach them through the student?

• How do I collect or encourage the purchase?

• What are school system rules/policies?

• Who am I selling to? Mom or kid?

82

If It’s a Multi-sided Market Diagram It!!

HINT: YOURS USUALLY IS!

MammOptics

Hospital purchasing decision tree

84

Who’s The Customer?

• B-to-B, often not the end user

• Who’ll be in the room after your pitch?

• (Arlene and the $200,000 “wang killer”)

• Who’s the customer for kids’ toys?

• Who buys?

• Who pays?

• Who gets asked?

85

Who’s The Customer?

• B-to-B, often not the end user• Who’ll be in the room after your pitch?• (Arlene and the $200,000 “wang killer”)• Who’s the customer for kids’ toys?• who buys? Who pays? Who gets asked?FEAR THE WORST:• Multiple, Distinct Discovery efforts• Beware “false positives”• Follow the people…then follow the money

86

Multiple Customer Segments

• Each has its own Value Proposition

• Each has its own Revenue Stream

• One segment cannot exist without the other

• Which one do you start with?

87

When it Doesn’t Work(hint: that’s most of the time…)

DO IT AGAIN!

LET’S TAKE A BREAK

YOUR QUESTIONS

30 MINUTE BREAK

YOUR ASSIGNMENT

When we come back…

We welcome a few

brave volunteers!

Once you have a business model,the hard work starts!

Customer Development

Get Out of the BuildingThe founders

TWO key Discovery phases

• FIRST: Does anybody care?

…are we solving a serious problem?

…are we filling a “big” need?

• THEN: Does our product do the job?

…do they grab it out of your hands?

…are they eager to tell friends?

93

Customer Discovery: MUCH more than “do you like it?”

• How big is the market? Not today…eventually!

• Who’s the customer?

• Does product solve the problem? Fill the need?

• Who else solves it? Cheaper? Better? Faster?

• How do you create demand?

• How do you deliver the product?

• Will the customer let you make money?

94

Customer Discovery: FIRST, Some Ground Rules

• MUST be done by Leaders, not researchers

• You’re never selling, always asking, probing

• The customer steers the conversation

• No customer can answer every question

• Ask for 5 minutes (consumer) 20 (b-to-b)…

95

always remember rule #1:

NO SELLING ALLOWED

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2. You’re Hypothesis Testing!

97

2. Define hypothesis “success” so you know it if you find it

• Define discovery pass/fail tests• Results cannot just be anecdotes • …what does success look like?

– 4 of ten get really excited/want to buy– One appointment in five calls– 2/3 would learn about it where I’m headed– Half would tell >3 friends

REMEMBER: recompute the financial model based on this feedback…it changes LOTS

98

Customer Discovery: Before your First Interview

• Know your subject…memorize your questions

• “Dress for success,” make them comfortable

• Consider/Rehearse your “Opening Line”

• ALWAYS stress “this is not a sales call”

• NEVER get caught following a script

• Be curious, dig deeper, don’t push an agenda

• Let the customer guide the conversation

99

3. Discovery: ROUND ONE!

• PRIMARY MISSION is “test the problem”

• Anything else is gravy…get what you can

• Avoid details on product much as you can• …how do you solve it now• …anyone solve it well for you• …problems with current solutions

…but mostly: do customers care??

100

Who Do I Call On?

• WHO is your “customer” here?

• Do NOT do Discovery with friends, colleagues

• Use existing company customers, contacts

• Get referrals from sales, alumni, edu’s, pals

• Don’t worry about titles or the right person

• Can you really talk to anyone?

101

I Have a Meeting – Now What?

• The goal is to test all hypotheses but…

• ALWAYS get to product/market fit– Does the value proposition match the segment?

– Do the customers seem to genuinely care??

• THEN move to other issues– How do they buy?…How to get their attention?

– How much might they pay? Do they pay today?

– How horrible is the budget cycle?

– Who pays? Teacher? Kid? Parent? System?

102

I Have a Meeting – Now What?

• The goal is to test all hypotheses but…

• ALWAYS get to product/market fit– Does the value proposition match the segment?

– Do the customers seem to genuinely care??

• THEN move to other issues– How do they buy?…How to get their attention?

– How much might they pay? Do they pay today?

– How horrible is the budget cycle?

– Who pays? Teacher? Kid? Parent? Boss? CFO?

103

What Do I Say?

• Remember 1st test the problem

• “Hi, I’ve been told you’re the smartest...

• Don’t try to get all the answers at once

• Every sentence is a question

• Use “Stack ranking”

• 3 columns…Dummy Boxes…“Dry test”

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Conversation Starters

• Does the person match the Target Segment? Yes/No

• Objective 1: Problem Exploration– Learn if they have the Problem, and how

much of a problem it really is by hearing about their Existing Behavior/Usage

• Objective #2: Influence, Control, Cash?105

Conversation Starters: Beginner

Beginner: I’m working on an idea around…

– Have you ever…?

– Tell me about a time you’ve…

– I hear many in my customer segment have this problem of…

106

Finding the Customer’s Level of Pain

• How frequent? How often a problem?

• Looking for any other solutions?

• What would your ideal solution be?

Remember: its just a simple, unstructured chat with another person, people love to talk!

107

During the Interview:

DOTake notes SmileAsk open-ended questionsGet their storyShut up and listen

DON’T

Talk about your productAsk about future behaviorSellAsk leading questionsTalk much

108

After “Problem” Discovery: Become YOUR Own Customer

• How’d you find this?

• I need solution RIGHT NOW

• Search articles, not just sites

• Line up all the competitors

• …and find your “white space!”

109

After “Problem” Discovery: Google and Industry Research

• How big is the market?

• Who’s the customer?(how’s their problem/need solved today?)

• How do you create demand?

• How do you deliver the product?

• Google your product/category 8-12 hours

• CONFIRM your findings w/industry info

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4. Research Done. Now what?

• Did you meet enough customers?• Did the answers become consistent, repetitive?THEN: Assemble all the data, organize/rank responses• Slam it against industry, third party resources• Get a tighter, more concise view of the market• …and adjust your Business Model as you go!Next:

• Test the “solution” in a very similar way• It’s more like “test selling”…but not hard-selling!• …and determine if you “pivot or proceed”

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Testing the Solution:Dreaded Questions

• Will people use it?

• Why won’t people use it?

• What will they compare it to?

• What’s wrong with it?

• How could I make it better?

• Do people like it?

• Can people find it?

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always remember rule #1:

NO SELLING ALLOWED

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FIND the EARLYVANGELISTS

Customers “FOAMING AT THE MOUTH”

1) Have the problem

2) Know they have the problem

3) Searched for solution

4) Hacked a solution

5) Paid for a solution

…when you find these people, you have likely found product/market fit!

114

To build a great company, remember:

GET OUT OFTHE BUILDING!

115

…and when it doesn’t work…

(HINT: THAT’S MOST OF THE TIME)

The Pivot

• The heart of Customer Development

• Iteration without crisis

• Fast, agile and opportunistic

11711/24/2014

Three Great Pivots

• Steve Blank: “Page 6”

• Perimeter: “there are 9000 of us”

• Groupon: the $12billion pivot

• …and hundreds more!

11811/24/2014

How do you know when Discovery is “done?”Key PartnersWho are our key partners/ suppliers

Key ActivitiesWhich key activities does the biz model require

Value PropositionWhat value do we deliver to the customer

Customer RelationshipsWhat type of relationship does each segment require of us

Customer SegmentsFor whom are we creating value

ChannelsThrough which channel does each segment want to be reached

Revenue StreamsHow much is each segment willing to pay and how would they like to pay us this amount

Cost StructureWhat are our cost drivers

Key ResourcesWhich key resources does the biz model require

identify key market segments (geography/application) and customer segments (e.g. operator versus owner)

how many customers in each segment and estimated potential volume for each customer

how do customers make money … key customer pain/gain points in each segment

how are buying decisions made in each segment - id process, hurdles, decision makers

what does an Earlyvangelist look like in each segment

who influences purchases in each segment (trade groups, key resellers, trend watchers)

key distinctive product features & benefits for the target customer segment

total cost of ownership for segment versus alternatives

why will segment buy Durathonversus alternatives (i.e. value proposition)

minimum feature set (i.e. our launch configuration) and ultimate feature set

opportunities to claim IP or trademark / is there freedom to practice

what regulatory/ certification/ transportation/ customs requirements should be met or could be differentiator

which segments can only or best be reached through a channel partner

which channel partners are important to optimize sales in each segment

what are channel partners' requirements and cost to become a proactive sales channel

initial channel partner response to value proposition & customer segments

What are price /performance characteristics of competing technology What is the 2013 price target for 1 MM cells What is the 2015 price target for 10 MM cells what is optimum sales method for each segment (asset sale, lease, pay for performance, etc.)

product positioning/elevator pitch for each segment

Prospect roadmap: how to get face-to-face with right person at prospects in each segment

key competitors in each segment and their market share

key competitors' characteristics & dynamics

What outbound marketing/ advertising/ promotion activities are needed

support tools required by segment (white papers, TCO calc., tradeshow)

pipeline of leads

x

x

x

X = number of in depth customer data points / data sources used to validate hypothesis

red = low hypothesis confidence yellow = medium hypothesis confidence green = high hypothesis confidence

25

25

4 50

3

Complete regional overview

12

Populate life cycle data for performance guarantees

Educate market on metric: $/kWh-day delivered over life of asset

Establish strong partnerships with channel partners

Integrated power system engineering – compatibility for retrofit and optimized system solutions

Financing options for Power services operators

Launch reliability

0

11911/24/2014

3 Questions to “DONE:”

12011/24/2014

Customer Validation

CustomerDiscovery

CustomerValidation

Customer Creation

CompanyBuilding

• Repeatable, scalable profitable?

• Passionate first paying customers?

• Pivot back to Discovery if not!

Pivot Execution

Search

12111/24/2014

Validation is VERY DIFFERENT

• “Test selling” vs search and exploration

• Is the business “repeatable, scalable”

• Do the “ratios hold up” as you accelerate

• Is it a “Pachinko machine” yet?

(we’ll do lots of team-by-teamwork on this!)

12211/24/2014

When It Doesn’t Work(REPEAT: that’s most of the time…)

do it again!

this is how

GREATcompaniesare built!!!

QUESTIONS??@bobdorf

www.bobdorf.nyc

tools/more: www.steveblank.comonline canvas: www.canvanizer.com