Henrik Berglund - Customer Development for startups

Henrik Berglund Chalmers University of Technology Center for Business Innova8on

[email protected] www.henrikberglund.com

@khberglund

Customer Development for Startups

2013-‐02-‐15 1

by Steve Blank and Bob Dorf

More info: www.steveblank.com Buy the book: hJp://www.amazon.com/gp/product/0984999302/

Presenta8on based on

developed by Steve Blank and Bob Dorf

hJp://www.slideshare.net/sblank/

Using slides from

Agenda

1.  Startups (Old and new view) 2.  Business Models

WS

3.  Customer Development WS

Part 1

Startups (What We Used to Believe What We Now Know)

What We Used to Believe

Startups are a Smaller Version of a Large Company

What We Now Know

Startups Search Companies Execute

Startups ≠ Small companies


Strategy

Start by developing a Business Plan…

…make the financial forecasts…

…then Execute

What We Now Know

Strategy

5-‐Year Plans

Develop and Execute the Business Plan

Why?

No Business Plan survives first contact with customers

“Everybody has a plan un@l they get punched in the face” Mike Tyson

Searching for a Business Model comes before

Executing a business plan

Business Models

Solu8on Unfair Advantage Customer Segments

Key Metrics Channels

Cost Structure Revenue Streams Type: Asset sales Usage fee Subscrip8on fees Lending/Ren8ng/Leasing Licensing Brokerage fees Adver8sing

Fixed Pricing: List price Product feature Customer segment Volume

Dynamic Pricing Nego8a8on Yield management Real-‐8me market

Interview 30-‐50 customers Build MVP Ongoing burn (fixed and variable costs)

Direct Distributor OEM Retail VAR Web

Unique Value Proposi8on

Alterna8ves

Customers; Users

Early Adopters

Why you are different and worth gecng aJen8on Result customers want + specific period of 8me + address objec8ons

Acquisi8on Ac8va8on Reten8on Revenue Referral

Not easily copied or bought Problem

Alterna8ves

Business Model Hypotheses

Search

Strategy

Execu@on

Opera@ng Plan + Financial Model


Process

We Built Startups by Managing Processes

Product Management +

Waterfall Engineering

Tradi8onal Development Process

Concept Product Dev. Alpha/Beta Test

Launch/ 1st Ship

Tradi8onal Development Process Has Two Implicit Assump8ons


Launch/ 1st Ship

Customer Problem: known

Product Features: known

Works well for incremental development projects targe@ng exis@ng customers.

Tradi8on – Hire Marke8ng

-‐  Create Marcom Materials -‐ Create Posi@oning

-‐ Hire PR Agency -‐ Early Buzz

-‐ Create Demand -‐ Launch Event -‐ “Branding”

Marke@ng


Launch/ 1st Ship

Tradi8on – Hire Sales




-‐ Build Sales Organiza@on

Marke@ng

Sales -‐ Hire Sales VP -‐ Hire 1st Sales Staff


Launch/ 1st Ship

Tradi8on – Hire Business Development





Marke@ng



Launch/ 1st Ship

-‐ Hire First Bus Dev -‐ Do deals for FCS Business Development

Example -‐ Recognize these? Online clothes retailer specialized in fashion and sports (e.g. Adidas, Fila, Vans, Converse, DKNY and Fred Perry).

Raised $160 million (JP Morgan, Goldman Sachs, Bernard Arnault, BeneJon + six).

Developed an innova8ve site with 3D, zoom, 360⁰ rota8on and virtual mannequins, powered by lots of JavaScript and Flash Anima8ons.

Rapidly grew to 420 people and spent heavily on PR pre launch.

Delayed launch repeatedly due to technological problems.

Finally launched in 18 countries simultaneously 8:59 November 3 1999 EST.

What happened? 40 % of visitors could not access the site.

Mac users could not operate the site at all.

The site was very difficult to use and full of errors, oren causing computers to freeze.

Extremely slow to load without broadband.

Only one in four aJempts to make a purchase worked.

Low conversion rates (0.25%).

Conversion rates did double by Christmas.

30% returns, not 10% as projected.

A “low-‐bandwidth version” was relaunched within months.

But low sales + high costs

“Eighty-‐one minutes to pay too much money for a pair of shoes that I am s8ll going to have to wait a week to get?”

=> Bankruptcy.

"Our strong investor base offers a solid founda@on for boo.com. The fact that such interna@onal investors have invested in boo.com reflects the power of our business model and the boo.com brand." Patrik Hedelin, Execu2ve Chairman. (Press Release, Nov 3 1999)

Validated Business Model?

The problem – untested assump8ons!

Visualiza@on of the business

model framwork

Key ac@vi@es Partnering, E-‐commerce, Global taxes & payments, Marke@ng

Value proposi@on Fashion and sports online,

Realis@c shopping experience, “Life-‐s@le choice”

.

Customer rela@onships

Paid & Earned Media Visitor numbers, Conversion rates

Customer

segments “young, well-‐off, fashion-‐ conscious 18 to 24 year olds”

Cost structure Call centres, Return rates, Inventory

Key resources Developers, Risk capital

Revenue Streams Online sales/ full retail price, CAC & Life@me Value

Channels Buying online, Channel conflicts, Zone pricing

Key partners Brands, Warehouses, Logis@cs

What’s wrong with this picture?

•  Both Customer Problems and Product Features are hypotheses

•  Emphasis on execu8on rather than learning and discovery

•  No relevant milestones for marke8ng and sales •  Oren leads to premature scaling and a heavy spending hit if product launch fails

You do not know if you are wrong un@l you are out of money/business


Launch/ 1st Ship





Marke@ng



Launch/ 1st Ship

-‐ Hire First Bus Dev -‐ Do deals for FCS Business Development

What We Now Know

Process

More startups fail from a lack of customers than from a failure of product development

Because

•  We have processes to manage product development

•  We have no process to manage customer development

An Inexpensive Fix

Focus on Customers and Markets from Day One!


model framwork

Key activities Value proposition

Customer relationships

Customer segments

Cost structure

Key resources

Revenue streams

Channels

Key partners

Solu8on Unfair Advantage

Customer Segments


Cost Structure Revenue Streams


Problem

How?

Product and Customer Development

Product Development

Customer Development

Company Building

Customer Discovery

Customer Validation

Customer Creation

+


Launch/ 1st Ship

Problem: unknown Solu8on: unknown



Strategy

Process Customer & Agile Development

Opera8ng Plan + Financial Model

Product Management & Waterfall Development

Search Execu@on


Organiza@on

Hire and Build a Functional Organization

What We Now Know

Organiza@on

Founders run a Customer Development Team

No sales, marketing and business

development


Organiza@on Customer

Development Team, Founder-‐driven

Customer Development, Agile Development

Opera8ng Plan + Financial Model

Product Management Agile or Waterfall Development

Func@onal Organiza@on by Department

Search Execu@on Strategy

Process

search

execu8on

Part 2

Business Models

What’s a Company?

What’s a Company?

A business organiza@on, which sells a product or service in exchange for revenue

and profit

How are Companies organized?


Companies are organized around Business Models


Companies are organized around Business Models

What’s a Startup?

What’s a Startup?

A temporary organiza8on designed to search

for a repeatable and scalable business model

What’s a Startup?



What’s a Startup?



The goal is not to remain a startup

Startup Large Company

The goal of a startup is to become a large company! Failure = failure to transi@on.

Transi@on



Customer segments

Cost structure

Key resources

Revenue streams

Channels

Key partners

Business Models

hJp://www.businessmodelalchemist.com/


Customer Segments




Who are your customers? Who are earlyvangelists?

Problem

Single, clear, compelling message that states why you are different and worth buying from

That can’t be easily bought, or imitated?

How do you reach customers?

Key features MVP

What are you customers’ key jobs/pains/gains?

What metrics are most cri8cal to track?

Customer Acquisi8on Costs Distribu8on Costs Hos8ng People etc. Fixed/variable

Revenue Model Life Time Value Revenue/pricing etc.


Customer Segments





Problem




Key features MVP





Customers and problems

Who is the customer? Mul8-‐sided market? Different from user?

hJp://www.businessmodelalchemist.com/2012/08/achieve-‐product-‐market-‐fit-‐with-‐our-‐brand-‐new-‐value-‐proposi8on-‐designer.html

Customers and problems -‐ jobs to be done

What func8onal jobs is your customer trying get done? (e.g. perform or complete a specific task, solve a specific problem…) What social jobs is your customer trying to get done? (e.g. trying to look good, gain power or status…) What emo8onal jobs is your customer trying get done? (e.g. esthe8cs, feel good, security…)

“What jobs are the customers you are targe2ng trying to get done”

Customers and problems -‐ customer pains

What does your customer find too costly? (e.g. takes a lot of 8me, costs, effort) What makes your customer feel bad? (e.g. frustra8ons, annoyances) How are current solu8ons under-‐performing for your customer? (e.g. lack of features, performance, malfunc8on) What nega8ve social consequences does your customer encounter or fear? (e.g. loss of face, power, trust, or status)

“What are the costs, nega2ve emo2ons, bad situa2ons etc. that your customer risks experiencing before, during, and a>er ge?ng the job done.”

Customers and problems -‐ customer gains

Which savings would make your customer happy? (e.g. in terms of 8me, money and effort) What would make your customer’s job or life easier? (e.g. flaJer learning curve, more services, lower cost of ownership) What posi8ve social consequences does your customer desire? (e.g. makes them look good, increase in power, status) What are customers looking for? (e.g. good design, guarantees, features) What do customers dream about? (e.g. big achievements, big reliefs)

“What are the benefits your customer expects, desires or would be surprised by.”


Customer Segments





Problem




Key features MVP





Unique Value Proposi@ons/Solu@on

What are your products and services? How do they create value for the customer segments?

Can your product/service: •  Produce savings?

•  Make your customers feel beJer?

•  Put an end to difficul8es?

•  Wipe out nega8ve social consequences?


Can your product/service: •  Outperform current

solu8ons?

•  Produce outcomes that go beyond their expecta8ons?

•  Make your customer’s job or life easier?

•  Create posi8ve social consequences?


Product Market Fit Gecng this right is essen8al!

Product Market Fit Gecng this right is essen8al!


Customer Segments





Problem




Key features MVP





How Do You Want Your Product to Get to Your Customer?

82

Yourself

Through someone else

Retail

Wholesale

Bundled with other goods or services

"""""

Web Channels

83

Physical Channels

84

How Does Your Customer Want to Buy Your Product from your Channel?

85

•  Same day

•  Delivered and installed

•  Downloaded

•  Bundled with other products

•  As a service

•  …

""""""


Customer Segments





Problem




Key features MVP





Customer Rela@onships

Customer Rela@onships


Customer Segments





Problem




Key features MVP





WS

Map out your Business Model?

60 minutes

Be clear about Product Market Fit!

Part 3


To repeat

More startups fail from a lack of customers than from a failure of product development…

To repeat

… because they think startups = small companies…

…they focus on execu8ng the plan…

•  Both Customer Problems and Product Features are hypotheses

•  Emphasis on execu8on rather than learning and discovery

•  No relevant milestones for marke8ng and sales •  Oren leads to premature scaling and a heavy spending hit if product launch fails

You do not know if you are wrong un@l you are out of money/business


Launch/ 1st Ship

… so they scale on untested assump8ons…

… and end up going bust.

“We have been too visionary. We wanted everything to be perfect, and we have not had control of costs" Ernst Malmsten (BBC News, May 18 2000)

So what to do?

Focus on Customers and Markets from Day One!


model framwork



Customer segments

Cost structure

Key resources

Revenue streams

Channels

Key partners


Product Development


Company Building

Customer Discovery

Customer Validation

Customer Creation

+


Launch/ 1st Ship

Problem: unknown Solu8on: unknown


Customer Development: Key Ideas

•  Parallel process to Product Development (agile)

•  Measurable checkpoints not @ed to FCS but to customer insights

•  Emphasis on itera@ve learning and discovery before execu@on

•  Must be done by small team including CEO/project leader

Customer Development Heuris8cs

•  There are no facts inside, so get out of the building!

•  Develop for the few, not for the many

•  Earlyvangelists make your company, and are smarter than you!

•  Develop a minimum viable product to maximize fast learning.

•  Nail it before you scale it – low burn by design!

•  Customer Discovery Ar8culate and Test your Business Model Hypotheses

•  Customer Valida@on Sell your MVP and Validate your MB & Sales Roadmap

•  Customer Crea@on Scale via relentless execu8on and fill the sales pipeline

•  Company Building (Re)build company’s organiza8on & management

Customer Development: Four Stages search

execu8on

Customer Discovery

•  Articulate and test your BM hypotheses

•  No selling, just listening •  Must be done by CEO/

project manager

building block

building block

building block

building block

building block

building block

building block

building block

building block

building block

building block

building block

But, Realize it’s just Hypotheses!

Guess Guess

Guess

Guess

Guess

Guess

Guess

Guess Guess

”Do you have this problem?” 1. 2. 3.

Test Customer Problem Hypotheses

”Do you have this ”Tell me about it, how problem?” do you solve it today?” 1. 1. 2. 2. 3. 3.


”Do you have this ”Tell me about it, how ”Does something like this problem?” do you solve it today?” solve your problem?” 1. 1. 1. 2. 2. 2. 3. 3. 3.

Listen carefully to what they say at each step! Focus on learning -‐ Don’t try to sell them on your idea! In the process you find out about other BM parts as well: workflow, benefits (to users & others), preferred channels, cri@cal influencers, respected peers etc… You want to become a domain expert!


Finding people

Introduc8ons (ask everyone you know) •  Provide the exact text that they can copy and paste into

a tweet or email (They’re doing you a favor! Make it as easy as possible for them)

•  Tell them exactly how you are going to communicate with their contacts (They’re risking a bit of social capital for you. Be very clear that you won’t spam or annoy people)

•  Tell them your goals (What do you think you’ll get/learn if they make this intro for you? People want to know that they’re contribu8ng to a bigger picture!)

Finding people

AdWords, Facebook Ads, Promoted Tweets Summarize your idea and get it in front of people who have expressed an interest in it by having searched for your keywords and clicked your ad – get conversa8ons (and/or test hypotheses using landing pages).

hJp://www.cindyalvarez.com/best-‐prac8ces/customer-‐development-‐interviews-‐how-‐to-‐finding-‐people

Finding people

TwiJer Search Look for people who have already discussed a similar product, problem, or solu8on and address a tweet directly to them:

“@username Would love yr feedback on [product/problem/solu2on] – shd only take 2mins [URL] thanks!”

Finding people

Google Alerts Set up Google Alerts for your product/problem/solu8on – when it finds relevant blog posts or comments, email and ask for feedback:

“I read your [post/comment] about [product/problem/solu2on]. I’m currently working on a related idea and I think your opinion would be very valuable to me – could you take 2 minutes and check out [URL]? Thank you – I’d be happy to return the favor any 2me.”

Interview 8ps

hJp://www.giffconstable.com/2011/07/12-‐8ps-‐for-‐customer-‐development-‐interviews-‐revised/

Much faster to build => get quan8ta8ve feedback sooner. Use a low-‐fi landing page as subs8tute for (and introduc8on to) conversa8ons. Key to drive traffic through AdWords/Facebook Ads/Promoted Tweets etc. Build (design test), measure (run test) and analyze (evaluate test)!

Web

hJp://blog.kissmetrics.com/landing-‐page-‐blueprint/

Landing page design

Reality check!

CustDev and ProdDev teams meet and discuss the lessons learned from the field.

”Here is what we thought about customers and their problems, here is what we found out”

BM hypotheses, product specs or both are jointly revised.

Test Solu8on Hypothesis

1) ”We believe you have this important problem” – listen (check). 2) Demo how your product solves the problem. Focusing on a few key features. Include workflow story: ”life before our product” and ”life arer our product” – listen! 3) ”What would this solu8on need to have for you to purchase it?” Listen, ask follow up ques8ons.

“A new way for people to pay for train 8ckets at rail sta8ons using an electronic payment service, like PayPal, on their mobile phone.”

Dropbox

•  1st solu8on test: a three minute video made in the founder’s apartment before a complete code was wriJen. –  Generated valuable feedback from visionary customers.

•  2nd solu8on test: another video of the product that was posted on a social network. – Wai8ng list jumped from 5 000 to 75 000.

•  Dropbox’s original intent was to build and ship their product in eight weeks.

•  Instead, they gathered feedback and launched a public version 18 months later.

Test Product Hypotheses

Arer demoing, ask about other things: Posi8oning – how do they describe the product? Product category (new, exis8ng, resegmented) Compe8tors Features needed for first version Preferred revenue model Pricing Addi8onal service needs Marke8ng – how do they find this type of product? Purchasing process Who has a budget? etc.

Build out a high-‐fidelity web page with “func8oning” back-‐end, based on lessons learned. “Mechanical Turk”-‐solu8on. Ask for money: first “pre-‐order” then charging. Con8nue to test, measure and analyze!

Web

Reality check!

CustDev and ProdDev teams meet and discuss the lessons learned.

”Here is what we thought about product features and here is what we found out”

BM hypotheses, product specs or both are again jointly revised.

Consistent answers from “enough” people?

What are your customers top problems? How much will they pay to solve them?

Does your product concept solve them? Do customers agree?

How much will they pay for it? When?

Can you draw a day-‐in-‐the-‐life of a customer? Before & arer your product

Can you draw the org charts of users, buyers and channels?

Customer Discovery: Exit Criteria

Customer Validation

• Develop and sell MVP to passionate earlyvangelists • Validate a repeatable sales roadmap • Verify the business model

Based on your insights from Customer Discovery, sell the smallest feature set customers are willing to pay for!

•  Purpose 1: Reduce wasted engineering hours (and wasted code)

•  Purpose 2: Get something into the hands of earlyvangelists as soon as possible => maximize learning! (cf. landing page)

Minimal Viable Product

The Apple I, Apple’s first product, was sold as an assembled circuit board and lacked basic features such as a keyboard, monitor, and case.

The owner of this unit added a keyboard and a wooden case. hJp://en.wikipedia.org/wiki/Apple_Inc.

The MVP is not the goal = Requires commitment to itera8on!

•  “A complex system that works is invariably found to have evolved from a simple system that worked.”

•  “A complex system designed from scratch

never works and cannot be made to work. You have to start over, beginning with a working simple system.”

Minimal Viable Product

John Gall System-‐an8cs: How Systems Really Work and Especially How They Fail

Not helpful

Jackpot!

1. Has a problem

2. Understands he or she has a problem

3. Ac8vely searching for a solu8on

4. Cobbled together an interim solu8on

5. CommiJed and can quickly fund a solu8on

Types of earlyvangelists

Do you have a proven sales roadmap? Organiza8on chart? Influence map?

No staffing un8l roadmap is proven!

Do you understand the sales cycle? LTV, CAC, ROI for customers etc.

Do you have a set of orders ($’s) of the product valida8ng the roadmap?

Is the business model scalable? LTV > CAC

Customer Valida8on: Exit Criteria

If yes – Start execu8ng

If no – Pivot!

•  The heart of Customer Development

•  Change without crisis (and without firing execu8ves)

“The idea that successful startups change direc2ons but stay grounded in what they've learned”

YouTube - Customer Need Pivot

Friday, April 23, 2010

Pivot

Adapt the Business Model un8l you can prove it works

search

execu8on

•  Grow customers from few to many

•  Comes arer proof of sales

•  Inject $’s for scale

•  This is where you “cross the chasm”

Customer Crea8on

•  (Re)build company’s organiza8on & management

•  Dev.-‐centric ⇒ Mission-‐centric ⇒ Process-‐centric

Company Building

•  Customer Discovery Ar8culate and Test your Business Model Hypotheses

•  Customer Valida@on Sell your MVP and Validate your BM & Sales Roadmap

•  Customer Crea@on Scale via relentless execu8on and fill the sales pipeline

•  Company Building (Re)build company’s organiza8on & management

Summary – Customer Development

Don’t do a Boo! Concept Product Dev. Alpha/Beta

Test Launch/ 1st Ship

“We have been too visionary. We wanted everything to be perfect, and we have not had control of costs" Ernst Malmsten (BBC News, May 18 2000)

WS

Develop a Customer Discovery Plan?

•  What are the key ques8ons I need answered? –  (hint: customers, problems)

•  Who do I need to talk with? •  How will I get them to talk to me? •  When will this happen? •  How will I know I am done?

– With problem discovery? – With solu8on discovery?

Tips

•  Each team learns and evaluates a tool, and then reports back to the whole group:

– CrazyEgg.com – KISSMetrics – Unbounce – Qualaroo – Marketo.com

by Steve Blank and Bob Dorf

More info: www.steveblank.com Buy the book: hJp://www.amazon.com/gp/product/0984999302/

Presenta8on based on

developed by Steve Blank and Bob Dorf

hJp://www.slideshare.net/sblank/

Using slides from