Customer development for product managers

Have you ever heard of Everpix? What about Google Wave? You haven’t? Don’t worry; that is not surprising. The first is a mobile app that organizes the photos on your phone. It launched in 2011 and shut down in 2013 because users were not buying the product. Google Wave was a Google communication platform launched in 2010 and closed two years later because users did not understand how to use it. Customer development helps you avoid the fate of products that fail because of insufficient knowledge of the customer.

It is clearly obvious that these products were created without involving users in their design. The product owners were satisfied with their own assumptions and guesses and ignored the most important topic in product management: finding product–market fit. These two products did not answer market needs. Users of these two products did not understand the value they created, and that is why sales were very low. In this situation it does not matter which company is offering the product or how much was spent to produce it. There is always a chance that a new product will fail. But there are ways you can use to reduce the chance of failure.

The customer development model and how to apply it

“You cannot find any truth inside the building where you work, so get out of the building and go look for the truth.” This is one of the well-known lines from Steve Blank, creator of the customer development approach. It explains the central concept of customer development well.

After a very good idea comes to mind, a group of software developers and graphic designers get to work to turn that idea into a product. They keep every stage hidden, which is a very large mistake—they get no feedback from users to see whether they are on the right path. This continues until a popular, widely followed outlet unveils their product, which brings thousands of people in to sign up. As the novelty fades, only 10 to 15 percent of these new users stay, and the product has not passed its sales goals. This is where embarrassment and regret arrive. After that the startup members wait a little and realize they have to leave the building, interview real customers, and collect their feedback so product managers can improve the product. If that activity succeeds, success may be ahead.

Steve Blank introduces customer development as a process for getting customer views and insights that you can use to improve, revise, and optimize your ideas while the product is being developed. The most important part of customer development is that it helps you find your customers and build the product and message related to them. In fact it is like a strategy that affects the startup’s growth curve and is a way to build the best solutions for your users with the insights you have gained from them.

We use customer development to find out:

• whether our product hypothesis actually exists;

• whether the proposed solution really solves the customer’s problems;

• whether our target audience uses the product;

• whether the concept of this new feature will be effective for a product that already exists;

• whether customers are willing to pay a specific amount for this product;

• and so on

Note that the customer development approach can be used not only to bring a product to market but throughout the product cycle. Customer development can be used at any stage of building a product because it does not require huge processing resources and is simple to run.

Customer development itself includes customer discovery, customer validation, customer creation, and company building. Next we open each of these stages and go into their details so you can get the most from the data and information you collect.

Customer discovery

Customer development is one of the most useful, practical activities, and unfortunately many startups and even large, older organizations skip this stage. But why? Because they worry that customers might not accept their idea and not use their product. They are right, because they might find exactly that during the customer development process.

Customer development is all about knowing your potential customer, which leads to testing whether your product assumptions are correct. In the early stages of your product it lets you see how implementable your overall concept is and what should be improved / removed / added.

State your hypotheses

Being able to test our hypotheses with real customers is genuinely hard. Hard, however, does not mean impossible. Steve Blank believes the business model canvas is a powerful, practical tool for developing these hypotheses.

The business model canvas is a nine-part strategy developed by Alexander Osterwalder (business theorist) and Yves Pigneur (computer scientist). Both are recognized among the 50 most influential people in management in the world.

The business model canvas makes you ask the right questions at every stage of your business and compare the answers so you can finally examine your hypotheses.

But how does the business model canvas work?

1. Value proposition: What kind of problem does your product solve? What need does your product meet? What are this product’s core capabilities? What benefits do your customers receive?

2. Customer segments: Who are your customers? What is their geography, demographics, social environment, and so on? What special attributes does a typical customer of yours have?

3. Channels: How do you want to sell your product? How do you communicate with your customers?

4. Customer relationships: How do you create, maintain, and grow your relationship with the customer?

5. Revenue streams: How does your company profit from each customer segment? Which of your product’s values brings you the most profit?

6. Resources: What resources (capital, credit, assets, relationships, and so on) do you need to do your work?

7. Partnerships: Do you really need various partners? What benefit do you get from each of them? What is the key activity of each?

8. Activities: What does your team have to do to move this business forward and carry out your plans?

9. Costs: What is your total cost of developing the product? Which resources or activities are expensive?

Test your hypotheses

By answering these questions and building a business model canvas you have created your initial hypotheses about the market and the product, which matter a great deal in the first stage of developing this approach. You also get opportunities to get close to your customer and finally build what they really need.

This is where the topic gets interesting. To find out whether the customer wants or needs your product, you definitely have to reach a few representatives of your audience and talk to them. Of course in a planned, orderly interview. This work is the central part of customer development, because during interviews with real people you can get valuable information. Interviews can save you from building a product the customer does not want or does not need—but only if the right questions are asked.

There are two types of questions you can use in your interview to get results: closed-ended questions and open-ended questions. The first type usually have true/false, yes/no, or a limited number of answers. That is why open-ended questions are more effective and give you more useful information.

Attributes of open-ended questions:

• they give qualitative information;

• you can find deeper connections among different concepts;

• you gain insights that were missed when you ran a questionnaire;

• they give you a better understanding of the customer;

• they give you a view of the product’s or its features’ limits and problems;

Open-ended questions are one of the key factors in succeeding at customer development. So do not leave them out of planning and preparation.

Steve Blank’s suggestion is to organize these questions as follows:

1. Go into your network and prepare a list of 50 people (colleagues, former colleagues, friends, accountants, lawyers, salespeople, and so on).

2. After these people, who have the potential to become customers for you, prepare a presentation that includes the existing hypotheses. The goal of this presentation is not to sell the product; after talking about the audience’s problem and the solution you have offered, you should get feedback from the customer. Note that the goal of these interviews is not to persuade people to confirm your hypotheses. The goal is to collect information and customer views that you could not have reached on your own. In the end the interview is a tool that helps you get this information and move customer development forward.

Another important part of testing your hypotheses is learning more about your customers’ habits, jobs, businesses, and routines, because knowing these helps you understand your customers better. These insights can play a significant role in your success. Of course this information alone is not enough. Alongside market information, knowledge of product competitors, and economic and market trends, it can help you enter the market and take a good share of it.

After you have collected various information and tested your hypotheses, it is time to compare the guesses you made earlier with the results you got from this information. This is where the business model canvas helps you.

Build your business model canvas

Go back a little and, using the new data and information you have obtained, build a new business model. The Strategyzer website has announced that more than 5 million people have downloaded the business model canvas file, and a very large percentage of people have used this model. When you rewrite your business model canvas based on the new data and information you have obtained, you first arrive at new theories for developing your business. Then by comparing the previous model and the new model you can question the hypotheses you had and see how true they are. This shows you how much you can count on your guesses and hypotheses in the future.

Case study

Let me make this clearer and more understandable with a case study and example. Imagine you want to enter the selfie-drone market. After writing your business model canvas you arrived at a list of capabilities for this product:

• Weight: 200 grams so you do not need an FAA certificate

• Control via Wi-Fi

• GPS control

• Video quality: 720p (better than other devices on the market)

• Portability

• A simple app for setup and use

• New capability: download images directly from phone to computer

• New capability: 20 minutes of flight time

Now you prepare a list of potential customers for your product, including close friends, Facebook users, drone owners, and so on. Then you go to test your hypotheses, and it seems people like a small, portable product with advanced capabilities. You realize potential users are worried about 20 minutes of flight time because it increases the device’s charge time from 120 minutes to 4 hours. In this process you find that your customers would like to be able to choose body color at purchase, especially colors such as white, black, dark blue, and green.

Now you go study and examine your product’s competitors in the market and look at their offers. After examining them you revise your business model canvas and also adjust your product development strategy.

Of course this is only a small part of the customer discovery process, which gives you a general idea. But you should not ignore its importance, especially since it does not take much energy or effort from you and you can do all of this quite simply. In any case you have to validate the information you obtain and reduce the risk of entering the market with poor, unsuitable product positioning.

Customer validation

According to research by CB Insights, 42 percent of startups fail because the market does not need their product, 18 percent because of pricing problems, and 14 percent because they ignored the customer. Given that, if you think you have done everything you should in the customer discovery stage and have enough information for a full product launch and to start selling, think a little more. You have to test the data you get from the real environment, and that happens through customer validation.

Customer validation is the process of making sure you have correctly understood the customer and have developed suitable positioning for your product and company. This is very close to the lean startup concept created by Eric Ries in 2008. That concept includes testing based on hypotheses and pivoting across product versions based on validation. The MVP concept also came out of this, so that by building a small initial product we can get feedback from real people.

MVP feedback helps us:

• understand whether we are ready to enter the market at all

• know our customers better

• design our sales roadmap

• understand whether it is the right time to grow sales and marketing

Minimum viable product (MVP)

I do not want to confuse you. An MVP is not a product; it is a version with the fewest capabilities needed to solve the customer’s problem. We build this version of the product with the fewest resources for initial validation of our business idea. The first working version of the product is built when, using this MVP, we have been able to get enough information.

The advantage an MVP gives you is that wherever along the path you realize your hypotheses were wrong, you have not spent a lot of money and time, and you get answers to your questions and hypotheses much faster because you have the chance to change direction.

Case study

Validating customers for your product—here meaning the selfie drone—is a step-by-step process, and along this path there is a chance we will make many mistakes. Imagine you have given users the first version of your app with the fewest capabilities for controlling drones, filming, and taking photos. In this version you have not implemented the ability to control image resolution, different flight modes, following a person’s face, and so on, because these all count as extra capabilities. In this situation three different scenarios can occur:

1. Everything goes well, the customer’s problem is solved, and they seem happy. Working with the app is very simple, and controlling the drone is something anyone can do. So your next stage is offering some of the extra capabilities in your product.

2. Your app is not very understandable, and the capture button is not easily accessible to the user. This is where you must listen carefully to user feedback and, if needed, apply the necessary changes to your product.

3. The app does not meet the customer’s needs, satisfaction is very low, and sales are not in good shape. This is where you must go back to the customer and examine various topics with them to find the problems.

These outcomes show the importance of customer development and how it can help you at every stage of the product. So be sure to put the different parts of customer development in your work cycle so you get more precise, more effective results with less cost and effort.

Customer creation

This stage will not exist without the two previous stages. Customer creation means reaching a larger range of customers. After you have discovered and validated them, you get a correct understanding of the people who use your product and also where you can find them. Now is the time to strengthen your marketing and follow these steps:

• Get ready to launch the product. Getting the product name spoken in various media is very important, and for that it is enough to design a precise, orderly media strategy. With this plan you will be able to get in touch with the media and with your customers who are your target audience and put your product in front of them. These are all influencers of your product’s consumers, who are satisfied with using your product and also recommend it to others, especially on social networks. They are key and essential people for your sales. So make sure you present your product to your audience through the right channels.

• Position your product. At this stage you need to decide which market you want to enter: a market that already exists, a niche market, a low-cost market, or an entirely new market. After you have identified your direction, you either have to stick to a set of rules and follow them (for existing markets), or invest in your own unique new methods and introduce yourself to your customers with a new strategy (for new markets). This is the stage where you have to guess what the best thing is for introducing your product.

Read more: Product positioning + Basecamp case study

• Launch your product. At this stage you are going to engage specialists and enthusiasts in your product domain with the help of public relations. You must avoid small mistakes and watch all of your behavior when facing your audience. That is why you need a step-by-step launch strategy. This is where the result of the work is seen based on the quality of your presentation to the audience.

• Create demand for your product. You may have thought that after an official launch and making noise in various media you no longer need to create demand in your audience. The truth is something else. On average an American family buys 150 of the same items in 85% of their purchases. Do you think changing this habit is simple? It is not. That is why you have to take a few steps further and create demand. There are various strategies that help you in this:

  • limited-time offers

  • advertising teasers

  • various campaigns with the help of user-generated content

  • exclusive sales

  • other items

Customer creation is the sum of executing various strategies, implementing work plans, and starting real sales. I agree this work is not simple, because you have to define your customer and product correctly. It is certainly a time-consuming process, and to succeed at it you need a great deal of effort from your side. So be ready.

Case study

Back to the selfie-drone example. To start the customer-creation process you first need to form a marketing team that understands your plan and understands the real value your product creates. This work lets you develop a media strategy for reaching customers and target audiences through the right channels. For example they might publish news of your product launch on sites such as Businesswire.com, Neurala.com, DPreview.com, and Personal-drones.net. They might even ask some people on YouTube to use your product and publish their opinion after using it.

Finally your product has entered its niche market. A market that has competition of its own size. So product positioning should include capabilities that separate your product from similar products and differentiate it. For this you need a sentence for yourself: a light selfie drone that flies twice as long as other selfie drones. With this sentence you show your audience that your product flies more than all similar products.

One way you can create demand for your product is asking your audience to produce content. For example you ask your audience to send videos of working with your product. This content attracts more people’s attention to your product and causes many more people to become familiar with it. That is what GoPro cameras did, and the result was astonishing.

Company building

This part is the last stage of the customer development process in marketing, which turns a startup into a grown, large company. At this stage your focus changes from research and knowing the product and market to long-term planning and developing the company mission. Of course this is not something that forms by itself. It is you and your team who have command of company management and can plan its program. This is a serious change that requires step-by-step action from you. A few points on this are provided below.

Reaching the customer

In the previous 3 stages you tried to reach an early audience for your product who were looking for a fast solution to their problem. But these people may make up only 5 percent of your total market. Now you have to widen your circle of customers and introduce the product to mainstream customers. To reach this goal you need to hire suitable sales managers who know customer psychology:

• Your mainstream customers are not looking for a fast, instant solution. They are looking for a reliable, trustworthy product.

• They are not influenced by reviews from your early audience. They look for the opinions of people like themselves and trust them more.

• They stay with you longer compared with the early audience, because early audiences are always looking for newer products.

Build your mission

Let’s look together at PayPal’s mission—to build the easiest, most secure, and most affordable payment solution in the world. After reading this mission you easily become familiar with PayPal’s vision and goals even if you do not work there. And that is what you also need to find for your company.

A mission gives your employees a better understanding of where you are moving toward and specifies the reason for the work they have to do. This is a goal that unites people so that with each other’s help they reach success faster. That is why you must find your mission.

Review your management structure and company structure

Building a product with creative employees who spend long nights with a great deal of interest and passion fixing product problems and improving the user experience is an exciting experience. But if you want to take your business one step further, make sure they are also ready for this growth and getting larger, and that they stay with you on this mission.

You also have to make sure that the people sitting behind the company’s steering wheel are trustworthy, reliable, planners, and agile. If you can get help from your company’s board on this and review your management staff, you can make better choices.

Form your departments

In a startup environment, people at the beginning of the path usually do a wide variety of work, especially work that is not in their area of expertise. But when you are building your company for growth and development you can no longer continue this way, because you cannot look for local, short-term solutions. I suggest you go through the following stages:

1. Create departments based on your main mission

2. Describe each department’s responsibilities precisely and clearly

3. Develop internal, smaller missions for each department that cause them to focus

4. Create a culture of fast response to problems from the very beginning of activity

Make sure everything is agile

Bureaucracy and depending on other parts is a large obstacle to your growth. In contrast, these two things slow down company processes and also development, which in the end destroys agility. To prevent these situations, make sure your employees have the ability to decide on the spot at the time of an incident and do not wait for solutions from high management levels.

This method is called decentralized management, which leads to sharing, working in a larger team, and also becoming a leader. These internal company relationships must be formed on trust and mutual understanding, because only in that case can you keep your path of being agile.

Research shows that customer-centric companies earn up to 60 percent more profit than other companies that do not put their customers’ views at the center of their attention and planning. Evidence of this is companies such as Zappos and Amazon, which have spent millions of person-hours of their staff on knowing their customers more precisely so they can understand their problems and find suitable solutions for them. These numbers and facts show the high importance of customer development in a business.

Read more: What does good product strategy look like? + Snapp case study

Customer development tools

After you have left the building where you work, you need tools for a better understanding of customer development. Below are common tools that various companies use for their customer development:

Customer interviews

A little earlier we also talked about the importance of a real, face-to-face conversation with the customer. Talking is the main, reliable way to collect information from users. An interview can also be held by phone or online call. Depending on what goal you have in this interview, you should choose the best method for doing it. The most important thing to remember is that you should always be prepared before the interview, and during the interview focus more on what users do than on what they say, and try to be a good listener.

Experimenting

Try to test different strategies for creating demand for your product. Produce as many different MVPs of your product as you can, and do not be afraid of experimenting.

A/B testing

Involve your customers in everything. Especially when you want to choose one of two topics. Suppose you are confused and unsure whether to put the select button in the upper section or the lower section. The best solution is what the customer shows you. So involve the customer in this decision. Because you build the product for the customer, not for yourself.

User support

Use chatbots, video chat, and other customer-communication platforms. These tools optimize your processes and speed up customer development.

One point that can help you is using different tools at different stages of building and developing the product. Using ready-made products helps you act faster and decide faster and more precisely. They are also more cost-effective for you.

Books for customer development

For a better, deeper understanding of this topic you can read the books introduced above. These books help you understand the real value of these processes and, by applying their operational points, carry out your customer development process well.

The Four Steps to the Epiphany by Steve Blank

In fact the first place customer development was talked about was this book. So I should say that as a product manager or business owner it is your duty to read this book.

The Lean Startup by Eric Ries

It is clear to everyone that the two concepts of lean startup and customer development are very close and tied together. So be sure to read this book, because knowing the points mentioned in it will help you in many stages of building and developing the product and the customer.

Lean Customer Development by Cindy Alvarez

This book helps a great deal with conducting interviews and validating the customer and the product. It is fair to say that it significantly increases your knowledge of customer development. So do not miss this book.

The Entrepreneur’s Guide to Customer Development by Brant Cooper and Patrick Vlaskovits

If Steve Blank himself says he recommends this book to every startup founder and business owner, he certainly knows how valuable it is. This book breaks the processes of reaching market and product fit into smaller stages and helps you a great deal in developing different MVPs to improve your marketing strategies.

The Mom Test by Rob Fitzpatrick

This book teaches you, in a foundational and precise way, how to talk with your customer so you get the data you are looking for accurately and in real form. This book is built on a great many examples and teaches you how to start and steer an interview so you get what you are looking to understand from the customer.

Before you enter the world of customers you should research how to do this correctly. So spend enough time strengthening yourself in this area.

The concept of customer development appeared in the 1990s and has helped tens of thousands of startups examine and launch their businesses. Customer development is certainly a powerful tool for you that you can use in any market you are in. Always remember that this process takes shape at the same time as your product development process. We do not recommend focusing on only one of these two, because it does not reduce your risk and instead slows you down. This is exactly the strategy that helps you work more smartly.

To read more articles on product discovery, click here.

Source: an article by a product manager at Product Tribe