Customer Development for Web Startups

Customer Development is a technique startups use to quickly iterate and test each part of their business model.  How you execute Customer Development varies, depending on your type of business. In my book, “The Four Steps to the Epiphany” I use enterprise software as the business model example.

Ash Maurya, the CEO of WiredReach, has extended my work by building a model of Customer Development for Web Startups.

I think his process models are pretty good. Go read both of his posts on Discovery and Validation for web startups. His two key slides are at the end of this post but the details on his blog are worth reviewing.

Customer Development In Context
Your startup is an organization built to search for a repeatable and scalable business model.


Your job as a founder is to quickly validate whether the model is correct by seeing if customers behave as your model predicts. Most of the time the darn customers don’t behave as you predicted.

Customer Development is the process startups use to quickly iterate and test each element of their business model. Agile Development is the way startups quickly iterate their product as they learn. A Lean Startup is Eric Ries’s description of the intersection of Customer Development, Agile Development and if available, open platforms and open source.

Diving into the Customer Development diagram inside the diagram above, we see that the first two steps, Customer Discovery and Customer Validation are all about iteration and testing of your business model.

How you actually do Customer Discovery and Validation depends on what type of business you are in. What makes sense for startups selling Enterprise Software may not work for startups on the web. Therefore you need different versions of the actual steps of Customer Development for different types of businesses.

The Customer Discovery step for Enterprise Software Startups
The first step in the Customer Development is Customer Discovery: testing your hypotheses. The flow for Customer Discovery for an enterprise software company was described in the Four Steps to the Epiphany. It looked like this:


.

The Customer Discovery step for Web Startups
Ash Maurya‘s version of the Discovery step of Customer Development for a web startup looks like this:

.

Customer Validation for Enterprise Software Startups
The next step in the Customer Development process is Customer Validation – making sure that there really is a repeatable and scalable revenue and business model before you turn up your cash burn rate.  My version of Customer Validation for an enterprise software company looked liked this:

.

Customer Validation for Web Startups
Ash Maurya‘s version of the Valdiation step of Customer Development for a web startup looks like this:

Lessons Learned

  • A startup is an organization built to search for a repeatable and scalable business model.
  • Customer Development is a technique startups use to quickly iterate and test each part of their business model.
  • You need different versions of the actual steps of Customer Development for different types of businesses.
  • This post illustrates a version of Customer Development for startups on the web.

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42 Responses

  1. Steve – Thanks for presenting this. It’s very helpful in organizing priorities.

    Graham

  2. I love it!!!, i think customer development is the right way/only way to go in today’s web innovations.

    “Your startup is an organization built to search for a repeatable and scalable business model.” – true, its a company, not a product…we need to remember it :)

    Thank you Steven and Ash

  3. I think that taking the Customer focussed approach from outset is definitely the way forwards.

    If you truly want to be able to build a sustainable business or product that people want you absolutely must engage with them at all stages of development.

    You may end up with a different product/service then you intended but you will have a lot of happy Customers who have a usable product.

  4. Steve, great post. Here’s one I’d love to see you write. I’ve gone back and read almost all of 2009 on your blog, so I don’t think I missed it, but if I did, I’ll apologize in advance.

    I’d love to see you write, in your storytelling mode, what these meetings with prospective customers look and sound like in customer development.

    In other words, when do you bring up pricing? How far do you go in getting commitment? How can you weed out the people who will say yes but honestly won’t write a check to buy the product later?

    I say this only because I followed an admittedly lightweight version of this model for a recent idea and had lots of excitement, even when I talked about pricing, until it came to the actual point of writing the doggone check. :)

    Maybe there’s no way to avoid that, but I love your war stories so I figure you might have a few in that regard.

    Thanks again for this blog. One of the best I read on “the rubber meeting the road.”

  5. Very enjoyable post. As a product management professional, I’m very interested in finding and working with web startups that embrace practice of this model.

    I’m particularly interested in NYC-based firms, but I’d love to know about ones elsewhere as well.

    Steve or anyone reading this post — do any particular startups come to mind?

  6. I just started to read your book and a question came up.

    I have seen a lot of small companies with _terrible_ products that make a lot of profit because they found a good way to sell.

    If they changed their product to meet customer demand they wouldnt make a profit any longer.

    For them its all about out-powering the smaller guys marketing departments.

    Is it correct that this model should be used if your goal is to create a great product, but not if your only goal is to profit?

    • Explain to me how that works. You’re saying they wouldn’t make a profit if they made the product better to meet customer demand?

      I’d think their profits would explode…but I’m sure you have a good reason for saying they wouldn’t and I’m curious.

  7. [...] Customer Development for Web Startups « Steve Blank. Categories: Startups Comments (0) Trackbacks (0) Leave a comment Trackback [...]

  8. Steve,

    Great stuff as always. I look over my shoulder every time I read your examples of “how not to do it”. We’ve made all these mistakes!

    For those of us with telecoms ambitions, do you or anyone else see a difference in the evolution between web, enterprise and carrier grade (telecoms) startups.

    My friend thinks that embarking on a moon mission is probably easier than getting into a mobile telecoms network.

    Discuss!

    J

  9. Steve,

    One other suggestion. This blog is a fantastic addition to the entrepreneurial blogs I follow. I’d strongly suggest you consider using Disqus for your comments. That really drives conversation and it will drive a lot of traffic from others in the community.

    I have no ties, financial or otherwise to Disqus, but it’s great. Just pop the plug-in into WordPress, and it will copy all of your existing comments in. It also double-stores your new comments back to WordPress, so if you ever kill Disqus, there’s zero work involved.

    Just a suggestion. Thanks again for your great contributions to this community.

    Aaron

    • Discus is extremely glitchy and slow. If it is not broken, do not fix it, especially with Discus.

  10. I have met a few who attempt to articulate these concepts, but I have never seen such a thorough explanation for a roadmap to success as Steve’s. I currently work in very large Enterprise Information Systems as a lean six sigma practitioner, and also attempting a startup of my own. In my experience these principles hold just as true within an enterprise setting as they do for a startup.

    Thanks for such a great sharing of knowledge, and for being an inspiration!

  11. [...] … sounds an awful lot like Steve Blank’s Customer Development methodology and Eric Ries’ Lean Startup concept which both take a very similar iterative and [...]

  12. @Aaron
    Will try to explain.

    A company offers a service online. Its a service people dont know much about. But if I ask people about it, they say “It costs no more than 10 dollars” or “its free”.

    The service can be found for free online as well.

    But the small company takes over top 10 on google for a relevant keyword. So the free options that people are looking for and thought existed cant be found. They find other stuff and an an online shop.

    And they start charging 200 dollars for the service.

    They are not doing anything illegal. They just charge for it and do serios seo along with buying up any pages that manages to come up to top 10.

    I cant see how they can improve the service/product. Its not possible to improve. The could get out of the business or stay in and charge a lot.

    Its like you sell water on the beach. But 10 meters ahead they give it away for free. All you do is to block the free stand. You cant improve water (well lets pretend you cant and cant offer nice chairs or something else either).

    So if I had had vision about this product/service and had done a cusomer develepment process, I feel like I wouldnt have started the company. Even though its highly profitable.

    I also saw a movie called beer wars, a documentary. The message was that big beer companies had bad products and smaller guys had quality products. But the big guys sold more because they had a very strong marketing team.

    I mean, with strong marketing you could be profitable with any shit product. But how will you for example find earlyvangelist for shit products? And if you cant do that, you will cancel your product even if it would be profitable.

    • I hear you. But ultimately, I don’t think this is much of a business. It’s more of a temporary distortion in the market. I predict with that approach, they won’t be in business for long and certainly won’t grow or thrive.

  13. Qestion…When following the customer development model, how often do you have to interpret customer wants into customer needs. I find it pretty common that customers present their wants in terms that they understand. Their wants being a solution to some underlying need that they cannot always articulate well. Do you find often that there is another solution to the need that they respond even better to than their original want?

  14. Steve:

    one question – What are web site viewers (social gamers, free app users etc.) in this model? Are they “Customers” or “Product”? My feel is that they are “product” to be later sold to advertisers (if business model is ad-based) or maybe “product feature” (if it is some sort of freemium model) that adds value to the few paying visitors / users.

  15. [...] code to avoid bugs and over-head for maintenance, we must never forget start-up is always about try-and-error on your business model, which means it’s better to get the product out-of-the-door asap to test your idea and [...]

  16. [...] marketing, I actually mean “customer development” (as Manu pointed out in the comments). I mean the founder has to know how to sell. This means [...]

  17. No matter what business your in, you will never have a chance at success if you don’t start with a customer.

    Nice piece!

    Tommy Jaye

  18. I really like to know how the Customer Development model applies to free websites and mobile applications that generate revenue from ads (i.e. Facebook). are there any resources I can refer to?

  19. [...] Here’s a link to the original article where I read the quote in the headline. VN:F [1.8.4_1055]Rate This Post!please wait…Rating: 0.0/5 (0 votes cast) Share and Enjoy: [...]

  20. Steven, I really enjoyed your book, “The Four Steps To Epiphany”. I’m curious to find out what you recommend I use to document my hypothesis and asumptions in the Customer Discovery step? Is there any tools that document this step? Or do you use MS Word and if so, is there a MS Word template to follow?

    Thanks!

  21. I am new to Customer Dev but pretty well seasoned in RAD, iterative methods, etc etc. Reading through the Epiphany book, I just could not get out of my head: so when do we touch the keyboard? when do put the chisel against the marble? The Customer Development checklist seemed like just as involved a process (though with a different focus) as traditional product development. And it kept on bugging me that how far and for how long potential customers give input without being able to visualize some draft version of the product (or service — we may say that web-based startup is really a service startup and this realization could open up other perspectives). I was about to take the Agile model and work on synthesizing it with Customer development.

    Ash has saved me the effort. Thanks.

    A question: Would you see Steve Jobs using this approach? I mean, not him personally, but would you see an iPhone or a iPad innovation emerge out of this type of exercise?

  22. [...] published in July of 2001. It was interesting to me to re-read it in light of Steve Blank’s Customer Development and the Problem Team in Lean [...]

  23. [...] than anyone else anywhere.) Blank outlines a method called customer development.  In his words: “Your startup is an organization built to search for a repeatable and scalable business [...]

  24. [...] market he was looking at.   I was pleased he was using things like the Steven Blank’s Customer Development model—he really understood his market.   But now he’s in the process of trying to [...]

  25. [...] Boyd Posted on January 8, 2011 by todd In NUvention web, we focus on two primary methodologies: Customer Development, popularized by Steven Blank in The Four Steps to the Epiphany ; and agile development, synthesized [...]

  26. [...] on moving from customer problems to design proposition; after last weeks lecture by Mike Marasco on customer development, and an excellent and well received presentation by Suneel Gupta on tools and iterating the product [...]

  27. [...] I’m a huge proponent of customer development as the most important requirement before idea development. That is, “getting out of the [...]

  28. [...] For all these reasons we have decided to grow Kodesk as a Lean Startup, following the principles of Customer Development, which for us implies three main [...]

  29. [...] have been a sponge for the latest Customer Development practices and related problem/solution testing for application development. However, today I feel [...]

  30. [...] to Steve Blank customer development is “the process startups use to quickly iterate and test each element of their business [...]

  31. [...] that in the first quarter, students have difficulty understanding how to connect the dots between customer development, value proposition creation, contextual design, minimum viable product, and agile [...]

  32. [...] presented in the report, the main ideas tested in the research were based primary on Customer Development Model (developed by Steve Blank), and 5 other first order dimensions of the ontology: Product [...]

  33. [...] planning a startup and preparing a new business for success. I strongly recommend taking a look at Customer Development for Web Startups by Steve Blank; I’ve heard from more than a few failed and successful startup founders alike agree that customer [...]

  34. [...] planning a startup and preparing a new business for success. I strongly recommend taking a look at Customer Development for Web Startups by Steve Blank; I’ve heard from more than a few failed and successful startup founders alike agree that customer [...]

  35. Very informative – The charts made it that much more interesting and easy to understand. This is a great post very useful specially for startup junkies like myself. Thanks Steve

  36. [...] de motivaciones, preferencias, opciones…etc). Para ello nada mejor que adoptar la filosofía “Customer Development” de Steve. S. Blank, que basa su estrategia en abandonar la “estrategia de pizarra” y salir [...]

  37. [...] compléter votre lecture – Je vous conseille de vous pencher sur la question du Customer Development (Steve Blank). Guilhem en parle également très bien dans un article de blog [...]

  38. [...] Customer development teaches us that elements of the MVP are often based on flawed assumptions.  As we validate and refine our assumptions, we need to make sure that the MVP is tracking to these new facts. [...]

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