Driving Corporate Innovation: Design Thinking vs. Customer Development

Startups are not smaller versions of large companies, but interestingly we see that companies are not larger versions of startups.

I’ve been spending some time with large companies that are interested in using Lean methods. One of the conundrums is why does innovation take so long to happen in corporations? Previously Hank Chesbrough and I have written about some of the strategic issues that impede innovation inside large corporations here and here.

Two methods, Design Thinking and Customer Development (the core of the Lean Startup) provide the tactical day-to-day process of how to turn ideas into products.

Design Thinking HBR page                                   Why the Lean Startup Changes Everything page

While they both emphasize getting out of the building and taking to customers, they’re not the same. Here’s why.

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Urgency Drives Innovation Speed
Startups operate quickly – at a speed driven by the urgency of a proverbial gun-to-their-head called “burn rate.” Any founding CEO can tell you three numbers they live and breathe by:

  • the amount of cash left in the bank
  • their burn rate (the amount of money they’re spending monthly minus any revenue coming in) and
  • the day they run out of money and have to shut the doors (or get a new round of funding.)

If you’re a founder, there’s a constant gnawing fear in the pit of your stomach that it will all end badly; running out of money, having to fire all your employees and failing publicly. (Whoever says, “Failure feels OK in startups has clearly never run a startup.)shutterstock_170739491

A startup CEO adroitly translates this urgency to their employees not with reminders of “we’ll all soon be out of jobs,” but with a bias to action – making measureable progress in getting minimum viable products in front of customers, beating competitors, getting users/customer quickly, and generating revenue. Startups build a culture of commitment and drive to make things happen.

In large companies, the employees are no less smart, but the organization is optimized to deliver repeatable products, revenue and profits. To support this, its corporate culture is dominated by process, procedures and incentives. In large companies, even the most innovative projects (whether it’s process innovation, continuous innovation or disruptive innovation) are not going to make or break the company – and employees know it. Canceling a project may frustrate the team members working on it but unlike in a startup, they still have their jobs, offices and houses and the company won’t close. Attempts to instill urgency via a gun-to-the-head philosophy are frowned on by Corporate HR. All of this adds up to a “complacency culture” rather than an “urgency culture.”

Customer Development versus Design Thinking
This real sense of urgency—and how it shapes employee attitudes and practices – is a big reason why innovation processes in startups are different from those in large companies. One of these processes is how startups versus companies learn from customers. It’s the difference between Customer Development versus Design Thinking.

Customer Development and Design Thinking share similar characteristics in exploring customer needs, but their origins, differences and speed in practice are very different.

I invented the Customer Development process trying to solve two startup problems. First, most Silicon Valley startups were (and primarily still are) technology-driven. They are founded and funded by visionaries who already have products (or product ideas based on technology innovation) and now need to find customers and markets. (Think of the early days of Intel, Apple, Cisco, Google, Facebook, Twitter, etc.) Second, burn rate and dwindling cash meant startups had to find these customers and the attendant product/market fit rapidly – before they ran out of money. These two characteristics– a technology-driven product already in hand and a need for speed– drove the unique characteristics of Customer Development. These include:

  • Moving with speed, speed and did I say speed?
  • Starting with a series of core hypotheses – what the product is, what problem the product solves, and who will use/pay for it
  • Finding “product/market fit” where the first variable is the customer, not the product
  • Pursuing potential customers outside the building to test your hypotheses
  • Trading off certainty for speed and tempo using “Good enough decision making
  • Rapidly building minimum viable products for learning
  • Assuming your hypotheses will be wrong so be ready for rapid iterations and pivots

Design Thinking also focuses on understanding the needs of potential customers outside the building. But its motivations and tactics are different from those of Customer Development. Design Thinking doesn’t start with a founder’s vision and a product in-hand. Instead it starts with “needs finding” and attempts to reduce new product risk by accelerating learning through rapid prototyping. This cycle of Inspiration, Ideation and Implementation is a solutions-based approach to solving customer problems.

Design Thinking is perfectly suited to situations where the process isn’t engineering-driven; time and money are abundant and the cost (and time) of a failure of a major project launch can be substantial. This process makes sense in a large company when the bets on a new product require large investments in engineering, a new factory or spending 10s or 100s of millions on launching a new product line.

But therein lies the conundrum. Because of the size of the dollars at stake (and your career), lots of effort is spent to make sure your understanding of the customer and the product is right. At times large companies will drag out these design-thinking investigations (prototype after prototype) for years. Often there is no place where urgency gets built into the corporate process. (Just to be clear this isn’t a failure of the process. Urgency can be built in, it’s just that most of the time it’s not.)

Design thinking vs cust dev

Both Models Work for Large Companies
There is no right process for all types of corporate innovation. In a perfect world you wouldn’t need Customer Development. No corporate R&D would happen before you understood customer problems and needs. But until that day, the challenge for executives in charge of corporate innovation is to understand the distinction between the two approaches and decide which process best fits which situation. While both get product teams out of the building the differences are in speed, urgency and whether the process is driven by product vision or customer needs.

In one example, you might have a great technology innovation from corporate or division R&D in search of customers. In another, you might have a limited time to respond to rapidly shifting market or changing competitive environment. And in still another, understanding untapped customer needs can offer an opportunity for new innovation.

Often I hear spirited defenses for Customer Development versus Design Thinking or vice versa, and my reaction is to slowly back out of these faith-based conversations. For large companies, it isn’t about which process is right – the reality is that we probably haven’t invented the right process yet. It’s about whether your company is satisfied with the speed, quality and size of the innovations being produced. And whether you’re applying the right customer discovery process to the right situation. No one size fits all.

There’s ample evidence from the National Science Foundation that Customer Development is the right process for commercializing existing technology. There’s equally compelling evidence from IDEO the Stanford D-School and the Biodesign Innovation Process that Design Thinking works great in finding customer needs and building products to match them.

Lessons Learned

  • Customer Development and Design Thinking are both customer discovery processes
  • Customer Development starts with, “I have a technology/product, now who do I sell it to?”
  • Design Thinking starts with, “I need to understand customer needs and iterate prototypes until I find a technology and product that satisfies this need”
  • Customer Development is optimized for speed and “good enough” decision making with limited time and resources
  • Design Thinking is optimized for getting it right before we make big bets

23 Responses

  1. I agree with the thesis of this article. On a similar track I have written a paper on why radical innovation does not work in large companies and how they may improve odds by looking towards entrepreneurs and their methods.

    Steve, I would welcome your help in pairing up my large company perspective on radical innovation with the Startups perspective you have to write a HBR style article which will appeal to both large company executives as well as startup entrepreneurs!

  2. […] the full blog post by Steve Blank on his […]

  3. Disagree.

    And a lesson learned from the commercialization of design thinking into a consulting practice –

    Design “Thinking” didn’t start as a bloated, lengthy process. It was attractive to corporates because it felt quick, experimental, and helped an innovation team speed up time to market.

    It became that way over time – I’m guilty of this, having been at a design consultancy during the era when we all grew from just industrial design studios to do innovation consulting.

    The other factor in a corporation is the decision committee, the investment committee. The senior execs that sit in the room during the phase gate review process and decide go/no go. When this team has not been conditioned for rapid response decision making, and risk analysis, this is what slows the innovation team down, and sends them back to another round of prototyping.

    I get why it’s provocative to say Design Thinking is Vs. Customer Development, but both methods need each other. Design Thinking can be infuriating if it drags on for too long without the constraints of business model and the urgency of outcome. Customer Development can fail to tap into our deepest needs and solve for complex problems when the process is rushed and the queries only get to superficial pain points.

    Customer Development needs Design Thinking, and that’s still not enough of a process to transform a company with a broken innovation process.

    Lean/Customer Development gets stalled in the enterprise in the same way when these processes have not been built, when the new methods for risk/opportunity decisions have not been equally aligned to the lean process. That’s where we have to start, or Customer Development will suffer the same plight as Design Thinking.

  4. Thank you for this post Steve Blank. I work in a corporation in El Salvador in Central America. We are looking for the best methodologies and processes to innovate and we use customer development and Running Lean methods from Ash Maurya. I find Ash Maurya’s proposal a good approximation to Design Thinking because he suggests to strart from customer’s needs which is the first component of his canvas. And we validate the canvas with customers inteviews and we try to make rapid validation (Which sometimes, as you said, is difficult to motivate the urgency culture)

    Moreover, we sometimes have to apply some of the techniques Design Thiking propose, in the inspiration part, because validation for big companies implies more than finding customers. We have to set the context of regulations, tendency, competition, entry barriers and how the innovation will fit into corporate strategy.

    I would love to receive your answer about this comment. Then I hope we keep learning together.

    But again, thank you to share these articles with your readers.

  5. Hi Steve – A very informative and clear discussion. What do you think about a situation in which the output is not a product, but rather what is today called a customer experience — e.g. a web site and/or mobile app (that might be the vehicle for marketing and selling a product or service)? For example, say a hotel chain wants/needs to radically rethink their web sites and other digital channels. It seems to me that they don’t need to decide to use Customer Development *or* Design Thinking, but rather how to combine the two. That is, the business stakeholders have a good idea of what the digital experience could/should offer (i.e., they have something akin to a founder’s vision), yet they also need to test and verify this vision against real customer desires and preferences (i.e., they can’t jump over or neglect customer needs, and these always trump the vision).

  6. Great stuff Steve I loved the video

  7. Other crucial factor to overcome in the corporate environment for the innovation can flourish is the “time allocation factor”. Most corporations are focus in keep the short term goals as priority and forget about the strategic long terms goals. The innovation programs usually fall in this second category.

  8. In my humble opinion i think Customer Development needs of Design Thinking to develop a suitable learning environment to understand the real problem/need of our customer, strengthening the value proposition in order to reach the customer / problem / solution fit as fast and accurate as possible.

    How I view it, Design Thinking its a human centered tool that use your creativity in a systematic, productive and agile way in order to achieve fuzzy goals, and Customer Development its a Lean methodology to fulfill business opportunities as fast and optimized as possible in an uncertainty environment.

    That means you can use Design Thinking as an iterative cycle of deep learning as Empathic/Define/Ideate/prototype/experiment/learn a bit more structured than Lean one (Build, experiment, learn) or you can match both DT and Customer Development:

    Understand – First Business Model Canvas as your first hypothesis
    Empathize – Empathic Map, Customer Journey (again update Business Model Canvas)
    Define – Validation Board (Experiment Board) customer/problem fit (again update the canvas)
    Ideate – Business Model Canvas, building problem/solution fit with all the feedback you got.
    Prototype – Build prototype PITCH MVP.
    Experiment – Validation Board (EB) solution/customer fit (update canvas)
    Implement, learn, evolve – Build MVP concierge and so on until you achieve the product/market fit.

  9. I don’t see the ah ha in this article. Understanding basic consumer needs and interests prior to engaging in product design/development is an age-old practice, cultivated in large part by communication agencies that focused on ethnographic research prior to determining what and how to communicate with a client’s customers. One area I would agree with is the corporate vs. start-up speed to market issue. Perhaps if corporations established defined spending levels upfront (akin to a VC placement), offered substantial upside to qualified employees (beyond just current comp) and told them it’s your job (literally) to spend it wisely this might influence a faster track.

    • Barry,
      Apologies – the post assumes some prior knowledge of customer development and/or design thinking. The age-old practice of communications agencies doing ethnographic research is the antithesis of both customer development and design thinking.

      Both methodologies eschew having 3rd parties as intermediaries in the process. Neither of the processes are focus groups done by proxies.

      A key element of these customer discovery processes is the ability to test hypotheses and then iterate or pivot (make minor or substantive changes to the business model) when the data doesnt match the initial hypotheses. This is near impossible to do with agility and speed through a proxy.

      If you have some interest in learning the nuances of the customer development process go take a look at the Four Steps to the Epiphany.

      best,

      steve

  10. Great piece. I have found your teachings handy and of recent i have been iterating and pivoting often.

  11. Steve,

    Long time Lean acolyte. I’d like to make the point that for the growing class of bootstrapped startup, the definition of Lean is changing. Just as 5 years ago startups were cheaper and easier to build than 20; the cost of starting up is decreasing at an ever increasing rate.

    The frustration for me comes from the inability to gather data for the Build-Measure-Learn cycle when there are too few users to “Learn” from. I think that a lot of startups today would benefit from a stronger emphasis being placed on incorporating inbound marketing prior to launch.

    As the cost of startups continues to plummet, the next generation of founder will be younger and poorer. I think thats a beautiful thing. But some caveats coming from the top on building your audience prior to launch would be helpful.

    I built my startup for $76.25 not because I wanted to, but because I needed to. Assuming a “lean” ad buy of $1000 to gather a small N for a closed Alpha BML cycle means a half months rent in San Diego. I’d love hear you opinion on this changing definition of lean, and what strategies you’d recommend for the coming groundswell of bootstrappers.

    Verily,

    Matt

  12. […] is a thoughtful piece by Steve Blank, a prolific author and teacher of things innovation. (He is considered a founder of the lean […]

  13. Steve,

    I have incorporated Systematic Inventive Thinking (SIT) into the Customer Development process as a means of “perfecting” MVP.

    SIT maintains that all innovations follow five templates (subtraction, addition, multiplication, task unification, attribute dependency). After introducing the concepts to the class. I show them 6 brief videos of recent start-up companies and ask them to classify them according to SIT. I then have them classify their “solution” to their validated problem. I suggest their solution is not innovative if they can’t match it to a SIT template.

    In addition, I have them create alternative “solutions” using the other 4 templates. This exercise helps remove the tendency to be fixated on their initial solution. Here is a blackboard video showing this exercise: http://www.screencast.com/t/Kb4fkzwREo.

    I posted a longer version of this post at the “LeanLaunchPad Educators LinkedIn Group.

    Chip

  14. Hi Steve, thanks for sharing your thoughts on the relationship of this two concepts, I think we are still understanding if they complement or substitute each other.

    Recently there was a hangout by Google Ventures, where both concepts where exposed as complementary: https://plus.google.com/u/0/events/c7s35s2c9ul70i8dub7nkj74a1o

    Also, there are consultancy firms that see them as overlapping in the process: http://secure.nordstrominnovationlab.com/pages/our_process_told_as_our_team_s_timeline

    What do you think of this approach?

  15. […] instance, Steve Blank compared recently Design Thinking with Customer Development. First I was surprised by the way Mr Blank was describing Design Thinking from a pure business […]

  16. Hi Steve,

    Thank you for this post.

    From my understanding and practice I’ve came to the conclusion that Design Thinking is perfect for projects where understanding true people needs and inspiration is critical for success. I think about great causes, public projects, long term society changes. Customer Development, as you stated it, is to sell a product.

    Design Thinking requires ethnography, history, art, philosophy, science, sociology experts. It requires multidisciplinary teams in a much broader sense than just Marketing + Sales + Engineering.

    I still don’t understand why large commercial companies would want to give a try to Design Thinking, unless they want to literally change the world. But I would really want our government and ONGs give it a try !

    Best,
    Sébastien

  17. […] faculty think about innovation and product development (zoom in on the figure here; sourced from this Steve Blank blog post).  If Steve Blank’s 30-minute video doesn’t give you enough information to imagine […]

  18. Great read. Traditional design thinking tends to leave out technology as part of the reason why new opportunities to add to human happiness are possible …But not Customer Development or Design Driven Innovation – wrote about it here http://necrophone.com/2013/10/23/thinking-design/

  19. My relatives all the time say that I am wastin my time here at
    web,but I know I aam getting familiarity everyday by reading such pleasant content.

  20. […] Cycle is the foundation of frameworks for innovation and entrepreneurship, such as design thinking and the lean startup methodology. Both of these focus on defining problems, generating solutions, building prototypes, […]

  21. Thanks for this post. You’re spot on that without a startup’s “death clock” ticking, corporate teams will almost always be slower.

    I often straddle the line between both worlds, since my company maintains training programs for both Design Thinking and Lean Startup. This can sometimes be a challenge depending on which “church” you belong to…

    I’ve found it helpful to speak about Design Thinking as helping teams discover where to begin (what), and Customer Development as helping teams move quickly with purpose (how). When used together, it’s a potent combination, not need to sweat the dogma…

  22. […] is a thoughtful piece by Steve Blank, a prolific author and teacher of things innovation. (He is considered a founder of the lean […]

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