Steve Blank

One of the ways I learn is to teach. My students ask questions I can’t answer and challenge me to solve problems I never considered. At times I’ll do what I consider an extension of teaching; a two-day Customer Discovery/Validation intensive session with a large corporation serious about Customer Development at my ranch on the California Coast.

My last session was with a passionate, smart, entrepreneurial team from a Fortune 100 company. (And if I told you who they were I’d have to kill you.) Their copies of the Four Steps were dog-eared and marked with sticky notes. We spent two days of analyzing and exploring their customer discovery visits just completed across South America, Africa and Asia. Learning which hypotheses survived these visits were eye-openers for all of us. We used what they learned to plan their next steps for additional Discovery, and ultimately Customer Validation.

It reminded me of the differences in Customer Discovery between a scalable startup and a big company. Here’s what we observed:

It’s Easier for Big Companies to Get Meetings – But It’s Not Always a Blessing
When a big company calls prospective customers to set up Discovery meetings, their datebook fills up fast. Execs at higher levels than you’d expect join the meeting eager to hear what the big company has to say about their industry. That’s the good news. The bad news is that the meetings become far more formal and more crowded, than one that a startup would have. This crowd actually dampens the opportunity for learning. Since the meetings attract senior execs everyone around the table waits for the big boss to speak and follows his or her lead. This stifles or shuts down the important “outlier” conversations that drive pivots and iterations in the discovery process.

Solution: try to get a blend of one-on-one meetings along with the group session. And be sure to set expectations for the meeting before it happens.

We’re Not Here for a Sales Call
If someone from a large company is flying halfway around the world to visit your company, your presumption is they have something to sell you. Crucial in the Customer Discovery process is not selling…it’s listening. The exploring, probing, gaining reactions is why you’re there. (Of course, if someone forces a purchase order on you and you reject it, you’ve just failed miserably at entrepreneurship.)  Disabusing the audience of the notion that the visit is a sales call is vital to the customer discovery mission. Followers of the Customer Development process know that you can’t start selling until you have transformed product, customer and other hypotheses into a validated business model and sales roadmap. (Short-circuiting that process is a major “foul” that often leads to premature business models and suboptimal sales results.)

To potential customers who’ve never been asked for their opinion before, the purpose of a Discovery meeting can be confusing. There are business cultures where the vendor/customer interactions are limited to “here’s what I have to sell, do you want to buy it.”

Solution: spend more time on the “setup” for the meeting. Tell potential customers before you meet, “We’re working on an interesting product and we’d be happy to share where we are in exchange for some feedback. But we are not here for a sales call.”

Getting the Customer to Talk is Even More Challenging
There’s no more important skill in Customer Discovery than “good listening.” When a big company shows up, everyone expects an important formal presentation, which is hardly your Discovery mission at all.  Structuring the conversation in a way that elicits feedback before you reveal the product hypothesis is essential to getting honest reactions, good or bad. Yet just reading your questions from a list is a real-turnoff. Insert them casually into a conversation and don’t try too hard to get every one of them answered in every meeting.

Solution: One of our favorite hints, from a great post by ash maurya, is to pose problems to the group in a randomized list. “We see these three problems in your industry.  Do you agree?  Could you rank them in order of importance to you?”  This literally forces a discussion and prioritization and is repeatable again and again. “We believe the most important features you need in a supersonic transporter are….” or “Our research tells us that female consumers most want a, b, and c.”

Big Companies are Bred for Large Scale Success
When you’re doing disruptive innovation in a multi-billion dollar company, a $10Million dollar/year new product line doesn’t even move the needle. So to get new divisions launched large optimistic forecasts are the norm. Ironically, one of the greatest risks in large companies is high pressure expectations to make these first pass forecasts that subvert an honest Customer Development process. The temptation is to transform the vision of a large market into a solid corporate revenue forecast – before Customer Development even begins.

Solution: Upper management needs to understand that a new division pursuing disruptive innovation is not the same as a division adding a new version of an established product. Rather, it is a organization searching for a business model (inside a company that’s executing an existing one.) That means you may find that revenue appears later than the plan called for, or that there are no customers or fewer than the plan suggests.

Customer Development Without Agile Engineering Is A Plan For Failure
Beleving in Customer Development but still retaining waterfall development for engineering and manufacturing is a setup for problems if not outright failure. Even in a large company you can’t do Customer Development without aligning some part of engineering to respond to unexpected customer needs and findings.

Solution: Get engineering buy-in by. Make sure the engineering and manufacturing plans “before” Customer Development don’t look the same as “after” Customer Development.

Spend your Way to Success Usually Results in the Opposite
Ironically large revenue goals may lead to largesse in overfunding the new division, with the implicit assumption that dollars can “buy your way to success.” All the money in the world doesn’t negate the painful search for a business model, or the lack of a scalable/profitable one. And new divisions in large companies operate just like startups who get overfunded – somehow their expense budgets always equal at least their funding.

Solution: Eight and nine digit funding before Customer Discovery is a curse not a blessing. Take the money in tranches (equivalent to VC “rounds”) predicated on milestones in finding a repeatable and scalable business model.

There’s an Overhead Cost to Being an Entrepreneur in a big, established corporation
Large companies are just plain organized – with rules, HR, finance and more importantly, are built around process and procedures for execution. It’s why so few big companies succeed at true entrepreneurship.

Solution: Assume as a given that as a new division head at least 15% of your time will be spent managing up and protecting down. Few in your own company will understand what you’re up to.

Lessons Learned

• Customer Development in large companies has it’s own unique challenges
• Some parts of being a big company make it easier, others make being a startup even riskier

Filed under: Corporate/Gov't Innovation, Customer Development, Teaching |