Nowadays most startups have a hard time for discovering their markets, locating their first customers, validating their assumptions, and growing their business.
A few succeed by inventing a 'Customer Development(CD) model'.
The model consists of four steps:
1. Customer Discovery
Focuses on testing whether a company's business model is correct, specifically focused on whether the product solves customer problems and needs (Matching product features and customers is called Market fit.)
2. Customer Validation
Develops a sales model that can be replicated.
3. Customer Creation
Creates and drives end-user demand.
4. Company Building
Transitions organization from the learning state and discovery to a well-oiled machine engineered for execution.
Fail to learn
It's important to mention the iterative nature of each step in the Customer Development model. That is because finding the right customers and market is unpredictable, and you will screw it up several times before you get it right, and that's normal. Don't fear it, embrace and pivot.
In traditional Product Development model, going backwards (meaning iterating on each step over and over) is considered a failure. At the same time, the CD model assumes it's OK to screw it up if you plan to learn from it.
Each of the 4 steps will take several iterations to do them properly. Finding customers doesn't happen in a nice linear fashion.
Notice the circle labeled Customer Validation in the drawing above has an additional iterative loop, or pivot, going back to Customer Discovery.
Customer Validation is a key checkpoint in understanding whether you have a product customers want to buy and a roadmap of how to sell it.
If you can’t find enough paying customers in the Customer Validation step, the model returns you to Customer Discovery to rediscover what customers want and will pay for.
An interesting consequence of this process is that it keeps a startup at a low cash-burn rate until the company has validated its business model by finding paying customers.
When to expand your company?
I often asked by clients, when should I hire a sales team, designers, projects managers.
The company shouldn't build its non-Product Development teams (sales, marketing, business development) until it has proof in hand (a tested sales roadmap and valid purchase orders) that it has a business worth building.
Once the proof is obtained, the company can go through the last two steps of Customer Creation and Company Building.
The Customer Development process represents the best practices of winning startups.
Get 'outside the building' to learn what real problems your customers have. Don't just collect feature lists from prospective customers, not is it to run lots of focus groups. Ask them about their experience, and listen. Each iteration is a way for your company to learn from customers.
Once you found a group of repeatable customers with a repeatable sales process, enough to yield a profitable business model, do move to the next step (scaling up.)
Brand building and heavy advertising make lots of sense when customers understand your product. However, in a new market, this type of product launch is like throwing money down the toilet.
Thank you for stopping by to read 🙏🏻 and have a great day!