1. Customer Development in the
High Tech Enterprise
MBA 295-F/EMBA 295-F
Customer Development
Steve Blank
sblank@kandsranch.com
1

2. Class 3: Agenda
Logistics/Questions

CASE: E-Ink

Product Development

Boyd & the OODA Loop

Customer Development

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 2

3. If
Startups Fail from a Lack of customers
not Product Development Failure
Then Why Do we have:
process to manage product development

no process to manage customer development

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 3

4. Product Development Model
Concept/ Product Alpha/Beta Launch/
Seed Round Dev. Test 1st Ship
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 4

5. What’s Wrong With This?
Product Development
Alpha/Beta
Concept/ Product Launch/
Test
Seed Round Dev. 1st Ship
- Create Demand
- Hire PR Agency
- Create Marcom
Marketing - Launch Event
- Early Buzz
Materials
- “Branding”
- Create Positioning
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 5

6. What’s Wrong With This?
Product Development
Concept/ Product Alpha/Beta Launch/
Seed Round Dev. Test 1st Ship
- Create Demand
- Hire PR Agency
- Create Marcom
Marketing - Launch Event
- Early Buzz
Materials
- “Branding”
- Create Positioning
• Build Sales
• Hire Sales VP
Sales Organization
• Hire 1st Sales Staff
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 6

7. What’s Wrong With This?
Product Development
Concept/ Product Alpha/Beta Launch/
Seed Round Dev. Test 1st Ship
- Create Demand
- Hire PR Agency
- Create Marcom
Marketing - Launch Event
- Early Buzz
Materials
- “Branding”
- Create Positioning
• Build Sales
• Hire Sales VP
Sales Organization
• Hire 1st Sales Staff
Business
• Do deals for FCS
• Hire First
Development
Bus Dev
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 7

8. 10 Things I Hate About
Product Development
Where are the Customers?
1.
The Focus on First Customer Ship
2.
Emphasis on Execution vs. Learning & Discovery
3.
No Customer-centric milestones
4.
Product dev. to measure Sales
5.
Product dev. to measure Marketing
6.
Premature Scaling
7.
Death Spiral
8.
Three Types of Startups
9.
Unrealistic Expectations
10.
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 8

9. Chasing The FCS Date
Sales & Marketing costs are front loaded

focused on execution vs. learning & discovery

First Customer Ship becomes the goal

Execution & hiring predicated on business plan hypothesis

Heavy spending hit if product launch is wrong

Financial projections, assumes all startups are the same

=
You don’t know if you’re wrong until you’re out of
business/money
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 9

10. An Inexpensive Fix
Focus on Customers and Markets
from Day One
How?
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 10

11. Boyd’s OODA “Loop”
Observe Orient Decide Act
Implicit Implicit
Guidance Guidance
Unfolding
& Control & Control
Cultural
Circumstances
Traditions
Genetic
Analyses &
Feed Heritage
Action
Decision Feed
Feed
Observations Forward Synthesis Forward
Forward
(Hypothesis) (Test)
New
Previous
Information
Outside Experience Unfolding
Information Interaction
With
Unfolding Environment
Interaction Feedback
With
Environment Feedback
Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback
and other phenomena coming into our observing window.
Competitive advantage comes from quickness over the entire “loop,” not just
from the O-to-O-to-D-to-A sequence.
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 11

12. Build a Customer Development Process
Product Development
Concept/ Product Alpha/Beta Launch/
Seed Round Dev. Test 1st Ship
Customer Development
? ? ?
?
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 12

13. Customer Development is as important
as Product Development
Product Development
Concept/ Product Alpha/Beta Launch/
Bus. Plan Dev. Test 1st Ship
Customer Development
Customer Company
Customer Customer
Discovery Building
Validation Creation
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 13

14. Customer Development is as important
as Product Development
Product Development
Concept/ Product Alpha/Beta Launch/
Bus. Plan Dev. Test 1st Ship
Customer Development
Customer Company
Customer Customer
Discovery Building
Validation Creation
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 14

15. Customer Development Heuristics
There are no facts inside your building, so get

outside
Founders in front of customers

Find a Market for the Product as spec’d

I.e Develop for the Few, not the Many

Learning and Discovery versus linear execution

Earlyvangelists make your company

Market Types Matter

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 15

16. Customer & Product Development
Synchronization
Product Development
Concept/ Product Alpha/Beta Launch/
Bus. Plan Dev. Test 1st Ship
Customer Development
Customer Scale
Customer Customer
Discovery Company
Validation Creation
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 16

17. Product Development
Product Development
Concept/ Product Alpha/Beta Launch/
Bus. Plan Dev. Test 1st Ship
But really, how does this work?
MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 17

18. Customer Development:
Big Ideas
Parallel process to Product Development

Measurable Checkpoints for the entire company

Not tied to FCS, but to customer milestones

Iterative to represent reality

Executed by a small team including CEO

MBA295-F Customer Development in the High-Tech Enterprise Spring 2009 18