Customer Development 4: Customer Discovery Part 1

Customer Development
in the High Tech Enterprise

MBA 295-F/EMBA 295-F

Customer Discovery: Part 1

Steve Blank
sblank@kandsranch.com

1

Agenda
Case: WebVan


Startup Hypothesis


Testing the Problem


Customer Development Team


Testing the Product Concept


MBA295-F Customer Development in the High-Tech Enterprise Spring 2009

Customer Discovery: Step 1
Customer Customer Customer Company
Discovery Validation Creation Building

Existing Market: 1 Month – 1 Year

Resegmenting a Market: 6 Months – 3 Years

New Market: 1 Year – 3 Years




Existing : 1-6 Months

Resegmenting: 3-12 Months

New: 1-2 Years


Methodology

Customer Development can take months or years


Each Step has a set of phases


Plan what you need to learn in writing so everyone knows:


 what they should be doing

 when they should do it

 If they succeeded

 If they need to do more

These are checklists, not the inviolable commandments



Before You Start

Board and Management Buy-In


Learning and discovery not execution




Not traditional hires


Sufficient funding for 2-3 passes



Modify the Process for
Your Company

Text Example = Enterprise Software Co.


You need to develop your own


Specifically for your company/market


Don’t quibble about details but understand there is a


process


Discovery = Hypothesis Testing

What are Hypothesis?


Where do Hypothesis come from?


Why Test them?


How do you test them?





Stop selling, start listening


Test your hypotheses

Two are fundamental: problem and product concept



Customer Discovery

Phase 3 Phase 4
Customer
Test Verify, Iterate &
Discovery
Product Expand
Hypothesis

To Validation

Phase 1
Phase 2 Author
Test Hypothesis
Problem
Hypothesis


Customer Discovery
Hypotheses
Customer Distribution Demand Market Type
Product Competitive
& Problem & Pricing Creation Hypothesis
Hypothesis Hypothesis
Hypothesis Hypothesis Hypothesis

Test “Problem” Hypothesis
“Problem” Customer Market
Friendly
Presentation Understanding Knowledge
First Contacts

Test “Product” Hypothesis
“Product” Yet More Second
First Reality
Presentation Customer Reality Check
Check
Visits
Verify

Verify the Iterate or
Verify the
Verify the
Business Exit
Problem
Product
Model

Customer Discovery
Hypotheses
Inside the Building
Product Competitive

Test “Problem”
Hypothesis
“Problem” Customer Market
Friendly
Presentation Understanding Knowledge
First Contacts

Outside the Building
Test “Product” Hypothesis
“Product” Yet More Second
First Reality
Presentation Customer Reality Check
Check
Verify Visits

Verify the Verify the Iterate or
Verify the
Problem Business Exit
Product
Model

Phase 1: Author Hypothesis

One-time writing exercise
Phase 3 Phase 4 
Product Iterate &
Concept Expand
All other time spent in

Testing
front of customers
Assumes you’re smart but
Phase 1 
guessing
Phase 2
Author
Test
Problem
Hypothesis
Hypothesis


Hypothesis
Product


Customer/Problem


Distribution/Pricing


Demand Creation


Market Type


Competition


Product Competitive


Product Hypotheses

Features


Benefits


Product Delivery Schedule


Intellectual Property


Total Cost of Ownership


Dependency Analysis



Intermission

The Customer Development Team

17

Traditional organizations
and titles Fail
Typical Startup
CEO

VP Engineering VP Marketing VP Sales VP Business Dev

People equate their titles with their functions


But standard titles describe execution functions


We need new titles = learning & discovery functions



Tasks Not Titles
Customer Development
Driven Startup

CEO

VP Product Dev Technical Visionary Business Visionary Business Execution

In Front of Customers


End of Intermission

20

Customer/Problem Hypotheses

Types of Customers/Archetypes


Magnitude of the problem


Visionaries


A Day in the Life of a customer


Organizational impact


ROI Justification


Problem Recognition


Minimum Feature Set



Distribution/ Pricing Hypotheses

Distribution Model


Distribution Diagram


Sales Cycle/Ramp


Channel strategy


Pricing (ASP, LTV)


Customer Organization Map


Demand Creation



Demand Creation Hypotheses

How do competitors create demand?


How will you?


 Dave McClure’s AARGH model

Who are influencers/recommendors?


Key trade shows?


Key trends?


Start assembling advisory board



Type of Market Hypotheses

Positioning and Differentiation


Existing Market


The product is the basis of competition


New Market


Creating the market is the basis of competition


Redefine Existing Market


Resegment the existing market is the basis of


competition


Competition Hypotheses

Who is out there?


Why are they important?


How do customers use them today?


What don’t customers like about them?



Next Week: Discovery Part 2

Read


Christensen


Discovering What Has Already Been Discovered


Note on Lead User Research


Blank


Four Steps to the E.piphany – Chapter 3



XP Phases
(Extreme Programming)

XP by far most common agile method


Exploration


 customers write story cards

 Project team becomes familiar with tools, technology and practices

Planning


 set priority of stories & contents first release

Iterations to Release


 iterations before releases

Productionizing


 extra testing & checking before release to customer

Maintenance and Death


 new iterations and no more more customer stories


XP Practices
(Extreme Programming)

Planning game


 programmers estimate effort of implementing cust stories

customer decides about scope and timing of releases


Short releases


 new release every 2-3 months

Simple design


 emphasis on simplest design

Testing


 development test driven. Unit tests before code

Refactoring


 restructuring and changes to simplify

Pair Programming


 2 people at 1 computer


XP (Extreme Programming)
Roles and Responsibilities

Programmer

 writes tests and then code

Customer

 writes stories and functional tests

Tester

 helps customer write tests and runs them

Tracker

 gives feedback on estimates and process on iterations

Coach

 person responsible for whole process

Consultant

 supplies specific technical knowledge needed

Manager

 makes decisions


XP (Extreme Programming) Practices
Collective ownership

 anyone can change any part of the code at any time

Continuous integration

 new builds as soon as code ready

40 hour week

 maximum 40-hour week. No overtime

On-site customer

 customer present and available full-time for team

Coding standards

 rules exist and are followed

Open workspace

 large room small cubicles

Just rules

 team has own rules but can be changed any at time


Scrum Phases

Pregame


Planning - define system. Product Backlog


Architecture - high level design of system


Development


Iterative cycles (sprints) - new/enhanced functionality


Postgame


Requirements satisfied - no new items or issues



Scrum


Scrum Practices
Product Backlog


 Current prioritized list of work to be done

Effort Estimation


 iterative on Backlog items

Sprint


 30 day iteration

Sprint Planning Meeting


 decide goals for next sprint and how team will implement

Sprint Backlog


 Product Backlog items for sprint

Daily Scrum meeting


 what doing, what will do, and any problems

Sprint Review Meeting


 present results of sprint


Scrum Roles and Responsibilities

Scrum Master

project following rules and practices


Product owner

officially responsible for project


Scrum Team

project team


Free to organize as they see fit to achieve goals of each
sprint
Customer

participates in Backlog items


Management

Makes final decisions



Customer Development 4: Customer Discovery Part 1

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