Like it or not but people don’t like just cool products; they like products that help them. And a Customer Development process is all about making sure that your Startup solves a Problem that your customers have.

Moreover, not all cool things really make their way up to the top. Even if there are big companies standing behind them.

Remember Google Glass? Their first presentation video seemed like a teaser for a futuristic movie. Put flying cars and C-3PO from Star Wars at the background and it still would look absolutely natural. Was it cool? No doubt! Yet, where are they now?

However, having much time and resources, Google can allow itself to fail. But Startups usually don't have that luxury. By using the CustDev model you maximize your chances to create a Product that no one needs, choose the wrong market for it or match it with an incorrect customer portrait.

So in this article, we will:

• Describe the structure of the Customer Development model.
• Show how helpful it can be for your Startup.
• Explain how you can implement Customer Development on different stages of the Startup lifecycle.
• Give a comprehensive guide to all the steps of the CustDev process.

Let’s start!

📖 What is Customer Development?

The concept was introduced by Steve Blank, the author of the reference at the very beginning of this article. If we try to describe the Customer Development model in his quotes, it will look like this:

• “The dumbest person with a fact trumps anyone with an opinion”.
• “There are no facts inside the building so get the heck outside”.

To put it shortly and simply, this model is all about reaching your target audience and validating your market/customer assumptions. It allows building your Product not around your own assumptions but based on insights directly from your customers.

Customer Development (or CustDev) is the methodology of defining your target audience and validating your Product or/and Market hypotheses within it.

In other words, its main aim is to prove that your Product solves a specific Problem for a definite audience and create successful channels to interact with those prospects.

The key ideas of this model are also summarized in The Startup Owner’s Manual by Bob Dorf and Steve Blank. They make up the CustDev Manifesto:

How applying CustDev to your Product development may help you? Let’s see!

👍 Why Customer Development Is Important

The model has quite a distinct aim — to ensure that your Product matches the market need / the need of your target audience.

While staying inside the building — literally and metaphorically — you’re the hostage of your own assumptions, theories and fantasies.

Business Customer Development for Startups provides you with a strategy for reaching out to your customers, matching your Product with the right market and, eventually, turning your company into a fully-fledged organization.

Can any Startup use the CustDev model? What if you’re already in the middle of product development? Is it too late? Actually, not and here’s an explanation why!

🗓 When Should CustDev Become a Part of Your Product Development?

Flexibility is undoubtful advantage of the Customer Development model. It means that this process doesn’t have any rigidly fixed place on the Product development timeline that can’t be altered.

However, the general recommendation is that you should start CustDev at the early stages of the Product Development process* to have the most benefits in the long run.

*We know there are different approaches to defining stages of the Product Development process. Since it’s not the topic of this article we won’t start a discussion about that and will use this model.

According to this scheme, Idea Screening and Feature Specification seem like perfect stages to start Customer Development. At these stages, you’ll be defining your Product’s competitive strategy, features, value proposition.

Nevertheless, you may use the CustDev model at further stages as well:

• If you have already built and released the Product but it managed to reach only a small user base and has insufficient market traction. With the help of Startup Customer Development, you can validate your prospects and UVP/USP to get a bigger piece of market share and prompt sales.
• Even after you have found a niche (or even a Product-Market Fit) that allows you staying afloat and re-investing in your company, you’ll need a scaling strategy. CustDev can help you validate marketing and sales roadmap to reach new prospects and establish stronger ties with existing ones.

What exactly should you do and what results to expect? You’re about to find out!

⚙️ Customer Development Process: How to Implement?

Some people think that CustDev is just a newish and fancy word for customer interviews. However, this concept is much wider than this.

CustDev is not only a theoretical model but also a set of very practical and usable tools. In this paragraph, we will take a look at the business Customer Development for Startups from these 2 perspectives — as a theoretical model and as a set of practical steps.

As a theoretical model, Customer Development is based on a 4-step framework:

1. Customer Discovery ➡️ turn your idea and vision into a set of business hypotheses regarding your target audience, monetization model, value proposition, channels, etc.
2. Customer Validation ➡️ verify hypotheses and use this data to build a viable and scalable business model.
3. Customer Creation ➡️ grow your customer base from few to many.
4. Company Building ➡️ evolve your Startup into a functional fully-fledged company.

This framework can be also divided into 2 bigger parts — the Search and the Execution:

• Search relates to the first 2 steps of CustDev. During this stage, your Startup should find and verify a business model that will be repeatable and scalable, i.e. generate a stable income so your company can grow and scale.
• The steps 3 and 4 are part of the Execution stage. Your main goal then will be to build a functional organization that is aimed at constant rather than rapid execution.

The problem of many Startups is that they skip or pay too little attention to the Search stage and hasten to move to Execution. However, they eventually fail since their business model isn’t suitable for generating repeatable revenue and scaling to the size of a functional organization.

To sum up, CustDev it’s a four-step process in which you can’t move further without carrying out a previous stage. Moreover, the first 2 steps are recurring until you verify and prove your business hypotheses. If we visualize Customer Development for a Startup, it will look like this:

Let’s take a closer look at each step!

📝 Customer Discovery

What lies at the heart of any successful Startup? A Problem, as we’ve highlighted in our article on product idea evaluation. Thus, the first step of the Startup Customer Development is just about figuring out whether you’re going to solve a real problem for real customers.

Be ready that this stage will likely take a few iterations before your business model will look viable. Moreover, the final model may be (and, again, probably will be) changed at the Customer Validation stage.

Just like the Customer Development for a Startup can be split into 4 stages, Customer Discovery is also divided into 4 steps:

1. State hypotheses.
2. Test the Problem.
3. Test the Solution.
4. Verify or Pivot.

Here’s a short explanatory video by Steve Blank:

Let’s take a closer look at these steps.

Step 1: State Hypotheses

Your very first task in the Customer Development process is to make up a list of hypotheses regarding the chosen problem, your prospects and solution. What kind of assumptions should you make?

To answer this question you may just fill the business model canvas or lean startup canvas:

---

These templates will help you and your Team create hypotheses regarding different aspects of your product. If it’s easier for you, you may start by asking questions. The answers to them will be your hypotheses.

Let’s say you’ve come up with an idea of a food delivery mobile or web application. Then some of your assumptions may look as follows:

This step is done “inside the building” — within your Startup Team or Company. However, for the next step, you will have to “get the hell out of the building” and talk to your customers.

Step 2: Test the Problem

Now you have to test your assumptions, putting a special emphasis on the problem. It may turn out that you’re trying to solve the problem that isn’t that important. People just won’t be willing to pay for solving the problem that doesn’t bother them that much!

How do you know that you’ve chosen the problem worth taking care of? In our article on Startup Idea Evaluation, we’ve mentioned 6 characteristics of a “perspective” Problem. The one you have chosen may not have all these features but having at least two is important for the success of your whole Startup.

So, the chosen problem should be:

• Popular — the more people face this problem, the more potential customers you have.
• Urgent — people have the need to solve this problem very quickly and as soon as possible.
• Growing — the number of people who face this problem is only increasing.
• Mandatory — there’s no way people can avoid this problem, it just has to be solved.
• Frequent — people should face this problem regularly, not once in a lifetime.
• Expensive — people are willing to pay a lot to solve an expensive problem.

How can you test the problem and other assumptions regarding your Startup or Business? By getting out of the building!

In other words, you should hold a series of customer interviews. If we break down this step of Startup Customer Development into particular steps, it will look as follows:

1. Make up the list of your potential customers (there should be at least a few dozens of names).

2. Prepare a presentation that will include all your hypotheses and a list of close-ended and/or open-ended questions to customers.

   1. Close-ended questions are questions with yes/no or a limited range of answers. They’re good to collect quantitative and easily processed data when you need quickly prove or disprove some ideas
   2. Open-ended questions are much more valuable in terms of gathering qualitative data, understanding your customers’ needs and behavior patterns, discover non-obvious insights.

3. Show the presentation to the target audience and gather their opinion regarding your concept. Ask prepared questions. Follow the general recommendations for customer interviews.

4. Process the results. The possible scenarios are:

   1. Your assumptions (or at least some of them) are confirmed by a significant part of your target audience.
   2. Potential customers disagree with your hypotheses so you should rethink them.
   3. You accidentally find another need or problem that is more prospective and worth taking care of than the current one.

Repeat this step until you have a more or less proven concept and understanding of the customers’ need and problem.

Step 3: Test the Solution

By this time you will have proven your hypotheses regarding the problem. Now you should focus on the second group of your assumptions.

Your goal is to check whether your idea of a hypothetical solution to customers’ problem seems convenient and helpful.

We stressed the word hypothetical on purpose: during this step you don’t launch any end-Product but test your vision of the solution. How can you do this?

By developing a prototype, a mockup, a sketch or a presentation — anything that can describe and visualize your concept for prospects. Then you take it and your previous hypotheses regarding the Product and go out of the building again!

Yet, at this step of Customer Development, you still don’t sell anything. You continue to learn your customers as well as try to match their problem and needs with your solution.

By holding a new round of customer interviews you’ll find out whether your concept is clear and aimed exactly at solving the problem your prospects have.

Step 4: Verify or Pivot

We have reached the end of the first step of business Customer Development for Startups and SMEs. At this stage, there are 3 possible scenarios:

• If everything lays together like pieces of a jigsaw puzzle, you’re ready to move to Customer Validation phase.
• If you notice that your concept is weak in some parts, you may iterate steps 1-3 to polish it.
• You may also find out that your business model doesn’t look viable at all and, thus, you have to pivot. In this case, you should change your initial idea even more dramatically and go over steps 1-3 again.

And now we come to an interesting point: how do you know that you can verify your business model and move to Customer Validation? Where’s the line?

To move further, you should review all the data you have gathered during steps 2 and 3. All together it should make up a clear picture of your concept from three key perspectives:

In other words, you can put it like this:

If your concept looks holistic from these 3 perspectives, it means you can move to the next step of Customer Development — Customer Validation.

👌 Customer Validation

This is the second and the last step in the Search stage of Startup Customer Development.

To put it short, your main goal now is to verify your hypotheses and business model that you’ve created during the previous stage. By the end of Customer Validation, you should have a scalable and repeatable business model that will enable a quick growth for your company.

For a better understanding of this step you can also watch the explanation of Customer Validation by Steve Blank:

Let’s break this stage into a set of actions for you!

Step 1: MVP Development

This stage of the Customer Development model is all about moving from words, talks and hypotheses to building and selling. However, instead of building your Product in its perfect form we recommend to start with creating a Minimum Viable Product.

You’ve probably met this concept before, so we won’t go too deep into details. However, if you aren’t sure where the line between an MVP, a PoC and a Prototype lies, check the article below:

The MVP is a version of your Product that includes only a core set of features needed to solve the initial problem and collect early feedback.

You may also use such a tool as A/B testing at this stage.

Alongside with the MVP, you should also create a sales roadmap and an initial marketing outreach strategy to connect your Product with early users. When everything’s ready, you’re all set to move on.

Steps 2-3: Sell & Develop Positioning

You can hold an infinite number of customer interviews, surveys and brainstorming sessions but there’s only one 100% accurate way to the check whether your product is really helpful and useful. Release it and try selling!

However, at this stage, it’s more about collecting feedback rather than revenue. Be ready that eventually some of your hypotheses, preliminarily verified at the Customer Discovery stage, may turn out to be wrong. Why? Because there’s a huge gap between the “I will definitely buy your product” answer and the actual purchase.

You should also correctly define and focus on your KPIs. This will be your main impersonal source of feedback about your product that can tell whether you’re using a viable business model.

Metrics are the topic for a separate article but since they mean a lot for this stage of Customer Development for Startups let’s make a little stop.

The most important metrics are:

• for free products — DAU (daily active users);
• for paid products — revenue.

Of course, you should track much more than just these 2 KPIs. The average number to start with is 5-10 metrics. This number will gradually grow as you implement new features since every feature should come with its own KPIs.

A few other important metrics are:

• Return usage in 1, 3 and 30 days.
• NPS (Net Promoter Score) that should be 50+.
• Event-based metrics that show how exactly customers use your product — what buttons they push, on what pages they spend the most time, etc.

However, it doesn’t mean that now you should focus only on numbers and metrics, leaving your communication with customers aside. Moreover, getting detailed feedback is crucial for creating better product positioning.

Product positioning refers to the way you define, describe and present your product, its value, UVP and USP or brand in general to your target audience. Surprisingly it may turn out that people love your Product for features or a value that you haven’t actually been focused on. And the USP or UVP (as you see it) isn’t that important to them at all.

Step 4: Verify or Pivot

The last step of the Customer Validation process is also the last step of the whole Search stage in general. It means that by the time you reach it you should have a proven and viable business model and product.

The 2 key characteristics that will indicate your readiness to move on are:

• Repeatability — your Product is able to generate more or less stable revenue. Getting new customers doesn’t require exceptional efforts.
• Scalability — your market is growing and you haven’t covered it all yet. Thus, you can reach new customers in other cities, regions, countries, etc.

If your MVP has found a niche in the market and you keep growing a user base of early adopters — it’s time to move to the next stage.

However, it still may turn out that some of your assumptions regarding customer segments, the problem itself or your solution are wrong. Then you’ll have to pivot — make some critical changes regarding the problem or customers. If it’s your solution that needs some changes or updates it’ll be called an iteration.

Customer Validation stage can be repeated as many times as you need to verify your business model. Moreover, you will probably have to go all the way back to Customer Discovery stage, take a new look at the Business/Startup Canvas and rethink your previous hypotheses.

👥 Customer Creation

By this time you should have already validated the chosen problem, your solution and customers. When you move to the Customer Creation step, you enter the Execution stage of the Customer Development process. It means that from this time on it’s all about scaling and turning your Startup into a functional company.

Your goals for the Customer Creation stage are:

1. Define your year one objectives.
2. Develop company and product positioning.
3. Launch your product.
4. Create a demand for it.

During the Search phase, you’ve found out who needs your product and how to reach them. However, these were mostly early adopters. At Customer Creation, your marketing and sales spending is about to dramatically increase since you’ll be reaching out to a much wider audience.

Let’s take a closer look at steps you should take to succeed during this part of Startup Customer Development!

Step 1: Set Year 1 Objectives

Since facts outweigh opinions, setting goals is a crucial part of your product development. It not only shows whether you move in the right direction at a satisfactory pace but will also indicate your readiness to proceed to Company Building which is the last stage of CustDev.

Usually, year 1 objectives include:

• Define & establish your market type
• Develop sales & marketing strategy and product positioning
• Launch the Product
• Prepare an estimate of your sales

At the highest level, all these goals should help you with achieving the key objective — growing customers from few to many.

After setting goals for the first year, it’s time to start reaching them.

Step 2: Preparing for Launch

Steve Blank recommends doing a series of preparations before you launch your product. This, again, we’ll require gathering some data and to ensure that your release is in line with marketing and sales efforts as well as a positioning strategy.

You should also pay particular attention to choosing the right kind of market for your Product. This will help you create a winning positioning strategy in terms of your competitors, price, unique value and unique selling propositions, etc.

There are 4 markets you can enter with your product:

• Existing market
• Resegmented markets:
  • Low-Cost market
  • Niche market
• New market

Since each type of market requires a different positioning strategy, let’s take a closer look at them.

Existing market

Already developed markets are also known as existing markets.

At first glance, they may seem like a piece of cake. Your competitors have already achieved a lot in exploring and developing such a market so their experience can be used for business Customer Development for Startups. It makes existing markets quite easy to understand — for example, you don’t need to check whether the chosen problem exists and has market demand.

The bad news is that you’ll be competing with companies that are present in the market for years or even decades.

For example, if you decide to enter the food delivery market, you’ll be playing by the pretty known rules. It’s not something unknown to customers, there are time-proven marketing techniques and competitors that own a big market share (like Postmates or UberEats).

Here are a few tips if you enter the existing market with your product:

• Your top goal for the first year should be to gain market share.
• The winning strategy is to offer a product or a service of higher quality and performance than the existing products. When you offer something noticeably cheaper or different, you’re entering a resegmented market.
• Competitor analysis plays an extremely important role here. Its aim should be to define the weak sides of your competitors and come up with ways to provide customers with a better experience.
• Keep in mind that in the existing market many customers are often loyal to brands and products they’re using now. That’s why you’ll need an extra effort to encourage these customers to use your product.
• Your marketing and positioning strategies should be focused on differentiating your company and product from competitors as well as establishing credibility.

Resegmented market: Niche

By a resegmented market we mean an existing market in which you’ve created specific space for your product that offers a noticeably different experience from what your competitors propose.

In other words, you help customers to deal with the same problem or need they were dealing before but provide them with quite a different solution. That’s why products that just cheaper or offer a better experience (for example, work faster) don’t fall into this category.

Eventually, your segmented market may attract other competitors and become an existing market itself. It makes resegmented markets somewhat similar to new ones.

Let’s go back in time and say you’re creating a food delivery application. By building an app that allows ordering food only from restaurants and cafes you enter the existing market. Your solution doesn’t dramatically change the experience of customers. However, if you add a possibility to order food from supermarkets and grocery stores, you’re going beyond what your competitors offer.

A few other important points on entering a resegmented niche market:

• What is the “niche” for your Product? Are you dealing with some additional hidden need that customers have? Or you plan to target a specific group of customers that would like to have even more tailored solution to their problem?
• Your positioning strategy should be based on innovation and existing competition. What makes your solution neither better nor worse but different from existing ones? Why is it worth buying?
• Your year 1 objective is to create demand for your solution and get market share.

Resegmented market: Low-Cost

During Startup Customer Development you may also come to the idea that you aren’t entering the market with a niche Product but neither you’re able to compete with existing competitors. Then you may try to reach the audience with a low-cost alternative!

Low-cost doesn’t usually mean worse but rather limited in terms of performance.

Let’s go back to our food delivery apps. A low-cost alternative would be an application that charges 25-50% reduced fee but doesn’t have advanced features (like online courier tracking on the map).

A few other tips are:

• During the Customer Development process, you should make sure that there are customers who are ready to exchange limited performance for a lower price.
• You should also estimate whether your business will be profitable at such a low-end at all.
• Performance sacrifice and price drop aren’t directly corresponding. A relatively small performance decline should come with a significant price break.

New market

Finally, your product may create an absolutely new market based on innovations. What are the advantages and disadvantages of entering such a market?

Entering a new market means much more than just launching your product. Sometimes you may deal with a hidden need. And as a first mover, you’ll have to set standards for the market and educate customers.

Thus, your year one objectives will also be different. Instead of thinking about market share, you should focus on such activities as:

• defining the need and your product;
• adopting the audience to your market;
• creating demand for your solution.

When you’ve picked the right market for your product, it’s time to launch it!

Step 3: Launch

This is the moment to release your Product and let everyone know about it. However, it’s not the end of the Customer Development process.

At this step, you should focus on reaching out to potential users with your UVP and USP. This will help you to grow the customer base for further scaling. How can you do this?

It will require using diversified channels and communicators: from evangelists (early adopters) and experts to traditional PR and marketing activities.

This is also the right time to start tracking your new KPIs. They will indicate how good you are in achieving your year 1 objectives. You will also need them to ensure that your Startup is scaling and ready to be transformed into a Company.

Together with launching your product you should also develop and implement a demand creation strategy.

Step 4: Demand Creation

Demand creation is an important step of the CustDev process for any market. While working in existing and resegmented markets you’ll need it to get your market share. In new markets - to develop them.

Pay attention, that your demand creation strategy won’t be the same for different markets. If you have competitors, it should be focused on delivering a USP that differs you from other Startups and Companies in the market. For new markets, we’d recommend focusing on a UVP to reveal customers’ hidden need.

Demand creation activities go together with PR and marketing ones. For example, you may use such tools as:

• LTOs (limited-time offers).
• User-generated content campaigns.
• Teasers.
• Outreach activities.
• Promotion through early adopters and evangelists.
• Case studies that illustrate the value of your products and scenarios to use them.

Unlike the previous 2 stages of Startup Customer development, the Customer Creation stage doesn’t have very rigid requirements to move to the next stage. The two main indicators to observe are:

• You continuously grow your user base from few to many and increase the market share.
• Your business model proves to be viable, i.e. repeatable and scalable.

During this stage, you’ll get really reliable information on whether you have correctly defined your audience, product and market. If you succeed in creating demand for your product and reaching out to a wider audience you’re finally ready to move to the Company Building stage.

🏢 Company Building

We're almost at the finish line! The last step of the Customer Development model is all about transforming your Startup into a functional fully-fledged organization. It actually means 3 things:

• Growing a mainstream customer base.
• Building a company culture.
• Reviewing management infrastructure and establishing formal departments. Ensuring that your company works in an Agile manner.

Entering this stage of CustDev indicates that you’re moving from a learning and discovery method to a mission-oriented methodology. As a result, your company should take a distinctly defined place among the market and customers.

Here are the steps that will bring you to this goal!

Step 1: Build a Mainstream Customer Base

You can’t rely on your early adopters forever. Reaching out to so-called mainstream customers is an important part of the scaling process. How are these 2 types of users different?

Understanding this difference should be crucial for your sales and marketing teams. They will need to use different messages from the ones they’ve used at previous stages.

Why is it important? The stats by OutboundEngine will answer this question:

• Increase in the customer retention rate only by 5% can increase profit by as much as 25-95%.
• The success rate of selling to an existing customer is 60-70% compared to 5-20% for new prospects.
• Getting a new customer is 5x times more expensive than retaining an existing one.

To make your communication with mainstream customers even more effective you will have to review your management system, culture and vision.

Step 2: Change in Corporate Culture and Mission

As you grow, you’ll have to adjust a mindset of your team to your goals. During the Startup stage, the bricks you used to build a culture within your team were the value for customers, innovation, rapid development. Your vision likely was Product-centric, meaning that you were focused on releasing a helpful product here and now.

During this part of business Customer Development for Startups, you should change your mindset to a Mission-centric culture. What makes up the Mission?

A Mission defines the reason why your organization exists, your overall goal and core values.

For example, some mission statements sound like this:

As you can notice, the mission-centric culture has a few distinctive features.

• Except for potential customers, your mission should be aimed at your employees. They should understand what they are working on and why they’re doing this.
• Your mission should be for the future. All executives and employees in your company should understand that the work is not yet complete.
• You may also develop a few inner missions for your employees only. They may relate to becoming a number 1 player in some countries, hitting a particular level of revenue, etc.

Building a new company culture should also start the chain of other transformations within your Startup. Changes in the structure of your company require specific attention.

Step 3: Changing the Management System and Establishing Departments

This is the last step of Customer Development that should finish the transition to the fully-fledged organization.

First thing you should do is to take a look at staff who are already working with you. Your task is to figure out whether these people are a good team for scaling.

How do you know it? Look for unity. Your team should seamlessly work on the same mission.

Also, as you take your business to the next level, you’ll need more people who are pragmatic, hard-working, reliable and agile rather than charismatic leaders and visionaries who live purely on enthusiasm.

You will need such employees to set up functional departments within your Company. It will finally let you evolve from the “everyone does everything” situation to agile departments working in their specialization.

Here are a few general advice on building departments as you grow your Startup into the Company:

• Don’t try to mimic other companies “just because they do so” and create departments that correspond with your goals and mission statement.
• Every new department should come with a specific mission and set of goals and responsibilities that complement the overall aims and mission.
• Make sure you’re building Agile, fast-response departments. They shouldn’t depend on data and permissions from executives and other departments too much and should be able to make the most decisions “on site”.
• Encourage information gathering and sharing within and between departments to promote leadership.

And never forget that the Company Building stage of Customer Development is actually never over. Making growth a stable and continuous process within your Company is critically important because organization that stop learning and developing are the organization that eventually die.

💡 Takeaways

You’ve made it all the way to the end of our CustDev Guide! We really hope that now this process doesn’t seem like a riddle to you.

Considering that the full Customer Development may take months or even years, you may think of it more as an mindset. Yet, CustDev also provides you with a specific tools which makes it more practically useful than many other techniques.

For an even better understanding of the topic, we recommend checking the folowing materials:

• Books:
  • The Four Steps to the Epiphany by Steve Blank.
  • The Startup Owner's Manual by Steve Blank and Bob Dorf.
  • The Entrepreneur's Guide to Customer Development by Brant Cooper and Patrick Vlaskovits.
  • Lean Customer Development by Cindy Alvarez.
• Online courses:
  • The Lean LaunchPad by Steve Blank.
• Videos:
  • Steve Blank’s YouTube channel.
• Presentations:
  • Summary of 'The Mom Test'.
  • Mom Test - Customer Development.
  • Customer Development Methodology.

Are you looking for a reliable Tech Partner to join you for PoC, Prototype or MVP development? Contact us and we’ll develp your app or website from scratch or join you at any stage of product development!