1. Customer Development
in the High Tech Enterprise
MBA 295-F/EMBA 295-F
Customer Discovery: Part 2
Steve Blank
sblank@kandsranch.com
1

2. Class 5: Agenda
! Logistics/Questions
! CASE: WebVan
! Customer Discovery

3. Webvan Case
3

4. Customer Discovery
Customer Customer Customer Company
Discovery Validation Creation Building
! Stop selling, start listening
! Test your hypotheses
" Two are fundamental: problem and product concept

5. Customer Discovery
Customer Phase 3 Phase 4
Discovery Test Verify, Iterate &
Product Expand
Hypothesis
To Validation
Phase 1
Phase 2 Author
Test Hypothesis
Problem
Hypothesis

6. Customer Discovery
Hypotheses!
Product Customer Distribution Demand Market Type Competitive
Hypothesis & Problem & Pricing Creation Hypothesis Hypothesis
Hypothesis Hypothesis Hypothesis
Test “Problem” Hypothesis!
Friendly “Problem” Customer Market
First Contacts Presentation Understanding Knowledge
Test “Product” Hypothesis!
First Reality “Product” Yet More Second
Check Presentation Customer Reality Check
Visits
Verify!
Verify the Verify the Verify the Iterate or
Product Problem Business Exit
Model

7. Customer Discovery
Hypotheses!
T
h
e
i
m
Product
Hypothesis Inside the Building!
Customer
& Problem
Hypothesis
Distribution
& Pricing
Hypothesis
Demand
Creation
Hypothesis
Market Type
Hypothesis
Competitive
Hypothesis
Test “Problem” Hypothesis!
Friendly “Problem” Customer Market
First Contacts Presentation Understanding Knowledge
Outside the Building!
Test “Product” Hypothesis!
First Reality “Product” Yet More Second
Check Presentation Customer Reality Check
Verify! Visits
Verify the Verify the Verify the Iterate or
Product Problem Business Exit
Model

8. Customer Discovery - Web
Source: ash maurya

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

10. Customer/Problem Hypotheses
! Types of Customers
! Magnitude of the problem
! Visionaries
! A Day in the Life of a customer
! Organizational impact
! ROI Justification
! Problem Recognition
! Minimum Feature Set

11. Distribution/ Pricing Hypotheses
! Distribution Model
! Distribution Diagram
! Sales Cycle/Ramp
! Channel strategy
! Pricing (ASP, LTV)
! Customer Organization Map
! Demand Creation

12. Demand Creation Hypotheses
! How do competitors create demand?
! How will you?
" Viral
" Advertising
" PR
" Trade shows
! Who are influencers/recommendors?
! Key trade shows?
! Key trends?
! Start assembling advisory board

13. 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

14. Competition Hypotheses
! Who is out there?
! Why are they important?
! How do customers use them today?
! What don’t customers like about them?

15. Intermission
The Customer Development Team
15

16. 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

17. Customer Development Team
Tasks Not Titles
Customer Development
Driven Startup
CEO
VP Product Dev Technical Visionary Business Visionary Business Execution
In Front of Customers

18. End of Intermission
18

19. 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

20. Distribution/ Pricing Hypotheses
! Distribution Model
! Distribution Diagram
! Sales Cycle/Ramp
! Channel strategy
! Pricing (ASP, LTV)
! Customer Organization Map
! Demand Creation

21. 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

22. 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

23. Competition Hypotheses
! Who is out there?
! Why are they important?
! How do customers use them today?
! What don’t customers like about them?

24. How Do You Figure Out
Your Business Model?

25. 25

26. Source: Alexander Osterwalder
26

27. Source: Alexander Osterwalder
27

28. Source: Alexander Osterwalder
28

29. Source: Alexander Osterwalder
29

30. Source: Alexander Osterwalder
30

31. Source: Alexander Osterwalder
31

32. Source: Alexander Osterwalder
32

33. Source: Alexander Osterwalder
33

34. Source: Alexander Osterwalder
34

35. Source: Alexander Osterwalder
35

36. Source: Alexander Osterwalder
36

37. Source: Alexander Osterwalder
37

38. 38

39. Source: Alexander Osterwalder
39

40. Source: Alexander Osterwalder
40

41. Source: Alexander Osterwalder
41

42. Source: Alexander Osterwalder
42

43. Source: Alexander Osterwalder
43

44. Source: Alexander Osterwalder
44

45. Phase 2:
Test & Qualify Problem
Hypothesis
Phase 3 Phase 4
Test
Product
Iterate &
Expand
! Get out of the building
Hypothesis
! Test the problem
! Become the customer
Phase 1
Phase 2 Author ! Solve a real problem
Test Hypothesis
Problem
Hypothesis

46. Test & Qualify Problem:
First Contacts
! Build a Rolodex
! Develop “Innovators” list
! Create reference story/sales script
! Schedule Customer Visits

47. Test & Qualify Problem:
Create Problem Presentation
! Not a Sales Pitch
" Test of your understanding of the customers
problem
! Problem/Solution – Slide
" Problems column 1
" Today’s solution column 2
" Your solution column 3
! Capture other missing data

48. Test & Qualify Problem:
Customer Understanding
! Become a Domain Expert
! Understand their “Day-in-the Life”
! Understand their problems/pain
! Get a feel of how this impacts their life/work
! Who has similar products that solve this problem
! How do they learn about new solutions
! Can they be helpful later

49. The Big Idea
! What is the problem?
! Who has the problem?
! How important is the problem’s solution to the
customer?
! How valuable is the problem’s solution to the
customer?

50. Test & Qualify Problem:
Market Knowledge
! Get a feel for the “lay of the land”
! Adjacent Market players
! Industry Influencers
! Key Analysts
! Attend Conferences/Tradeshows

51. Phase 3:
Test Product Hypothesis
Phase 3 Phase 4 ! First reality check w/
Test Iterate &
Expand product development
Product
Hypothesis ! The product hits the street
! Lots of customer visits
Phase 1
Phase 2
Test
Hypothesis ! More doses of reality
& Qualify
Hypothesis

52. Test Product Hypothesis:
First Reality Check
! Build a Workflow Map of customer
" Before and after your product
! Problem scale
! Key insights
! How did the product spec match needs?
! Re-review product feature List
! Why are you different

53. Test Product Hypothesis:
Product Presentation
! Questionnaire
! Start w/Problem Presentation
! Then describe the Product
! Demo if you have one

54. Test Product Hypothesis:
Yet More Customer Visits
! Set up More Calls
! Validate Solution
! Validate Product
! Validate Positioning
! Understand Customer and Org. Pain
! Validate Pricing and Budget
! Understand “Whole Product” needs
! Understand Approval Process
! Update potential Advisory Board candidates

55. Test Product Hypothesis:
Second Reality Check
! Does the product solve a problem?
" Serious problem?
" For a large scalable market?
! How did the product spec match needs?
! Re-review product Feature List