Silicon Valley veteran Steve Blank was the founding father of one of the most important schools of startup thought and most influential movements in modern business, the theory of the “Lean Startup”.
It was through Blank’s observations of founders and startups in Silicon Valley in the nineties that he was able to see a pattern emerge: those who used a systematic customer-focused approach to product development were more likely to achieve a repeatable and scalable business model.
This is in stark contrast to the approach of investing heavily in a fully functional product and hoping the customers will come.
It was this wisdom that led Blank to author the first of his startup bibles, The Four Steps to the Epiphany: Successful Strategies for Products that Win. This also heralded the birth of the customer development approach that is the foundation of Eric Ries’ popular lean startup movement.
The premise behind the lean startup is that experimentation and customer feedback, namely the customer development approach, makes it significantly more likely a startup will succeed. Where startups once had a big idea and unveiled a fully formed business, the lean startup’s customer development approach turns conventional wisdom on its head and suggests that founders should learn about their customers and their problems as early in the development process as possible.
According to Blank’s customer development approach, there are four stages to getting a startup off the ground and proving it has what it takes to succeed: customer discovery, customer validation, customer creation and company building.
One of the most revolutionary aspects of the customer development approach is that the traditional business plan is thrown out in favour of developing a simple hypothesis that is tested in the customer discovery stage.
The founder stress tests the basic hypothesis underpinning their business by asking potential customers whether a problem actually exists and would they buy the founder’s solution. Interviews with potential customers should challenge the assumptions the founder has made, ask about the customer’s story, read their emotions and build a relationship.
Founders need to have an awareness of the assumptions in order to challenge their validity. For example, if the assumption is that parents will search for childcare centres online and a tech platform will solve the problem of accessing limited availability, the interview should focus on the questions, “how do parents search for childcare centres and what are the challenges they face?”
But customer discovery is not simply talking to potential customers. It is also watching and listening, seeing the customer in their environment and in the context where they face problems the founder is seeking to solve. The most valuable feedback generally comes from potential customers who are already engaged in solving this problem.
Assuming founders have uncovered some evidence that the problem exists and a small number of potential customers believe the product may provide a solution, the process of customer validation will further test the viability of the startup with a larger sample.
The validation phase tests other hypotheses of the business, validates the customers interest through early orders or usage of the MVP and helps to answer the questions, is the business repeatable and scalable, do other people like the product, and do they like it enough to pay?
Validating the proposition requires founders need to find a large number of potential customers. These may come from the founders’ network, introductions from existing customers, founder organisations, Meetup.com, placing an ad on Reddit, relevant forums where the “problem” is discussed, cold calls, conferences, social media or even walking the streets.
The customer discovery and validation phases are iterative and it may be that a minimal viable product goes through significant change during these stages. One of the most important questions founders can ask the customer is, “why they wouldn’t use the product as the reason may be something that can be fixed?” If founders find little interest in their product they may pivot and change one or more hypotheses.
Through this process founders learns, repeat and refine their product. Patience is required as this may take hundreds of iterations.
According to Blank, the customer discovery and validation phases are about perfecting the search for product market fit whereas customer creation and company building is where the business starts to generate demand.
In this customer creation stage, founders must answer the critical question, “is the startup a sales or marketing-led business?” Businesses like Uber built scale on their consumer business through friend-get-friend marketing campaigns whereas large scale corporate customers generally require a more targeted sales approach.
When a startup reaches the fourth stage, company building, it is no longer a startup but instead a business that has transitioned to a mature organisation with operationalised elements to enable growth and scalability. That said, testing and learnings from customer discovery and validation processes should be embedded for new products or enhancements, regardless of the size of the business.
Customer development fosters a culture of innovation, which for a large business, can be difficult to achieve.
Blank explained this in a recent interview saying, “in a startup really all you do is innovation for survival, and you should be so lucky to be a large company. In a large company, it has gone the other way around — you used to do innovation and you forgot how to do it”.
Businesses of every size and in almost every sector are realising the benefit of putting the customer first as this approach ensures a business is truly customer-centric, solves a real problem that is based on accurate assumptions and a hypothesis that stands up to scrutiny.
- Benjamin Chong is a partner at venture capital firm Right Click Capital, investors in high- growth technology businesses.