Imagine that aliens decided to build a product for humans. “A life-changing solution that would make people’s life easier”, think the extraterrestrials. But there’s one problem. Aliens never visited planet Earth and never talked to humans. They only observed our species from a distance and dreamed about how they will change our lives with an amazing product.
We at Eleken wouldn’t have been surprised if their released solution had been far from what people would even want to use. As a design company for SaaS businesses, we know how important it is to talk to users before building a product.
We would personally recommend aliens start with customer development. In our world, this framework allows startups to talk to customers, ask about their needs, and come up with viable solutions. In this article, we will provide the definition of customer development, share some helpful tips on how to conduct it, and explain the key stages of this process. Ready? Let’s get started!
What is customer development?
Customer development is an integral part of the Lean startup concept that determines if a product or service is relevant to the customers’ needs. This methodology allows companies to identify their target audiences’ requirements, find the right approaches to fulfill them, and test potential solutions for converting and acquiring customers in future.
To better understand the meaning and importance of the customer development framework, let’s take a look at the brief history of this concept.
The origin of customer development
The idea of customer development emerged in the 1990s and was first introduced by an entrepreneur Steve Blank. He believes that a startup should not use the same business development methods as large enterprises. Instead, it has to find its own way to succeed and seek alternative business models to apply. And the customer development process is one of the most effective ways that saves the day for startups.
According to Blank, customer development is somewhere between Business Model Design and Agile Engineering. This method helps startups evaluate hypotheses, reveal customers’ problems, and, finally, understand how their product can solve them.
Customer development doesn’t just provide a better idea of who your customers are and what they need. It also reveals the startup idea’s downsides and mismatches that might later get critical for a company. That’s why the customer development process isn’t a cakewalk for product owners and founders. It requires significant effort from the whole team to identify potential mistakes, prove or deny the hypotheses, and pivot if necessary.
However, these potential challenges are definitely worth it in the long run. Keep reading to discover the most significant benefits of customer development.
Main reasons why customer development is important for startups
Startups often focus on product development, considering customer development a less important, secondary process. However, Steve Blank’s book “The Four Steps to Epiphany” and the later evolution of Lean product management prove such an approach is falsee. Without putting effort into understanding your customers, your product development strategy won’t cover their actual needs. As a result, even a great idea is at risk of failure.
Customer development model applied before product development or at its earliest stages significantly increases your chances of success. The method helps you achieve the following goals:
Reduced product-market fit challenge
It’s not a secret that many startups fail, and the most common reason is the lack of product-market fit.
It means that the idea behind a product or service doesn’t match the audience’s needs. That is a typical problem of startups that neglect customer development.
Saved time and costs
Without your customers’ feedback, you can make wrong decisions leading to an unsuitable investment strategy. Customer development will help you avoid this challenge by testing your audience, learning their expectations, and changing goals before the product development process even starts. As a result, you won’t waste your time and money implementing inappropriate ideas.
Better understanding of target customers
Customer development enables direct interactions with your target audience and helps you realize how to communicate your product’s value. For a new product, it’s crucial to get a better idea of your customers and build a product based on their feedback. An existing product can use this method to improve customer service, take an important step towards a better user experience, and show customers that their opinions matter.
During the customer development process, you can collect various data related to your clients’ needs, market specifics, and potential marketing and sales prospects. All this information forms a basis for your future product development strategy and product roadmap. And most importantly, it relies on the results of research, not on bare assumptions.
Increased chances to succeed
Taking into account all the advantages we’ve mentioned, let’s describe the most significant one with Steve Blank’s quote from “The Four Steps to Epiphany”:
“Startups don’t fail because they lack a product; they fail because they lack customers and a profitable business model.”
In a nutshell, you won’t develop a successful product without establishing direct communication with your users and testing every single solution. And that is where sufficient UX expertise comes to the rescue.
UX and customer development
Thorough UX research is an integral part of customer validation. It provides deeper insights into the targeted market segment, audience, and competitors. We at Eleken regularly conduct comprehensive UX research for our partners. This process helps get deeper insights into users’ actual pain points. And together with product teams, we are able to design products that address and solve real problems.
With this in mind, let’s explore customer development and find out how to do it step by step.
Customer development process: Key steps
Let’s dive deeper into customer development stages and learn some practical tips based on Eleken’s experience.
Step 1. Customer discovery
At this initial stage of the customer development process, the product team defines hypotheses, defines problems, and comes up with possible solutions. The discovery also involves interviews with the target clientele.
Here are several key steps a product team needs to take throughout this customer development phase.
- Defining hypotheses. First of all, it’s essential to carefully document assumptions regarding all the aspects you might need to change. Brainstorming hypotheses usually refers to your business model, MVP features, and conversion strategy. Also, it’s worth paying attention to every group of people that will interact with your product. To name a few, these are customers, distributors, investors, tech partners, and more.
- Conducting interviews. Normally, a product team conducts two initial rounds of interviews. Their primary goal is to define whether your product’s value proposition addresses the problem you’re dealing with. Also, it’s the initial test of your product’s core features. Customer feedback will show how effectively they cover their needs.
- Validating product ideas. After defining hypotheses and interviewing target customers, the team can see which assumptions are wrong. At this point, you should already have “early adopters” ready to keep testing your product. With their help, you can shift your ideas or find out how to convey your value proposition more efficiently.
Step 2. Customer validation
This stage of customer development is all about the readiness to scale up your startup. Now, when a buyer persona is defined, the product team focuses on learning how to grow the business model. They launch an MVP, get it to the market, and test sales with the first real customers.
Here are the main concepts related to the customer validation stage:
- Minimum viable product (MVP) is the earliest version of a new product. It contains only basic functionality and is designed to get the first real feedback from your users. Does the solution based on the discovery phase meet your audience’s needs? Are people ready to pay for the proposed set of features? An MVP will help you find out. Besides, it will allow you to pivot without significant investments if something goes wrong.
- Product positioning is the introduction of your product to the market. Your customers, partners, and potential investors learn what your product is and what makes it unique. In particular, product positioning communicates your product’s type and category, its key advantages, and the audience that will benefit from it most. It also states how your product stands out from competitors.
Step 3. Customer creation
So the product team has discussed hypotheses, interviewed potential clients, validated ideas, tested them… What’s next? They keep testing the MVP. Even if this early version of your product seems to perform well, you should still care about people’s opinions. This is the only way to learn how to acquire and convert new customers, scale your business, and increase revenue.
At this point, it is obvious why user feedback is important for customer development.
Here are several methods of getting your customers to share information:
- One-on-one interviews. When talking to your customers, you will find out the main challenges they face when using your product. Prioritizing those early adopters whom you dealt with from the very beginning will help you see how your solutions evolved over time, what has changed, and what else you should fix.
- Online surveys. Product teams often conduct online tests and look for people’s feedback on services like Quora and Reddit. This helps better understand your niche and collect some valuable quantitative data.
- Focus groups. When applying this method, researchers organize respondents into small groups (three to five people each) with similar opinions and pain points. It helps understand how different types of buyers perceive your product.
Step 4. Company building
At this stage, your MVP is about to grow, as well as your business. You may need to hire more professionals, open new departments, and optimize the internal processes. At the same time, you should still keep your audience in mind. Further rounds of customer development interviews will help you come up with features your customers strive to get. You will also be able to improve the overall functionality, polish your customer service, and upgrade your product the right way.
Now, let’s take a look at a real-life example of a well-established customer development strategy leading the startup to success.
Dropbox: an example of customer development
Dropbox is a popular cloud hosting service with nearly 700 million registered users. The product experienced almost instant success after its launch in 2007. Although the market was highly competitive at that time, the startup managed to get several million users in just a year and a half.
Sounds like a typical story of a fast-growing tech startup from Silicon Valley, right? Well, what makes it unique is that Dropbox achieved this result without any advertisement at all. Instead, they carefully studied their client base and clearly communicated the product’s value to their audience.
Dropbox founders had no sufficient experience in marketing. So they invested a lot of money in ineffective marketing channels. Eventually, they decided to use the customer development strategy described in the Four Steps to the Epiphany to understand their problem and find a viable solution.
The team working on the product realized they needed to delay the launch and dive deeper into their customers’ feedback. For 18 months, they talked to early adopters, trying to understand their market and discover what kind of product people really needed.
At this point, Dropbox founders created a snapshot of their future product. It was an early MVP they wanted to test with their early adopters. This method resulted in great success. The team got valuable feedback that validated their assumptions and allowed them to move on.
Instead of turning to traditional marketing channels, Dropbox relied on the word-of-mouth approach. While being almost invisible across the web, they kept working with early adopters and getting feedback. They also created a landing page to get people involved before the product’s launch. People who liked their product passed this page to their friends. And unlike traditional marketing strategies they tried, this method actually worked.
Dropbox offered extra cloud storage space for free to users who encouraged others to sign up. And this referral program, based on customers’ positive feedback, started to pay off. The outcomes were spectacular. The word of mouth program increased the user base from 100,000 to four million users.
To sum up
Dropbox, as well as other successful examples of customer development, prove that there is no one-size-fits-all solution for startups. Traditional marketing and product development tactics often fail to deliver the desired outcome. The problem lies in the lack of customer feedback that reveals what people actually need from your product, how they interact with it, and which of your assumptions should be corrected.
That is exactly where the customer development methodology will get you covered. It allows you to validate your product-market fit and not to be an alien to your customers.
Customer development is closely related to UX research. And we at Eleken regularly help startups discover their end-users’’ needs, conduct user interviews, and do comprehensive research to collect valuable data that helps businesses. Need professional UX/UI design services to complement your customer development? Contact us.