Based on our previous article on the customer development model, we briefly discussed the four steps of the model. Thus, we will go through each step of the customer development model in the subsequent articles. This article is solely based on the customer discovery step.
Every startup needs to have a set of early customer development goals to ensure that its progress is measured in understanding its customers and discovering a market for its product. To achieve these goals, four main questions need to be answered by the startup in customer discovery:
- First, have we found a problem that a customer wants to be solved?
- Does our product satisfy customer needs?
- If so, is our business model practical and profitable?
- Finally, have we gained sufficient knowledge to go out and sell our product?
Before diving deeper into the topic, let us understand the purpose of customer discovery a little better, shall we? Every startup needs to begin with a vision in mind. That is, a vision of its new product, how the product will reach its customers and why many people will buy the product. However, most startups mistake guessing their market and customers through educated guesses. According to Steve Blank, a startup has been a faith-based enterprise since day one. To convert this vision into reality and faith into facts (profitable enterprise), a startup should test its guesses and discover the correct ones. Thus, the primary goal of customer discovery is to convert a startup’s guesses concerning the business model, market and customers into facts. After completing this step, founders of startups will know that their guesses are accurate visions or an imagination.
It should be noted that in small startups, the rules in customer discovery are much more different compared to large companies. Let’s understand why a startup’s initial customers make the rules different:
The product is developed for a few customers, and not many
A traditional product management and marketing process aim to develop a Marketing Requirements Document (MRD) for engineering. The MRD includes the sum of all potential customer feature requests arranged among the Marketing, Sales, and Engineering teams. The Marketing team has focus groups, examines the sales data, and investigates customer feature requests and complaints. This amounts to requested features included in the product specification, and the engineering team develops the features into the next product release. While this procedure is practical for an established company entering an existing market, it is not helpful for a startup. This is because an established company can afford to engineer, and the customer needs are known. However, a startup cannot afford an engineering team and does not know its market type or customer. As a result, the product will take years to get onto the market, and it will be useless by the time it arrives.
A successful startup should solve this problem by cleverly paying attention to product development by targeting a small group of customers early. This small group will provide the necessary feedback for the startup to add features to follow-on releases. Product enthusiasts who spread the good word on the product are evangelists. However, Steve Blank produced a new word to describe visionary customers who will not only give a good word about the incomplete product but will also buy them – earlyvangelists.
Earlyvangelists are the most important customers in a startup who are willing to risk a startup’s product as they have a vision that it can potentially solve a severe problem and they can afford to purchase it. Unfortunately, most customers are not earlyvangelists. Most people know they have a problem but do not have the financial means to buy a startup’s product at the earliest stage. Although these types of customers have an active need, they might probably buy the product at a later stage.
Earlyvangelists can be discovered based on the following characteristics:
- They have a problem.
- They understand they have a problem.
- They are actively searching for a solution to their problem and have a deadline to find it.
- The problem is so severe that the customers have come up with a temporary solution.
- They can immediately pool money to solve this problem.
According to Steve Blank, earlyvangelists are primarily found in points 4 and 5 and are the perfect earlyvangelist candidates.
Start product development based on vision
The purpose of a startup developing its product for a small group of initial customers repeatedly instead of coming up with a specification for every feature of the mainstream product is essential. When the startup is founded, the customer input to a product specification is limited. The company has no clue who its customers are, it might believe it knows who its potential customers are or do not know what features customers are looking for. One solution is to halt product development until the customer development team can find potential customers. However, if you have a product which you can show and repeatedly show to customers, it will improve the customer development process. Another solution is to proceed with the product development with the list of product features based on the experience and vision of the startup’s founders.
Thus, the customer development model makes the customer development team introduce the product as specified and discover if there are potential customers who will buy the product for how it’s being precisely defined. When the customers are found, the startup will improve the product’s first release to satisfy the customer needs. It needs to be noted that the first purpose of meeting customers is not to jot down feature requests for you to change the product but to find potential customers for your product that is already being built. If there are no customers for your product, you need to consider feature requests to the product development team. The feature request is thus an exception rather than a rule in the customer development model. Feature requests are not usually considered to prevent an endless list of feature requests from delaying the first customer ship date and causing havoc in the product development team.
The main phase in the product development model is to start building the product without any customer feedback. The customer development team is thus required to get knowledge on its customers to ensure that it catches up with product development and guarantee the company that there will be paying customers on the product shipping day. This shows the credibility of the customer development team as the product development team will be communicating with another team that understands the needs and desires of customers.
Once the customer development team discovers valuable insights from the initial set of customers, it will provide feedback to the product development team, which is helpful for the product’s future development. Therefore, customer development and product development go hand in hand.
The phases of customer discovery
Customer discovery can be divided into four phases:
- Phase 1 – State the hypothesis and draw the business model canvas. The hypothesis based on a startup’s vision and business model are the assumptions of the product, customers, pricing, demand, market and competition that will be tested.
- Phase 2 – Test the hypothesis. The assumptions will be verified by testing them in front of customers. The customer development team needs to listen and talk less at this stage. The goal is to understand the customers and their problems and deeply understand the startup and product needs. After that, the product development team will be updated with customer feedback for future product development.
- Phase 3 – Test the solution. At this phase, the amended product is tested in front of customers. Again, the goal is not to sell the product but to confirm the hypothesis in phase 1 by making customers say yes to the features.
- Phase 4 – Verify customer’s problems or pivot. At this phase, the customers’ problems, understanding of the product solves the problems, if customers will pay for the product and if the revenue will cause a profitable business model needs to be verified. This phase concludes with the output of the customer discovery, which is a problem statement document, an expanded product requirement document, a sales and revenue plan and a good business and product plan. Then, based on the product features and business model validated, you can decide if you have gained enough knowledge to sell the product to a few visionary customers or if you need to pivot back to customers to gain more insights. You can proceed to customer validation if you’re successful in this step.
This is a simple summary of each phase of customer discovery. However, before we go into more detail on each phase, we will first understand who comprises the customer development team.
Who is a part of the customer development team?
As the startup proceeds with customer discovery and validation, no sales, marketing or business development teams are involved. It only comprises an entrepreneurial customer development team. The team might include the company’s founder, who meets potential customers while five engineers write code. The team often consists of a head of customer development with experience and knowledge of product marketing or product management and who is comfortable communicating with the customer development and product development teams. As the startup goes to customer validation, the customer development team might include a sales closer whose job is to maintain the logistics of getting the signing of early orders.
The customer development model has a phase called phase 0, where it gets buy-in from all the prominent people on many fundamentals, including the customer development process, the company mission, etc. In a startup, it should be ensured that all the leading players, such as the founders, executives and board members, understand the difference between the product and customer development models.
The product development model highlights product execution, while the customer development model highlights learning, discovery, failure, iterations and pivoting back to understand customer problems and needs. Because of this, there needs to be sufficient funding for 2-3 tries of the customer discovery and customer validation phases. The founders and the board need to discuss this matter early for the board to decide if customer development is repetitive, necessary and worth the time.
You need to write down the business and product vision of why the company started. It’s called a mission statement and needs to be posted on a wall so that when the startup is confused about what product to develop or what type of market to serve, it can refer to the mission statement. This is known as mission-oriented leadership. Subsequently, a company’s mission statement can change.
Now that we have a simple understanding of phase 0, we will dive into the 4 phases of customer discovery which need to be adopted by a startup.
Phase 1 – state your hypothesis
Once the startup has invested in the customer development model in phase 0, the next step in customer discovery is to jot down the company’s first hypothesis. The hypothesis needs to be summarized in the following areas:
- The customers and their problems.
- Channel and pricing.
- Demand creation.
- Market type.
At first, some startups might not have this information, and it’s nothing to worry about. However, this information will be a guideline for you to fill in later during customer discovery.
The product hypothesis includes the founder’s initial product and its development.
Initial product development/customer development synchronization meeting
The product development team mainly does the product brief. Jotting down the product hypothesis in writing and converting it into a product brief agreed to by all the executives is essential for the customer development team to start its job. The product brief includes six areas:
- Product features list.
- Product benefits list.
- Intellectual property.
- Dependency analysis.
- Product delivery analysis.
- The total cost of ownership.
Product features list
This is a one-page document with a summarized list of the product’s top 10 or fewer features.
Product benefits list
This list summarises what kind of benefits the product will deliver to customers. In the customer development model, it’s assumed that the marketing team doesn’t know the customers yet. The product development team will have various customer facts on how the product features will benefit customers. These hypotheses will need to be tested against customer feedback.
The product development team will have to arrange a set of assumptions in terms of intellectual property about:
- Is there anything unique that has been invented?
- Is the IP patentable?
- Are there any trade secrets that need to be protected?
- Does the product infringe others’ IP?
- Is there a need to license others’ patents?
The product and customer development teams prepare a document demonstrating that certain things need to happen beyond their control for the startup to sell its product in volume. Things which are beyond the company’s control include:
- Changes in technology infrastructure.
- Changes in consumers’ lifestyle or buying habits.
- New laws.
- Changes in economic situations.
Product delivery schedule
In the product delivery schedule, the product development team must mention the date of the first product release, the delivery and feature schedule for follow on products or many releases of the same product as far as the team can see. This is important as the customer development team will be speaking to a few initial customers to buy the product based on the specified product before it’s released to the market. The customers are therefore giving you money for an unreleased and incomplete product.
The total cost of ownership
This calculates the total cost to customers of buying and using the product. In terms of business products, it needs to be determined if customers need to purchase a new computer to use your software, do they need to be trained to use the software, the type of physical or organizational required changes or the cost of deployment across the company. In terms of consumer products, it needs to be determined if customers need to change their lifestyle, if they need to change their buying habits, do they need to throw away a useless item which they use today and instead use your product etc.
As the customer development team makes the above estimations, the product development team should comment on whether these estimates are practical.
When all the six product hypotheses are jotted down, the startup will have a summary which describes the product. Eventually, the company will be testing these hypotheses against customer feedback.
In the customer hypothesis, the customer development team’s initial assumptions cover two main points:
- First, who are the customers (customer hypothesis)?
- The problems the customers have (problem hypothesis).
In addition to the above assumptions, there is other information that needs to be explored:
- The customer’s regular lifestyle.
- Organizational map and customer influence map.
- ROI justification.
- Minimum feature set.
Who are the customers?
There are undoubtedly different types of customers that you’ll discover in the discovery process. You’ll be spending your time understanding the different customer needs. Eventually, when you’re building your first sales roadmap in customer validation, it’ll be helpful to know all the types of customers in detail.
In Steve Blank’s experience, he has come across many types of customers:
- End users.
- Economic buyer.
These individuals are the daily users of the product. Therefore, it’s essential to understand the needs of the end-user. However, the end-user might have less influence in the sales process.
In this category, the leading technology geniuses in the IT industry or a child’s likes and dislikes influencing the family’s decisions in consumer products are ordinary.
These types of individuals influence product purchase decisions. A recommender can be anyone with a stronger brand preference that impacts another person’s buying decision.
This person has the money to purchase the product and should approve it. For example, a consumer purchase can be a teenager with a weekly salary or a spouse with a vacation budget.
The decision-maker is the person who has the final say over a product regardless of end-users, influencers, recommenders and economic buyers. Therefore, it’s essential to discover the final decision maker over a particular product and how the other customer types will impact his final decision.
In addition to the above-mentioned customer types, there is another category called the saboteurs, who are individuals who your product will threaten. Again, it would help if you predicted who will be threatened by your product and devised a sales strategy that neutralizes their influence and turns them into your friend.
The problems the customers have
The next step is to understand the customers’ problems. This is because it’s easier to sell a product based on the features and benefits as a solution for a problem you already know that a customer has. This way, it shows the customer that you care about their problem and offers them a valuable solution.
Understanding your customer’s problems also includes understanding their pain regarding how they face their problems and why providing a solution matters. Customers can be categorized in the following ways in terms of where they lie in their problem phase:
- Customers who have a latent need – the customers, have a problem, and they understand they have it.
- Customers who have an active need – the customers, know they have a problem; they are in pain and are actively looking for a solution. However, they haven’t made any effort to solve their problem.
- Customers who have a vision – the customers, have an idea of a solution to their problem, might have formed a homegrown solution and are ready to pay for a better solution.
Now that you have identified that customers can fall into the potential three categories, you need to view the problem in another way. Are you solving a serious company problem or satisfying an essential customer need? Is your product a need? Or is it nice to have a product? Identifying if your product is a customer need indicates if customers have made or have been trying to devise a solution themselves. This is good news! Because as a startup, you have discovered a critical problem and customers with a vision for a solution. All you’ve got to do now is convince your customers that your company aims to solve their problems through your products.
The customer’s regular lifestyle
Understanding the customer’s regular lifestyle is essential when executing the customer development model. Therefore, you need to talk to customers and understand their everyday lifestyles to fill in the spaces of their problems.
Organizational map and customer influence map
Having a sound understanding of the customer’s regular lifestyle means that, except in rare situations, most customers don’t work alone. They interact with many people daily regardless of whether it is their family, friends or colleagues. Therefore, it would help if you built an organizational map of the potential influencers of a customer’s day-to-day life who could affect their buying decisions.
Once the organizational map has been done, you need to understand the relationships between the recommenders, influencers, economic buyers and saboteurs.
For both business and consumer purchases, customers need to feel that their purchase was worth it and that they got it for a good deal. This is known as the return on investment (ROI).
Minimum feature set
In this part, you must understand the minimum feature set your customers will pay for in the product’s first release. The minimum feature set is the opposite of what most sales and marketing teams ask from their development teams. Usually, the sales and marketing team will ask for more features based on the last customer they spoke with. However, in the customer development model, the essence lies in a small group of early customers guiding the company on follow-on features.
Channel and pricing hypothesis
The channel and pricing hypothesis gives you an idea of what distribution channel you should use to approach customers and product pricing. Decisions regarding pricing and distribution channels are connected.
The product comes from the company to the consumer when considering distribution channels. Different parties might need to deliver the product if the product is sold directly to the consumer. If the product is sold indirectly through a middleman, channel partners are required to distribute the product physically.
A startup needs to adopt a sales channel by considering three criteria:
- First, does the channel add value to the sales process?
- Second, what are the price and the product’s complexity?
- Third, are there any established buying habits?
According to Steve Blank, in a value-added channel, the channel might give a one-on-one sales contact and special services like installation, repair or integration. However, a shrink-wrapped product is mainly bought through catalogs, the internet or store floor displays. Usually, professional products are purchased for a higher price than shrink-wrap products. Thus, channels maintaining shrink-wrap products like retailers and mass merchants can operate at lesser margin points.
Demand creation hypothesis
One day you’ll have to create demand for your products and get customers into your sales channel. But, first, you need to use the discovery process by talking to customers to find out how they know about new companies and products in the market. This will help you understand how your customers find out about your company and product.
In addition to the demand creation hypothesis, you’ll need additional information about creating customer demand and discovering influencers.
Creating customer demand
To determine how to create demand for your product, you need to answer how can the demand be made to drive the customers into the selected channel? Is it through advertising, public relations, store promotions, website, seminars, partners or word-of-mouth marketing? This can be difficult to answer because if you’re further away from the sales channel, the demand creation activities can be costly. It requires a lot of marketing and advertising to convince customers that your product is something they can demand.
Moreover, you need to understand how potential customers hear about new startups and products. Is it through trade shows and magazines? Do they know any of the best salespeople?
There is always an influencer on any product, which impacts the buying decision of the final customer. Some influencers include analysts, bloggers, celebrities, journalists, media, etc.
Market type hypothesis
As discussed previously, there are four market types. Choosing a market type is a late-binding decision. That means you can postpone which market type your product falls into until customer creation, but a working hypothesis is needed. However, since choosing the wrong market type can lead to severe consequences, it is wise to build an initial market type hypothesis which you can test as you proceed with the customer development phase. For this purpose, the product development and customer development teams should coordinate to build the initial market type hypothesis. Next, you need to identify if your company is entering an existing market, resegmenting or creating a new one. Here are a few ways of identifying:
- Is there an established and precise market with a large group of customers?
- Is your product offering something better than the competitors? If yes, you’re in an existing market.
- Is there an established and precise market with a large group of customers where the product can be distinguished from the existing incumbents? If so, you’re in a resegmented market.
- Is there an established and transparent market with a large group of customers, and your product is cheaper than the incumbents? If so, you’re in a resegmented market.
You’re making a new market if there is no established and transparent market with no competitors.
Don’t worry if you’re not sure as to which market type you fall into. As you talk to more customers, their opinions will make you understand which market type you fall into. We will now explore each market type in a bit more depth.
Entering an existing market
If you believe you fall into an existing market, you must understand how your product can supersede your competitors. You need to understand:
- Who are the competitors, and who is operating the market?
- The market share of each competitor.
- The market share leaders will invest the total marketing and sales dollars in competing with your company and product.
- The cost of entry against incumbent competitors.
- What performance features that customers find are important, and how do the competitors carry out their performance.
- The percentage of the market you want to dominate in 1-3 years.
- How the competitors define the market.
- Suppose there are any existing standards. If so, whose agenda is operating these standards?
- If your company should follow these standards, expand them or replace them.
- Resegmenting an existing market
- If you believe that you are resegmenting an existing market, you need to address the following:
- The types of existing markets that your customers are coming from.
- The unique features of those customers.
- What are the desperate needs of customers not met by existing products?
- What fascinating features of your product will make your customers abandon existing suppliers?
- Why couldn’t the existing suppliers offer the same features as your product?
- How long will it take for you to educate customers and grow a market of a good size? What makes a good size?
- How long will it take to educate the market and create demand?
- Finally, as there are no existing customers in your new segment, what are the practical years 1-3 predictions on sales?
For a startup which is resegmenting an existing market, it’s essential to have a competitive diagram because there are competitors and the market map. After all, you’re creating a new market by resegmenting an existing market. The two diagrams should demonstrate why many customers believe and move to your market.
Entering a new market
Although there are no competitors in a new market, the consequences of failing in this market type are significant. The following needs to be addressed if you believe you’re entering a new market:
- Are there any adjacent markets to the one you’re creating?
- From which markets will the potential customers come?
- What need will desire customers to buy your product?
- What feature will compel customers to buy your product?
- How long will it take to educate customers to grow a new market of enough size? What size is that?
- How will you educate the market and create demand?
- Since there are no customers, what is the realistic 1-3 years sales forecast?
- How much budgeting is needed to grow the market while educating and growing it?
- Can your product be described as one resegmenting a market or entering a new one?
It should be noted that competition is based on some of the product features if you’re entering an existing market or resegmenting a market. Thus, you need to know how and why your product is better than your competitors, which is why the customer development team should have a competitive brief.
You need to look at the type of market you will enter and calculate how much market share the existing competitors have. According to Steve Blank, if the market share of the most significant competitor is around 30% or less, there is no single dominant company in the market, and you have a chance to enter this market. On the other hand, when a company has more than 80% of the market share, that company is the owner of the market and a monopolist. Therefore, the only chance of superseding this company is by resegmenting this market.
Phase 2 – test the hypothesis
In this phase, the customer development team tests and qualifies the hypothesis in phase 1. The hypothesis will not be merely validated, but it’ll be modified based on customer feedback. In this phase, you will gain:
- Initial customer contacts.
- The customer problem presentation.
- In-depth customer understanding.
- Market knowledge.
Initial customer contacts
Your initial contacts as potential customers will educate you about customers and their problems, and they might become your customer. It would help if you started by listing 50 contacts on whom you feel you can test your assumptions. You can get them from various sources, and it doesn’t matter if these contacts are wealthy or not or if they have any current interest in your product. What matters here is that you want to learn from them.
Meanwhile, you start to develop an innovators list such as companies, departments or people in your field who are intelligent, wise and reputed. When it comes to consumer products, they may be the professionals who people look up to in getting advice or the ones who spot a trend. You should use the innovators’ list in two ways:
- First, you need to discover innovators famous for finding new ideas.
- The innovators’ list can be used as a contact list for advisory board members and industry influencers.
You need to remember that you’re not just collecting this list for reference but to progress your network. It’s undoubtedly hard to contact people who don’t know you and convince them to spare you their time, but it becomes easy if you get a referral from someone who knows them and if you make a reference story that makes you credible to them.
How do you use a referral from someone they know for you to reach them? Firstly, you need to come up with an introductory email. Include a short description of your company, what you do and a statement of what’s in store for your contact if they spend time with you. You should not send a cold email as your referrals will be forwarding your email to potential customers. After that, you need to follow up through calls. Before you talk to them, you need to know what you should talk to them about. Since it’s the first time you’re speaking to them, you shouldn’t dive into the product, but you should create a reference story as to why you’re calling them. This story will include the customers’ problems you’re trying to solve, why you need to solve them and the solution you are developing. You can make them aware of their problem and that you need at least 20 minutes of their time to give their insights, and you could offer yours.
To make it work, you need to talk to 10 prospects and book a meeting with three customer visits per day.
The customer problem presentation
Based on phase 1, we explored that you need to develop a hypothesis on what problems your customers have. Based on such a hypothesis, you need to develop a presentation about the customers’ problem and test it against real customers. A product presentation, on the other hand, isn’t designed to convince customers about your product. Instead, it helps you extract information from customers. The customer problem presentation summarizes your hypothesis about customer problems and some possible solutions for you to test and see if your assumptions are correct.
Developing a problem presentation isn’t hard. As you have already devised a hypothesis on your customers’ problems and some solutions for them, you need to put those assumptions in slides. A corporate presentation with customers will be a one-slide presentation with three columns. The list of problems goes in column 1, today’s solution to the current problem goes in column 2, and the company’s solutions go in column 3. If slides are inappropriate, you can use a flip chart presentation instead. Once the slides are done, you need to be ready to present them on a whiteboard or one on one across a table. It needs to be noted that giving means inviting customer responses. Thus, after you describe the hypothesis list of problems in column 1, you need to pause and ask the customers what they think are the problems, if you are missing any, and how they would rank the list of problems. If a customer tells you that a problem you had listed isn’t essential, it’s great information as it’s good to be aware early. At any point, don’t try to convince the customers that the problems you have listed are problems they have as they are the ones bringing in the money.
If your customers agree with your list of problems, you need to make them explain why it’s essential to solve them. Next, you need to ask them how much the problem costs them regarding revenue, customers, time and frustration. When an ROI presentation is developed, this number will be used in the customer validation step. Agreeing to their problems and cost, you can run them through column 2 regarding today’s solutions. Again, you need to ask the customers what the solutions are if you are missing any solutions and how they would rank the solutions. If the problem is severe or essential, you will get interesting answers. At this point, you also need to understand who is sharing these problems. Is it consumers of a bank? Employees of a bank? Employees from the same banking industry? Employees with the same title? Thus, a group of people with the same problem is equal to a common value proposition which means that you can demonstrate the value of your product in an understandable message to a broad audience.
After that, for corporate and consumer products, you need to show the company’s solutions in column 3. You must observe if your customers think the solution is sufficient to solve their problems or do they not understand the solution? It would help if you asked them how the company’s solution differs from the current solutions in column 2.
It’s no doubt that after meeting many customers, all the information you gather will be confusing. Thus, it’s useful for you to take your summarized hypothesis with you when you make each visit. First, look at all the information you want to gather and understand the three things you need to learn from your customers before the meeting ends. Eventually, when you’re convinced of the main problems, you need to start asking new questions. Remember, the presentation isn’t a sales pitch but a way of understanding customer needs.
In-depth customer understanding
Along with checking your hypothesis on customer problems and your solutions to their problems, you should validate your hypothesis about how customers spend their day and money and complete their work. Regardless of the type of product, you need an in-depth understanding of the life or job of a customer and how the workflow works. You need to check your hypothesis if customers pay for your solution. Is it the pricing, features or new standards? Since you’ll have to create demand for your products one day, you’ll need to find out early on how they learn about new products and who are their favourite product influencers or media they follow? You also don’t want to miss the opportunity of meeting a customer who can be beneficial in the future in terms of being a paying customer or a referral to others.
Since you have a better understanding of the customer and their problems by now after all these steps, you need to summarize your knowledge of the whole market. You should meet companies in the same industry as yours, the press and other prominent influencers. Visiting trade shows and conferences is another way to help you gain knowledge of the market operation you are in or about to build. You can meet people from the same market for a friendly lunch or dinner and ask them a few questions regarding who they consider being possible competitors both internally and externally, who has similar products as yours, who is an innovator in the industry, has the solution you came up with been tried somewhere in their company and if anyone from their company is trying to build the same product as yours etc. After practising with these people, ask the same questions from influencers and recommenders from adjacent markets.
Next, you need to start collecting quantitative data on your market from various reports on your market or markets like yours. Read them and understand what the analysts believe are the trends in the market, the competitors, business models and key metrics. Finally, you need to attend industry conferences and trade shows. You must get demos of competitive and adjacent products, know your competitor’s mantra and talk to the competitor’s salespeople. Thus, attend as many industry conferences as possible and listen to others demonstrate their product and describe their visions and how different it is compared to yours.
Phase 3 – Test the solution/ testing and qualify the product concept
This phase has five parts:
- Meet with the product development team for a reality check.
- Creating the product presentation.
- Making more customer visits.
- Meeting with the product development team for a second reality check.
- Identifying the first advisory board members.
Meet with the product development team for a reality check
Since you have a deeper understanding of customers and their problems, you need to meet with the product development team for a reality check. Start this part by gathering as much of the company’s management as possible for the product/customer development synchronization meeting. In the first reality check, the customer development team shares what it learned and runs through the customer feedback on the hypothesis in phase 1. After that, the customer development and product development teams will adjust their hypothesis accordingly.
Before this meeting, the customer development team gathers all the customer information and develops a workflow map of a typical customer. Then, the speaker will demonstrate and describe how the customers carry out their jobs and who they interact with. This is your reality check of the customer hypothesis. After that, you need to keep mapping it out until you can adequately explain how customers’ businesses and their lives function presently and how they spend their money and time. After that, it would help if you let everyone at the meeting know what problems the customers said that they have, how painful were the problems, where did the customer lie on the problem scale, and how are they solving these problems presently, did customers say that they would pay for the company’s solutions, what insights you gained from the customers’ problems, what were the surprises and what were the disappointments etc.
After the customer development team has presented its findings, you can ask the most challenging question for them. That is, if the company has a product/ market fit. If the answer is no, the meeting is useless. They need to understand if they met the right customers or enough customers. This question is fundamental in customer development because you must keep discovering a market where your product might fit before changing the product based on customer feedback. Next, refine the feature list based on customer feedback. Finally, you must review and agree on the delivery schedule by revising the phase 1 assumptions as necessary.
Creating the product presentation
Creating a product presentation aims to test the revised assumptions about the product. The goal has two objectives:
- First, to reconfirm the product that the product will solve a serious problem.
- Validating the product and its features.
Along the process, you will have to test further your knowledge of customer pain, workflow and the organizational impact on the product. Therefore, you need to build a solution-oriented presentation explaining the product about solving the customer’s problem. If it’s incredibly early for you to make a product demo, the product presentation must include 5 product features. First, you need to have a story on life before and after the product. Next, draw the customer workflow or customer’s day with and without the product. Then, avoid all the marketing and positioning. Finally, include the product’s future at least for 18 months by breaking it down into features by release.
Making more customer visits
When the product presentation is ready, you must determine which customer you should visit. Ideally, you will give this presentation to those who heard your problem presentation. Your earlier contacts would have recommended you to more names. You will get more information from customers if you remind them what your product is designed to solve and tell them why it’s essential for your company to solve this problem. See if your customers agree on the importance of solving this problem. They need to agree to it as your product presentation is based on what you’ve already learnt from customers about their problems. If they disagree, you need to go back to phase 2.
You can finally describe the product if the customers agree to the problem and its significance. Show the product if possible and pause to see the customer’s reaction. Next, you must draw the customer workflow with and without your product. Pause again to see if your customers agree with the before and after workflow. Next, describe who else in the customer’s organization you believe the solution might help. Pause again and see if you get an agreement. This whole product presentation shouldn’t take more than 20 minutes. Now it’s time to listen to your customer’s feedback. How are they reacting? Would they buy the product to solve their problem? Do they believe that other customers would buy the product as it solves a common problem?
Ask them about the discussed features. Does it match the customer’s needs? What features should be maintained when the product launches? What features can be postponed later? What other features are missing? What is a complete product in the mind of a customer? What other features are needed to make the product a mainstream product? What do they think about the price? What channel would they most likely use to buy the product?
Meeting with the product development team for a second reality check
After gathering the latest customer feedback, you need to return to the company for a second reality check based on what the customer development team has collected about product features, pricing and distribution. You can divide customer reactions into four main categories based on testing the product in front of them:
- The customers certainly love the product, and no changes are needed.
- Customers like the product but continuously request additional features at the first customer ship.
- The customers understood the product after a long explanation, but no one made a move to get us to sell it to them.
- The customers are not interested in the product.
The goal of the customer development team was to find a market for the specified product. It’s rare for the customers to fall under the first category the first time around in customer discovery. However, the most dangerous category is the second one. This is because everyone will get frustrated and try getting the first product release in the hands of paying customers as soon as possible. Both teams should understand that the first release or the first customer ship is not the final product. It’s necessary to compromise to get the product in the hands of the earlyvangelists. Think about whether adding more features is essential based on whether it’s nice to have or an indispensable must-have! After your first product release, you must listen carefully to customers and discover what features to add to your next product release. You will produce a successful product strategy if you listen carefully to the right customers.
Identifying the first advisory board members
Although your founding team is good, valuable people outside your company are willing to act as advisors. They can help you solve technical problems, introduce you to essential customers, provide domain-specific knowledge and share business wisdom. In addition, the product development team should get advisors for specific designing and building-related advice.
Phase 4 – verify
A considerable part of the discovery step is completed after the second reality check. Until now, you have been discovering if your product and customer hypothesis were correct and validating the business model for your investors.
In phase 4, you need to summarize your findings by verifying your discoveries on the product and problem and contemplate if the business model is financially practical if you operate it based on the conditions you’ve discovered. In this phase, you need to:
- Verify the problem.
- Verify the product solution.
- Verify the business model.
- Assess whether to iterate or exit.
Verify the problem
This means summarizing the customer problems and checking to see if you have nailed the problem or need to speak with customers again.
Verify the product solution
This means summarizing all the data you’ve gathered on the product hypothesis regarding the first release features, future features, pricing and distribution.
Verify the business model
The original business plan that was given to investors was the financial hypothesis. Now it needs to be rerun based on customer feedback and test your business model’s practical. Testing this business model results in an updated sales and revenue plan and a good business and product plan.
Iterate or exit
We have now reached the last step of phase 4, where after all the learnings you’ve gathered in the discovery process, you need to test if your modified hypothesis provides a good foundation for proceeding with the product. You need to access:
- If you have discovered a problem that a customer wants to be solved?
- Does the product solve the customer’s needs?
- If yes, is there a viable and profitable business model in place?
- Can we draw the daily life of a customer before and after the product is purchased?
- Can we create an organizational chart of customers, users and channels?
You may need to iterate the customer discovery process multiple times. For example, do you understand the market you belong to and have enough customers who are desperate to buy your product? If not, you should gather the information you’ve learnt in phases 1-3 and modify your presentations based on customer feedback.
We have come to an end to this article on customer discovery. However, we hope you have gained a great understanding of this article, as it’s helpful when you explore the following article on customer validation of the customer development model.