Based on our previous article, we explored the customer discovery process. Now, we will be focusing on customer validation in this article. After completing customer discovery, startups must answer the following questions:
- Do we certainly have a product/ market fit?
- Do we understand the sales process?
- Is the sales process repeatable?
- Can it be proven that it’s repeatable?
- Can we get these orders with the current product and release spec?
- Has the product and the company been correctly positioned?
- Is there a workable sales and distribution channel?
- Are we confident that we can scale a profitable business?
The customer development model requires these questions to be answered before the growth of the sales organization. Therefore, answering the above questions is the goal of customer validation.
The customer validation philosophy
A proven and tested sales roadmap is one of the most significant results of customer validation. It would help if you created the sales roadmap by learning how to sell to a small group of early customers. They may pay for the product months or years before it is launched.
Validating the sales process
Usually, startup sales VPs have revenue and headcount-driven goals. While these goals are practical for huge companies, they’re impractical for startups. This is because new salespeople in a large company are given a corporate presentation, price list, data sheets and other equipment for a tested sales process. As a result, the sales organization has a sales pipeline with measured steps and a sales roadmap with specific goals already validated through customer experience. However, these companies don’t understand that it’s not possible to develop a sales pipeline without having a sales roadmap first.
A sales roadmap helps you answer the following questions about selling your product:
- Do we certainly have a product/ market fit?
- Who influences a sale?
- Who recommends a sale?
- Who is the decision-maker of a sale?
- Who is the economic buyer?
- Who is the saboteur?
- Where does the buyer get the budget for purchasing our product?
- How many sales calls are needed for a sale?
- How long is the average sale from start to end?
- What is the selling strategy?
- Is this sale a solution to the customer problem? If so, what is the main problem?
- What is the optimal visionary buyer’s profile that all the startups need?
Minimal sales will happen if a company doesn’t answer these questions.
The customer validation team
Most startups make one common mistake: burdening customer validation only on the VP of sales. In tech startups, most founders are engineers and believe they need a professional in a domain where they don’t possess expertise. However, when it comes to the VP of sales, they hire a professional with experience and knowledge. Thus, founders naturally tend to trust their decision in such hires. This mistake is always dangerous for the VP of sales and the company.
The VP of Sales is responsible for executing sales and sales staffing. However, they know nothing about running or staffing a startup. A startup is only beginning to learn, and the customer development team must continue leading customer interaction through customer validation. At the very minimum, the founder and CEO must communicate with customers through the first iteration of customer validation. These customers will help the product team identify visionary customers, excite them about a product and get them ready to buy. If a startup’s founding team doesn’t have anyone with the skill to close a deal, the company can hire a sales closer with the skills to close a deal.
Early sales are only made to earlyvangelists and not mainstream customers!
As discussed in the customer discovery article, earlyvangelists are visionary customers who can buy a product that isn’t ready. These individuals not only understand that they have a problem, but they have also been actively looking for a solution to the point of having their solution. Thus, when you approach them and talk about their problem, they get excited and can see the value of your solution. Earlyvangelists won’t be deceived easily by anyone trying to offer them a solution. Since their problem is severe or essential, they would want to hear the solution from the founder and the technical team itself.
The phases of customer validation
- Getting ready to sell activities – expressing a value proposition, preparing sales materials, a preliminary collateral plan, building a distribution channel plan and sales roadmap, engaging a sales closer, ensuring that the customer development and product development teams agree about the product features and dates as well as validating the advisory board.
- Get out of the building – testing the product idea and getting customer feedback.
- Develop positioning for the company and the product – meeting industry pandits and analysts for feedback and approval to see where your product stands.
- Verify if the customer has completed customer validation – are there enough orders to indicate that your product solves customer needs? Are there a profitable sales and channel model? Is there a profitable business model? Have you learned enough to develop the business? You can proceed with customer creation if the answer is yes to all these questions.
Phase 1 – getting ready to sell
Phase 1 of customer validation prepares the company to sell its product for the first time, requiring careful planning and concurrence. In this phase, you need to:
- Articulate a value proposition.
- Make sales materials and a preliminary collateral plan.
- Build a preliminary distribution channel plan.
- Build a preliminary sales roadmap.
- Engage a sales closer.
- Position executives.
- Formalize the advisory board.
Articulate a value proposition
You need to understand how your customer perceives your company, what does your product do, and why should they care about your product? You must have had a rough idea when the company was started, but now you have some experience after talking to customers and can revisit their views based on what you’ve learned.
The goal of the value proposition is to reduce the business to a single, transparent and convincing message showing why your company is unique, and your product is worth the money. A value proposition builds you and the customer’s relationship focuses on marketing activities and becomes the central point for developing the company. Don’t worry if the value proposition isn’t perfect, as it will keep changing, growing and staying constant when you get feedback from customers, analysts and investors. The idea of this phase is to accept the fact that you need to make a value proposition and articulate it.
You should note that value proposition can be challenging to implement. One of the first tests of the value proposition is whether it’s emotionally captivating? Do customers get excited after they hear about it? Are they desperate to hear more, or are they confused? Is the value proposition understandable in the customer’s language? Do they find it different? Does the value proposition make or support an economic case? Does it have an economic impact? Finally, you must see if the value proposition passes the reality test.
It also must be noted that the market type must be considered in the value proposition. For example, if a new product is offered to an existing market, the value proposition is about incremental performance. Incremental value propositions explain improvements and metrics of individual features of the product. On the other hand, if a new market is being created or you’re trying to reframe an existing market, you need to establish a transformational value proposition. Transformational value propositions handle how a solution will set a new level; something people were unable to do before.
Make sales materials and a preliminary collateral plan
Once a value proposition exists, you must execute the sales and marketing collateral. This is the sum of the printed and electronic communications the sales team will produce for potential customers. To sell a product in the customer validation process, a complete set of sales materials, product data sheets, presentations, price lists etc., should be prepared. This will be used as the central theme in most sales materials.
Before developing any sales material, you need to determine what sales material is required. For this purpose, you should make a collateral plan which is a list of all the information you will produce to the customer in different sales process phases. It doesn’t matter if the collateral plan is imperfect as it changes when you speak to customers and changes from earlyvangelists to mainstream customers. You must understand that earlyvangelists need different materials than mainstream customers as they buy the vision of an incomplete product and the product. Therefore, you need to ensure that your sales materials are clear and detailed on the vision and benefits so that the earlyvangelists can use your information to sell your idea to themselves. This means to their friends, families and colleagues.
The customer development team should express the vision, and the product development team should make the first draft of product details. In this manner, you can see what features the technical team will emphasize.
Let’s now explore some of the items which need to go into the collateral roadmap:
At this stage, the websites of a startup should have clear information on the vision and problem that is being solved along with detailed information about the product, which is sufficient for the customer to engage in a conversation with you or want to make a purchase.
You should update the sales presentation and a mixture of the problem and product presentations used in customer discovery with the value proposition being added. You must note that the primary audience you’re making sales presentations with is earlyvangelists, not mainstream customers. It should not be more than 30 minutes and should cover the problem, solutions to the problem and the product details.
It’s difficult to understand many products without a demo. However, you should note that the product development teams in startups sometimes confuse the term “demo” with a working product. So instead, the customer development team should use a slide-based “dummy demo” to show the main points of the product.
Data sheets which involve product features and benefits are easily confused with solution data sheets which refer to customer problems and solutions. For example, if a new product is being brought to the market, the focus should be on the product, and thus you should build the product data sheets. On the other hand, the problem and solution data sheets are more suitable if you’re creating a new market or redefining a market.
Price lists, contracts and billing system
As you proceed with the customer validation process, some forward-looking customers might ask for the price. For this purpose, you will need a price list, quote form and contracts. These documents will make your startup look like a genuine company. In addition, you will need a way to accept early orders, a billing system that requires credit card verification, and an online store.
Build a preliminary distribution channel plan
Building a distribution channel plan and sales roadmap helps the customer development team create a continuous and scalable sales process and business model.
In customer discovery, you developed your hypothesis regarding the distribution channels by using the data you gathered by speaking to customers. Thus, this phase assumes you have studied all the alternative distribution channels and limited them to one sales channel. You will now use that information to build a preliminary distribution channel plan.
A preliminary distribution channel plan consists of three elements:
- Channel “food chain” and responsibility.
- Channel discount and financials.
- Channel management.
Channel “food chain” and responsibility
Do you remember that we explored distribution channels in the customer discovery article regarding the different ways in which a product can reach a customer? That was based on your initial hypothesis. Now we will further finetune your distribution channel.
First, you need to start drawing the food chain of the distribution channel. You must be wondering what a food chain in this context is. It is a chain of organizations between your startup and the customer. The food chain describes what these organizations are and their relationships with you.
For example, assume you’re a fruit seller, and your only way to approach customers is through marketing your products on the television. So, the direct food chain goes as a fruit seller – television ads – the customer.
However, if you’re selling fruits through the traditional distribution channel food chain, it goes as fruit seller – wholesaler- distributor-retailer- customer.
Regardless of the type of distribution channel, your next step is to create a detailed description of each organization that completes the distribution channel’s food chain. For example, let’s take the fruit seller example:
- Wholesaler – stock, pack, ship and collect fruits and pay the fruit seller on received orders.
- Distributors – use their own sales force to sell fruit to other fruit sellers. The distributor makes the sales, and the fruit sellers order from the wholesaler.
- Retailer – the customer sees and buys the fruits from them.
However, it should be noted that one mistake that most startups make is the assumption that their channel partners invest in creating customer demand. For example, the distributor will promote your fruits to other fruit sellers and take orders from fruit sellers. However, they won’t bring customers to the fruit sellers to buy your fruits.
Channel discounts and financials
Each partner in the distribution channel costs your company money as each provides a service to you. In most cases, these fees are calculated as a percentage of the list or retail price that a customer will pay. Channel discounts are the only way of understanding how money flows in a complicated distribution channel. Each partner shares a different financial relationship with the fruit seller. Let’s assume you have a bookstore. Most regular sales to a bookstore are based on consignment. It means that unsold books can be returned to you. Most startups make a frequent mistake by recording a sale to the tier closest to them as revenue. Just because a channel partner orders something from you doesn’t mean that the customer will buy the product. The channel partner hopes there will be a sale. If you have a channel returns policy that allows for any type of stock rotation, you should make allowances in your accounts for a part of that sale to be returned.
If you fail to select the correct distribution channel or control the channel, you will fail miserably in sales and unpredicted channel costs. It would help if you planned to monitor and control the channel’s distribution activities, especially inventory levels.
In a direct sales channel between the company and the customer, it is evident that the products do not leave the company until the customer makes an order. However, in terms of an indirect sales channel, the risk lies in not knowing how much end-user demand is there. Moreover, there is a risk of temptation in an indirect channel to stuff the demand. The term “stuff” here means getting a partner in the channel to accept more products on a consignment basis than what sales forecasts could have expected the channel to sell. Thus, all these issues must be documented and explored in the channel management plan to prevent the possible risks above.
Build a preliminary sales roadmap
It’s essential to develop a sales roadmap. However, there is uncertainty in the initial steps of the map. For that purpose, you need to gather enough information to understand how to proceed one step at a time and then collect all that information to form a picture of the correct path to take in achieving sales. Your goal in this step is to identify your real customers and how they’ll purchase your products. You’ll only be ready to have a sales team once you completely understand the process that converts a prospect into a customer and believes you can sell your product at a value that supports your business model. By having a clear sales roadmap, your sales team will be able to focus on actual sales rather than experimenting with gaining and missing sales as they proceed through customer validation.
It should be noted that the sales roadmap depends on:
- The size of the customer base.
- The budget.
- Price of the product.
- The industry.
- The selected distribution channel.
The sales roadmap comprises of:
- Organization and influence maps.
- Customer access map.
- Sales strategy.
- Implementation plan.
We will now go through these elements of the sales roadmap one by one.
Organization and influence map
Do you remember the organization and influence map we discussed in customer discovery? Now you need to study them. Use the information that you gained by talking to customers and build a working model of the purchase process for your target customer. Pay attention to the knowledge gained through earlyvangelists and other sources such as the company’s annual report or press articles.
Customer access map
In terms of a corporation, based on the size of the organization you’re approaching, you might have to move through different departments before you can keep meetings with people whom you had identified in the organization and influence maps. Once you build a customer access map for the companies you’re trying to target, you might come across various blanks. Don’t worry. Once you start contacting customers, you can fill in the information. When it comes to customers, accessing early customers can be equally challenging. You can access interest groups or organizations to which these customers belong rather than randomly calling them.
Keep your customer organization map and influence map together. In terms of a corporate sale, you need to go beyond the job titles of the people you’ll be contacting to develop a strategy on how you will approach them. For example, assume you’re building a sales strategy for a company which has created a software product for CFOs. It would help if you considered the following questions when making a sales strategy, according to Steve Blank:
- At which level do you enter the account? Should you sell to the executives or the lower operational staff?
- How many people on the organizational map should agree to the sale?
- Does each problem view the customer problem in the same manner?
- In what order should you approach these people? What is the script for each person?
- What step can ruin the entire sale?
If you’re selling a new product to customers in their early 20s, you need to consider:
- If you should access a particular demographic segment? Should you sell to undergraduates? Their parents? Families?
- How many people should agree to the sale? Is it an individual or family decision?
- If the sale is a family decision, in what order should these people be approached and what is the script for each person?
- What step can ruin the entire sale?
The implementation plan aims to jot down everything that should occur before the sale happens and the product is delivered to the customer and decide who will follow up to manage the customers.
Engage a sales closer
Now that you are about to sell your product, you need to see if anyone in the founding team has experience closing deals? Does anyone in the founding team have reputable customers to contact? Does a sales closer need to be hired? Remember, a sales closer isn’t a VP of sales who wants to develop and maintain a large company immediately. A sales closer is an individual with excellent contacts in the market where you’re selling your products. A good sales closer is aggressive, wants a perfect successful compensation package, and isn’t interested in building a sales organization.
The founding team and the sales closer are essential people in customer development, and it’s their job to learn and discover sufficient information to build the sales and channel roadmaps. It’s not always necessary to hire a sales closer. If you find out, there is a lack of sales skills in any of the parts in customer validation, that’s when you engage a sales closer.
Before the product is sold, the customer development and product development teams must agree on all the deliverables and dedication the startup needs to make. Thus, executives need to review and agree on the following factors:
- The engineering schedule, product deliverables and philosophy.
- Sales collateral.
- Engineering’s role in selling, installing and post-sales report.
The engineering schedule, product deliverables and philosophy
As a part of customer validation, the customer development team must stay committed to the ship dates to the earlyvangelists. Now is the time for your product development team to confirm that they can deliver a valuable product for the earlyvangelists. Missing the ship dates for these types of customers is like missing a product delivery date in a large company. If this happens, you will start losing the support of your earlyvangelists.
Both teams need to agree on a reasonable philosophy for deliverables and schedule. Their goal is to ensure earlyvangelists gain an incomplete but fine product in the first product release. These customers can help you understand the minimum features needed for a functional product on the first release. This means the product development team doesn’t need to make the product perfect in the first release itself. However, they should develop the product step by step and improve it based on the feedback.
There are two reasons for the minimum feature theory:
- First, regardless of what the customers say, it’s hard to be 100% sure of what’s important to them until they have the product at the first release.
- The first product release is for earlyvangelists and not for mainstream customers who always have different expectations and views on features that they think are important.
There is no greater resentment in a startup than discovering that the company has sold a product which the product development team said it never intended to build. Therefore, it’s essential for both the teams to examine and agree on all the information in all the sales collateral.
Engineering’s role in selling, installing and post-sales report
The difference between the product development team and sales, installation and customer support is evident in a startup with products already being shipped. The product development team’s role needs to be easier with the customer development team’s cooperation in two areas:
- The customer development team needs to find a market as specified and ask for more features only if they cannot find a market.
- The customer development team has agreed that the product’s first release will be incomplete, and the earlyvangelists will help the team understand the next release. In exchange, the product development team will help with sales and installation.
Formalize the advisory board
Although you might have informally asked for the help of advisors in the customer discovery process, you will formally get their support in this phase. The size of the advisory board is irrelevant. All that is needed for them is to be influential people.
You need to start by arranging an advisory board roadmap which consists of all the primary advisors. When the customer discovery process occurs, the product development team will need technical advisors on the technical advisory board. Then, when the company begins to sell the product, these advisors will be used as technical references for customers.
The customer discovery board will comprise customers met in customer discovery who can advise you on a product/market fit from the customer’s point of view. These customers will be references to other customers. Apart from these advisory boards, you have the industry advisory board and domain experts who bring credibility to your market and can also be your customers.
Finally, you can gain standard business advice from an experienced CEO.
Phase 2 – get out of the building and sell to earlyvangelists
In customer discovery, we explored that you contact customers twice to understand their problems, present the product with a solution, and get feedback. In customer validation, your task is to check if you have a product/ market fit and can sell your product to earlyvangelists before your product is shipped. This is because your potential to sell a product will validate if your assumptions about your customers and business model are correct. You must determine if your assumptions are right before the change becomes expensive.
It should be noted that the way you validate your business model and if you have had a product/market fit is by selling it to customers. In this phase, you will:
- Contact earlyvangelists.
- Improve and validate the sales roadmap as you convince 3-5 customers to buy the product.
- Improve and validate the distribution channel plan by getting orders through channel and service partners.
In this phase, it’s very challenging to spend more time with the earlyvangelists. Did you come across any characteristics of earlyvangelists? Did any of those characteristics help you discover where you can find more prospects?
It would help if you used the same techniques you used in customer discovery in this phase. That is to generate a list of customers, an introductory email and a reference story. According to Steve Blank, 95% of these earlyvangelists will say no to you, and that’s alright as the other 5% is enough. The best part about this phase is that you have a sales closer to handle contacts and arrange meetings with earlyvangelists. It is essential to differentiate earlyvangelists from other types of customers, such as early evaluators, scalable customers and mainstream customers. Early evaluators are people you should avoid. Every large company has these customers, and when they show interest in a product, most startups mistake them for paying customers.
Earlyvangelists are people who have visualized a solution as they have been already searching for a solution. Scalable customers might be earlyvangelists; however, instead of buying a visionary product, they buy a product for practical reasons. These types of customers are to be targeted in 6 months.
Improve and validate the sales roadmap
Is it possible to sell your product to 3-5 earlyvangelists before it is shipped? The earlyvangelists that you’re searching for are those who could use the product. At this point, you don’t need many earlyvangelists as the purpose is not to generate revenue now as the goal is to validate the sales roadmap. Your aim is to sell your product at the first customer ship, which is the specified standard product, not the one with many unique features. This is important for many startups who have made many promises to different sets of customers on modifying their product features. Although it’s important to make promises to get a few orders, you’re getting yourself into trouble by building customized products with different features. Developing a customized product isn’t a scalable business unless you change your business plan. However, sometimes these custom features are good if enough customers have requested the same number of custom features. In this way, it cannot be a customized product as many customers are trying to tell you the product requirements.
This is when you must go back and implement those requests into your product and declare them to be the features. When selling your product, keep a few prices in mind as you’re trying to sell an unfinished product that is undelivered as the final product. These customers must pay the list price as they are the initial customers who get to use an unfinished product. If this doesn’t sound practical to them, they are not visionary customers at all. Do not give them discounts just because they are the first customers trying your product.
You must give them the list price because a part of the sales roadmap is to test the customer sales and approval process. You want to confirm if your organizational map and selling strategy is accurate. You can be flexible in the pricing with them in terms of no payment until delivery or no payment until the product works as specified. Your goal is to ensure orders are maintained before you proceed.
Improve and validate the distribution channel
After articulating a channel strategy in customer discovery and customer validation, it’s time to validate it in front of your channel partners to ensure that you can get a preliminary order from them or a commitment. Remember, getting orders from these people before customer feedback is absurd and ineffective.
Most startups need to be aware of one major warning when getting an order from a channel partner. Channel partners aren’t customers! When channel partners place an order for your product, they only do it if there is customer demand.
Phase 3 – Develop positioning for the company and the product
Positioning the product is a way of controlling the product’s view of the product as it’s related to competitive products. In phase 3, you will be:
- Developing product positioning based on the market type.
- Developing the company positioning.
- Making presentations to analysts and influencers in the industry.
Develop product positioning
Most tech startups think they need a professional marketing team which is a public relations agency, to execute the product positioning. In reality, product positioning is done better by the customer development team after getting feedback from the product development team. Eventually, the “experts” will be brought in in customer creation.
While you have been getting feedback from the customer and channel partners through customer discovery and customer validation, you’ve continuously questioned whether you’re selling your product to a new market, existing market or resegmenting an existing market. The first version of the positioning statement was created when the sales presentation was made, and it answered why an earlyvangelist should buy the product. Think about how your customer reacted when you described the product. Was it a sense of excitement?
Now you need to position your product based on the market type. It doesn’t have to be refined perfectly as it can be further refined in customer creation.
- Existing market – compare the product to your competitors. Describe how the product features are better, faster and an essential improvement.
- New market – in this case, it’s too early for customers to understand how your product features can provide solutions to them. So instead, you can describe the problems your product will solve and the benefits they will get from solving the problem through your product.
- Resegmented market – compare the product to your competitors. If it’s a low-cost product, describe the price and its features. If it’s a niche, tell how some features can solve the problem in a way similar products cannot.
The outcome of the product positioning should be a product positioning brief. It should be a one-page document covering the product positioning and its justification.
Developing the company positioning
After deciding how to position the product in one of the three market types, a company positioning needs to be articulated similarly. Product positioning pays attention to the product’s features in a specific market type. In contrast, company positioning answers what the company can do for your customers, why it exists and how it is unique.
Like product positioning, company positioning doesn’t have to be perfect as it can be finetuned in customer creation. Consistently check on the company positioning by reviewing the mission statement. The outcome of the company positioning should be a company positioning brief.
Making presentations to analysts and influencers in the industry
Analysts and influencers are essential to building credibility in a startup. In each industry, some people can influence what should be talked about. They may be bloggers on tech-related sites or news channels. They may be employees at a company but speak at many conferences or can be professors.
After you have discovered analysts and industry influencers, you need to meet them and get their insights on the initial positioning of the market, product and company you have created and their feedback on the product features. You need to see if they can promote your product and company and, if not, why. You need these influencers and analysts as references for the press.
Before contacting these analysts, you need to be sure of which companies and industries their companies cover and what area they cover. Then, come up with a brief script on why they should meet you, and refer to your early customers and the problems you aim to solve. Then, if they agree to meet you, ask them how much time they can spare, what type of presentation format they like and if the presentation should be about technology, markets, customers, problems or everything.
Next, gather the analyst presentation and remember this isn’t a sales presentation! Each analyst has a different view on the market type that you’re in. If you’re creating a new market, you need to make presentation slides demonstrating their view of the adjacent markets your product will be affecting. Meeting an influencer may require the same formality as meeting an analyst. Remember, when meeting with these people, the goal is to collect feedback. After this, you can move to phase 4 of customer validation.
Phase 4 – Verify
At this phase, you need to:
- Verify the product solution.
- Verify the sales roadmap.
- Verify the channel plan.
- Verify the profitability of the business model.
- Finally, Iterate, return or exit.
Verify the product solution
Verifying the product solution means demonstrating that you have a product/ market fit with a product that customers will buy. Indeed, there’s more to product verification than this. First, you need to review all the disapprovals and feedback you’ve received from your customers on the product and the final decision you have taken on the first release features and future features.
It would help if you addressed questions like:
- Given that there are customer orders till now does the product that’s being shipped meet the needs of the market? How closely does the product solve the customer’s pain? Did you lose orders because of missing features? What features were the best? Did you lose because the product wasn’t good enough to purchase until it was complete? etc.
- Did you lose deals due to delivery schedule issues? Does your plan for future product releases have the exact features in the correct order?
- Did you lose any deals due to pricing?
Verify the sales roadmap
You have collected sales materials, found earlyvangelists, combined an organizational map and selling strategy into a sales roadmap and tried to sell to customers. Verifying the sales roadmap means summarizing all this and seeing if you’ve been successful in the selling process. If not, you must go back to check where you went wrong. You need to address these points when you develop the sales roadmap:
- Did you get the organizational or consumer map correct? Did you discover the right decision-makers? Did you understand the other important players? Did you lose deals because other influencers said no? Do you have a process that can be repeated in discovering the main players continuously?
- Was the selling strategy, right? Is there a repeatable process taking you from customer to customer? Can you predict an order from this selling strategy?
- Did the organizational map and sales strategy conclude with a sales roadmap with a gradual predictable process and sales pipeline?
- Did you get orders? Do the orders indicate that a sales organization can develop and scale by following the sales roadmap? Can they sell the product without the founding team calling customers?
If you believe you have succeeded in the sales roadmap, proceed or return.
Verify the channel plan
In this stage, you need to determine if your assumptions on the channel plan are accurate:
- What is the cost of the distribution channel? Is this cost in the business plan?
- Were there any unexpected channel costs?
- Can you show the variables included using the sales and distribution channel model? For example, the duration of the sales cycle, the average selling price, and the revenue per salesperson or store per year.
- If it’s an indirect channel, can the channel scale? How can the sales channel be trained and educated?
- What demand creation activities are needed to move customers into the channel? How much does it cost to get a customer? Are these costs included in the business model?
- Were the assumptions on service/system integration accurate? How much does it cost per customer?
Verify the profitability of the business model
The outcome of verifying the business model consists of two documents – an updated sales and revenue plan and an operations plan to scale the business.
Iterate, return or exit
Customer validation can be tiring, you may need to iterate it again or return to customer discovery. At this point, you need to pause and see where you stand. Did you satisfy the customer validation steps, or are you merely proceeding to the next step for the sake of it? If you’re moving to the next step, you’re about to accelerate the company’s burn rate.
If you can’t sell the product, it means you lack knowledge about the sales process. Consider everything you learnt in phases 1 –3 of customer validation, amend the sales roadmap based on customer feedback, return to phase 1 of customer validation, and try again.
However, sometimes, something must be wrong with the product, not the sales roadmap. If you have used up all the alternatives in selling and positioning, you may need to reconfigure the product offering. For this purpose, you need to go back to customer discovery. Develop a new product configuration, amend the product presentations, return to phase 3 of the product presentation, and do it again.
Suppose you’re successful in all four phases of customer validation. In that case, it shows you have understood customer problems, discovered an early set of customers and delivered a product that customers demand, developed a repeatable and scalable sales process and showed you have a profitable business model. Then, you can proceed to the following article on customer creation.