The Importance of Customer Development for Startups

Is customer development important? The short answer is yes, of course! No business can survive without a loyal customer base that uses its product or service.

But customer development is more than just a customer base. It’s one of the three foundations of a lean startup: business model design, agile engineering and customer development.

Customer development is the formal process of identifying potential customers and figuring out how to meet their needs. Many startups spend too much time on their product or service, which is important too, but not more so than the needs of their target audience. A successful startup needs to create a business plan that satisfies its target market and establishes itself as useful and unique in the marketplace.

What Is Customer Development?

Customer development is a process that can be used to discover, test and validate many business assumptions. These assumptions include whether a product solves a problem for a specific group of users if the market is large enough to support such a product, and whether or not the business can scale to meet demands.

The History of Customer Development

Customer development came about when Steve Blank was writing about his experiences as an entrepreneur in the Silicon Valley of the 1990s. He noticed a pattern emerging from the startups he was involved with, recognizing that a startup is not merely a small version of a bigger company; they have unique challenges. Startups have business models that are lacking in critical data, and these questions (and more) must be asked:

Who are our ideal customers?
What are their needs?
What features do they want?
What channels can be used to reach them?
What methods can we use to maintain customer growth?

In order to overcome these obstacles and unknowns, Steve Blank noted that entrepreneurs needed to have a systemized approach to guide their search for “repeatable and scalable business models.” In order to create such an approach, it’s essential that an entrepreneur get out and test the product in the real world.

Test Assumptions

Customer development is rooted in the scientific method of posing a hypothesis, and then designing an experiment to test that hypothesis. The results will either prove or disprove the initial hypothesis or reveal suggestions as to how to modify it. This method reduces the risks inherent in a strategy centered around product development.

Related: Free Risk Tracking Template

So, customer development is broadly about questioning your core business assumptions. That is, put them to the test rather than just accepting received knowledge.

Customer Development Manifesto

To solidify and share their views, Steven Blank and Bob Dorf put together a customer development manifesto. This is taken from their book, The Startup Owner’s Manual.

There are no facts inside your building, so go outside.
Pair customer development with agile development.
Failure is an integral part of the search.
Make continuous iterations and pivots.
No business plan survives first contact with customers, so use a business model canvas.
Design experiments and tests to validate your hypothesis.
Agree on market type; it changes everything.
Startup metrics differ from those in existing companies.
Ensure fast decision-making, cycle time, speed and tempo.
Startup job titles are very different from a large company’s.
Preserve all cash until needed; then spend.
Communicate and share learning.
Customer development success begins with buy-in.
It’s all about passion.

Customer Development Process

In order to use a scientific approach in a business environment, customer development created a four-step framework:

Customer discovery is when the founder’s vision is captured and turned into a series of business model hypotheses. This is then developed into a plan to test the customer reactions and collect their responses as usable data.
Customer validation tests come next to see if the resulting business model is repeatable and scalable. If it is not, then it means returning to the customer discovery of step one.
Customer creation is the start of execution and builds end-user demand. It also drives that demand into the sales channel to scale the business.
Transition the company from a startup to an organization that is focused on executing a validated model.

When to Start Customer Development

The earlier you start the customer development process, the better—you’ll save money in the long run if you start early. But what determines how you begin the process of customer development? It depends on where you are as a business.

But overall, businesses that are in a pre-product market are ideally positioned to start the process. This is either when you have a great idea, are building a product, or have finished a product but have not gone to market. This could even include after you’ve released the product, but it only reached a small customer base and has little market traction.

In this case, you’d start with customer discovery and then validate your prospects. From there, you’d build a product that has been validated, so you can make an effective sales and marketing roadmap that’s based on extensive interviews, surveys and analytics.

If your business is at a product-market fit, then you’d start with customer validation. That is, you have a product that customers need and has been validated in the real world with several paid users. Customer validation is validating the sales and marketing roadmap that will help you gain more market share and customers.

Why Customer Development Is Important

It must be evident now that customer development is crucial to the success of any new venture. An idea is great, but ideas don’t always translate into viable businesses in the real world! Customer development allows you to see if the idea can in fact work.

But customer development isn’t easy. It involves talking to those potential customers and gathering feedback, which means a lot of time and resources that might end up not turning into an actual business. But don’t let that stop you from using this valuable method.

It might cost money to see if the idea even has legs, but it’ll cost a lot more money if you develop an idea that has no customers. You must invest, of course, but that investment must be done smartly. The time and resources spent to discern the value of moving forward is a wise investment.

Make Sure Your Idea is Worth the Trouble

If you do go ahead and build on the idea, then customer development will make sure that the product or service is the best it can be. It’s another way to save money by spending it, as absurd as that statement might sound. The truth is, customer development allows you to fine-tune your product or service, so it is in perfect harmony with your customers.

By taking a step back from products and services, customer development can be used to determine if the startup venture is worth taking in the first place. This way you can learn if there is a space in the market that you can exploit as your own, enabling you to hit the ground running when you release your product.

Heed the Results

The biggest problem with customer development is when the process is completed and no one pays attention to what it discovered. Perhaps there is so much love for the product that people refuse to change anything about it, even if those changes will make it more marketable. Don’t let personal bias cloud your judgment and doom your startup. Use startup project management tools to make implementation plans and execute those changes.