Comments (6)

By brantcooper, March 15, 2011 12:45 pm

Steve Blank and Alex Osterwalder have combined their respective methodologies, Customer Development and Business Model Generation, into a powerful business model generation and testing framework.  There are several good sources for how these two mesh, including this Jan post on Osterwalder’s blog, here and most recently, in Blank’s SXSW presentation:

Blank’s Customer Development is critical, otherwise speculating what comprises your startup’s business model is just another academic exercise.  Arguably, one could easily waste as much time documenting assumptions on your business model canvas as documenting them inside a 40 page business plan.  The canvas exposes your hypotthesis and customer development tests them.  It’s a laudable ambition to document and test all of your business model canvas components.

But how much is necessary to get going?

All building blocks are not created equal.  I believe there’s a natural progression towards figuring out your business model and many blocks are directly dependent on prior blocks.  Is it worth the time to document 2nd or 3rd tier blocks before establishing the reality of 1st tier?  The answer, of course, depends on you and your business.  It doesn’t hurt to go as far as you can at the start, unless the activity inhibits you from getting started, i.e., “getting out of the building.”

To use a rather simplistic example, you might presume that your customer is an enterprise-sized business that requires a field sales force and partnerships with highly technical systems integrators.  What if your customer ends up being a medium-sized business that requires SaaS product distribution?  Early customer development might very well point you down the correct path from the outset.  Some business model components flow naturally from validated core hypotheses.

The real dilemma in my mind is, what do you test first? The key to getting started is to nail the validate of the core hypotheses: Customer, Problem, Solution.

Go to the #CustDev White Board

In our book, The Entrepreneur’s Guide to Customer Development, Patrick Vlaskovits and I developed a white board exercise to help think through business model risk in order to determine what to test first.  The key components are:

=> draw the ecosystem around your business as you imagine it, including partners, distributors, customers.

=> determine which are mission critical — in other words, can you get going without any?  Which are absolutely necessary?

=> state the value proposition for each mission critical participant — what determines whether or not they join the ecosystem?

=> list the minimum product functionality necessary to get entities to participate.

=> prioritize the risks (technical and market) based on the above.

Ultimately, what you trying to prioritize is: what’s the quickest way to fail your business model. The “value path” of testing your business model runs through testing the the core value proposition of each of your mission critical ecosystem entities.  Easiest to test means:  what you can test in the shortest time frame.

If building a landing page and driving traffic to it has the potential of killing your present business model hypotheses, then it’s a legitimate “intermediate MVP” and worth testing.  But be careful.  Are you sure you’re not testing your ability to drive some amount of traffic or your positioning?  If a 3rd party API doesn’t provide the hooks you need to develop a critical piece of technology and therefore your business model fails, maybe that’s what you test first.

Documenting the building blocks of your business model = good.  Using the #CustDev White Board exercise in conjunction helps you determine what to document and test first.

How do you determine what to test first?

Comments (3)

By brantcooper, February 23, 2011 6:58 pm

I haven’t weighed in on Customer Development thoughts for several hours, so it’s about time. Interesting series of tweets in the last several days got me thinking about the biases we bring to Lean Startup Customer Development practices. Unfortunately, but perhaps inevitable, the biases often result in finger pointing and not a little bit of self-congratulation. To an objective user, however, such instances seem to be rather obvious forest-tree issues, rather than the profound insights they hope to be.

Here’s a handy graphic illustrating source and bias:

If one looks closely, one can perhaps discern my bias. ; )

Let’s go through these.

1. Those with marketing backgrounds are comfortable speaking with customers in a manner determined by their specific role.  Product Managers talk about road map, collect feature requests and bounce ideas off customers, often in group settings (focus groups, advisory boards, etc.).  Product Marketers communicate features and benefits and elicit feedback, often through surveys.  Corporate marketers practice “branding” and spin.  Feedback goes to info@ email boxes, twitter tweets, and Facebook ‘Likes’ (or not).

2. UX Designers are quick to tell you they invented Customer Development only called it something different.  And frankly, they’re right to a degree.  When it comes to product design.  Or parts of product design.  Anyway, UX Designers are good at observing user behavior and interacting with them in a particular (not peculiar) way to determine if the product is “working.”  This is instrumental to today’s products.  (Not always the case, as I’ll argue in another post.)

3. Engineers, in their lifetime quest to never have to actually speak to a live animal of the “Customer” species, utilizes analytics tools and product instrumentation to produce reams of data on user behavior, i.e., actual user interaction with the product.  Instrumentation is instrumental, too.

4. Penultimately and leastly, are the investors, branders, Madison-Ave marketers, turn-key salespeople, high-tech gadflies and backseat pundits who declare that Vision is the only thing that matters.  All you have to do is be like Apple and Ikea, get it?  Do I have to spell it out for you?  All you have to do is be just like A-P-P-L-E.  There now, go to it.

5. Finally, what is the Customer Development bias?  Customer Development needs all the practices above, but none of them help you understand the problem, the pain, the passion. That’s the final leg or better yet, the first leg of Customer Development.  Empathy.  Whatever walk for mankind you need to do to walk a mile in your customers’ shoes; whatever interview technique, lunch buying, drink toting, teatotaling, karaoke yodeling you must participate in to gain an understanding such that you feel empathy.

Now, then, can’t we all just get along?

Please excuse the hyperbole and generalities and the tongue-in-cheek.  Recuse yourself as you see fit.  Feel free to post vitriol in comments. : )

Comments (6)

By brantcooper, January 12, 2011 11:31 am

I had a brief email conversation with a startup founder struggling with how to tackle customer development in marketplace business models.  I thought I’d share a bit about what we discussed, in case others have a similar dilemma.

Customer Development does not equal User Acquisition

Customer development is a method for discovering, testing and validating user acquisition and conversion methods.  So that a marketplace suffers from the “Chicken and Egg” problem, i.e., there’s only a true market when they’re both there doesn’t affect Customer Discovery and some amount of Customer Validation.  In other words, you can interview both sides of the market place, show them solution ideas, validate MVP features all without the other side of the marketplace being involved at all.

The pre-development signal you are trying to hone in on is “What will it take minimally for each side of the equation to come to the market?”  In most marketplaces, what you will discover is that one side of the market is actually the product, and the other side is the consumer of the product.

Product vs Consumer

In truth, the “Chicken and Egg” problem doesn’t exist.  I hate to burst your object impermanence bubble, but your local weekend farmer’s market exists even when you don’t go.  ; )  Marketplaces can exist with products, but no customers — just not for long.  One side creates the marketplace, i.e., is the “product”; the other side creates the market, i.e., is the consumer of the product.

To put it another way, the business doesn’t exist without product, but doesn’t succeed without customers.  (Exists, but fails.)   In the groupon example, clearly coupons are the product.  (Groupon doesn’t exist without coupons, Groupon doesn’t succeed without consumers.)  A client of mine had photographers on one side of a marketplace business model and people who need custom photos on the other.  The business doesn’t exist without photographers; doesn’t succeed without people buying photos.

Marketplace User Acquisition

The “Chicken and Egg” dilemma does (potentially) exist, when it comes to converting prospects into customers or users.  ”Network Effect” businesses have a great potential to grow virally  if they nail their value prop, but need the effect to get the effect!  Some marketplaces suffer from the same dilemma: there’s no value to either side until both sides are there and engaged.

BTW, Customer Development doesn’t have a specific process that will instruct you how to get both sides to your product and get them engaged.  Customer Discovery will not tell you how to solve the acquisition and retention chicken/egg problem.  Is this the much-ballyhooed Customer Development “Fallacy?”  (I don’t get what the fallacy is supposed to be.) Like most aspects of building a business, you won’t find an answer in a book.  You actually have to try methods others have used or think up some new ones and SEE WHAT WORKS.

• Namesake has done a good job using a velvet-rope strategy to test, validate and grow its network effect.  They carefully invite early-adopter types to ensure that site activity is consistent and of decent quality so that there is something for new users to engage with;
• Use a tight geographic approach to control environment;
• You have to get product to market, so make it dead simple for the product side of your marketplace to engage.  Not just cheap (or free, initially), but simple. Do the work for them if you must.

I hope you find this helpful!

Comments (2)

By brantcooper, June 14, 2010 12:22 pm

Last December, I created the first version of this image, depicting how you might think through your customer acquisition and conversion funnel.

In January, I modified the image and added tooltips.

In April, a newer, tighter version was released in The Entrepreneur’s Guide to Customer Development. (We will update the image in the ebook with this one.)

Today’s version is tighter still, I believe and is self-explanatory.  I don’t think the tooltips are necessary, if you carefully read through the boxes from left to right.  (Reading the old tooltips might provide some clarity, if necessary.)

I’ve added a few notes on funnel stages, as well as a blank version (in a variety of formats) to my Customer Development Tips download. (Other tips included, too!)

Here’s the new version:

click on image for full size