We’ve had the pleasure of speaking with Jeff Smith (Smule), Fabrice Grinda (Zyngy, OLX), Ranjith Kumaran (YouSendIt), and Bruce Moeller (DriveCam).  We’ve condensed their experiences into case studies which are featured in the book.  However, there was so much great material, we simply could not include all of it.  Therefore, I’d like to take this opportunity to share an insight that came out of our interview with Bruce that we found quite edifying, one that goes to the heart of the Customer Development methodologies.

Background:  DriveCam uses video technology, expert analysis and driver coaching to reduce claims costs and saves lives by improving the way people drive.  From the DriveCam website:

DriveCam’s palm-sized, exception based video event recorder is mounted on the windshield behind the rearview mirror and captures sights and sounds inside and outside the vehicle. Exceptional forces such as hard braking, swerving, collision, etc. cause the recorder to save critical seconds of audio and video footage immediately before and after the triggered event.

[Emphasis mine.]

Bruce shared an interesting story about how assumptions made in the lab, based on data and “sophisticated” math undertaken by “sophisticated” analysts, fared in the real world of cement mixer trucks.  Remember, the DriveCam device’s core feature is to record audio and video when triggered by exceptional forces such as swerving.  When DriveCam went after the cement mixer truck market, they calibrated their devices based on the assumption that cement mixers would flip only if subject to a large sideways g force.

Seems reasonable, right?  After all, cement mixers are big, heavy trucks, and not to mention, filled with, well, the eponymous cement.

Turns out, not so reasonable after all.

Bruce recounted that when one of their first customer’s cement mixer trucks flipped over, the DriveCam device had failed to record what had occurred and what may have caused the accident — the customer was irate and Bruce was more than a little embarrassed.

Turns out that (outside of the lab!) cement mixers trucks can flip at very low speeds (1-2 mph) while at normal g forces when encountering things in the chaos of the real world, very ordinary and common things such as soft road shoulders.  Bruce’s customer knew this and was counting on Bruce and the DriveCam team to know this as well.

Lesson learned:

“My philosophy is you don’t know what you don’t know and if you were ever right in a given moment, and if your guesses were ever true it would be serendipitous.  You must attack your assumptions at all times. My basic tenet: question yourself, because the world is ever-changing.”

-Bruce Moeller

For more insights that speak directly to the Customer Development processes, please purchase The Entrepreneur’s Guide to Customer Development:  A cheat sheet to The Four Steps to the Epiphany.

Thank you for your participation in the survey, especially if you were kind enough to tweet about it.  (While the raffle is over, if you haven’t responded, the survey is still open.) The purpose of the survey was two-fold.

First, we thought it would be interesting to see a little detail about who is involved with Customer Development. You can see those results here.

While the survey results add a bit of color to who is implementing Customer Development methodologies or thinking about doing Customer Development, I wouldn’t draw any hard conclusions from the data.  BTW for the those who read 4 Steps to the Epiphany, n ≈ 33.  For those who didn’t read 4 Steps to the Epiphany, n ≈ 28.

Second, we are thinking about tools, templates, and other resources to help people understand and implement Customer Development in their business ventures. Stay tuned, for in the coming months, we plan to make some of these resources available to you.

Almost forgot!  Our two winners of the random raffle are: Dave Concannon and Kevin Donaldson.

Thanks again to everyone.  Happy holidays!

maybe your product focus should be what your current customers don’t ask for or what your lost customers wanted.

I invited “CustDevGuy,” author of the “Fake Screenshot/LOI” customer development case study, to write up a continuation of that story, which illustrates an easy trap to fall into when interacting with potential customers. Here’s his story:

——————————————————–

Hi there.

This guest-post is a follow-up to my original Case Study posted at the Lean Startup Circle.  (Thanks Brant for lending me your digital soapbox.)  I wanted to further flesh out an important insight that came out of conversations about my ongoing Customer Development experiences as well as address a common fallacy that keeps popping up in conversations and email threads with regards to what Customer Development is and isn’t.  The fallacy being that customers will simply hand over the Holy Grail (read: Product/Market Fit) if you go and chat a bit with them.

The insight I would like to share, one that with hindsight appears entirely obvious, is that an entrepreneur should always keep in mind, customers have their own agendas which may not have your best interests, as a start-up employing Customer Development methodologies, at heart.  Not only may they not have your best interests at heart, they may actively and skillfully manipulate you to serve their immediate needs to the detriment of your goals of product/market fit and scalability.  This is why I, like Brant, am skeptical of the maxim:

Early customers are often more visionary than the startup they work with for that product.

IMHO, if you employ any Customer Development processes you must take into account that, as Brant writes,

Customers are inherently egocentric and have a limited view.  Their motivation is to solve problems that will increase their market share, increase revenue, or decrease expenses.   They certainly don’t wish to solve their competitor’s problems, though you would be happy to solve both.

…

The danger in relying the customer’s vision is that in truth, the customer is not always right.  Their limited perspective and selfish (rightfully so) objectives means they will, if it is in their best interests, change your product to fit their needs. If you have several customers doing this, and you opportunistically give each customer what they’re asking for, you will face an untenable situation that will prevent you from scaling the business.

And that is exactly what this post is about:  my experience in following a customer (partially) down a rathole.  To recap, we used Letters of Intent (“LOI”) as follows:

On the third visit, we pressed those who saw merit in the idea to sign a legally non-binding Letter of Intent.  Namely, that they agree to use it for free, if we deliver it to them and it is capable of X, Y and Z.  And not only do they use it, but that they intend to purchase if by Y date at X price, if it meets their needs.

The LOI

The language of this plain vanilla LOI is below.  Obviously feel free to use, but we’d appreciate a link back to this post if you do.

Letter of Intent

START-UP agrees to provide its XYZ platform on or before DELIVERY_DATE to CUSTOMER without charge or fee, which will provide the following features:

• Functionality XYZ (one sentence description)
• FunctionalityABC (one sentence description)

START-UP recognizes the sparseness of detail in the aforementioned features and therefore agrees to update CUSTOMER on development progress on the following dates:

• DELIVERY_DATE minus six weeks
• DELIVERY_DATE minus four weeks
• DELIVERY_DATE minus two weeks

In exchange, CUSTOMER will avail itself on the aforementioned dates to provide feedback and guidance as to functionality and requirements.

During and after the development process, CUSTOMER agrees to fairly evaluate the product for use as their XYZ platform for a free trial ending DELIVERY_DATE plus four weeks.  Additionally, CUSTOMER agrees to use START-UP, at a 12-month rate of $XYZ/month, as their XYZ platform if START-UP satisfies their needs.  It is the intent of CUSTOMER to enter into a formal agreement with START-UP, by REASONABLE_DATE.

Due to the sensitive nature of the discounted pricing, CUSTOMER hereby agrees not to disclose pricing information and the terms of this Letter of Intent to any other person or entity that is not an employee or associate of the CUSTOMER.

Agreed and understood by:

Designated START-UP Representative

Designated CUSTOMER Representative

Nota bene:

1) We could have titled this a Memorandum of Understanding (“MOU”) as opposed to an LOI, but we wanted to strongly signal that they are demonstrating intent to buy by signing something called a Letter of “Intent”.

2) Brief description of functionality.  This is is simply to get both parties on the same page and set expectations.

3)  Development process updates.  This was to ensure us face-time with our customer.  Should our customer get busy, we didn’t want to be easily forgotten or ignored by having all our communication relegated to email and phone.

4)  Pricing and price discovery.  Our next LOI recipient got a significantly higher price.

5)  Intention discovery.  Do they actually want to buy our product?  Well, let’s test it very plainly with “It is the intent of CUSTOMER to enter into a formal agreement with START-UP, by REASONABLE_DATE.”  We have de facto started the sales cycle.

6)  Terms.  Can we sign them up for 18 months?  24 months?  3 months?  Month-to-month?  Per usage?

7)  Disclosure.  This is our effort to keep our customers from chatting with one another about the terms of the LOI as we go about price and intention discovery.

On Our Way

They signed this LOI and we were golden, eh?  So what happened?  As it turns out, much of the information we received via the LOI was valuable with one small massive hitch.  In our efforts to listen to and engage the customer, we allowed them to effectively control and drive our vision.  The customer didn’t care at all about ABC functionality, but wanted XYZ.  Not only did they not care about ABC, they quite accurately surmised that we would move Heaven and Earth to build XYZ for them to get their business, but we would probably only do so if they feigned interest in ABC. In our schoolchild-like giddiness in getting the LOI signed, we overlooked what are now obvious signals to that effect.  To wit, we allowed ourselves to get played.

Mea culpa.  Mea maxima culpa.

We thought that ABC was our unique value proposition, after all ABC got us our initial meeting with them, but we would give them XYZ to get our foot further in the door.  Plus, how difficult could providing them with XYZ be?

Very difficult.  As in very, very, very difficult for two guys bootstrapping a start-up.  But what is even more important, providing XYZ put us on a completely different trajectory in a different industry with different customers and different products and different technology and different competitors.

Resolution

Fortunately, we failed in providing XYZ.  (You read that correctly.  I did use the word “fortunately”.)  And by that time, we realized we didn’t want to go into the XYZ business and we also realized that this specific customer was not a particularly good earlyvangelist.  By that I mean, relative to our other earlyvangelist customers, they took up an inordinate amount of time and resources which could have been deployed elsewhere for significantly better ROI for our Customer Development efforts.

So we “fired” them, and in doing so, our suspicions were confirmed.

The email trail went something like this:

Customer:  We’d like to revisit this 2010. Do you think the XYZ will be fully functioning then?

Me:  Sorry XYZ didn’t work.  BTW I also wanted you to let you know we are super busy doing ABC for other people and have revised our prices.  We’d still love to do ABC for you without XYZ.

Customer:  Great to hear that you are doing well.  We’d love for you guys to do XYZ for us.  When do you think you’ll have it ready?

Two people talking right past one another….funny, eh?  BTW some of you are probably slapping your foreheads right now, “D’oh!  Doesn’t this idiot see?  Forget ABC, and just do XYZ!  That is what your CustDev processes are telling you.”  All I can tell you is that XYZ requires a few orders of magnitude more time, money, talent, skill and luck than we have right now, while ABC lends itself better to bootstrapping, and is, not to mention, more interesting from my POV.

Lessons Learned (shamelessly borrowed from Steve Blank):

• Simply talking to customers and taking feature requests is not Customer Development.
• LOIs are great, and I will continue to use them, but Garbage In, Garbage Out still holds true.
• Customers will not actively hand you the Holy Grail (read:  Product/Market fit) because they don’t have it, nor do they care about it.
• Customers do have their own self-interested agenda (rightfully so, as Brant points out above) and will quite gladly subordinate your interests to theirs.
• The art and science of Customer Development consist of being able discern when, how and why a customer’s agenda is aligned with your own agenda/vision.

Update: If you haven’t done so, please take our State of Customer Development Survey.

People, language is for communication and marketing terms, abused as they are, fall somewhere within the scope of language.  To communicate you need to learn the terms.  To practice marketing or to hire a marketer you need to grasp some basics. Please.

Marketing Help Rule 1.

(<> means “not equal to”)

Blogging <> PR <> Brand <> SEO <> Logo <> Advertising <> Tagline <> Messaging <> FaceBook <> Positioning <> Twitter <>Lead Gen <> [Enter mktg term here]

Marketing Help Rule 2.

Trust me, you don’t need all the marketing tactics listed in Rule 1.

Marketing Help Rule 3.

The right marketing tactics for you, right now depend on WHO your prospective customers are and WHAT stage your company is in.

Marketing Help Rule 4.

All Marketers have a core competency (or two).  Regardless, (almost) all Marketers will sell (almost) all marketing services.

Marketing Help Rule 5.

You need marketing to grow your business.  And more likely than not, you need or will soon need help marketing.  Admit it.

For a moment, forget everything you know or think you know or have heard about marketing.  Start with a clean slate.

Now imagine you are a new customer of a particular product or service.  You just finished buying.  You are a bit giddy:

• You’re eager to get started.
• You’re excited at the prospect of reaping serious value.
• You’re determined to at least get your money’s worth.
• You have a small fear in the back of you mind that you spent too much or made the wrong choice.
• You both want to show it off and hide it from view until you’ve proved it’s worth.

Now like a bad movie flashback, go back to this morning right before your alarm clock sounded.  Better yet, go back to the moment BEFORE you realized you had a NEED that you MIGHT eventually purchase SOMETHING from SOMEONE to RESOLVE the need.  Your experience from this moment –pre-realization –to the moment of sale is marketing.

Your maybe want to tell me it’s sales.  But no, the seller sells.  The buyer experiences marketing.  Whether you agree or not, analyze all the marketing advice you’ve received in this context.  Think about all the people telling you that you must use social media marketing.  Think about magazines, news, commercials, blogs.  Think about your logo and your clever slogan.  Think about “your brand must be consistent!”  Think about your color palette.   Did any of these things affect your path from pre-realization to purchase (as far as you know)?  No, yes, maybe?

Ruminate on this concept:

Ms. pre-realization will eventually buy from me because:

• I’m a good person
• I try hard
• My technology is the best
• I don’t oversell
• I’m ethical
• General Haig interviewed me on some TV show on a plane somewhere, sometime.  I think.
• I tweet

Marketing feels daunting because you are being shown a dozen yellow brick roads that weave off gloriously into the colorful horizon.  That and the promise that the chosen path is flowering with ROI poppies.  Walk forward in your customer’s shoes from before purchase; from pre-realization.  How do you get to you?

The two key principles that tie the threads of my career together are customers and project management. (One could probably look at all of life this way, too.)

Two epochal moments happened in my career at one company, Tumbleweed (now part of Axway), that helped me consciously acknowledge the two principles.

• I learned from CFO Joe Consul that what I had been doing for years was actually called project management.  (Yes, some of us are slower than others.)  I was able to structure and formalize what I was doing, which allowed me to become more efficient, teach others, scale, etc.

• I learned from marketing that although I was an IT Manager, my views on how to sell to IT Managers (our target market), was not necessary.

(I should mention a third moment, because it was a pivotal for my learning.  I learned from CEO Jeff Smith that passion is a key (though not sufficient) ingredient to success.  Jeff was out to change the world and he in infected us with his enthusiasm.)

Tumbleweed was an interesting ride; it reached the highs and suffered the lows that all businesses that last 10+ years endure.  A lot of mistakes were made, and a lot of lessons learned.   There were many success stories, too, and, unsurprisingly, lessons learned there, too.  I saw evidence of certain elements of Geoffrey Moore’s  Chasm, as well as in retrospect, a lack of customer development.

Not to fault anyone, but the late 90s saw a lot of customer defumblement.

Steve Blank’s presentation of Customer Development is persuasive.  Eric Ries’ Lean Startup, combining customer development and agile development principles is even elegant.

The simplicity of necessity masks the complexity of execution.

Whether internal or external, formally defined or not, no matter what you are doing, you have a customer.  Whether explicitly defined or not, you also have at least one objective associated with your customer, e.g., make them happy, accept their money, increase their market share. To reach objectives, you must execute on a carefully-crafted plan; a carefully-crafted plan that you must defenestrate the moment you conclude it doesn’t work.  Hopefully your plan includes post-defenestration steps.

Steve Blank @ startup2startup joked that, to put it mildly, The Four Steps to the Epiphany, is a difficult read.   But customer development isn’t hard because Blank’s book is difficult to read.  Customer development is hard because the answers to the questions that will test your assumptions are difficult to come by.   As any project manager who has ever had to “gather requirements” knows, customer don’t know what they don’t know.

The customer is not always right, but they do have the last word.

It’s your job to empower and persuade customers to act in a way that achieves your objectives for them.  But how do you know how to get them to act? You can guess. You can hard sell. You can ask. You can lie.

If you go about empowering and persuading the wrong way, you will lose your customer. You will lose your customer because of some combination of:

• You never actually located your customer.
• Your objectives for the customer were not clear.
• Your tactics for achieving the objectives did not match the  customer’s behavior.
• Your process for “listening” to the customer was wrong or incomplete.
• You failed to execute.

A disciplined approach for web-based products allows for faster learning, but for “offline” products, customer development is a particularly meticulous and  time-consuming process.

Here are some customer development hurdles entrepreneurs and executives need to overcome:

• Dislike of “cold-calling” potential customers;
• Selling, not listening;
• Requirements gathering, not learning;
• Over dependence on surveys;
• Reliance on focus groups, not interviews;
• Belief that past experience guarantees future;
• Basing conclusions on small samples.

I’m sure there are more; feel free to share in comments.