One of the lessons learned from my last post had to do with the Fallacy of Customer Development:
Unless you are building a business (like Enterprise software) where the primary channel to customers is through direct sales, customer development is NOT a scalable way to reach customers. Instead, Customer Development is a form of qualitative learning and while it’s the fastest way to learn from customers, that alone may not be enough. The biggest challenge most web applications face is building a significant path to customers. Rather than going through customer discovery, customer validation, and then tackle customer creation, which can take months, I find it critical to start building and testing “significant enough” paths to customers much sooner.
A few folks (including Sean Murphy and Patrick Vlaskovits) weighed in with insightful comments and questions which makes this a worthy topic for further elaboration. First I’ll explain the fallacy (hopefully more clearly) and then offer some solutions.
In order to build a successful product, you have to eventually find a scalable and repeatable way to reach customers. There is an implicit expectation that customer development will uncover that path to customers. My experience (with web based products) has been that it’s not as much the uncovering of the path but the building of the path that is troublesome. Some paths are obvious but hard, such as those built on referrals (word of mouth), SEO, etc. It’s comparatively a lot easier to find 30-50 people, validate you have a problem worth solving, build a MVP, even get them to pay you – all of which is a false positive if it was predicated on a customer acquisition approach that won’t scale or more importantly be applicable to how you acquire customers in the future.
The fundamental cause for this fallacy is rooted in an attempt to literally apply Steve Blank’s Customer Development techniques without consideration for specific business and channel types (of which I’m just as guilty). “The Four Steps to the Epiphany” was written for a specific type of business – Enterprise Software, and a specific type of channel – Direct Sales. While Customer Development is still the fastest way to learn, you have to adapt the tactical techniques for your business and channel to avoid hitting a wall after Problem/Solution Fit.
I have been in search of one such adaptation for web businesses where the primary selling channel is through a marketing website.
Customer Development As Adapted for Web Apps
Customer Development needs to be a continuous learning process
Customer Development is about establishing a continuous feedback loop throughout the product development cycle. Enterprise selling necessitates constant contact with customers throughout the customer lifecycle. This is NOT the case with web software. To fix this, you have to build appropriate customer touch points in the form of ongoing usability tests, customer feedback calls, interviews, etc.
Start building and testing a path to customers from day one
Seasoned entrepreneurs know that building a significant enough path to customers is one of the hardest aspects of building a successful product. I always get at least one question from the audience during my talks/workshops on “finding prospects”. I used to answer this question with the canned response of “make a list of people you know, start there, ask for referrals, interviews will reveal the path to customers”. Now, I slant my response more heavily towards finding prospects by way of testing the actual channels you intend to use for reaching your future customers.
Don’t get me wrong. Talking to anyone is still way better than talking to no one. If you have no idea how to reach early prospects or if the channel takes time to build, start with your 1-degree network. But, don’t declare Problem/Solution Fit unless you’re able to recruit a fair number of your interviewees using an actual channel you will use.
It’s also equally important to point out not to fall in the trap of prematurely optimizing this channel. You may not have a problem worth solving or have to pivot to a different customer segment. Premature optimization is a form of waste. Your first objective should be driving just enough traffic to support learning. During Customer Discovery, that means enough traffic to yield 30-50 interviews.
Some examples –
1. Write a blog post that ends with a call for participation in an interview
2. Create a landing page and drive SEM traffic with a call-to-action ending in an interview (not a survey)
Start building and testing your selling process as soon as possible
While Customer Development does NOT magically scale even for Enterprise software, the learning from the interviews can more easily be applied towards building a repeatable and scalable direct sales process. Selling a product over 15-20 minutes in an interview is very different from selling a product in 5-8 seconds on a landing page. Again early interviews are helpful in identifying what’s important (your unique value proposition) but you need to start testing that in the right format (e.g. landing page) as soon as possible.
Some examples –
Run customer interviews in a usability test format.
1. Instead of verbalizing the unique value proposition, show them a landing page and test positioning.
2. Instead of getting a letter of intent, watch them sign-up to your service and note where they get stuck.
Retention, not Revenue is the Ultimate Validation
Getting paid is only the first form of validation. Providing ongoing value (as measured by customer retention) is the ultimate validation. While this is true for both Enterprise and web businesses, early revenue plays a bigger role towards customer validation in Enterprise software than web software. For one, the purchase order is a lot bigger. Also, because the sales process is a lot harder to close, the barriers to loosing a customer are higher compared to web based software that can be canceled at any time.
Here again, Enterprise Software has a natural customer feedback loop built-in – in the form of account managers whose job is to periodically ensure customer engagement and retention are healthy. In a web based business, you have to build and monitor that feedback loop yourself with potentially thousands of users.
Some examples –
1. Implement an automated lifecycle marketing system that helps drive retention and engagement.
2. Measure/optimize for retention
3. Get Community Managers
Customer Development HAS to scale
I believe that in order to realize Eric Ries’s full vision of the Lean Startup, Customer Development HAS to scale.
- It can’t just be applied at the head and tail ends of the product development cycle but needs to be ingrained throughout the product development cycle.
- It can’t just be applied to finding a problem worth solving and building a MVP but needs to be part of an ongoing process for how features are built and validated.
- It can’t just be limited to interviews, but needs to incorporate other forms of qualitative learning (usability tests) and techniques for reaching customers (lifecycle messaging).