What Is Customer Development?
Date : January 17, 2021 By
If you search for “customer development” on Google, you will find a ton of resources, and a lot of it is good. But after teaching this skill in person for nearly 10 years I’ve concluded that reading about customer development is not sufficient to put it into practice. This course is about taking action and actually starting customer development today.
Put simply, the term customer development means talking to potential customers of your business to learn whether or not a problem exists and if your solution might actually solve it for them. This must be done at the idea stage, not after building and launching your product or service.
Of course this process can, and should, be used repeatedly over the lifespan of your business, but this initial effort will give you essential information around whether or not you should even embark on this business venture in the first place. And, it will often lead you to an even bigger problem/solution than your original idea.
There are four stages of customer development: Customer Discovery, Customer Validation, Customer Creation and Company Building.
- Customer Discovery – This stage is about understanding who your customer is and what meaningful problems they have. This is largely done through primary and secondary research like surveys and customer interviews. You will almost certainly repeat this step several times in order to fully identify a customer segment with a problem worth solving.
- Customer Validation – This is when you launch a product or service and customers begin paying for it. This confirms that you are solving a real problem at a price customers are willing to pay.
- Customer Creation – Here is where you expand your reach through sales and marketing to build greater demand for your product or service.
- Company Building – And finally you transform your organization from “startup” to “mature” business
If you are a startup or launching a new business, you really only need to worry about Customer Discovery and Customer Validation because once you have successfully iterated through these stages, you will either have found product market fit or you won’t.
The work you do in these stages will:
- Provide powerful insights around customer needs that are rarely obvious
- Helps achieve and reduces time to product-market fit
- Delay investing significant resources until a proven and justifiable need is found
- Understand if your idea actually solves the problem
- Conclude that people will pay a price for your product where you can make a profit
Let’s check out a few examples of companies have done well at customer development:
Slack Customer Development
Slack made customer feedback the epicenter of its efforts. In fact, founder Stuart Butterfield responded to the majority of Twitter comments from users in the first year. This approach helped Slack learn about customer needs in near real-time which boosted user satisfaction and enabled them to iterate quickly. Even today, Slack gives users numerous ways to “get in touch” and this has been a key success factor for the company. This has been crucial for Slack getting customer development just right.
Twitch Product Market Fit
If you’re not familiar with Twitch, it’s a streaming video game platform that was bought by Amazon for a billion dollars in 2014. The company was actually created from a pivot of a slightly different video streaming business. One of the things Twitch co-founder Kevin Lin did so well was figuring out who were the right users to talk.
You see, in the case of Twitch, they had two primary users: streamers – people that played video games and wanted to live-stream themselves; and viewers – people who watched live-streaming video games. Justin and his team didn’t know which group would be the more important users to take product and feature cues from. So they talked to a ton of people, people that played games, people that watched videos of games, people that streamed games and everyone else they can think of. And they concluded that it was the streamers that should define the product because they found that watching content was less about the “how” and more about the “what”. In other words, people who watched gaming videos mostly cared about the quality of the content. So Justin focused the team on building features that enabled streamers to create higher quality content.
Founder Brian Chesky started the business with his roommate to make a few extra bucks renting air mattresses to event goers in his San Francisco loft. Brain quickly realized there might be a bigger business here — that finding places to stay when visiting busy cities is actually a problem. Brian nailed customer development from day one when he famously lived in Airbnb’s for several months during 2010. In fact, he and his founders moved to New York to be close to his customers and spent most of his time talking to them. They went to every location, took professional photos and figured out what “owners” needed to feel comfortable renting out their space. This of course helped Airbnb achieve product-market fit.
Airbnb Problem Identification
Like Twitch, Airbnb has two customer segments: renters – people who need a place to stay; and owners – people with properties they are willing to rent. After talking to both customers, Brian and team realized that the owners were the more important segment to focus on. They learned that having the right inventory, at the right price, with the right experience would entice renters to use the service. So they focused on building a product that made it easy for owners to list and present their properties — and to make money doing it. In short, they nailed problem identification.
In all of the cases above, the founders took on customer development personally. They decided from day one that talking to customers was paramount and the subsequent success of these three businesses is evidence that approach worked.
Ok, we’ve covered the basics and we’ve looked at some examples. Now you are ready to begin the customer development journey for your own business. Read more on my blog or take a look at my comprehensive online course on customer development.