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The Customer Development Theory

The TechCrunch post by Nigel Eccles is chock full of great insights and links into Customer Development Theory – a product development methodology formulated by Steve Blank. If you are an entrepreneur of any kind, it’s a must read.

The Customer Development Theory was created by Steve Blank, a former entrepreneur and investor, and is simply this – there are 4 steps of customer development: customer discovery > customer validation > customer creation > company building. The first two steps are a feedback loop and the most important:

Customer Discovery identifies the people with the problem. Customer Validation is where you push out versions of the product and attempt to gain paying customers.

Steve Blank delivers an in-depth presentation on the process here and if you don’t watch it then you’ve already made a bad decision today.

A takeaway from his presentation is that you have to know the customer’s problem you are solving and more importantly, you have to know everything about that customer. His conviction comes from his long experience with entrepreneurs and investing, from his observation that more startups fail from a lack of customers than a lack of product development. If you don’t “get out of the building” and get to know your customer, then you are hypothesizing. And if you hypothesize into product development, distribution and sales, you dramatically decrease your chance of success.

This also relates to Mark Cuban’s exhortations at the 2008 TechCrunch 50 where he listened to startup pitches and was the only one who asked about sales – where were the real, money-in-the-bank sales? Because once the issue of sales comes up, the natural question is, who’s buying, who is the customer?

We have all been down this path before where we think we’ve found a gold mine of customers so we developed/marketed products to sell them, only to discover that we didn’t have the customers we thought we had. We didn’t have those customers because we didn’t know exactly who those customer were, what they did, why they had “the problem,” and what they were willing to do to solve the problem, ie. buy the product.

Eric Ries is a student of Steve Blank’s, and together in the afore mentioned video they break it out into 2 simple, parallel processes: customer development [the problem] and agile product development [the solution]. Both processes feed and inform each other at the same time. Eric also offers a master class for startups that focuses on both the customer and product development approaches – it’s worth checking out.

No doubt Steve Blank’s book that discusses the Customer Development Theory – The Four Steps to the Epiphany – will be rising on the Amazon charts soon enough.

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