Beginning Customer Development

Kevin Dewalt EBook on Lean Startup Customer Development

=== Excerpts ===

Chapter 1 - The Big Idea

First….do you know the BIG IDEA? Do you know WHY the whole world seems to be talking about Customer Development

We were doing everything right — and failing

In 2008 I was ready to quit the startup scene

Steve Blank’s big idea

And thus, the big idea is………………..

Big companies execute plans. Startups discover plans

Your job, as an entrepreneur is to DISCOVER a new, scalable way to make money

rather than spend all of your money and time executing on idea #1, figure out how to get to the 9th idea that will actually work

finding that 9th plan is one of the hardest things in the world to do. Fortunately we have a process that you can follow, and that process is called Customer Development

Customer Development, step-by-step

Activity:

Come up with a startup idea

If you are looking for a Startup Idea my suggestion is to first pick your market, [Refer: Appendix-1

Chapter 2 - Document your Business Model Assumptions

write down your business model

They usually write too much (bad idea

These canvases are not mean to be read as stand-alone documents — they are a means of recording assumptions — assumptions that you are going to test

Most importantly spend your time on the Big 3 Risks:

• Risk # 1 ………. You are not solving a real problem.
• Risk # 2 ………. You can’t get paid to solve the problem.
• Risk # 3 ………. You can’t find a scalable well to sell the solution

Stop thinking about competition & solution - they don’t matter as much

Why you should only spend 5 minutes on this activity

your idea is 90% wrong — you just don’t know which 10% is right. But that’s ok, that’s how great ideas start. The good news is that we are going to spend the next few chapters identifying the worst parts of your business model so you can make them better — that is to say, so you can start searching for the plan that works. Just get it down on paper, the real work and value is what comes next

Chapter 3 - Create Customer Interview Scripts

You are going to treat the major components of your business model as a set of hypotheses and write out an interview script to test each one of them

Never, ever, ever, ever ask… 　　　　Would you use…? 　　　　Would you pay X for…?

Ask about behavior and motivations

Review your model and script with someone

Pretend they are your potential customer and do a mock interview

These people WANT to help you do this for FREE

Chapter 4 - Interview Customers

Have a process — or you will soon quit

Create a running list of people to interview — start by writing down everyone you know

Block out times when you are free for calls — and get a Virtual Assistant to help schedule

After the call, ask for more intros

You can get into a rhythm of meeting or calling 2-3 people a day

Don’t just look for your initial target customer - you really don’t know, so just imagine anyone who might have the Problem or a related one and interview them too — if nothing else they may give you a good intro

What if you can’t find potential Customers TO Develop?

Stop. You may have a really big problem — how in the world are you going to sell the product if you can’t even find people to talk to?

Better still - get the customers to come to you

The interview process I describe above is great if you have lots of potential customer relationships. But what if you don’t?

Start a Meetup or organize an event on the topic

Start interviewing industry experts

Implement a Helpful Marketing™ strategy

Some people call this an “office hours” approach - block out time to help potential customers for free — you get to know them AND hear their problems.

Create a free course

Contact people who sign up at your landing page

Justin Wilcox has some brilliant techniques for quickly finding customers

Before you go on — let us review our goal

The enemy is between your ears

you desperately WANT plan #1 to be right

Chapter 5 - Don’t Interview. Don’t Pitch. Have a Conversation Instead

give the other person the feeling that you are having a conversation about a problem and the best way to solve it

Get them talking — and dig

Yes, you have an interview script but you don’t want to read it. Instead have a conversation

Then as the conversation allows drop in the questions. The references below have some great examples of how to do this

Bring something of value to get something of value

you know what the interviewee’s peers think about this Problem and how they are solving it.

Questions you should (almost) always ask

1. What do you buy now?

2. Do you have any advice for me?

This Chapter is a bit shorter because the references below are excellent

Chapter 6 - Interpret Your Interview Results

Take notes when you are done

You don’t need anything fancy — I just open Microsoft Word and start writing. I have tried more formal systems that allow me to document dates, whether assumptions passed or failed, question results, etc. Most of it was more work than it was worth, honestly

Don’t get discouraged — FAIL is the expectation

Think about it for a moment - isn’t this what you should expect?

Start with “Who?” — and begin creating personas

As you start taking notes, focus on the person you interviewed. What is her job? Biggest problem? Start forming a persona based on her like this

It also makes note taking a lot easier — “Just spoke to Joan Wiggins — a Sarah

A tale Alfred and Gordon

I didn’t anticipate the Alfred/Gordon distinction when I started - it took months and dozens of conversations

He’s about 85% Gordon — follow-up

To bring a new valuable product to market you need to be the best in the world at knowing your personas — and that is no exaggeration

After “Who”, then explore “What?”

Resist the temptation to change everything based on a few conversations — generally it should take about 10 before you see patterns. If you keep changing things you will never get anywhere

Emotions in motion?

Pay special attention to any time the interviewee gets emotional

Keep asking “why?” and “why not?” Emotional responses only happen because of problems — and your job is to learn everything you can about them

Pro-tip: write down the emotionally-charged words and phrases

Take extra care to write down exact words and exact phrases — you will need them for the copy on your landing pages and other marketing material

Follow-up immediately afterward

Extra credit — start forming your “1 Killer Question

Your “1 Killer Question” is usually one that can instantly invalidate the riskiest assumption in your model

Chapter 7 - How to Know when You are Done Doing Customer Development

you are going to find that some of your assumptions fail the tests — and so you will replace them with new assumptions. In the Lean Startup community we call these “pivots

When you realize it is time to pivot just update you business model canvas, update your interview script, and — if necessary — starting building a new list of potential customers to talk to. In other words, go back to Chapter 2–6 and revise everything

You may realize you hate your first idea and decide to work on a different startup idea. This isn’t a pivot, but a reset

Just be wary of constantly resetting every time you run into adversity

How do I know when I have sufficiently reduced the risks to my plan such that I should begin executing on it?

Stop when you stop learning

Chapter 8

Reality: What You must Expect from this Process

It hasn’t helped me discover great ideas — only eliminate bad ones

Appendix-1 - Looking for Startup Ideas – First Pick the Market You Want to Serve

there were lots of markets I thought I would be happy serving. But when it actually came time to working for them I realized I had an idealized vision of their needs

Appendix-2 - Problem, Revenue, Channel: The 3 Critical Startup Questions

All businesses have risks, but drug discovery obviously has very different risks than a mobile dating app. Over time I have realized that all web and mobile startup risks are very similar

Risk 1: Does Your Product Solve a Real Problem?

The Problem block should be the very first block you fill out and you should start testing problem assumptions on day 1 though unstructured interviews with potential users and customers

Risk 2: Can You Get Paid (Revenue) to Solve the Problem?

the world is rife with problems that are not cost effective to solve. For often seemingly irrational reasons, people simply won’t pay for a solution to their problems

Charging for a solution before it is built is the best way to answer initial questions about revenue but this isn’t always practical

Risk 3: Is there A Cost-Effective Way (Channel) to Acquire Customers?

The best way to identify Channel risks is to model and test them. Most web and mobile startups do this by running Google Adwords or content marketing campaigns.

Problem THEN Revenue THEN Channel

Practically speaking, I tackle these risks in order because each one takes an intense amount of time and focus

Next Comes Solution, Competition, and Everything Else

Appendix-3 - How a 1-Page Business Model Will – and Won’t – Help Your Lean Startup

Much Better Than a Business Plan

Great for Extended Team Communication

Excellent for Existing Markets or when Customer Problems are Clear

Limitations of 1-Page Business Models

Less Useful for New Market (“Blue Ocean”) Products

Sure, you can fill out a canvas but you will quickly realize that 95% of your effort is around trying to understand the customer problem

The most effective process I have found for these situations is Jeff Gothelf’s Lean UX

Lack Dimensions of Risk & Time

Which risk are biggest? What is the best order to test them?

Appendix-4 - Bad Customer Development Questions and How to Avoid My Mistakes

Learn Nothing” Questions

If you could wave a magic wand…” I know Steve Blank calls this the “IPO question”. I call it the “sit back and watch people ramble about things I have no chance of building” question. I have asked this question at the end of meetings and — after some funny looks — watched somebody ramble

Can you tell me about your problems with medical bills?” I asked this question a few times before realizing that asking people to talk about problems just results in venting and no learning

False Positive” Questions

I am building a product to help people manage medical bills. Can you tell me…”.... Any question that starts with the solution already biases people’s expectations

How do you reconcile your HSA account with your bills, receipts, and statements to make sure you are optimizing future tax savings?”

customers will be biased to tell us they need help with something after we cause them to doubt their own competence

Better: “What do you do with that HSA paperwork?” ... Would you take a picture of a medical bill with your iPhone?”

Better: “Do you scan or file medical bills you get in the mail?”

The Key to Effective Customer Development

In retrospect, the root of my bad questions was that I only had an idea — I didn’t have specific hypothesis I was trying to validate

Appendix-5 - Pricing Your Product: How to Discover What to Charge in Customer Development

It turns out you can make this whole process a lot easier with one effective question that I will explain today

Pricing is a MAJOR Risk – And We Need to Test It

Most of What is Written About Pricing Didn’t Help Me — It was About OPTIMIZING Pricing, Not Searching for Early Signals

Would someone pay ANYTHING to solve this problem?

What Do You Buy Now?”

when you hear the answers, dig deeper: ask Why, How Long, etc

Critical Learning #1 – WHO Buys Things

You can cut through the clutter by identifying two types of people:

• 1. People who don’t pay for anything.
• 2. People who pay for all kinds of things

Critical Learning #2 – Potential Customers’ True Motivations & Real Problems

Always ask “Why” people pay for things. It turns out what people pay for is a great way to get insight into what they really care about — not what they like to think they care about

Critical Learning #3 – Their Values & Worldview

signal

Critical Learning #4 – Related Products & a Pricing Range

Appendix-6 - How I Make Customer Development Interviews less Weird and More Natural

finding that people won’t talk about their problems. Some even say, “we have no problems”. This is particularly true in Asian cultures where “saving face” can be important for people. Customer Development interviews can seem very weird outside of Silicon Valley

99.999% of the world — including almost all of your customers — are going to assume that you are trying to sell them something

They are expecting a pitch and you are asking probing questions

Tip 1: Genuinely Appeal to People’s Egos and Ask for Advice

It sets the expectation that the Customer will be talking and that you’ll be listening, asking more detailed questions

Tip 2: Keep it Casual and Short

plan for 20 minutes

Tip 3: Give Them Some Unique Insight

Tip 4: Properly Frame the Background Questions

Well before I tell you about my idea I would like to ask you a few background questions about how you work today. Is that ok?”.

Better Yet — Become a Thought Leader and Know Lots of Customers

I now start any new project by first thinking about how I can start building an audience and being seen as an expert

Most entrepreneurs start with a blog, but I have actually had more success with other tactics such as creating meetups, having office hours, creating directories, and office hours

Appendix-7 - Why Lean Startups are Hard – Our Genes Aren’t Lean

I have concluded the real source of Lean Startup frustration will be much harder to overcome: We are not wired to think lean

we have evolved biological thinking that is decidedly un-lean

Beliefs come first, explanations for beliefs follow

You can’t discover an answer if you think you already have it

Spending your day as both a salesman and a scientist is a tough balance, but one that we are forced to make

My instinct for quickly identifying the biggest risk areas for a new product is getting better, and I am now able to cycle through ideas in weeks—a process that used to take months

Fortunately, we homo sapiens have spent a few hundred years creating a tool to help us combat our inclinations: The Scientific Method

If we don’t learn to think skeptically then every tactic and strategy in our Lean Startup tool-chest is worthless

Appendix-8 - How to Know if you’ve “Done Enough” Customer Development to Start Building

Here is why I stopped doing Customer Development

Reason 1 — I wasn’t Learning Anything New

I can’t say that answers to my survey questions started to become predictable

It would be more accurate to say that I just wasn’t getting any new insight to inspire the next step

Reason 2 — Since it is a New Market, People Need to Try It

Reason 3 — I am Tired of Just Talking to People

Appendix-A - Accelerate Your Customer Development: How to Quickly Get Dozens of Interviews

I don’t typically see patterns until I talk to 20 or more people, a process that takes me 2-3 weeks

Normally I run into either (1) a dead-end or (2) am forced to make a significant enough pivot that I restart the process from scratch

Create Running List of Candidates

Organize my Calendar and Give Instructions to my Virtual Assistant

Create my “Intro Request” Script in Text Expander

this is the exact text of what I used today

I normally end every call with two remarks. First, I offer to return the favor anyway I can. Second I ask for intros to other people. After the call – immediately if I can – I send that email

When an Intro Happens, Follow-up Quickly

On my current project I have been following this process for 4 months

Nevertheless, it is not nearly as painful as investing months or years building something that nobody buys

Appendix-B - What is Your Customer Development Viral Coefficient?

If every person you talk to introduces you to two more people, you are golden. If you are not getting introductions, you are in trouble

YOU are NOT the problem. You are doing everything right.

But your chances of success largely depend on what you do next

Appendix-C - What if you can’t Find Customers to Develop?

Don’t Do What I have Done

First, Stop What You are Doing

These problems are symptom of a larger issue

Second, Troubleshoot the Source

Some tactics that have worked for me

Review your problem/solution interviews and start looking for patterns

Ask people why they didn’t introduce you to anyone else

Write down every possible channel you can think of

Go to a conference related this problem or market

Third, Pivot

make the best possible guess at a new direction

Pick a new direction and re-start your Problem/Solution interviews

Finally, Be Patient

Appendix-D - How to Hack Customer Development with Your Landing Page

Step 1 – Be Clear on Your Goal: Initial Insight

Step 2 – Create Content about the Problem

Step 3 – Create a Landing Page

Setup notifications so you get a message whenever someone opts-in

Step 4 – Develop a Quick Persona Hypothesis

take a few minutes to search for the person’s email address. Sometimes you will be able to learn quite a bit in just a few minutes — sometimes you won’t learn anything. Both are revealing

Step 5 – Instant, Personalized Follow-up Email

Once you have a Persona, send them a short email — 3-5 sentences is enough. I deliberately try to come across as informal and make it personal so they know it isn’t yet another random mail bot

Step 6 – Evaluate and Record Responses

Step 7 – Evaluate and Share Results with Stakeholders

Continue Until You Stop Learning

Usually this happens after about 20-30 responses