The Customer Development Model

The Customer Development
Model
Sales, Marketing, and Business
Development in a Startup
Steve Blank
sblank@KandSranch.com
Goals of This Presentation
n Offer a model for how to organize “out of the

building” activities
n Understand how the Customer Development
model can help
• Methodology
• Checklist
• Model works for startups as well as follow-on
products of existing companies
• reduce customer and market risk
© 2003 Steven Blank, all rights reserved

How to Recognize a Company Funded
in the Bubble

Tough Times
n VC’s are back to basics

• $’s not available to cover execution errors
• CEO’s pay with their jobs (and sometimes company)
n Startups must go back to basics as well
n How?
n Build a model that minimizes errors and risk
n What risks?

More startups fail from
a lack of customers than from a
failure of product development
n We have process to manage

product development
n We have no process to manage

customer development

Product Development Model
Concept/ Product Alpha/Beta Launch/

Seed Round Dev. Test 1st Ship

What’s Wrong With This?
Product Development

- Create Marcom - Hire PR Agency - Create Demand

Marketing Materials - Early Buzz - Launch Event
- Create Positioning - “Branding”

Product Development


• Hire First • Build Sales

Sales Sales Staff Organization

Product Development


• Hire First • Build Sales

Sales Sales Staff Organization
Business
• Hire First • Do deals for FCS
Development
Bus Dev
9

n Sales & Marketing costs are front loaded

n Sales, Marketing focused on execution versus learning and discovery
n First Customer Ship becomes the goal
n Execution and hiring is predicated on business plan hypothesis
n Heavy spending hit if product launch is wrong
n Unrealistic financial projections, assumes all startups are the same
=
You don’t know if you’re wrong until you’re out of
business/money
10

An Inexpensive Fix
Focus on Customers and

Markets from Day One
How?
11

Build a Customer Development Process
Product Development
Concept/ Product Alpha/Beta Launch/1st

Bus. Plan Dev. Test Ship
Customer Development
? ? ? ?
12

Customer Development is as important
as Product Development
Product Development

Bus. Plan Dev. Test 1st Ship
Customer Customer Customer Company

Discovery Validation Creation Building
13

Customer Development: Big Ideas
n Parallel process to Product Development
n Measurable Checkpoints for the CEO
n Not tied to FCS, but to customer milestones
n Iterative to represent reality
n Executed by a small team including CEO
14

Customer Discovery:
Step 1

n Stop selling, start listening
n Test your hypotheses

• Two are fundamental: problem and product
concept
15

Customer Discovery:
Details
Phase 3
Phase 4
Customer Test
Discovery Iterate &
Product
Expand
Concept
To Validation
Phase 1
Phase 2 Hypothesis
Test
Problem
Hypothesis
16

Customer Discovery Hypotheses
n Product n Distribution/ Pricing

• Features • Distribution Model
• Dependency Analysis • Revenue Model
• Benefits • Sales Cycle/Ramp
• Product Delivery Schedule • Channel strategy
• Intellectual Property • Pricing
• Total Cost of Ownership • Customer Organization Map
• Demand Creation
n Customer/Problem
• Types of Customers n Positioning and Differentiation
• Magnitude of the problem • Existing Market
• Customer Problem • New Market
• A Day in the Life of a customer • Redefine Existing Market
• Organizational impact
• ROI Justification
• Problem Recognition
• Minimum Feature Set
17

Customer Discovery: Rules
n Rule 1:
Facts are outside the building, opinions are inside.
n Rule 2:
Solve a problem that customers say is important and
valuable
n Rule 3:
Does the product concept solve that problem?
18

Three Types of Markets
Existing Market Resegmented New Market

Market
19

Three Types of Markets
Existing Market Resegmented New Market

Market
n Market n Sales
• Market Size • Sales Model
• Cost of Entry • Margins
• Launch Type • Sales Cycle
• Competitive Barriers • Chasm Width
• Positioning
• Finance
• Ongoing Capital
• Time to Profitability
20

Customer Discovery: Big Ideas
n Big Idea 1:
There are three types of startups. Which are you?
n Big Idea 2:
Are there customers for the product as spec’d?
n Big Idea 3:
Are you synchronizing customer and product
development early and often?
21

Traditional organizations and titles fail
Typical Startup
CEO
VP Engineering VP Marketing VP Sales VP Business Dev
n People equate their titles with their functions

• But standard titles describe execution functions
• We need new titles = learning & discovery functions
22

The Customer Development Team
Tasks Not Titles
Driven Startup
CEO
VP Product Dev Technical Visionary Business Visionary Business Execution
In Front of Customers
23

Customer Discovery: Exit Criteria
n What are your customers top problems?

• How much will they pay to solve them?
n Does your product concept solve them?

• Do customers agree? How much will they pay?
n Draw a day-in-the-life of a customer

• before & after your product
n Draw the org chart of users & buyers

24

Customer Validation:
Step 2

• Develop a repeatable sales process

• Only earlyvangelists are crazy enough to buy
25

Details
Phase 3 Phase 4
Customer
Validate Business
Validation
w/Orders Model
Verified
From Discovery
To Creation
Phase 1
Phase 2
Get
Develop
Ready
Sales
to Sell
Roadmap
26

Finding an “EarlyVangelist”
EarlyVangelist
Has / Or can Acquire

a Budget
Has Put Together a Solution

out of Piece Parts
Has Been Actively Looking For a Solution
Know They Have a Problem
Has A Problem
27

Customer Validation: Big Ideas
n Big Idea 1:
The goal is build a repeatable sales process
Orders are proof that the process works
n Big Idea 2:
Only earlyvangelists are crazy enough to buy
unfinished products
n Big Idea 3:
No orders? Back to Discovery
n Big Idea 4:
Early customers help spec version 2
28

Build the Organization Map
Dave Jones
CEO
Karen Rogers
VP Marketing
Neil Garrett Suzanne Kellogg

VP Database VP Merchandizing
Marketing
Our Potential
Customer
= in house competition 29
= issues to be addressed before a sale © 2003 Steven Blank, all rights reserved
Build the Organization Map:
One Step at A Time
Dave Jones
CEO
Ben White Karen Rogers

VP Sales VP Marketing
Joe Black Neil Garrett Suzanne Kellogg

Dir. Sales Operations VP Database VP Merchandizing
Marketing
Leslie Elders
Financial Modeling
Our Potential
Customer
Organization Map
Dave Jones
CEO
Ben White Karen Rogers Roger Smith

VP Sales VP Marketing CIO
Joe Black Neil Garrett Suzanne Kellogg Phil Whitry

Dir. Sales Operations VP Database VP Merchandizing Director IT
Marketing
Leslie Elders Geoff Smith

Financial Modeling Financial Tools
Development
Our Potential
Customer
The Influence Map
Functional Technical
High Executive 1 2 CIO or Division IT executive

Low End Users 3 4 Corp. IT staff or Division IT
32

The Sales Model:
Starts with What You’ve Learned
Educate & Present

Solution
Operational Technical
High Execs CIO
End IT
Users
Low Staff
33

The Sales Model:
Adds Access, Assessment & Strategy
Access Assess Strategy Educate & Present

Needs Solution
Finance
Product Operational Technical

Mgmt
Sales High Execs CIO

Intro Account
Meetings Strategy
Corp. End IT
Mktg Users
Low Staff
Support
IT
34

The Sales Model
Access Assess Strategy Educate & Present Sell, Sell, Sell, Sell
Needs Solution
Finance
Product Operational Technical

Mgmt
Sales High Execs CIO

Intro Account Implement Proposal
Meetings Strategy Plan
Corp. End IT
Mktg Users
Low Staff
Support
IT
35

The Sales Pipeline
4. Understand
1. Prepare 2. Initial Meeting Existing Situation
• Hoovers, One • Ask tough questions a) Technology
Source, Web • Do Buy- In Demo
3. Qualify?
b) Organization
c) Competition
5. Custom Pitch
• Prepare! 6. Win Over IT 7. Define Problem 8. ROI Pitch
• Get NDA signed • Tech deep dive • Develop Action Plan • Prove the Value!
9. Exec Session
• Set expectations for
this meeting early on.
10. Solution 11. Formal Pricing 12. Negotiate

Session Proposal • Sales
• Detailed
• Tech discovery 13. Close!
• No surprises! • Finance
• Support
36

Customer Validation: Rules
n Rule 1:
Build a sales roadmap, not a sales staff
n Rule 2:
Roadmap is an org chart plus an influence map
n Rule 3:
No sales staffing until the roadmap is proven
n Rule 4:
The sales roadmap becomes the sales pipeline
37

Details
Phase 3 Phase 4
Customer
Validate Business
Validation
w/Orders Model
Verified
Back to Discovery if no Sale To Creation
Phase 1
Phase 2
Get
Develop
Ready
Sales
to Sell
Roadmap
38

Customer Validation: Exit Criteria
n Do you have a proven sales roadmap?

• Org chart? Influence map?
n Do you understand the sales cycle?

• ASP, LTV, ROI, etc.
n Do you have a set of orders ($’s)

validating the roadmap?
n Does the financial model make sense?
39

Customer Creation:
Step 3

• Creation comes after proof of sales

• Creation is a strategy not a tactic
40

Customer Creation:
Details
Customer Phase 3 Phase 4

Creation Launch Create
Demand
Phase 2 Phase 1
Positioning Set
Objectives
41

Customer Creation: Big Ideas
n Big Idea 1:
Four Customer Creation activities:
• Year One objectives
• Positioning
• Launch
• Demand creation
n Big Idea 2:
Creation activities are different for each of the
three types of startups
n Big Idea 3:
There is no first mover advantage
42

Customer Creation: Four Activities
Year 1 Positioning Demand Launch

Objectives Creation
Existing
Market
43


Objectives Creation
Existing • Market share • Differentiation • Create/drive • Credibility/

Market & credibility demand into delivery
sales channel
• Product • Existing basis of
differentiation competition
44


Objectives Creation
Existing • Market share • Differentiation & • Create/drive • Credibility / delivery

credibility demand into the • Existing basis of
Market • Product sales channel competition
differentiation
Reframing • Market • Segmentation & • Educate • Segmentation,

reframing + innovation market on delivery and
Existing
new market change innovation
Market share • Redefining
existing market • Drive demand • New basis of
& product into channel competition
differentiation
45


Objectives Creation
Existing • Market share • Differentiation & credibility • Create/drive demand • Credibility / delivery
Market • Product differentiation into the sales channel • Existing basis of
competition
Redefining • Market • Segmentation & innovation • Educate market on • Segmentation, delivery

Existing reframing & • Redefining existing market & change drive demand and innovation
new market product differentiation into channel • New basis of
Market
share competition
• Market • Vision & innovation • Customer • Credibility &

New adoption in new market education innovation
Market • Defining the new • Drive early • Mkt education,
market, the need & adopters into standards
the solution sales channel setting, & early
adopters
46

Customer Creation: Type of Launch
Year 1 Launch
Objectives Type
Existing • Market share
Market
Reframing an • Market resegmentation

Existing Market & new market share
• Market adoption
New
Market
47

Customer Creation: Type of Launch
Year 1 Launch
Objectives Type
Existing • Market share
Market
• Onslaught
Redefining • Market reframing & • Education &

Existing Market new market share appropriate share
• Market adoption • Education

New
Market
48

Customer Creation: Rules
n Rule 1:
No demand spending until customer validation
n Rule 2:
Match the creation strategy to the company
n Rule 3:
Match the spending goals to year 1 objectives
n Rule 4:
You can’t get customers if they aren’t there
49

Customer Creation: Exit Criteria
n Which startup strategy are you executing?
n Positioning tested & complete?

n Launch strategy match startup type?
n Demand creation activities match startup
type?
n Year 1 objectives match startup type?
50

Company Building:
Step 4

• Move from earlyvangelists to mainstream

customers
• (Re)build your company’s organization &
management
51

Company Building:
Details
Phase 4
Scale Phase 3 Build
Company Transition Fast-Response
Development Team Departments
To Departments
Phase 1
Phase 2
Earlyvangelist to
Review Mgmt/
Mainstream
Mission-centric
Customer
Culture
Transition
52

Company Building: Big Ideas
n Big Idea 1:
Geoff Moore was right - there is a chasm, but…
• The chasm differs by market type
n Big Idea 2:
Management strategies need to change as the company
grows
• Development-team centric ⇒Mission -centric ⇒Process-centric
n Big Idea 3:
Mission-oriented culture is the “bridge” culture
• Unanimity and clear understanding of purpose, focus & direction
• Adaptability, empowerment, initiative
53

New Market Chasm
54

New Market =
Hockey Stick Sales Curve
55

Existing Market Chasm
56

Existing Market =
Linear Sales Growth
57

Resegmented Market Chasm
58

Resegmented Market =
Complex Sales Growth
Year 7
Year 6
Year 5
Year 3 Year 4
Year 2
Year 1
59

Evolution of Management Strategy
Customer Company Large

Development Building Company
Development Mission-centric Process-centric

Team-centric
60

Mission Culture &
Fast Response Departments
n Not the traditional PR mission statement
• Mission + Intent
• Actionable words, achievable goals
• Driven down to the lowest operational units
n Organizing principle of Fast-Response Departments

• Based on John Boyd’s OODA loops
• Observe, Orient, Decide & Act
61

Company Building: Exit Criteria
n Does sales growth plan match market type?

n Does spending plan match market type?
n Does the board agree?
n Is your team right for the stage of company?
n Have you built a mission-oriented culture?
62

Summary

63

Summary: Why Should I Care?
n VC’s will no longer pay for startups mistakes
n You now have tools for:

• course correction
• management
• planning
• deliverables
64

sblank@KandSranch.com
65

The Customer Development Model

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Formate disponibile

The Customer Development

n Offer a model for how to organize “out of the

© 2003 Steven Blank, all rights reserved

© 2003 Steven Blank, all rights reserved

n VC’s are back to basics

© 2003 Steven Blank, all rights reserved

n We have process to manage

n We have no process to manage

© 2003 Steven Blank, all rights reserved

Concept/ Product Alpha/Beta Launch/

© 2003 Steven Blank, all rights reserved

Concept/ Product Alpha/Beta Launch/

- Create Marcom - Hire PR Agency - Create Demand

© 2003 Steven Blank, all rights reserved

Concept/ Product Alpha/Beta Launch/

- Create Marcom - Hire PR Agency - Create Demand

• Hire First • Build Sales

© 2003 Steven Blank, all rights reserved

Concept/ Product Alpha/Beta Launch/

- Create Marcom - Hire PR Agency - Create Demand

• Hire First • Build Sales

© 2003 Steven Blank, all rights reserved

n Sales & Marketing costs are front loaded

© 2003 Steven Blank, all rights reserved

Focus on Customers and

© 2003 Steven Blank, all rights reserved

Concept/ Product Alpha/Beta Launch/1st

© 2003 Steven Blank, all rights reserved

Concept/ Product Alpha/Beta Launch/

Customer Customer Customer Company

© 2003 Steven Blank, all rights reserved

n Parallel process to Product Development

n Measurable Checkpoints for the CEO

n Not tied to FCS, but to customer milestones

n Iterative to represent reality

n Executed by a small team including CEO

© 2003 Steven Blank, all rights reserved

Customer Customer Customer Company

n Stop selling, start listening

n Test your hypotheses

© 2003 Steven Blank, all rights reserved

© 2003 Steven Blank, all rights reserved

n Product n Distribution/ Pricing

© 2003 Steven Blank, all rights reserved

© 2003 Steven Blank, all rights reserved

Existing Market Resegmented New Market

© 2003 Steven Blank, all rights reserved

Existing Market Resegmented New Market

© 2003 Steven Blank, all rights reserved

© 2003 Steven Blank, all rights reserved

VP Engineering VP Marketing VP Sales VP Business Dev

n People equate their titles with their functions

© 2003 Steven Blank, all rights reserved

VP Product Dev Technical Visionary Business Visionary Business Execution

© 2003 Steven Blank, all rights reserved

n What are your customers top problems?

n Does your product concept solve them?

n Draw a day-in-the-life of a customer

n Draw the org chart of users & buyers

© 2003 Steven Blank, all rights reserved

Customer Customer Customer Company

• Develop a repeatable sales process

© 2003 Steven Blank, all rights reserved