The Customer Development Model: Video

Here are three short videos and text of the introductory course we recently taught on Customer Development Model.

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The Customer Development Model

Product Development
A vision or concept is translated into a set of key ideas and a business plan is produced.
A product is specified, developed and tested.
Sales and marketing infrastructure is created
The product is launched

Problems with Product Development
Problems include overestimation of the market size; buyers don’t buy for unforeseen reasons; cost of production is too high
A strictly product-centric approach is the reason that most startups fail
The product is developed, but the market is not

Customer Development Model
Specified by Steve Blank after the 2000 Dot-com crash
“Get out of the building” and speak to customers and perform product marketing tests
First determined that you are building the right product for the right market
Expensive sales, marketing and company building strategies are executed only after product-market fit is found
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The Search Phase: Customer Discovery and Customer Validation
Startup companies should go through two phases
1) Search for product-market fit
2) Execute on the results of the search
Search phase has two steps, Customer Discovery and Customer Validation

Customer Discovery
Translate the founder’s vision into a business model
Test whether there are customers who believe strongly in your value proposition
To test the assumptions, create a minimal viable version of the product that is shown to customers
Make small iterative changes to the initial product vision
Make a large pivot to a new product or market if the iterative changes don’t lead to success

Customer Validation
After customers confirm that you’re building a great product that satisfies an important need, Customer Validation step begins Try to prove that you have a scalable business model that can deliver the volume of customers to create a viable business
For business models where customers are paying for the product, validation involves making a reasonable amount of sales
For advertising supported business models, validation would consist of exponentially growing the user base to view the ads
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The Execute Phase: Customer Creation and Company Building
Money is spent on sales, marketing and company building strategies
Trying to capture the market that was identified in the search phase
Execute Phase has two steps, Customer Creation and Company Building

Customer Creation
The company spends money to create end-user demand through marketing
Demand is driven through the sales and user acquisition channels
Marketing and sales strategies depend on the market type:
1) Entering an existing market
2) Creating a new product for a new market
3) Re-segmenting an existing market with a low-cost or niche product

Company Building
A transition is made from startup mode to a mature company
Create departments, hire officers and establish the structures and processes that profitable companies need
Often there is a change at the top because a different set of skills and experience is needed to run a mature company