Customer development: Holy Grail or waste of time?

“Life is too short to build the wrong things” – you’ve undoubtedly heard that one before.

At least, that’s how we feel within our product teams whenever we have new ideas on the table. They might all seem cool at first glance, but is there a viable market to uptake them?

As with any (brand new or seasoned) product or service, the Product-Market Fit is the place where you want to be, period. I’ve written about the Product-Market Fit before (from this point on, I’ll refer to it as the “PMF” for brevity). However, to briefly explain it here:-

The PMF is a state where your offering (i.e., a product or a service) satisfies strong market demand, and to a high degree at that. It’s the best spot to be in from the point of view of a vendor. Statistically speaking, the vast majority of all companies (start-ups including) never get there.

Since the PMF is mission-critical for any company, it pays to consider how to reach it in the first place. Indeed, there must have been cases where founders and companies have gotten there intuitively or by sheer luck. That’s all fine and well, but we can’t replicate luck. Fortunately, there is a framework that increases our chances dramatically to succeed in our pursuit of Eldorado.

We at STP (and me personally) like to involve our target customers as early as possible in the validation process.

And this involvement and validation can take various shapes and forms, be it sharing mockups, creativity sessions, hands-on workshops, etc. When we need to (in)validate an assumption or a hypothesis, these are some tools at our disposal.

The tools can vary, of course, but what remains a constant is finding the information that will chart the way for us towards the PMF. All these concepts, notions, and methods are also known as the Customer Development process.

But to take one step at a time:

What is Customer Development

Customer Development is a framework that helps you identify the actual needs of the market and the way to adequately answer those demands while capturing a part of the value in the process.

Steve Blank initially identified this framework, and it includes the following four steps:

• Customer discovery (or simply “Discovery”):
  the starting step where we aim to understand customers and their needs that we might be able to satisfy;
• Customer validation:
  the stage where you (in)validate your hypotheses and assumptions and reach a product that (presumably) satisfies market needs;
• Customer creation:
  the proverbial rubber meets the road as you attempt to create awareness around your product, distribute it, and get data about its success and value;
• Company building:
  the previous three steps worked (yey!), and now you are optimizing and scaling up processes to meet your product or service demand.

Of course, you can repeat the steps above as many times as it is needed. If you already have a company and want to test a new offering, you would use the same framework down to the dot. Likely, you would even need to reorganize your structure to support new offerings.

Why should you use this approach

Whether you start a new product, service line, or even a completely new enterprise, you are bound to have specific ideas about your offering and value propositions. More often than not, what you have in the start are hypotheses and assumptions that need validation. The core benefit of Customer Development is that it provides you with steps that will help you (in)validate your initial ideas.

However, there are some other upsides of Customer Development (and some drawbacks too, but more on that below):

It keeps your ego in check

As odd as it may sound, Customer Development prevents companies and founders from falling in love with their product (the “do you want to be right or make money” dilemma).

First-time founders and mature companies can easily be swayed by their enthusiasm and disregard any clues that might signal that “their baby is ugly.” Founders are naturally quite enthusiastic (and that is a good thing); however, they have to have a system that would prevent them from wasting already quite limited resources (time and money alike).

The Customer Development process, if applied consistently, would invalidate assumptions that led to enthusiasm well before the company invests too much into the new initiative.

This brings us to the following:

CD is inexpensive, yet it saves capital

While it may be viewed as overhead by some, Customer Development is, in fact, able to save you tons of resources. It keeps your focus on mission-critical aspects of your enterprise by shielding you from making some conceptual mistakes early on in the process.

In other words, Customer Development prevents you from spending time and funds on the products that might work. Instead, it allows you to invest in offerings that SHOULD work.

And it is pretty inexpensive to practice customer development. All the tools and methods used in this framework are lean by definition. Need to validate ideas for new features? Do not take the time to build a real-life solution; a mockup would do just fine for the first touch with customers.

As a result, Customer Development can extend a company’s runway while it pursues the PMF holy grail. Likewise, companies that have done thorough research are also much more attractive investment prospects. Presumably, they have already mitigated tons of risks by (in)validating initial hypotheses and assumptions.

It yields battle-tested products and services

This framework probably invalidates most product and service ideas „in their crib“ (i.e., the drawing board). However, those ideas that do make the cut are much more market resilient than the rest. Of course, that by itself doesn’t warrant their success in the real market; still, it gives them an edge.

Products vetted by the process are usually more straightforward yet much more impactful, focusing on customer feedback and their actual needs.

So the CD process is Godsent, right?

Hm, well, about that… As crucial as this framework is, it is also essential to remember it is just a tool. As such, it is only effective if applied consistently and adequately. Furthermore, there are some inherent drawbacks to this process. Customer Development is no panacea, not by a long shot.

The Customer Development process could set you back if:

You use it inconsistently, or not at all

This process can’t be beneficial if you don’t apply it at all. But what does it mean to use it inconsistently?

For example, you might have used this approach to get your prospect customers‘ first round of feedback, leading to an MVP (i.e., a minimal viable product) and the PMF. Congratulations, but that’s hardly the end. Customer Development is a continuous practice that you should integrate into your organization’s DNA to yield the best results.

As to why organizations would avoid applying the CD, it likely could have something to do with its leaders getting emotional towards their ideas. Alternatively, subject matter experts could fall victim to their ego and thus skip this vital exercise.

Ask the wrong questions

You might have the best intentions in the world; however, you will get nowhere if you keep asking the wrong questions.

“But…but… there’s no such thing as bad feedback” I hear you protest, and you would be correct most of the time. But there’s one significant trap of customer feedback conversations that might lead us to bad data.

How can data be bad? Well, if it gives us false negatives (not good) or false positives (even worse), then we are diving into uncharted territory with our product concepts.

According to the “The Mom Test” book, which I wholeheartedly recommend to anyone, bad data are either 1) compliments, 2) fluff (generic info, hypotheticals, talk about future), and 3) ideas.

Compliments like “I love your idea!” or “Your product will be amazing!” or future talk “Yes, I would love using your product once it is live” do not help you. Worse, they mislead you into thinking you’ve stricken gold when all you have is a false positive at best.

While it can be easy to fall victim to false positives, luckily, some techniques can help you deflect bad data and dive deeper into the essence of what you genuinely need to know. I can’t possibly recommend that book enough if this topic interests you.

The timing or secrecy is critical to you

Even when applied correctly, the CD framework has some tradeoffs. It is clear how it can delay the whole product development process, especially if you intend to gather feedback upon every product iteration. Sometimes such effects can be okay but less desirable in other circumstances.

Additionally, if you value developing and preparing your service launch “under the radar,” talking with customers could expose you earlier than you would have wanted to.

It all boils down to what you value the most, be it time to market, the first-mover’s advantage, or nailing down customer needs to a dot.