The Customer Development
Model
Sales, Marketing, and Business
Development in a Startup
Steve Blank
[email protected]
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
© 2003 Steven Blank, all rights reserved
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?
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
Product Development Model
Concept/ Product Alpha/Beta Launch/
Seed Round Dev. Test 1st Ship
© 2003 Steven Blank, all rights reserved
What’s Wrong With This?
Product Development
Concept/ Product Alpha/Beta Launch/
Seed Round Dev. Test 1st Ship
- Create Marcom - Hire PR Agency - Create Demand
Marketing Materials - Early Buzz - Launch Event
- Create Positioning - “Branding”
© 2003 Steven Blank, all rights reserved
What’s Wrong With This?
Product Development
Concept/ Product Alpha/Beta Launch/
Seed Round Dev. Test 1st Ship
- Create Marcom - Hire PR Agency - Create Demand
Marketing Materials - Early Buzz - Launch Event
- Create Positioning - “Branding”
• Hire First • Build Sales
Sales Sales Staff Organization
© 2003 Steven Blank, all rights reserved
What’s Wrong With This?
Product Development
Concept/ Product Alpha/Beta Launch/
Seed Round Dev. Test 1st Ship
- Create Marcom - Hire PR Agency - Create Demand
Marketing Materials - Early Buzz - Launch Event
- Create Positioning - “Branding”
• Hire First • Build Sales
Sales Sales Staff Organization
Business
• Hire First • Do deals for FCS
Development
Bus Dev
9
© 2003 Steven Blank, all rights reserved
What’s Wrong With This?
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
© 2003 Steven Blank, all rights reserved
An Inexpensive Fix
Focus on Customers and
Markets from Day One
How?
11
© 2003 Steven Blank, all rights reserved
Build a Customer Development Process
Product Development
Concept/ Product Alpha/Beta Launch/1st
Bus. Plan Dev. Test Ship
Customer Development
? ? ? ?
12
© 2003 Steven Blank, all rights reserved
Customer Development is as important
as Product Development
Product Development
Concept/ Product Alpha/Beta Launch/
Bus. Plan Dev. Test 1st Ship
Customer Development
Customer Customer Customer Company
Discovery Validation Creation Building
13
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
Customer Discovery:
Step 1
Customer Customer Customer Company
Discovery Validation Creation Building
n Stop selling, start listening
n Test your hypotheses
• Two are fundamental: problem and product
concept
15
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
Three Types of Markets
Existing Market Resegmented New Market
Market
19
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
The Customer Development Team
Tasks Not Titles
Customer Development
Driven Startup
CEO
VP Product Dev Technical Visionary Business Visionary Business Execution
In Front of Customers
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© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
Customer Validation:
Step 2
Customer Customer Customer Company
Discovery Validation Creation Building
• Develop a repeatable sales process
• Only earlyvangelists are crazy enough to buy
25
© 2003 Steven Blank, all rights reserved
Customer Validation:
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
© 2003 Steven Blank, all rights reserved
Customer Validation:
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
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
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
= in house competition 30
= issues to be addressed before a sale © 2003 Steven Blank, all rights reserved
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
= in house competition 31
= issues to be addressed before a sale © 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
The Sales Model:
Starts with What You’ve Learned
Educate & Present
Solution
Operational Technical
High Execs CIO
End IT
Users
Low Staff
33
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
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
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© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
Customer Validation:
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
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
Customer Creation:
Step 3
Customer Customer Customer Company
Discovery Validation Creation Building
• Creation comes after proof of sales
• Creation is a strategy not a tactic
40
© 2003 Steven Blank, all rights reserved
Customer Creation:
Details
Customer Phase 3 Phase 4
Creation Launch Create
Demand
Phase 2 Phase 1
Positioning Set
Objectives
41
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
Customer Creation: Four Activities
Year 1 Positioning Demand Launch
Objectives Creation
Existing
Market
43
© 2003 Steven Blank, all rights reserved
Customer Creation: Four Activities
Year 1 Positioning Demand Launch
Objectives Creation
Existing • Market share • Differentiation • Create/drive • Credibility/
Market & credibility demand into delivery
sales channel
• Product • Existing basis of
differentiation competition
44
© 2003 Steven Blank, all rights reserved
Customer Creation: Four Activities
Year 1 Positioning Demand Launch
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
© 2003 Steven Blank, all rights reserved
Customer Creation: Four Activities
Year 1 Positioning Demand Launch
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
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
Company Building:
Step 4
Customer Customer Customer Company
Discovery Validation Creation Building
• Move from earlyvangelists to mainstream
customers
• (Re)build your company’s organization &
management
51
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
New Market Chasm
54
© 2003 Steven Blank, all rights reserved
New Market =
Hockey Stick Sales Curve
55
© 2003 Steven Blank, all rights reserved
Existing Market Chasm
56
© 2003 Steven Blank, all rights reserved
Existing Market =
Linear Sales Growth
57
© 2003 Steven Blank, all rights reserved
Resegmented Market Chasm
58
© 2003 Steven Blank, all rights reserved
Resegmented Market =
Complex Sales Growth
Year 7
Year 6
Year 5
Year 3 Year 4
Year 2
Year 1
59
© 2003 Steven Blank, all rights reserved
Evolution of Management Strategy
Customer Company Large
Development Building Company
Development Mission-centric Process-centric
Team-centric
60
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
Summary
Customer Development
Customer Customer Customer Company
Discovery Validation Creation Building
63
© 2003 Steven Blank, all rights reserved
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
© 2003 Steven Blank, all rights reserved
[email protected] 65
© 2003 Steven Blank, all rights reserved
