Customer Development Class 3 And 4 090509

Customer Development in theHigh Tech Enterprise

Customer Development

Steve Blanksblank@kandsranch.com

Customer Development in the High-Tech Enterprise Fall 2009

Agenda

! Logistics/Questions! Market vs. Technology Risk! Boyd & the OODA Loop! Customer Development! CASE: IMVU! CASE: WebVan

Market VersusTechnology Risk

Startup Checklist – 1What Vertical Market am I In?

! Web 2.0! Enterprise Software! Enterprise Hardware! Communciaton Hdw! Communication Sftw! Consumer Electronics! Game Software

! Semicondutors! Electronic Design

Automation! Cleantech! Med Dev / Health Care! Life Science / Biotech! Personalized Medicine

A Plethora of Opportunities

Startup Checklist - 2

! Market Risk?! Technical Risk?! Both?

Market Risk vs. Invention Risk

Startup Checklist - 3

! Opportunity Where does the idea come from?! Innovation Where is the innovation?! Customer Who is the User/Payer?! Competition Who is the competitor/complementor?! Sales What is the Channel to reach the customer?! Marketing: How do you create end user demand?! What does Biz Dev do? Deals? Partnerships? Sales?! Business/Revenue Model(s) How do we organize to make money?! IP/PatentsRegulatory Issues? How and how long?! Time to Market How long does it take to get to market?! Product Development Model How to you engineer it?! Manufacturing What does it take to build it?! Seed Financing How much? When?! Follow-on Financing How much? When?! Liquidity How much? When?

Execution: Lots to Worry About

Execution: Very Different by Vertical

Market Risk Reduction Strategy

John Boyd & theOODA Loop

Boyd’s OODA “Loop”

Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedbackand other phenomena coming into our observing window.

FeedForward

CulturalTraditions

GeneticHeritage

NewInformation Previous

Experience

Analyses &Synthesis

Feedback

Orient

Decision(Hypothesis)

FeedForward

ImplicitGuidance& Control

Decide

Action(Test)

UnfoldingInteraction

WithEnvironment

Competitive advantage comes from quickness over the entire “loop,” not justfrom the O-to-O-to-D-to-A sequence.

FeedForwardObservations

ImplicitGuidance& Control

UnfoldingInteraction

WithEnvironment

OutsideInformation

UnfoldingCircumstances

Observe

CustomerDevelopment

IfStartups Fail from a Lack of customers

not Product Development Failure

Then Why Do we have:! process to manage product development

! no process to manage customer development

Product Development Model

Concept/Seed Round

ProductDev.

Alpha/BetaTest

Launch/1st Ship

What’s Wrong With This?

Concept/Seed Round

ProductDev.

Alpha/BetaTest

Launch/1st Ship

Product Development

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

Marketing

Concept/Seed Round

ProductDev.

Alpha/BetaTest

Launch/1st Ship

Product Development

• Build Sales Organization

Marketing

Sales • Hire Sales VP• Hire 1st Sales Staff

Concept/Seed Round

ProductDev.

Alpha/BetaTest

Launch/1st Ship

Product Development

• Hire Sales VP• Hire 1st Sales Staff

• Build Sales Organization

Marketing

• Hire First Bus Dev

• Do deals for FCSBusiness

Development

Chasing The FCS Date! Sales & Marketing costs are front loaded

" focused on execution vs. learning & discovery

! First Customer Ship becomes the goal

! Execution & hiring predicated on business plan hypothesis

! Heavy spending hit if product launch is wrong

! Financial projections, assumes all startups are the same

=You don’t know if you’re wrong until you’re out of

business/money

An Inexpensive Fix

Focus on Customers and Marketsfrom Day One

Build a Customer Development Process

? ? ? ?

Concept/Seed Round

ProductDev.

Alpha/BetaTest

Launch/1st Ship

Product Development

CompanyBuilding

CustomerDiscovery

Customer Development is as importantas Product Development

Concept/Bus. Plan

ProductDev.

Alpha/BetaTest

Launch/1st Ship

Product Development

CustomerValidation

CustomerCreation

CompanyBuilding

CustomerDiscovery

Customer Development is as importantas Product Development

Concept/Bus. Plan

ProductDev.

Alpha/BetaTest

Launch/1st Ship

Product Development

CustomerValidation

CustomerCreation

Customer & Product DevelopmentSynchronization

Concept/Bus. Plan

ProductDev.

Alpha/BetaTest

Launch/1st Ship

Product Development

ScaleCompany

CustomerDiscovery

CustomerValidation

CustomerCreation

Customer Development Heuristics

! There are no facts inside your building, so getoutside

! Develop for the Few, not the Many! Earlyvangelists make your company

" And are smarter than you! Focus Groups are for big companies, not startups! The goal for release 1 is the minimum feature set

for earlyvangelists

Customer DevelopmentBig Ideas

! Parallel process to Product Development

! Measurable Checkpoints for the CEO

! Not tied to FCS, but to customer milestones

! Iterative to represent reality

! Executed by a small team including CEO

Customer Development is aboutAction

! Never, ever confuse it with a “planning process”! Never, ever confuse it with “focus groups”

Customer Development is about putting theFounders in Continuous Contact and

Engagement with the customer

Customer Development in the High TechEnterprise

Customer Discovery: Part 1

Steve Blanksblank@kandsranch.com

Customer Discovery: Step 1

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

Existing Market: 1 Month – 1 Year

Resegmenting a Market: 6 Months – 3 Years

New Market: 1 Year – 3 Years

Existing : 1-6 Months

Resegmenting: 3-12 Months

New: 1-2 Years

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

Methodology

! Customer Development can take months or years! Each Step has a set of phases! Plan what you need to learn in writing so everyone knows:

" what they should be doing" when they should do it" If they succeeded" If they need to do more

! These are checklists, not the inviolable commandments

Before You Start

! Board and Management Buy-In" Learning and discovery not execution

! Customer Development Team" Not traditional hires

! Sufficient funding for 2-3 passes

Modify the Process forYour Company

! Text Example = Enterprise Software Co.! You need to develop your ownyour own

" Specifically for your company/market! Don’t quibble about details but understand there is a process

Discovery = Hypothesis Testing

! What are Hypothesis?! Where do Hypothesis come from?! Why Test them?! How do you test them?

! Stop selling, start listening

! Test your hypotheses" Two are fundamental: problem and product concept

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

Customer Discovery

CustomerDiscovery

Phase 1Author

HypothesisPhase 2

TestProblem

Hypothesis

Phase 4Verify, Iterate &

Expand

Phase 3Test

ProductHypothesis

To Validation

Test “Problem” Hypothesis

Customer Discovery

Demand Creation

Hypothesis

Market TypeHypothesis

Product Hypothesis

Customer& ProblemHypothesis

Distribution & Pricing

Hypothesis

CompetitiveHypothesis

Hypotheses

MarketKnowledge

FriendlyFirst Contacts

“Problem”Presentation

CustomerUnderstanding

SecondReality Check

First RealityCheck

“Product”Presentation

Yet MoreCustomer

Visits

Test “Product” Hypothesis

Iterate orExit

Verify the Product

Verify theProblem

Verify theBusiness

Verify

Test “Problem”Hypothesis

Customer Discovery

Demand Creation

Hypothesis

Product Hypothesis

Hypothesis

Hypotheses

MarketKnowledge

FriendlyFirst Contacts

“Problem”Presentation

CustomerUnderstanding

SecondReality Check

First RealityCheck

“Product”Presentation

Yet MoreCustomer

Visits

Test “Product” Hypothesis

Iterate orExit

Verify the Product

Verify theProblem

Verify theBusiness

Verify

Inside the Building

Outside the Building

Phase 1: Author Hypothesis

! One-time writing exercise! All other time spent in

front of customers! Assumes you’re smart but

guessingPhase 1Author

Hypothesis

Phase 2Test

ProblemHypothesis

Phase 4Iterate &

Expand

Phase 3ProductConceptTesting

Hypothesis

! Product! Customer/Problem! Distribution/Pricing! Demand Creation! Market Type! Competition

Demand Creation

Hypothesis

Product Hypothesis

Hypothesis

Product Hypotheses

! Features! Benefits! Product Delivery Schedule! Intellectual Property! Total Cost of Ownership! Dependency Analysis

Customer/Problem Hypotheses

! Types of Customers! Magnitude of the problem! Visionaries! A Day in the Life of a customer! Organizational impact! ROI Justification! Problem Recognition! Minimum Feature Set

Distribution/ Pricing Hypotheses

! Distribution Model! Distribution Diagram! Sales Cycle/Ramp! Channel strategy! Pricing (ASP, LTV)! Customer Organization Map! Demand Creation

Demand Creation Hypotheses

! How do competitors create demand?! How will you?

" Viral" Advertising" PR" Trade shows

! Who are influencers/recommendors?! Key trade shows?! Key trends?! Start assembling advisory board

Type of Market Hypotheses

! Positioning and Differentiation" Existing Market

# The product is the basis of competition" New Market

# Creating the market is the basis of competition" Redefine Existing Market

# Resegment the existing market is the basis ofcompetition

Competition Hypotheses

! Who is out there?! Why are they important?! How do customers use them today?! What don’t customers like about them?

IMVU Case

Intermission

The Customer Development Team

Traditional organizationsand titles Fail

VP Engineering VP Marketing VP Sales VP Business Dev

Typical Startup

! People equate their titles with their functions" But standard titles describe execution functions" We need new titles = learning & discovery functions

Customer Development TeamTasks Not Titles

VP Product Dev Technical Visionary Business Visionary Business Execution

Customer DevelopmentDriven Startup

In Front of Customers

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