Customer Development – How to and what to expect

Following Startup Weekend (see “How it Started – Startup Weekend” for background), my business partner and I were at ground zero again. Humbling considering the amount of work we put into the weekend’s events.

If we learned anything though from the weekend, it was that we needed to start from the beginning, which meant customer development. Over the 8 months that followed, we got first-hand experience at the matter.  Below is what we learned in the process.

Why Customer Development Comes Before Product Development:

When you are starting something new, your mind is running at 100mph, there is a tremendous temptation to focus energy on product development. Why?  Because it is something you can apply your energy to right away.  Lock yourself in a room and start building.  And product development feels like progress.  You want to move things forward, and it feels like forward movement.

Unfortunately, it is not progress if you are progressing in the wrong direction, and product development is not the compass of your business.  Your customers are.  Thus, the first step to getting your barrings is to talk to perspective customers and determine if there is a market for your product, and if so, can you succeed in it.  Steve Blank calls this “getting outside the building,” and it is hard work that will take you outside your comfort zone.

What is Customer Development?

Customer development is finding prospective customers that have the problem you are trying to solve and are willing to pay you for solving it.  The only way to determine this is by finding and talking to prospective customers: lots of them.

Why is it so important?  Two reasons:

  1. Sooner or later, you will have to sell your product. What if your product solves a problem that no ones has? That is a waste of time, energy, and money.
  2. The market might be too small.  Your idea is great, wonderful, solves a problem that lots of people have, but not enough people will pay you for it.  You have a viable product, but not a viable business.  Why?
    • It is not a priority for them to solve the problem
    • They already have a satisfactory work-around
    • They do not have money to pay you
    • The market is not big enough to support your business, or make it worth your time.  In essence, the juice is not worth the squeeze.

Good customer development makes known the unknown reasons why your idea will not turn into a business.  Since you do not know what you do not know, you have to discover it.  The problem-solution fit might be wrong, the market too small, competitive, or capital intensive.  It is best to think of customer development as unavoidable.  You will learn these facts sooner or later.  Sooner is better.

B2B Customer Development Questions/Interviews:

I was nervous the first time I sat down with a perspective customer. I had an agenda and a list of questions, but none of it helped.  What I lacked, turned out to be the most important attribute to customer development: succinctness. Being succinct keeps the conversation intact and understandable.  It drives to the most important points, and shows your prospective customer that you respect their time. I quickly boiled down my long list of questions to just four:

  1. Is this a problem that you have? [I stated the problem I was trying to solve]
    1. If the answer is “no,” then inquire into the problems that they actually have.
  2. How do you solve it today or how would you want it solved?
  3. If someone were to solve this problem, would you pay for it?
  4. How much would you pay?

I often did not ask these exact questions, but my best interviews always answered these. I also found that the phone calls worked well. It helps keep the conversation succinct and it is easier to organize. Most of my phone calls were less than 20 minutes.

How to Find Perspective B2B Customers:

For me, this is the fun part.

Networking & Referrals:

I was most successful in working my network, and promoting my idea to anyone and everyone I met. This is hard work, but it pays off. People generally want to help, and if they know someone that will benefit from your idea, they are often willing to make introductions. You also have to ask for introductions too, just try not to be awkward about it.

Cold Emailing:

You likely do not have the email addresses of the people you want to contact, making cold emailing hard. This is where referrals and LinkedIn can come in handy.  Knowing what to say in the email is a different matter altogether. For that, I followed the cold emailing template provided by Ash Maurya on his blog, Practice Trumps Theory.

Web Traffic:

I do not put faith in a web traffic in the early stages of a B2B business. Search Engine Optimization is extremely limited, and it is unlikely anyone will find you organically. Think of your website as a a reference point which you will direct people when you meet them casually. The only exception I can foresee is if you believe that paid traffic will be a primary source of customer acquisition. If you are building a business on that premise, it could be worth testing the premise up front.

Who should do Customer Development?

The founders, no question about it. They are the only people able to respond appropriately and quickly to feedback early in the game. It is also important to have as many founders in the interviews as possible so everyone hears the same feedback. This will cut down on confusion and arguments later.

Pitfalls of Customer Development:

You will not do it:

It can be hard to find customers and that frustration will start to feel like momentum has staled.  In reality, things might progress slower than you want.  There is nothing to do but stick to it.  Also, your first conversations with customers will feel weird. The conversations get easier with practice, so stick with it.

Conversion Rate:

One of the major pitfalls that I ran into was not interviewing enough companies. I assumed every interviewee that said they might buy our product would actually buy our product. Wrong. Not knowing any better, when I had enough, “yeses,” (whatever that means) we started building the product. Our conversion rate from customers that said “yes,” to customers that paid was abysmal (<5%).  In hindsight, I should have interviewed more companies, and in doing so I may have realized what I learned later:  The market was too small for our product.  I will never make this mistake again.

Disorientation:

Interviews are incredibly disorienting. People love to share their problems, and it is hard to determine what is pertinent and not. I fought through this by taking good notes, and summarizing all my interviews in writing. However, my partner was also not in the interviews with me.  We should have made that a priority.

Encouragement is Not Traction:

Encouragement is great. It can mean that people understand what you are trying to do, they understand the value, and they may be willing to help. What it does not mean is that you should start a business. I had 10 times more people say I had a great idea than I had customers willing to buy my product.

Hearing what you want to hear:

This is by far the easiest trap to fall in. Few prospective customers will say, “You have the worst idea I have ever heard. I will never buy it.” It would all be easier if they did.  Thus, it is tempting to interpret the lack of a hard “no” as an implicit “yes.” Optimism is great, but hearing what you want to hear is not optimism, it is delusion.  The antidote is having mentors you can trust to help you interpret the feedback you are getting.  You have to listen to them though.

So what does it all mean?

In the early stages, customer development serves as your compass, and product development is your motor.  Before you get moving, you should know where you are going, and whether it is worth getting there.  The only people that can make that decision are the founders so they must be the ones in front of perspective customers.  It is hard work.  It is frustrating.  You will learn a lot.

If you have questions, or want to share your own experience, leave a comment and I will respond.

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