Lean Customer Development

Foreword

Steve Blank’s ideas are so well known today that some may not realize that when he first self-published The Four Steps to the Epiphany, he was very much a voice in the wilderness. Steve, with whom I’ve been fortunate to work as an investor, mentor, and friend, was courageous enough to call for bringing the rigorous approach of product development to the business and marketing functions of startups—long before mainstream entrepreneurs and VCs caught on; in so doing, he inspired many of us to rethink our beliefs about startups. He called that theory Customer Development.

Now that these ideas have taken hold well beyond the San Francisco Bay Area and become an integral part of the Lean Startup movement, it’s high time to revisit them and share some of the success stories, tips, and tricks from the trenches. It’s fitting that Cindy Alvarez, an early Lean Startup evangelist, has drawn upon her experience at early-stage startups and Fortune 500s alike—most recently, for Microsoft as Director of User Experience at Yammer—to write a nuts-and-bolts guide for a new generation of entrepreneurs.

The word “entrepreneur” may bring to mind the image of college kids working on some new technology in a garage, but my meaning is a little different. A startup includes any human enterprise designed to create a new product or service under conditions of extreme uncertainty, and an entrepreneur is anyone tasked with ushering in that change. Whether they’re building a company in their garage, working for a VC-backed startup, or trying to drive innovation at an enterprise or nonprofit, what all entrepreneurs share is the need for a process that converts the raw materials of innovation into real-world success.

Companies both large and small have been drawn to a more nimble, iterative approach to innovation and growth, but as they soon discover, doing so requires a different way of interacting with current and prospective customers. The goal of any startup is to figure out the right thing to build as quickly as possible, and the Lean Startup is a set of practices for helping entrepreneurs increase their odds of success. How do we know if we’re building the right thing? How should a cross-functional team work together? How do we hold people accountable? These are the questions the Lean Startup methodology was designed to answer.

Customer Development is different from traditional marketing research methods. While those techniques can help us understand customer needs and preferences, and take us inside the user experience to show us how customers use a product or service, this goes a step beyond—using scientific experimentation to put what we’ve learned to the test. Our goal is to not simply understand customer behavior, but to learn how to change customer behavior and build a sustainable business.

The process involves running many tests at microscale in order to get the engine of growth turning, so that a startup can achieve hypergrowth. This is one of the reasons the methodology is so challenging: it requires people to work in a truly cross-functional way to synthesize what they’ve learned. It means working hand-in-hand with colleagues from marketing, engineering, operations, and customer service—in other words, everyone. Engineers and scientists without traditional marketing or sales backgrounds now find themselves hearing straight from the customer’s mouth what he thinks about the product. People on sales teams who’ve been used to presenting final products recognize that the feedback they receive in sales calls can be of tremendous value to the innovation process. People in customer support positions are empowered to better meet customer requests rather than simply trying to put out fires.

But even after they’ve prepared themselves to speak to customers or potential customers, many who are new to the Lean Startup methodology have plenty of questions: “How can I convince people to spend their time talking to me about a product we haven’t even finished building?” “How do we get information from our best customers without potentially alienating them?” “If a customer cannot place an order, how can we assess whether we’re on the right track?”

Cindy provides answers to those questions and more, offering techniques to help entrepreneurs stay grounded in reality even in the discovery phase of the process: rather than relying on what customers tells us they would like to do in the future, she provides strategies for finding out how customers actually behave. “Actually changing behaviors, spending money, or learning something new has a cost,” she explains. “You need to figure out the difference between want and will, and uncovering that difference requires discipline in how you talk to your target customers.”

Often, this means thinking creatively about how to turn an exploratory customer interview into an experiment. While working with a large bank that insisted on asking customers, “Are you concerned with the security of your financial information?” all 10 customers Cindy spoke to answered “Yes.” This wasn’t giving her the insights she needed so she switched gears, telling one customer he would only be entitled to the $50 gratuity if he shared his mother’s maiden name and Social Security number. “Without hesitation, the man grabbed a ballpoint pen and reached for my sheet of paper,” Cindy writes. “I stopped him before he could write anything, but my point was made. Very concerned about security...until $50 was on the line.”

A word of caution to anyone embarking on the Lean Startup journey: If you think you know what’s important to your customers, you’re in for a big surprise. Whether you work at a large corporation or a scrappy startup, whether your enterprise is hoping to build the next big thing or your startup is learning how to deal with hypergrowth, whether you build consumer-facing apps or large industrial engines, this difficulty unites every one of us.

The Lean Startup process won’t give you all of the answers, and neither will Lean Customer Development. Instead, we hope these techniques will help you challenge your assumptions as quickly as possible so that you can build a lasting company that serves customers well.

Eric Ries

San Francisco

April 14, 2014