The OWMTI „ Guide Customer A"cheat sheet" to The Four Steps to the Epiphany Customer Customer Discovery Validation r pivot by Brant Cooper &Patrick Vlaskovits Foreword by Steven Gary Blank Disclaimer © 2010 Brant Cooper and Patrick Vlaskovits "Customer Development" is a term used to describe business processes defined in The FourSteps to the Epiphany, by Steven Gary Blank. The Four Steps to the Epiphany used by permission from Steven Gary Blank. "Lean Startup" is a term trademarked by Eric Ries and represents a combination of Customer Development, Agile development methodologies, and open source or low cost development platforms. Product & Market Development, Inc. claims a trademark for "Minimum Viable Product." All other trademarks and copyrights are the property of their respective owners. ISBN-10: 0982743602 ISBN-13: 978-0-9827436-0-7 Fonts include Trade Gothic and ITC Officina Serif. Design by Garth Humbert and the May team. Foreword A lot has happened with the Customer Development process since I published The Four Steps to the Epiphany. When I first conceived of the concept, I was attempting to articulate a common pattern I recognized in successful startups. I did this because I wanted to change the way startups were built-without completely depending on serendipity and at a much lower cost. Today, thousands of students have heard my lectures and more than twenty thousand have read my book on Customer Development. Hundreds, if not thousands, of startups are practicing some elements of Customer Development today. Many in the venture capital community have come to embrace the concepts, encourage and, in some cases, require their portfolio companies to adhere to the Customer Development principles. In addition to growing adoption of Customer Development, is its advancement. A former student of mine and intrepid entrepreneur, Eric Ries, combined Customer Development with Agile development methodologies to form the powerful concept of a "Lean Startup." In little more than a year's time, there are now over 3,500 members in Lean Startup Groups in 27 cities and 9 countries. Dave McClure's AARRR metrics represent the quintessential method for measuring progress through Customer Development for web startups. In a series of deeply insightful blog posts, Ash Maurya extended my work by building a Web Startup version of Customer Development. Before I began writing and speaking about the Customer Development model, I thought it paradoxical that these methods were employed by successful startups, yet articulated by no one. Its basic propositions were the antithesis of common wisdom yet they were followed by those who succeeded. "It is the path that is hidden in plain sight." No longer is it hidden. Clearly, Customer Development has lit a fire. What I find perhaps most gratifying is this: Customer Development continues to be advanced by practitioners, mentors, entrepreneurs and investors who endeavor to build successful startups into scalable businesses. Customer Development is not one book. It's not a religion. It is a malleable, customizable, and bespoke methodology for dealing with the chaos of the real-world. And I am proud to note, it is growing and evolving. This book, The Entrepreneur's Guide to Customer Development represents another milestone. Not only is it the first "third party" book about Customer Development, it raises the bar. Authors Brant Cooper and Patrick Vlaskovits have integrated the thinking of leading Customer Development practitioners and evangelists so any entrepreneur can apply them to his or her startup. They have distilled Customer Discovery into a series of steps illustrated with clear examples, concrete action items, and traps to avoid. This is a must read for all startups and their stakeholders. - Steven Gary Blank Menlo Park, CA April 2010 Acknowledgements Without Steve Blank and his book, The Four Steps to the Epiphany, this book would have been, of course, impossible. Steve's shared "epiphany" of Customer Development practices and processes has inspired countless entrepreneurs, investors and other business leaders to take a hard look at the way they build new businesses. Not only do we want to thank Steve for the generous insights he has provided through his books, on his blog and in his classroom, but also for the support and encouragement he has offered us in our endeavor to write this book. We would like to acknowledge the leading thinkers and supporters of Customer Development and its like-minded principles, specifically Eric Ries, Sean Ellis, Dave McClure and Andrew Chen. We would also like to thank those big-brained entrepreneurs and practitioners who continue to discuss and debate these ideas on Rich Collins' Lean Startup Circle Google group and elsewhere. Most importantly, these individuals put their ideas into action, share their experiences, and advance the Customer Development discipline vigorously: Ash Maurya, Babak Nivi, Cindy Alvarez, Dan Martell, David Binetti, Giff Constable, Kent Beck, Kevin DeWalt, Rich Collins and Sean Murphy. Discussing the day-to-day tactics with these people as they implement Customer Development practices has been instrumental to our own thinking reflected in this book. Further, thanks to the following individuals for participating in our Customer Development efforts on the book and for providing valuable feedback: Adam Harris, Ann Miura-Ko, Anne Rozinat, Ash, Giff, Bill Earner, Dave Concannon, Jeff Widman, Kevin Donaldson, Kyle Matthews, Matthew Gratt, and Pete Mannix. We would like to single out Hiten Shah for inspiring us to undertake this task and for providing us a constant stream of encouragement, contacts, and wisdom. Finally, we would like to thank Fabrice Grinda, Bruce Moeller, Ranjith Kumaran and Jeff Smith for sharing their stories with us. - Brant Cooper and Patrick Vlaskovits Table of Contents Introduction Why this book? Who Should Read This © Customer Development What Customer Development Is What Customer Development Is Not Three Levels of Learning Getting Started O Case Study: Naive Thinking O Concept Definitions Early Adopters/Early Evangelists Segmentation Market Type "Non-Traditional" Business Model Positioning Product-Market Fit Minimum Viable Product (MVP) Lean Startup Pivot Getting Out of the Building © Case Study: Multiple Pivots © Know Thy Business To the Whiteboard An Example Know Thyself © Case Study: On Customer-Centric Cultures © 8 Steps to Customer Discovery Overview Step 1. Document C-P-S Hypotheses Step 2. Brainstorm Business Model Hypotheses Step 3. Find prospects to talk to Step 4. Reach out to prospects Step 5. Engaging Prospects Step 6. Phase Gate I Compile I Measure ITest Step 7. Problem Solving Fit/MVP Step 8. Phase Gate II Compile I Measure ITest © Case Study: Testing Towards a Scalable Business Model © Conclusion Summary Resources About the Authors Introduction Why this book? Steve Blank's book, The Four Steps to the Epiphany, changes the game. In a business world full of marketing "fluff," "get-rich-quick", self-help guides and analytical tomes that predict history with undeniable accuracy, Blank's book lays out an actionable framework for starting and building new startups, based on the insight that most startups fail because they didn't develop their market, not because they didn't develop their product. Steve Blank published The Four Steps to the Epiphany in 2005 not as a "traditional" business book, but as a compilation of lecture notes for the business school classes he taught at Stanford University and UC Berkeley. Tens of thousands of people have purchased this "non-marketed" book. Its dog-eared pages, highlighter-marked paragraphs and note-filled margins prove its value like few other books because it doesn't get put away - it remains on the desk, never quite reaching the bookshelf. The Four Steps to the Epiphany (referred to as The Four Steps throughout this book) is not a grand, conquer-the-world strategy, or a set of "tried and true" tactics, or collection of catchy business aphorisms. It is a malleable process of testing, learning and iterating upon the fundamental business assumptions you hold about your product, customers and market. So, then, whythis book? The objective of this "non-fiction novella" is to remove the barriers to understanding and implementing Customer Development (referred to as CustDev throughout this book) and take The Four Steps to another level. We hope to provide the following insights: 11 1. "Boil the content down" to an even simpler, more straightforward, actionable guide to CustDev practices. 2. Summarize and unite the ideas of modern CustDev "thought leaders" who have emerged since The Four Steps was published. 3. Put a "stake in the ground" to create standards with respect to common CustDev terms and concepts. 4. Demonstrate the flexibility of CustDev when applied to any business model. 5. Make the CustDev process available in an ebook format. We have made it our goal to get to the point, but also not get to the wrong point. While debate is healthy, and we can only hope that people will discuss this book, we hope to minimize "paralysis by analysis." Participation in debates over terminology, semantics, or history - particularly in high-tech culture - often is an excuse for not taking action. We feel Customer Development does not need to be at the center of such a debate. You can, of course, take it or leave it. But more to the point, you can further it, change it, and even mold it to your business, your vision, and your values. As Steve Blank says, "Customer Development is not just one idea, but the sum of Customer Development itself. It's more than one smart guy sitting on the beach in Hawaii writing a business book. It is what it preaches." 12 Introduction Who Should Read This The Customer Development framework is not tied to a particular business type, market segment, or product category. Company size, revenues, or location are im material, as long as the company is planning on launching a new product. Anyone can benefit from Customer Development thinking. The philosophy applies to all entrepreneurs even though specific Customer Development processes are typically associated with those businesses just "starting up." Although our background is workingwith high-tech companies and that has formed our primary frame of reference, the Customer Development model is broad and flexible, and can be applied to various industries and markets. This book focuses on the first step of Customer Development, namely Customer Discovery. Therefore, we will focus on startups. The reality is that Customer Development methods become more difficult to implement the "further along" your business has been established. The further along you are, the more difficult it is to question and test fundamental busi ness assumptions upon which you may have already built an organization. If, for example, you must report revenue growth to your investors next month, it may be a difficult proposition to stop what you're doing in order to question your funda mental business assumptions. Even though taking a "time-out" to go through a set of processes that might explain why your growth is slower than projected might be exactly what you need, your board is likely to think you took the wrong turn at Albuquerque and ended up in Taos! Such a drastic step typically requires a little bit of desperation and a lot of sympathetic Directors. It might even be said, that The Four Steps was born out of just such a predicament. Regardless of the stage your business is in, those of you most likely to pick up this book are significantly involved in a startup technology company, either as a devel oper, product manager, or founder. Fundamentally, this is a book for entrepreneurs who are willing and able to question their most tightly-held business assumptions; it is for this group of people this book will benefit the most. 13