The customer development process

Chapter 7
Key issues

Explain Explain the need for a separate customer development process.

Discuss the different steps of the customer development process and its relationship
Discuss with product development.

Explain Explain the role of marketing and sales in the customer development team.

Link Link customer development with business model development.

7.1 The need for creating customer buy-in

• Customer needs are complex and multifaceted, and customers generally

cannot express them clearly.
• Start-ups may encounter technological problems and lack the funds and time
to develop a well-functioning product.
• Many entrepreneurs lack marketing and sales knowledge; as a result, they fail
to understand that there is more to a product than just the nuts and bolts.
Cont’d

• Therefore Peter Drucker, the father of management theory, stressed the

importance of adequate marketing and sales investments:
• For every dollar spent on gathering and idea, ten dollars have to be spent
on ‘research’ to convert it into a new discovery or a new invention. For
every dollar spent on ‘research’, at least a hundred dollars need to be
spent on development, and for every hundred dollars spent on
development, something between a thousand and 10,000 dollars are
needed to introduce and establish a new product or a new business on the
market.
7.2 New product development versus
customer development

• New product development is the process of creating a new product and

bringing it to market. It involves several steps, including new product idea
generation and selection, concept development, prototyping, market testing,
and launch.
• Customer development process concerns locating a start-up’s first customers,
validating its assumptions about customer needs and behaviour, and growing
its business by extending its small, initial customer base.
7.3 Steps of the customer development
process
Cont’d

• Discovery refers to identifying the start-up’s potential customers, that is, target
segment, and doing problem interviews to get initial feedback on the idea for
the innovation as a solution to an assumed customer problem.
• Validation concerns working with a set of leading customers to develop (and, if
necessary, repurpose) the product application. The prototype can be
validated, and product characteristics found by asking for customers’ response
and recommendations regarding the solution that it represents.
Cont’d

• Customer creation builds on the success of the start-up’s first sale and uses the
first customer(s) as a reference to expand the customer base.
• Company building involves institutionalization of practices and developing
departments. This is when customer building and effectual marketing turn into
more traditional marketing and sales.
7.4 The relationship with the business model
• It is important to complement our view of new product development and customer
development processes with the strategic level of the business model discovery (see Figure
7.3)
• The objective of customer discovery and validation is to ensure product-market fit, but
even more so to begin the process of identification and development of the start-up’s
business model.
• Based on the customer feedback, both the product concept and target market may change,
which may can have a major impact on the new firm’s business model, that is, how it can
and will make money.
Cont’d
• If initial customer feedback on the product concept is positive, customers’ willingness to
pay can be assessed. This validation can be repeated when the prototype of minimal viable
product has been developed.
• However, if the feedback is negative, serious changes may be required to the product
before the search for a business model can begin. Several iterations, using
experimentation, are typically necessary before finding the (initial) product-market fit and
identifying a possible business model.
Summary
• Without customers, there is no business. So, discovering and building customers is as
important as creating the new product.
• Customer creation is best organized as a separate, formal customer development process.
• The customer development process involves four stages: customer discovery, customer
validation, customer creation, and company building.
• A customer development team should be appointed and take charge. It should include the
entrepreneur.
Cont’d

• Regular meetings will ensure learning and making better plans to develop the firm’s
product-market fir and customer base. Appropriate business measures should be
developed.
• Customer development should help collect information for improving the product/service’s
customer value and for identifying the start-up’s business model.