Customer Development Manifesto: Reasons for the Revolution (Part One)

Original author: Steve Blank
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Steve Blank is a startup guru, the founder of the concept of customer-oriented development, the author of cult books - The Four Steps to the Epiphany and The Startup Owner's Manual -, the founder of eight startups. This article reveals the reasons why you should abandon the traditional approaches to building a startup.

After 20 years of work in startups, I decided to stop and look at the Product Development Model, which I followed: to understand why it was unsuccessful with regard to our work “outside the office” - sales, marketing and business development.

Every startup has a methodology for developing a product, launching it, and managing its life cycle. In the ideal case, these processes contain detailed plans, checkpoints and milestones for each stage of product launch on the market: determining the size of the market, evaluating sales, developing a marketing plan, prioritizing product features. But in the end, despite all these tools, 9 out of 10 products fail.

So what is the problem with the product development model? The first clue is in the name of the model. This is a product development model.! Not a marketing model, not a model for hiring sellers, not a model for attracting users, and not even a financial model (which in itself is a sufficient weak model for product development). Startups have traditionally used this model (product development) to control and set the pace not only for technical processes, but also not for technical ones.

In this article, I will describe the flaws of such a model. In the following articles I will describe in more detail how this model distorts sales, marketing and business development in startups. And thinking about addressing these shortcomings led me to a new model - a model for the development of the customer (Customer Development Model), - which offers a new way to work "out of the office." I am also going to write about a similar model by Eric Rees(within the framework of the Lean Startup concept ) for developing the product “inside the office” and how it neatly integrates development for the client and “flexible development methodology”.



1. Where are the customers?


To begin with: the product development model completely ignores the fundamental truth about startups and new products. The main risk in a startup, and therefore the main reason for failure, is not technological risk, but the risk associated with customers and the market . Startups fail not because they lack a product. And due to the fact that they lack clients and a profitable business model . This alone is a good clue about what goes wrong when using the product development model as the only guide in everything a startup needs to do. Look at this model and you will be surprised where are the customers?

The reality for most startups today is that the product development model fully focuses on the work that takes place “inside the office”. Despite the fact that the initial data from consumers can be a checkpoint or a reference point in development, they are not taken into account in any way.

2. Focus on the date of first delivery


Using a product development model makes sales and marketing departments focus on the end point of the process — the date of first delivery . Most of these executives hired by a startup look first at this date, then at the calendar on the wall, and work “on the contrary”, figuring out how to do their work on time so that the fireworks begin on the day the product launches.

The flaw of this approach is that the "first delivery to the customer" is just the date when the techies think that they will finish the development of version 1.0 of the product. The first delivery date does not mean that the company understands its customers how to position themselves in the market, sell a product and how to build a profitable business. Read the sentence again. It makes a lot of sense.

Even worse: investors also build on their financial mailstones from this date.

The product development model is so focused on creating and delivering the product that it completely ignores the process of checking your basic assumptions about the business model (customers, channels, pricing) before deliveries and not checking these assumptions in advance is a fundamental and, in many cases, fatal mistake, done by most startups.

Why? Because before the first delivery to the customer, the startup cannot find out that their hypotheses were simply incorrect (for example, customers do not buy; distribution costs are too high, etc.). As a result, the young company is saddled with the already expensive and large sales department, which is confused and trying to implement a losing sales strategy, and the marketing department, which is desperate to create demand without a clear understanding of customer needs.

And while marketers and salespeople are turning in search of a sustainable market, the company burns its most valuable asset - money.

3. Focus on execution instead of learning and discovering


The product development model implies that you know the needs of consumers, you know what features a product should have, and the business model is also known. If we assume that this is an undeniable fact, then it is quite logical that the startup hires a team of sales people and marketers for the simple implementation of the business plan. You conduct interviews with future top managers to determine if they have relevant experience and the right business cards in their collection, and hope that they can play according to the scenario that worked in their previous company.

This is usually a bad idea. No one will ask: “Why are we doing as if we know what we are doing? Where exactly did this assumption come from in our business plan? ”Was the sales model hypothesis subjected to real“ out of office ”tests? Or is it a set of labels combined late at night over a beer to convince the investor that this is a great deal?

Not a single recently hired top manager will tell the founder, “My previous experience may not be relevant for this startup.” Upscale salespeople and marketers do their job well. And that is the reason why you hired them. But previous experience may not be relevant for your new startup. A new company needs to test a number of hypotheses before it can find a reproducible and scalable sales model. For start-ups creating a new market or re-segmenting an existing one, it’s important not only to simple execution , but also to learn and discover new ones , and this activity is critical for success or failure.

4. Focus on performance instead of flexibility


Product development chart has a linear flow from left to right. Each step takes place in a logical sequence, which can be represented by the PERT method with milestones and resources designed to complete each step.

Anyone who has ever brought a new product to the market for potential customers can confirm that in the real world this is not working. A good result in working with clients: two steps forward, one back. In fact, the best way to describe what happens outside the office is with recursive circles. Recursion to illustrate the iterative nature in which study and discovery takes place. Information and data on consumers and the market are collected gradually: step by step. But sometimes these steps lead you on a false trail or even lead to a dead end. You find yourself in a situation when you call the wrong consumers, don’t understand what people are willing to pay for, what features are really important. Sometimes, potential customers may offer a new way to use the product, a new positioning, or even an idea in a better way.

The ability to learn from mistakes, recognize new opportunities and quickly change direction, is what distinguishes a successful startup from those that have already disappeared and whose names are forgotten.

5. Outsourcing of the duties of the founder


The product development model moves the founders away from a deep understanding of their customers and the market. The obligation to validate the hypothesis that originally belonged to the fowder is delegated to employees - a team of sales people and marketers.

This means that the founder isolates himself from the direct voice of the consumer, which can be pleasant, unpleasant or nasty. Even worse, if the founder really doesn’t really want to understand whether consumers will buy and if so, what features, before the first delivery.

When the resourceful and flexible founder leaves the office and hears for the umpteenth time that the product is not selling , he realizes this, realigns himself and changes direction. It is very important to initially organize the process so that the founder has a constant connection with consumers .

6. Focus on the finished product instead of a minimum set of features


Entrepreneur’s enthusiasm paired with a product development chart makes you believe that all you need to do is create a product (with all the great features) and the consumer will come to you. A cascading development model reinforces this stupidity. The reality is somewhat different. Unless you are in an existing market (by creating an improved version of an existing product that is already being bought by consumers), you will find that your hypotheses about the features that consumers want have nothing to do with what they really want. Most of the code written will end up in a garbage can.

7. Investors focus on the wrong model


Ask the venture investor why he uses the product development model for startup management, and you will get the answer from the series: “This is the way my company has always used. Why change something that has worked great for the past 30 years? ”Or“ Look at our bottom line! ” In our case, everything works ”or sometimes even more sincere answer“ Managing partners consider this to be the only possible option ”.

Some companies correctly indicate that they will be satisfied if 8 out of 10 companies do not succeed, but the remaining two will return the invested funds in a 20-fold amount. This is a more desirable outcome than having 10 out of 10 successful companies, but with a double payback. Therefore, they really want startups to go all out.

It is a mistake to consider that the product development model is the most effective model for new enterprises: neither now, nor last year, nor in the past decade, nor when the first startup met with its first investor.

Venture capital funds were successful, not because they used the product development model, but contrary to it. The truth is that the most successful startups abandoned this model as soon as they came across real consumers.

Today, startups that use the product development model learn and discover new things at the expense of investor money. When the money runs out, they close the business - or adapt a more efficient model.

Friends, I urge everyone who is not indifferent to startups and knows English to join the translation of interesting English-language articles! I have a lot of them) On the way out: pumping English, expanding horizons and respect from those who can not afford to read them in the original. Write in a personal!

Bonus: The Startup Owner's Manual by Steve Blank & Bob Dorf

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