The Customer Development Manifesto

Technopreneurship

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Dr. Noman Islam

The 14 rules that guide the Customer Development process for startups

• Rule No. 1: Get out of the building and test your hypotheses with customers

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• Rule No. 2: Pair Customer Development with Agile Development to iterate the product

• Rule No. 3: Accept failure as part of the search for a business model

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• Rule No. 4: Make continuous iterations and pivots based on customer feedback

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The 14 rules that guide the Customer Development process for startups

• Rule No. 5: Use a business model canvas to describe and test your hypotheses

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• Rule No. 6: Design experiments and test to validate your hypotheses

• Rule No. 7: Agree on market type, as it changes everything

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• Rule No. 8: Use startup metrics that differ from those in existing companies

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The 14 rules that guide the Customer Development process for startups

• Rule No. 9: Emphasize speed, cycle time, and tempo in decision-making and execution

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• Rule No. 10: Have passion and commitment for your vision and mission

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• Rule No. 11: Use Customer Development team as the title for the early-stage founders and employees

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• Rule No. 12: Preserve cash until you find a repeatable and scalable business model, then spend

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The 14 rules that guide the Customer Development process for startups

• Rule No. 13: Communicate and share learning with everyone involved

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• Rule No. 14: Get buy-in from the team, board, and investors for the Customer Development process

The four steps of Customer Development and their objectives

• Customer Discovery: Test the problem and product hypotheses with customers
• Customer Validation: Test the sales and marketing hypotheses and find a repeatable and scalable sales model
• Customer Creation: Create and drive end-user demand and scale the business
• Company Building: Transition from a startup to a company by hiring functional executives and staff

Customer Discovery

• The first step of Customer Development where you turn hypotheses into facts
• State your hypotheses using the business model canvas
• Get out of the building and talk to potential customers
• Test the problem, product, and customer hypotheses
• Iterate or pivot based on customer feedback

Customer Validation

• The second step of Customer Development where you find a product/market fit
• Build a minimum viable product (MVP) that resonates with customers
• Test the sales and marketing hypotheses with early adopters
• Find a repeatable and scalable sales model
• Decide whether to proceed, pivot, or exit

Customer Creation

• The third step of Customer Development where you create and drive demand
• Choose a market type and a market entry strategy
• Spend money on sales and marketing activities
• Grow the customer base and revenue
• Transition from early adopters to mainstream customers

Company Building

• The fourth step of Customer Development where you transition from a startup to a company
• Hire functional executives and staff
• Implement processes and procedures
• Establish the company culture and values
• Prepare for the next phase of growth

Market Type

• A key factor that influences everything a startup does
• Four types of market: existing, new, re-segmented, and cloned
• Different market types require different discovery, validation, and creation strategies
• Market type affects customer needs, adoption rates, product features, positioning, launch strategies, channels, and activities
• Market type should be agreed upon early and can be changed later

Existing Market

• A market type where customers exist and are known
• The challenge is to compete with existing products and companies
• The product should offer a better value proposition or differentiation
• The customer feedback and marketing are relatively easy
• The sales cycle is shorter and the revenue ramp is faster

New Market

• A market type where customers do not exist and are unknown
• The challenge is to create a new market and educate customers
• The product should enable customers to do something they couldn’t do before or dramatically lower costs
• The customer feedback and marketing are difficult and costly
• The sales cycle is longer and the revenue ramp is slower

Re-segmented Market

• A market type where an existing market is targeted with a new product
• The challenge is to find a niche or segment that is underserved or overcharged by incumbents
• The product should offer a low-cost or niche value proposition
• The customer feedback and marketing are focused and targeted
• The sales cycle and revenue ramp depend on the size and attractiveness of the segment

Cloned Market

• A market type where a successful business model in another country is copied and adapted
• The challenge is to customize the product and business model for local preferences and regulations
• The product should offer a similar or better value proposition than the original
• The customer feedback and marketing are based on the proven model
• The sales cycle and revenue ramp depend on the competition and market size

Business Model Canvas

• A tool to describe, test, and iterate your business model hypotheses
• Consists of nine components: value proposition, customer segments, channels, customer relationships, revenue streams, resources, activities, partners, and cost structure
• Provides a visual overview of the business on one page
• Allows you to track the changes and evolution of the business model
• Works as a scorecard for the Customer Development process

Business model Canvas

Value Proposition

• The component of the business model canvas that describes what the product or service offers to customers
• Defines the benefits, features, and differentiation of the product or service
• Addresses the customer problems, needs, and desires
• Aligns with the customer segments and channels
• Determines the revenue streams and pricing

Customer Segments

• The component of the business model canvas that describes who the customers are and what they want
• Defines the target market and customer profile
• Identifies the customer segments and sub-segments
• Understands the customer behavior, preferences, and motivations
• Establishes the customer relationships and loyalty

Channels

• The component of the business model canvas that describes how the product or service reaches the customers
• Defines the distribution and communication channels
• Identifies the best channels for each customer segment and value proposition
• Optimizes the channel efficiency and effectiveness
• Balances the channel costs and benefits

Customer Relationships

• The component of the business model canvas that describes how the company interacts with the customers
• Defines the type and level of customer engagement
• Identifies the best customer relationships for each customer segment and value proposition
• Builds customer trust, satisfaction, and retention
• Influences the revenue streams and referrals

Revenue Streams

• The component of the business model canvas that describes how the company generates income from the customers
• Defines the sources and types of revenue
• Identifies the best revenue streams for each customer segment and value proposition
• Sets the pricing and payment methods
• Measures the revenue performance and growth

Resources

• The component of the business model canvas that describes what the company needs to create and deliver the value proposition
• Defines the physical, intellectual, human, and financial resources
• Identifies the key and most valuable resources for the business model
• Acquires and manages the resources efficiently and effectively
• Aligns the resources with the activities and partners

Activities

• The component of the business model canvas that describes what the company does to create and deliver the value proposition
• Defines the core and supporting activities
• Identifies the key and most important activities for the business model
• Performs and improves the activities efficiently and effectively
• Aligns the activities with the resources and partners

Partners

• The component of the business model canvas that describes who the company works with to create and deliver the value proposition
• Defines the suppliers, distributors, alliances, and other partners
• Identifies the key and most beneficial partners for the business model
• Establishes and maintains the partner relationships
• Leverages the partner resources and activities

Cost Structure

• The component of the business model canvas that describes how the company spends money to create and deliver the value proposition
• Defines the fixed and variable costs
• Identifies the key and most significant costs for the business model
• Minimizes and optimizes the cost structure
• Balances the cost structure with the value proposition and revenue streams

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Startup Metrics

• The metrics that measure the progress and performance of a startup
• Differ from the metrics used in existing companies
• Focus on testing and validating the hypotheses rather than executing a plan
• Track the results of experiments, iterations, and pivots
• Include customer, product, and financial metrics

Customer Metrics

• The metrics that measure the customer feedback and acquisition
• Include customer problem and product validation
• Include minimum feature set and product/market fit
• Include customer segments, channels, and relationships
• Include customer acquisition cost and lifetime value

Product Metrics

• The metrics that measure the product development and iteration
• Include minimum viable product (MVP) and minimum feature set (MFS)
• Include product features, benefits, and differentiation
• Include product