## Highlights All new companies and new products begin with an almost mythological vision—a hope of what could be, with a goal few others can see. It’s this bright and burning vision that differentiates the entrepreneur from big company CEOs and startups from existing businesses — location: 50 ^ref-27691 --- Most entrepreneurs travel down the startup path without a roadmap and believe no model or template could apply to their new venture. They are wrong. For the path of a startup is well worn, and well understood. The secret is that no one has written it down. — location: 56 ^ref-33842 --- Startups that survive the first few tough years do not follow the traditional product-centric launch model espoused by product managers or the venture capital community. Through trial and error, hiring and firing, successful startups all invent a parallel process to Product Development. — location: 85 ^ref-6826 --- In particular, the winners invent and live by a process of customer learning and discovery. I call this process “Customer Development,” a sibling to “Product Development,” and each and every startup that succeeds recapitulates it, knowingly or not. — location: 88 ^ref-53998 --- educators and startup investors had adapted tools and processes useful for executing a business model, there were no tools and processes to search for a business model. It seemed obvious to me that searching is what startups actually do, — location: 106 ^ref-21621 --- Alexander Osterwalder’s business model canvas provided the Customer Development process with a much-needed front end to organize all of a startup’s hypotheses into a simple framework that serves as a baseline and a scorecard for teams as they move through Customer Development. — location: 117 ^ref-38822 --- Every company bringing a new product to market uses some form of Product Development Model (Figure 1.1). Emerging early in the 20th century, this product-centric model described a process that evolved in manufacturing industries. It was adopted by the consumer packaged goods industry in the 1950s and spread to the technology business in the last quarter of the 20th century. — location: 154 ^ref-2696 --- The irony is that few startups fit these criteria. Few even know what their market is. Yet they persist in using the Product Development model not only to manage Product Development, but as a roadmap for finding customers and to time their sales launch and revenue plan. — location: 161 ^ref-50165 --- The greatest risk—and hence the greatest cause of failure—in startups is not in the development of the new product but in the development of customers and markets. Startups don’t fail because they lack a product; they fail because they lack customers and a proven financial model. — location: 236 ^ref-40905 --- The first customer ship date does not mean the company understands its customers or how to market or sell to them. — location: 244 ^ref-52594 --- Obviously, your new division or company wants to get a product to market and sell it, but that cannot be done until you understand who you are selling your product to and why they will buy it. The Product Development model is so focused on building and shipping the product that makes the fundamental and fatal error of ignoring the process I call Customer Discovery. — location: 249 ^ref-64009 --- Time after time, only after first customer ship, do startups discover their early customers don’t scale into a mainstream market, the product doesn’t solve a high-value problem, or the cost of distribution is too high. — location: 257 ^ref-43823 --- In startups the emphasis is on “get it done, and get it done fast.” So it’s natural that heads of Sales and Marketing believe they are hired for what they know, not what they can learn. — location: 266 ^ref-52349 --- Before we can build and sell a product, we have to answer some very basic questions: What are the problems our product solves? Do customers perceive these problems as important or “must-have”? If we’re selling to businesses, who in a company has a problem our product could solve? If we are selling to consumers how do we reach them? How big is this problem? Who do we make the first sales call on? Who else has to approve the purchase? How many customers do we need to be profitable? What’s the average order size? — location: 270 ^ref-26729 --- A company needs to answer these questions before it can successfully ramp up sales. For startups in a new market, these are not merely execution activities; they are learning and discovery activities critical to the company’s success or failure. — location: 277 ^ref-62006 --- anyone who has ever taken a new product out to a set of potential customers can tell you a good day in front of customers is two steps forward and one step back. In fact, the best way to represent what happens outside the building is with a series of recursive circles—recursive to represent the iterative nature of what actually happens in a learning and discovery environment. — location: 282 ^ref-2980 --- sales and marketing activities before first customer ship are ad hoc, fuzzy, and absent measurable, concrete objectives. They lack any way to stop and fix what’s broken (or even to know if it is broken, or how to stop at all). — location: 294 ^ref-2136 --- a startup should focus on reaching a deep understanding of customers and their problems, their pains, and the jobs they need done discovering a repeatable roadmap of how they buy, and building a financial model that results in profitability. — location: 302 ^ref-47899 --- the half-life of a startup VP of Sales is about nine months post-first customer ship. “Build it and they will come,” is not a strategy; it’s a prayer. — location: 330 ^ref-7185 --- One of the radical insights guiding this book is that startups fall into one of four basic categories: Bringing a new product into an existing market Bringing a new product into a new market Bringing a new product into an existing market and trying to resegment that market as a low-cost entrant Bringing a new product into an existing market and trying to resegment that market as a niche entrant — location: 418 ^ref-2548 --- the Product Development model is not only useless, it is dangerous. It tells the finance, marketing and sales teams nothing about how to uniquely describe and sell for each type of startup, or how to predict the resources needed for success. — location: 436 ^ref-14595 --- Technology is adopted in phases by distinct groups: technology enthusiasts, visionaries, pragmatists, conservatives, and skeptics. — location: 458 ^ref-9393 --- There is a “chasm” between each of the different groups, with the largest chasm between the early and mainstream markets. These chasms are caused by the different product needs and buying habits of each group. — location: 462 ^ref-28658 --- The biggest problem in crossing the chasm is that few of the hard-won early marketing and selling lessons and successes can be leveraged into the mainstream market, as mainstream customers do not find early adopters to be credible customer references. Therefore, completely new marketing and sales strategies are necessary to win over this next, much larger group of customers. — location: 463 ^ref-2411 --- The sad reality is if you don’t get the first part of early Customer Development right, you won’t be in the mainstream. You’ll be out of business. — location: 479 ^ref-22642 --- In the early stages of a startup, focusing on “execution” will put you out of business. Instead, you need a “learning and discovery” process so you can get the company to the point where you know what to execute. — location: 489 ^ref-58737 --- If you can’t find enough paying customers in the Customer Validation step, the model returns you to Customer Discovery to rediscover what customers want and will pay for. — location: 601 ^ref-53412 --- The company doesn’t build its non-Product Development teams (sales, marketing, business development) until it has proof in hand (a tested sales roadmap and valid purchase orders) that it has a business worth building. — location: 608 ^ref-54721 --- The job of the Customer Development team is to see whether there are customers and a market for that vision. (Read this last sentence again. It’s not intuitively obvious, but the initial product specification comes from the founders’ vision, not the sum of a set of focus groups.) — location: 626 ^ref-11836 --- Customer Discovery and Customer Validation corroborate your business model. Completing these first two steps verifies your market, locates your customers, tests the perceived value of your product, identifies the economic buyer, establishes your pricing and channel strategy, and checks out your sales cycle and process. If, and only if, you find a group of repeatable customers with a repeatable sales process, and then find those customers yield a profitable business model, do you move to the next step — location: 645 ^ref-55992 --- there are four types of startups, each of them needing a very different set of requirements to succeed: Startups that are entering an existing market Startups that are creating an entirely new market Startups that want to resegment an existing market as a low-cost entrant Startups that want to resegment an existing market as a niche player — location: 683 ^ref-6793 --- Niche resegmentation attempts to convince customers some characteristic of the new product is radical enough to change the rules and shape of an existing market. — location: 745 ^ref-46721 --- While resegmenting an existing market is the most common Market Type choice of new startups, it’s also the trickiest. — location: 753 ^ref-50802 --- the goal of Customer Development in a startup is to find a market for the product as spec’d, not to develop or refine a spec based on a market that is unknown. This is a fundamental difference between a big company and most startups. — location: 783 ^ref-33641 --- in big companies, the product spec is market-driven; in startups, the marketing is product-driven. — location: 790 ^ref-38721 --- Engineering says, “How could you have promised these features to customers? We’re not building that.” Sales responds, “How come the product is missing all the features you promised would be in this release? We need to commit these other features to get an order.” — location: 792 ^ref-59742 --- answer four questions: Have we identified a problem a customer wants solved? Does our product solve these customer needs? If so, do we have a viable and profitable business model? Have we learned enough to go out and sell? Answering these questions is the purpose of the first step in the Customer Development model, Customer Discovery. — location: 869 ^ref-44428 --- Earlyvangelists can be identified by these customer characteristics (see Figure 3.1): The customer has a problem The customer understands he or she has a problem The customer is actively searching for a solution and has a timetable for finding it The problem is painful enough the customer has cobbled together an interim solution The customer has committed, or can quickly acquire, budget dollars to solve the problem — location: 934 ^ref-15050 --- The shift in thinking is important. For the first product in a startup, your initial purpose in meeting customers is not to gather feature requests so you can change the product; it is to find customers for the product you are already building. — location: 956 ^ref-37005 --- Phase 1 is a rigorous process of writing a series of briefs that capture the hypotheses embodied in your company’s vision and business model — location: 988 ^ref-46816 --- Phase 2 you qualify those assumptions by testing them in front of potential customers. At this point you want to do very little talking and a lot of listening. Your goal is to understand your customers and their problems, and arrive at a deep understanding of their business, workflow, organization, and product needs. — location: 990 ^ref-14354 --- In Phase 3 you take your revised product concept and test its features in front of customers. The goal is not to sell the product but to validate the Phase 1 hypotheses by having customers say, “Yes, these features solve our problems.” — location: 993 ^ref-9908 --- Finally, in Phase 4 you stop and verify you understand customers’ problems, that the product solves those problems, customers will pay for the product, and that the resulting revenue will result in a profitable business model. — location: 1000 ^ref-56601 --- Your written summary of these hypotheses will take the form of a one- or two-page brief about each of the following areas: Product Customer and their problem Channel and pricing Demand creation Market Type Competition — location: 1059 ^ref-34795 --- The first step in formulating your customer brief is to write down and diagram who you think will be your day-to-day users, influencers, recommenders, economic buyer, and decision-maker, including, in the case of sales to companies, their titles and where in the organization they are found. — location: 1164 ^ref-36116 --- Describe how you can convince these customers that your product can deliver an emotional payoff. — location: 1177 ^ref-57917 --- you need to summarize the customer‘s problem, and the organizational impact of the problem in terms of the different types of pain it causes at various levels of the company/family/consumer. — location: 1195 ^ref-2187 --- In Customer Development, the answers turn out to be easy; asking the right questions is difficult. You will go out and talk to customers with the goal of filling in all the blank spots on the customer/problem brief. — location: 1230 ^ref-19018 --- include the customer’s ROI as part of the customer problem brief. To do that you have to decide what to measure in calculating ROI. Increased revenues? Cost reduction, or cost containment? Displaced costs? Avoided costs? Intangibles? — location: 1268 ^ref-58871 --- The second idea is one I use with customers all the time in this phase. I ask them, “If the product were free, how many would you actually deploy or use?” The goal is to take pricing away as an issue and see whether the product itself gets customers excited. If it does, I follow up with: “OK, it’s not free. In fact, imagine I charged you $1 million. Would you buy it?” While this may sound like a facetious dialog, I use it all the time. Why? Because more than half the time customers will say something like, “Steve, you’re out of your mind. This product isn’t worth more than $250,000.” I’ve just gotten customers to tell me how much they are willing to pay. — location: 1316 ^ref-5288 --- the ultimate goal in this Customer Discovery step is to make sure you understand the customers problem(s) and to ensure your product as spec’d solves that problem. — location: 1489 ^ref-36522 --- The first step in this phase is the hardest—contacting potential customers who don’t know you and convincing them to give you some of their time. But this step gets a lot easier if you do two things: (1) get a referral and (2) carefully prepare a reference story that gets you in the door. — location: 1491 ^ref-12780 --- “Hi this is Bob at NewBankingProduct Inc., and as you remember I was referred to you by insert helpful reference name here.” Now give them a reason to see you: “We are starting a company to solve the long teller line problem, and we are building our new Instanteller software, but I don’t want to sell you anything. I just want twenty minutes of your time to understand how you and your company solve your own teller problem.” What’s in it for your contact? “I thought you might give me some insight about this problem, and in exchange I’ll be happy to tell you where the technology in this industry is going.” Exhale. — location: 1504 ^ref-18345 --- To make this work, you and your co-founders need to make 10 (yes, 10) phone calls a day. Keep calling until you have your schedule booked with three customer visits a day. Get used to being turned down, but always ask, “If you’re too busy, who should I talk to?” — location: 1512 ^ref-3303 --- In contrast to a product presentation, a problem presentation isn’t designed to convince customers. Instead, you develop it to elicit information from customers. The presentation summarises your hypotheses about customers’ problems, along with some potential solutions, so you can test whether your assumptions are correct. This presentation is your icebreaker when you meet customers. — location: 1525 ^ref-27377 --- So, after describing your assumed list of problems in column 1, pause and ask the customers what they think the problems are, whether you are missing any problems, and how they would rank-order the problems. — location: 1536 ^ref-25109 --- Finally, for both corporate and consumer products, display your company’s solution (not a set of features, but only the big idea) in column 3. Pause and watch the customers’ reactions. Do they understand what the words mean? Is the solution evident enough that they say, “Aha, if you could do that, all my problems would be solved?” Alternatively, do they say, “What do you mean?” Then do they have to listen to you explain for 20 minutes and still not understand? Ask how your solution compares to the current solutions you just discussed. Once again, the point is not to give a sales pitch. You want their reaction, and a discussion. — location: 1558 ^ref-46684 --- My favorite summary of this discussion is to ask two questions I alluded to earlier: “What is the biggest pain in how you work (or in RoboVac’s case—how you clean)? If you could wave a magic wand and change anything in what you do, what would it be?” I call these the “IPO questions.” Understand the answers to these questions and your startup is going public. — location: 1563 ^ref-45908 --- Through my own contacts, and through introductions, I take my peers out to lunch. In exchange, I want information—not competitive information, but answers to questions such as: What are the industry trends? What are key unresolved customer needs? Who are the key players in this market? What should I read? Who should I know? What should I ask? What customers should I call on? — location: 1613 ^ref-44485 --- Spend the time to take a few of the friendliest customers to lunch and ask them who they see as potential competitors, both internally and externally. Who do they think has similar products? Who else is an innovator in this space? Has this solution been tried elsewhere in their company? Is anyone else inside their company trying to build this product? It’s amazing how much you can learn from the people who eventually will buy your product. — location: 1619 ^ref-2497 ---