Takeaways from The Four Steps to the Epiphany book
In going through The Fours Steps to the Epiphany, I pulled out takeaways across all the chapters that I re-read as a refresher when starting a new customer development process. I give those to you now and highly recommend that you get the book. But if you’ve only 5 minutes, read this instead.
Customer development model of a startup starts with a simple premise: learning and discovering who a company’s initial customers will be, and what markets they are in.Steve Blank
Startups fall into one of the following 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.
Technology life cycle adoption:
The Technology Life Cycle Adoption curve does provide true insight because there really are different types of customers in a company/product life cycle. However, this seductive curve leads early-stage entrepreneurs to bad conclusions:
- The curve naturally leads entrepreneurs to entertain dreams of glory in the mainstream market. In the early days of building a company, those dreams are better forgotten. Not forever, but for now. Why? The sad reality is if you don’t get the first part of the customer development right, you won’t be in the mainstream. You’ll be out of business.
- The curve invites us to think of technology enthusiasts as one part of the customer adoption curve. On the curve, they look like just an early set of customers, but the reality is they are not. Tech enthusiasts exist as one of those sales puzzles on the path to finding “real” paying early customers and a repeatable sales process. You need to deal with them and understand their influence in the sale roadmap, but they very rarely buy anything.
- The notion that a startup’s customer base will grow in a smooth, continuous curve invites the tempting and dangerous idea that customer adoption is simply a sales execution problem. The actual transition from one type of customer to another is at best is a step function (and dependent on Market Type)
Customer Discovery Steps
- 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.
The first rule of user research: never ask anyone what they want.Erika Hall, Just Enough Research
The key to doing effective customer interviews is to ask the right questions and avoid leading questions. For example, “Would you use this product” or “How much would you pay for it” are actually not that important.
When you talk with potential customers, encourage the flow of ideas; don’t restrain them or try to gain a commitment. If the potential customer senses you are trying to sell them something, they will change their behavior. They will either say little or say things that are related to the market opportunity you seem to be presenting them, rather than providing you the new, innovative ideas for markets. As a result, you will get less market data, and what you do get will be biased.
Likewise, you should not count on your customer to design your product or tell you the answer to their problems. The goal of this research is to understand their pain points, and later design a solution that will be of great value to them.
To do so, you will need to thoroughly understand the underlying issues and sources of opportunity, whether by speaking with them or, even better, watching them as they work (“primary observational research”). Actions are more important than words because people sometimes say things are contrary to how they actually do things.
You will want to talk with as many end users as possible, but individuals who are not end-users may also give you valuable advice or may point you in the right direction. You may even find that you misidentified the end user in your segmentation.
There are three important caveats when conducting your primary market research:
- You do not have the “answer” for your potential customers and their needs
- Your potential customers do not have the “the answer” for you.
- Talk with potential customers in “inquiry” mode, not “advocacy/sales” mode. Listen to what they have to say, and don’t try to get them to buy anything.
Organize Your Research
- End User: Who specifically would be using your product? The end user is often your “champion” who you need on board so that your product is successfully adopted. You have narrowed down your end user some already, but as you do primary market research you may find the category can be even further segmented.
- Application: What would the end user be using your product for? What is the task that would be dramatically improved by your new venture?
- Benefits: What is the actual value that the end user would gain from the use of your new product? Not feature or functions, but specifically what the end user gains from the product. Is it a time savings? Cost savings? Additional profit?
- Lead Customers: Who are the most influential customers that others look to for thought leadership and adoption of new technology? These are sometimes referred to as “lighthouse customers” because they are so respected that when they buy, others look to them and follow their lead, gaining you instant credibility. Some people call these customers “early adopters” but lead customers are not technological enthusiasts. They must be respected by others as innovative and successful customers who purchase because the product provides them with real value and not simply bragging rights.
- Market Characteristics: What about this market would help or hinder the adoption of new technology?
- Partners/Players: Which companies will you need to work with to provide a solution that integrates into the customer’s workflow?
- Size of the Market: Roughly, how many potential customers exist if you have achieved 100 percent market penetration?
- Competition: Who, if anyone, is making similar products — real or perceived? Remember, this is from the customer’s perspective and not just yours.
- Is the target customer well-funded? If the customer does not have money, the market is not attractive because it will not be sustainable and provide positive cash flow for the new venture to grow.
- Is the target customer readily accessible to your sales force? You want to deal directly with your customers when starting out, rather than rely on third parties to market and sell your product. This is important because your product will go through iterations of improvement very rapidly, and direct customer feedback is an essential part of that process. Also, since your product is substantially new and never seen before, third parties may not know how to be effective at creating demand for your product.
- Does the target customer have a compelling reason to buy? Would the customer buy your product instead of another similar solution? Or, is the customer content with whatever solution is already being used? Remember that on many occasions, your primary competition will be the customer doing nothing.
- Can you today, with the help of partners, deliver a whole product?The example here that I often use in class is that no one wants to buy a new alternator and install it in their car, even if the alternator is much better than what they currently have. They want to buy a car. That is, they want to buy a whole functional solution, not assemble one themselves. You will likely need to work with other vendors to deliver a solution that incorporates your product, which means that you will need to convince other manufacturers and distributors that your product is worth integrating into their workflows.
- Is there entrenched competition that could block you? Rare is the case where no other competitors are vying to convince a customer to spend their budget on some product to meet the identified need. How strong are those competitors, from the customer’s viewpoint (not your viewpoint or from a technical standpoint)? Can the competition block you from starting a business relationship with a customer? And how do you stand out from what your customer perceives as alternatives?
Example Market Hypothesis: Resegmenting an existing market
- What existing markets are your customers coming from?
- What are the unique characteristics of those customers?
- What compelling needs of those customers are unmet by existing suppliers?
- What compelling features of your product will get customers of existing companies to abandon their current supplier?
- Why couldn’t existing companies offer the same thing?
- How long would it take you to educate potential customers and to grow a market of sufficient size? What size is that?
- How will you educate the market? How will you create demand?
Effective customer interviews are an important skill to develop as you build and iterate your product. I hope you’ll put these guidelines to use and master your next customer interview.