Customer Development Process 101 – The Product Manager Guide

Are you wondering what the customer development process is? Would you like to know how a product manager can use it to deliver products that customers love?

If so, keep on reading, because that’s exactly what we’re diving into in this article.

Summary of the customer development process

• The customer development framework helps teams validate product ideas and build products that solve customers’ problems.
• It was developed by Steve Blank and popularized by Eric Ries in The Lean Startup.
• In the Customer Discovery phase, the team identifies problems, comes up with solutions, tests them, and assesses their potential to generate revenue.
• The aim of the Customer Validation stage is to develop a differentiation strategy and the sales funnel and to close the first deals.
• The focus of the Customer Creation process is on the marketing strategy: the choice of the target market, positioning, product launch, and demand generation.
• Finally, in the Company Building phase, the business grows into a mature company. This involves expanding the customer base and developing dedicated departments and teams.
• Customer development allows organizations to save money and time because they only develop well-tested ideas. It also removes emotions and bias from the decision-making process. Finally, it helps teams to achieve the product-market fit faster.
• The main downside of customer development is the time it takes. It considerably delays the product launch. Teams also need to be aware that it’s an ongoing process requiring constant commitment and discipline.
• Teams from across the organization should be involved in the process. It’s not limited to the product or the marketing team.
• The best time to incorporate the customer development process is when you start working on the product. However, you can also apply it to established products.
• Implementing the process in later-stage companies can be more difficult because of resistance to change and risk aversion. Nevertheless, they can use it effectively to develop new products or improve the existing ones.
• Overall, it allows organizations, both start-ups and mature ones, to avoid the feature fallacy trap and build products their customers love.

What is the customer development process?

The Customer Development Process is used to validate a product idea and verify if it satisfies the needs of the customer.

The process consists of 4 steps and takes place between the Business Model Design and Agile Engineering in the Lean Startup methodology.

It is a very valuable framework that can help start-ups build products that meet customer needs and are viable from a business standpoint.

A brief history of the customer development process

The customer development concept goes back to the 1990s. It was first described as a comprehensive framework by Steve Blank in his 2005 book, The Four Steps to the Epiphany: Successful Strategies for Products that Win.

The method gained a lot of recognition after the publication of The Lean Startup by Eric Ries. Ries believes that the Customer development process is an essential part of product development within the lean startup strategy.

Blank, together with Bob Dorf authored another well-known book, The Startup Owner’s Manual. That’s where he introduced the Customer Development Manifesto outlining the main tenets of the method.

What are some of them?

• Pair customer development with agile development.
• Failure is an integral part of the search.
• Make continuous iterations and pivots.
• Design experiments and tests to validate your hypotheses.
• Fast decision-making, cycle time, speed, and tempo.

What are the steps involved in the customer development process?

The customer development process consists of four main steps: Customer Discovery, Customer Validation, Customer Creation, and Company Building.

Customer development process #1: Customer discovery

The customer discovery process starts by identifying and testing user problems.

Next, the team comes up with potential solutions, be they individual features or whole business models, and tests them to ensure they actually solve the problems.

How is it done?

In-app surveys, prototype testing, and A/B experiments are some of the ways to collect customer feedback at this stage.

Finally, the team needs to verify whether the customer would actually be happy to pay for the solution they’ve come up with.

Customer development process #2: Customer validation

At the Customer Validation stage, the team focuses on developing a scalable sales funnel. This is to ensure that the product can be profitable in the long run.

Developing a product differentiation strategy is also a part of the process at this stage.

The sales team should aim to close the first deals with new customers.

Customer development process #3: Customer creation

The customer creation stage is all about marketing.

At this stage, the team chooses the market to target, sets goals and decides on the success criteria. They also refine their positioning strategy and prepare for the product launch.

They also work on a demand generation strategy to implement once the product is out.

Customer development process #4: Company building

During the Company Building phase, the business grows from a start-up into a mature company.

This means growing the mainstream customer base product base.

Scaling up usually requires changes to the organizational structure. What was originally done by one multidisciplinary product team, may need to be divided between specialist departments like marketing or sales.

New departments, like product ops, may be needed to make the communication and collaboration between these effects.

The transformation usually requires bringing in new talent with adequate skills that the original core team may not have. It may also be time for some team members to move on if their personal goals are no longer aligned with those of the organization.

Benefits of using a customer development process

How can the customer development process benefit your product organization? Let’s look at a few advantages.

Saves time and money in the long run through testing before building

To start with, customer development can save you considerable resources.

A lot of money and time can be wasted on developing unnecessary features that don’t bring any value to the customer. The customer development process will help you avoid falling into the trap.

This is because it forces you to validate ideas before developing them and make sure this is what your customers really need, and not what they or you think they need.

Removes biases and focuses on solutions for real potential customers

We all have been involved in pet projects that were driven by emotions or personal ambitions rather than sound judgment or empirical evidence. They should have never been allowed beyond the concept stage and yet somehow they were.

Customer development can save your teams that frustration.

Because it is a rigorous testing process, it takes time – the time we need to distance ourselves from our ideas and look at them in an objective way.

Such distance and enough data make it easier to drop ideas based on wrong assumptions in favor of solutions that really serve our customers.

Achieves product-market fit faster

The time you invest in customer discovery and idea validation will paradoxically help you achieve product-market fit faster.

Thanks to the validation process, you are able to release an MVP that is much closer to what your customers need and are ready to pay for.

Once the product is out, you can use PMF surveys to further refine your fit.

The negative side of the customer development process

Despite the clear benefits of the framework, customer development has some downsides you need to be aware of.

It will take longer to go from concept to market

As we’ve mentioned, the customer discovery process can be time-consuming. You come up with ideas, validate them, and go back to the drawing board when they fail.

Consequently, it takes much longer to move from the concept stage to the product launch, so it makes you go against the start-up mantra of going fast and disrupting things.

However, remember, that ultimately, such thorough validation helps you save money and develop products that deliver genuine value to customers.

It’s not a once-in-a-lifetime kind of deal

Another thing to bear in mind is that customer discovery never ends. If you decide to start using it with your team, you need to commit to it in the long run.

The market and customer needs and habits are in a continuous flow. As nothing is constant, the discovery process can never stop. Otherwise, you are going to lose the advantages of using the framework that you may have gained in the earlier stages.

It’s not a negative side as such because it forces you to keep looking for ways to improve your product through incremental innovation, but this is something you need to bear in mind when you start.

Related: Watch our Product Drive replay session from Teresa Torres on Product Discovery

Which teams should implement the customer development process

Product and marketing teams play a key role in the customer development process. They are in charge of the market and customer research and come up with the differentiation and positioning strategies.

However, customer development requires a wider range of skills and expertise.

That’s why all teams taking part in the development process, like the sales, engineering, and development teams, should also be involved.

The sales team may be able to provide lots of insights into the customer pain points, while the engineers need to be there to verify the technical viability of proposed solutions and build them.

When is the right time to start the customer development process

Ideally, you want to implement the customer development process from the very beginning. The sooner you start using it, to more money and time you will save, and the sooner you will reach the product-market fit.

However, it’s never too late to incorporate it into your product development. How you do it depends on what stage the organization is at.

Applying the concept of customer development to later-stage companies

The more established the company is, the more challenging it becomes to implement customer development.

Big players may be reluctant to challenge the status quo and change the way they go about product development because the stakes are much higher.

However, even the most successful companies can benefit from applying the framework.

For example, they can still use customer discovery to keep track of the needs of customers and validate new product ideas.

If applied to existing products that already have a good market fit, customer validation can help to expand the customer base and scale.

This includes international expansion. Customer development will be crucial for successful product internationalization.

Regardless of the stage you’re at, the framework will help you avoid the feature fallacy trap and build products that your customers love.

Successful companies use the customer development process

Are you curious how industry-leading companies have used the customer development process to build successful products? Let’s look at two examples: Buffer and Dropbox.

Buffer- testing before building

Buffer is an app that helps users manage their social media accounts. They’ve developed a robust customer development process that allows them to understand user motivations and identify their needs.

How do they do it?

To start with, Buffer uses Twitter to collect customer feedback and recruit beta testers in no time.

They also use in-app experiences and experiments to validate their ideas. Check out the fake door tests they’ve run to test the demand for their new functionality and different pricing plans.

Dropbox- solving a problem customer’s didn’t realize they had

For Dropbox, one of the first cloud storage services, the challenge was to identify the best ways to market its revolutionary product.

Customer Development allowed them to single out the word of mouth as the most efficient and cost-effective way to attract early adopters.

The process also helped them discover the minimum functionality that would provide enough value to paying customers and they built their MVP around those features.

Conclusion

The product development process can help you discover the needs of your customers, find the right niche, and come up with a design for a product that is easy to scale.

If you would like to learn how Userpilot can help you at different stages of product development, hit the link to book a demo!