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Customer Development for Small Business: An Essential Practice

Jeff Solomon
Nov 25, 2020

Customer development is essential for launching new ventures that address market needs.

How much do you know about customer development? Have you been using this essential practice in your small business? If you aren’t familiar with the customer development process or aren’t applying it in your business, this article is perfect for you. Even if you already know about the principles and have even used them before, there is always more to learn about nailing product-market fit.

Much of the time we hear about customer development as a practice used by startups trying to find a real market problem. But the truth is, the most successful companies leverage the principles and practices of customer development daily to optimize their business and grow, grow, grow.

What is customer development?

Let’s start with a definition. Customer development is a formal methodology for discovering, unpacking, and validating market problems. The concept was developed by Steve Blank, a Silicon Valley entrepreneur and venture investor, and largely mimics the scientific method most of us learned about in school. The purpose of customer development is to dramatically increase the probability of success by testing ideas with real customers before building and launching a product. In other words, it is the process of talking to potential customers to learn whether or not a real problem exists and if your solution might solve it for them.

The technique can be used entrepreneurs, product managers, small business owners and anyone else trying to validate a market need. And like many things in business, customer development is simple, but not easy. The systematic process consists of four key parts:

  1. Customer discovery: This stage is about understanding who your customer is and what meaningful problems they have. This is largely done through primary and secondary research like surveys and customer interviews. You will almost certainly repeat this step several times to fully identify a customer segment with a problem worth solving.
  2. Customer validation: This is when customers start paying for your product or service. This confirms that you are solving a real problem at a price customers are willing to pay.
  3. Customer creation: Here is where you expand your reach through sales and marketing to build greater demand for your product or service.
  4. Company building: And, finally, you transform your organization from startup to mature business.

Whether you’re starting a new business or have been running your company for a decade, customer development can be an incredibly useful practice that will help you grow exponentially. There are good customer development courses that cover the gamut. But for this article, we will focus on the first two steps as they are the most difficult to master and most valuable to small businesses.

Never assume “If we build it, they will come.”

All too frequently entrepreneurs and small business owners have a seemingly great idea but don’t do the work to test their hypothesis before launching. We assume a problem exists for customers and we convince ourselves that our solution is the right one. But often we have it wrong.

The good news is that entrepreneurs are great at getting close to the pin. Our assumptions aren’t totally off the mark, but unlike horseshoes and hand grenades, building a successful business means we need to be dead-on. Customer development is the way we get from close to the pin and into the cup.

What are the benefits of customer development?

Most of us can agree that having a better understanding of a problem before setting out to solve it makes a lot of sense. But how does that benefit a small business that is already up and running? That’s a good question and one that warrants discussion.

As small business owners, we make decisions every day. Many of those decisions are about the products and services we sell. The truth is that markets change. Customer needs evolve. Competitors that didn’t exist when we started our business are now nipping at our coattails. Entrepreneurs should regularly check-in with customers to see how effectively they are meeting their needs. If we assume our product or service still works as well as it did when we first launched, we might overlook changes in the market. Moreover, if we don’t continue to talk to customers we might miss opportunities to serve them even better.

Look at McDonald’s for example. How many options were on their menu when they opened in 1955? Less than 10 I’m sure. Today they have hundreds of items. And they’ve tested and removed hundreds more. They know that their customer needs change and if they want to maximize the value they provide, they need to change too. So whether you’re a startup with a new idea that hasn’t even launched or a mature business that has been growing steadily for years, customer development is the one practice you can use to keep delivering awesome products and services that customers can’t live without.

Here are some common benefits of engaging in customer development:

  1. You gain powerful insights around customer needs that are rarely obvious.
  2. You’re able to achieve and reduce time to product-market fit.
  3. Investing significant resources is delayed until a proven and justifiable need is found.
  4. You gain an understanding that the solution solves the problem.
  5. You’re able to conclude that people will pay a price for your product where you can make a profit.
  6. You glean when customer needs have changed so you can modify or build new products.
  7. You discover how your competition is addressing the market or servicing new markets.

How do I implement customer development?

So you’ve got an idea for a business, or you want to launch a new service for your existing business. You probably have a hypothesis in your mind about who the customer is, what problem you are going to solve for them and what benefit they get from your solution. Now it’s time to apply the customer development process to validate your thinking.

The problem hypothesis

A problem is only worth solving if it’s meaningful enough for your customer. In other words, if your user isn’t significantly impacted by this problem, they won’t care enough to want to solve it. And certainly won’t pay for you to solve it. So the first step in doing customer development is to organize your idea into a problem hypothesis.

A problem hypothesis is made up of three components:

  1. Who you think the customer is
  2. What their problem(s) are
  3. What benefits do they get from solving this problem

A good way to develop a problem hypothesis is to put it into a “user story” format. A user story is a very short (typically one-sentence) explanation of who a particular user is (i.e. firefighters), what is an activity or behavior they might do (i.e. wear fire-proof clothing) and what they get out of doing that action (i.e. don’t get burned). A user story is typically formatted like this:

“As [a user persona], I want [to perform this action] so that [I can accomplish this goal].”

Formulating your problem hypothesis in the form of a user story is helpful, because it will force you to breakdown the three components: the customer, the problem, and the benefit. Moreover, creating user stories makes it easier to figure out who you need to talk to when conducting interviews. In many cases, you may want to develop several user stories that state the problem and solution in different ways and using a range of potential customers. It’s worth spending some extra time and being disciplined at this step because your user stories are the framework for your entire customer development effort.

Connect with customers

Once you’ve created a few good user stories, it’s time to start talking to actual customers. If you’re launching a startup, you’ll have a little more work cut out for you. You’re going to need to find people to interview. If you already have a business, some of your current customers are likely to be the right ones to test your new idea with.

The key is actually “talking” to people. Steve Blank likes to say that effective customer development requires you to get out of the building. By this, he means that you need to interact with people in the real world to truly understand their needs. This is where one-on-one interviews come in. You can do all the research in the world, but nothing beats a personal conversation.

For new business ventures or products that you aren’t selling to existing customers, you’ll need to find people in your target market to interview. Even if you’re going to be selling your new service to existing customers, sometimes it’s still valuable to talk to people you aren’t already working with. You’re more likely to get honest and unbiased responses. Of course, connecting with people you don’t know can be challenging so let’s run through one approach that will work for just about any business: create a survey.

Don’t get too excited, you are still going to need to talk to people. The survey in this case is about finding people who are willing to talk to you in person or on the phone. The data you collect from the survey is useful but ultimately it’s much less important than actually speaking to potential customers in real life. With that in mind, you’ll want to craft a survey that meets the following criteria:

  1. It asks relevant questions so a respondent feels like they haven’t wasted their time and would be willing to give more information on a follow-up call.
  2. It should be short enough that it only takes five to seven minutes for someone to complete.
  3. Questions should be multiple-choice, check boxes, and ranking types only (paragraph responses take too much time and work for the respondent).
  4. It must include a request for follow-up conversation as the last question.

Now, what questions do we ask? Think about your user story. You want to create questions that will help you understand if the person fits into the user story you created. This includes a few qualifying questions, but is largely made up of “validation questions.” These are questions that help frame the problem hypothesis, and attempt to validate your assumptions around the problem and your solution. I like to refer to these as situational, impact and behavioral questions.

  1. Qualifying questions: These are questions that aim to validate you are talking to the correct person (e.g., what they do, where they work, gender, age, interest, products they use, etc.) and should make up no more than 20% of your total questions.
  2. Situational questions: These are questions that pose a hypothetical situation and ask users to tell you what they are most likely to do (ex. what method works best for this situation).
  3. Impact questions: These are questions that ask users how impacted they are by a particular experience (e.g., rank these activities in order of how impactful they are for you).
  4. Behavioral questions: These are questions that ask users to share behaviors or activities they participate in (e.g., specify the frequency you engage in the following activities).

If you create a good survey, you can expect to get about 30-40% of the respondents to agree to a follow-up conversation. And remember, the goal here is to get enough people to agree to a follow-up; that’s all.

Conducting interviews

Now for the fun part, well sort of. For some people it’s fun; for others it’s hard, and for a few of us, the anxiety will be paralyzing. You must push through the fear and discomfort because on the other side of customer development interviews are essential insights. It’s these insights that will keep you from spending countless hours and potentially millions of dollars building something that nobody wants.

The two most important things to remember when doing customer development interviews are:

  1. Never tell them the problem. Let them indirectly tell you their problems to avoid false positives.
  2. Never tell them the solution. Let them come to their own conclusions about a potential solution.

If that’s all you do (or don’t do), your conversations are going to bear fruits. But here are some other effective strategies that can help you get the most out of your interviews.

  1. Listen, don’t talk. One of the hardest things for people is being comfortable with silence. We naturally want to rush in and fill the space between two people talking. Give your interviewee the space to say more. Keep your questions short, and never embed the answer you want to hear.
  2. Ask them to be brutally honest.  You’re looking for real and honest feedback from these interviews. Your goal is to make them feel safe enough to share openly and honestly about their experiences.
  3. Don’t be afraid of bad news. More than likely, you’re going to hear things you don’t want to hear; especially if you talk to enough people. Your job is to listen and learn, so even if your interviewee doesn’t seem to have the problems you hope they do, don’t worry about that for now. Don’t get caught trying to convince or sell your idea. 
  4. Behaviors, not feedback. Your primary function as an interviewer is to get people to open up, but be careful not to lose control. Direct the conversation, and keep your interviewee focused on behaviors rather than feature suggestions or other feedback. Problems are always tied to behaviors. Get them to share stories about their own experiences; that’s how you’ll hear the key insights you’re looking for.
  5. Stories, stories, stories. Stories are the best thing you can hope for in an interview. Stories share behaviors. Stories show problems. Stories suggest solutions. Stories infer feelings. Everything you want is in the stories your interviewee shares. 
  6. Ask open-ended and leading questions. Stay away from binary questions. Binary means something is either a one or a zero. In other words, don’t ask yes or no questions. These types of questions seldom lead to stories. When you ask if someone likes Nike shoes, they will almost certainly tell you either yes or no. That’s not helpful.

Now what? Practice, practice, practice.

The truth is that most entrepreneurs make a weak attempt at proper customer development, or they skip it altogether. Ask 100 entrepreneurs working on a startup if they did customer development before launching and if they continue to do it while building their company. Almost certainly 100% of them will say yes. But I’d be surprised if more than a few can show you any data they collected, or the surveys they built, or the interview summaries they wrote up.

Here’s the trap. Entrepreneurs make assumptions, particularly when we’re excited about a new business, product or service. Founders tend to assume that a large group of people have a particular problem before they even talk to one person from that group to see if they do. But this is your job. And, unfortunately, it’s not going to be easy. Customer development is more art than science. It’s going to take practice to master, but the results will pay dividends, so don’t give up.

Finally, it’s important to remember that the outcome of this process is not always good. Sometimes you’ll learn that your hypothesis is wrong and you are aiming to solve a problem that has no customer. But that’s ok because hey, you just saved yourself a ton of time and money.

Image Credit:

DragonImages / Getty Images

Jeff Solomon
I've been in the startup scene for most of my career and I've done just about every role. From CEO to Chief Janitor, Head of Product to Marketing Lead. I have deep expertise in Saas, Content Marketing, SEO, Mobile Apps, Startup Accelerators, Lead Generation, UX, Angel & Seed Funding, B2B Software, Enterprise Sales and Bootstrapping. And I've been writing content on these topics for most of my career. I co-founded Amplify, Startup Accelerator (3 funds, $15MM raised) and Velocify (formerly Leads360) sold for $128MM. Raised $35MM+ in venture capital. And I've had a startup fail miserably. I've angel invested in a dozen companies. I've seen over 3,000 startups apply to Amplify and been pitched by hundreds of entrepreneurs. And have raised more than $50MM in aggregate seed and Angel funding for our portfolio companies. I have also created several courses and have been teaching high school entrepreneurship for 6 years. And I am developing a customer development online course which will be published in early 2021.