• jzitek@harborcapitalgroupinc.com
  • +1 612-978-7222
  • Bloomington, MN 55437


The Customer Development Manifesto



 

There are 14 rules that makeup customer development manifesto. I have summarized them from Steve Blank’s book, “The Startup Owners’ Manual,” This a much longer post than I would like, but I think it is vital that you look at them in total.  Learn them and use them. You will be glad you did.

Rule1 There are no facts inside your building. So get outside

The founder’s job is to translate the vision and hypotheses into facts. Facts live outside the building where future customers live and work. You can’t delegate first-hand experiences.  Only the founder can embrace the feedback, react to it, and adeptly make the decisions necessary to change or pivot key business model components.

Rule 2: Customer development is useless unless the product development organization can iterate the product with speed and agility.

It would be best if you paired customer development with Agile development. If you build the product without customer development (input), you will have a product that will be difficult if not impossible to change later, 

Agile engineering is designed to take customer input and deliver a product that iterates readily around a Minimum Viable Product (MVP) or its minimum feature set,

Rule 3: Failure is an integral part of the search

Failures in an existing company are an exception. IN a startup your are searching, not executing, and the only wah to find the right path is tot try lots of experiments and take a lot of wrong turns, Failure is part of the process, But failures are not failures, per se. Still, part of the learning process, If you are afraid to fail in a startup, you’re destined to do so.

Rule 4: Make continuous iterations and  pivots

Learning means making frequent iterations and pivots, A pivot is a substantive change in one or more of the nine boxes of the business model canvas (like changing from a freemium to a subscription model). An iteration is a minor change in the business model (like a small price change.) Pivots are driven by learning and insights; Founders should not hesitate to make changes,

Rule 5: No business plan survives first contact with customers so use a business model canvas

Once the business plan has delivered financing, the business plan is useless. Founders have to realize that the business plan is only a collection of unproven assumptions. The difference between a static business  plan and a dynamic business model could be the difference between success and failure,

The business model describes the flow and visual overview of the critical components of the company:

  • Value Proposition 
  • Customer Segments 
  • Channels
  • Customer Relationships
  • Revenue Streams
  • Key Activities
  • Key Resources
  • Kay Partners
  • Cost Structure

Use the business model canvas as a scorecard by posting your hypotheses and modify them as you test and validate your facts.

Rule 6: Design Experiments and Tests to Validate Your Hypotheses 

To turn hypotheses (guesses) into facts, founders need to get out of the building and test them in front of customers. Your tests should be short, simple, and objective pass/fail tests. You are looking for strong signals. Ask yourself, what’s a simple test I can run and a simple measurement that will give me a pass/fail.  Try to use a mockup if possible, to save time and money.

Rule 7: Agree on Market Type, It Changes Everything.

Not all startups are the same. The relationship between the product and the market has different requirements.  The market types are as follows:

  • A new product into an existing market
  • A new product into a new market
  • A new product into an existing market  (as a low-cost or niche entrant) 
  • Cloning a business model that’s successful in another country

See the information on Market Types for more information,

Rule 8: Startup Metrics Differ From Those in Existing Companies

Startups used traditional metrics for a long time. We now know that startup metrics should focus on tracking the startup’s [progress converting guesses and hypotheses into facts rather than measuring the execution of the static plan. Do this until you are ready to scale the company,  Following are the kinds of metrics you should be looking at:

  • Do the minimum product features resonate with customers?
  • Who is the customer and have the customer hypotheses been validated?
  • Customer-validation questions might include” average order size. Customer lifetime value, the average time to first order, rate of sales  pipeline growth, improvement inclose rate and revenue per salesperson
  • Cash-burn rate, number of months’ worth of cash left, short-term hiring plans
  • Amount of time left until you reach cash-flow break-even.

Rule 9: Fast Decision-Making, Cycle Time, Speed and Tempo

Speed matters because bank balances are the only absolute that declines every day. The sooner iterations and pivots get done, the more likely you will find a scalable business. The most significant impediment fo cycle time is admitting you are on the wrong track, and you need to make a decision. And yes, uncertainty is a problem you have to overcome. Therefore you have to think about decisions as reversible. Tempo refers to all levels at the company including investors,

Rule 10: It’s All About Passion

Without passion, the startup is dead before it begins. Successful founders are wired for chaos, uncertainty, and speed. They are focused on customer needs and delivering a great product.

Rule 11: Startup Job Titles Are Very Different from a Large Comp[any’s

I an existing company, titles reflect the way tasks are organized to execute in a known business model,  Startups demand execs who are comfortable with uncertainty, chaos, and change — maybe daily. For example, rather than business development, sales, and marketing, the tile might be Customer Development Team.

Rule 12: Preserve All Cash Until Needed. Then Spend

Once you find that repeatable and scalable business model, spend all you can to make the company grow. But, you need repeatable sales, not just one-offs like friends and acquiesces, you need a pattern or pathway you can replicate. Is your return on investment higher than your costs? If your goal is to get outside funding, you need to deliver 10x the investment.

Rule 13: Communicate and Share Learning

You need to share everything you learned on the outside of the building with everyone inside the building. Technology enables us now to share information in real-time through management tools and dashboards. One way to do this is with a daily company-development blog which will let everyone keep track of the entire development process (hypotheses, tests, results, people talked with, questions, etc.)

Rule 14: Customer Development Success Begins With Buy-In

To be successful, everyone on the team needs to understand ad agree that the Customer Development process is different. Everyone must accept the process and realize that its fluid and a search for the business model. Everyone needs to understand and agree that the old way of executing a business plan doesn’t work for startups.

Summary

Following these rules will help you achieve a successful company. Its the only approach for web-based businesses where you need constant customer feedback and product iteration. Also, doing things quickly and conserving cash enables you to pivot as necessary.

 

 


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