customer creation

Customer Validation before Marketing Investment

Customer Validation before Marketing Investment

By: Scott Phillips

 

Steve Blank’s Customer Development Framework offers a valuable perspective on the importance of Customer Validation prior to investments in sales and marketing. In contrast to this perspective, history has shown that many early stage organizations leap to Customer Creation (e.g., marketing automation), before they have truly validated their customer.   When a marketing team or agency does not have sufficiently granular insights into the buyer, throwing money at marketing and sales can be a waste.

 
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Customer Development for Start-Ups … “Where am I?”

Over the last year, The SearchLite has conducted over 40 Market Discovery Challenges for university technology transfer offices (TTOs), Angel Investors and Business Incubators on behalf of inventors and startups. Market Discovery Challenges are designed to help identify “Who Cares and Why” about a new technology or solution. The idea is to use 62519cab-9630-487d-8f73-26e09dcbd419.jpgCustomer Discovery Interviews and other tools to validate or invalidate key hypothesis about Value Propositions, Customer Segments, Product-Market Fit and other key aspects of the business model that a new venture is pursuing.

The primary framework, which serves as the foundation for The SearchLite’s Market Discovery Challenge, is “Lean Startup” and, more specifically, the Customer Development Process. The four primary disciples of Lean Startup over recent history are Geoffrey Moore, Steve Blank, Eric Ries and Alex Osterwalder.   While there are many other thought leaders on the Lean Startup Subject, these four have laid the primary foundation with hbrCrossing the Chasm (Geoffrey Moore), Customer Development (Steve Blank), Agile Development (Eric Ries) and Business Model Generation/Value Proposition Design (Alex Osterwalder). The HBR article from May, 2013 by Steve Blank – “Why the Lean Start-Up Changes Everything”, is a good place to start for those unfamiliar with these concepts.

 

custdevFor The SearchLite, one of biggest challenges we encounter on almost every Market Discovery Challenge is understanding “Where the Start-up Is” as a starting point.   Inevitably, each inventor or entrepreneur tends to believe his or her technology, solution or startup is further along the Customer Development Process than it really is.   Two of the key outcomes of the early phases of Customer Development are “Problem-Solution Fit” (Customer Discovery) and Product-Market Fit (Customer Validation). Almost without exception, Start-Ups are trying to execute Customer Creation or Company Building without ever having achieved Product-Market Fit.  They may be trying to do Company Building when they should be focused on Customer Creation. Start-Ups focused on Customer Creation often should step back one or two steps back to Customer Discover or Customer Validation.

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In one example, The SearchLite recently worked with a university spinout that had developed wireless monitoring and control technology which was early stage in development and broad in terms of potential market application.   This situation was most suited for Customer Discovery, but the Start-Up Team felt that they already had identified their best-fit customer and wanted to focus on Customer Validation. As a result, the Market Discovery Challenge was focused narrowly on validating interest in the technology only from Plant Managers at OEM Stamping Plants in the Automotive Industry. The results of the Customer Discovery Interviews indicated that the industry, application and customer type were all overly constrained and that there was little interest from this customer in this technology. This was a classic case of confirmation bias on the part of the Start-Up Team.

2ndstageRecently, The SearchLite has been working with some post-revenue, Second-Stage Companies in addition to Start-Ups. In many cases, the introduction has come from digital marketing agencies who have been brought in to help the Second-Stage Company to grow sales via marketing automation platforms. In the context of Steve Blank’s Customer Development Process, Marketing Automation is synonymous with Customer Creation. Marketing Automation is a fast growing software category with players such as Hubspot, SharpSpring, Infusionsoft, Marketo and Act-On. In the course of investigating the Second-Stage Company’s current marketing tactics including their website analytics, the digital marketing agency often finds that the Second-Stage Company, while able to sustain a minimal level of sale, is not able to scale because they never truly understood the best-fit beachhead customer, their persona, jobs-to-be-done or pains & gains in enough granularity to automate the sales funnel.

customer-development-funnel3-1024x605In their recent publication – “The Entrepreneur’s Guide to Customer Development”, Brant Cooper and Patrick Vlaskovits discuss the application of a Proposed Funnel during Customer Discovery and a Sales & Marketing Roadmap during Customer Validation. A funnel represents each step a prospect goes through, from blissful ignorance to happy customer, or from Internet “Googler” to satisfied user.   The main point is that it is never too early in the Customer Development Process to begin to not only identify the target beachhead customer, but also to use the Customer Discovery Interview Process to identify their buying process. This helps to get in front of Customer Creation when it is time to activate marketing automation platforms.

searchliteAs a result of this insight, The SearchLite has modified our Customer Discovery Interview Guide and other elements of our toolkit to help our inventor or Start-Up clients get ready to scale even as they conduct their early stage customer discovery and business model validation. If you would like more information about The SearchLite or our Market Discovery Challenges, please visit TheSearchLite.com or contact Scott Phillips at sphillips@thesearchlite.com / (734) 787-7509.

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