The Secret Sauce of Innovation
“How narrow the gate and constricted the road that leads to life. And those who find it are few.”
– The Bible, Matthew 7:14
The Customer Development Model (CDM) is that sauce. Take the example of IMVU, a “virtual world” startup with plans to create 3D avatar-based instant messaging and social networking. IMVU’s founders, Will Harvey and Eric Reis approached Steve Blank about investing in their startup and Steve required them to audit his Customer Development class at U.C. Berkeley’s Hass Business School as a condition of his investment.
This is part 3 of our Lean Innovation Series.
Instead of the traditional “waterfall” development approach that requires a tremendous amount of capital and time, Will and Eric became the first pioneers of the Customer Development Model. They built a model that relied on customer feedback and testing to determine the minimum product features that customers most wanted.
Based on their initial hypotheses about their customer, the founders set out to create a 3D chat add on for instant messaging. They quickly found out that most of their customer hypotheses were wrong. Their customers liked the 3D chat feature, but didn’t want to talk to their existing friends, they wanted to make new friends. This kind of feedback created the “two steps forward, one step back” learning process that is the linchpin of the Customer Development Model.
IMVU tested, pivoted and tested again until it got the product right. Rather than customer rejection bringing chaos into the company, it was expected, planned for and used to create a product that consumers actually wanted.
The key is to understand that a startup, or a new product division of an existing company, is not just a smaller company. A startup is a “temporary organization designed to search for a repeatable and scalable business model.” A startup is in “search mode” for a viable business model. Once that business model has proven viable, then (and only then) will the company move to executing that model. Most startups, with their extensive business plans, are far too focused on executing the model before deciding if that model should even exist.
The customer development model consists of four steps. Steps 1 and 2 are part of the search for that viable business model. During these steps “pivots” and failure are expected. Steps 3 and 4 are the execution of that proven, viable business model. Below is a very brief summary of each step that will be discussed in detail in future posts.
- Customer Discovery: The founders translate their idea into a set of business model hypotheses (guesses) and then create tests to prove or disprove those hypotheses.
- Customer Validation: Founders continue to test hypothesis and works to validate customers’ interest through early orders or product usage.
- Customer Creation: The product is refined enough to sell. Marketing and sales spending increase to scale the business.
- Company Building: This is where the business transitions from startup mode to a more traditional organization executing its model. It is only at this stage that a “traditional” business plan really starts to make sense.
Next week, we’ll dive into Customer Discovery.
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Image courtesy of https://www.flickr.com/photos/jeffmcneill/4564698856/
Filed Under: Performance Excellence, Strategy + Execution
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