Startup Success: Customer Discovery and Validation

Business Model

A business model describes the rationale of how an organization creates, delivers, and captures value. The entrepreneur’s task is to find a successful business model as quickly and effectively as possible.

Opportunity

Customer Discovery Process

1. Turn Your Guesses into Testable Hypotheses

2. Test the Problem

a) Understand your customer: “A day in the life of…” “problem, right here”. How are they solving it today? What are you enhancing or replacing? Customer segmentation and targeting.

b) Build a “Low Fidelity” Minimum Viable Product (MVP): Do you really understand the customer’s problem? Do people care?

3. Test the Solution

Build a “High Fidelity” Minimum Viable Product with only “the smallest feature set that customers will pay for” in your first release: Does your solution solve the problem? Can we acquire enough customers actually willing to eat our food and pay for it?

4. Verify or Pivot

Remember to quickly “pivot” one or more parts of your customer-problem-solution hypothesis when failure strikes.

MVP (Minimum Viable Product): The KISS Principle

Keep it simple, stupid.

Before even getting started, get out of the building, meet face-to-face, and listen to your potential customers. Learn what they need, what problems they have, and how they could be solved. Then, build a “low fidelity” MVP to test the problem: To test a problem, you do not need to build the solution. Is this a problem customers care about and would be willing to pay for? Did you understand the problem properly?

Later, build a “high fidelity” product or service to test the solution.

Customer Value Proposition

What unmet needs will the venture serve? Which customer segment will it target? Will it emphasize differentiation or low cost? Will it serve a new or an existing market? What will be the minimum viable product at launch? How will the product be priced?

Go-to-Market Plan

• What mix of direct and indirect channels will the venture employ?
• How does it plan to maintain customers?
• Will it capture more customers at a lower cost in the future? How?
• How does it plan to grow (scale up)?

Technology and Operations Management

• What activities are required to develop and produce the venture’s product?
• Which activities will the venture perform in-house, and which will it outsource?
• Who will perform outsourced activities, and under what terms?
• What are the costs of key activities?
• Will the venture create any valuable intellectual property? If so, will it be kept proprietary, or will it explore other options?

Financials

• What fixed costs will the venture incur?
• What sales volume does it imply?
• How much investment in working capital and property, plant, and equipment will be required per dollar of revenue?
• How will fixed costs, revenues, and ratios change over time?

Test Your Hypothesis

Customer Discovery

Face-to-Face Interviews

• Must be carried out by the founders.
• Do not try to sell (yet); your objective at this point is to test the problem.
• Do not develop betas or wireframes before at least 20 customer interviews!
• The interviewee (customer) should be talking 90% of the time; only questions from you.

Focus Group

Focus groups offer more insight regarding customer preferences and thought processes than questionnaires. In focus groups, small groups of consumers are brought together under the direction of a moderator while researchers record their observations (usually behind one-way mirrors or on videotape), responses, reactions, and comments.

Benchmarking

• Specify the reality of the market.
• What are the key ratios in the new market?
• Why do customers buy from the competition?
• Why would they change to buy from us?

Key Parameters

You must know the industry standards.

• Try to find similar projects:
• Understand what the key costs and revenue sources are in the new business.
• Investment size, sources of financing, percentage of public funds, prices, break-even point, insourcing/outsourcing approach to activities.
• Evolution in the number of visitors, marketing effort, awareness and timings, key partnerships, etc.

Assumptions

• Maintain a list of the most important assumptions.
• Always keep defined, if possible, when assumptions are going to be checked.
• Identify the times when assumptions should be checked.

Example

Strategy

Strategy: The choice of a future for the company and a way to reach that future, understood as the framework that coordinates, unifies, and integrates the company’s decisions and actions.

Strategic Management

Strategic Management is a set of decisions and actions that determine the long-run performance of a corporation. It includes:

• Internal and external environment scanning
• Strategy formulation
• Strategy implementation
• Evaluation and control

Basic Elements

Strategy Formulation: The development of long-range plans for the effective management of environmental opportunities and threats in light of organizational strengths and weaknesses (SWOT).

Mission: The purpose or reason for the organization’s existence. In contrast, the mission is a declaration of what the firm is and what it stands for—its fundamental values and purpose.

Vision: Describes what the organization would like to become. A simple statement or understanding of what the firm will be in the future.

Values: Define the behavior of the organization.