What is Customer Development and Why Do We Need It

Why customer development model matters

Projects fail when they don't solve a market problem and that is a common pain of startups. According to CB Insights research, 42% of startups fail in the cause of poor product-market fit. Supposedly, these startups had good products but didn't find customers for them. You may have a really perfect technology and expertise. But if you have no valid business model that solves a pain point you are taking big risks.

On the one hand, businesses often launch their product without knowing who their target customers are. On the other hand, there are sometimes too many personas which blur a marketing focus and it leads to failure. Both of these situations are not suitable for successful development.

One way to solve this problem is to adopt a methodology of customer development (Blank S.). With this approach, customer development vs product development happens in tandem. And this means that your business engine works smoothly eliminating fuel overruns.

Customer development for entrepreneurs: jobs to be done-concept

Customers struggle when they try to make theor life better but don't know how. We call this srtuggle a job to be Done.

A. Klement

Jobs to be Done is a theory of customer action promoted nowadays first of all by Alan Klement. It describes the algorithms causing consumers to adopt innovation. It's a good analytic tool for observing markets, consumers, and their needs and expectations. By doing so, it makes your business process more profitable and predictable.

I recommend to read at least first 100 pages of the book "When Coffee and Kale Compete" that talks about Job to be done-concept for effective customer analysis.

Artem Barmin

co-founder of Freshcode

Book "When Coffee and Kale Compete" by Alan Klement is written in an approachable way, with a lot of memorable stories that help readers retain the concepts. Probably you will find a lot of reasons for thinking about your product innovation and marketing strategies.

Customers make their decision considering the way you present a product and the level of service you provide. Moreover, clients pay attention to how favorably you compare with your competitors and how you are represented in the media space. Often, product competitors are not so obvious.

Why do people buy a Mercedes?
Reason number one: status. For technical features, there's Toyota. Car manufacturers, in general, are a prime example of emotional targeting usage.

Artem Barmin

co-founder of Freshcode

The "Job" in conjunction with the "Jobs-to-be-Done" concept is connected to a variety of requirements. And it is not only functional requests but also emotional and social, which proves that context sometimes is crucial.

The best way is to take every customer Job as unique despite the fact of many Jobs are arising from the common emotional desires (e.g., belonging or self-expression). In fact, every Job is a unique combo of such desires and it's a cause why each product should be delivered in its own way.

There are two types of Jobes:

1. Main jobs to be done, that include major tasks consumer strives to achieve.
2. Related jobs to be done, which consumer wants to complete along with the main jobs.

Then, each of these groups is divided into two parts:

1. Functional part, including objective (pragmatic) customer requirements.
2. Emotional part, including subjective requirements connected with feelings.

Ultimately, within emotional requirements there are:

1. Personal dimension — client feelings about the solution solving his needs.
2. Social dimension — client idea of how he is perceived by people while using this solution

Customer development process: HADI cycle

All startups use this step-by-step methodology to check some ideas quickly. Firstly we formulate a Hypothesis, a certain forecast. In this way we predict some algorithms: if we do something (Action), some metrics (Data) presumably will increase. Then we implement this Action as quickly and cheaply as possible, and check, is our Data changing or not. Thus, we gain an Insight into the effect of our Action. If Data didn't change at all, most likely initial Hypothesis will be refuted. So we can check out tons of ideas quickly.

9 out of 10 hypotheses often ultimately fail. This leads to the conclusion that the company checking as many hypotheses as possible in a fixed timeframe eventually wins.

Artem Barmin

co-founder of Freshcode

For example, the Amazon team must test up to 10 hypotheses per sprint. You pick up tons of ideas, validate them, do customer interviews, create landing pages, build prototypes, and finally confirm or deny the initial idea. Thus, HADI testing is a great tool to test your hypotheses efficiently.

Fresh Fact

! How not to do hypothesis testing
Of course, we can test the hypothesis by fully launching, writing a bunch of code, developing a full-fledged website, creating content, etc. But you should think about reducing costs and choose HADI tests, which are much cheaper.

Lean customer development in action, or let's start the interview

The best way to validate the hypothesis is to talk with your potential clients. Customer research methods are divided into quantitative vs qualitative methods. Quantitative methods are primarily represented by survey researches with closed-ended questions. The main qualitative method is an interview mostly with open-ended questions. It focuses on subjective and context-informed ways of gathering data.

Customer interviews are divided into two types: planned and ad-hoc. First are scheduled well in advance and their time frame typically is longer (one-half to 2 hours). Ad-hoc interview is requested on the spot (e.g., in a store) and last for 5 to 15 min. Let's go with the first one.

The vital key is to talk to clients. A lot of successful enterprises prefer personalized service over all other strategies. Companies can increase their business growth curve by meeting customer requirements with adaptability and attention to detail. The first-hand analysis really helps with understanding clients' needs and unlocks the product development model much faster.

So let's check 5 main steps in the customer interview process:

1

Identify the issue

Once you have pinpointed a problem you are going to address, it's time to examine it perfectly.

2

Find respondents

Use social media or specialized web resources (sometimes word-of-mouth is effective too) to find people discussing your topic and invite them to a video meeting with you about [insert your theme here]. Work with Marketing and Sales to identify potential clients considering market segment dimensions.

3

Make a list of proper questions.

Don't talk about your product. Talk about the client's reality and environment to understand is your hypothesis viable or not.

Don't ask questions about the future such as "Would you buy this product?". Ask your clients about today's needs and issues.

Artem Barmin

co-founder of Freshcode

4

Conduct the interview

Here we are going to share with you some tips that will help you to gain more success during the interview:

• Choose suitable dress code
• Use easily understandable vocabulary for each respondent
• Don't try to sell, your goal is to gather information
• Start your interview with small talk
• It should be "conversation", but not "quiz" or "examination"
  
• Listen attentively
• Be sincere and be sure that you don't sound overly serious or patho

5

Debrief and implement

The information gathered during the interviews will shape your product/service into the best MVP it can be. You will finally decide what features are matter and what aspects could miss the mark.

Thus, by research and in-depth interviews with your target audience, you will find valuable insights about every segment and its representatives requirements'.

ABCD segmentation as customer retention and development tool

A vital component of business growth is your clients. But not all of them are alike. That's why customer analysis is a crucial tool that will help you to segment clients and tailor different strategies.

ABCD method is a comprehensive way of segmenting your customers. Some of them are perfect to deal with, and others can cause endless meetings and sleepless nights.

A-list customers

It's a group of your best clients: you love collaborating with them and they appreciate your work and ideas. A-customers are the first ones to refer you, they want a quality product, have accurate requirements and are ready to pay for the result.

B-list customers

Experts call this group as a "middle of the road customers". You handle only some part of their work. B-clients are potential members of A-list clients but it may take time.

C-list customers

And this category could be called as "crossroad customers". You work with them in small doses, over time, and monitor to see if there is any increase in sales. It's difficult to predict where they will drive in the future, to the B-group highlands, or to the D-side downhill :)

D-list customers

It's probably the most difficult clients. D-customer symptoms are constantly arguing, criticizing and bargaining. They make changes in requirements at every turn and cause a lot of effort. D-group members are late payers, or in some cases, they don't pay at all. You've been thinking a long time to say goodbye to them. And probably it is the right way. Such a decision can be difficult while you are in the startup phase. However, D-list members are not clients you need to collaborate in the long term.

Once you've categorized clients, then it's time to draft and implement client management plans for keeping "A's" stay "A's" and try to turn "B's" into "A's".

Freshcode can help you segment your customers while you can focus your time and resources on satisfying your best clients, resulting in longer A-List. Moreover, our business analyst team is ready to provide any analysis and consulting services for keeping up your business ideas!