Customer development is one the most structured ways to create a startup. It is created by Steve Blank and described in his book the Startup Owners Manual.
Steve Blank describes customer development in his book as follows:
The customer development model breaks out all the customer-related activities of an early-stage company into four easy-to-understand steps. The first two steps of the process outline the “search” for the business model. Steps 3 and 4 “execute” the business model that’s been developed, tested, and proven in steps one and two. The steps (Source: Startup Owners Manual):
- Customer discovery first captures the founders’ vision and turns it into a series of business model hypothesis. Then it develops a plan to test customer reactions to those hypothesis and turn them into facts.
- Customer validation tests whether the resulting business model is repeatable and salable. If not, you return to customer discovery.
- Customer creation is the start of execution. It builds end-user demand and drives it into the sales channel to scale the business
- Company-building transitions he organization from a startup to a company focused on executing a validated model.
Customer Development uses the Business Model Canvas from Alexander Osterwalder as a base. Osterwalters’s Book Business Model Generation (Wiley, 2010) provides the structure for the canvas.
Business Model Canvas describes within a business model the flow between key components of the company (Source: Startup Owners Manual):
- value proposition, which the company offers (product/service, benefits)
- customer segments, such as users, and payers, or moms or teens
- distribution channels to reach customers and offer them a value proposition
- customer relationships to create demand
- revenue streams generated by the value proposition(s)
- resources needed to make the business model possible
- activities necessary to implement the business model possible
- activities necessary to implement the business model
- partners who participate in the business and their motivations for doing so
- cost structure resulting from the business model