This article is part of a series of articles, as an example how to use Customer Development in practice. If you didn’t read the introduction, please read it first.

Now we start with to State your business model Hypotheses as the first part of Customer Discovery. We use the checklists to fill. The checklists (number 3 till 12) are based on Customer Development from Steve Blank. In this part we describe checklists number 6, 7 and 8. In part 3 checklists number 3, 4 and 5 are described.

Checklist 6: Customer Segments
Goal: Develop a hypothesis of who your customers are and what problems they have that will drive them to use your product.

Reference: Customer segment and Source Hyphotheses

Define the Customer problem

  • Does the customer have a latent, passive, active or vision problem/need? [Co-founders wanted]: The active problem for co-founders is that they can not find an investor but they are making costs on “cheap” freelance developers or it is a passive problem, as they don’t expect to find an investor. In case the problem is active, Co-founders wanted has a good alternative, in case the problem is passive, the potential client first needs to be aware of the alternative of Co-founders wanted.

Define the Customer type

  • Define the distinctly different types of “customer”. [Co-founders wanted]: 
    • (Freelance) professionals that want to setup a serious Internet Company
    • Entrepreneurs from which first startup failed
    • Entrepreneurs that “won” bootcamps
    • Entrepreneurs who started a company and were focusing only to find an investor (taken from test various segments, part 3)
  • Who will be the actual day-to-day users of the the product? [Co-founders wanted]: The clients (so Founders) and their employees.
  • Who are the influencers and recomendors? [Co-founders wanted]: Investors, incubators, bootcamps
  • Who is the “Economic Buyer”? (i.e. Whose budget will pay for it?) [Co-founders wanted]: Client’s, so founders wallet, sometimes indirect the investor
  • Do you think the Economic Buyer has an existing budget for this product or do they need to get one approved? [Co-founders wanted]: When it is from “own” wallet, approval is not needed, when it is from investor, approval may be needed.
  • Who are the “Decision Makers”? [Co-founders wanted]: the clients (so the Founders)
  • Who else needs to approve the purchase? And who can kill it?  [Co-founders wanted]: informal financial sources like parents, aunts, friends etc. If they provide first investments the decision is easier for the Founder.

What are the Customer’s wants and needs?

  • Rated on a “problem recognition scale”. [Co-founders wanted]: sometime active-, sometimes passive problem
  • Does product solve a mission critical company problem or satisfy a must-have customer need? [Co-founders wanted]: no
  • How painful is this problem? [Co-founders wanted]: It can be painful  if the potential client, so Founder decided to resign from his job (in other words there is no steady income) and it is hard to find the investor. As long the potential client has steady income the problem is less painful.

Draw the Customer Archetypes. [Co-founders wanted]: privately created

Draw the day in life of a customer before and after your product. [Co-founders wanted]: privately created

Draw the organisational and customer influence maps. [Co-founders wanted] See map below.

  • List those who could influence a customer’s buying decision
  • Consider the product’s influence on his daily life
InfluenceMapCo-founders

Exit criteria

  • Customer types and problem need [Co-founders wanted]: passed
  • Customer archetypes [Co-founders wanted]: privately created
  • Depict a day in the life of a customer [Co-founders wanted]: privately created
  • Organizational and customer influence maps [Co-founders wanted]: passed
  • Update your business model canvas. [Co-founders wanted]: see part 6

Checklist 7: Channels
Goal: develop a hypothesis of your distribution channel

Reference: Chapter 3, Chanel Hypotheses

What channel your users use to buy from you? [Co-founders wanted]: direct sales channel

Draw the Distribution Channel Diagram

  • How much will the channel cost (direct expenses or channel discounts) [Co-founders wanted]: As long as founder is selling, it costs hours and minimal the first MVP. After expanding it depends on the expansion.
  • Are there indirect channel costs (pre-sales support, promotional dollars…).  [Co-founders wanted]: no
  • What else is needed for customers to use/buy the product?  [Co-founders wanted]: More MVP’s (probably software), this will be included in a package.
  • How do they acquire those pieces?  [Co-founders wanted]: Own software, combined with Open Source software.
  • What is the net revenue after channel costs?  [Co-founders wanted]: Gross income = Turnover – Sales/marketing costs.

Is this a Multi-sided Market?  [Co-founders wanted]: No, we may expand in far future to a franchise model.

  • How will you address each side of the market?

Exit criteria

  • Distribution channel selected.  [Co-founders wanted]: passed
  • Update your business model canvas. [Co-founders wanted]: see part 6

Checklist 8: Market type
Goal: Select an initial Market Type

Reference: Chapter 3, Market type

  • Do you have a new product in an existing market? [Co-founders wanted]: yes
  • Do you want to clone an existing market? [Co-founders wanted]: no
  • Do you need to redefine/re-frame a market? [Co-founders wanted]: Not in general, but create niches.
  • Or do you want to create an entirely new market?
    • Is your product/service a substitute for something customers already have? [Co-founders wanted]: yes, but a better approach
    • Is it a replacement? [Co-founders wanted]: yes, for Founders that are looking for an investor.
    • Is it a variant on something already out there, but can be “respun” into something new? [Co-founders wanted]: yes
    • Is it something totally new? [Co-founders wanted]: no

Positioning in an existing market

  • Define the basis of the competition. [Co-founders wanted]: Competition can be investors, as they sponsor startups so startups don’t need to take care so much about short learning cycles (unless Investor promotes this way). Besides the change is bigger that the founder hires locally his people.
  • Who is driving the existing market? [Co-founders wanted]: mainly Bootcamps and Incubators, but they are only looking for the “top”.
  • Do you have some advantage or appeal among other vertical or horizontal market segment? [Co-founders wanted]: Yes, horizontal with Incubator/bootstrapping industry, as Co-Founders wanted can be an alternative. But also vertical with the Venture Capital (VC’s)/Incubator/bootstrapping industry, as Co-Founders Wanted can “deliver” startups to VC’s or take in start-ups after Bootcamps and Incubators.

Positioning in an existing market you want to resegment.

  • Define the basis of the how you want to change the market. [Co-founders wanted]: Take a niche from “start-up” market that can not find finance and is willing to invest minimal 10 000 euro (starting with 2 000 euro).
  • Who is driving the existing market you want to resegment?  [Co-founders wanted]: Investors are driving the market but are interested in a very small peace of this market, mostly only when the team or concept is proven.

Positioning in an new market  [Co-founders wanted]: not relevant

  • How will you create the market
  • Estimate of market creation costs

Exit criteria

  • A preliminary first hypothesis of the type of market.  [Co-founders wanted]: Investors are willing to move their startups to Co-founders wanted.
  • Update your business model canvas.  [Co-founders wanted]: see part 6

>>> Go to next part (part 5)

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