Customer development or why 9/10 startups fail

/disapprove by striatic at Flickr

/disapprove by striatic at Flickr (CC)

Why do startups fail? Is it for the ambitious technology that simply couldn’t be built? Is it for the lack of capital? Or is it because nobody wanted to buy what the company was offering?

According to Steve Blank, a lecturer at Stanford and a serial entrepreneur, 9 out of 10 startups fail from the lack of customers. Put more simply, nobody wanted to buy what they were making. Or as Marc Andresseen puts it, the companies never got to product/market fit. The difference between a successful startup and a failed startup is that the successful ones get out of the office and talk to the customers, study them, the market, competitors and by doing so validate everyone of their guesses (product, customer, market, channel, pricing, competition, positioning and so on) until they know exactly what they are offering and how to turn it into a successful business.

Isn’t this common sense? Isn’t absolutely vital that the top management of the startup intuitively understands what the customers are willing to pay for?

So why don’t we all have a process for developing all that customer insight? Why don’t we all have that process running next to the product development process? I don’t know why, but luckily Steve Blank is helping us to correct this fatal mistake. He offers the Customer Development Process, an iterative process running side by side with the product development process.

customer-development-overviewFrom Steve Blank’s Customer Development presentation at Slideshare.

I found about Steve’s work thru Eric Ries (he is the former CTO of IMVU). I’ve been an avid follower of his blog Startup Lessons Learned. IMVU was one of the first companies to implement the Customer Development Process and you can say they did it with great success as IMVU now claims over 20 million registered users and over a million dollars sold each month in virtual goods trade. Eric has also been contributing to the development of Steve’s process, and his diagram shown below nicely highlights the symbiotic relationship of these two vital processes:

customer-development

From Eric Ries’ Customer Development Engineering presentation at Slideshare

I really like Eric’s diagram because he calls it like it is: in a startup, the problem we are trying to solve is unknown (we have a visions, which by definition are imaginary or even hallucinatory) and our solution is as well unknown. Until we have customers on a mass scale paying us with honest-to-god money, we simply do not know what those customers really want. Best confront this truth and do something about it. That is what Customer Development is really about.

I’m halfway thru Steve’s self-published book The Four Steps to the Epiphany, which is an excellent book if you give it the time and love it deserves. It is also a book sorely in need of a good publisher (it deserves to be re-published) and a great editor to turn it from a raw diamond into the jewel it really is. Personally the book and the Customer Development Process is a godsent as it directly applicable to the situation I and my company are at this very moment (early stage venture). I’m working thru the book, doing the exercises, applying the learnings and I feel confident that our business will be a lot better for it.

Eric Ries does a great job of distilling the essence of the book in his blog post What is customer development? Here’s a quick summary from Eric, slightly tweaked by me:

  1. Get out of the building. Very few startups fail for lack of technology. They almost always fail for lack of customers.
  2. Theory of market types. Existing market, re-segmented market, new market: a theory that helps explain why different startups face wildly different challenges and time horizons.
  3. Finding a market for the product as specified. Find the minimum feature set required to get early customers.
  4. Phases of product & company growth. The book takes its name from Steve’s theory of the four stages of growth any startup goes through: Customer Discovery, Customer Validation, Customer Creation and Scale the Company
  5. Learning and iterating vs. linear execution. Applying iterative & agile practices to the whole business, not just product development

steve-blank-video1

The next step after Eric’s blog is to grab a hot cup of a coffee and sit down to watch Steve’s presentation at Stanford University’s Entrepreneurship course.

As an entrepreneur finding something this profound and useful exactly at the time you need it is absolute, pure gold. I’m putting what I’m learning from this to practice and I strongly believe our startup will be a lot more successful if we are able to apply the customer development process. If you are running a startup or bringing products to market, you owe it to yourself and your company to give this some serious thought.

Further resources

Learn more (many of items listed are from SKMurphy’s blog):

If you find further resources for Customer Development, please let everybody know at the comments.

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7 Comments on “Customer development or why 9/10 startups fail”

  1. Purple44 Says:

    Also remember to keep in touch with the fan base your successful game has created! Fans appreciate game Devs stopping by and also answering emails. :)

    Us fans are good source of what players like or dislike about your game and what you can do to improve it. ;)

    Hint, hint , BugBear and Codemasters.


  2. Purple, as you probably know, I’m no longer working at Bugbear.

  3. Purple44 Says:

    Ya I know :(, but hey, good luck with Everyplay.

    BugBear being very quiet this year, have not heard from BugBear since Feb when you were kind enough to reply to my email.

    If you see some the guys from BearBug at the IGDA pub nights, you might mention their fan base is dieing for some news on the new Flatout on steroids. ;)

    You know your still listed as Business development director at BugBear web site?


  4. […] Yet this is what most of the companies seem to do. Jussi Laakkonen, founder of Everyplay, wrote a great piece on customer development. He said that according to Steve Blank, a lecturer at Stanford and a serial entrepreneur, 9 out of […]


  5. […] Link: Customer development or why 9/10 startups fail […]


  6. […] Not only do I feel that Steve’s framework is right for my start-up, but I was also compelled to write a blog post.  During my research I found a post so well written that I knew it was better to link out rather than write a new one myself.  Therefore, I highly recommend Jussi Laakkonen’s post called “Customer Development or why 9/10 startups fail“ […]

  7. aa Says:

    doors.txt;15


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