If you've been around entrepreneurial circles for a while now, you might've probably come across the term Customer Discovery time-and-time again.
It's a piece of start-up jargon that doesn't make much sense if you have not come across it before.
Now you might say, "is Customer Discovery the practice of walking around the city streets and probing people if they will be your Customer?" My answer would be yes! (In A Way...)
Before diverting our attention to the four vital phases of implementing Customer Discovery, let's look at its definition first.
Customer Discovery is the process of ascertaining who your target customer is and whether your idea will appeal to them.
Here, you are not trying to determine what are the wants or needs of every customer. Remember, when you are looking for initial customers, the idea is not to look for the masses.
Instead, you are searching for those few customers for who your product is suitably designed at the present stage.
These customers are often termed as product evangelists, those who will adopt your product quite early and then share it amongst their friends and close relatives. They are one of the most valued and important customers that you will ever have.
What makes these early customers different from the rest of your market is that they have a problem and are well aware that they are facing a problem.
In fact, they are so annoyed with their problem that they are actually trying to solve it by any means possible. They might have temporary solutions of their own that do work but are not ideal for the long-term.
In the discovery process, you need to find out what problem your product solves and whether your customer is actually facing these problems and will employ your product to solve them.
Finding real customers showcases the fact that your problem is fundamental for an individual. You can then use these early customers to aid you in iterating the product to suit their requirements.
Customer Discovery is essential, especially when you wish to create a product or service that serves the pain points, needs, and challenges of potential customers.
Since it is a customer-centric process, Customer Discovery can be employed at any given point in the start-up’s journey. However, the early-stage discovery step is very significant.
The biggest reason why start-ups fail is, they fail to validate their ideas to potential customers and spend time, money, and energy in the wrong direction.
According to CB Insight's Analysis of 101 Startup Postmortems, "42% of businesses fail as there is no market need for their product. This very reason makes it crucial to validate your idea with Customer Discovery at an early stage. This way, you will get adequate proof of being in a product-fit market.
At an early stage of your Customer Discovery journey, the ultimate goal is to create a value proposition.
The value proposition is primarily utilized in marketing as a statement that provides information about functional, self-expressive, and emotional benefits delivered by a brand that offers value to the target customer. This statement is significant for the internal validation of your product or service as well.
By adopting what you learn from your Customer Discovery journey and creating a research-based proposition, you'll have turned your assumption into a concept that is ready to serve the needs of your target market.
Here's an example of the value proposition of Airbnb.
"Airbnb aims to create a traveling space where everyone can fly in a healthy way, which is all-encompassing, diverse, local, authentic, and sustainable.” – Airbnb's Value Proposition
The vacation rental online marketplace developed its value proposition employing its exclusive Customer Discovery journey. They were able to ascertain precisely what people were looking for when traveling, thanks to the value proposition statement.
With a clear value proposition and business model, they have generated billions of dollars in revenue year after year.
It is essential to understand that every start-up is different, and every product is also quite distinct. So, whether your company is bootstrapped or venture-funded, it's never too early to conduct Customer Discovery.
A general guideline would be that it is imperative to conduct a discovery process if you haven't achieved product-market-fit.
Even if you only have a product idea, are designing a prototype, building your product, or have finished a product but have a few or no customers, Customer Discovery will provide crucial insights.
There's no stringent definition or metrics to mark this key milestone. However, if you have a product and several customers with little market traction, i.e., you can't find more customers and are not generating revenue, you haven't reached product-market fit.
Remember, Customer Discovery is not a one-time exercise; it is an iterative process. In all likelihood, you'll need to make changes to your hypothesis and re-test them.
Especially in the technology markets, the customers, their problems, and competitive products always keep evolving, which creates ample opportunities to revisit Customer Discovery.
Here are four vital phases of implementing Customer Discovery.
Phase 1: Define Your Hypothesis
Before initiating conversations with prospective customers, you need to have a fair idea about whether the problem that you are trying to solve using your product actually exists or not.
For that, you'll have to craft your value proposition hypothesis by drafting these customer discovery questions.
Here are some examples:
What initial findings can you draw from your everyday life?
Find out what the reason behind your idea is?
Why does the problem persist?
Can you find a solution to the problem?
How painful is it?
Once you have outlined the problem and found a solution by tracing the customer discovery questions, it's time to test your hypothesis.
For that, you need to write down your significant business assumptions about:
When you set up a hypothesis you basically sum up the things that you believe in about the market. Ensure that you document the hypothesis as it makes the document more comfortable to share across. It also prevents confusion, and you can effortlessly adjust upon it on further research.
Hence, I suggest that you write down your core assumptions. These would, in turn, form the basis for subsequent testing.
Also, be as specific as possible while jotting down your theories. The more detailed the hypothesis is, the easier it will be to determine whether it is true, false, or somewhere in the middle.
Phase 2: Test the Problem
Once the hypothesis has been appropriately defined, the next step is to test the problem. For that, you need to validate your hypothesis. Test your hypothesis as swiftly as possible once it has been formed. In case you wait for too long, the market might move on.
Hence, ensure that you speak to the target market, including prospective customers, analysts, and the media. But, don't make the conversation sales-oriented.
Testing the problem quickly with potential customers ensures that you are getting your products to your customers at a fast clip. This is the ultimate objective of a startup.
To do this successfully, you need to follow four steps.
Step 1 Tap your network
Tap into your friends, colleagues, family members and build a potential list of customers on whom you can test your hypothesis. According to Steven Blank, the author of The Four Steps to the Epiphany and the creator of the Customer Development Model, you need to contact fifty names.
The objective here is to learn and accumulate information and not be overly concerned about the rank/positions of the people involved.
Step 2 Prepare your "Problem Presentation."
Create a presentation based on the listed assumptions to get the necessary feedback. Here, you can include a high-level product idea description in the presentation.
On top of that, remember to have an open mind while getting feedback. The goal is not to persuade others of your convictions; instead, it is to learn something without bias.
Step 3 Get valuable insights
Engage with people directly; this way, you will get to learn about them. It will also help you get a great deal of information about their values and their thought-process.
Remember to shun all your preconceived notions. Let go of your existing beliefs and assumptions based on your life experience so far. In fact, here, it would pay if you are genuinely curious and question everything while exploring the fundamental aspects of their lives.
Ask customer discovery questions like: What motivates them? Why do they feel in a particular way? Wonder why they have said so? And then question again.
Step 4 Map the market infrastructure
On top of reaching out to prospective customers, you also need to reach out to the competitors to learn what exactly they're doing. Learn about the current market trends and their influence on your market.
For this, you need to go out and engage with the industry analysts, media and start attending conferences. The reason being, it will aid you to get a better understanding of the environment.
Once this phase ends, you will start learning facts and start modifying your hypothesis. Moreover, the more you expose your hypothesis, the more you'll learn and get updated and derive a specific "problem statement."
Phase 3: Test the Solution
In the next phase of the customer discovery process, you need to test your solution at a much wider scale. You also need to ensure whether your solution is relevant and attractive enough for your target customer to provide customer value.
Once you have derived a better understanding of your Customer, their problem, and the market, it's time to test your product idea. You can do this by engaging potential customers and sharing information with your product development team.
Now is the time for you to don the hat and be iterative. Take the feedback you've gathered. Share the customer appreciation points with your product development team. Also, do not forget to share the points that your customers did not like.
You might find that your product idea is a partial fit for the market but requires minor changes. If that is the case, go for certain modifications in the features of your product.
Alternatively, if you find that your product idea is entirely different from your identified market, you need to start searching for a new market again from scratch.
However, the job is not done yet.
The next step is to update your presentation that reflects your changes. Then, you need to mention the problems and solutions. Remember, the solutions should be based on the feedback received from the customer.
Then it would help if you shared it with your product development team.
By the end of this phase, you must possess:
Phase 4: Verify
In the final phase, you need to evaluate and validate the identified problem and solution.
Now is the take to make the final call on whether you are ready for the next move or need to iterate or even halt the project.
It is time to keep the customer first by evaluating the feedback received from them and sit with the product development team to answer critical questions like:
Is the customer problem verified?
Is the customer solution verified?
Whether your business model is sustainable?
Once you get answers to these questions, it will help you implement the 'Customer Discovery' process better.
Here's a case study that showcases a perfect example of implementing the customer discovery process.
Travel booking platform learns about the disengagement between consumers and business
A survey was conducted to understand what airplane customers thought and what travel industry leaders and professionals thought about the future of travel post-COVID-19. Splitty performed this survey.
According to Elad Shmilovich, VP Marketing, Splitty, "We felt all industry leaders think and say the same thing about the future of travel post-COVID-19; however, we didn't feel it perfectly made sense."
A prime example is that they asked industry members what new expectations customers will have from the airlines post COVID-19. For travelers, they asked questions like, "How will your expectations of airlines change?" "What new expectations will you have?"
He replied, "We observed startling similarity between both the groups. Both expected the same changes to happen, mainly about seating arrangements. However, when it came to its implications, both did not see eye-to-eye."
Travel industry insiders said, "We expect airlines taking out seats and increasing the ticket price in the economy class." On the other hand, consumers said, "Controls on the number of persons per flight, of course, so that they do not abuse prices."
To a travel industry insider, the natural implication of selling fewer seats means a higher cost per seat. After all, an airline needs to generate a certain revenue to reach profit per flight. In case you divide that revenue number by fewer seats sold, the per-seat cost naturally gets increased.
However, consumers did not care about airline profit. Consumers expect physical distancing. They felt paying a higher amount meant being abusive or profiteering during the global humanitarian crisis. It is the same way companies have started to increase the costs of N95 masks or hand sanitizer.
Throughout the survey, travel industry professionals believed that travelers would have to pay a premium price for safety and health-related preferences or changes.
However, the travelers did not expect to carry the cost of these changes. Some even said they expected the airlines to lower business class flight costs in response to COVID-19.
These insights lead to both marketing strategy, off-season targeting, and geo-location & product strategy. According to Shmilovich, "The company is about to launch a new product based on one of the insights."
He further advised, "Do not take things everyone sees as forsaken. Try to find out the truth. This will enable you to discover things and opportunities that others might have missed or ignored."
The Customer Discovery stage teaches us to question our assumptions. If you wish to grow your business, it’s time to put the scientific thought process into practice. Simply assuming certain traits without any proof about a problem or market segment would get your business into trouble.
Remember, there will be times when you need to accept being wrong because you cannot force your solution into a market that has no room for it. Thus, you need to ask the pertinent questions and verify assumptions to evaluate whether it is time to move to the next stage of the Customer Development model or start from scratch with the customer discovery process or even halt the project altogether.
It can be a challenging proposition to restrain yourself from jumping straight into the idea-building stage. However, remember laying a proper foundation upfront will ensure that your product idea lasts for a pretty long time.
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