What is Customer Discovery and Why you Should Care About it?

Customer Discovery identifies and understands potential customers’ needs before launching a product or business. It’s a critical step that helps entrepreneurs validate their business idea by engaging directly with potential users, gathering feedback, and testing assumptions.

Many startups need help to survive in the market. Quite often, the problem is that new innovative ideas fail to get attention from people just because they are not as user-friendly as they seemed — and should be.

Many factors can work behind that, but one of the most critical factors that every entrepreneur must consider is using a proper Customer Discovery strategy. That’s why, in this article, we will explore this subject.

What is Customer Discovery?

“Customer Discovery” is derived from two prominent entrepreneurs: Steve Blank and Eric Ries. They discussed its importance in the “Lean Startup” methodology.

Blank believes that customer Discovery should be the first step of the Customer Development Model, as he mentions in his book, ‘The Four Steps to the Epiphany: Successful Strategies for Products that Win’ (2005), since the primary objective of the strategy is to identify the target customers. 

In simple words, Customer Discovery is a recursive process developed to understand customers’ needs before full product development takes place. Both startups and big and/or traditional companies use this strategy to create new products, target new customers, enter a new market, and update or upgrade their businesses.

How does Customer Discovery Work?

The Customer Discovery process follows four critical phases that help entrepreneurs develop products based on actual customer needs. This leads to better market alignment and a higher chance of success.

Stating the Hypothesis(es)

This phase involves forming educated guesses about your market, customers, and their problems — at this stage, you hypothesize who your target customers are, their most pressing pain points, and how your product or service will solve those problems. These are not yet facts, but assumptions that will guide the discovery process.

Key aspects include:

• Defining your customer segments: Who exactly is your product for? Break them into specific groups based on demographics, behaviors, or needs.
• Identifying customer pain points: What problems or challenges do these customers face? Your hypothesis should focus on the specific issue you believe your product can solve.
• Outlining your value proposition: How will your product or service provide value and address the identified customer pain points? What makes it a compelling solution?

At this point, the goal is to create a detailed framework of assumptions that you will validate in the following stages. The more specific your hypotheses, the more actionable your next steps will be.

Testing the Hypothesis(es)

Now that you’ve laid out your assumptions, it’s time to validate them by interacting directly with potential customers. This phase involves conducting customer interviews, surveys, and other qualitative research methods to gather feedback on your hypotheses.

Key steps in this phase include:

• Customer interviews: One-on-one conversations where you ask open-ended questions to understand customers’ needs, behaviors, and pain points. The goal here is not to sell your idea, but to listen carefully to how customers describe their problems.
• Surveys and focus groups: These are tools for gathering more quantitative or broader feedback. Surveys can reach a larger audience and help you see trends, while focus groups allow for in-depth discussions within a small group setting.
• Analyzing results: At the end of this phase, you should compare the feedback with your initial hypotheses. Do customers confirm your assumptions or reveal new insights you hadn’t considered?

This phase involves gathering evidence that either supports or refutes your initial hypotheses. The more you learn from this process, the better you can adjust your approach.

Testing the Product Concept

Once you’ve validated (or refined) your hypotheses, you test your actual product concept. This can take many forms, from mock-ups and prototypes to simple explanations of how your solution works. The aim is to test if your target customers understand and are interested in your solution.

Key aspects of product concept testing include:

• Building a prototype or minimum viable product (MVP): You don’t need a finished product. An MVP can be a basic version of your offering with just enough features to test your core assumptions.
• Presenting the concept to customers: Show potential users how your solution works and ask them for their thoughts. Are they excited by the idea? Does the product solve the problem in a way that makes sense to them?
• Refining based on feedback: During this phase, customers will help you identify areas of improvement, whether in functionality, user experience, or features. Pay attention to feedback that indicates a misalignment between your product and customer expectations.

By testing the concept early, you can identify flaws or areas of confusion and address them before moving into full development. It reduces the risk of building a product that doesn’t resonate with the market.

Evaluating Customer Feedback and Determining the Next Steps

Based on potential customers’ feedback, you’ll need to assess whether to move forward, pivot, or revisit your initial hypotheses. This phase helps determine whether the product is ready for development or if additional iterations are necessary. It’s a cycle of refining your understanding of customer needs and adjusting your offering accordingly.

Why Should You Care About Customer Discovery?

The customer discovery strategy can reveal some key questions. The process involves defining and prioritizing personas, which is often done by the first two. After them, the following parts come along.

• Who are the customers?
• What do they want?
• What channels to use?
• What should be the revenue strategy or pricing tactics?
• How to grow customers?
• How can this growth be maintained?
• What strategy should be followed to deliver the product?
• What internal resources are needed for that?
• Who are the stakeholders?
• Most importantly, what will the overall cost be?

What are the Benefits of Customer Discovery?

In August 2021, CB Insights published an article trying to identify why startup companies fail. According to the article, the second most important reason is No Market Need! This happens when startups fail to understand the market and customers’ needs. 

Also, that does not occur only with startups. Even the big giant companies’ many products have already failed to capture the market because the company’s hypotheses about customers’ needs turned out to be wrong. 

Many giant startup companies fail because they devote all their efforts to designing and refining their products and very little time, as Blank & Steve put it, “getting out of the building” [Blank, Steve (May 2013)].

Therefore, when you come up with an innovative plan that you have yet to determine whether it will work, Customer Discovery helps you test your hypotheses. The strategy encompasses several benefits, such as:

1 – Understand Customer Need

Understanding customer needs is an essential part of any business. You can’t launch a product just to discover that no one needs it. It can be a disaster for a company, especially a startup. 

Before launching any product to the market, it’s imperative to determine whether the customer needs it. It’s time to get out of the concept that “if we build it, they will come” [Alvarez, Cindy (June 2014)]. Customer Discovery helps you understand customer needs and the number of customers you will probably have.

2 – Invest In the Right Product

Getting to know where to invest time and money is crucial for startups, which often struggle with funding. If a giant company’s product fails to capture the market, it can cover the loss with profit from other areas. However, startups, on the other hand, need to be more careful.

Following the logic of the previous item, when someone comes up with an idea, they usually only have an assumption about the customers, the problem, and the solution. If any of these assumptions are wrong, the business is finished. As the boxer Mike Tyson says, “Everyone has a plan until they get hit in the face.” 

But if you can test your assumption, you can invest in the right product with a lower risk of failure. Customer Discovery helps develop and test your hypothesis using interviews with potential customers and many other tools.

3 – Enable Necessary Changes

Before releasing the final product into the market, it’s necessary to verify whether further modification is required to maximize the user experience. Customer Discovery lets you determine if any changes need to be made before launching. 

For example, Microsoft launched the beta version of Windows 11 before releasing the final version on the market, only to identify the problems and customer needs. Many giant companies follow this method. Startups may not follow the same way strictly, but they can use the Customer Discovery process to make necessary changes before exporting their product to the market. 

4 – Provide Customer Validation

Many startups depend on investors to set their foot in the market. No one is going to invest their money in your business unless they find any vibe of success in your product.

Thus, customer discovery can be an asset. Many investors recognize proof of customer validation as one of the most important factors when considering investing in a startup, and Customer Discovery helps startups present market validation to investors.

Considering all of these factors, no further discussion is required to make you understand the importance of the Customer Discovery process. When a startup conducts Customer Discovery, it learns a lot throughout the whole process. It helps them develop a business model based on facts rather than immediately executing a plan based on assumptions. 

Besides, one of the most advantageous aspects of Customer Discovery is that there is no need to spend limited time and money on product development or sales to see if it actually works. 

Rather, the process can save you money by allowing you to execute and scale what you have already shown to work. Of course, it does not automatically guarantee success, but it will probably decrease your chances of failing.

Customer Discovery Process

The Customer Discovery process systematically helps entrepreneurs and businesses validate their ideas by deeply understanding their customers’ needs, behaviors, and pain points. It ensures that the developed product or service solves a real problem for a well-defined group of customers.

Following the customer discovery process reduces the risk of building a product that doesn’t resonate with the market or fails to meet customers’ expectations. Here’s an in-depth look at the various elements that make up this crucial process.

Why the Customer Discovery Process Matters

Launching a product without understanding your target audience can lead to failure, even if the idea seems brilliant. The customer discovery process offers an opportunity to:

• Reduce risk: By validating assumptions early, businesses can avoid costly mistakes.
• Align product with market needs: Customer discovery allows businesses to build solutions based on customer problems rather than guesswork.
• Increase product-market fit: The more a product aligns with customers’ needs, the more likely it is to succeed in the marketplace.
• Avoid wasted resources: Testing ideas before full-scale development minimizes time and money spent on building features or products that customers don’t want.

Key Stages of the Customer Discovery Process

The customer discovery process can be broken down into several stages, each with its purpose and set of activities. These stages are iterative, meaning businesses may revisit them multiple times based on their learning throughout the journey.

1. Identifying Assumptions and Hypotheses: At the beginning of the customer discovery process, you must outline your assumptions about the market, the customers, and the problems your product is meant to solve. These assumptions are guesses about how your business idea fits into the real world and form the foundation of the hypotheses you will test.

Key areas to focus on during this stage:

• Customer segments: Who are your potential customers? What do they look like regarding demographics (age, income, occupation) and psychographics (lifestyle, behaviors)?
• Problem identification: What problem or challenge do you believe your customers face? How severe is this problem, and how motivated are they to find a solution?
• Value proposition: How does your product or service address the identified problem? Why is it a better solution than alternatives currently available in the market?

These assumptions are transformed into hypotheses you will later validate through customer interactions.

2. Conducting Customer Interviews: Once you’ve developed your hypotheses, the next step is to engage directly with potential customers to test those assumptions. This involves conducting in-depth interviews to understand their needs, pain points, and behaviors. The goal is to gather accurate insights from those who will eventually use your product.

Customer interviews are essential because they allow you to:

• Gain qualitative insights: Customers will tell you about their daily challenges and how they attempt to solve them. These conversations help you understand their motivations and frustrations better.
• Uncover unknowns: You may discover problems or needs you hadn’t initially considered. Sometimes, customers don’t express their needs until prompted by specific questions.
• Test assumptions: Do customers experience the problem you thought they did? Is it as significant as you imagined, or are there bigger issues they’re dealing with? These interviews help verify or challenge your initial hypotheses.

To conduct effective customer interviews:

• Ask open-ended client discovery questions: Rather than asking questions that can be answered with a simple yes or no, encourage customers to elaborate on their experiences. For example, ask, “What are the biggest challenges you face with [topic]?” instead of “Is this a problem for you?”
• Avoid leading questions: Don’t lead the interviewee to a specific answer. Let them express their thoughts naturally. Instead of asking, “Would you prefer a cheaper solution?” ask, “How do you currently solve this problem?”
• Listen more than you talk: The point of the interview is to gather customer insights, not to pitch your idea. Focus on listening carefully and understanding the customer’s point of view.

3. Synthesizing Customer Insights: After conducting multiple interviews, it’s essential to step back and analyze the feedback. This stage involves organizing and interpreting the data you have gathered to make sense of the insights. Here, you’ll want to look for patterns or recurring themes across interviews that confirm, refute, or modify your initial hypotheses.

Some strategies for synthesizing customer insights include:

• Look for commonalities: What pain points were mentioned most frequently? What are the core challenges that customers repeatedly face?
• Group feedback by customer segments: Different customer groups may have different perspectives on the problem. Segmenting the input allows you to tailor solutions to each group’s needs.
• Identify the ‘aha’ moments: These are unexpected revelations you didn’t anticipate going into the interviews. They can often lead to a pivot in your approach or product design.

Once you’ve synthesized the feedback, you’ll understand whether your initial hypotheses hold or need adjustment.

4. Developing and Testing a Minimum Viable Product (MVP): Based on the insights gathered from customer interviews, you’ll want to create a Minimum Viable Product (MVP) — a simple version of your product that includes only the core features necessary to solve the problem. The idea is not to build a fully polished product, but rather a working prototype that can be tested with customers to validate your solution.

An MVP serves several purposes:

• Validate product-market fit: Does your product solve the problem as expected? Testing the MVP with a small group of users will help you confirm whether the solution is effective.
• Get early feedback: MVP testing allows you to get actionable feedback on your product before investing significant resources in full-scale development.
• Iterate quickly: By launching an MVP, you can iterate on your product faster. If customers find certain features confusing or unnecessary, you can adjust accordingly.

Testing the MVP involves gathering user feedback as they interact with the product. Focus on their experiences, pain points, and suggestions for improvement. The MVP will often undergo several iterations before it evolves into a market-ready product.

5. Validating the Business Model: Once the MVP has been refined, reviewed, and validated by customers, the next step is to validate your business model. This stage ensures that your product’s entire ecosystem aligns with your customers’ expectations and needs, including pricing, distribution channels, customer relationships, and revenue streams.

Questions to consider during business model validation include:

• Will customers pay for this solution? Testing different pricing models is crucial to understanding whether your product has monetary value.
• What distribution channels work best? Does your target audience prefer purchasing online, in-store, or through a subscription model? Testing distribution strategies helps refine your go-to-market plan.
• Can the business scale? Ensure that your business model can support growth while maintaining its ability to meet customer needs effectively.

6. Iterating and Refining: The customer discovery process is inherently iterative. Even after testing the MVP and validating the business model, businesses often need to revisit earlier stages to refine their approach. New insights, market changes, or evolving customer needs may prompt adjustments to the product, the value proposition, or even the target market.

During this iteration phase:

• Stay agile: Be open to feedback and willing to pivot if necessary. It’s better to make small changes early than overhauling a fully developed product later.
• Continue engaging with customers: Customer discovery doesn’t end after the initial rounds of interviews and MVP testing. Ongoing communication with customers helps you stay aligned with their evolving needs.

Conclusion

Customer discovery is essential for any entrepreneur or business looking to launch a new product or service. By taking the time to understand your target audience, test your assumptions, and gather feedback directly from potential customers, you can significantly reduce the risks associated with product development. The process helps you build solutions that align with market needs, ensuring a stronger product-market fit and better chances of success.