If you are thinking of starting a new business or planning to launch a new product in the market, now is the perfect time for you to understand the meaning and application of customer discovery.
Many startups were not able 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.
There can be a lot of factors working behind that, but one of the most important factors that every entrepreneur must consider is the use of a proper Customer Discovery strategy. That’s why, in this article, we are going to explore this subject.
What is Customer Discovery?
The root of the term “Customer Discovery” traces back to two prominent entrepreneurs: Steve Blank and Eric Ries. They both have discussed the importance of that inside the “Lean Startup” methodology.
For Blank, Customer Discovery should be the first step of the Customer Development Model, as he has mentioned 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 in order to understand the customers’ needs, before full product development takes place. Both startups and big and/or traditional companies use this strategy to build up new products, target new customers, enter a new market, and update or upgrade their business.
How does Customer Discovery Work?
The Customer Discovery process goes through four phases:
- Stating the hypothesis(es);
- Testing the hypothesis(es);
- Testing the product concept;
- Evaluating customer feedback and, thus, determining the next steps.
Why Should You Care About Customer Discovery?
There are some key questions that can be unveiled using the Customer Discovery strategy. The process involves defining and prioritizing personas, which is often done by the first two, and, 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?
- And most importantly, what will be the overall cost?
What are the Benefits of Customer Discovery?
In August 2021, CB Insights published an article in which they tried to identify why startup companies fail. According to the article, the 2nd most important reason is No Market Need! This happens when startups fail to understand the market and their customers’ needs.
Also, that does not occur only with startups. Even the big giant companies’ many products have already failed to capture the market just because the company’s hypotheses about customers’ needs turned out to be wrong.
And many giant startup companies fail because they devote all their efforts to designing and refining their products, and very little time as Blank & Steve puts it “getting out of the building” [Blank, Steve (May 2013)].
Therefore, when you come up with an innovative plan that you have no freaking idea whether it’s going to work or not, Customer Discovery helps you to 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 find out that no one actually needs it. It can be a disaster for a company, especially if it is a startup.
Before launching any product to the market, it’s imperative to find out if the customer needs it or not. It’s time to get out of the concept “if we build it, they will come” [Alvarez, Cindy (June 2014)]. Customer Discovery helps you to understand customer needs and the number of customers that 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 the fund. Because if a giant company’s product fails to capture the market, they can cover the loss with the profit from other areas. But 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. Just 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 will be able to invest in the right product, with a lower risk of failure. Customer Discovery helps to develop and test your hypothesis using interviews with your potential customers and many other tools.
3 – Enable Necessary Changes
Before releasing the final product into the market, it’s necessary to verify whether there is any further modification required for maximizing the user experience. Customer Discovery enables you to find out if any changes need to be made before launching.
For example, Microsoft launched the Beta version of Windows 11 before releasing the final version in the market, only to identify the problems and customer needs. Many giant companies follow this method. Startups may not follow the same way exactly, but they can use the Customer Discovery process to make necessary changes before exporting their product in 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 into your business unless they find any vibe of success in your product.
Customer Discovery, thus, can be an asset for you, as 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 to present market validation in front of them.
Taking into account 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, they learn a lot throughout the whole process. It helps them to develop a business model based on facts, rather than immediately executing a plan based on assumptions.
Besides, one of the most advantageous factors of Customer Discovery is that there is no need to spend your limited time and money on product development or sales to see if it actually works or not.
Rather, the process can save money for you to execute and scale what you have already shown to work. Of course, it does not automatically guarantee you success, but it will probably decrease the chances of failing.