Welcome to Module 4 of entrepreneurship, laying the foundation. In Lesson 1, I'll be talking about the customer discovery process. I've mentioned customer discovery in a couple of our previous lessons, but now I'm going to dig into the topic. Customer discovery is critical because it's the best way for entrepreneurs to determine whether they'll be able to achieve product market fit and whether their business model is potentially viable before they have to start spending a lot of money to build the product and launch the company. Here's our word cloud for this customer discovery lesson. As you can see, the process is about making assumptions about the solution that customers need and then trying to confirm that those assumptions are correct by asking them. Not that long ago the conventional wisdom seemed to be that the best way to launch a startup company was to set up in your garage, build a prototype while you're in stealth mode, and then introduce your finished solution to the market. Customer discovery is really the opposite of that approach. It's all about talking to customers as many as you can to make sure that you understand their needs and the solutions that they'd be willing to purchase before you start building anything. If you find out that most of your business model assumptions are correct, that's great. Your chances of launching a successful business are much higher than they were. If you find out that most of your assumptions are incorrect, you're still better off. It's not too late for you to change your product, your revenue model, or some other part of the business model and start the process over. By now, you should all understand that a startup is not a business. It's a group of people who are searching for a viable and scalable business model. This is the fundamental concept behind the lean startup approach to entrepreneurship. At the very beginning you have very few facts. All you have are your ideas and the assumptions you've made about how to turn them into a viable business. Customer discovery is based on the premise that instead of just making assumptions and running with them, they need to be challenged before you're really ready to commit to a business model. If your assumptions are validated, that's great, if they're proven wrong you need to make changes to the business model and try again. The way that you validate or disprove your assumptions is by talking to real customers, you listen to their responses, and you observe their behavior. You can conduct experiments by measuring how they react to different strategies that you're considering. The assumptions that you're testing are pretty important. They include assumptions about the real value proposition that customers are seeking, the customer segment that's in need of a solution, the channels that are available to you, the nature of the relationship you should have with your customers, and the revenue model that will capture the most value for your business. Those of you who are familiar with Alex Osterwalder's business model Canvas, will recognize that all of these items are on the right side of the Canvas, the customer facing side. Now, you're also making assumptions about the left side of the Canvas. But the way that you should test those assumptions is by talking with partners, suppliers, and others instead of customers. I'm using the word assumptions a lot in this lesson, if you prefer, you can call them hypotheses. The scientific method is all about creating a hypothesis and then conducting an experiment to see if it can be confirmed. That's essentially what we're doing here as well. Like a hypothesis, the best way for you to make an assumption is in the form of a statement, not a question. A question can't be proved or disproved, but a statement can be determined to be either true or false. What kind of assumptions am I talking about? I'll give you a list for starters. I think you'll agree that these are pretty important assumptions if any of them turn out to be untrue, your entire business model is at risk. You can fill in the blanks for yourself. One of the first assumptions is about your target customers. The best target customers from my solution are blank. You should fill in the blank with as much detail as you can about who you think they are, what they have in common, and so on. My target customers need a solution to blank. This would be a description of the need or problem, how important it is and why they would pay for a solution to it. Other Solutions haven't been satisfactory because blank. Here you would state why you think your solution will be accepted by your customers and why you think you have a competitive advantage. Customers will purchase my solution if it includes blank. This would include the key benefits that you need to deliver and the key features that the solution needs to include. Here are some more. They include the assumptions you're making about the marketing and distribution channels that will be effective in reaching your customers, the pricing strategy that'll work for you, the nature of the revenue model that you should deploy, and the risks you'll have to address for the business to succeed. Here's Steve Blank's customer discovery manifesto. There are no facts inside your building, so get outside. You need facts to prove or disprove your assumption. Many of those facts reside with your customers. You need to get out of the building and talk to those customers to obtain those facts. Customer discovery is a process that has to be managed. You're not just interviewing customers for the heck of it. You need to set goals for the process and stay focused on achieving them. One of your most important goals is to confirm or disprove your assumptions about what it will take to achieve product market fit. You should be asking the right questions of the right customers to accomplish this goal. Another goal is to understand the key features that you need to have in your product for it to be acceptable. You'll ask different questions for this. There are plenty of other goals related to your go-to-market strategy. They include confirming or disproving your assumptions about the best ways to market price and sell your products and services. Customer discovery is not sales. Your goal is to get the facts you need, not to make sales at this point. It's important for you to fully understand your customer's needs before you ask them for their reactions to your products or services. The process starts with identifying the most important assumptions that you need to validate. Let's focus on the customer segment first. Write down the assumptions you're making about your target customers. This would include: who the target customers are, how many of them there are, which of them would be most likely to be early adopters, and so on. What assumptions are you making about the importance or magnitude of the problem? Is it really important to them? Do you think they consider it to be a shark bite or a mosquito bite? Do you think they would consider your product to be a need to have or a nice to have solution? How much value do you think they would place on your solution? Again, document your assumptions so that you can test them. They probably include assumptions about how ready or eager customers are to buy a new solution, the features that they needed to include, the channels that would work best for you to build demand, close sales, and deliver your products and services, and how purchase decisions will be made and who influences them. Based on these key assumptions, you can start to build the list of questions you want to ask in customer interviews. Now you need to get customers to talk to you. As we discussed in an earlier lesson, it's likely that you already know people who would be interested in your solution. That's because your experience in your industry and your understanding of the problem may have helped you come up with your startup idea in the first place. However, it's not a great idea to talk to too many people that you already know when you're doing customer discovery interviews. You certainly can't place much stock in interviews with people that you consider to be close friends. It's too likely that the response you get will be what they think you want to hear. To get truly objective answers, you need to talk to people that don't know you. Ask your friends and close contacts for referrals. They can probably connect you with people in the industry that you don't already know. You should go to where your customers are. There may be conferences, trade shows, and even industry meetups that you can attend where you can find many people to interview at the same time. The floor of the trade show itself may not be the best place to conduct an interview, but you can make an appointment for a one-on-one interview at a later date. If you're starting a consumer facing or B2C business, there are probably lots of places near you where you can find potential customers. You might want to do what's called ambushing strangers. That involves approaching people when they're in situations that suggest that they might be customers. This could include introducing yourself while you're waiting in line at the coffee shop and asking for a few minutes of their time. It might be better to introduce yourself to people when they're in the parking lot of a hardware store, or even when they're inside the store looking at your competitors' products on the shelves. You'd be surprised how helpful some people will be when you ask them for advice. What people don't like is an unsolicited sales pitch, so remember that you're not trying to sell anything yet. Ask for their advice only and you're more likely to get them to agree to talk with you. If you're a student, as everyone who's taking this class certainly is, you have an additional card you can play. Let them know you're a student working on a class project. People like to give advice to students. Use the networks that you have available to you to find potential interview subjects, including your school's alumni network, if you're a student or an alum. LinkedIn, Facebook and other social media groups may also work for you. If you're launching a B2B company and you need to talk to executives, you'll probably have to deal with gatekeepers inside many businesses. The gatekeeper might be an executive assistant or a scheduler for the CEO or a department head. Ask that person to connect you with the people who are responsible for various functional areas within the company, if you don't already know who they are. You're more likely to get your calls returned if you can say that the executive assistant referred you. Now, here's another suggestion for you. It's highly likely that some of the people that you want to interview will want to check you out before they agree to a meeting. They'll look me up on LinkedIn, so make sure your profile's current and says what you want it to about your startup. They won't stop there though. They're going to want to check out your business website. That's a good reason for you to get a professional-looking website or landing page at least set up. Give them the URL so that they can find it. It doesn't have to say too much, but it should be enough to show them that you're legit. Once you're in an interview, what questions should you ask? You want to make sure that the feedback you get is valuable, something you can act on. What do you think of my product is not a question that you should lead with. The only one that's worse is, what do you think of my product, mom? Start by describing the purpose of the meeting or interview, and asking them to use their own words to describe the problem you're interested in. You might find out that there's a related problem that you hadn't thought of. Here are some samples of some open-ended questions. How does the problem affect you or your business? The answer to this question can tell you a lot about how much they care about finding a solution, and how much they might be willing to pay to solve it. How often or when do you have the problem? This will give you some insight into when and where you have to reach them through your marketing channels so that you can catch them when they're ready to buy. How would you compare this solution to other potential solutions? This will give you a good idea about how you can differentiate your product from your competitors' products. How important is the problem? How much does the problem cost your company, and how much have you budgeted toward finding a solution? These questions will help you start to make pricing decisions. What features are necessary for the solution to work for you? The answer to this one will help you determine what you do and don't need to have in your MVP, and in version 1.0 of your product. Where and how would you expect to purchase a solution to this problem? This will help you figure out the sales channels you need to use and the revenue model that would be the most acceptable. Who would have to be involved in the purchase decision? This will tell you how complex your sales process is likely to be, and whether or not your end-user is really your customer. What else should I have asked you? This question may uncover some important issues that you haven't considered that might lead to both problems and opportunities. It will also help you plan your next interview. Here's some advice on how to get the most out of your interviews. First, in-person, one-on-one meetings are best. Virtual meetings are better than nothing and we all know how to have them now. Still, it's hard to read the customers body language through their webcam. Group meetings can be a problem. They make it too easy for one person to dominate the conversation while everyone else nods and agrees with what the leader said. This is especially true if the group includes people who work for the same company and one of them is the boss. Ask open-ended questions and ask them to share stories about their experiences. Their answers will provide you with more information than what you could have obtained with a quick yes or no. Listen carefully and observe their body language. If possible, it can be helpful to have someone with you to take notes so that you can stay focused on your interaction with the customer. Remember that customer discovery is not sales. Don't describe your solution too soon and don't turn the meeting into a sales pitch. At the conclusion of the meeting, remember to ask if there's anything else they'd like to share that you haven't asked about yet, and see if you can get them to refer you to someone else. I want to say a few words about your minimum viable product or MVP. As I've mentioned before, it's the simplest and most basic version of the product or service that you can deliver. Its purpose is to demonstrate enough value to customers so that they can decide whether or not they would use it and hopefully pay for it. It's a way to get early feedback from customers to guide you in the development of your future products. It might not be a product at all. The minimum viable product for Dropbox was a video that people could watch and a button that they could click to say that they were interested. Again, don't present your solution until you understand the solution that they really need. Once you get to that point though, it can be valuable to use your MVP during customer discovery to demonstrate the solution you're building and to get the customers to provide feedback on what works and what doesn't for them. Once a customer starts interacting with your MVP, it can be hard to get them to return their focus to the problem itself. Tell the customer that you want them to provide honest feedback. There's no need for them to be polite. If they do tell you they like your product, don't just assume that they're willing to buy. There's a big difference between liking a product and being willing to pay for it. Only after you're pretty sure that your solution would meet their needs, should you ask them if it's something that they'd be willing to pay for. If they say no, make sure you understand why not. If they say yes, you're still not done, you have to ask what process they'd have to go through to get the purchase approved, what pricing and revenue model would be acceptable, and what channels would make sense for them. After you've talked to several customers, you're going to spot some patterns in the answers you're getting. That's good. That's what you're hoping for. Just make sure that you've talked to enough customers to draw a solid conclusion. Try interviewing at least 5-10 customers, then assess what you've learned. Use quantifiable metrics to see if you're reaching a consensus. If the clear majority of the people you're talking to are confirming one of your major assumptions, mark it down as true and start testing others. If a clear majority is disproving one of your assumptions, ask yourself what changes you need to make in your model before you go on. If you're somewhere in the middle, refine your questions with what you've learned and go talk to 5-10 more customers. After you've been interviewing customers for awhile, you should be able to start zeroing in on who your early adopters will be. When you find that more than half the people you talk to are potential early adopters, you'll know that you're on the right track. You'll probably end up interviewing at least 20 or 30 customers before you get to this point. Here's a book that I recommend to help you better understand how to get good results from your customer discovery interviews. It's called Talking to Humans by Gift Constable. Early adopter customers will be the focus in our next lesson.