The Customer Development MethodologyPresentation Goals IMVU QuestionsBuild It And They Will ComeMore startups fail from a lack of customers than from a failure of product developmentProduct DevelopmentWhat’s Wrong With This?What’s Wrong With This?What’s Wrong With This?Chasing The FCS DateTraditional Funding ModelTraditional Funding AssumptionsAn Inexpensive FixCustomer Development: Big IdeasCustomer Development vs. Product DevelopmentCustomer DevelopmentCustomer DiscoveryCustomer Discovery: Exit CriteriaCustomer ValidationCustomer Validation: Exit CriteriaCustomer CreationCustomer Creation Big IdeasCompany Building: Step 4Company Building: Big IdeasCustomer Development Funding ModelCustomer Development Funding AssumptionsFurther Reading Further Reading1The Customer DevelopmentMethodologyEngineering 140AManagement of Technology VenturesSession 7 - April 24, 2007Steve [email protected] 140A Management of Technology Ventures Spring 20072Presentation Goals  A new model for execution in early stage ventures  Introduce the Customer Development model3IMVU CaseE 140A Management of Technology Ventures Spring 20074IMVU Questions What were the three operating principles of the IMVU Owners Manual? How long do you think the development cycle for each release of the IMVU software was? Why? What strategy should IMVU pursue and why?E 140A Management of Technology Ventures Spring 20075Build It And They Will Come Only true for life and death products i.e. Biotech Cancer Cure Issues are development risks and distribution, not customer acceptance Not true for most other products Software, Consumer, Web Issues are customer acceptance and marketadoptionE 140A Management of Technology Ventures Spring 20076More startups fail from a lack of customers than from a failure of product development We have process to manage product development We have no process to managecustomer developmentE 140A Management of Technology Ventures Spring 20077Product DevelopmentConcept/Bus. PlanProduct Dev.Alpha/Beta TestLaunch/1stShipProduct DevelopmentE 140A Management of Technology Ventures Spring 20078What’s Wrong With This?Concept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1stShipProduct Development- Create Marcom Materials-Create Positioning- Hire PR Agency-Early Buzz-Create Demand-Launch Event-“Branding”MarketingE 140A Management of Technology Ventures Spring 20079What’s Wrong With This?Concept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1stShipProduct Development- Create Marcom Materials-Create Positioning- Hire PR Agency-Early Buzz-Create Demand-Launch Event-“Branding”• Build Sales Organization• Hire Sales VP• Hire 1stSales StaffMarketingSalesE 140A Management of Technology Ventures Spring 200710What’s Wrong With This?Concept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1stShipProduct Development- Create Marcom Materials-Create Positioning- Hire PR Agency-Early Buzz-Create Demand-Launch Event-“Branding”• Hire Sales VP• Hire 1stSales Staff• Build Sales OrganizationMarketingSales• Hire FirstBus Dev• Do deals for FCSBusiness DevelopmentE 140A Management of Technology Ventures Spring 200711Chasing The FCS Date Sales & Marketing costs are front loaded focused on execution vs. learning & discovery First Customer Ship becomes the goal Execution & hiring predicated on business plan hypothesis Heavy spending hit if product launch is wrong Financial projections, assumes all startups are the same=You don’t know if you’re wrong until you’re out of business/moneyE 140A Management of Technology Ventures Spring 200712Traditional Funding ModelSource: Peter Fenton, Benchmark CapitalE 140A Management of Technology Ventures Spring 200713Traditional Funding Assumptions A company's risk decreased by hitting milestones Which raises its valuation Product delivered after long development cycle Additional funding needed at each milestone High level of financial investment until results Lack of iteration meant you didn’t know if you succeeded or failed until late in the gameE 140A Management of Technology Ventures Spring 200714An Inexpensive FixFocus on Customers and Markets from Day OneHow?E 140A Management of Technology Ventures Spring 200715Customer Development: Big Ideas Parallel process to Product Development Measurable Checkpoints Not tied to FCS, but to customer milestones Notion of Market Types to represent reality Emphasis is on learning & discovery before executionE 140A Management of Technology Ventures Spring 200716CompanyBuildingCustomer DevelopmentCustomerDiscoveryCustomer Development vs.Product DevelopmentConcept/Bus. PlanProduct Dev.Alpha/Beta TestLaunch/1stShipProduct DevelopmentCustomerValidationCustomer CreationE 140A Management of Technology Ventures Spring 200717Customer DevelopmentConcept/Bus. PlanProduct Dev.Alpha/Beta TestLaunch/1stShipProduct DevelopmentScale CompanyCustomer DevelopmentCustomerDiscoveryCustomerValidationCustomer CreationE 140A Management of Technology Ventures Spring 200718 Stop selling, start listening Test your hypotheses Two are fundamental: problem and product conceptCustomer DiscoveryCustomerDiscoveryCustomerValidationCompanyBuildingCustomerCreationE 140A Management of Technology Ventures Spring 200719Customer Discovery: Exit Criteria What are your customers top problems? How much will they pay to solve them Does your product concept solve them? Do customers agree?  How much will they pay? Draw a day-in-the-life of a customer before & after your product Draw the org chart of users & buyersE 140A Management of Technology Ventures Spring 200720Customer ValidationCustomerDiscoveryCustomerValidationCustomer CreationCompanyBuilding• Develop a repeatable and scalable sales process• Only earlyvangelists are crazy enough to buyE 140A Management of Technology Ventures Spring 200721Customer Validation: Exit Criteria Do you have a proven sales roadmap? Org chart? Influence map? Do you understand the sales cycle? ASP, LTV, ROI, etc. Do you have a set of orders ($’s) validating the roadmap? Does the financial model make sense?E 140A Management of Technology Ventures Spring 200722Customer CreationCustomerDiscoveryCustomerValidationCustomer