How to Use The Customer Discovery Process to Reduce Your Startup’s Risk

The Customer Discovery Process – Biggest Risks for Startups

According to research by CB Insights, the top reasons for startup failure are:

  • Lack of market need (42%);
  • Lack of cash (29%);
  • Wrong team (23%);
  • Too much competition (19%);
  • Pricing power (18%);
  • Poor product (17%);
  • Business model (17%);
  • Ineffective marketing (14%).

The biggest risks for your startup will then often be:

  1. Being able to sell the product and generate revenue;
  2. Being able to get it adopted and deliver value in organizations;
  3. Being able to effectively reach the buyers and decision-makers in businesses;
  4. Being able to differentiate your offering on the market and generate awareness to get the growth engines going.

These uncertainties stack up.

Although you’ll probably want to create an uncertainty map to understand your biggest risks and assumptions, you’ll also want to leverage a customer discovery process to learn about the riskiest parts of your model.

Using The Customer Discovery Process to Define the Product Value & Expected Business Outcomes

There are three parts to product-market fit:

  1. Revenue – being able to sell the product;
  2. Retention – being able to get the product used repeatedly over a period of time;
  3. Growth – being able to generate positive word of mouth from the product.
  4. The early steps of the customer discovery process are about capturing data on these 3 parts of your startup.

    But by far, the one that hurts the most teams is not being able to monetize the value created.

    To that end, you want to focus on finding balance between what your product does, the impact it has on organizations, and how much you charge for it.

    For this phase, your goals will be to:

    • Define / find agreement on the problem definition;
    • Define / find agreement on the outcome / expected return on investment;
    • Identify how to differentiate your solution on the market.

    Those questions will help enrich and re-validate your understanding of the problem.

    A lot of innovation issues stem from mis-alignments around defining what the problem really is. It’s best to get clear agreement on what the problem is as soon as possible.

    Defining The Problem Statement

    The problem statement is foundational. According to entrepreneur Lenny Rachitsky, it needs to be short, clear, reference a “need” that’s not being fulfilled, include a what and a why, and be agnostic of a solution.

    Here are good and bad examples:

    • ✅ Users are dropping off at too high a rate at the final step of the signup flow.
    • ❌ We need to build a loyalty program.

    Similarly, if your prospects have a different take on what needle the product needs to move, you won’t be able to build a clear solution.

    Understanding the Problem & Outcomes

    During the customer discovery process, you’ll want to do problem drilldown, define the whole product (the minimum set of requirements), and understand how the value will be calculated.

    Here are a few sample customer interview questions to help you do this:

    • How are you currently solving this problem?
    • How do you typically work around this problem?
    • What are the minimal criteria required to work with your company?
    • How did you decide on your current solution? What made this the best option for your organization?
    • What tells you it gives you a positive ROI?

    Get Started Fast – Download my Latest B2B Customer Interview Script for Free

    You’ll want to get to the root causes of the problem by asking why repeatedly. I recommend using the 5 Why technique for this.

    By the end of the interview series, you should have clarity as to what the exact problem is, a confirmation that this is a real problem you can solve, and have an idea of the expected ROI / what outcome needs to be delivered.

    • Problem: What problem is this solving?
    • Why: How do we know this is a real problem and worth solving?
    • Success: How do we know if we’ve solved this problem?
    • Audience: Who are we building for?

    These will go a long way in defining the pitch you use moving forward, but they also won’t be enough.

    To move forward, you need to confirm that, if you build a product that meets their needs, they’ll buy.

    Pre-Selling Your Product to Prospects

    At this point, and before going too far, you’ll want to make an offer and pre-sell your solution to get your first customers.

    You can do this over the course of a followup discussion – a solution interview – where you show a demo of a minimum viable product or a presentation, explain the value and the process for development, give a price and pre-sell it, by sticking to your price point and ask the prospects to buy your solutions.

    If they don’t buy, understand why before moving on.

    Pre-selling a product is the best way to confirm market need.

    I go into way more details on building an MVP, conducting solution interviews, and closing sales in the Lean B2B Course, but this should help you get started.

    How to Find Growth Channels & Refine Your Messaging With the Customer Discovery Process

    Once the buying process and the influencers are becoming clearer, take a step back. Look across the various organizations you’re targeting.

    Are there any patterns? What are the key roles?

    This information will help drive and improve your early sales process. But it definitely doesn’t end there.

    To move things forward, set up customer acquisition processes, and improve your close rate, you’ll want to understand the people behind those roles.

    Take the lead. Work with your buyer or your change agent to get warm introductions to the other influencers in their organizations.

    Your goal is to:

    • Understand their realities;
    • Understand their win results – what they hope to gain by working with your company;
    • Understand their doubts and evaluation criteria;
    • Find ways to reach them effectively.

    Sample Questions to Learn Business Objectives & the Buying Process

    You’ll want to ask customer interview questions like:

    • What are your objectives this year?
    • How will you be evaluated this year?
    • What keeps you up at night? Why?
    • What are your top three challenges?
    • How do you feel about the current situation?
    • What would be the impact of solving this problem?
    • How are you currently handling problem X?
    • What are the minimal criteria required to work with your company?
    • What will tell you that this solution’s implementation is successful?
    • Who are the visionaries you respect?
    • What are some of the blogs, websites or publications that you read?

    Sift through the data. Look for inconsistencies or clashes with your understanding of the business direction to find potential blockers.

    You can use this information to refine your pitch and handle objections.

    Reassuring the other buying influencers and meeting their expectations will improve the certainty that your solution actually gets used and adopted.

    Understanding what visionaries they respect and where they go for product research will help you find channels to scale your growth efforts once you’ve found product-market fit.

    There are a lot of things you can learn at this stage to improve your pitch and the fit of your solution within organizations, so keep at it.

    More on The Customer Discovery Process

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