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

How to Generate Valid Customer Insights From Customer Interviews (Complete Guide)

As you’re going through series of customer discovery interviews, it’s a good idea to write down your notes and impressions right after the interviews to make sure you’re not forgetting anything.

Then, with the benefit of distance, listen to the interviews.

By re-listening to the interviews, you’re able to:

  • Objectively assess your performance as an interviewer;
  • Evaluate the quality and validity of the information collected.

Share the recordings (not your notes or a summary of the interview) with colleagues and team members.

If you share summarized versions of the interviews you won’t be able to get feedback on your interviewing techniques or the customer discovery process you’re going through.

It will also limit your team’s interpretation of the customer data; they’ll have a hard time helping you identify lies and half-truths. You might also have a hard time getting them to buy in afterwards.

Let your team and partners extract their own customer insights. This will lead to better internal discussions and limit the risks of working off false assumptions.

If you’re a solo founder, you might want to get trusted advisors or mentors to listen to some of your interviews. This added step proved extremely useful for me when we were working on HireVoice.

Centralize customer interview data for rapid comparison and analysis by focusing on:

  • Qualification data (Role, Goals, Organization type, etc.);
  • Answers to your big questions (Business problems, priorities, etc.)
  • Next Steps/Follow ups/Referrals.

Categorizing Customer Interview Data

Fellow author Rob Fitzpatrick says that “You can’t build a business off a lukewarm reaction”.

To that end, you can’t simply average the response you got from the stakeholders you interviewed. If you were to do that, you’d focus on an opportunity that wouldn’t be particularly exciting for any of your prospects.

What you’re looking for is a problem…

  • In a business which is already aware of the existence of the problem;
  • That has already tried to solve the problem;
  • Is unhappy with the current solution to the problem;
  • Has a budget to get the problem fixed;
  • Knows how to evaluate the impact of a solution.

You want to be solving one of the top 3 problems of the organization. A problem that’s so visceral that they can’t live without a solution.

It’s getting harder and harder to get businesses to adopt technology from new, unproven vendors.

For this reason, if you’re solving a problem that’s business-critical, businesses will be more likely to overlook the costs of implementing a new solution (training time, risk, effort, etc.).

Home in on a core problem, park the remaining customer interview data and refine your segmentation.

Averages have no value here.

You’ll be better off expanding your segmentation to find more stakeholders with similar pain points, than building a solution to a secondary problem or building a nice-to-have solution.

Analyzing Customer Interview Data

It’s important to understand that business problems were not created equal.

Choosing which problem to solve is one of the most critical decisions you’ll make in the course of the customer discovery process.

So, how do you identify the problems that matter most?

As we mentioned, it’s very hard to build a business based on a problem outside of an organization’s top 3 priorities.

So, the first key part of the equation is a problem that causes a lot of pain:

We can tell that a problem is painful if:

  • The same person repeats it frequently with passion during the interview. Repetition is a sign that the problem is current and top-of-mind.
  • The company is actively trying to solve the problem or has assigned a budget to solve the problem. In that case, the company thinks it’s critical and they have a vision for the solution.
  • The problem is frequently listed in the top three of your early adopters. If it’s not part of the top five, it may be too far ahead of the market.

That pain, however, must be the pain of a buyer or someone who has access to a budget in the organization:

How far removed is the budget? How is that money currently being spent?

You want to make sure that your business can actually get paid for solving the problem.

You also want to make sure that you’re actually going to be able to build a solution that’s incrementally superior to the current solution.

So, what’s the current solution?

Excel? A manual process? Legacy software? Another product?

Replacement Products from Customer Insights

If they haven’t looked for ways of solving the problem already, they’re not going to look for (or buy) your solution.

Thinking Through The Solution With Customer Insights

You’ve maybe heard of the 10x rule stating that your product needs to be 10 times better than the known alternative.

Well, your product needs to be 10x better than the competition on a key evaluation criterion to get businesses to buy and switch over. Is that actually possible?

What kind of ROI can you expect if you solve this problem? What impact will it have on the organization?

  • Will it increase revenue?
  • Decrease costs?
  • Increase customer satisfaction?

Those tend to be the main reasons why businesses buy. It will be easier if you can frame the value around one of these three reasons.

The clearer the outcome for the customer, the easier it will be to create a powerful value proposition.

Lastly, you’ll want to make sure that there’s as little market education required as possible.

Is there currently competition? Would you need to create a completely new paradigm?

You want to build a business, not educate the market on the virtues of solving the problem you’re hoping to solve.

When you take a step back, which parts of this are clear and can be considered as validated learning?

Now, which parts would you consider gaps preventing from making a sound decision?

Is it safe to move forward?

This analysis will help create specific tasks for validation. It will also help you refine your customer discovery process.

More on Generating Customer Insights

How to Structure Customer Development Interviews to Get Valuable Insights

For each hour of customer development interviews, businesses tend to save 5 to 10 to 20 hours of wasted development time.Cindy Alvarez, Lean Customer Development Author

The biggest challenge when you’re starting out is making sure you’re getting valid data consistently to learn and, eventually, transition from customer discovery to confirmation and validation.

For this process, the real goal is learning, not sales or revenue.

You want to create a structure and a script to capture consistent information around your key assumptions.

Your goals with the first series of customer development interviews are to:

  • Understand the problem space;
  • Validate the existence of the problem;
  • Evaluate the target segment.

As a rule of thumb — and this will depend on how talkative your prospects are — you can usually squeeze in three to five divergent questions in a 20-30 minute interview.

For this reason, it’s really important to always know what your top 3 questions are.

For the first generative interviews, they might be:

  • What are your top three challenges?
  • How much do you feel this problem is costing you/your company?
  • Within the organization, who’s responsible specifically for [specific problem]?

But we’ll get back to those…

How to Structure Customer Development Interviews

You’ll want to plan for a structure like this:

  1. Greetings (two minutes): Greetings are exchanged and the prospect is made comfortable through shared context.
  2. Qualification (three minutes): You ask questions to understand the role and situation of your prospect.
  3. Open-ended questions (20 minutes): The bulk of the time allotted to the interview falls in this stage. Your goal is to understand and prioritize the problems of your prospects.
  4. Closing (five minutes): To move the relationship forward, you try to close a prospect on another meeting.
  5. Note review (ten minutes): After the meeting (and without the prospect), review your notes to make sure you’re not losing information and to be able to quickly adjust to the feedback.

Prior to the discussion, you’ll want to research the prospect thoroughly. This shows respect, and can keep you from asking questions that could have simply been answered by a Google search.

The Greeting Phase

The greetings phase should last about two minutes.

In this phase, you’ll want to make small talk. This will help you (and them) feel more comfortable.

You can ask a question about their home city, a hobby, a mutual acquaintance, a blog post, or anything else that helps establish rapport.

You can then transition to a simple intro:

Thanks for taking the time to meet/speak with us.

We’re a young company working on [value proposition]. We’re currently exploring a few product alternatives.

We’d like to understand your needs and reality to avoid building the wrong thing.

I have roughly 10 questions for you today.

Before we begin, I’d like to stress that we don’t have a finished product yet and our objective is to learn from you — not to sell or pitch to you.

Does that make sense?

From there, you can move on to qualification for about 3 minutes:

There, you’ll ask questions to understand their role and situation within the organization.

This will allow you to establish patterns between roles, business dynamics, and the problems you’ll uncover.

Don’t feel like you need to talk or fill the silence.

Sample customer interview questions:

  • How would you describe your role as [role]?
  • What does success look like for you?

Then follows the meatiest part of the discussion: Open-ended questions.

Exploring the Problem Space

The bulk of the time allotted to the interview falls in this stage. Your goal is to understand and prioritize the problems of your prospects.

Ask open questions, follow emotion, encourage complaints, ask follow-up questions, and don’t forget to empathize.

Sample customer interview questions:

  • Can you tell me how you deal with [general problem space] (e.g. recruitment, growth, finance, etc.)?
  • What’s preventing you from [specific problem] (e.g. acquiring customers, recruiting talented staff, etc.)?
  • What have you done to fix [specific problem]?
  • When was the last time you tried to solve that problem?
  • Why hasn’t it completely worked?
  • How much do you feel this problem is costing you/your company?

It’s often a good idea to use the first question to abstract your problem hypothesis by a level to explore more broadly.

For example, if you’re exploring social media recruitment, you can ask about “recruitment.” Starting with a general, “Tell me about how you deal with recruitment?” will help broaden the discussion.

Follow that up with 60 seconds of silence to set the tone. Let the interviewee talk.

For this phase, other core questions will be “How much is this problem costing you?” or “What are the implications of that?”

This helps you differentiate a problem they’ll want to pay to resolve and something that’s just somewhat annoying.

Closing Out the Interview

The last phase is about closing. Plan for five minutes there:

The core question will be:

Within the organization, who’s responsible specifically for [specific problem]?

This question helps home in on the existence (or absence) of the problem within the organization:

  • If they’re responsible for the problem, jackpot! 👍
  • If it’s ‘no one’, the problem either doesn’t exist or it’s not a priority at the moment;
  • If they say ‘someone else’, ask to speak to that person.

Don’t try to sell. Don’t tell them what you’re going to do.

That said, you want to close them on:

  • A new meeting to explore the problem further;
  • Referrals to confirm the existence of the market and have more discussions with prospects.

As you go through the series of interviews, it’s important to have a script and stick to it.

It’s okay to adjust the phrasing or add questions, but being able to compare the data points is a key part of the customer development process.

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

The Code of Conduct for Customer Development Interviews

As you’re conducting the interviews, I strongly suggest recording the discussion.

You can use your phone, your computer, or a recorder (if they are still around).

Make sure the prospect agrees to being recorded (you need to ask) and communicate that the recording will only be used for internal reference.

I prefer re-listening to interviews than interrupting the flow and holding back the discussion by taking notes.

The reality is you’ll miss 50% of what’s being said during the interview if you’re trying to take notes.

Record, take notes, and re-listen to the interviews with as much objectivity as possible.

Sometimes it will make sense to bring a partner in for the interviews.

In those situations, one person can lead the discussion while the other takes notes.

It might make your team appear more credible and will definitely accelerate share back with the team. Any more than two interviewers typically intimidate participants.

Don’t judge. Make sure you smile during the interviews, even when it’s just over the phone.

Being non-judgmental, empathic, and friendly helps prospects open up and feel more comfortable sharing truths.

Keep the discussion casual, and don’t forget that you’re building relationships.

Whenever the person starts to complain, listen. People will be more specific with complaints than praise. Specific examples will really help you learn about the problems and reality.

You can repeat the answers back to your prospect for further clarifications and to validate your understanding. Do this by saying, “So what you’re saying is…”

Keep an eye out for body language: strong reactions, posture, body positioning, language, tone variations, and eye movements can tell you a lot. Do they seem nervous? Tentative? Bored?

Try to restore your rapport and reassure them (“This is very helpful”). You can also ask what made them roll their eyes, sigh, laugh, frown, smirk, etc.

A Few Things to Keep in Mind

Prospects who are leaning forward, asking a lot of questions and who really get involved in the discussion give signs of interest. Prospects who are easily distracted, look through their emails or messages, slouch and talk without answering the questions are typically disinterested.

If you’re meeting face-to-face, have a look at your surroundings. Office walls and sticky notes can be gold. They can tell you about what truly matters to your prospects.

Watch out for compliments. Compliments can be very misleading and derail your interview process.

Focus on facts and what people actually do.

Unless you try to close someone, it’s hard to really know if the meeting went well, so make sure you close on referrals or a followup meeting first.

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