Steve Blank
Review
The Four Steps to the Epiphany sparked the Lean Startup revolution, replacing traditional business methods with an innovative approach that prioritises learning over planning. This methodology, now widely used, emphasises customer understanding as the key to a successful business. The book is a dense, practical guide that goes beyond theory and stresses the importance of validating assumptions and prioritising the customer over executing a pre-set plan.
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Key Takeaways
The 20% that gave me 80% of the value.
In the Deep Summary, there's a summary table at the end of each chapter. I won't replicate that here; instead, I'll highlight the elements that were surprising or important to me.
- The traditional product development model is flawed for startups, as it prioritizes execution over learning about customers and markets.
- This model often leads to premature scaling and unrealistic expectations about product acceptance and deployment.
- The Technology Life Cycle Adoption Curve can mislead entrepreneurs into premature focus on mainstream success.
- Customer Development, which prioritises understanding customers and their problems early on, is a more effective model for startups.
- Both models should be used in tandem, but with Customer Development leading the way to validate the market's existence and customers' willingness to pay.
- Tesco became the world's largest online grocer by leveraging their existing retail stores to launch their online grocery service, using a fraction of the capital Webvan plundered. Tesco's success can be attributed to their adoption of the Customer Development model.
- The Customer Development model includes four steps: Customer Discovery, Customer Validation, Customer Creation, and Company Building.
- This iterative process allows for revisiting previous steps for learning and discovery.
- The model emphasises learning, discovery, failure, iterations, and pivots over execution.
- The ultimate goal is to achieve "escape velocity" for enough success to move to the next step.
- Market Type choices, such as entering an existing market or creating a new one, affect how resources are deployed.
- Each market type has unique characteristics that must be identified before engaging in sales or marketing activities.
- Synchronising Product Development and Customer Development is crucial for startup success.
- The Customer Development process is based on the best practices of winning startups.
Customer Discovery
- Customer discovery turns a startup's initial hypothesis about their business model, market, and customers into facts.
- It answers key questions about problem identification, product solution, business model viability, and readiness to sell.
- The process is not about building feature lists but developing products incrementally for a small group of early customers (EarlyVangelists) who buy into the vision.
- EarlyVangelists are customers who recognise they have a problem, are actively seeking solutions, have an interim solution, and have committed budget to solve the problem.
- Customer discovery has phases: getting buy-in from stakeholders, capturing assumptions into hypotheses, testing these assumptions with potential customers, and revising the product.
- The process involves creating product, customer, channel, pricing, and market type hypotheses.
- Customer discovery also entails creating a product presentation, making more customer visits, meeting with product development for reality checks, and identifying first advisory board members.
- The process concludes with verifying the understanding of customers' problems, the product solution, and the business model, and assessing whether to iterate or exit.
Customer Validation
- Startups must verify product/market fit, understand and repeat the sales process, and ensure product and company positioning.
- Customer Validation is about learning to sell to visionary customers, not about generating revenue.
- EarlyVangelists, who are willing to buy an unfinished product, are the target for initial sales.
- The value proposition articulates what your company and product stand for and why they are worth buying.
- Sales collateral and a preliminary sales and distribution channel plan need to be developed.
- After selling to visionary customers, product and company positioning should be adjusted based on customer feedback.
- The verification phase involves checking the product, sales roadmap, channel roadmap, and business model.
- Customer Validation is grueling, but you may need to iterate it again or even return all the way to Customer Discovery.
Customer Creation
- The Customer Development model includes four steps: Customer Discovery, Customer Validation, Customer Creation, and Company Building.
- Startups should select a market type (existing, new, or re-segmented) and set objectives for customer creation and sales accordingly.
- For effective product launch and positioning, understanding customers' operations and problems is crucial.
- The company and product launch type should depend on the startup's market type.
- Customer creation activities should match the market type and are determined by the New Lanchester Strategy.
- A PR agency can assist in positioning the company and its products, refining the audience, and communicating the message.
- Company launch communicates what the company does, while product launch describes why customers should want the product.
- Message crafting should focus on the pain points alleviated and the value delivered by the product.
- Demand creation should be matched to sales goals, and its success should be measured to ensure the budget is used effectively.
Company Building
- Transitioning from a startup to a larger company requires building a mainstream customer base, developing an organisation to support scale, and creating fast-response departments.
- Market type (new, existing, or re-segmented) influences how a startup reaches mainstream customers and manages sales growth.
- Different CEO characteristics are needed at different stages: entrepreneurial, mission-oriented, and process-managed.
- Developing a mission-centric organisation and culture involves crafting internal, action-oriented mission statements.
- Transitioning the customer development team into functional departments should align with department-specific objectives and be influenced by market type.
- Building fast-response departments involves applying the OODA (Observation, Orientation, Decision, Action) loop model and fostering decentralised decision making.
Deep Summary
Longer form notes, typically condensed, reworded and de-duplicated.
- TThe key revelation of this book is that successful startups search for a business model. Winning startups engage in 'Customer Development' alongside 'Product Development'. Customer development is a process that involves customer learning and discovery.
- This book was the first to document the Customer Development process that successful startups follow.
- This book was the first to define 'Customer Development', and it initiated the Lean Startup revolution.
- Eric Ries (author of The Lean Startup) was taught by the author.
- Alexander Osterwalder's business model canvas made the Customer Development process more accessible.
Chapter 1: The Path to Disaster - The Product Development Model
- The traditional product development model is flawed. You commit too many resources before launching and learning about your customers.
- The Product Development Model
- Originated in manufacturing and the consumer packaged goods industry.
- It works when launching a new product into an established, well-defined market where the basis of competition is understood, and its customers are known. But few startups fit these criteria.
- The Product Development Model:
- Concept and Seed Stage: Capture the company's vision, define the product concept, identify potential customers, and determine the distribution channel.
- Product Development: Design the product, specify the first release, estimate delivery dates and development costs. Refine the market size and target the first customers.
- Alpha/Beta Test: Test the product with a small group of outside users, develop marketing communications plan, start branding activities, sign up beta customers, build the distribution channel, and scale the sales organisation.
- Product Launch and First Customer Ship: Launch the product, heavily build and staff the sales organisation, set sales goals, conduct large-scale marketing programs, and create end-user demand.
- Reasons why using The Product Development model in startups is problematic:
- Lack of focus on finding customers and developing markets (a major cause of failure).
- Overemphasis on the first customer ship date without understanding customers or how to market and sell to them.
- Prioritising execution over learning and discovery.
- Lack of meaningful milestones for sales, marketing, and business development.
- Using a Product Development methodology to measure sales.
- Making all marketing plans without real customer feedback or information.
- Premature scaling (e.g. the sales and marketing function).
- A death spiral occurs when the burn rate accelerates, and the pressure for revenue grows exponentially. It's incredibly hard for a new product to support.
- The traditional approach doesn't take into account the variability of the situation:
- Introducing a new product to an existing market.
- Introducing a new product to a new market.
- Introducing a new product to an existing market as a low-cost entrant.
- Introducing a new product to an existing market as a niche entrant.
- Unrealistic expectations:
- The process isn't designed to find customers and a viable business model.
- Customer development won't move in lock-step with Product Development.
- New products will not be accepted and deployed at the same rate.
- The Technology Life Cycle Adoption Curve (and Crossing the Chasm) can lead entrepreneurs to four misconceptions:
- Focusing on mainstream success is premature without successfully navigating early Customer Development.
- Technology enthusiasts are only a stepping stone to finding real paying customers.
- Customer adoption doesn't follow a smooth curve.
- There are many challenges you have to overcome before execution and adoption.
- Instead thinking about crossing the chasm, focus on the learning and discovery processes, focus on Customer Development.
- Identifying a company's initial customers and their markets requires a separate process from Product Development. This combination of activities is known as Customer Development.
- Before selling and marketing, a startup must prove the market's existence and verify customers' willingness to pay.
- This testing, learning, and discovery are at the core of a startup's uniqueness and differentiate Customer Development from Product Development.
- The Customer Development model is the opposite of the Product Development model. While Product Development focuses on getting the product out to customers quickly, the Customer Development model prioritises understanding customers and their problems early in the development process.
- Tesco became the world's largest online grocer by leveraging their existing retail stores to launch their online grocery service, using a fraction of the capital Webvan plundered. Tesco's success can be attributed to their adoption of the Customer Development model.
Chapter 2 The Path to Epiphany: The Customer Development Model
- The Customer Development model consists of four steps:
- Customer Discovery - involves finding out who the customers are and whether the problem being solved is important to them.
- Customer Validation - focuses on building a repeatable sales roadmap and proving that there is a market for the product.
- Customer Creation - aims to create end-user demand and drive it into the sales channel.
- Company Building - involves transitioning from a learning and discovery-oriented team to formal departments with VPs of Sales, Marketing, and Business Development.
- It is designed to solve the 10 problems of the Product Development model.
- The process is iterative and allows for going back and revisiting previous steps to learn and discover more. At the heart of the methodology is an understanding that finding the right customers and market is unpredictable; it is expected you’ll fail many times before getting it right. In contrast to product development, going backward in the Customer Development process is not viewed as a failure.
- As a result, cash burn is typically lower until the company has validated its business model.
- Spend at least 15% of your time getting out the building and talking to customers.
- The Product Development process emphasises execution. The Customer Development process emphasises learning, discovery, failure, iterations and pivots.
- The ultimate goal is to achieve "escape velocity" and generate enough success to move to the next step.
- The model is not a replacement for the Product Development model but a companion to it.
- Market Type choices affect how the company deploys its resources. There are four types of startup markets:
- entering an existing market
- creating a new market
- re-segmenting an existing market as a low-cost entrant
- re-segmenting an existing market as a niche player.
- Each market type has different characteristics, including customer needs, market size, distribution channel, and competitive barriers.
- Before engaging in any sales or marketing activities, you must identify and confirm what your market characteristics are.
Customer | Market | Sales | Finance |
Needs | Market Size | Distribution Channel | On going capital |
Adoption Rate | Cost of entry | Margins | Time to profitability |
Problem Recognition | Launch type | Sales Cycle | |
Positioning | Competitive Barriers |
Feature | Existing Market | Re-segmented Market | New Market |
Customers | Existing | Existing | New/New usage |
Customer Needs | Performance | 1. Cost
2. Perceived need | Simplicity & convenience |
Performance | Better/faster | 1. Good enough at the low end
2. Good enough for new niche | Low in traditional attributes improved by new customer metrics |
Competition | Existing incumbents | Existing incumbents | Non-consumption/other startups |
Risks | Existing incumbents | 1. Existing incumbents
2. Niche strategy fails | Market adoption |
- Synchronising Product Development and Customer Development is crucial for startup success.
- Product features in startups are driven by vision and fiat against unknown customer and market requirements.
- The Customer Development process is based on the best practices of winning startups, and coincidentally shares many features with a U.S. war-fighting strategy known as the "OODA."
- It is important to keep testing and evaluating what kind of startup the company is before starting sales and marketing activities.
Chapter 3 Customer Discovery
- The goal of customer discovery is to turn the founders' initial hypothesis about their business model, market, and customers into facts. To do that, you need to get out of the building.
- The four big questions customer discovery aims to answer:
- Have we identified a problem a customer wants solved?
- Does our product solve these customer needs?
- If so, do we have a viable and profitable business model?
- Have we learned enough to out and sell?
- Customer discovery is not about building lists of features customers want.
- Develop your product incrementally for the few not the many. Startups can’t afford to meet the customer needs of every mainstream customer. Focus efforts on a small group of early customers who buy-in to the vision (EarlyVangelists). Get feedback from them.
- EarlyVangelists are willing to take a risk on your product because they see it can solve a critical and immediate problem, and they have budget to purchase it.
- EarlyVangelist is a customer who:
- has a problem
- understands he/she has a problem
- is actively searching for a solutions and has a timetable for finding it
- has cobbled together an interim solution
- has committed (or can quickly acquire) budget to solve the problem
- As customer development team discovers new insights about customer needs, they can provide feedback to the product development group.
- You’ll need a cross-function team with an entrepreneurial mindset and permission to radically change the direction of the product.
Customer discovery phases:
- Phase 0: Getting buy-in from your board and executive staff for the process, the mission and the values (limit to 5).
- Phase 1: Capture the assumptions in your vision as hypothesis.
- Product Hypothesis:
- Create a product brief: Features, benefits, IP, dependency analysis, delivery schedule, cost of ownership/adoption
- Customer Hypothesis: Types of customers, problems they have, day in the life, customer influence map, return on investment justification, minimum feature set
- Types of customer: decision maker, buyer, recommenders, influencers, end users, saboteurs
- Channel and pricing hypothesis:
- Distribution channels and partners.
- Does the sales process add value? How expensive / complex is the product? Are there established buying habits?
- What channel? How many will you sell?
- Competitor pricing? Alternative solution pricing? Lifetime value. If it were free, how many would you deploy? If it cost $1m would you buy it?
- Demand creation hypothesis:
- How will customer hear about your product? (ads, PR, promotions, spam, word of mouth, seminars, telemarketing, partners). How do you get them into your sales channel? How do your customers hear about new products? What do they read/go to? Who do they trust? What influencers can you leverage?
- Market type hypothesis:
- Competitive Hypothesis
- What's your unique value proposition?
- How much market share does each player have? If there's no dominant player, you can enter the market. If there's a monopoly, you have to re-segment the market.
- How have the existing competitors defined the basis of competition? Is it based on product attributes? Service? What are their claims and features? Why do you believe your company and product are different?
- If your product is new, what makes you think customers will care? Is it because your product has better features, performance, channel, or price?
- What products would be next to yours on the shelf? Who are your closest competitors today in terms of features, performance, channel, and price? If there are no close competitors, who do customers turn to for an equivalent solution?
- What do you like most about each competitor's product? What do your customers like most about their products? If you could change one thing in a competitor's product, what would it be?
- B2B: Who currently uses the competitors’ products, by title and function? How do these competitive products get used? What's the workflow of end users? Describe how it affects the company. What percentage of their time is spent using the product? How mission-critical is it? For consumer products, the questions are similar but focus on individuals.
- Since your product may not yet exist, what do people currently do without it? Do they simply not do something or do it poorly?
- Don't just compare yourself to similar startups; also consider established companies.
- Phase 2: Test the assumptions in front of potential customers. The goal is to understand customers and their problems. Integrate everything you and revise the product.
- Make 10 calls a day to gather 50 friendly industry contacts for idea testing. Create a separate list of innovators in the field. Meet them and leverage their connections to expand your network. Continuously seek out the most knowledgeable individuals they know.
- Develop a problem presentation: present today's problems, solutions, and the new solution. Seek customer responses to understand their perceived problems, ranking, importance, and cost. Explore their current problem-solving methods and identify others facing the same problem. Check if they understand your language.
- Develop an in -depth customer understanding
- Understand how customers spend their time, money, and how they accomplish their jobs with or without your product.
- Does their problem occur in isolation or as part of a broader context?
- Verify your assumptions about customers' willingness to pay for your solution and what changes could induce them to switch from their current way of doing things.
- Understanding how customers learn about new products
- Market Knowledge:
- Gain a thorough understanding of customers and the market by meeting with adjacent market companies, industry analysts, and influencers.
- Conduct research through lunches, introductions, and attending trade shows to get insights into industry trends, key players, and customer needs.
- Exchange valuable information rather than just selling; listen and learn from potential customers and competitors.
- Ask your network and industry influencers the same questions listed in Phase 1 to deepen your market knowledge.
- Analyse quantitative data from Wall Street reports to understand market trends and player dynamics.
- Attend industry conferences and trade shows to get hands-on experience with competitors' products, gather literature, and engage with salespeople and customers.
- Phase 3: Take your revised product concept and test it in front of customers. This is stage is more about validating you can solve the problem (not selling). Test your business model: pricing, channel strategy, process, sales cycle.
- Meet with Product Development for a reality check.
- Validate product-market fit by comparing customer workflow with and without your product, and adjust product assumptions based on customer feedback.
- After presenting findings, critically assess if your product genuinely solves customer problems, and if not, reconsider your market fit or product features.
- Prioritise product features based on what customers value, and consider removing what they don't care about.
- Revise your Phase 1 hypotheses and ensure your product not only meets initial release goals but also aligns with the customers' broader vision.
- Review your other Phase 1 hypotheses in light of feedback, re-evaluate your competitive stance, and confirm your pricing and delivery strategies are robust.
- Create the product presentation
- Create a solution-focused presentation detailing how your product solves the customer's problems, focusing on five key features.
- Illustrate the customer's daily workflow or life with and without your product, emphasising the transition from "life before" to "life after" your product.
- Avoid marketing fluff.
- Outline the product's development roadmap for the next 18 months.
- To Reconfirm that your product will solve a serious customer problem.
- To Validate your product and its features.
- Make more customer visits
- Present your product focusing on the customer's problem, with follow-up visits to those initially contacted and new potential customers.
- Make a list of 50 potential customers, targeting decision-makers, and start with an introductory email, reference story, and sales script.
- Leave the office to discuss with customers directly, reminding them of the problem your product solves and seeking agreement on the value of solving it.
- Describe the product and demonstrate it if possible, emphasizsng the customer's workflow before and after your product.
- The presentation should not exceed 20 minutes, with a significant portion dedicated to listening to customers' initial reactions and feedback.
- Assess how your product's features match customers' needs and explore pricing strategies and distribution channels.
- Investigate how customers would find out about your product, including their information sources and purchasing processes.
- Engage with channel/service partners to understand their business models, margins, and what's in it for them, aiming to establish a relationship.
- Analyse how partner companies operate, what their customers ask for, and the minimum transaction size that interests them.
- Your goal is to understand all aspects of customer and partner interactions to confidently explain your business model and adapt as necessary
- Meet with Product Development for a second reality check
- After customer feedback, a second reality check within the company is required to reconcile customer responses with product development.
- Customer reactions to the product presentation are typically categorized into four types, ranging from full approval to seeing no need for the product.
- For technology products, a common issue is "technology packaging," where the product as initially developed may not align with customer needs or market positioning.
- Fast-to-market strategy, focusing on learning how to sell in a new market, contrasts with first-to-market strategy, which emphasizes speed over understanding customer needs.
- Answers indicating that customers aren't fully convinced or don't see the need for the product suggest the necessity of product reengineering and adjustment in strategy.
- Align core technology with the customer's problem to ensure product-market fit and successful strategy execution.
- Identify first advisory board members
- People outside your company willing to help.
- They should have technical knowledge, domain knowledge, help you with networking
- Phase 4: Stop and verify you understand your customers’ problems, your product solves them, and that you believe there is a path to profit.
- Verify the problem → summarise everything you’ve learned, and ask if you need to go around the idea loop again.
- Verify the product solution → Capture everything you’ve learning in a Product Requirement Document. Your top 3 customer problems should make sense when viewed with your top three product features. Do your product plans meet the needs of the market?
- Verify the business model → check it stands up to your latest understanding of customer, market and pricing.
- Estimated price, volume, margin and customer lifetime value.
- Distribution channel, sales cycle
- Product installation or onboarding, technical support, cost per customer.
- Acquisition model, driving customer awareness, cost of acquisition.
- Market size, adjacent markets (if creating a new one).
- Are the product development costs the same? What will the MVP cost?
- What’s the likely profitability of the business?
- Assess whether to iterate or exit
- Have we identified a problem a customer wants solved?
- Does our product solve these customer needs?
- Do we have a viable and profitable business model?
- Can we draw a day in the life of our customer before and after purchase of our product?
- Can we create an organisational chart of users, buyers and channels?
Feature | Existing Market | Re-segmented Market | New Market |
Customers | Existing | Existing | New/New usage |
Customer Needs | Performance | 1. Cost
2. Perceived need | Simplicity & convenience |
Performance | Better/faster | 1. Good enough at the low end
2. Good enough for new niche | Low in traditional attributes improved by new customer metrics |
Competition | Existing incumbents | Existing incumbents | Non-consumption/other startups |
Risks | Existing incumbents | 1. Existing incumbents
2. Niche strategy fails | Market adoption |
Customer Discovery Summary
Phase | Goals | Deliverables |
0. Get Buy-in | Investors/founders agree on customer development, key hires and values. | Buy-in, Core Values |
1. State Hypothesis | Set product specs, develop detailed hypotheses of product, first customers, channels and pricing, demand, market and competition. | Hypothesis Briefs |
A. Product Hypothesis | Get agreement on product features, benefits, and release schedules. | Product Brief |
B. Customer Hypotheses | Describe customers, their problems, and why they will use the product. | Customer Brief |
C. Channel & Pricing Hypothesis | Develop a channel strategy and pricing model. | Channel & Pricing Brief |
D. Demand Creation Hypotheses | Identify demand creation strategy, influencers, and trends. | Demand Creation Brief |
E. Market Type Hypothesis | Describe what market you are in (new, existing, re-segmented). | Market Type Brief |
F. Competitive Hypothesis | Develop competitive analysis that fits your market type. | Competitive Brief |
2. Treat & Qualify Hypotheses | Test hypotheses from phase 1. Understand customers’ “day in the life” | Validate |
A. First Customer Contacts | Create customer list and schedule the first customer contacts. | Customer List |
B. Problem Presentation | Develop presentation of problems, current solutions, product solution. | Problem Presentation |
C. In-Depth Customer Understanding | Understand how customers work, their problems and who else influences their decisions. | Customer Brief |
D. Market Knowledge | Understand the market: meet with analysts and media, trade shows, research. | Positioning Brief |
3. Test & Qualify Product Concept | Test product concept. Do customers' needs match the product? | Hypotheses |
A. First Reality Check | Review customer/product feedback and test. | Revise Product Customer Briefs |
B. Product Presentation | Create product presentation on how product solves customers’ problems. | Product Presentation |
C. More Customer Visits | Expand customer list to include five new potential customers. | Customer List |
D. Second Reality Check | Review product feature feedback and test. | Updated Feature List |
E. First Advisory Board Members | Spot and recruit first advisory board members. | Advisors on Board |
4. Verify | Found the right market? Have a profitable business? | Validate |
A. Problem Verification | Verify that you have identified a problem that a customer wants solved. | Problem Statement |
B. Product Verification | Verify that the product solves customers’ needs and its ROI. | Product Requirements Doc |
C. Business Model Verification | Verify that you have a profitable business model. | Updated Revenue/Sales Plan |
D. Iterate or Exit | Decide whether you have learned enough to sell. | Business/Product Plan |
Chapter 4: Customer Validation
- After Customer Discovery, startups must next ask and answer basic questions such as:
- Are we sure we have product/market fit?
- Do we understand the sales process?
- Is the sales process repeatable?
- Can we prove it's repeatable? (What's the proof? Full-price orders for a sale in sufficient quantity.)
- Can we get these orders with the current product and release spec?
- Have we correctly positioned the product and the company?
- Do we have a workable sales and distribution channel?
- Are we confident we can scale a profitable business?
- Customer Discovery is disorientating for experienced marketers, Customer Validation is disorientating for sales people.
- Customer Validation will help you build and validate a sales map buy learning how to sell to a small set of visionary customers. This step isn’t about selling and generating revenue, it’s about finding a repeatable sales process and business model.
- Validating the sales process → You need to know the answers to the following questions:
- Are we sure we have product/market fit?
- Who influences a sale?
- Who recommends a sale?
- Who is the decision-maker?
- Who is the economic buyer?
- Who is the saboteur?
- Where is the budget for purchasing the type of product you're selling?
- How many sales calls are needed per sale?
- How long does an average sale take from beginning to end?
- What is the selling strategy?
- Is this a solution sale?
- If so, what are “key customer problems”?
- What is the profile of the optimal visionary buyer, the early evangelist every startup needs?
- It’s a big mistake to delegate the customer validation process to just the VP of Sales. Make the VP of sales responsible for sales execution later, the CEO should be involved in customer validation now.
- It’s hard to learn and discover whilst you’re executing, so do it beforehand.
- Early sales are targeted towards Earlyvangelists, not mainstream customers. Earlyvangelists are visionary customers who are willing to purchase an unfinished product from a startup in search of an edge. Mainstream customers want to buy a finished, completed and tested product.
- Phase 1: Get Ready to Sell
- Articulate the value proposition:
- From the customers' perspective: What do you stand for? What does your product do? Why should they care?
- The goal of a value proposition is to reduce your business to a single, clear, compelling message that explains why your company is different and why your product is worth buying.
- Acknowledge that you need to create one. Do it, then iterate.
- Focus on what you learned about customer problems and the language they used.
- Test your value proposition:
- Is it emotionally compelling?
- Does it use their language?
- Does it make an economic case? Does it clearly demonstrate the advantages (time, money, prestige)?
- Does it pass the reality test? You must be credible.
- Prepare sales and collateral materials
- Put together sales collateral.
- Produce at low volume and cost so you can iterate
- Collateral is tailored to your audience (E.g. EarlyVangelists, or Technology Gatekeepers or mainstream customers)
- Listen to your customers and they’ll tell you what they need
- Develop a preliminary sales and distribution channel plan
- Create a visual representation of your channel food chain.
- Make a channel responsibility map to diagram the relationships in complex distribution channels. Shows why you use the channel and what to expect from the channel/partner.
- Channel discount and financials: Each tier costs you money and margin. Plot the margin and purchase price at each step. Think carefully about your channels return policy.
- Channel management → Plan to monitor and control your channel's distribution activities, particularly inventory levels. You need to understand how much end-user demand exists. There's often a big lag on sales reporting.
- Develop a preliminary sales roadmap:
- Use organisation and influence maps: think operational and technical. Think about support and approval.
- Customer access maps help you find the right access point.
- Sales strategy:
- At what level do you enter the account?
- Do you sell high to executives or low to operational staff?
- How many people must approve for a sale?
- Do all departments view the customer problem similarly?
- In what order do you approach these people?
- What is each script?
- What could derail the sale?
- Implementation plan: Who is the final approver? Do the board need to approve?
- Hire a sales closer - they’re aggressive and have no interest in building a sales organisation. Hire them to unblock the challenges you have in the sales process.
- Align your executives - to an engineering schedule, product deliverables, sales collateral, engineering role in the process.
- Formalise your advisory board.- Get some potential customers on your advisory board so you can learn how to make a product they would buy
- Phase 2: Sell to visionary customers
- Contact EarlyVangelists - Avoid tire-kicking early evaluators. EarlyVangelists are important because they have a vision match, understand their problem, and recognize that your solution fits. They are willing to make a purchase based on seeing the potential of the solution, often with the incentive of a substantial discount. Scalable and mainstream customers tend to follow visionaries. Mainstream customers need an off-the-shelf, no-risk solution.
- Sell to EarlyVangelists - 3-5 units before your product is shipping. You’ll need to find executives who are decision makers and risk takers. The goal is not to generate revenue but validate your sales roadmap.
- Expect to come under pressure to customise the product for each of your visionary customers. Avoid that trap. Look for commonalities. Don’t offer heavy discounts either.
- Refine the sales roadmap: Keep win/loss statistics on sales calls. Keep data to understand where in the process you were turned down and why,
- Sell to channel partners: Can you get a preliminary order from a channel partner? Don’t forget they are not the customer, don’t confuse them as such.
- Phase 3: Develop Positioning for the company and its product
- Iterate on your product positioning. How did your customers react? Did it generate excitement? Was it credible?
- Tailor to your positioning to the market type:
- Existing market: be faster, cheaper, better
- New market: describe the problem you solve, and benefits they’ll get
- Re-segment market: compare to your competitors.
- Articulate a company position. What does your company do for me? Why does your company exist and how is it different?
- Existing market: Describe how you’re different
- New market: communicate your passion and vision for what could be.
- Re-segmented market: Communicate the value of the segment you’ve chosen and why customers need it now
- Develop positioning by making a presentation for analysts and influencers.
- They can give you credibility. Meet with them, get their insights and feedback on positioning (of product, company and market).
- Phase 4: Verify
- Verify the product - show you have product/market fit with potential customers. Review all the objections and feedback you've received and the conclusions you've come to.
- Given the orders you’ve taken, do you have product/market fit?
- How closely did your product match customer pain points?
- What made you lose out on sales? Schedule? Pricing? Features?
- Verify the sales roadmap
- Did you get the organisational or consumer map right?
- Did you identify the right decision-makers?
- Did you understand the other key players?
- Did you lose deals because other influencers objected?
- Do you have a repeatable process identifying the key players consistently?
- Did you get the selling strategy right?
- Do you have a repeatable process taking you from person to person and group to group?
- Can you forecast the probability of an order based on this strategy?
- Did the organisational map and sales strategy result in a sales roadmap with a step-by-step sales forecasting process and sales pipeline?
- Most importantly, did you get orders?
- Whether the orders came by following a process or the process came by understanding how you got orders is irrelevant.
- Do the orders prove that a sales organisation can scale and grow by simply following the sales roadmap?
- Can they sell it without the founding team calling on customers?
- Verify the channel roadmap
- What will the cost of the distribution channel be? Is this cost factored into your business plan? Are there other channel costs you didn't expect?
- How long is the sales cycle? Will a sale take more or less time than you originally planned?
- What is the average selling price? What will the revenue be per salesperson or store per year?
- If you anticipate building a direct sales force, how many people need to be in a sales team? How many teams will you need?
- If this is an indirect channel, can the channel scale? How will you train and educate the sales channel?
- What kind of demand-creation activities will be needed to drive customers into the channel? How much will it cost to acquire each customer?
- Have you accounted for these costs in your business model?
- If this is an indirect channel, are there hidden channel costs or demand creation costs?
- Were your assumptions about service/system integration correct? How much will this cost you per customer?
- Regardless of the channel, how much direct support will you need to provide?
- Verify the business model
- How much additional funding do you need to reach profitability?
- How much funding do you need to get to positive cash flow?
- Is this amount realistic given your expansion plans?
- Are the Product Development costs still the same now that the Product Development team is delivering a product?
- Are the costs to develop the first version still the same?
- How much will it cost to implement the complete vision of the product?
- Is any manufacturing involved in building the product?
- How much will the product cost to produce compared to the original plan?
- What manufacturing partners will you use?
- Is the projected selling price different from your initial business plan assumptions, taking into account what customers will pay?
- Over the next three years, how many units will a customer buy?
- What do you believe the lifetime value of each customer will be?
- Is the profitability of the business model sufficient for your needs?
- Iterate or exit
- Even though Customer Validation is gruelling, you may need to iterate it again or even return all the way to Customer Discovery.
Phase | Goals | Deliverables |
1. Get Ready to Sell | Produce preliminary version of sales materials and sales roadmap. | Action |
A. Articulate Value Proposition | Ensure all your executives are in agreement. | Value Proposition |
B. Prepare Sales Materials and a Prelim Collateral Plan | Develop sales materials and a preliminary collateral plan. | Collateral Sales Material & Prelim Sales Roadmap |
C. Develop a Preliminary Channel Plan | Develop a preliminary distribution channel plan. | Channel Plan |
D. Develop a Preliminary Sales Roadmap | Develop a preliminary sales roadmap. | Sales Roadmap |
E. Hire a Sales Closer | Hire a sales closer. | Sales Closer |
F. Align Your Executives | Agreement across company on schedule, deliverables, support, and collateral before you commit to product deliverable. | Product, Support, & Collateral Review |
G. Formalise Your Advisory Board | Enlist needed advisors. | Advisory Board Roadmap |
2. Sell to Visionary Customers | Test product and roadmap with earlyVangelists who can buy an unfinished and unproven product. | Validation |
A. Contact Visionary Customers | Find visionary customers. | Visionary Meetings |
B. Refine and Validate Sales Roadmap | Get 3 to 5 visionary customers to buy the product. | 3 to 5 Purchase Orders & Repeatable Sales Process |
C. Refine & Validate Channel Plan | Get early orders from channel and service partners. | Order from Potential Partners |
3. Develop Positioning | Articulate belief about your product and your place in the market. | Action
|
A. Develop Product Positioning | Define what market you are in: Existing? New? Re-segmented? | Product Positioning & Brief |
B. Develop Company Positioning | Define what is unique about your company. | Company Positioning & Mission Statement |
C. Present to Analysis and Industry Influencers | Get analysts/influencer buy-in for your vision. | Analyst Feedback & Approval |
4. Verify | Have customers bought product and vision? Will it scale? | Validation |
A. Verify Production Solution | Verify through orders that product solves customers needs. | Product and Release Spec |
B. Verify the Sales Roadmap | Verify a repeatable sales roadmap. | Final Sales Roadmap |
C. Verify the Channel Plan | Verify a scalable sales and channel plan. | Final Channel Sales Roadmap |
D. Verify the Business Model | Verify that you have a profitable business model. | Final Revenue Plan |
5. Iterate, Return, or Exit | Have you learned enough to scale the business? | Confidence to Scale Business |
This table summarises the phases, goals, deliverables, and actions in the customer validation process, providing a structured approach to preparing for sales, engaging with visionary customers, developing positioning, verifying the business model, and deciding on scaling the business.
Chapter 5: Customer Creation
- When entering a new market, focus on market adoption and use low-cost methods to educate customers. Avoid a large-scale marketing if you don't have enough customers to support it.
- Startups shouldn't adopt the traditional marketing plan; instead, they need a thoughtful customer creation strategy plan tailored to their market type.
- Types of Markets
Feature | Existing Market | Resegmented Market | New Market |
Customers | Existing | Existing | New/New usage |
Customer Needs | Performance | 1. Cost
2. Perceived need | Simplicity & convenience |
Performance | Better/faster | 1. Good enough at the low end
2. Good enough for new niche | Low in traditional attributes improved by new customer metrics |
Competition | Existing incumbents | Existing incumbents | Non-consumption/other startups |
Risks | Existing incumbents | 1. Existing incumbents
2. Niche strategy fails | Market adoption |
- The New Lanchester Strategy dictates how to enter the market depending on the nature of the competition in that market (e.g. Monopolistic market vs open markets).
Market Share | Cost of entry (marketing budget vs leaders) | Entry Strategy | |
Monopoly | >75% | 3x | Resegment / New |
Duopoly | >75% | 3x | Resegment / New |
Market Leader | >41% | 3x | Resegment / New |
Unstable Market | >26% | 1.7x | Existing / Resegment |
Open Market | >26% | 1.7x | Existing / Resegment |
- Choose tactics that acknowledge your weakness
- Startups creating new markets will not create a market of substantial size to generate a profit until three to seven years from product launch.
Market Type | Company Positioning | Product Positioning | Company Launch | Product Launch | Demand Creation Activities | Year One Objectives |
Existing Market | Differentiate and credibility | Product differentiation | Credibility and delivery | Existing basis of competition | Create, drive demand into the sales channel | Market share |
New Market | Vision and Innovation in the new market | Defining new the market, the need, and the solution | Credibility and Innovation | Market education, standards setting, and early adapters | Customer education, drive early adopters into sales channel | Market adoption |
Resegmented Market | Innovation | Differentiation | Innovation | Competition | Sales channel | Share |
- The Four building blocks of customer creation:
- Year one objectives
- Positioning: both company and product
- Launch: both company and product
- Demand creation (advertising, PR, trade shows etc)
- Customer creation is a continuous ongoing process. BUT don’t start expensive customer creation activities too early (advertising, PR etc). Don’t spend serious money on customer creation until you have a proven and repeatable sales roadmap.
- The market type determines the company's position and influences its success. In the Customer Discovery phase, the company identifies the customer problem, tests the product concept, and assesses competitors who can solve the same problem. Through conversations with customers, the company gains insights into customer behavior, buying habits, and industry trends. Attending trade shows and conferences provides valuable information about positioning and key contacts. The Customer Development team should be able to describe how customers operate without and with the company's product. This understanding is crucial for effective product launch and positioning.
- In customer creation the company finalises the positioning and launches the company and product. The type of launch is dependent on the type of startup.
Category | Customer Discovery | Customer Validation | Customer Creation |
Year One Objectives | - Estimate of year one sales
Market Type? | - Refine year one sales numbers
- Preliminary customer creation thoughts
- Market Type? | - Commit to year one sales numbers
- Execute appropriate customer creation strategy
- Market Type? |
Positioning Company Product | - Market Type?
- Understand customer perception of competitors
- Articulate problem and product concept | - Market Type?
- Create initial company positioning. Test with early adopters
- Create initial product positioning. Test with early adopters | - Market Type?
- Agency positioning with audit |
Launch Product Company | - How do customers do their job?
- What type of startup is the company? Attend trade shows. Estimate market size | - Test product launch strategy with early adopters
- Test corporate launch strategy with early adopters | - Launch now. Type of launch depends on type of startup
- Introduce company now. Type of launch depends on size of startup |
Demand Creation | - Market Type?
- Discover press contacts, analysts, influencers
- How do customers make buying decisions? | - Market Type?
- How do customers purchase products? Understand analysts' and influencers' viewpoints
- Establish target press, analyst, and influencer lists and relationships | - Market Type?
- Implement demand creation
- Type of demand creation depends on market type |
- Phase 1: Get Ready to Launch Choose a market type, create a year one plan
- Create a questionnaire like the above, and combine the data from that with your initial market analysis to determine your market type.
- All customer creation activities need to match the market type.
- The major risk is the dominance of the competitors and the consequent cost of entry.
- Existing markets normally compete on established dimensions (features, price, performance), you’ll need to outperform or differentiate.
- If entering a new market, you need to define the market in a way that aligns with how users see their problem.
- If you’re re-segmenting a market, you have to convince your customers the existing incumbents don’t solve their problems, and differentiate yourself enough to stand out and be seen as the solution.
- Select a market type and set one year objectives for customer creation and sales
- For an Existing Market:
- Aim to capture maximum market share from incumbents, focusing on demand creation and customer acquisition.
- Use market research to determine the total available market and serviceable available market, excluding unreachable customers.
- Customers can be unreachable because they’ve already bought a competitive product, or their needs are broader than your initial offering (e.g. they need a ‘whole product’).
- Create a sales forecast based on early sales experience, refining it by considering various factors such as product pricing, customer affordability, and sales team capacity.
- Calculate the number of customers and sales needed to meet the first-year revenue target by working the forecast model backwards.
- Consider one-time costs for product and company launch, and include these in the customer creation budget.
- Aim for product differentiation to create and drive end-user demand in the sales channel.
- Budget spending should be three times your competitor's if you're the only player, or 1.7 times if there are multiple competitors (as per the New Lanchester Strategy).
- For a New Market:
- The objective is not market share but to drive or grow adoption of the market.
- Focus on customer education and converting early evangelists into reference customers.
- Avoid the trap of overspending for market share in a non-existent market.
- For Re-segmenting a Market:
- It is challenging to both educate customers about new market issues and segment the market meaningfully.
- Budgeting should be tested against the New Lanchester Strategy, aiming for a significant reduction in competitors.
- First Mover Advantage is often a myth, with many startups that rush to be first to market ultimately failing. The 'get big fast' strategy fueled by this concept was largely debunked after the dotcom bubble. Studies show that early market leaders, who enter the market later than the pioneers, have a much greater long-term success rate.
- Phase 2: Position the Company and Product:
- Make sure you select a PR agency that buys into the notion of content type.
- Select a PR agency that can help with:
- Positioning the company and its products
- articulating its message and refine its audience
- get industry influencers and messengers to communicate the message
- Conduct internal and external audits to learn how others perceive your products. Understand the baseline perception about your company.
- Company positioning answers ‘What does your company do for me?’
- Product positioning follows company positioning.
- Product positioning describes how and why your product is different along the axis for competition.
- Align your positioning strategy with the market type.
- For an existing market: present yourself as different and credible. Differentiation in an existing market can occur in one of three ways:
- Differences in product attributes (such as being faster, cheaper, etc.)
- Differences in distribution channel (such as offering 1-hour delivery)
- Differences in service (such as providing warranty, money-back guarantee)
- For a new market: communicate a vision and passion of what could be. Ask yourself, what is wrong with the world that you want to correct? What change is your company aiming for?
- When re-segmenting a market: focus on segmentation, not differentiation. Segmentation involves picking a clear, distinct spot in a customer's mind that's unique, understandable and meets a pressing need or desire.
- You can either re-segment as a niche, or as a low-cost provider.
- Phase 3: Launch the Company and Product:
- A company launch is when your company communicates for the first time what it is, what it stands for and what it’s selling.
- A product launch describes why customers should want your product.
- Select a launch by market type:
- Leverage the Onslaught launch in existing markets. Utilize all available demand-creation tools to swiftly establish your presence before competitors can react. This strategy involves a high-commitment move to achieve maximum exposure at a particular moment. It's especially effective when competing against companies with multiple divisions, products, and distribution channels.
- Use the early adopter launch when entering a new market. This is a targeted, low-cost approach. Position yourself to gain maximum mindshare, ahead of your new market becoming a mass market. This approach favours long, slow community-based education campaigns as early adopters don’t respond to marketing. The goal is to get early enthusiasts to become advocates and create a tipping point in the market.\
- For re-segmenting, use a low-cost or niche launch. Segmenting dilutes the power of your competitors' marketing budgets. However, you should first determine whether there are customers ready to buy in your segment. If there is customer demand, make an all-out effort to capture them quickly. If not, treat it as an early adopter launch for a new market.
- Select the customer audiences:
- Who are your launch messages intended to reach? Who will be the first recipients?
- Select the audience most likely to buy your product, not necessarily the one that you’re most familiar with.
- Not everyone can be the target audience, as this could dilute the message. For success, the audience must be a small, influential group.
- In existing markets: target the decision-makers
- In new markets: target potential early evangelists
- In a re-segmented market: target users who will appreciate the segment you've selected
- Select the messengers:
- To benefit from word-of-mouth you need to reach a few well-placed highly leveraged individuals (messengers).
- Experts: strong industry knowledge, respected opinions
- Evangelists: unabashed cheerleaders, less credible but enthusiastic.
- Connectors: individuals who know everyone in the industry, bloggers or conference holders
- Craft the messages:
- Messages need to be memorable and sticky.
- What pain do you alleviate? What value do you deliver? Why should anyone care?
- Understand the message context. All messages operate in a context.
- What problem are you trying to solve for your customer?
- Is the problem related to other problems that have garnered press?
- What's changed in your market? What are others saying about it?
- What hot topics are people talking about that are relevant to your company or product?
- Understand the media for the message:
- A media strategy determines what media will and won’t be used to reach your customers. Your choices should be based on what media your customers rely on.
- Measure success: measurement in marketing is hard. How do you know if you’ve succeeded? What are the specific success criteria?
- Your customer perception audit gives you a before baseline, run it again to see what the delta is.
- You can do a press audit to see how many times you were written about, what the message on target, and how deep was the coverage.
- Phase 4: Create Demand:
- Select a strategy matching first-year objectives:
- Match your demand creation to your sales demand goals.
- Existing market: leads / orders
- New market: perception / market growth / leads / orders
- Re-segmenting market: leads / orders / perception
- Agree on measurements
- Measure results of demand creation work, and course correct if needed to make the most of your budget.
- Keep sales and demand-creation activities in sync by agreeing pipeline goals.
- Iterate, return or exit
- Has the positioning made sense to real live customers?
- Do the messengers buy the story?
- Had demand creation filled the funnel?
- Do sales go up in sync with demand creation?
- Are competitors reacting to your positioning?
- Does the financial model still work?
Customer Validation Summary
Here is the information you provided organized into a table format with four sections, each relating to a different phase:
Phase | Goals | Deliverables |
Phase 1. Get Ready to Sell | Produce preliminary version of sales materials and sales roadmap. | Action |
A. Articulate Value Proposition | Develop value proposition. | Value Proposition |
B. Prepare Sales Materials and a Prelim Collateral Plan | Develop sales materials and a preliminary collateral plan. | Collateral Sales Material & Prelim Sales Roadmap |
C. Develop a Preliminary Channel Plan | Develop a preliminary distribution channel plan. | Channel Plan |
D. Develop a Preliminary Sales Roadmap | Develop a preliminary sales roadmap. | Sales Roadmap |
E. Hire a Sales Closer | Hire a sales closer. | Sales Closer |
F. Align Your Executives | Agreement across company on schedule, deliverables, support, and collateral before you commit to product deliverables. | Product, Support, & Collateral Review |
G. Formalize Your Advisory Board | Enlist needed advisors. | Advisory Board Roadmap |
Phase 2. Sell 2 Visionary Customers | Test product and roadmap with early-vangelists who can buy an unfinished and unproven product | Validation |
A. Contact Visionary Customers | Find visionary customers. | Visionary Meetings |
B. Refine and Validate Sales Roadmap | Get 3 to 5 visionary customers to buy the product. | 3 to 5 Purchase Orders & Repeatable Sales Process |
C. Refine & Validate Channel Plan | Get early orders from channel and service partners. | Order from Potential Partners |
Phase 3. Develop Positioning | Articulate belief about your product and your place in the market | Action |
A. Develop Product Positioning | Define what market you are in: Existing? New? Reisegmented? | Product Positioning & Brief |
B. Develop Company Positioning | Define what is unique about your company. | Company Positioning & Mission Statement |
C. Present to Analysis and Industry Influencers | Get analysts/influencer buy-in for your vision. | Analyst Feedback & Approval |
Phase 4. Verify | Have customers bought product and vision? Will it scale? | Validation |
A. Verify Production Solution | Verify through orders that product solves customers' needs. | Product and Release Spec |
B. Verify the Sales Roadmap | Verify a repeatable sales roadmap. | Final Sales Roadmap |
C. Verify the Channel Plan | Verify a scalable sales and channel plan. | Final Channel Sales Roadmap |
D. Verify the Business Model | Verify that you have a profitable business model. | Final Revenue Plan |
E. Iterate, Return, or Exit | Have you learned enough to scale the business? | Confidence to Scale Business |
Chapter 6: Company Building
- Transforming from a startup focused on Customer Development to a larger company requires three actions:
- Building a mainstream customer base beyond the first early-evangelist customers. In a new market, the sales growth appears to be slower in the initial years but then accelerates, while in an existing market, the growth is more consistent over time. Early adopters are not high-volume mainstream buyers. Success with early sales doesn’t provide a sales roadmap for later mainstream buyers. The size of the chasm depends on market type.
- Building an organisation, management, and culture to support larger scale. A company need to move through three stages: Customer Development, which is development team-centric; Company Building, which is mission-centric; and Large Company, which is process-centric. These stages help in scaling up and creating repeatable, scalable processes.
- Creating fast-response departments to sustain the climate of learning and discovery. The fast response is an interim stage before a company gets big and has to adopt a repeatable process. They're an evolution from learning and discovery into functional departments a large company needs, but agile enough to avoid rigor mortis.
- Phase 1: Reach Mainstream Customers
- The width of the chasm between early adopters and mainstream customers and the timeframe for crossing it depends on market type.
- In a new market, the motivations of early buyers and mainstream customers differ. Therefore, the effort invested in the sales process for early buyers may not result in volume sales.
- Early buyers are motivated by solving a painful problem to gain an advantage and can tolerate some usability and reliability issues.
- Mainstream pragmatists, on the other hand, seek evolutionary change and require references.
- You need to work out how to sell to the mainstream before you exhaust the visionary market.
- In a new market, a fast follower can surpass you. You’re at risk if another company is learning and discovering faster than you.
- Two strategies for reaching customers in a new market:
- Crossing the Chasm by creating Niche Markets: Focus on early adopters in a specific market, use word-of-mouth, and develop products that attract the mainstream market.
- Creating Tipping Points: Accumulate sales to reach a critical mass of early adopters, which can 'tip' the customer base; viral marketing can help achieve this.
- The sales growth curve establishes crucial parameters for a startup entering a new market. These include capital requirements, cash flow and burn rate, market education and adoption strategies, and hiring plans.
- The chasm is smaller or may not exist when moving from early-evangelists to the mainstream in an existing market.
- In the absence of a chasm, exploit the market with relentless execution.
- Customers will understand your product and benefits, but you'll have to work harder on differentiation. Establish positioning, or value, rather than pursuing branding.
- Positioning executed well creates demand for the product.
- Branding is better when re-segmenting a market.
- Managing sales growth in an existing market. Marketing should have differentiated the product, which should create demand in your sales funnel.
- Scaling in this type of market is about managing capital requirements, hiring rapidly, managing the product lifecycle, and responding to competitors.
- Moving from early evangelists to mainstream customers in a re-segmented market requires a hybrid of the two approaches above.
- Early years may be slow as it takes time to convince mainstream customers that you have a unique proposition.
- You can fall into the trap of thinking you have a scalable business model when you’re still serving visionaries.
- Re-segmenting a market is expensive, don’t underestimate the time and money required to make a lasting impression with your market definition.
- Managing sales growth is a balancing act as above, but you also have to consider if the re-segmentation worked. If not you’re in the land of living dead.
- Phase 2: Review Management and Build a mission-centric organisation
- CEO characteristics required at different stages of the company:
- Entrepreneurial-Driven Learning & Discovery: Organisations need flexibility and adaptability. The focus is on passionately pursuing a vision amidst uncertainty. Leadership is often autocratic and hands-on, with superstars working tirelessly. The planning style is agile and opportunistic, and processes are minimal. The CEO must be a dynamic leader, capable of inspiring the team and navigating through uncertainty.
- Mission-Oriented Management: A shift towards a long-term commitment and goal-oriented planning. Processes start to play a strategic role, and management becomes more distributed. The focus shifts to the mission of the organization with an emphasis on fast response and repeatability. The CEO in this stage needs to be a strategic planner, capable of delegating tasks, and focusing on the bigger picture.
- Process-Managed Execution & Growth: As the organisation matures, efficiency and smooth execution become paramount. This stage is managed by routine-oriented personnel who implement systematic processes within a bureaucratic framework. The aim is to achieve consistent execution and stability throughout the organisation. The CEO in this stage must be a strong manager, capable of overseeing complex processes, maintaining stability, and driving growth.
- Developing a mission-centric organisation and culture
- Your mission statement should be:
- for internal use
- action-orientated (helps employees decide and act locally)
- Use it as an opportunity to get buy-in from all the operating executives.
- Think about including:
- Why your employees come to work
- What they need to do all day
- How they will know they have succeeded
- Corporate revenue and profit goals
- Phase 3: Transition the customer development team into functional departments
- Craft departmental mission statements and translate your objectives into department specific and task specific objectives.
- Include:
- Why department members come to work
- What they need to do all day
- How they will know they have succeeded
- Contribution to corporate profit goals
- Market type can influence the missions of different departments:
New Market | Existing Market | Re-segmented Market | |
Sales | Focus on selling to early adopters and enthusiastic supporters. | Maintain and grow sales using a proven process. | Generate revenue from both current and new market segments, eventually transitioning to the new segment. |
Marketing | Create demand and drive it into the sales channel, avoiding premature spending. | Create demand and equip the sales channel to serve customers. | Use guerilla tactics to support sales in the existing market and create a new segment with positioning and branding campaigns. |
Bus. Dev. | Build the "whole product" and establish supportive relationships. | Deliver the "whole product" in a way that matches competitors. | Differentiate the "whole product" from competitors and cultivate supportive partnerships. |
- Phase 4: Build Fast-response departments
- The decision-making process in the U.S. Marine Corps is time-competitive. Therefore, the timeliness of decisions is essential to establishing tempo.
- You need to carry forward the learning and discovery culture into new functional departments and create an agile organisation that can rapidly respond to customers, competitors, and market opportunities.
- Two principles make this possible:
- Applying the OODA LOOP to a department model:
- Observe:
- Emphasizes the importance of information flow within a department, including the speed at which information, especially bad news, is shared.
- Questions the culture around how messengers delivering news are treated.
- Orient:
- Focuses on the department’s cultural attitude towards market understanding and how it reviews competition and its own offerings.
- Assesses whether the company and departmental missions are clear to all members.
- Decide:
- Concerns the autonomy of managers and executives in making decisions.
- Looks at whether decisions align with the broader corporate and departmental mission.
- Act:
- Checks if there is an efficient process for implementing decisions and whether actions are well-coordinated.
- Considers whether there is a mechanism for learning from past decisions.
- Decentralised decision making:
- It’s dangerous to require formal, upward review and need the wait for the big decision.
- You need a mission driven company, and a bottom-up decentralised management style that pushes decisions down
- Make the intention clear
- Encourage employee initiative.
- A startup is all about searching for and exploring fleeting opportunities. It's imperative for all employees to take initiative.
- You want employees to seek responsibility.
- Let people know you want them to exercise leadership and back them up when they do.
- Foster mutual trust and open communication.
- Executives need first-hand knowledge, an overall view and a view from the eyes of customers and competitors.
- Delegate with a trust but verify philosophy.
- Adopt a 'good enough' decision-making approach. A good plan violently executed now is better than a perfect plan next week.
- Ensure department missions support the overall goal and are mutually supportive.
Company Building Summary
Phase | Goals | Deliverables |
1. Reach Mainstream Customer | Move the company from early sales into a scalable business | |
A. Transition from Earlyvangelists to Mainstream Customers | Select the appropriate strategy to reach mainstream customers. | Written chasm-crossing plan that matches Market Type |
B. Manage Sales Growth | Develop a sales, marketing, and business development revenue and expense plan that matches Market Type. | Written plan matches Market Type |
2. Review Management and Build a Mission-Centric Organisation | Grow past the Customer Development team | |
A. The Board Reviews the CEO and Executive Staff | Evaluate whether current management can transition in the new company-building roles. | Management team that can build the company |
B. Develop a Mission-Centric Organization and Culture | Evolve management style from visionary founder to one that can scale with more people. | Corporate mission statement Mission-centric culture across company |
3. Customer Development Team into Functional Departments | Set up functional departments that are mission driven | |
A. Craft Departmental Mission Statements | Set up mission-driven goals for new departments. | Departmental mission statements |
B. Define Department Roles | Define the department roles by Market Type. | Written departmental objectives and responsibilities that match Market Type |
4. Build Fast-Response Departments | Create agile and responsive departments that can still operate like a small startup | |
A. Implement Mission-Centric Management | Build the components of mission-centric management: intention, imitative, trust and communication, good-enough decision-making, mission synchronisation. | Mission-centric rolled out across departments |
B. Create a Culture for Information Gathering and Dissemination | Departments with multiple views of information; firsthand knowledge, overall view, view through customers’ eyes. | Written plan for acquiring the three views of market and customers |
C. Build a Leadership Culture | Lead by delegation, build mission-driven culture. | Superstar transition, mavericks protected |
D. Iterate and Grow | Verify that sales have crossed into the mainstream. Management team that can grow and build the company. | Predict revenue and expenses Viable and profitable business model Mission-centric culture, executives suited to mission |