The SaaS Leader’s Guide to Customer Development - SmartKarrot Blog

The SaaS Leader’s Guide to Customer Development

This is the ultimate guide to customer development for SaaS companies, startups looking to grow in a product-led manner.

SaaS Customer Development

Customer development is important. No business can survive in the long run without a loyal customer base for its services or products. SaaS leaders need to believe and keep the product in mind to guide customers properly. You have heard of the phrase- the customer always comes first. The customer is right. The customer is king, etc.

The customer development methodology was established by Steve Blank, an entrepreneur in the late 1990s and early 2000s. The customer development methodology provides frameworks to modern businesses for assessing product viability via customer demand.

What is Customer Development in SaaS?

Steve Blank served in the Vietnam war and then moved to multiple tech companies. Once he retired, Blank wrote The Four Steps to the Epiphany. This book is the basis for the Lean Startup Movement. The models in the book are useful for both SaaS companies and startups. Blank feels that there is no structured process for locating markets and customers. The customer development model will bring in discipline and create a useful process for industries. The model will bring specific industries together to improve chances of success. This creates learning and growth so that money is not wasted in an unsuccessful launch.

In simple terms, customer development is a framework that will determine whether or not a product meets customer needs. It is a smart lean startup concept that is based on agile engineering and model design. It validates inferences, sees if a need is required, modifies them and solves a real-world problem. The framework allows companies to strike the right price point for stakeholders.

Customer Development Process

The Customer Development Process

“The Customer Development model delineates all the customer-related activities in the early stage of a company into their own processes and groups them into four easy-to-understand steps: Customer Discovery, Customer Validation, Customer Creation, and Company Building. These steps mesh seamlessly and support a startup’s ongoing product development activities. Each step results in specific deliverables.”- Steve Blank

The Customer Development model is not a replacement for the Product Development model, but rather a companion to it.  As its name should communicate, the Customer Development model focuses on developing customers for the product or service your startup is building.

There are four stages in the customer development process-

Customer Discovery

This is formulating business models that will see if the creation of inferences, concepts, and hypothesis of the product can be tested. The questions in this stage include-

  • What are the customer’s biggest problems?
  • How will your product change the situation?
  • How much monetary value can you expect on solving the issue?

Customer Validation

In this stage, testing is conducted to see if the business project and product is viable and possible. This can mean factors like market fit, feasibility, scalability, and repeatability. Prominent questions in this regard include-

  • Do you have a functioning roadmap?
  • Is there a sales cycle you know of?
  • What do the key metrics look like?
  • Is this financially viable?

Customer Creation

In this stage, customer demand in the form of end users begins. You can see if there is product awareness through marketing and sales avenues. This is beginning of the project execution. Here the de-risking of the product is done and so it is safe to be launched. You must listen to feedback, track industry trends, and adapt to retain customers. It is important to maintain the level you have earned so far or better sustainability of the business. The types of SaaS markets for startups include-

  • Some SaaS businesses enter pre-existing markets
  • Some markets may be entirely new for businesses
  • Some companies can create a new segment in the market
  • Some startups enter the market as a low-cost alternative

This prevents teams to spend on products, markets, and customers that might be tough to crack and cannot be created.

Company Building

This phase is all about implementing the transformation that will enable growth and scaling upwards. Steve Blank’s methodology looks into the company and then launches it into the market. The methodology ensures the company grows through a leadership narrative. It transitions the learning and discovery to a project ready for execution. The main aspects in this include defining roles, hiring the right people, having formal departments, and creating a loyal team to accomplish better goals. Companies need to know customer validation so that they can create a product accordingly.

The customer development process needs involvement from product management and marketing teams with customer facing teams. Inputs that come in from customers will shape the business model. This will also ensure that the observations are treated in a valuable manner.

Why SaaS Companies should use the Customer Development Concept?

Customer development allows businesses to conduct better assessment of business models before they start operations. The customer development framework also allows for not allowing some concept-based mistakes to happen. This framework can delay financing and reduce the chances of damaging results. It thus makes for only rational projects to come on the floor. This makes the final product well molded for the customer and competitive marketplace.

Secondly, customer development balances the excessive emotions around the product or project. Sometimes businesses can be excited and charged about a product, customer development framework counters this. When the customer-feedback reasoning and rationale is available, it becomes easier to make the product more appealing to customers.

This process ensures that the product is toned and more suited to the market. It also shows better knowledge of the market where the business is conducted. It is also known that companies who implement this process will accept that failure is a natural part of the process. The model ensures it is okay to fail.19

  • Failure is inevitable and it is better to fail early. Instead of pushing the product to the market, you will know the risks beforehand.
  • Failure recognized too late is failure. When money is spent on it, failure increases in scope and this becomes tough.

Bottom Line

Customer development model is a tried and tested model for businesses to improve relationship with customers and develop products according to that. Customer development helps grow, discover, validate, and launch your product and business. When your team puts this process in practice, you can ensure customer growth and product-led growth in the company.

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