Editor's Note: Take a look at our featured best practice, Startup Company Financial Model - 5 Year Financial Forecast (Excel workbook). New Version - Massive Update !! This updated version of the previous template is almost a completely new model including new assumptions, new Setup Reports and new and updated Output Reports. Creating a financial plan is the roadmap that lays out the path for your company's future financial [read more]
Customer Development Model (CDM)
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In today’s business environment, there are many startups that have not yet reached the level of being fully established companies. This situation can be attributed to various factors, including ideas that do not gain traction, insufficient funding, and inadequate customer analysis.
During their initial stages, startups make speculative assumptions concerning their Business Model.
These assumptions span areas such as the identification of their target customers, desired product features, appropriate distribution channels, revenue strategies, pricing tactics, customer acquisition, retention, and growth methods, strategic activities essential for product delivery, internal resource requirements, necessary partnerships, and overall costs.
The aforesaid assumptions remain unverified until they undergo real-world testing and receive feedback from actual experiences and interactions with customers and the market. These learnings are key for startups to remain afloat in their initial period of existence.
Assumptions relating to the customer analysis can be adequately addressed by the Customer Development Model (CDM).
CDM embodies an iterative and adaptable process that mirrors the uncertain nature of starting a new business and entering new markets. Every step of the CDM serves a distinct purpose and entails a set of specific deliverables. The step-by-step process assists entrepreneurs in recognizing potential business opportunities and transforming them into successful ventures.
The primary goal of the CDM is to attain a profound understanding of customers and the challenges they face. Entrepreneurs can enhance the direction of their product development, marketing, and sales efforts, thereby increasing their effectiveness, by attaining this profound understanding.
By following this systematic process, a learning and discovery loop can be created, aiding in prioritizing tasks and enhancing the timing for launching and scaling your startup.
Product launch failures are not specific to startups; even well-funded and established organizations can adopt ineffective approaches when developing new market offerings. Motorola’s $5 billion satellite-based phone system is a case in point.
Irrespective of the company’s size or stage, the endeavor of identifying customers and defining markets remains a constant requirement. The Customer Development Model is not only designed for startups, but is also beneficial for established enterprises.
CDM encompasses 4 interconnected steps, with each step having its own distinct requirements and deliverables.
- Customer Discovery
- Customer Validation
- Customer Creation
- Company Building
The Customer Discovery step directs attention towards comprehending customers, their challenges, their preferences, and their purchasing patterns.
Customer Validation establishes a standardized sales process―a crucial stage in the expansion of a business.
Iteration takes place between the above 2 steps until the ground is set for the 3rd step, i.e., Customer Creation. This step stimulates demand and uncovers prospective customers.
Company Building concentrates on constructing the organization to facilitate growth and implementing the business plan.
Let us go into a little more detail into the first 2 steps.
Customer Discovery
Comprehensively understanding the actual customers necessitates extensive research, which is distinct from product feature determination or focus group testing.
The recommendation of the approach is for CDM implementation teams to be on the ground, in the field, to find markets and customers.
Ultimately, the vision behind the product is what the customer discovery phase revolves around.
Customer Validation
Customer validation can occur only when the target customer and market have been identified.
The reason for this step ensuing after identification is that this step is specifically intended to assist in crafting the map required to effectively reach those customers.
What sets the customer validation process apart is that if it proves unsuccessful, the team is obliged to begin anew with Customer Discovery.
Interested in learning more about the other steps of CDM? You can download an editable PowerPoint presentation on the Customer Development Model here on the Flevy documents marketplace.
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About Mark Bridges
Mark Bridges is a Senior Director of Strategy at Flevy. Flevy is your go-to resource for best practices in business management, covering management topics from Strategic Planning to Operational Excellence to Digital Transformation (view full list here). Learn how the Fortune 100 and global consulting firms do it. Improve the growth and efficiency of your organization by leveraging Flevy's library of best practice methodologies and templates. Prior to Flevy, Mark worked as an Associate at McKinsey & Co. and holds an MBA from the Booth School of Business at the University of Chicago. You can connect with Mark on LinkedIn here.
