customer development process

Good morning Predictable Revenue community,

Big thanks to everyone who replied to last week’s question on length. 65% of you asked for the longer format, 15% preferred the shorter style, and 20% were neutral. Thanks to Bobby, Tina, Shmuel, Maxim, Christian, Liz, Amanda, Steve, Simon, Jeron, Miro, Mark, Rajesh, Joe, Shan, Steve, Prakash, Steve, David, & Pierre for your feedback and thoughtful replies. One of the best parts of my week is seeing the replies to these emails so keep them coming.

Today’s email includes a shorter and longer version, which is your favourite? Reply back with “longer” if you like the longer one or “shorter” the exec summary style suites you better.

Here’s the exec summary, scroll down for the longer version.

You shouldn’t have to prospect for customer development meetings.
At least, you shouldn’t have to prospect for all of them. It definitely takes some work to get the momentum started but once you do, a simple question at the end of every interview will help keep your calendar full, “who do you know that would be open to giving me advice on <problem space>?”. This question creates a flywheel because every meeting turns 1-2 more. Once you put the energy in to build momentum, it takes very little effort to keep it going. Start with the easiest to book meetings which will be people in your family and network so start there. My network in sales or software was non-existent so I joined a co-working space and attended any meetup, industry event, or conference that I thought the people I wanted to interview would attend. I asked nearly everyone I came in contact with, “do you know anyone that could give me advice on sales force automation?”, that’s what we called sales engagement tools before they became a category.

Here’s my customer development process:

Step 1 - create a flywheel by asking for referrals after every human interaction you have (cust dev interviews, meetups, or dentist appointments).

Step 2 - use cold linkedin and ask for feedback to build your initial seed of interviews

Step 3 - ask the 3 magic questions we discussed a few weeks ago

Step 4 - log all your data in a spreadsheet (ICP, psychographics, and pain)

Step 5 - have an offer at the end of every interview

Step 6 - your customer development funnel (volume, velocity, and conversion) is the best indicator of the strength of your product market fit

Leave it to a salesperson to turn something pure like customer development into a funnel… I’m sorry, I couldn’t help myself.

Thanks for reading. How does this line up with your process? What do you think of my funnel?

Collin

PS - Ready for the longer version? See below.

Hello again, funny running into you here…

Today I want to talk about my customer development process. It’s very easy for me to write ‘interview more people’ but I know the #1 thing founder’s get stuck on at this stage is trying to find people to interview and most founders don’t have the sales background that I do. When I started working on my first company, voltageCRM, I went from making 6 figures as a sales rep to 0 figures as a bootstrapped founder. Not having money seemed like a bad idea so I started looking for something to bring in the cash on the side. A friend of a friend introduced me to a wealth manager that was hiring cold callers for $1k a month. I don’t want to flex my math skills on you but $1k is much better than $0 so I took the job. A few days later my script and the BC Book of Businesses arrived at my co-working space. Imagine Apollo or Clay but it’s a book. I spent the first hour of most mornings calling owners of small businesses and tried to see if they were open to a conversation about their personal finances. It wasn’t fun. I had to dial every number manually and my CRM was circling or crossing out names in the book. Experiences like these give you a deeper appreciation for modern sales tools. 

Partway through my tenure as a cold caller I was also implementing what I’d learned from Predictable Revenue. My email campaigns were going shockingly well. I was booking 5-10 meetings a week using a mail merge tool from a Google Sheet. There is nothing worse than screwing up a variable and watching a script send out 100 “Hi First Name” emails. So when I needed to book customer dev interviews, I used the channels I already knew. If you’re reading this newsletter, my guess is you didn’t spend 10 years before starting your company, so I’ll walk you through how to book these interviews based on what works in 2024. 

The process.

• Step 1 - create an interview flywheel by asking for referrals after every human interaction (cust dev interviews, meetups, or dentist appointments)

• Step 2 - use cold linkedin and ask for feedback to build your initial seed of interviews

• Step 3 - ask the 3 magic questions we discussed a few weeks ago

• Step 4 - log all your data in a spreadsheet (ICP, psychographics, and pain)

• Step 5 - have an offer at the end of every interview

• Step 6 - your customer development funnel (volume, velocity, and conversion) is the best indicator of the strength of product market fit

Your first 10 customers should come from this process and your next 10 customers should come from referrals from those customers.

The flywheel.
The most common number I hear from founders is 50 customer development interviews. It’s definitely possible to book 50 cold meetings over a few months but there is a much easier way. The best way to find enough people to talk to is to build a referral flywheel. Once you put the energy in to build the momentum, it takes very little effort to keep it going. Start with the easiest to book meetings which will be people in your family and network. My network in sales or software was non-existent so I joined a co-working space (Launch Academy) focused on the startup space. I also went to any meetup, industry event, or conference that I thought the people I wanted to interview would attend. The key to the flywheel is asking for referrals. When I was trying to get my flywheel going I asked nearly everyone I came in contact with, “do you know anyone that could give me advice on sales force automation?”, that’s what we called sales engagement tools before they existed. Dang, I’m officially old.

My first few meetings weren’t even close to the right persona but as I progressed, they got better and better. Why? Because at the end of every single interview I asked for another referral. Every layer of referral brought me a little bit closer to my ideal buyers. If you’re talking about solving a big problem that lots of people have, then people are very likely to be open to making intros to others they know that might share the problem. I started with a seed of 5 people and end up with 80 after doing 5 rounds and asking every person for 2 referrals. 

I still do this every week but for a slightly different purpose. I end every podcast episode (shameless plug) with an ask for a referral. This has two benefits. First, great people know other great people so the quality is very high. Second, I never have to worry about finding people to interview. Make your life easy and ask for referrals. 

The channel. 
What do you do if you don’t know 5 people for your initial flywheel sample? Local events, meetups, and conferences are going to be the easiest from a getting a yes perspective because it’s much easier to get a referral from someone you met in person. Events with your target buyers might not be accessible and if that’s the case, you’ll need to start prospecting. Keep in mind, you only need an initial seed of 5-10 people to get the flywheel going. 

You can do a few things to get the snowball rolling, but I recommend starting with cold linkedin. It’s the fastest time to value because it has your contact database, channel to reach them, and landing page all in one place. Here's some messaging I've used recently for LinkedIn: 

Direct to user --> "Hey Gray - can I pick your brain on sales dev tools? Looking to understand what's good / what sucks about your current tool stack. It's for a future product I'm thinking of building."

Direct to user --> "Hey Estefania - can I pick your brain on marketing for the fitness/wellness space? I am just doing research for a product we're considering building and I'd love your thoughts."

To founder in the space --> "Hey Sarah - I'm working on a new startup and I could use your input" 

You can do this with the free version of linkedin but you will probably need at least premium to hit the volume you’ll need to do it at a decent pace. The process looks like this: 

• Create a search on linkedin 

• Add people from the list 

• Use the “add a note” feature to drop in your message 

Set a goal of adding 100 people every week until you have your initial seed list. 

The interview.
First I start with context, I learned these, and much of my process, from Michel Feaster: 

• When you walk in in the morning, what is the first thing you do every day?

• How many applications do you log into?

• What applications do you love and why?

• Who do you report to

• What are you MBOs

The questions work as a setup for the magic wand question. I got the idea of the magic wand question from Michel and the quantify questions from Dan Olsen. 

• If there was a problem I could solve for you, what would it be and why?

  • On a scale of 1-10, how important is this to you? 

  • On a scale of 1-10, how satisfied are you with how you’re currently solving it?

What you want to understand is: 

• What did they do all day

• What did they love

• What did they perceive as pain 

• What were they promoted for if they did well 

• What are their challenges in their interactions with their boss

Make sure you understand:

• Technology landscape 

• Daily work life

• Responsibilities / mission

Look for patterns in the data:

• Common pains / problems

• Value attached to solving it 

Find a gap you can solve: 

• What’s the value to the user?

• What’s the impact on the organization?

• What’s the ROI of the impact? Value of solving?

• How recent did this opportunity in the market open up? If it existed before, why didn’t anyone solve it? If it’s new, why does nobody else see it as worth solving?

Close the interview by, you guessed it, asking for a referral. Here are two ways I’ve asked:

• Who else do you know that I should talk to about this?

• Do you know anyone that could give me advice on problem space? 

The data.
Interviews are key but learning from them is the most important piece. I find that I am very easily influenced by recency bias and need to bring some level of data to the equation, no matter how subjective the data might be. 

Here’s an example of what I did for a project I worked on a few years back:

I need to anonymize the sheet first but happy to share with anyone that might be interested. Email me back and I’ll put it together.

We have the person’s name, answers to their profile questions, answers to their context questions, pain questions and ratings, and any relevant notes. The best part of putting it all together in a sheet like this is you can sort and filter. When we started with interviews for the project, we suspected that professional, or close to it, athletes would be a segment that was interested in our platform. When we sorted the sheet by people we thought matched the pro athlete category, we noticed that their collective scores were significantly lower than casual users. I’m sure we could have put together some fancy stats and graphs but we didn’t need to. Filtering by persona, reason for exercising, and problem statements made it very obvious that casual athletes had the greatest opportunity score. 

The offer. 
The act of handing over money is the mechanism that converts a stranger into a customer. The whole point of doing customer development interviews is to find unmet needs and the first test of whether or not those unmet needs are worth solving is whether or not someone is willing to pay for a shitty first version of your product. You’ll only find out if they’re willing if you ask them. To misquote Wanye Gretzky, “you miss 100% of the sales you don’t ask for”. Even if your product isn’t ready to use yet, you still need an ask. We’ll talk about the ranges of different asks a little later. 

When I was running customer development for Carb.io, I offered the first 5 people I interviewed to solve the problem manually for $500 a month, just for one month to see if it worked. I ended up with 7 customers from those 5 interviews. I had found a sizable and important pain and my offer was priced low enough to make it a no-brainer for people that felt the pain and high enough to filter out anyone who didn’t really care. Contrast this with my customer development process for votlageCRM, I never had an offer and I spent 18 months working on something only one customer purchased. If I had an offer from the start, it would have told me I was barking up the wrong tree. 

I priced my offer for the Carb.io alpha at 5% of what I knew was costing them to solve it manually. It was a manual service and I couldn’t afford to do it for free. After the first 5 turned into 7 I doubled my price after every round until I could see people pause to digest the number. $500 was a snap decision, didn’t have to think about it “yes”. $5k took much more time to get a yes. For the $500 I acted as an SDR for the customer for month but used email only. I had a series of macros and scripts that I had copy pasted together that let me send mail merges from a google sheet. This was a wizard of oz style alpha and I was the man behind the curtain, hence the ability to only take on 7 clients for a month. 

Not every problem will be able to be solved wizard of oz style so I’ll leave it up to you to find a way to get a commitment. Here are a few ideas I’ve tried and I’d encourage you to play around with yours: 

• Wizard of Oz Alpha 

  • Nothing exists yet, we’ll do it manually 

• Use it for free, tell me what you think

  • No financial commitment, not expecting real adoption, and are just looking for feedback. I only use this in the very early days.

• Future commitment - will you use and implement it when it’s built?

  • They commit to using it in the future and putting up a deposit. 

• Prepaid Design Partner 

  • They commit to using, paying, and providing feedback. 

Your offer will depend on where your product is at. If you haven’t built a thing, then a wizard of oz style alpha might be appropriate, if you have something that works but isn’t close to done then you’re likely heading down the Prepaid Design Partner route. The most important piece is that you ask the people you are interviewing for some money. Don’t be too excited when people say yes or too sad when people say no, we are collecting another data point. If someone tells me that the pain is 10/10 importance and 2/10 satisfaction but declines my offer, I know I need to ask more questions. I could have the wrong persona (be too low in the organization), they could have just been acting polite, or there might be an organizational complexity that I haven’t understood yet. Either way, the offer acts as a check to make sure I’m not progressing through my interviews with false assumptions. 

As a salesperson, I hate discounting but I do make an exception for alpha/beta pricing because the solution isn’t 100% complete. The revenue you get from the offer isn’t likely to be significant, the primary value will be learning and future referrals. 

Customers. 
If you interviewed 100 ‘customers’ but none of them have given you money, have you really done ‘customer development’ interviews? The number one question I get from early founders is ‘how do I find my first 10 customers?’ and the first question I have for them is ‘how many people from your customer development process have signed up?’. If they’ve interviewed 100 perfect customers and zero were interested in paying, that’s a pretty solid signal that their Product Market Fit isn’t there yet. Your first 10 customers should come from your customer development process. Your next 10 customers should come from referrals from those first 10 customers. 

The Customer Development Funnel. 
Sales is my trade so I’m only able to think sequentially through the analogy of a funnel. If you’ve spent any time in a meeting with or physically near me, you’ve probably heard me rambling about volume, velocity, and conversion. It will come as no surprise to you that when I had to measure my customer development efforts, I turned to a funnel. I cribbed my stages for this one from Dave MacLure’s excellent talk titled, Startup Metrics for Pirates. I always think of this as ‘the pirate funnel’ in my head but the customer development funnel is a little more newsletter friendly. 

The most important part of a funnel are the stage definitions. I'm a huge fan of the idea of customer verifiable outcomes, objective external events that are easy enough for a 3rd party to verify. Here’s how I’ve adapted Dave’s stages for the customer development process: 

• Acquisition - when you tell people about it, they're interested in learning more

• Activation - when you invite them to check it out, they sign up and use it (accept your offer)

• Revenue - they give you at least a little money for your product

• Retention - after they sign up, they use it regularly

• Referral - they get so much value that they're telling their friends

Note: Dave put Revenue last but I like it as the first R because chronologically, you get revenue before you get retention. I don’t think either is wrong or right but having them the other way felt out of order to my inner salesperson.  

The reason to think about your customer development process as a funnel is because it’ll help you understand when you’re ready to move to building revenue. The three stats you want to keep track of are, volume, velocity, and conversion. 

• Volume - how many people have progressed through the funnel, which stage did each make it to. 

• Velocity - how quickly do people move from one stage to the next, how long does it take a user to drop from the top of the funnel to the bottom

• Conversion - how many people move from one stage to the next 

These stats show you how many customer development interviews you’ll need to perform in order to hit your first 10 customers. You can think of this as your pipeline efficiency, for each person that goes into the top, how many customers and referrals come out the bottom?

There’s the process I’ve used 6x to build 3 products and avoid building 3 others. It’s not perfect but it was really helpful for me and I hope it does the same to you.

Collin

PS - if you made it, hit me back with a “made it” and any feedback you have.