The Four Steps to the Epiphany Success - Steven Gary Blank  ## Metadata - Author: **Steven Gary Blank** - Full Title: The Four Steps to the Epiphany Success - Category: #articles - URL: https://readwise.io/reader/document_raw_content/67189350 ## Highlights - A legendary hero is usually the founder ofsomething—the founder ofa new age, the founder ofa new religion, the founder ofa new city, the founder ofa new way oflife. In order to found something new, one has to leave the old and go on a quest ofthe seed idea, a germinal idea that willhave the potential ofbringing forth that new thing. — Joseph Campbell, Hero with a Thousand Faces ([View Highlight](https://read.readwise.io/read/01hykchwr9zwzs8aat666waeja)) - "... for the gate is wide and the road broad that leads to destruction, and those whoenterthrough itare many." — Matthew 7:13 ([View Highlight](https://read.readwise.io/read/01j00g3xt4cq0d9h0xrqqshjps)) - To begin with, the Product Development diagram completely ignores the fundamental truth about startups and all new products. The greatest risk—and hence the greatest cause of failure—in startups is not in the development ofthe new product but in the development of customers and markets. Startups don't fail because they lack a product; they fail because they lack customers and a proven financial model. This alone should be a pretty good clue about what'swrong with usingthe Product Development diagram as the sole guide to what a startup needs to be doing. Look at the Product Development model and ask "where are the customers?" ([View Highlight](https://read.readwise.io/read/01hykdyzrrm67236yp0tdq831e)) - Startup executives have three documents to guide their hiring and staffing; a business plan, a Product Development model and a revenue forecast. All of these are execution documents - they document spending and hiring as ifsuccess is assured. As mentioned earlier there are no milestones saying "stop or slow down hiring until you understand customers." Even the most experienced executives succumb to the inexorable pressure to hire and staff to "plan" regardless of early customer feedback. ([View Highlight](https://read.readwise.io/read/01hymmbephk07c130k7qhdsas1)) - startups fall into one offour basic categories: • Bringing a new product into an existing market • Bringing a new product into a new market • Bringing a new product into an existing market and trying to resegment that market as a low-cost entrant • Bringing a new product into an existing market and trying to resegment that market as a niche entrant ([View Highlight](https://read.readwise.io/read/01hymy5734rr1qt09bg0drbxea)) - The Technology Life Cycle Adoption Curve (see Figure 1.4) was developed by Everett Rogers and popularized and refined with the notion of the "chasm" by Geoff Moore. It introduces entrepreneurs to five thought-provoking ideas: Technology is adopted in phases approach by distinct groups: technology enthusiasts, visionaries, pragmatists, conservatives, and skeptics. The first two groups, the technology enthusiasts and visionaries, are the "early market." The next two groups, pragmatists and conservatives, are the "mainstream market." The shape of the overall market for any product approximates a bell curve. The early market starts small and grows exponentially into the mainstream market. There is a "chasm" between each of the different groups, with the largest chasm being between the early market and the mainstream market. These chasms are caused by the different product needs and buying habits ofeach group. The biggest problem in crossing the chasm is that few of the hard-won early marketing and selling lessons and success can be leveraged into the mainstream market, as mainstream customers do not find early adopters as credible customer references. Therefore, completely new marketing and sales strategies are necessary to win over this next, much larger group ofcustomers. ([View Highlight](https://read.readwise.io/read/01hymdxb6p6wsyb6cc5vbv2jk1)) -  ([View Highlight](https://read.readwise.io/read/01j00g2re80cmwafx0krj2gr9p)) - There is no recognized process with measurable milestones, for finding customers, developing the market, and validating the business model. ([View Highlight](https://read.readwise.io/read/01hymya681g50h0htxcw7ncd7m)) - the model is built on the idea that every startup has a set of definable milestones no amount of funding can accelerate. More money is helpful later, but not now. The Internet Bubble was the biggest science experiment in this area. You cannot create a market or customer demand where there isn't any customer interest. The good news is these customer and market milestones can be defined and measured. The bad news is accomplishing these milestones is an art. It's an art embodied in the passion and vision of the individuals who work to make their vision a reality. That's what makes startups so exciting. ([View Highlight](https://read.readwise.io/read/01hymyn9z7h3nscby32hdj0j0e)) - Most startups lack a process for discovering their markets, locating their first customers, validating their assumptions, and growing their business. ([View Highlight](https://read.readwise.io/read/01hymebypy37nmsa2yc0k77m94)) -  ([View Highlight](https://read.readwise.io/read/01j00g4tjq8j74tf2jts9g4ntd)) - Step 1: Customer Discovery The goal ofCustomer Discovery is just what the name implies: finding out who the customers for your product are and whether the problem you believe you are solving is important to them. More formally, this step involves discovering whether the problem, product and customer hypotheses in your business plan are correct. ([View Highlight](https://read.readwise.io/read/01hymyxq8w413ddmaqj4fpmgmy)) - Tags: #business #product - Step 2: Customer Validation Customer Validation is where the rubber meets the road. The goal of this step is to build a repeatable sales road map for the sales and marketing teams that will follow later. The sales road map is the playbook of the proven and repeatable sales process that has been field-tested by successfully selling the product to early customers. Customer Validation proves you have found a set of customers and a market who react positively to the product: By relieving those customers of some of their money. A customer purchase in this step validates lots of polite words from potential customers about your product. ([View Highlight](https://read.readwise.io/read/01hynta75xcz672f0q55rvk1dg)) - Step 3: Customer Creation Customer Creation builds on the success the company has had in its initial sales. Its goal is to create end-user demand and drive that demand into the company's sales channel. This step is placed after Customer Validation to move heavy marketing spending after the point where a startup acquires its first customers, thus allowing the company to control its cash burn rate and protect its most precious asset. ([View Highlight](https://read.readwise.io/read/01hymz0fq8kg8ffdtr6jjg3j4f)) - Step 3: Customer Creation Customer Creation builds on the success the company has had in its initial sales. Its goal is to create end-user demand and drive that demand into the company's sales channel. This step is placed after Customer Validation to move heavy marketing spending after the point where a startup acquires its first customers, thus allowing the company to control its cash burn rate and protect its most precious asset. ([View Highlight](https://read.readwise.io/read/01hynt9ync2c5pd23p8pds3jrk)) - Step 4: Company Building Company Building is where the company transitions from its informal, learning and discovery- oriented Customer Development team into formal departments with VPs of Sales, Marketing and Business Development. These executives now focus on building mission-oriented departments exploiting the company's early market success. ([View Highlight](https://read.readwise.io/read/01hyntxf0jwffczt4k4emek9hq)) - • Startups that are entering an existing market • Startups that are creating an entirely new market • Startups that want to resegment an existing market as a low cost entrant • Startups that want to resegment an existing market as a niche player ([View Highlight](https://read.readwise.io/read/01hyp0p0cft92pv4qnr3yxx4b0)) - Personal Digital Assistant (PDA) market ([View Highlight](https://read.readwise.io/read/01hyp0trfwxazd1jx0abpzkyp3)) - Market Type changes how you evaluate customer needs, customer adoption rate, how the customer understands his needs and how you would position the product to the customer. Market Type also changes the market size, as well as how you launch the product into the market. ([View Highlight](https://read.readwise.io/read/01hyp11btqndkn8hhs0e7p4wkk)) -  ([View Highlight](https://read.readwise.io/read/01j00g5sshatws5qg4cjdanzyz)) - A New Product in an Existing Market An existing market is pretty easy to understand. We say you are in an existing market ifyour product offers higher performance than what is currently offered. Higher performance can be a product or service that runs faster, does something better or substantially improves on what is already on the market. The good news is the users and the market are known, but so are the competitors. In fact, the competitors define the market. The basis ofcompetition is therefore all about the product and product features. You can enter an existing market with a cheaper or repositioned "niche" product, but if that is the case we call it a resegmented market. ([View Highlight](https://read.readwise.io/read/01hyp1vyw7xgxdkr06xve7x2q9)) - A New Product in a New Market Another possibility is to introduce a new product into a new market. What's a new market? It's what happens when a company creates a large customer base who couldn't do something before because oftrue innovation creating something never existed before, or dramatically lower cost creating a new class of users. Or the new product solves availability, skill, convenience, or location issues in a way no other product has. ([View Highlight](https://read.readwise.io/read/01hyp1x4nptqmtdnheddg1qhx3)) - Creating a new market requires understanding whether there is a large customer base who couldn't do this before, whether these customers can be convinced they want or need your new product, and whether customer adoption occurs in your lifetime. It also requires rather sophisticated thinking about financing - how you manage the cash burn rate during the adoption phase, and how you manage and find investors who are patient and have deep pockets ([View Highlight](https://read.readwise.io/read/01hyp29yahp36qys30vsm22dva)) - A New Product Attempting to Resegment an Existing Market: Low Cost Over half of startups pursue the hybrid course of attempting to introduce a new product that resegments an existing market. Resegmenting an existing market can take two forms: a lowcost strategy or a niche strategy. (By the way, segmentation is not the same as differentiation. Segmentation means you've picked a clear and distinct spot in customers' minds that is unique, understandable, and, most important, concerns something they value and want and need now.) Low-cost resegmentation is just what it sounds like - are there customers at the low-end ofan existing marketing who will buy "good enough" performance if they could get it at a substantially lower price? If you truly can be a low cost (and profitable) provider, entering existing markets at this end is fun, as incumbent companies tend to abandon low-margin businesses and head up-market. ([View Highlight](https://read.readwise.io/read/01hyq1qk411fd0vyemthdanwx8)) - A New Product Attempting to Resegment an Existing Market: Niche Niche resegmentation is slightly different. It looks at an existing market and asks, "would some part ofthis market buy a new product designed to address their specific needs? Even ifit cost more? Or worse performance in an aspect of the product irrelevant to this niche? Niche resegmentation attempts to convince customers some characteristic of the new product is radical enough to change the rules and shape of an existing market. Unlike low-cost resegmentation, niche goes after the core ofan existing market's profitable business. ([View Highlight](https://read.readwise.io/read/01hyq1rwg0v57dqr7xvqhgbzp6)) -  ([View Highlight](https://read.readwise.io/read/01j00g6faf7sw6bgykgkds2hgk)) - In contrast, most startups can only guess who their customers are and what markets they are in. The only certainty on day one is what the product vision is. It follows then, the goal of Customer Development in a startup is to find a market for the product as spec'd, not to develop or refine a spec based on a market that is unknown. This is a fundamental difference between a big company and most startups. ([View Highlight](https://read.readwise.io/read/01hyqzvn2x7ddzcgzkqgytkb2e)) - In short, in big companies, the product spec is market-driven; in startups, the marketing is product-driven. ([View Highlight](https://read.readwise.io/read/01hyqzz13ws3k0g2ev240bt883)) - • In each of the steps—Customer Discovery, Customer Validation, Customer Creation and Company Building—the Product Development and Customer Development teams meet in a series of formal "synchronization" meetings. Unless the two groups agree, Customer Development does not move forward to the next step. • In Customer Discovery, the Customer Development team strives to validate the product spec, not come up with a new set offeatures.. Ifcustomers do not agree there's a problem to be solved, or think the problem is not painful, or don't deem the product spec solves their problem, only then do the customer and Product Development teams reconvene to add or refine features. • Also, in Customer Discovery, when customers have consistently said that new or modified product features are required, the VP of Product Development goes out with the team to listen to customer feedback before new features are added. • In Customer Validation, key members of the Product Development team go out in front of customers as part ofthe pre-sales support team. • In Company Building, the Product Development team does installations and support for initial product while training the support and service staff. ([View Highlight](https://read.readwise.io/read/01hyr021dt1ca8cmhg18t4v41p)) - The Customer Development model consists of four well-defined steps: Customer Development, Customer Validation, customer creation, and Company Building. ([View Highlight](https://read.readwise.io/read/01hyr2a363p17w0rrhk9e91d0m)) - Ajourneyofa thousandmiles begins with a single step. — Lao-tzu ([View Highlight](https://read.readwise.io/read/01hyr2e152nxqd4d4qjpwmn2gv)) - These goals would have been achieved when FastOffice could answer four questions: • Have we identified a problem a customer wants solved? • Does our product solve these customer needs? • Ifso, do we have a viable and profitable business model? • Have we learned enough to go out and sell? ([View Highlight](https://read.readwise.io/read/01hyr2x3k1ysc3jkag4axdtjvj)) - Let me state the purpose ofCustomer Discovery a little more formally. Astartup begins with a vision: a vision ofa new product or service, a vision ofhow the product will reach its customers, and a vision ofwhy lots ofpeople will buy that product. But most ofwhat a startup's founders initially believe about their market and potential customers are justeducated guesses. To turn the vision into reality (and a profitable company), a startup must test those guesses, or hypotheses, and find out which are correct. So the general goal ofCustomer Discovery amounts to this: turning the founders' initial hypotheses about their market and customers into facts. And since the facts live outside the building, the primary activity is to get in front of customers. Only after the founders have performed this step will they know whether they have a valid vision or just a hallucination. Sounds simple, doesn't it? Yet for anyone who has worked in established companies, the The Customer Discovery Philosophy Customer Discovery process is disorienting. ([View Highlight](https://read.readwise.io/read/01hyr30xpjw6pg465s1qtb9cma)) - It's instructive to enumerate all things you are not going to do: • understand the needs and wants ofall customers • make a listofallthefeatures customers want before they buy your product Instead, you are going to develop your product for the few, not the many. Moreover, • hand Product Development a features listofthe sum ofall customer requests • handProduct Development a detailed marketing requirements document • run focus groups and testcustomers' reactions to your product to see ifthey will buy you're going to start building your product even before you know whether you have any customers for it. Foran experienced marketing or product management executive, these statements are not only disorienting and counterintuitive; they are heretical. Everything I am saying you are not supposed to do is what marketing and product management professionals have been trained to do well. Why aren't the needs ofall potential customers important? What is it about a first product from a new company that's different from follow-on products in a large company? What is it about a startup's first customers that makes the rules so different? ([View Highlight](https://read.readwise.io/read/01hyr36ctj2xfsjpz3kmq7nebn)) - Develop the Product forthe Few, Notthe Many ([View Highlight](https://read.readwise.io/read/01hyr36m5zhm4kvw6dybbv6jms)) - You go into the bank and tell the president, "I have a product that can solve your problem." If his response is "What problem?" you have a customer who does not recognize hehas a pressing need you can help him with. There is no time in the first two years in the life ofa startup that he will be a customer, and any feedback from him about product needs would be useless. Customers like these are the traditional "late adopters" becausethey have a "latent need." ([View Highlight](https://read.readwise.io/read/01hyr3afgkt3cvn1ws2z3kmm0k)) - EarlyvangeUsts canbe identified bythese customer characteristics (see Figure 3.1): • The customer has a problem. • The customer understands he or she has a problem. • Thecustomer is actively searching for a solution and has a timetable forfinding it. • The problem is painful enoughthe customerhas cobbled together an interim solution. • The customer has committed, or can quickly acquire, budget dollars to solve the problem. ([View Highlight](https://read.readwise.io/read/01hz2hyjs7h8850an30060a5w1)) - One alternative is to put Product Development on hold until the Customer Development team can find those customers. However, having a product you can demonstrate and iterate is helpful in moving the Customer Development process along. Amore productive approach is to proceed with Product Development, with the feature list driven by the vision and experience ofthe company's founders. Therefore, the Customer Development model has your founding team take the product as spec'd and search to see if there are customers—any customers—who will buy the product exactly as you have defined it. When you do find those customers, you tailor the first release of the product so it satisfies their needs. The shift in thinking is important. For the first product in a startup, your initial purposein meeting customers is not to gather feature requests so you can change the product. Instead, your purpose in talking to customers is to find customers for the product you are already building. ([View Highlight](https://read.readwise.io/read/01hz2jfyqvkss1z4bvqg2tmh46)) - You also want to articulate in writing both the business and product vision of why you started the company. Called a mission statement, at this point in your company's life, this document is nothing more than "what we were thinking when we were out raising money." It can be no more complicated than the two paragraphs used in the business plan to describe your product and the market. Write these down and post them on your wall. When the company is confused about what product to build or what market you wanted to serve, refer to the mission statement. This constant reference back to the basic mission of the company is called missionoriented leadership. In times of crisis or confusion, understanding why the company exists and what its goals are will provide a welcome beacon ofclarity. ([View Highlight](https://read.readwise.io/read/01hz2vyy3ywsk7g6wkejsdevw6)) - Unlike mission statements, core values are not about markets or products. They are a set offundamental beliefs about what the company stands for that can stand the test oftime: the ethical, moral, and emotional rocks on which the company is built. A good example of a long-lasting set of core values is the Ten Commandments. It's not too often that you hear someone say, "Hey, maybe we should get rid of the second commandment." More than four thousand years after they were committed to paper—well, tablets—these values are still the rock on which Judeo-Christian ethics rest. ([View Highlight](https://read.readwise.io/read/01hz2w16s2jj9vemta8m1r3tps)) - Once the company has bought into Customer Development as a process in phase 0, the first phase of Customer Discovery is to write down all of your company's initial assumptions, or hypotheses. Getting your hypotheses down on paper is essential because you will be referring to them, testing them, and updating them during the entire Customer Development process. Your written summary of these hypotheses will take the form ofa one- or two-page briefabout each ofthe following areas: Product Customer and their problem Channel and pricing Demand creation Market Type Competition ([View Highlight](https://read.readwise.io/read/01hz2w5n55wz7tqxq55vn4gywe)) - The product briefcovers these six areas: • Product features • Product benefits • Intellectual property • Dependency analysis • Product delivery schedule • Total cost ofownership/adoption ([View Highlight](https://read.readwise.io/read/01hz2w8w7vbx8cwe0th281cfwz)) - In the course ofCustomer Discovery, you'll flesh out these assumptions with additional information on: • Types ofcustomers • Customer problems • A day in the life ofyour customers • Organizational map and customer influence map • ROI (return on investment) justification • Minimum feature set ([View Highlight](https://read.readwise.io/read/01hz2w9mvx8310dsk0wbjf6mze)) - Is there an established and well-defined market with large numbers of customers? Does your product have better "something" (performance, features, service) than the existing competitors? Ifso, you are in an existing market. ([View Highlight](https://read.readwise.io/read/01hz3yxerb6hn2yy09v6afs758)) - Is there an established and well-defined market with large numbers of customers and your product is lower cost than the incumbents? You are in a resegmented market. Is there an established and well-defined market with large numbers of customers and your product can be uniquely differentiated from the existing incumbents you are also in a resegmented market. ([View Highlight](https://read.readwise.io/read/01hz3yxw62jszbkapa68pkt5mh)) -  ([View Highlight](https://read.readwise.io/read/01hz4p94pfncgr7c6fped3npgn)) - If you believe you are entering an existing market, good questions to address in your briefinclude the following: • Who are the competitors and who is driving the market? • What is the market share ofeach ofthe competitors? • What is the total marketing and sales dollars the market share leaders will be spending to compete with you? • Do you understand the cost ofentry against incumbent competitors? (See the Customer Creation step in Chapter 5) • Since you are going to compete on performance what performance attributes have customers told you are important? How do competitors define performance? • What percentage ofthis market do you want to capture in years one through three? • How do the competitors define the market? • Are there existing standards? Ifso, whose agenda is driving the standards? ([View Highlight](https://read.readwise.io/read/01hz3z36a3g8nafjsht9fdyppv)) - Ifyou believe you are resegmenting an existing market, good questions to address in this briefinclude the following: • What existing markets are your customers coming from? • What are the unique characteristics ofthose customers? • What compelling needs ofthose customers are unmet by existing suppliers? • What compelling features ofyour product will get customers of existing companies to abandon their current supplier? • Why couldn't existing companies offer the same thing? ([View Highlight](https://read.readwise.io/read/01hz3z46dr5425hs9kjfx2dzd1)) - • How long will it take you to educate potential customers and to grow a market of sufficient size? What size is that? • How will you educate the market? How will you create demand? • Given no customers yet exist in your new segment, what are realistic year one through three sales forecasts? ([View Highlight](https://read.readwise.io/read/01hz3z4ehn7ycq8rbew3dsfjgs)) -  ([View Highlight](https://read.readwise.io/read/01hz4p7n6xk1cd4zcj6bn32xdk)) - Ifyou believe you are entering a new market, good questions to address in your briefinclude the following: What are the adjacent markets next to the new one you are creating? What markets will potential customers come from? What compelling need will make customers use/buy your product? What compelling feature will make them use/buy your product? How long will it take you to educate potential customers to grow a market ofsufficient size? What size is that? How will you educate the market? How will you create demand? Given no customers yet exist what are realistic year one through three sales forecasts? How much financing will it take to soldier on while you educate and grow the market? What will stop a well-heeled competitor from taking the market from you once you've developed it? (There is a reason the phrase "the pioneers are the ones with the arrows in their back" was coined.) • Is it possible to define your product as either resegmenting a market or as entering an existing one? ([View Highlight](https://read.readwise.io/read/01hz3z8nkrrtbd8ttfepj63v0c)) - Maybe your product allows customers to do something they could never do before. If you believe that, what makes you think customers will care? Is it your product has better features? Better performance? A better channel? Better price? • Ifthis were a grocery store, which products would be shelved next to yours? These are your competitors. (Where would TiVo had been shelved, next to the VCR's or somewhere else?) Who are your closest competitors today? In features? In performance? In channel? In price? Ifthere are no close competitors, who does the customer go to in order to get the equivalent ofwhat you offer? • 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? • In a company the questions might be, who uses the competitors' products today, by title and by function? How do these competitive products get used? Describe the workflow/design flow for an end user. Describe how it affects the company. What percentage of their time is spent using the product? How mission critical is it? In a consumer product, the questions are similar but focus on an individual. • Since your product may not yet exist, what do people do today without it? Do they simply not do something or do they do it badly? ([View Highlight](https://read.readwise.io/read/01hz3za0ys13sphr0x6j7rhe4t)) - • First customer contacts • The customer problem presentation • In-depth customer understanding • Market knowledge ([View Highlight](https://read.readwise.io/read/01hz3zafta0jp2kw5p0mp1bcef)) - • Meetwith Product Development for a reality check • Create the product presentation • Make more customer visits • Meet with Product Development for a second realitycheck • Identify first advisory board members ([View Highlight](https://read.readwise.io/read/01hz3zbgne1dcnr6hfyewx568s))