Customer Development Is Not Just For Startups

We have Fortune 500 clients who are launching new products and who want to take advantage of customer development methodologies (or have come to the conclusion that they need a framework to revisit assumptions that are not working).

There are broadly two types of situations where a large company is launching  a new product:

• It’s a new product that they can sell to current customers through established channels and/or a direct sales force
• It’s a new product that they want to sell to new customers and are uncertain if established channels will work (or know that they won’t, don’t want to de-focus their message).

Each comes with different challenges.

In the first you can get a false positive. I spoke to a product manager at a networking company that had introduced a video phone booth. It was after a talk on customer development; she expressed the opinion that customer development model might be useful for startups but was less applicable to established firms with effective sales forces like hers. They had just launched the product and had already collected several hundred orders (for systems that would cost more than 100K each). They had provided special incentives to the field to close evaluation units. Given the size of the total quota or book of business a sales team might be carrying with a major customer I suggested a better test than initial orders would be how many re-orders. She called me a few months later looking for customer development assistance: the special incentive had expired and the field had moved on to selling existing products that customers were requesting and new products that now had special incentives. There had been almost no re-orders or system expansions. No one wanted to admit that they had made a 100K mistake so the systems were in token use, but no one could justify buying any more. When startups hire a “closer” sales person for their new product they run the risk of leveraging pre-existing relationships such that they close the sale but don’t uncover the real needs of their customers or the real problems with their offering.

In the second case you can get a false negative. A few years ago we helped a recently acquired division of a software company whose new parent that had a dominant market position in their primary market. The division was at best fifth in its market but the legal department was forcing them to take negotiating positions on contract terms that were both inappropriate to the product line and unwinnable due to their lack of bargaining power. Their prospects for this new product had many viable options where the parent company’s prospects had few if any viable alternative vendors they could buy from. Launching a new product into a new market requires everyone to revisit what the total product has to be, and this is especially painful when many of their current practices are what have made them profitable–if not loved by their customers–in their primary market. Failure to comprehend that a new type of customer may have different needs–even in ancillary areas–may cause a good product to fail to gain traction.

It’s probably easier to introduce customer development methods either as part of a risk assessment phase, where it’s acceptable to revisit a product team’s optimism, or in a turn around situation where it’s clear that the initial approach has not borne fruit but it’s too early to give up.