We all know buying products for resale is only one way to acquire inventory for our e-commerce businesses. You can also create your own products—just look at Etsy!
The challenge is creating products your customers will actually buy. That requires you to validate product ideas through customer research.
To learn more on the subject, we spoke with Cindy Alvarez, author of the recently published book Lean Customer Development: Building Products Your Customers will Buy.
Know your customers
Schepp: What makes your book different from similar books?
Customer development is faster, more hands-on, and 'messier'—and it moves at the pace that companies need to, to stay competitive
Alvarez: I wrote Lean Customer Development because I saw the need for a practical guide to get people comfortable with talking to customers and challenging their ideas—not just a "you should do this," but a "here's how you do this, and why it works."
When you have that level of understanding, you can improvise and adapt, and think on your feet. It's an incredibly valuable competitive advantage for companies.
Since Eric Ries wrote The Lean Startup in 2009, everyone knows that they should be forming hypotheses and validating them, that they should seek out a deep understanding of their customers.
But they're trying to do that validation with an outdated toolbox. Analyst reports, focus groups, customer beta programs that used to work, are just too slow and rigid. They're too removed from direct interaction with customers. Customer development is faster, more hands-on, and "messier"—and it moves at the pace that companies need to, to stay competitive.
And I'm not just talking about early-stage startups. We're at a point where new Microsoft CEO Satya Nadella is quoted in The New York Times about "growth hacking." This is the new normal for companies of all sizes.
Schepp: The kind of customer development you're advocating may seem daunting to some. In your book you discuss mapping your customer's profile as a way to get started. What does this entail?
Alvarez: The concept of a customer profile—"we're selling to this type of customer"—is nothing new. Companies have had marketing personas for decades. What's new is that now we're being honest that we're guessing. We're guessing about what matters and what drives purchasing behavior. Is it being a 28- to 35-year-old woman? Or is it identifying yourself as "environmentally conscious"?
Mapping a customer profile is simply listing any characteristics you think matters in terms of getting someone to buy your product. It's going beyond marketing demographics, like gender, age and income. Think about things like whether your customer is shorter on time or money, whether they seek out or dread technology upgrades, how they define themselves socially. Then once you've got your assumptions written down in black-and-white, you can go validate or invalidate them.
Focus on them
Schepp: How do you locate target customers and get them to talk with you?
If you are targeting a certain type of customer, you look for the places where those people hang out
Alvarez: People always ask, "How would I find a customer before I have a product?" I say, "How were you planning on finding customers after you built a product?"
If you are targeting a certain type of customer, you look for the places where those people hang out. This may mean finding the websites where your customer reads and shares information, or it may be a physical location where they do business.
It's not that hard. People are eager to talk about the things they care deeply about, the problems they're trying to solve. The key is to keep your conversations about the customer, about their world. It's not about you, your ego or trying to make a sale.
Schepp: What are some examples of questions you might ask and how do you get beyond "shallow answers"?
Alvarez: The best questions are the ones that invoke a story. "Tell me about how you do this…” When you prompt someone in that way, they're going to talk about their actual behaviors as opposed to some aspirational, fictional ones. The worst questions are ones that can be answered with "yes" or "no." Those questions are all about you. A yes-no question is like telling your customer that you don't really care what they have to say.
Schepp: Once you've gathered insights, how can you use them to drive product development decisions?
Alvarez: The most dramatic thing that can happen is that sometimes you realize that it's not a good idea to build that product or feature after all! You often realize that your customer doesn't really have a specific problem or just isn't willing to spend money to solve it.
And when that happens, it's like dodging a bullet. It's this amazing relief. To think, we could've spent months building something and then had no one buy it, and now we're spared that fate. On the teams I've worked on, customer-development insights have caused us to cut features, to reprioritize features and, in one case, to spin off an entirely new product based on previously undiscovered customer needs.
Ask the magic question
Schepp: What's a minimum value product and how does it fit into this process?
A yes-no question is like telling your customer that you don't really care what they have to say
Alvarez: [It] is the smallest possible thing you can build to confirm that customers will buy your product. The term "MVP" can be misleading. It doesn't have to be an actual product.
You may, for example, put up a single-page website that allows people to pre-order a product that doesn't exist yet. If prospective customers see that pre-order page and won't even give you their email address, that's a hugely strong signal that they won't buy your product. You can do that in less than a day, for less than $20.
That's the kind of MVP that you may build at the same time that you're doing customer development interviews. Building MVPs and doing customer development interviews often happen in parallel. What you learn from each one feeds into the other.
Schepp: How do you work with existing customers to validate product ideas?
Alvarez: Remember that question, "Tell me about how you do…"? That's the magic question for existing customers. What you want to do is understand how they are currently using your product and what is/isn't working for them.
You want to know about the weird workarounds or the Post-it cheat sheets stuck on someone's refrigerator. Your job is to understand the customer's current problem, and create a product or feature that solves it. Your job is not to ask customers what they want. Humans are terrible predictors of what we want or how we'll behave in the future.
Look for problems, solutions
Schepp: What are some pointers for ongoing product development?
Alvarez: Customer development is like product development—it should be ongoing. You should always be seeking to understand your customers' problems. The problems change and so do the customers!
Humans are terrible predictors of what we want or how we'll behave in the future
That change is what keeps you able to develop new products and features. Companies often start thinking they're experts in an area, that they know all there is to know about how people perform certain tasks. That's how industries get disrupted—by teams who are [not] willing to be humble and assume that there's some new problem or need, and then supply a solution.
Schepp: What else should small-business owners looking to create products for resale know that we haven't covered?
Alvarez: Here's what usually happens: You get a brilliant idea for a product, and you're sure people will want it. What you really, really want to do is immediately sketch it out and show it to someone and say, "How much would you pay for this?" That's human nature. But it's a terrible way to predict product success.
It takes a lot of willpower to practice customer development! You need to move yourself out of the exciting mode of "Do you want to buy this solution?" and into the patient mode of "Tell me about what you're doing, so I can figure out a problem you're having and then figure out the right solution to sell you." But it's worth the effort. Every hour you spend on customer development saves you 5, 10 or far more hours on wasted product development. That's money in the bank.
Schepp: Thanks, Cindy!