Business success comes from supplying goods or services that people demand in order to improve their lives.
Improving lives doesn't mean that every founder needs to be a miracle worker. Creating improvements can mean everything from building better rockets to enhancing the community experience for an online knitting club.
Whatever you decide to bring to market, its success will follow from how well your efforts address prospective customer needs.
Customer discovery is the startup development process that allows entrepreneurs to uncover unmet needs for a target customer before they build any solutions.
This process asserts that customer development precedes product development.
Founders who take customer discovery seriously understand that creating the right product is more important than creating the perfect product.
The right product concept is whichever one most effectively addresses existing pain points within the market. Spoiler alert: The perfect product idea doesn’t exist.
Customer Discovery: Finding Unmet Needs
Thankfully, customer discovery is not rocket science.
A founder can find out what the market wants by simply talking to target customers within that market. In the perfect scenario, an entrepreneur shouldn't have a product at all yet.
Instead, they should combine their personal interests and professional skills with market research on industry trends. This blend of personal qualifiers and public indicators will help you pinpoint which industry to direct your customer discovery efforts.
Once you know which industry to target, it’s time to hit social media hotspots like Twitter and Reddit or head out to relevant trade shows.
Twitter hashtags and Reddit threads will help you concentrate on key subjects online.
Trade shows and conferences are organized based on their affinity with certain industries.
Wherever you go for insights, the customer discovery process revolves around answering this central question: “What do people want that they don’t currently have?”
Several key questions follow from this central one:
What solution do people currently have or use within your target market?
Why do people currently use that solution?
What are their frustrations with that solution?
How much are they currently paying for this solution?
Would they pay for a solution that addressed their frustrations? If so, how much would they pay?
After thoroughly exploring the many layers beneath this central question, an entrepreneur can emerge from the customer discovery process with more clarity on what the right product is for this target market.
The Fruits of Effective Customer Discovery
Besides building your network, talking to prospective customers prior to a product launch will give you an early sketch of your ideal customer persona, top value proposition and initial price point.
These insights will allow you to transform customer feedback into a product idea that has a realistic chance of achieving market fit. That's the best route toward building your first minimum viable product (MVP).
Once you have an MVP, you can circle back to the most interested members of your first round of customer discovery to get direct product feedback.
As a result, your earliest discovery conversations can pay extra dividends by connecting you with early adopters and an initial customer base for your company.
Unfortunately, most founders simply build first and ask questions later. This is the exact opposite of the customer discovery process. As a result, the common founder often spends their first 12-18 months building blindly and then guessing about their key messaging and initial pricing.
Without any feedback from their target audience, the common founder often approaches the market with a single question: “Will you buy this?”
Based on the fact that 90% of startups fail, it turns out that the market usually responds to that common founder’s question with a resounding NO.
So, Why Don’t More Founders Run Customer Discovery?
Popular myths about entrepreneurship encourage founders to imagine themselves as lone geniuses who must break the mold and change the world.
In getting swept up by those myths, most founders convince themselves that learning what people want is pointless because they already know what people need.
Over the past 15 years, that outlook has hooked into narratives of market disruption associated with companies like Facebook, Uber, and Airbnb.
Move fast and break stuff, right? These ideas trace all the way back to Henry Ford and his famous quote:“If I had asked people what they wanted, they would have said faster horses.”
It’s a sexy quote, but there are a couple problems here.
First off, if most startup founders follow Ford's example, it’s important to consider that philosophy in terms of how often this approach leads to failure.
In case you need a reminder: 90% of startups fail.
This failure rate highlights the reality that the common approach to building startups only leads entrepreneurs towards self-destruction.
Maybe founders who follow this idea are moving fast, but the only thing they’re breaking is themselves and their own bank account.
Secondly, there’s no proof that Henry Ford ever even said that.
Fact: Customer Discovery Reduces Founder Failure
9 out of 10 startups fail. So, the things that common founders believe about building a unicorn are usually dead wrong.
If you want to achieve uncommon success as a founder, you have to build differently than the common founder. That starts with figuring out what your target market is looking for.
Thankfully, the rise of Lean Startup methodology since 2000 has popularized an alternative path toward finding market fit before you even build your first product.
Customer discovery is the initial step along this alternative path to business development.
With customer discovery, you won’t just move fast for the love of speed and breaking stuff. That is a recipe for chaos rather than success.
Through customer discovery, your movements will be deliberate and you’ll end up building something that people actually want.
If you tap as fully into the market’s pulse as you can, your company might still be standing years from now.
Customer Discovery: Even Henry Ford Should Have Done It
Henry Ford is the prototype for American innovation, but none of the technologies behind Ford’s success were original to his company.
The gas-powered automobile was invented by Carl Benz in 1886.
Interchangeable parts were pioneered by Swiss clockmakers in the early 1700s.
Assembly lines were featured at meat processing plants in Cincinnati and Chicago during the 19th century. On top of that, another automaker–Ransom Eli Olds–put assembly lines to work within his Oldsmobile manufacturing plants in 1901.
Even transportation itself was undergoing major changes prior to Ford’s rise as an auto industry titan. Steam engines already transformed waterways and gave rise to “The Golden Age of Railroads” on land.
When Henry Ford launched Ford Motors in 1903, the writing was already on the wall that Americans in the early 20th century were leaving horse-powered travel behind.
Ford wasn’t reinventing the wheel with his automobiles. Instead, his genius as an innovator revolved around taking the core elements from other domains and piecing them together in a way that led to a revelation within automobile manufacturing.
After tinkering around with a quadricycle in the late 1890s and then releasing the Ford Model A in 1903, Ford hit a homerun with his Model T when it came out in 1908.
While competitors were selling vehicles for $2,500, the Model T only cost $850.
However, Ford’s fixation on producing unbeatable consumer savings ultimately threw a wrench into his long-term business success.
That fixation is summarized by Ford’s other famous quote about serving customer needs: “Any customer can have a car painted any color that he wants, so long as it is black.”
True to his word, from 1914 to 1926, Ford Motors strictly produced black Model Ts.
This choice made sense based on Ford’s obsession with cost savings because black paint was the cheapest color for his factories to order. On top of that, black-only automobiles meant that assembly line workers never had to pause for paint changes.
These manufacturing optimizations drove the rate of production from the previous industry standard of 12 hours per vehicle down to 90 minutes per vehicle within Ford factories.
At the same time, Ford’s factory output jumped from 10,000 cars in 1908 to 933,720 cars in 1920.
If you wanted a brand new Ford Model T in 1923, it would have cost you $290 (equivalent to about $5,145 today).
Ignoring Customer Feedback Killed Ford's Success in the 1920s
Ford’s manufacturing advantages allowed him to accomplish a rare feat: His cars were both the cheapest and the most durable on the market.
Where other cars lasted 6 years on average, the Model T often help up for 8 years.
This seems like a no-brainer recipe for success, right?
Ford thought so, too and bet everything that this recipe would lock him in as the leading automaker for the foreseeable future.
This bet fell apart as the 1920s rolled on when cars became more commonplace among Americans.
In 1921, 66% of all cars on the road were Fords.
By 1927, only 15% of all cars on the road were Fords. What drove the change?
Another automaker started eating up market share based on its opposing bet that consumer interests change over time.
While Ford was still frozen in the original methods that fueled his success in 1907, this competitor was gearing up to bring the future to American car buyers.
This rival's goal of delivering the future emerged from their commitment to asking people what was missing from their car ownership experience.
That rising power was General Motors and their willingness to serve customer interests was an early testament to the power of customer discovery.
General Motors Used Customer Discovery To Beat Ford
Where did Ford’s obsession with cost savings go wrong?
Well, when Ford Motors started its rise as an automotive powerhouse, car ownership was a luxurious status symbol.
By expanding access to this previously rare asset, Ford’s cost-savings approach appealed to working-class households without cars and the durability of his Model T appealed to upper-class households that wanted sturdier cars.
Ironically, as Ford drove mass access to car ownership during the 1920s, the uniformity behind his company’s manufacturing advantages undercut his ability to inspire future purchases.
Cheap and durable is a winning strategy for paper towels, but it turns out that car owners want their vehicle to reflect their personality.
For all the bells and whistles that Ford had in his factories, his cars were reliably boring.
Ford Model Ts lasted a long time and all looked the same, so what was the point of buying a new one until the current one died after 8 years?
This question became a source of serious pain for Ford during the start of the 1920s when the most common car on the market was a Model T.
From that point forward, his bet on cost-savings underestimated the extent to which people wanted their mode of transportation to reflect who they are as a person.
As American car ownership became commonplace, new car purchases were evaluated more like carriages (a status symbol in the previous century) than purely functional items like paper towels.
General Motors–founded by Billy Durant, a successful carriage maker during the 19th century– clearly perceived this underlying interest in style within the maturing market of car buyers.
Breaking Ford's Advantages Through Customer Engagement
When Durant saw Ford’s economies of scale and monopoly over the low-cost automobile market pushing other car makers out of business, he began buying up these dying companies.
As a result of his acquisitions, Durant could now serve every variety of consumer taste regarding personal vehicles with GM's newly assembled product lines.
Along the way, GM became the first automaker with a diversified portfolio–featuring Chevrolet, Pontiac, Oldsmobile, Buick and Cadillac–of automobiles that could appeal to segmented customer needs and interests.
In 1919, Durant set the stage for customers to more easily access GM’s range of cars by establishing a financing operation at his company called GMAC.
From there, consumers could take out loans when making automobile purchases at his dealerships.
After Durant put all these dominoes into place, he ended up going into major debt himself and was forced out of GM just one year later in 1920.
For the next 36 years, a former accountant named Alfred Sloan would transform General Motors into the most admired company in the United States.
The key to his success? Regularly talking to existing car owners and prospective car buyers.
Sloan’s Customer Discovery at GM: A Car For Every Purse and Purpose
30 years before Wendell Smith defined market segmentation as a formal marketing concept, Alfred Sloan was running live segment-based sales campaigns.
Once Billy Durant was out of GM, Sloan used the diversified portfolio of automakers that Durant previously purchased to launch separate product lines that were segmented by price.
This allowed each of those underlying brands–Chevrolet, Oldsmobile, Oakland (Pontiac), Buick and Cadillac–to consumers of every class.
Chevrolet was GM’s mass market competitor to Ford’s Model T whereas Cadillac was the high-end option for consumers who wanted their car to serve as a status symbol.
On top of this, Sloan staggered the pricing across the various models within his portfolio of automakers. This meant that the most expensive model of a Chevrolet was only slightly cheaper than the base model of an Oldsmobile.
As buying power became popularly seen as reflective of a consumer’s social status, there was now an artificial incentive among customers to display their upward mobility in society by upgrading the model (or brand) of their car.
Sloan delivered another marketing masterstroke by creating yearly opportunities for existing automobile owners to flash their style and status through a car purchase.
He developed these opportunities by taking a page from the seasonal overhauls that fashion brands rolled out within their product lines.
Across GM showrooms, these updates were called “annual model changes.” Privately, Sloan called it “planned obsolescence.”
Alfred P. Sloan: The Father of Continuous Customer Discovery
Sloan's strategy of planned obsolescence directed these annual model changes toward mostly decorative adjustments to the body of cars or incremental technology improvements.
In effect, they produced marginally newer versions of the same core vehicles while incentivizing regular sales within the otherwise saturated automobile market.
Through this strategy, Sloan paved the way for GM to avoid the sales hurdles that uniformity and durability caused for Ford Motors once automobile ownership became common among Americans.
Like no other business leader before, Alfred Sloan used continuous customer discovery as the lifeblood for his company's ongoing success.
His commitment to ongoing discovery interviews meant that GM could quickly identify where their company’s core business assumptions were falling off track.
Between 1907 and 1926, Ford didn't even put a pinky on the pulse of his target market's interests. That's what sank his success and caused him to undergo a last-ditch pivot in 1927 with the reinvention of the Model A.
Unfortunately for Ford, it was too little and too late. GM’s portfolio of automakers led the world in car sales from 1931 until 2021.
GM’s Customer Discovery Playbook Changed Consumer Sales
By regularly speaking with customers, Sloan found ways to tap into the key drivers of their purchasing behaviors and then reverse engineer his sales tactics to make them buy GM automobiles more often than his competitors.
Beyond dominating his industry, Alfred Sloan’s strategy of planned obsolescence has become a core tactic within the sales playbook of consumer-facing companies in general.
The most famous follower of this strategy? Apple.
Their annual release of a new iPhone that often only includes minor color updates, slightly larger screens and moderate improvements to its cameras or hardware.
That’s a page straight out of Alfred Sloan’s marketing playbook.
Steve Blank, the godfather of Lean Startup, commented on this connection between Alfred Sloan and Steve Jobs by saying:
“The desire to line up to buy the newest iPhone when your old one works just fine was just one more part of Steve Jobs’ genius – it’s how the iPhone got tail fins.It’s one more reason why Steve Jobs will be remembered as the 21st century[‘s] Alfred Sloan.”
Many founders imagine themselves as the next Henry Ford or Steve Jobs.
You can build your path toward unicorn status by following the example of Alfred Sloan, the man who beat Ford and inspired Jobs.
The best way to follow in Sloan’s footsteps is by regularly talking with your target market.
This all starts with organizing your customer discovery efforts.
Want a head start on how to run effective customer discovery?
Our team at Venture Validator runs survey-based discovery that will help you know exactly who your key customers are, what they want in a product or service, and how much they’re willing to pay for it.
You can book a call with us on this calendar.