It doesn’t even have its own Wikipedia article yet (as at 2nd of February 2011). It came from someone called Steve Blank and a book from 2005, and yet it’s the hottest thing at all the top business schools. This video interview explains why.

Warning to the uninitiated: you’ll hear some outrageous-sounding claims about how different it is from the conventional way of running a startup. It’s Robert Scoble interviewing Eric Ries, who incorporates Steve Blank‘s customer development ideas into his own Lean Startup methodology.

Here’s part two

If you’ve just watched the videos, I may have just ruined my chance to share the objectivity you had when you started reading this article, because you’ve probably gone native and you now think that my implication that customer development was a ‘gimmick’ in the headline was unreasonable, but bear with me, what follows is just as useful for the newly persuaded as it is for the unconvinced.

First a definition (it is derived from an article about Steve Blank, in, surprise, Surprise, Wikipedia, so who knows, maybe there will be an actual Wikipedia article about the subject itself by the time you read this).

From a review of Steve Blank’s book “The Four Steps to the Epiphany” by top UK Venture Capital Blogger Nic Brisbourne, AKA The Equity Kicker

“I read a fair number of business books and I blog about a few of the best of them (e.g. Taleb’s Fooled by Randomness, Cohen’s The Second Bounce, Perez’s Technological Revolutions) but as far as the readers of this blog go this book probably tops the lot for relevance and utility.  Put simply it is a great manual for startups, and if you are an entrepreneur, work at a startup, invest in startups, or even work with startups this book will help you to understand your work better and do a better job.”

Customer Development

A risk reduction methodology for early stage startups

Its premise is that startups are not smaller versions of large companies, instead these early stage ventures require new tools and techniques.

The key tenets of customer development are:

* Constant Contact with potential customers

* Continual Product Iteration by shipping as early as possible for product refinement based on customer feedback

Cash burn is kept low until the onset of adoption at which point additional funding can be sought to refine the model and to scale a proven model

Customer Development has four steps:

(1) Customer Discovery focuses on understanding customer problems and needs

(2) Customer Validation developing a sales model that can be replicated

(3) Customer Creation creating and driving end user demand

(4) Company Building transitioning the organization from one designed for learning and discovery to a well oiled machine engineered for execution

Customer Development works in parallel with Agile Development Methodologies to create products

A more recent book on the subject is:

The Entrepreneur’s Guide to Customer Development by Brant Cooper and Patrick Vlaskovits