Develop your value proposition and business model using customer validation

Identifying a sustainable business model is a critical but sometimes elusive step for many startups.

The “customer validation” process described by Steven Blank in his book, The Four Steps to the Epiphany, offers startups a way of developing the insights required to design your business model using Osterwalder’s Business Model Canvas.
Customer validation is the second step of the Customer Development Model (with the first step being “customer discovery.”)

Value proposition comes before the business model

Before you can design your business model, you must first develop your value proposition.

The customer discovery process will help you build and validate your value proposition as well as your target customer profile and product solution. Once this is done, you are ready to commence the customer validation process.

Why undertake a customer validation process?

The objective of this customer validation process is to validate your sales process and the assumptions that underpin your business model.

In other words, customer validation is a critical step that needs to be undertaken before you grow your venture.
In his book, Blank describes customer validation as a “method that allows you to develop a predictable sales process” and suggests that you should not scale the business until you have developed a solid understanding of a repeatable sales process.

The nature and importance of customer validation strongly suggests that this is an undertaking that should involve the company’s top management. Customer validation consists of four phases, described below.

Phase 1 of customer validation: Preparing to sell

This first phase is about using the insights generated in the customer discovery process, starting with your value proposition. Make sure you prepare:

• Any sales materials required in order to present to customers, including your website, price lists, product data sheet and customer presentation
• A preliminary list of marketing material
• A preliminary channel strategy
• A preliminary sales road map based on information learned during the customer discovery process
• An agreement between your product development and customer development teams on product features and the progress plan

Phase 2: Selling to visionaries

The purpose of this phase is to land a handful of deals that validate your value proposition and sales road map. At this stage, your target customers are those Blank calls “Earlyvangelists”; Geoffrey Moore describes them as “Visionaries” in his book, Crossing the Chasm. It is important to bear in mind that just a few deals will provide sufficient validation at this stage. Regard any failures as an opportunity to learn more and improve the process.

Phase 3: Determining your positioning

The validation achieved in phase 2 will provide you with information that can be used to develop your positioning statement. Test your positioning statement on industry insiders for comments and constructive criticism.

Phase 4: Verifying your validation process

As in the customer discovery process, the final phase in the customer validation process is designed to incorporate learning from the first three phases and have you examine the progress made so far. The main question to answer at this point is the extent to which you achieved your objectives for customer validation. The following will help you gauge your response:

• Did you sell enough to validate your value proposition?
• Have you identified a profitable and sustainable sales and business model?
• Did you develop sufficient insights to scale your business?

The outcome of phase 4 can take you in one of three directions:

1. If you answered “yes” to all the questions above, you achieved the objectives of the customer validation process. You are ready to move to the start your activities to generate demand for your product.
2. If you answered “yes” to only the first question, but “no” to either of the other two, change your sales approach and do another round of the customer validation process (starting with phase 1).
3. If you answered “no” to the first question, likely something in the customer discovery step was not quite right. Start that process again or consider exiting the business at this stage.

The output of the customer validation process is a sales roadmap that has been validated. The sales roadmap answers questions such as:

• Who are the stakeholders involved in the customer’s buying process?
• Who typically plays the roles of influencer and economic buyer?
• What are the stages and the length of the sales cycle?
• What is the profile of the typical buyer?
• What is the best sales strategy?

The insights developed as part of the customer validation process, can in turn be used to populate your Business Model Canvas.