Customer Driven Development – hype or solid foundation for growth?

While many books have been written about starting and growing a business, two “gurus” arguably define the latest popular theories. Admittedly, it is technology focused, but we believe this can be applied to any type of business. The two gurus are Eric Ries and Peter Thiel.

We recommend you to read both books: “The Lean Startup” by Eric Ries and “From Zero to One” by Peter Thiel. At first sight, these two authors represent two, apparently, very conflicting theories or philosophies if you like. At Bluelago, we believe the two are actually very compatible and using the two together will create winning businesses.

Customer driven development: it is a much-used term in today´s management thinking. Ries explained in “The Lean Startup” his philosophy about how successful businesses are built. In this philosophy the customer is the focal point, not the technology one is developing. In fact, the inability to shift from a technology focus to customer focus, he says, is the single largest factor for companies to fail. Companies therefore have to find out what their customers want by asking them, presenting them with concepts, experiment and adjust the product or service until traction is found. Traction refers to the moment that there is evidence that you have a product-market fit. Popular terms as “Minimum Viable Product” and “Pivoting” are coming from Ries’s philosophy.

Thiel on the other hand is not very fond of Ries´s Customer Driven Development. He argues that it is merely “agnostic experimentation that is pretty much about doing surveys and asking customers what they want, and not really having a vision of your own”. His famous proclamation “Competition is for losers” pretty much completes the picture. Thiel is one of the founders of PayPal and a renowned investor. He was the first outside investor in Facebook and created Founders Fund, which invested in companies as LinkedIn, Yammer, Yelp, Quora and many more. So, are you a monopolist or are you a competitor? And who is right? Ries, who is all about creating products/services following customers expressed needs and desires or Thiel, who is all about creating monopolies, hence creating products/services that have never been built before and for which there is no existing market (at least potential customers do not yet realise they need the product/service).

At Bluelago we believe that Customer driven development is not about just doing what your customers tell you to do. This would imply you need to have customers in the first place or do lots of market research with clear product feature requirements as outcome. Neither of that is necessarily true. In many companies that we have worked with, the philosophy is often interpreted like that. The result is that not much happens until somebody expresses exactly what she needs. If you, at that stage, have to develop a product on the basis of these requirements, you are often too late. You are developing a product that will be available tomorrow, addressing yesterday´s needs. While in principle it is always a good idea to implement features requested by popular demand, the trick for real growth acceleration comes from developing products today that address tomorrow´s needs. You need a vision, you need to want to make something unique and you need to “sell” to your customers that they have a problem that you can solve for them. This is, in short, Thiel’s philosophy. The only difficulty is that nobody has a crystal ball and to create that “unicorn”, that idea that turns into a billion-dollar-company, it probably takes a million failed companies to get there…

We therefore believe that we need a new term to avoid confusion: “hypothesis driven product development”. It explicitly means that you are working from the basis of your own theory and by applying Ries´s philosophy you will need to test your hypotheses against your envisaged customers. There is nothing new about this and surely most successful companies are doing exactly this. Facebook’s immense success was not created overnight, nor was PayPal´s. Mark Zuckerberg started Facebook purely on the basis of his idea to create a digital interactive class register for his campus at Harvard. He launched the first working version of his product and got tremendous feedback. This led to the creation of the next iteration, what you could call the Minimum Viable Product. From here he developed the product and his business further to a gigantic success. Even Thiel´s PayPal actually shows a similar development path.

The commonality between these two approaches? They do things fast. They build, test, iterate and sometimes even “pivot” in a pace that it almost looks like their success was a straight path. And the only measure of success they use is customer acceptance, i.e. willingness to pay for your solution.

The difference? Timing and courage. They were first to market and were able to keep the lead. It takes courage to take the lead, as you will go into unknown territories. Another quote from Thiel: “Brilliant thinking is rare, but courage is in even shorter supply than genius.”

So whether you are building a “pain killer” or a “cure”, you need quick confirmation from your customers before you spend a ton of money only to find out nobody wants your product or service. If you are building a product for a highly competitive market, your product needs to be able to do the same thing much better, simpler or much cheaper (a “pain killer”). If you are building a product for a market that does not exist as of yet, you need to change the way things work and make people realise that what they have been doing so far is just wrong (a “cure”) – sometimes referred to as “disrupting an existing industry”.

What does this really mean in practice? Strategies are easy to write down when something has become a success. Those million business failures don´t make material for a book. Whether a business disrupted an industry is only an effect of a long series of events and actions. Success stories simply cannot be extrapolated to every company. Take a look at the popular business book “Good to Great”. Most of those companies mentioned by James Collins have since publication of the book under-performed compared to the index.

Unfortunately, there is no single theory or approach that defines successful product- and company development. However, combining best practices and new ideas in a smart way, while keeping a down-to-earth and flexible way of running and growing your business, has often proven to be a safe bet. Having constant insights into your current and/or future customers, their needs, desires, fears, behaviours, etc. will further help you determine your product development and marketing strategies.