I’m certainly guilty of it. I’ve built several apps and sites based solely on my own intuition and needs. Apparently my intuition is wrong about 60% of the time; no customers were beating down the door for the new products. I naively thought that building apps was like building a baseball field in Iowa… you just build it and people start showing up.
I was lucky enough to be successful with the first 2 companies that I started. With that experience in hand I believed that I would surely be successful the third time if I followed the same formula: Get some traffic and people will pay you. I wasn’t so lucky with my 3rd company… the old formula wasn’t working and I didn’t know why.
The Old Formula
In the past, when advertising was relatively cheap, you could afford to advertise/optimize yourself into a success. It was vastly cheaper to advertise with Google Adwords 5-6 years ago. I distinctly remember bidding $1.00-$1.25/click on highly competitive keywords that would now cost $5.00-$8.00/click. At the current rates it’s difficult, at best, to keep CPA (cost per acquisition) at a level that’s profitable.
When PPC advertising was more affordable you could buy hundreds of targeted clickthroughs per day. For most companies 200-300 visitors per day is enough to grow and be profitable. I’m not taking into account things like customer retention rates and target audiences, even though those are certainly key factors in determining how profitable a company can ultimately be. For a product that can have a mass-market appeal, having lots of traffic generally equals success.
Now, with the drastic cost increases for PPC, you have to start looking at alternative methods for reaching your targeted audience. Customer development (or #custdev on Twitter) is all about helping you find your targeted customer, whether that customer is a business or a consumer. It’s a “scientific” process that will help you hone in on exactly who your particular product is the most attractive to through iteration and constant contact with customers.
The information that you learn from your early customers (early adopters, alpha-testers, whatever term you like) is invaluable in helping you find the right marketing methods and audience for your product. If, for example, you create an email delivery service targeted to small businesses you may find that something unexpected, like churches, may be your best customers. Those learnings can help you re-focus your product, advertising, or marketing efforts.
Customer development, when used properly, helps you identify that market segments best suited for your product. Compared to the wide-band approach of PPC advertising, custdev is inexpensive and yields more targeted leads, which is increasingly crucial as the number of web companies continue to grow and competition for a user’s attention grows exponentially tougher.
There are many great resources for customer development out there already. If you’re interested in custdev then take some time looking through the following highly recommended sites.
What is Customer Development by Eric Ries
The Four Steps to the Epiphany (Affiliate Link) by Steve Blank
I plan on writing a lot more about custdev in the coming weeks, getting a little more in-depth along the way. Custdev is a way of laying a scientific approach on top of traditional business problems like customer acquisition. These methods speak very clearly to and my mathematical background. I only wish I would have utilized customer development principles in my last couple of projects. It’s not a perfect solution, or a one-size fits all solution, but it’s generally far better than the build-it-and-hope-for-the-best strategy.