====== Customer development strategies for startups: lessons from successful companies ======
 
By Derezovskiy Ilya (idderezovskiy@edu.hse.ru)
====== Introduction ======

It is a well-known fact that, according to statistics, about 90% of startups fail during the first few years of their existence. This is due to the fact that startups are emerging and developing in rapidly changing markets. They are faced with strong uncertainty and rapidly changing trends, and they have to look for solutions to previously unsolved complex and non-standard tasks [1]. In order to survive and achieve success in the long term, it is especially important for startups to quickly and correctly identify the real problems and needs of their customers and adjust the concept and functionality of their products or services in accordance with these needs. Successful companies have already proven that a reliable customer development strategy can reduce the gap in startup development between the initial idea and a viable business. In this essay, we will explore key customer development strategies and lessons learned from the experience of successful startups.

====== Understanding Customer Development ======
 
Customer development is the study of the client's needs by conducting special "in-depth" interviews. Such studies are conducted to test a project idea or a product prototype on a potential audience and understand how much the product will be in demand. The development of the client base allows you to create an accurate portrait of the client, correctly identify the real needs of the target audience and adapt the product to market demands — that is, to make a product for which customers will pay. The concept of customer development was popularized by Steve Blank in his book "The Four Steps to the Epiphany". Blank’s customer development model consists of four key stages: customer discovery, customer validation, customer creation, and company building [2]. This approach emphasizes a fundamental shift from assuming that a market exists for a product, to actively engaging with potential customers to validate their pain points and ensure that the proposed solution fits.

====== Customer Discovery: Finding the Real Problem ======
 
The first step in customer development is customer discovery, where startups seek to uncover who their customers are and what problems they are facing. This is very important because many startups fail by assuming they understand the market’s needs without conducting thorough research. According to research, startups that search for customers at an early stage of their work are more likely to succeed and bring their products in line with market needs [3]. In addition, research shows that customer search is an iterative process, it requires repeated hypothesis testing and refinement based on user feedback [2]. In this regard, an indispensable stage is the development of a «minimally viable product» (MVP), which allows for early testing and validation [4].

There are very good real-life examples where startups achieved their successes thanks to careful customer discovery. For example, famous all over the world startup //Airbnb// demonstrated the power of deeply understanding the customer problem. //Airbnb// founders originally created a platform to help people find temporary accommodation, but through direct customer interaction, they learned that their real value was offering a unique and authentic experience for travelers [5]. This insight led them to redefine their offering and market positioning. Airbnb is not cheap accommodation, as opposed to hotels, but a whole trip that allows guests to feel involved in the local environment. The rebranding helped Airbnb to break away from competitors, in particular from hotels, and created the right message for a new and existing audience.

====== Customer Validation: Testing the Hypothesis ====== 
Once a startup has developed its MVP, the next step is to validate whether the product truly meets the needs of its target market. In this stage, startups must answer key questions: Are customers ready to pay for this product? Will this product scale? And others. For example, some successful startups like //Dropbox// effectively validated their idea by creating a simple video explanation that demonstrated the product’s value offer. Through this strategy, //Dropbox// generated significant demand among users even before launching a full product.

Startups that use metrics-driven decision-making during the validation step significantly increase their chances of success [6]. Validating customer demand helps avoid the scaling prematurely. In addition, researchers highlight that customer validation is closely linked to long-term scalability [7]. Startups that cannot assess the needs of their customers often face the problem of inconsistency between the functions offered by the product and the expectations of customers, which leads to a high level of user churn.

Thus, early-stage verification can help a startup identify key customer segments and justify strategic decisions regarding product functionality and characteristics and market positioning.

====== Iterative Learning: The Power of the Pivot Customer ======
 
A key characteristic of successful startups is their ability to pivot based on the feedback gathered during customer discovery and validation stages. A pivot refers to a fundamental change in a startup’s business model, product, or market focus. It is important for startups to accept failures as part of their innovative development process [4]. Startups that pivot based on proven experience increase their chances of building a successful business model. //Twitter//, for example, started as a podcasting platform (Odeo) but pivoted to a microblogging service after customer insights showed greater demand for real-time communication [8]. Another good example is Slack which was originally developed as a game development tool but shifted focus based on customer feedback to become a business communication platform.

The ability to pivot quickly and efficiently is essential in adapting to changing market conditions. Entrepreneurs must embrace the idea that their initial product may not be the final solution and be open to continuous experimentation. This agility allows startups to refine their value proposition and achieve product-market fit.

====== Building Long-Term Customer Relationships ======

Customer development is not a one-time process but a continuous effort to nurture relationships with customers. After achieving product-market fit, successful companies shift their focus toward scaling and deepening their communication with users. Customer relationship management (CRM) strategies significantly impact customer lifetime value and retention rates [9]. Moreover, companies that foster strong relationships with their customers through continuous value delivery and engagement experience higher growth rates [10]. Companies such as //HubSpot// and //Salesforce// have built long-term customer relationships by delivering consistent value and creating ecosystems around their products. These companies focus on customer success by providing ongoing support, resources, and improvements based on customer needs [11].

Thus customer-centric strategies, such as community-building, personalized marketing, and customer support, help startups retain customers and generate new customers. It is important to note that it has been proven that companies using customer-centric strategies experience 60% higher customer retention rates than those focused primarily on acquisition [12]. Loyal customers are an invaluable asset, driving word-of-mouth growth and reducing marketing costs over time.

====== Scaling: Moving from Customer Development to Growth ======
 
After validating customer demand and building relationships, the final step in the customer development model is company building. This involves scaling operations to meet growing customer needs. Startups must ensure they have the necessary infrastructure, processes, and resources to support rapid growth. Many startups fail during this step due to ineffective planning or over-extension.

Successful scaling requires aligning product development, marketing, and sales efforts to maximize growth. According to research, startups need to prioritize key growth factors such as network effects, customer retention, and operational efficiency [6]. Startups like //Uber// achieved scale by rapidly expanding their customer base across multiple cities while maintaining product consistency and quality. //Uber’s// approach to scaling involved leveraging network effects, where the value of the service increased with more users on the platform [13].

At the same time, managing growth without losing focus on customer needs is the key to long-term sustainability. Therefore, it is very important to formulate a reliable value proposition that could adapt to different market segments as the startup scales [3].

====== Conclusion ======

In my opinion, customer development is a critical strategy for companies seeking to navigate uncertainty and achieve long-term success. It becomes clear that by focusing on customer discovery, validation, and continuous iteration, successful startups are able to pivot when necessary and build strong relationships with their customers. I think it's very important to consider the lessons from successful companies like Airbnb, Dropbox, and Twitter that demonstrates the importance of listening to your customers, validating hypotheses, and embracing change. Also, as academic research suggests, startups that invest in understanding their customers, refining their value propositions, and scaling effectively are more likely to thrive in competitive markets.

====== References ======

1.	Cantamessa, M., Gatteschi, V., Perboli, G., Rosano, M., 2018. Startups’ Roads to Failure.  https://doi.org/10.3390/su10072346

2.	Blank, S., 2013. The four steps to the epiphany: successful strategies for products that win. John Wiley & Sons. https://books.google.ru/books?id=oLL2pjn2RV0C&redir_esc=y

3.	Ghezzi, A., 2015. Lean Startup and the Business Model: Experimenting for the Entrepreneurs. International Journal of Innovation Management, 19(01). https://doi.org/10.1016/j.lrp.2019.06.002

4.	Ries, E., 2011. The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. Crown Business. eISBN: 978-0-307-88791-7. https://books.google.ca/books/about/The_Lean_Startup.html?id=r9x-OXdzpPcC
 
5.	Gallagher, L., 2017. The Airbnb Story: How Three Ordinary Guys Disrupted an Industry, Made Billions and Created Plenty of Controversy. Random House. https://books.google.co.in/books?id=O6_qDwAAQBAJ

6.	Eisenmann, T., 2013. Entrepreneurship: A Working Definition. Harvard Business Review. https://hbr.org/2013/01/what-is-entrepreneurship
 
7.	Kohler, T., 2016. Corporate accelerators: Building bridges between corporations and startups. Business Horizons, 59(3), 347–357. https://doi.org/10.1016/j.bushor.2016.01.008
  
8.	Schmidt, E., 2014. How Google Works. Grand Central Publishing. https://books.google.ru/books?id=fEJ0AwAAQBAJ&redir_esc=y

9.	Verhoef, P., 2013. Successful customer value management: Key lessons and emerging trends. https://doi.org/10.1016/J.EMJ.2012.08.001

10.	Reinartz, W., Kumar, V., 2012. Customer Relationship Management. Springer Berlin Heidelberg. https://link.springer.com/book/10.1007/978-3-662-55381-7

11.	Cusumano, M., 2010. Staying Power: Six Enduring Principles for Managing Strategy and Innovation in an Uncertain World. Oxford University Press. https://books.google.ru/books/about/Staying_Power.html?id=TDLxXPeHsA0C&redir_esc=y

12.	Zablah, A., 2012. How and When Does Customer Orientation Influence Frontline Employee Job Outcomes? A Meta-Analytic Evaluation. https://doi.org/10.1509/jm.10.0231

13.	Chen, M. K., Peter, E., 2019. The Value of Flexible Work: Evidence from Uber Drivers. Journal of Political Economy. https://doi.org/10.1086/702171