Charter Customer Programs

Marty’s Note: Today we refer to this technique as the Customer Discovery Program, or sometimes Customer Development Program.  But when this article was first published, in 2007, the technique was called a Charter Customer Program.  Different names but same concept.  I have also updated the description of the technique to be consistent with what was described in INSPIRED in 2018.

Our job in the product organization is to create products that can sustain a business. Make no mistake about it: everything depends on strong products.

Without strong products, our marketing programs require customer acquisition costs that are too high; our sales organization is forced to get “creative” which drives up cost of sales, lengthens the sales cycle, and puts downward pressure on price; and our customer success organization is forced to take it on the chin every day with frustrated customers.

The downward spiral continues because the sales organization loses a lot of deals when they try to compete with a weak product. So, what do they do? They start yelling at you about all the features you don’t have, and the competitor they lost to who does, which typically just makes the bad situation even worse. And then you start complaining about working at a sales-driven company.

Many of you may be thinking I’ve just described your company. Sadly, I find this to be the state of affairs in far too many companies, especially those with either a direct sales organization or an advertising sales organization.

This article is intended to prevent or correct this situation.  I talk about what I consider one of the most powerful techniques we have to ensure and prove we have a strong, viable product and prevent the situation I’ve just described.

THE POWER OF REFERENCE CUSTOMERS

First, we need to talk about the nearly magical power of a happy, reference customer.

Let’s be clear about what it means to be a reference customer: This is a real customer (not friends or family), that is running your product in production (not a trial or prototype), that has paid real money for the product (it wasn’t given away to entice them to use it), and most important, they are willing to tell others how much they love your product (voluntarily and sincerely).

Please believe me when I say that there are few things more powerful to a product organization than reference customers. It is the single best sales tool you can provide to your sales and marketing organization, and it completely changes the dynamics between the product organization and the rest of the company.

Ask any good salesperson the single best tool you can provide to help her do her job, and she’ll say “happy, referenceable customers.”

If you find that you’re constantly frustrated by having to react to sales and the latest big-deal prospect they’ve managed to bring in, this is how you turn the situation around.

Without reference customers, it’s very hard for the sales team to know where the real product/market fit is. And remember—they have a quota and are paid by commission. So, without good examples, they will sell however and whatever they can. Without reference customers, this situation is not their fault—it’s your fault.

The reason I love the customer discovery program technique so much is because it is designed to produce these reference customers.

We are discovering and developing a set of reference customers in parallel with discovering and developing the actual product.

I will warn you that this technique takes substantial effort, primarily on the part of the product manager. I wish it were easier. But I will also say that if you do this technique, I consider it the single best leading indicator of future product success.

I will also say that this technique is not new, although every few years some influential person in the product world rediscovers its power and it gets attention once again. It also goes my multiple names. In any case, I’m convinced that everyone would do the technique if it didn’t require so much actual work.

There are four main variations of this technique for four different situations:

• Building products for businesses
• Building platform products (e.g. public API’s)
• Building customer-enabling tools used by employees of your company
• Building products for consumers

The core concept is the same for all four variations, but there are some differences. I’ll describe the variation for businesses first, and then describe the differences for each of the other uses.

I also need to point out that you would not do this program for small efforts like features or minor projects. This is for larger efforts. Good examples would be creating a new product or business, or taking an existing product to a new market or new geography, or a redesign of a product.

The basic driver behind this technique is that, with a significant new product, the most common objection is that prospective customers want to see that other companies, like themselves, are already successfully using the product. They want to see the reference customers. In general, the more reference customers the better, but too few and the prospective customer is worried that the product is a special and only works for those one or two customers.

For products and services aimed at businesses, I was taught years ago that the key number is six reference customers. This is not meant to be statistically significant—it is meant to instill confidence—and I have found that number has held up over time. Again, more than six would be even better, but we shoot for six because each one is a lot of work.

SINGLE TARGET MARKET

Now these are not just any six customers. We are looking to develop six reference customers in our specific target market or segment, so, the idea is to find six similar customers. If you end up targeting two or three customers from two or three different markets, this program will not give you the focus you want and need.

In the earlier chapters on product vision and strategy, we talked about the product strategy of pursuing a product vision by tackling one vertical market after another. For example, first develop six references for the financial services industry, then six for the manufacturing industry, etc. Or you can expand geographically in this same manner (for example, first develop six references for the US, then six for Germany, then six for Brazil, and so on).

In fact, I do my best to persuade teams to not launch a product in the marketplace until after they have those six referenceable customers. We don’t want to turn on the sales or marketing machine until we have evidence that we can help them be successful, and the reference customers are our best evidence.

The concept behind this technique is to focus on developing this set of reference customers for a specific target market, which then makes it easy for sales to go after those specific types of customers. Once we have those reference customers for that initial target market, we can move on to expanding the product to meet the needs of the next target market.

RECRUITING THE PROSPECTIVE REFERENCE CUSTOMERS

We want to end with six reference customers, so we’ll typically recruit between six and eight in case one or two turn out to be not a match or unavailable. We need them to be from the specific target market we are going after. They may be from your existing customer base, or prospects, or a blend.

We are looking for prospective customers that truly feel the pain and are near desperate for the solution we want to build. If they could find a solution that worked for them elsewhere, they would have already bought it.

However, it’s also important we screen out early adopters. These are people who are mainly interested because of the technology, not because they desperately need the business value.

We need them to have people and time willing to work closely with us. They need to be willing to spend time with the product team, testing out early prototypes, and helping the team ensure the product works well for them. If possible, we would like them to be well-recognized, marquee names, because that will be of the most value to the sales and marketing staff.

Coming up with the right set is normally something the product manager does in tight collaboration with the product marketing manager.

THE RELATIONSHIP

The benefit to the prospective customer is that they get real input, not lip service, to the solution—and most important, they get a solution that truly works for them.

The benefit to the product team is that you get ready access to a set of users and customers that you can go deep with and figure out a solution that will work for them. They’ve provided you access to their users. They have agreed to test early versions. And, what’s really important, they have agreed to buy the product and serve as a public reference if the resulting product works for them.

It’s critical to explain to each prospective member of the program that your job is to come up with a general product—something your company can successfully sell to a large number of customers. You’re not trying to build a custom solution that only works for that one company (and they wouldn’t want that in any case as they would be left with unsupported, dead-end software). You are, however, deeply committed to coming up with a product that works extremely well for them and just a handful of other companies.

Further, your job as product manager is not to put in the features that all six companies request. While that would be much easier, that would yield an awful product. Your job is to dive deep with each of the six customers and identify a single solution that works well for all six customers.

There are a number of important points to consider with this technique.

Not everyone agrees with me on this, but I don’t personally like the customer to pay in advance to participate in this program. That makes this a different type of relationship. You want a partner in coming up with the product. You do not want to build a custom solution just for them, and you’re not a custom project shop. You can take their money after you deliver them a product they love. That said, if you’re a very early stage startup with little cash, you may have to bend this rule just a bit. A compromise is to have them put the money into escrow.

If you are working on an important and difficult problem, you will likely be overwhelmed with customers that want to participate. It really is a good deal, and customers know this. If you have a sales organization, they’ll try to use this as a bargaining chip, and the result is that you’ll be leaned on to include many more customers than you can handle. This will take finesse at times, but it’s important that the members of the customer discovery program be the right set, and no more than eight. However, it’s no problem also having an early release program that is essentially unlimited for those customers that want the software early, but you determine aren’t right for the customer discovery program.

Note that in many cases you’ll get people who say they are extremely interested in this product, but they first want to see your references. When you explain you’re looking to work with them to become one of those references, they will probably say they are just too busy, but to come back once you have the references. That’s fine. They’re a useful lead. But we are looking for those customers that are so hungry and desperate for a solution that they will absolutely make time for this. Every market has this segment.

That said, if you find you are having real trouble recruiting even four or five prospective customers for this effort, then it’s very possible you’re chasing a problem that just isn’t that important, and you will almost certainly have a very hard time selling this product. This is one of the very first reality checks (aka demand validation) to make sure you’re spending your time on something worthwhile. If customers aren’t interested in this problem, you may want to rethink your plans.

You need to make sure your customers are truly from your target market and not more than one target market. A big benefit of this program is focus, and that means the customers are from a single target market.

You will want to work with your product marketing manager to ensure that the prospective customer has permission from their marketing organization to serve as a public reference. You will also want to keep your product marketing partner continuously involved in this program as she can help turn your reference customer into some great sales tools and collateral. But, remember, it is your job is to develop those actual reference customers—so be sure you deliver a product they love.

Think of these early prospective customers as development partners. You’re in this together. You need to treat them as colleagues—open the kimono, you are helping each other. You’ll find that the relationships you create can last for many years.

You will be interacting with these people throughout the effort—you’ll be showing them prototypes and testing with their users, you’ll be asking many detailed questions, and you’ll be testing early versions in their environment.

Make sure you release the delivered product to these people before the general release, and make sure they are live and happy before the release. When you launch, they’ll be ready to stand up for you.

Now let’s consider the common variations of this program for different types of products.

PLATFORM/API PRODUCTS

For developer products, the program is very much like the one for businesses, but the main difference is that we work with the development teams (engineers and product managers) that will use our APIs to get them successfully using our product. The result of the program is a set of reference applications rather than reference customers. We focus on the successful applications that are created with our APIs.

CUSTOMER-ENABLING TOOLS

 For customer-enabling tools, such as a new dashboard for your customer service agents, we pick six to eight well-respected, influential internal users/employees—the individuals that the other agents look up to as thought leaders—and we work closely with them to discover the necessary product. Obviously, they are not customers and not paying anything, but instead we ask them to work closely with us through product discovery to make this tool great. Once they believe that the product is ready, we ask them to tell their colleagues how much they love the new tool.

CONSUMER PRODUCTS

For consumer products, the same general concept applies. But, rather than focusing on six businesses to work closely with (where we have access to many different users at each customer), we instead focus on a somewhat larger number of consumers (on the order of 10-50) that we engage with to get them to the point that they are loving our product.

It’s important to emphasize that, for consumer products, we will need to supplement this program with much broader testing of our product ideas—typically with people that have never been exposed to the product. But it is often very helpful to have a smaller group of prospective users that we can go back to over time, and that’s what this is for.

In terms of marketing, when a consumer decides to buy or use a product, they may not look at reference customers like a business purchaser would. But they are affected by social media, the press, and other influencers, and when the press does write a story about your product, the first thing they’ll look for is real users.

SUMMARY

While you can see this may be a lot of effort, especially for the product manager, this powerful technique help ensures that you’re building a product that customers love.

Remember that this technique is not designed to discover the necessary product—that comes next. Rather, it is designed to give you direct access to the target customers where you’ll find the product ideas necessary to generate referenceable customers.