The Four Steps to the Epiphany - critical summary review

Have you got a great business idea and want to found a startup? Don’t know where to start? Blank’s “Four Steps to the Epiphany” is the ultimate startup guide. First published in the early 2000s, this book started the lean startup revolution. It’s a guide on how to build a successful startup, and how to make the leap from startup to successful company. Get ready to learn how your idea can be transformed into a lucrative business!

How to lead a successful startup business

When big companies launch a new product, they follow an established pattern. This is also known as the product development model. To put it simply, this shows how a product is developed in four phases: concept, development, testing and launch. Many startups follow this pattern as well. And while at first glance, this seems to be a helpful model, startups differ from established companies in one fundamental way: they do not have an established customer base yet.

To clarify this, compare the two startups Furniture.com and Design Within Reach. Both were developed around the same time, and both aimed at getting furniture to the customer more easily. But while Furniture.com was built on the assumption that an online catalogue would be handy for people, Design Within Reach created a physical catalogue for its customers, after consulting with them about their preferences. At its height, Design Within Reach was a $180-million public company, while Furniture.com failed miserably.

This demonstrates that focusing on the product alone will not bring a startup to success! Instead, startups should use the Customer Development Model alongside their product development. This is a flexible model involving four steps: Customer Discovery, Customer Validation, Customer Creation and Company Building.

Contrary to traditional product development models, the customer development model is iterative. It allows for, and even expects, failures along every step of the way before achieving success. “In this new methodology, you keep cycling through each step until you achieve ‘escape velocity’ and generate enough success to carry you out and into the next step.” 

The Customer Development Model changes according to the kind of market a company is wishing to enter. There are four types of startup markets: 

• Entry into an existing market
• Creation of an entirely new market
• Re-segmentation of an existing market as a low-cost entrant
• Re-segmentation of an existing market as a niche player

The aim of the Customer Development Model is to prove that your startup is pursuing a viable business concept and objective by constantly gathering feedback from customers and thereby adjusting and improving the product. Following the four steps rigorously will increase the company’s chance of success and will help take you and your startup to the epiphany.

Step 1: finding customers

The first step in the Customer Development Model is Customer Discovery. You want to test whether your business model is workable and whether your product meets customer needs and solves problems, to ascertain if you have a product/market fit.

The questions you should attempt to answer at this point of the process are: 

Who are the customers for your product? 

Is the problem you are proposing to solve with your product important to them? 

Take FastOffice as an example. In 1994, Steve Powell had an idea to create a new device for small offices and home offices, that would combine fax, voicemail, email, video, and phone calls in one device.

FastOffice developed the product, tried to sell it – and then realized it wasn’t selling. Guessing about what the customer needs is a common mistake made by many startups, and one that can easily be avoided by focusing on Customer Discovery first.

Most of the vision an entrepreneur has for his business and the selling of his product is an educated guess. Blank says startups usually start out as “faith-based enterprises.” To turn that faith into facts and to actually start selling a product, you have to get out there and face potential customers, partners and suppliers. 

Customer Discovery follows a four-phase approach. In Phase One, you write a series of briefs on the hypotheses surrounding your product. What is your product? How much does it cost? What can it do? Who are your customers? What’s the competition? 

Phase Two then tests these hypotheses in real life. You try marketing the product to real customers and listen to what they have to say about it. Collect feedback and revise your product based on that.

In Phase Three, you again market the revised product in front of customers. You’re not trying to sell the product, but instead trying to see if this is the kind of product your customers want. 

Finally, in Phase Four, you verify that you have developed a product that solves the customer’s problem - and that they will pay for it, resulting in a profitable business model. You do this by creating “a problem statement document, an expanded product requirement document, an updated sales and revenue plan, and a sound business and product plan.”

Step 2: developing a sales model

    Once you have found your customers in the first step, you are ready to start selling your product. However, it is much too early to create a sales team. You are still working with educated guesses as to who might buy your product, and when. The aim of the second step, Customer Validation, is to create a sales road map that can be followed by the future sales department.

Many startups make the mistake of delegating this step to a Head of Sales. In fact, both the CEO and the company’s founders should be out there, trying to sell the product. A successful startup starts marketing to the few who are already enthusiastic about the startup’s vision. These are the “earlyvangelists,” the evangelists that spread the word about your product and start advertising it through word-of-mouth. 

These are the people who will buy your product in a not-perfect state since it promises to solve an immediate and urgent problem for them. Earlyvangelists will only want to buy from you, however, if they can learn about your vision firsthand. Basically, “you will attempt to sell customers an unfinished and unproven product, without a professional sales organization.” 

So, how do you go about this?

Starting to sell your products requires careful planning. Begin by formulating a Value Proposition. What does your company stand for, and why should the customer care? Once you have done this, you can reach out to the earlyvangelists and try to sell them your product. It is essential to gather feedback at this stage, as this helps you to continuously update and refine your product. Do you truly have a product/market fit?

    The first two steps, Customer Discovery and Customer Validation serve to corroborate your business model. You should only move on once you have established a viable business model. This is also known as “scaling up and crossing the Chasm.”

Step 3: launching your product

    Once you have completed the first two steps, you are ready for Customer Creation: the creation of end-user demand. Proceeding to this step, after completing the first two, means that the company’s monetary resources have been protected - the heavy marketing only starts once a first customer base has been established.

Customer Creation varies from one startup to another, depending on which of the four Market Types you enter. Each market has different customer needs, a different kind of competition and different risks, and you consequently need to adjust, according to each. 

For example, if you are entering an existing market with your product, your aim should be to take as much of the market share as possible in your first year. For Customer Creation, this means focusing on creating demand for your product and acquiring new customers. You can achieve this by branding your product as credible and different – there are already lots of products like yours, so what makes your product unique?

To successfully launch your product in an existing market, you should use the “onslaught launch.” This is the kind of launch most start-ups use, but it really only is efficient if your aim is to gain the majority of the market share. It is extremely costly and makes use of all available demand-creation tools.

Launching the product and company in such a public way means you have “gotten the rocket off the pad.” Once you have launched the product, you should iterate and see if there are parts that can be optimized. Sometimes you may be in the wrong market, for example, if competitors are continually outperforming you.

You are ready to move on to the next step when your financial model is working and your sales go up in sync with your demand-creation efforts.

Step 4: building your company 

You have now launched your product and have started selling. To become successful, the fourth step of Company Building is essential. This will transform your company from one focused on learning and discovering into one designed to execute. It will cease being an informal, chaotic startup and will be transformed into a formal organization consisting of departments.

In this final step, you are also building your customer base. You started marketing to the early enthusiasts, but now it is time to hone your product so it appeals to a larger mainstream audience as well. Again, the market type you are entering will determine how you are growing your customer base. 

We’ll stick with the example of entering an existing market. Here, the chasm between earlyvangelists and mainstream customers is not great, if it exists at all, since your product merely provides a variation of an existing, established product. So, what you want to do is to relentlessly execute and exploit the market, while keeping a close eye on your competitors and your product lifecycle.

Company Building also means reviewing the management and creating a company culture. It means sharing your vision with your board and members and making sure this vision is supported by everyone. 

To do so, you’ll need to create a corporate mission statement. This is not the same as the mission statement you were working with to promote your company to investors or customers. This is an internal statement, outlining how you are going to cross the chasm between earlyvangelists and mainstream customers. It includes how you are going to grow your sales, what people should be doing while at work and when the company knows it has succeeded.

Make this mission statement part of the lifeblood of your company. It should be action-oriented to guide the daily actions of your company. Blanks says, “If you do it right, your corporate mission statement will help employees decide and act locally while being guided by an understanding of the big picture.” It is the job of the executive team to make sure that everyone working at the company feels like they are sharing a common purpose.

Another part of Company Building is to shift from the Customer Development team towards the formation of departments. The faster you make the transition, the more of an advantage you will have. 

Final Notes

To create a successful startup business, the focus should not only be on the product, but also on the customer. You should constantly be gathering feedback and refining your product to make sure that it will actually sell. Start by promoting it to early enthusiasts, the so-called earlyvangelists, before eventually building your customer base. Then, craft a mission statement, and organize the company into departments.

“The Four Steps to the Epiphany” is essential reading for anyone wanting to found their own startup and lead it to success.

12min Tip

If you are starting a business, make sure you have a product/market fit by constantly gathering feedback from potential customers.