To get out of the building or not? That is the question: The benefits (and costs) of customer involvement during the startup process

Abstract

Nascent entrepreneurs are frequently advised to “get out of the building” and consult with customers before any serious efforts to develop new products or services are undertaken so they can understand what their potential customers really want/need. Despite the intuitive nature of this advice, it lacks theoretical and empirical bases. As such, the worldwide popularity of the movements this approach has spawned, such as Customer Development and Lean Startup, seems to rest on the unfounded assumption that the benefits of involving customers outweighs any costs. Thus, we theorize about the pros and cons of involving customers early on in the startup process and empirically test our model using data from the PSED II. Our findings suggest that while involving customers early will help entrepreneurs create offerings customers are willing to pay for, it also results in potentially costly delays in the launch of those offerings. We also find that these benefits and costs are magnified when innovativeness is high.