You can listen to your customers, but you shouldn't always believe them, especially when they're telling you what new products they need. "Customers know their problems, but they don't necessarily know the solutions, and the ones they suggest are often wrong," says Zenas Hutcheson of Boston-based Hutcheson & Co., a firm that has advised numerous technology companies with failed products. "They are very good at evaluating your performance as a vendor. They can recommend modest enhancements. What they can't do is tell you the next level of product development required to meet a particular need."
To determine what customers really need (as opposed to what they think they need), you have to understand the economics of their operations, advises Hutcheson. That means understanding their processes, examining alternative solutions, and figuring out what the product is actually worth to them.