Most of the time I develop my characters first. It is not a conscious or intentional act, it just happens. My characters develop in my head while I am working on other stories and then I shape the story around the character. Now, for most writers this is counter-intuitive. After all, it is all about the story, right? But the characters' actions and thoughts are what make the story. How the character thinks or behaves shapes the decisions that they make. It is absolutely possible to create the story then develop the character, based on how the story is meant to go and a lot of my writer friends do exactly this. If you choose to write your story this way then it is even more important for you to take a step back and take the time to develop your characters. There are many techniques for developing characters. I use many of these techniques myself and so it doesn't matter whether you choose to develop your characters first or the story first as long as you develop both!
First step, you need to give your characters names. One of the things about movie scripts that drives me crazy is that they often don't give secondary characters names. And for what it is worth, Shakespeare had it all wrong. Names are important! Your character's first introduction is often by their name. So unless you are intentionally trying to be ironic, you would not name a big, hulking, girl Grace, nor would you name the tough guy Nordstrum.
The next step is to define your character's physicality. There are many options available to do this. You may pull from everyday people that you know or pull from actor's pictures. The danger in this is that the person's personality may bleed through into your character. (which is not necessarily a bad thing!) If you are handy with other art media, you may choose to draw your own character. I had a friend who was such a good artist she really could have done comic books! But if neither of these options appeal to you, then you can simply write out their physical descriptions. Be as detailed and thorough as you can, even if you will not describe them in such detail in the book. The more real they are to you, the easier it will be for you to make them real to your audience.
The third step is to establish their personality. As logical and practical as this might seem, a lot of people get stuck with this. This step is the most crucial and often the most difficult because if you don't know your character's personality it becomes almost impossible to explain why they make the choices they make. You have to define their whole self so that when they do things, you can know if this is out of the norm for them and if so why they would make that choice. I have known writers who go WAY overboard with this to the point of defining their favorite food, establishing a birth date, their favorite color and everything. It seems obsessive, but Booth from Bones likes pie. They make a point to stress it. How could that possibly be important? He is a tough guy, all-American and he likes pie. Plus you know there is something deeply wrong when he doesn't order pie. Yeah, details can be important!
And even if those details are never given in the actual story, they help you to think of the character as a full and real person. If you cannot do that, then how can you expect your readers to do that? And as we established last week, if your readers don't do that then they won't connect. If they don't connect, the book becomes irrelevant. Our personality is what defines us and it is, more than anything, what will define your characters. That is the beauty of writing, this is a medium that has the exclusive privilege of not being driven by looks. We need to make sure that our character's personality is as rich and as fully developed as possible because it is their personality that will guide every decision they make, not their looks. It is their personality that drives the plot.
Finally, you must establish the characters' relationship to one another. Again, there are many ways to do this, but often it helps to have a visual aid. Especially if you have a large cast of significant characters that you are working with. My current method is to draw a chart (sort of like the story webs we had to do when coming up with a theme for a paper. you can also do this with their personality.) But I recently saw this really neat method that another author I know uses and I REALLY want to try it. She has a whole wall devoted to a cork board. (I would probably go with dry-erase) and she puts her characters' bios up and attaches them with color-coded string to establish their relationships. Then she has enough room to plot out the major story points across the board. It is amazing because at any point she can simply look up at her board if she is in confusion about something that she is writing.
And lets be honest, as writers sometimes we do get confused. We have fifty different options for our story going on in our head at any given time and having to flip back to this page or that page to remember if someone was supposed to be a cousin or an uncle is a bit frustrating. Problem is that if we don't pay attention to the details, then the reader will be even more confused. They don't have fifty different story options in their heads, they only have the one story option you present. They catch the little detail points that editors and even agents might miss. We readers are some of the smartest people out there. We are detail-oriented and we want it as real as possible. We will notice if someone starts out as a brother then becomes a best friend in the middle of the story because the moment we read brother we attach significant familial importance to that character and through our own interpretations develop beyond what the author says and infer things about their relationship. When that relationship changes it damages our conceptions of the world we are being drawn into and challenges the potential reality of that world.
So go and develop detailed characters that people will care about and your job is almost done! Now all you have to do is come up with a challenging story line that is unique and independent, write the story and edit the story until you don't catch any more mistakes. Then you simply write a synopsis that will grab people, write a query letter that is unique and original and can sell your story, find an agent and then find a publisher. Piece of cake!!