Customer Development Update

I Write a Blog www.steveblank.com

This Talk is Based OnBusiness Model GenerationFour Steps to the Epiphany

The Lean Startup

This Talk

• What’s a Startup?• Search versus Execution• Entrepreneurship As a Mgmt Science• B-Schools = Large company mgmt• Incubators = the transition• E-School = the conclusion

First -What’s A Startup?

Six Types of Startups

Startup

Lifestyle Startups Work to Live their Passion

• Serve known customer with known product

• Pay for their passion

Small BusinessStartup

Small Business StartupsWork to Feed the Family

• Serve known customer with known product

• Feed the family

Small BusinessStartup

Exit Criteria- Business Model found- Profitable business- Existing team< €100K in revenue

Small Business StartupsWork to Feed the Family

• known customer known product

• Feed the family

Small BusinessStartup

- Business Model found- Profitable business- Existing team< $10M in revenue

Small Business Startups

• 5.7 million small businesses in the U.S. <500 employees

• 99.7% of all companies

• ~ 50% of total U.S. workershttp://www.sba.gov/advo/stats/sbfaq.pdf

ScalableStartup

Large Company

Scalable Startup

Goal is to solve for: unknown customer and

unknown features

Search

ScalableStartup

Large Company

Exit Criteria- Business model found- Total Available Market > €300m- Can grow to €50/year

Scalable StartupBorn to Be Big

Search Execute

ScalableStartup

Large Company

- Total Available Market > $500m- Company can grow to $100m/year- Business model found- Focused on execution and process- Typically requires “risk capital”

Scalable Startup

• In contrast a scalable startup is designed to grow big• Typically needs risk capital• What Silicon Valley means when they say “Startup”

Search Execute

ScalableStartup

Large CompanyTransition

Founders depart- Operating executives- Professional Mgmt- Process- Beginning of scale

The Transition – Founders Leave

BuildSearch Execute

ScalableStartup

€3 to 30M Acquisition

Buyable StartupBorn to Be Big

Goal is to solve for: Internet, Mobile, Gaming Apps

Search Sell

ScalableStartup

€3 to e0M Acquisition

Buyable Startup

Goal is to solve for: Internet and Mobile Apps

Search Sell

Sell to larger company

ScalableStartup

Large Company

- Business Model found- i.e. Product/Market fit- Repeatable sales model- Managers hired

What’s A Startup?

A Startup is a temporary organization used to search for a repeatable and scalable business model

Search Execute

Transition Large Company

ScalableStartup

Sustaining Innovation

• Existing Market / Known

customer• Known product feature needs

Large Company Sustaining InnovationInnovate or Evaporate

Large Company Disruptive Innovation

New Division Transition Large

Company

Disruptive Innovation• New Market• New tech, customers, channels

Large Company Disruptive Innovation

New Division Transition Large

Company

Disruptive Innovation• Build• Acquire - IP - Talent - Product - Customers - Business

Large Non-Profit

Social Startup

Social Entrepreneurship Startups

• Solve pressing social problems• Social Enterprise: Profitable• Social Innovation: New Strategies

Each of these startups require different skills

They Can Not Be Taught the Same Way

Search Versus Execution

Why Accountants Don’t Run Startups

ScalableStartup

Large CompanyTransition

Business Model found- customer needs/product features found i.e. Product/Market fit- Found by founders, not employees- Repeatable sales model- Managers hired

The Search for the Business Model

Startups Search and Pivot

ScalableStartup

Large CompanyTransition

- Business Model found- Product/Market fit- Repeatable sales model- Managers hired

- Cash-flow breakeven- Profitable- Rapid scale- New Senior Mgmt~ 150 people

The Search for the Business Model The Execution of the Business Model

Startups Search, Companies Execute

ScalableStartup

LargeCompanyTransition

Traditional Accounting- Balance Sheet- Cash Flow Statement- Income Statement

The Execution of the Business Model

Metrics Versus Accounting

ScalableStartup

LargeCompanyTransition

Startup Metrics- Customer Acquisition Cost- Viral coefficient- Customer Lifetime Value- Average Selling Price/Order Size- Monthly burn rate- etc.

Traditional Accounting- Balance Sheet- Cash Flow Statement- Income Statement

The Search for the Business Model The Execution of the Business Model

Metrics Versus Accounting

ScalableStartup

LargeCompanyTransition

Sales- Sales Organization- Scalable- Price List/Data Sheets- Revenue Plan

The Execution of the Business Model

Customer Validation Versus Sales

ScalableStartup

LargeCompanyTransition

Customer Validation- Early Adopters- Pricing/Feature unstable- Not yet repeatable- “One-off’s”- Done by founders

Sales- Sales Organization- Scalable- Price List/Data Sheets- Revenue Plan

The Search for the Business Model The Execution of the Business Model

Customer Validation Versus Sales

ScalableStartup

Large CompanyTransition

Product Management- Delivers MRD’s- Feature Spec’s- Competitive Analysis- Prod Mgmt driven

The Execution of the Business Model

Customer Development VersusProduct Management

ScalableStartup

Large CompanyTransition

Customer Development- Hypothesis Testing- Minimum Feature Set- Pivots - Founder-driven

The Search for the Business Model The Execution of the Business Model

Customer Development Versus Product Management

Product Management- Delivers MRD’s- Feature Spec’s- Competitive Analysis

ScalableStartup

Large CompanyTransition

The Execution of the Business Model

Engineering Versus Agile Development

Engineering- Requirements Docs.- Waterfall Development- QA - Tech Pubs

ScalableStartup

Large CompanyTransition

Agile Development- Continuous Deployment- Continuous Learning- Self Organizing Teams- Minimum Feature Set- Pivots

The Search for the Business Model The Execution of the Business Model

Engineering Versus Agile Development

Engineering- Requirements Docs.- Waterfall Development- QA - Tech Pubs

ScalableStartup

Large CompanyTransition

Business Plan- Plan describes “knowns”- Known features for line extensions- Known customers/markets- Known business model

The Execution of the Business Model

Startups Model, Companies Plan

ScalableStartup

Large CompanyTransition

Business Model- Unknown customer needs- Unknown feature set- Unknown business model- Model found by iteration

The Search for the Business Model

Startups Model, Companies Plan

The Execution of the Business Model

- Plan describes “knowns”- Known features for line extensions- Known customers/markets- Known business model

ScalableStartup

Large CompanyTransition

Startups Are Not Small Versions of Large Companies

BuildSearch Execute

Yet our curriculums assume they are – we teach that the knowledge is interchangeable

The Business Model:

Any company can be described in 9 building blocks

CUSTOMER SEGMENTS

which customers and users are you serving?

which jobs do they really want to get done?

VALUE PROPOSITIONS

what are you offering them? what is that getting done for them? do they care?

CHANNELS

how does each customer segment want to be reached? through which interaction

points?

CUSTOMER RELATIONSHIPS

what relationships are you establishing with each segment? personal? automated? acquisitive?

retentive?

REVENUE STREAMS

what are customers really willing to pay for? how?

are you generating transactional or recurring revenues?

KEY RESOURCES

which resources underpin your business model? which assets are essential?

43

KEY ACTIVITIES

which activities do you need to perform well in your business model? what is

crucial?

KEY PARTNERS

which partners and suppliers leverage your model?

who do you need to rely on?

COST STRUCTURE

what is the resulting cost structure? which key elements drive your costs?

46images by JAM

customer segments

key partners

cost structure

revenue streams

channels

customer relationships

key activities

key resources

value proposition

sketch out your business model

sketch out your business models

But,Realize They’re Hypotheses

9 Guesses

Guess Guess

Guess

Guess

GuessGuess

Guess

GuessGuess

Customer Development

Get Out of the Building and Search for the Business Model

The founders

^

The Customer Development Process

Customer Discovery

Customer Validation

Customer Creation

Company Building

Pivot

The Customer Development ProcessCustomer Discovery

Customer Discovery

Customer Validation

Customer Creation

Company Building

Bus Model Canvas

Extract Hypotheses Test Problem Test Solution Pivot or

Proceed

Customer Discovery: Physical/Web

Bus Model Canvas

Extract Hypotheses Test Problem Test Solution Pivot or

Proceed

Customer Discovery

Bus Model Canvas

Extract Hypotheses Test Problem Test Solution Pivot or

Proceed

Customer Discovery - Physical

Bus Model Canvas

Extract Hypotheses Test Problem Test Solution Pivot or

Proceed

• TAM/SAM• Product MVP• Customers• Channel • Market Type• Customer Relationships: Get/Keep/Grow• Key Resources• Partners• Pricing

Customer Discovery - Web

Bus Model Canvas

Extract Hypotheses Test Problem Test Solution Pivot or

Proceed

• TAM/SAM• Low Fidelity MVP• Customers/Source• Channel • Market Type• Customer Relationships: Acquire/Activate• Traffic Partners• Pricing

Customer Discovery - Physical

Bus Model Canvas

Extract Hypotheses Test Problem Test Solution Pivot or

Proceed

• TAM/SAM• Low Fidelity MVP

• Customers• Channel

• Market Type• Cust Relationships

• Traffic Partners• Pricing

• Customer Contacts• Problem Understanding• Customer Understanding• Market Knowledge

Customer Discovery - Web

Bus Model Canvas

Extract Hypotheses Test Problem Test Solution Pivot or

Proceed

• TAM/SAM• Low Fidelity MVP

• Customers• Channel

• Market Type• Cust Relationships

• Traffic Partners• Pricing

• Customer Engagement• Test Low Fidelity MVP• Customer Understanding• Traffic & Competitive Analysis

Customer Discovery - Physical

Bus Model Canvas

Extract Hypotheses Test Problem Test Solution Pivot or

Proceed

• TAM/SAM• Low Fidelity MVP

• Customers• Channel

• Market Type• Cust Relationships

• Traffic Partners• Pricing

• Update Bus Model• Create Prototype/Prod Presentation• Test Solution with Customer• Update Business Model• 1st Advisory Board Members

Customer Discovery - Web

Bus Model Canvas

Extract Hypotheses Test Problem Test Solution Pivot or

Proceed

• TAM/SAM• Low Fidelity MVP

• Customers• Channel

• Market Type• Cust Relationships

• Traffic Partners• Pricing

• Customer Engagement• Test Low Fidelity MVP

• Customer Understanding• Traffic & Competitive Analysis

• Update Bus Model• Test High Fidelity MVP• Measure Customer Behavior• Update Business Model• 1st Advisory Board Members

Customer Discovery – Web/Physical

Bus Model Canvas

Extract Hypotheses Test Problem Test Solution Pivot or

Proceed

Verify the:• Value Prop• Cust Segment• Cust Relationships• Channel• Revenue Model• Pivot or Proceed

• TAM/SAM• Low Fidelity MVP

• Customers• Channel

• Market Type• Cust Relationships

• Traffic Partners• Pricing

• Customer Engagement• Test Low Fidelity MVP

• Customer Understanding• Traffic & Competitive Analysis

The Customer Development ProcessCustomer Validation

Customer Discovery

Customer Validation

Customer Creation

Company Building

Get Ready to Sell Sell, Sell, Sell Positioning Pivot or

Proceed

Customer Validation - Web

Get Ready to Sell Sell, Sell, Sell Positioning Pivot or

Proceed

Pivot

Customer Validation - Physical

Get Ready to Sell Sell, Sell, Sell Positioning Pivot or

Proceed

• Craft Positioning• Develop Sales Materials• Hire “Sales Closer”• Sales Channel Action Plan• Refine the Sales Roadmap• Formalize advisory board

Customer Validation - Web

Get Ready to Sell Sell, Sell, Sell Positioning Pivot or

Proceed

• Craft Positioning• Acquire/Activate Plans and

Tools• Build High Fidelity MVP• Build Metrics Toolset• Hire data analytics chief • Formalize advisory board

Customer Validation - Physical

Get Ready to Sell Sell, Sell, Sell Positioning Pivot or

Proceed

• Craft Positioning

• Acquire/Activate Plans• Build High Fidelity MVP

• Build Metrics Toolset• Hire data analytics chief • Formalize advisory board

• Find Earlyvangelists• Test Sell – Out of the Building• Refine Sales Roadmap• Test Sell Channel Partners

Customer Validation - Web

Get Ready to Sell Sell, Sell, Sell Positioning Pivot or

Proceed

• Craft Positioning

• Acquire/Activate Plans• Build High Fidelity MVP

• Build Metrics Toolset• Hire data analytics chief • Formalize advisory board

• Prepare Optimization Plans & Tools

• Out of the building Activation Test• Measure and Optimize Results• Test Sell Traffic Partners

Customer Validation - Physical/Web

Get Ready to Sell Sell, Sell, Sell Positioning Pivot or

Proceed

• Craft Positioning• Acquire/Activate Plans

• Build High Fidelity MVP• Build Metrics Toolset

• Hire data analytics chief • Formalize advisory board

• Prepare Optimization Plans• Out of the building Activation

Test• Measure and Optimize Results

• Test Sell Traffic Partners

• Company Positioning• Product Positioning• Validate Positioning

Customer Validation - Physical/Web

Get Ready to Sell Sell, Sell, Sell Positioning Pivot or

Proceed

• Craft Positioning• Acquire/Activate Plans

• Build High Fidelity MVP• Build Metrics Toolset

• Hire data analytics chief • Formalize advisory board

• Prepare Optimization Plans• Out of the building Activation

Test• Measure and Optimize Results

• Test Sell Traffic Partners

• Assemble Data• Validate Business

Model• Validate Financial

Model• Pivot or Proceed

The Minimum Viable Product (MVP)

• Smallest feature set that gets you the most …

- orders, learning, feedback, failure…

The Pivot

• The heart of Customer Development

• Iteration without crisis

• Fast, agile and opportunistic

Pivot Cycle Time Matters

• Speed of cycle minimizes cash needs

• Minimum feature set speeds up cycle time

• Near instantaneous customer feedback drives feature set

The Pivot

A Pivot is the change of one or more Business Model Canvas Components

The Pivot

A Pivot is the change of one or more Business Model Canvas Components

OB/GYNsPCPs

Direct Sales to hospitalsDistributor

Strong clinical data

TrainingMaintenanc

eConferences

CME courses

Product DevelopmentClinical trials

Operating CostsMarketing Costs

Capital Equipment Sales and disposable

itemPer use fees

Product Developmen

tIP

Clinical trialsFDA

Publishing

IP Leading doctors

Technical Expertise

Leading doctors

Key Opinion Leaders3rd party

manufacturersDistributors

Breast Cancer Foundations

ACOGACS

Doctors:Earlier

detectionPrice

Accuracy

Patients:Radiation

FreeNon-Invasive

Thanks

www.steveblank.com