customer development: the second decade by bob dorf
Post on 17-Oct-2014
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Customer Development: The Second Decade(aka Why Accountants Don’t Run Startups)
Bob Dorfserial entrepreneur, startup advisor, partner, “supporting author”
www.steveblank.com
©2010 K+S Ranch Consulting Inc.
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…Is there a roadmap?
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ScalableStartup
Large CompanyTransition
- Business Model found- i.e. Product/Market fit- Repeatable sales model- Managers hired
What’s A Startup?
A Startup is the temporary organizationused to search for
a scalable business model (c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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ScalableStartup
Large Company>$100M/year
- Total Available Market > $500m- Company can grow to $100m/year- Business model found- Focused on execution and process- Typically requires “risk capital”
Scalable Startup
• Designed to grow big• Typically needs risk capital• How this room defines “Startup”
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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Small BusinessStartup
ScalableStartup
Large Company
Venture Firms Invest in Scalable Startups
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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ScalableStartup
Large CompanyTransition
- Founders depart- Professional Mgmt- Process- Beginning of scale
What VC’s Don’t Tell You:The Transition – Founders Leave
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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not quite the beginning of startups, but…
100 Years Ago in Detroit
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ScalableStartup
Large CompanyTransition
Inventor of the Modern Corporation
Alfred P. Sloan
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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ScalableStartup
Large CompanyTransition
Alfred P. Sloan
General Motors, President/Chairman• Cost Accounting• MIT’s Sloan School• Sloan Kettering• Kettering Institute
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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ScalableStartup
Large CompanyTransition
Founder of General Motors
Billy Durant
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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ScalableStartup
Large CompanyTransition
Billy Durant
- Leader in horse-drawn buggys- Fired by board, starts Chevrolet- Regains control of GM - Fired again, GM ~$3.6 billion*
* GM Net sales in 1921 $304.5M = $3.6 Billion today
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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ScalableStartup
Large CompanyTransition
Durant vs Sloan
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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Durant vs. Sloan
• Dies, rich, honored and famous
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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Durant vs. Sloan
• Dies, rich, honored and famous• Dies penniless…
…managing a bowling alley
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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Durant vs. Sloan
• Dies, rich, honored and famous• Dies managing a bowling alley
Accountant
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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ScalableStartup
Large CompanyTransition
You are here
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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50 Years Ago in Detroit…
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ScalableStartup
Large CompanyTransition
GM Owns the U.S. Car Market
Roger B. Smith
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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ScalableStartup
Large CompanyTransition
Roger B. Smith
General Motors, President/Chairman- GM >50% market share- Knew what the customer wanted- 5 years to bring a car to market- Huge inventories eliminate stoppages
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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ScalableStartup
Large CompanyTransition
Founder of Toyota and Lean Production
Kiichiro ToyodaTaiichi Ohno
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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ScalableStartup
Large CompanyTransition
Toyoda and Ohno
• Taught by Americans post WWII• Couldn’t afford inventory like US
auto companies• Toured GM plants and…• Built Kaizen/lean manufacturing• Toyota Lean Production System
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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ScalableStartup
Large CompanyTransition
1960: Agile, Lean, Customer Centric
• Short runs vs. Long option lists• Agile Product Development• Lean Manufacturing• Continuous Improvement• Customer Development … talk about ”a day in the life”
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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Toyoda/Ohno vs. Smith
• Integrate Customer Development vs. Options• Agile Development plus Lean Manufacturing• U.S. Market share goes from 0 to 20%
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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Toyoda/Ohno vs. Smith
• Buys $35 billion of Japanese robots to “fix” GM
• Market share drops 50% to <25%
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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Toyoda/Ohno vs. Smith
Accountant
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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Toyoda/Ohno vs. Smith
You are here
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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10 Years Ago in Silicon Valley…
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More startups fail from a lack of customers than from a failure of product development
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Yet All We Had WasThis…
Concept/Seed
Round
Product Dev.
Alpha/Beta Test
Launch/1st Ship
New Product Introduction Model
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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Traditional Product Introduction:Two Implicit Assumptions
Concept Product Dev.
Alpha/Beta Test
Launch/1st Ship
Customer Problem: known
Product Features: known
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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This Was A Plan For Failure
• Long-term “lockdown” of Product Development/Engineering• Assumed we understood customer problem/product solution
– But they are hypotheses– the facts were outside the building
• Sales & Marketing focused on execution to First Customer Ship– Costs and burn rate became front loaded– Execution & hiring predicated on business plan hypothesis
• Financial projections assume success– Heavy spending hit if product launch is wrong– Failure always a bad reflection on Management, Board, Investors
You don’t know if you’re wrong until you’reout of business, out of money, or (usually) both!
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8 Startups later,Steve Blank Drew This…
CustomerDiscovery
CustomerValidation
Company Building
Customer Creation
“Do-Over”
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Which Turned Into A Model
Product Introduction Model
became
Concept Product Dev.
Alpha/Beta Test
Launch/1st Ship
Customer Development
CompanyBuilding
CustomerDiscovery
CustomerValidation
Customer Creation
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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Customer Development:“one (great) entrepreneur’s theory,” 2001-2003
CustomerDiscovery
CustomerValidation
Company Building
Customer Creation
Pivot
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Customer Development: happy 10th birthday…extensive “real world” deployment…morphed, tested, debated: CE0s, CM0s, VCs, MBAs…and a “slight” investment cycle change since ‘01-3!
CustomerDiscovery
CustomerValidation
Company Building
Customer Creation
Pivot
…a very short Customer Development overview
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• Stop selling, start listening• Test your hypotheses• Continuous Discovery and Feedback• Done by founders…OUTSIDE the building!
Customer Discovery
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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Customer Validation
Customer
Discovery
CustomerValidatio
n
Customer Creation
CompanyBuilding
• Repeatable and scalable business model?• Passionate Earlyvangelists?• Return to Discovery absent passionate customers
Do-Over
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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The “Do It Again” Loop
• Iteration was at the heart of Customer Development
• Fast, agile and opportunistic
• (Almost) celebrate failure…whenever it’s instructive
• But it didn’t have a name “Do over” is just so juvenile
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Customer Creation
• Creation comes after proof of sales
• Spend to scale based on FACTS, not Hypotheses
• Begins only with repeatable, scalable processes for sales, marketing, demand creation
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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Company Building
CustomerDiscovery
CustomerValidation
Customer Creation
Company
Building
• (Re)build company, management, infrastructure• (Re)visit the mission• Go Global• Get a Porsche (or a Towncar)rganization & management
• Re look at your mission(c)2010 K+S Ranch
Consulting Inc. www.steveblank.com
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So what’s new since 2003??
• Customer Development startups have surged
• Customer Development “Rules” emerged
• Key Customer Development approaches have
converged
• Product Development cycle times submerged
• …and easy money has been purged
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5 Years Ago…
(c)2010 K+S Ranch Consulting Inc. www.steveblank.com
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Eric Ries Extends the Model
• Took Steve’s class at U.C. Berkeley • Co-founded IMVU
- Ditched Waterfall and paired Customer Development with an Agile Development Model
- Used off-the-shelf commodity software stack
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Eric Ries: Insight 1Engineering acts as if features are “known”
Solution: known
Waterfall
Requirements
Design
Implementation
Verification
Maintenance
Problem: known
Concept/Seed
Product Dev.
Alpha/Beta
Launch/Ship
• Eric observed the solution was unknown in a startup• Waterfall process could only build known features
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Eric Ries: Insight #2Match Agile Dev to Customer Dev speed
Concept/Seed
Product Dev.
Alpha/Beta
Launch/Ship
• Agile was the development methodology to use when the product solution was unknown
Solution: unknown
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(c)2010 K+S Ranch Consulting Inc. www.steveblank.com
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New #1: Eric Ries: Insight 3
Customer + Agile + Commodity = Lean
Problem: Unknown Solution: Unknown
Source: Eric Ries
• Solving customer + feature unknowns is the “Lean Startup”
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New #2: Reduced Cycle TimesJohn Boyd Insight: The OODA “Loop”
Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback and other phenomena coming into our observing window.
FeedForward
CulturalTraditions
GeneticHeritage
NewInformation Previous
Experience
Analyses &Synthesis
Feedback
Feedback
Orient
Decision(Hypothesis)
FeedForward
ImplicitGuidance& Control
Decide
Action(Test)
UnfoldingInteraction
WithEnvironment
Act
FeedForwardObservations
ImplicitGuidance& Control
UnfoldingInteraction
WithEnvironment
OutsideInformation
UnfoldingCircumstances
Observe
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Speed Up Cycle Time
• Speed of cycle minimizes cash needs
• Minimum feature set speeds up cycle time
• Near instantaneous feedback drives feature set(c)2010 K+S Ranch
Consulting Inc. www.steveblank.com
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New #3: Jon Feiber @ MDV
Not all Startups Need Customer Development
• Market Risk vs. Technical Risk?- Web is about customers & markets- Biotech is about science & invention
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(c)2010 K+S Ranch Consulting Inc. www.steveblank.com
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New #4: Dave McClure
Different Metrics for (Web) Startups
Website.com
Revenue $
$$
Biz DevAds, Lead Gen, Subscriptions, ECommerce
Retention
Emails & Alerts
System Events & Time-based Features
Blogs, RSS, News Feeds
REFERRALEmails & widgets
Affiliates, Contests
Viral LoopsACQUISITION
SEOSEM
Apps & Widgets
Affiliates
PR Biz DevCampaigns, Contests
Direct, Tel, TV
Social Networks
Blogs
Domains
From Dave McClurehttp://500hats.typepad.com/
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ScalableStartup
LargeCompanyTransition
Startup Metrics- Customer Acquisition Cost- Viral/Unique/Session Growth- Customer LTV change- Average Selling Price/Order Size- Monthly burn rate
Traditional Accounting- Balance Sheet- Cash Flow Statement- Income Statement
The Search for the Business Model The Execution of the Business Model
More Helpful Startup Metrics
(c)2010 K+S Ranch Consulting Inc.
www.steveblank.com
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(c)2010 K+S Ranch Consulting Inc. www.steveblank.com
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New #5: Business Model, Not PlanFront-end to Customer Development
• Business Plans are Rigid, Static• “No Business Plan Survives First
Contact with Customers” who don’t read them --Steve Blank
• The Four Steps had:– Business model flow for Enterprise Software– Business model summary for each step– Checklist for Enterprise Software
• It said, “modify it to fit your business”• Now we can
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(c)2010 K+S Ranch Consulting Inc. www.steveblank.com
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images by JAM
customer segments
key partners
cost structure
revenue streams
channels
customer relationships
key activities
key resources
value proposition
Osterwalder’s Business Model - Insight
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(c)2010 K+S Ranch Consulting Inc. www.steveblank.com
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KEYPARTNERS
OFFER
CHANNELS
CUSTOMER RELATIONSHIPS
CUSTOMERSEGMENTS
REVENUE STREAMSCOST STRUCTURE
KEYACTIVITIES
KEYRESOURCES
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buildingblock
buildingblock
buildingblock
buildingblock
building
block
buildingblock
buildingblock
building
block
buildingblock
buildingblock
buildingblock
Business Model Canvas – Any Business
building
block
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…and The Pivot Gets A Name
• Fueled by Customer Feedback
• Heard by Founders, Not Consultants
• The heart of Customer Development
• Iteration without crisis
• Fast, agile and opportunistic(c)2010 K+S Ranch
Consulting Inc. www.steveblank.com
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A few rules from the “Blank Manifesto”
1. Align all parties upfront…prepare to lose termsheets
2. No VPs, no factories…MVP to the “champagne cork”
3. No more business plans!
4. Commit to Iterate and Pivot, “celebrate,” tolerate
failure when it propels you forward
5. Integrate Customer Development with Agile
Manufacturing
6. Agree to very different benchmarks and metrics
7. Faster Cycle Times say Run like hell* 57
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When Doesn’t Customer Development work?
• Lack of “honest” commitment to Customer Development
• Progress over Passion• Oops…we promised to ship on…• Oops…the factory is about to open• Founders delegate Discovery and Validation• Too many times ‘round the barn• Pharmaceuticals, regulation, innovation risk• Too many MBA’s, not enough failure celebration
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So What Happens Next?
50 Years After Toyota Invents Lean: …The Next Big Lean Revolution
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(c)2010 K+S Ranch Consulting Inc. www.steveblank.com
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50 Years Later
• Customer & Agile Development change the rules for Consumer Internet startups– Economics– Development Cycle Time– Easy, Overnight MVPs, Iterations, even Pivots– Oceans of Fast, Cheap Feedback– Time to market– “No Money Down”
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(c)2010 K+S Ranch Consulting Inc. www.steveblank.com
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50 Years Later – Full Circle
• Customer & Agile Development will change the rules in all industries– Enterprise Software– Consumer Hardware– Everything else
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