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TRANSCRIPT
The Entrepreneurial Explosion
Steve BlankStanford - School of Engineering
www.steveblank.comTwitter: @sgblank
This Presentation Combines
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I Write a Blog www.steveblank.com
A Few Short Stories
Startup Constraints
High Cost to First Product
Startup Constraints
Buy expensive workstations
Buy expensive development tools
Low Cost to 1st Product
Entrepreneurial Explosion
Develop on inexpensive PC’s/Mac’s
Use Open Source Software
Long Time to First Product
High Cost to First Product
Startup Constraints
Use Waterfall Development
First Customer Ship in months/years
Short Time to First Product
Low Cost to First Product
Entrepreneurial Explosion
Use Agile Development
First Customer Ship in weeks/months
Long Time to First Product
High Cost to First Product
Slow Customer Adoption
Startup Constraints
Customers – Gov’t/Businesses
# of customers - hundreds/thousands
Short Time to First Product
Low Cost to First Product
Fast Customer Adoption
Entrepreneurial Explosion
Customers – Consumers
# of customers - millions
Long Time to First Product
High Cost to First Product
High Startup Failure
Rate
Slow Customer Adoption
Startup Constraints
Startups are small versions of large companies
Focus is on execution of business plan
Short Time to First Product
Low Cost to First Product
Lower Startup
Failure Rate
Fast Customer Adoption
Entrepreneurial Explosion
Startups are not small versions of large companies
Focus is on Search for a business model
Long Time to First Product
High Cost to First Product
High Startup Failure Rate
Slow Customer Adoption
Limited Number of
Venture Capitalists
Startup Constraints
3000 Sand Hill Road
Short Time to First Product
Low Cost to First Product
Lower Startup Failure Rate
Fast Customer Adoption
Rate
Large Pool of Risk Capital
Entrepreneurial Explosion
Sand Hill Road
Long Time to First Product
High Cost to First Product
High Startup Failure Rate
Slow Customer Adoption
Limited Number of
Venture Capitalists
Innovation Limited to
a Few Regions
Startup Constraints
3000 Sand Hill RoadMenlo Park, California
Short Time to First Product
Low Cost to First Product
Lower Startup Failure Rate
Global Innovation
Fast Customer Adoption
Rate
Large Pool of Risk Capital
Entrepreneurial Explosion
Menlo Park, San Francisco New York, Shanghai, Israel, Chile, Singapore
Short Time to First Product
Low Cost to First Product
Lower Startup
Failure Rate
Global Innovation
Fast Customer Adoption
Rate
Large Pool of Risk Capital
Entrepreneurial ExplosionThis talk
Why Startups Are Not Small Versions of A Large Company
ScalableStartup
Large CompanyTransition
Startups Search, Companies Execute
Search Build Execute
ScalableStartup
Large CompanyTransition
Business Model found by founders- customer needs/product features found i.e. Product/Market fit- 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”
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
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- describes “knowns”- features- customers/markets- business model
The Execution of the Business Model
Startups Model, Companies Plan
ScalableStartup
Large CompanyTransition
- Business Model- describes “unknowns”- customer needs- feature set- business 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
How Do Startups Search For A Business Model?
• The Search is called Customer Development• The Implementation is called Agile
Development
Customer Development
Why Startups Fail
More startups fail from a lack of customers than from a failure of product development
Customer Problem: known
Product Features: known
No Business Plan survives first contact with customers
So Search for a Business Model
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?
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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?
61images by JAM
customer segments
key partners
cost structure
revenue streams
channels
customer relationships
key activities
key resources
value proposition
sketch out your business model
building
block
building
block
buildingblock
buildingblock building
block
building
blockbuildingblock
buildingblock
buildingblock
buildingblock
building
block
buildingblock
buildingblock
building
block
buildingblock
buildingblock
buildingblock
But,Realize They’re Hypotheses
9 Guesses
Guess Guess
Guess
Guess
GuessGuess
Guess
GuessGuess
How Startups Succeed
Customer Development
Get Out of the BuildingThe founders
^
Customer Development
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
Customer Development
CompanyBuilding
CustomerDiscovery
CustomerValidation
Customer Creation
+
Pivot
• Test your business model hypotheses• Continuous Discovery• Done by founders
Customer Discovery
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
Test Hypotheses:• Product• Market Type• Competition
Turning Hypotheses to Facts
Test Hypotheses:• Problem• Customer• User• Payer
Test Hypotheses:• Channel
Test Hypotheses:• Problem• Customer• User• Payer
Test Hypotheses:• Demand
Creation
Test Hypotheses:• Channel
Test Hypotheses:• Product• Market Type• Competitive
Test Hypotheses:• Pricing Model / Pricing
Test Hypotheses:• Size of Opportunity/Market• Validate Business Model
Test Hypotheses:• Channel• (Customer)• (Problem)
Test Hypotheses:• Problem• Customer• User• Payer
Test Hypotheses:• Demand
Creation
Test Hypotheses:• Channel
Test Hypotheses:• Product• Market Type• Competitive
Test Hypotheses:• Pricing Model / Pricing
Test Hypotheses:• Size of Opportunity/Market• Validate Business Model
Test Hypotheses:• Channel• (Customer)• (Problem) Customer
Development Team
Agile Development
The Minimum Viable Product (MVP)
• Smallest feature set that gets you the most …orders, learning, feedback, failure…
• MVP + Customer are the first two you need to nail
• MVP is just 1 of the 9 parts of your model
The Pivot
• The heart of Customer Development
• Iteration without crisis
• Fast, agile and opportunistic
Wrap Up
• Startup are not small versions of large companies• Traditional big company planning tools fail• Startups are built on hypotheses
– You need to test each one of them– Business Models help you keep score– Customer Development is how you test hypotheses
Why Startups Aren’t Run By Accountants
ScalableStartup
Large CompanyTransition
Inventor of the Modern Corporation
ScalableStartup
Large CompanyTransition
Inventor of the Modern Corporation
Alfred P. Sloan
ScalableStartup
Large CompanyTransition
Alfred P. Sloan
General Motors, President/Chairman- Cost Accounting- MIT Sloan School- Sloan Foundation- etc.
ScalableStartup
Large CompanyTransition
Founder of General Motors
ScalableStartup
Large CompanyTransition
Founder of General Motors
Billy Durant
ScalableStartup
Large CompanyTransition
Billy Durant
- Leader in horse-drawn buggy’s- Fired by board, starts Chevrolet- Regains control of GM - Fired by board, GM ~$3.6 billion*
* GM Net sales in 1921 $304.5M = $3.6 Billion today
ScalableStartup
Large CompanyTransition
Durant Versus Sloan
Durant Versus Sloan
• Dies, rich, honored and famous
Durant Versus Sloan
• Dies, rich, honored and famous• Dies managing a bowling alley
Durant Versus Sloan
• Dies, rich, honored and famous• Dies managing a bowling alley
Accountant
ScalableStartup
Large CompanyTransition
You are here
Thanks
www.steveblank.com