Eng 245 Class 1

The Lean LaunchPadSession 1: Overview/Business Models/Customer Development

Professors Steve Blank,Jon Feiber, Jim Hornthal, Oren Jacobhttps://sites.google.com/site/xmba296t/XMBA296T

AgendaIs This the Right Course for Me?IntroductionsCourse Objectives/teams/projectClass LogisticsBuilding a Lean StartupIdeaSizing the OpportunityBusiness ModelsCustomer DevelopmentClass Culture and Next Steps

Introductions

Steve Blank, Jon Feiber8 startups in Silicon Valley Semiconductors Supercomputers Consumer electronics Video games Enterprise software Military intelligence

sblank@kandsranch.com twitter @sgblankwww.steveblank.com BS CS/Astro Physics U of Colorado VP Networking SUNV.C. @ MDV since 1991

Steve Blank, Jon Feiber8 startups - 32 years in Silicon Valley Semiconductors Supercomputers Consumer electronics Video games Enterprise software Military intelligence

Teach: Stanford, Berkeley, Columbia

Details at www.steveblank.com BS CS/Astro Physics U of Colorado50th employee, VP Networking @ SunV.C. @ MDV since 1991jdf@mdv.com

Oren Jacob, Jim Hornthal CEO, stealth startup EIR, August Capita lCTO, Pixar Director, Studio Tools, Pixar Technical Director, Finding Nemo CMEA CapitalTriporati

Oren Jacob, Jim HornthalCTO PixarCMEA CapitalChairman Triporati

Teaching Assistant TAs role: Class/lecture questions, Grading and attendance

Bhavik Joshi 2008 2011: Better Place (13th employee, first non-Israeli, non-Jewish, non ex-SAP, Asian employee) Berkeley/Columbia MBA class of 2008/09 Co-founder: Berkeley Stanford Cleantech Conference Series (since 2007) 2000 2007 Enterprise Software 1998 2000 Tata Motors Indiajoshibhavik@gmail.comhttp://about.me/bhavikjoshi

MentorsMentors are people with real-world experienceMentors role is to:Help you Get you out of the buildingShare contactsOffer Real-world entrepreneurial adviceCritical feedbackYou arrange your schedule for the mentors, not the other way around

Mentor IntroductionsClick Here for the Mentor Bios

Course ObjectivesUnderstand the real world aspects of Entrepreneurship by getting out of the buildingAnalyze and assess an opportunityBuild the productGet ordersWork with a teamGive you a framework and methodologyLearn what entrepreneurship is to you

What Will you Learn?Opportunity evaluationSearch for a Business ModelCustomer Discovery and ValidationOperating and decision making in chaos with insufficient dataRuthless pursuit of an objective by a team

The Course By the Numbers4 Instructors, 1 TA, 15+ Mentors, 8 Lectures8 10-minute presentations per class1 Final 20 minute presentation2 Textbooks

10-15 hours of work a week outside the classroom

This Class is HardYou cant pass by attending the lecturesYour grade is determined by the work you do outside the classTheres a lot of itYou are dependent on group success communication is criticalYou dont need to be friends you need to be partners

Class Logistics

Course ReadingBusiness Model GenerationFour Steps to the Epiphanywww.steveblank.com

Class ScheduleEight (3 hour) Class Sessions: 1: Sept 1st - Introduction, Business Models, Customer Development2: Sept 2nd Value Proposition/Customer Segment3: Sept 22nd Channels4: Sept 23rd - Demand Creation (Customer Relationships)5: Oct 13th Revenue Model6: Oct 14th Key Resources and Activities7: Nov 11th - Cost Structure 8: Nov 12th Fund Raising9 & 10: Dec 1st / 2nd Lessons Learned Presentations

TeamsSuggested team size is 4 peopleYou chose the roles (hint: no org chart)Present Weekly and for FinalWeekly lessons learnedFinal is demo and summaryClass is about discovery and fast iteration

Team ProjectsAny for-profit scalable startupIf you are a domain expert, thats your best bet (but not required)If you pick a web project, you have to build it (and there needs to be some novelty)

Team Deliverables - PresentationEach WeekLessons Learned presentation 10 minutesUpdated business model canvasUpdate blog/wiki10s of hours of outside the building progress

Final Presentation20 minute Lessons Learned Summary

Team Deliverables - BlogEach WeekBusiness model canvas updatesInterviewsPhotos/VideosA/B testsStrategy

GradingIndividual - 15%Participation in class 15%

Team - 85%40% out-of-the-building progress as measured by blog write-ups each week.

20% weekly team lesson learned summaries

25% team final report Grade is on how much you learn

GradingIndividual - 15%Participation in class 15%

Team - 80%40% out-of-the-building progress as measured by blog write-ups each week.

20% weekly team lesson learned summaries

25% team final report Youre graded on how much learn, not how much you sell

Bhavik Joshi - how much you learn

Office HoursWith your teamBefore and after classLook at availability hereGet on the calendar

Intellectual Property - SuggestionsMake sure your project is OK with your companydisclose to team what IP rights your company has to inventionsYou own what IP you brought to class with you No team member has claim to anything you broughtYour team jointly owns any IP developed for the classIf any of you decide to start a company based on the class, you own only what was developed and completed in the classYou have no claim for work done before or after the class quarterIf a subset of the team decides to start a company they do NOT owe anything to other team members for work done in and during the classAll team members are free to start the same company, without permission of the othersYou are agreeing to this unless the team decides in writing to do something different

Class Disclosure/NDAsSuccessful startups are not about the original idea Its about learning, discovery and executionYou will not be presenting your IP/technical detailsYou get to see how previous teams solved problems by looking at their slides, notes and blogsTherefore:

Your slides, notes and blogs will be publicThis is an open class. No non-disclosures

How to Build A StartupIdeaSize OpportunityBusiness ModelCustomer Development

How to Build A StartupIdeaSize of the OpportunityBusiness Model(s)Customer DiscoveryCustomer Validation

How to Build A StartupIdeaSize of the OpportunityBusiness Model(s)Customer DiscoveryCustomer ValidationTheoryPractice

How to Build A StartupIdeaSize of the OpportunityBusiness Model(s)Customer DiscoveryCustomer Validation Web startups get the product in front of customers earlier

How to Build A StartupIdeaSize of the OpportunityBusiness Model(s)Customer DiscoveryCustomer Validation

Idea

Were Engineers Darn It!Arent companies all about product?I have a great technology ideaTeach me how to make a company around itJust like Facebook and Google (or Intel or Apple)

Sources of Startup Ideas?Technology shiftsMoores LawDisruptive techResearchMarket changesValue chain disruptionDeregulationSocietal changesChanges in ways we live, learn, work, etc.The world is flat (outsourcing)

Dinosaur factorArroganceDeadened reflexes Irrational exuberanceUndervalued assets

An Idea is _Not_ a Company

An Idea is _Not_ a CompanyIts Just One of Many Hypotheses

Size of Opportunity

This Class is about Scalable StartupsNot all startups are designed to scaleSmall business startups have different goalsThey are done by normal peopleScalable startups are designed to grow bigTypically require venture capitalThis means the size of the opportunity needs to be $100s of millions to billions

Small Business Startups

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

Small Business Startups5.7 million small businesses in the U.S. $100M/year Total Available Market > $500m Company can grow to $100m/year Business model found Focused on execution and process

Scalable Startup

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

Small BusinessStartup- Business Model found- Profitable business Existing team< $10M

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

Very Different Startup Goals

Small BusinessStartupScalableStartupLarge CompanyVenture Firms Invest in Scalable Startups

Market/Opportunity AnalysisHow Big is It?: Market/Opportunity AnalysisIdentify a Customer and Market NeedSize the MarketCompetitorsGrowth Potential

How Big is the Pie?Total Available MarketTotal Available Market How many people would want/need the product?How large is the market be (in $s) if they all bought?

How many units would that be?

How Do I Find Out?Industry Analysts Gartner, ForresterWall Street Analysts Goldman, Morgan

How Big is My Slice?Served Available MarketHow many people need/can use product?How many people have the money to buy the product How large would the market be (in $s) if they all bought?How many units would that be?

How Do I Find Out?Talk to potential customersServed Available MarketTotal Available Market

How Much Can I Eat?Target MarketWho am I going to sell to in year 1, 2 & 3? How many customers is that?How large is the market be (in $s) if they all bought?How many units would that be?

How Do I Find Out?Talk to potential customersIdentify and talk to channel partnersIdentify and talk to competitors

Total Available MarketTarget MarketServed Available Market

SegmentationIdentification of groups most likely to buy*Target Market Geographic Demographic Psychographic variables Behavioral variables Channel etc

Market Size: SummaryMarket Size Questions:How big can this market be? How much of it can we get?Market growth rateMarket structure (Mature or in flux?)Most important: Talk to Customers and Sales ChannelNext important: Market size by competitive approximationWall Street analyst reports are greatAnd : Market research firms Like Forester, Gartner

Business Model

What Is a Business Model?Diagram of flows between company and customersScorecard of hypotheses testingRapid change with each iteration and pivotFounder-driven* Alex Osterwalder

9 building blocks of a business model:

CUSTOMER SEGMENTSwhich customers and users are you serving? which jobs do they really want to get done?

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

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

CUSTOMER RELATIONSHIPSwhat relationships are you establishing with each segment? personal? automated? acquisitive? retentive?

REVENUE STREAMSwhat are customers really willing to pay for? how? are you generating transactional or recurring revenues?

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

*KEY ACTIVITIESwhich activities do you need to perform well in your business model? what is crucial?

KEY PARTNERSwhich partners and suppliers leverage your model? who do you need to rely on?

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

*images by JAMcustomer segmentskey partnerscost structurerevenue streamschannelscustomer relationshipskey activitieskey resourcesvalue proposition

sketch out your business model

But,Realize Theyre Hypotheses

9 GuessesGuessGuessGuessGuessGuessGuessGuessGuessGuess

How Do Startups Search For A Business Model? The Search is called Customer Development The Implementation is called Agile Development

Customer DevelopmentSolving For Customer Risk

Customer DevelopmentGet Out of the Building

More startups fail from a lack of customers than from a failure of product development(focus on who more than what)

Customer Development

Stop selling, start listeningTest your hypothesesContinuous DiscoveryDone by foundersCustomer Discovery

Customer DiscoveryCustomer ValidationCompanyBuildingCustomer CreationPivot

Test Hypotheses: Product Market Type CompetitionTurning Hypotheses to Facts

Test Hypotheses: Problem Customer User Payer

Test Hypotheses: Channel

Test Hypotheses: Problem Customer User PayerTest Hypotheses: Demand CreationTest Hypotheses: ChannelTest Hypotheses: Product Market Type CompetitiveTest Hypotheses: Pricing Model / PricingTest Hypotheses: Size of Opportunity/Market Validate Business ModelTest Hypotheses: Channel (Customer) (Problem)

Test Hypotheses: Problem Customer User PayerTest Hypotheses: Demand CreationTest Hypotheses: ChannelTest Hypotheses: Product Market Type CompetitiveTest Hypotheses: Pricing Model / PricingTest Hypotheses: Size of Opportunity/Market Validate Business ModelTest Hypotheses: Channel (Customer) (Problem)Customer Development TeamAgile Development

Test Hypotheses: Problem Customer User PayerTest Hypotheses: Demand CreationTest Hypotheses: ChannelTest Hypotheses: Product Market Type CompetitiveTest Hypotheses: Pricing Model / PricingTest Hypotheses: Size of Opportunity/Market Validate Business ModelTest Hypotheses: Channel (Customer) (Problem)Customer Development TeamAgile Development

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

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

Pivot Cycle Time Matters Speed of cycle minimizes cash needs Minimum feature set speeds up cycle timeNear instantaneous customer feedback drives feature set

Tomorrow Team DeliverablesHypotheses for each part ofbusiness modelTest for whetheryourbusiness isworth pursuing(market size)Test for each of the hypotheses - What constitutes a pass/fail signalforthe test (e.g. at whatpoint would yousay your hypotheses wasntevencloseto correct)?

Radiation-freeEarlier detectionNon invasive

Pioneering DoctorsHospitalsDirect Sales to hospitals

Strong clinical dataTrainingMaintenance

Product DevelopmentClinical trialsOperating Costs

Capital Equipment Sales and disposable item

Product DevelopmentIPClinical trialsFDAIP Leading doctorsTechnical Expertise

HospitalsLeading doctors3rd party manufacturersDistributorsMammOpticsBusiness Model Canvas 1

something-something-something.comOriginal ideaSHORT TERM ResearchersLawyersScientists

LONG TERM Avid book readersProfessionals

Import, organize and share thousands of papersFB/TW posts from users you know

Company blog, FB, TW, support forumsAffiliate program

SEO/SEM/SM

IE/FF/Chrome App StoresTargeted marketing

Product development

Constant iteration & testingDevelopersMarketersLibraries, Universities, Research Centers

Bloggers and media targeting customer segment

Academic Database providersAffiliate program feesLicensingSubscription feesAd revenueAWS InfrastructureSEMEng & Marketing OpExInvincible Business Model: Version 1.0

Tomorrow: Team Deliverable BlogEach WeekBusiness model canvas updatesInterviewsPhotos/VideosA/B testsStrategyMust be up and running by TomorrowWe prefer Lean Launchlab

Direct Sales to hospitals

Strong clinical dataTrainingMaintenance

Product DevelopmentClinical trialsOperating Costs

Capital Equipment Sales and disposable item

Product DevelopmentIPClinical trialsFDA

IP Leading doctorsTechnical Expertise

Doctors:Earlier detectionPriceAccuracyImmediate Results

Patients:Radiation FreeNon-Invasive

MammOpticsBusiness Model Canvas 4

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