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  • 1. Why Accountants Don’t Run Startups Steve Blank Stanford - School of Engineering U.C. Berkeley - Haas School Of Business www.steveblank.com Twitter: sgblank
  • 2. News From Silicon Valley Source: Dave McClure 500hats.com Small VC Funds ($50-250M) Union Square Ventures First Round Capital Traditional VC Funds (>$250M) Benchmark Sequoia Angels & Incubators ($0-10M) Y-Combinator TechStars Seed Funds ($10-50M) SoftTech (Clavier) Maples Investments Felicis (Senkut) SV Angel (Conway)
  • 3. News From Silicon Valley Small VC Funds ($50-250M) Traditional VC Funds (>$250M) Angels & Incubators ($0-10M) Seed Funds ($10-50M) Source: Dave McClure 500hats.com Innovation is happening here
  • 4. News From Silicon Valley <ul><li>Internet startups - $500K is the new $5M </li></ul><ul><ul><li>Driven by the top of the pyramid </li></ul></ul><ul><li>Seed Funds providing entrepreneurial education </li></ul><ul><ul><li>Ycombinator, TechStars, SeedCamp, LaunchBox, etc </li></ul></ul><ul><li>Customer Development/Lean Startup adoption </li></ul><ul><ul><li>Methodology to test hypothesis and business model </li></ul></ul>
  • 5. Some Definitions
  • 6. Small Business Startups Small Business Startup
  • 7. Small Business Startups Small Business Startup <ul><li>- Business Model found </li></ul><ul><li>- Profitable business </li></ul><ul><li>Existing team </li></ul><ul><li>< $10M in revenue </li></ul>
  • 8. Small Business Startups <ul><li>- Business Model found </li></ul><ul><li>- Profitable business </li></ul><ul><li>Existing team </li></ul><ul><li>< $10M in revenue </li></ul><ul><li>5.7 million small businesses in the U.S. <500 employees </li></ul><ul><li>99.7% of all companies </li></ul><ul><li>~ 50% of total U.S. workers </li></ul>http://www.sba.gov/advo/stats/sbfaq.pdf Small Business Startup
  • 9. Small Business Startup: Internet Edition Small Business Startup <ul><li>- Business Model found </li></ul><ul><li>- Profitable business </li></ul><ul><li>Existing team </li></ul><ul><li>< $10M in revenue </li></ul><ul><li>The Internet allows a new class of Small Businesses </li></ul><ul><li>Not all businesses on the Internet are “ Scalable Startups” </li></ul>
  • 10. Scalable Startup Scalable Startup Large Company >$100M/year
  • 11. Scalable Startup Scalable Startup Large Company >$100M/year <ul><li>Total Available Market > $500m </li></ul><ul><li>Company can grow to $100m/year </li></ul><ul><li>Business model found </li></ul><ul><li>Focused on execution and process </li></ul>
  • 12. Scalable Startup Scalable Startup Large Company >$100M/year <ul><li>Total Available Market > $500m </li></ul><ul><li>Company can grow to $100m/year </li></ul><ul><li>Business model found </li></ul><ul><li>Focused on execution and process </li></ul><ul><li>Typically requires “risk capital” </li></ul><ul><li>In contrast a scalable startup is designed to grow big </li></ul><ul><li>It typically needs risk capital </li></ul><ul><li>These are what Silicon Valley means when they say “Startup” </li></ul>
  • 13. Very Different Startup Goals Small Business Startup <ul><li>- Business Model found </li></ul><ul><li>- Profitable business </li></ul><ul><li>Existing team </li></ul><ul><li>< $10M </li></ul>Scalable Startup Large Company <ul><li>Total Available Market > $500m </li></ul><ul><li>Company can grow to $100m/year </li></ul><ul><li>Business model found </li></ul><ul><li>Focused on execution and process </li></ul><ul><li>Typically requires “risk capital” </li></ul>
  • 14. Silicon Valley Venture Firms Invest in Scalable Startups Small Business Startup Scalable Startup Large Company
  • 15. What VC’s Don’t Tell You: The Transition Scalable Startup Large Company Transition Search Build Grow
  • 16. What VC’s Don’t Tell You: The Transition Scalable Startup Large Company Transition <ul><li>Founders depart </li></ul><ul><li>Professional Mgmt </li></ul><ul><li>Process </li></ul><ul><li>Beginning of scale </li></ul>
  • 17. What’s A Startup? Scalable Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>A Startup is the organization used to search for a scalable business model
  • 18. The Search for a Business Model <ul><li>No Business Plan survives first contact with customers </li></ul><ul><li>A Business Model diagrams how a company creates, delivers and captures value </li></ul><ul><li>Or in English: How a company makes money </li></ul>
  • 19. Emphasis On Hypotheses Testing
  • 20. Startups Continually Pivot (Iterate)
  • 21. Startups Search and Pivot Scalable Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>The Search for the Business Model
  • 22. Startups Search, Companies Execute Scalable Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>- Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people The Search for the Business Model The Execution of the Business Model
  • 23. Metrics Versus Accounting Scalable Startup Large Company Transition <ul><li>Traditional Accounting </li></ul><ul><li>Balance Sheet </li></ul><ul><li>Cash Flow Statement </li></ul><ul><li>Income Statement </li></ul>The Execution of the Business Model
  • 24. Metrics Versus Accounting Scalable Startup Large Company Transition <ul><li>Startup Metrics </li></ul><ul><li>Customer Acquisition Cost </li></ul><ul><li>Viral coefficient </li></ul><ul><li>Customer Lifetime Value </li></ul><ul><li>Average Selling Price/Order Size </li></ul><ul><li>Monthly burn rate </li></ul><ul><li>etc. </li></ul><ul><li>Traditional Accounting </li></ul><ul><li>Balance Sheet </li></ul><ul><li>Cash Flow Statement </li></ul><ul><li>Income Statement </li></ul>The Search for the Business Model The Execution of the Business Model
  • 25. Customer Development Versus Product Management Scalable Startup Large Company Transition <ul><li>Product Management </li></ul><ul><li>Delivers MRD’s </li></ul><ul><li>Feature Spec’s </li></ul><ul><li>Competitive Analysis </li></ul>The Execution of the Business Model
  • 26. Customer Development Versus Product Management Scalable Startup Large Company Transition <ul><li>Customer Development </li></ul><ul><li>Hypothesis Testing </li></ul><ul><li>Minimum Feature Set </li></ul><ul><li>Pivots </li></ul>The Search for the Business Model The Execution of the Business Model <ul><li>Product Management </li></ul><ul><li>Delivers MRD’s </li></ul><ul><li>Feature Spec’s </li></ul><ul><li>Competitive Analysis </li></ul>
  • 27. Engineering Versus Agile Development Scalable Startup Large Company Transition The Search for the Business Model The Execution of the Business Model <ul><li>Engineering </li></ul><ul><li>Requirements Docs. </li></ul><ul><li>Waterfall Development </li></ul><ul><li>QA </li></ul><ul><li>Tech Pubs </li></ul>
  • 28. Engineering Versus Agile Development Scalable Startup Large Company Transition <ul><li>Agile Development </li></ul><ul><li>Continuous Deployment </li></ul><ul><li>Continuous Learning </li></ul><ul><li>Self Organizing Teams </li></ul><ul><li>Minimum Feature Set </li></ul><ul><li>Pivots </li></ul>The Search for the Business Model The Execution of the Business Model <ul><li>Engineering </li></ul><ul><li>Requirements Docs. </li></ul><ul><li>Waterfall Development </li></ul><ul><li>QA </li></ul><ul><li>Tech Pubs </li></ul>
  • 29. How Do Startups Search For A Business Model? <ul><li>The Search is called Customer Development </li></ul><ul><li>The Implementation is called Agile Development </li></ul>
  • 30. The Lean Startup <ul><li>The Search is called Customer Development </li></ul><ul><li>The Implementation is called Agile Development </li></ul>
  • 31. Startups Don’t Last Forever Scalable Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>- Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people You fail if you remain a startup!
  • 32. Why Startups Aren’t Run By Accountants
  • 33. Leadership Versus Management Scalable Startup Large Company Transition
  • 34. Leadership Versus Management Scalable Startup Large Company Transition
  • 35. Leadership Versus Management Scalable Startup Large Company Transition Search
  • 36. Leadership Versus Management Scalable Startup Large Company Transition Build Search
  • 37. Leadership Versus Management Scalable Startup Large Company Transition Build Grow Search
  • 38. E-School instead of B-School
  • 39. Durant Versus Sloan Scalable Startup Large Company Transition
  • 40. Business School Versus Entrepreneurship School Scalable Startup Large Company Transition <ul><li>Execution </li></ul><ul><li>Accounting </li></ul><ul><li>Products </li></ul><ul><li>Engineering </li></ul><ul><li>Management </li></ul><ul><li>Administrative </li></ul>Business School
  • 41. Entrepreneurship School Scalable Startup Large Company Transition Entrepreneurship School <ul><li>Hypothesis testing </li></ul><ul><li>Business Model testing </li></ul><ul><li>Customer Development </li></ul><ul><li>Agile Development </li></ul><ul><li>Metrics </li></ul><ul><li>Venture Finance </li></ul><ul><li>Hands-on </li></ul><ul><li>Execution </li></ul><ul><li>Accounting </li></ul><ul><li>Products </li></ul><ul><li>Engineering </li></ul><ul><li>Management </li></ul><ul><li>Administrative </li></ul>Business School
  • 42. Business School Versus Entrepreneurship School Scalable Startup Large Company Transition Business School <ul><li>Courses </li></ul><ul><li>Managerial Finance/Accounting </li></ul><ul><li>Managing Groups and Teams </li></ul><ul><li>Financial Accounting </li></ul><ul><li>Operations </li></ul><ul><li>Modeling for Optimization </li></ul><ul><li>Global Value Chain Strategies </li></ul>
  • 43. Business School Versus Entrepreneurship School Scalable Startup Large Company Transition <ul><li>Courses </li></ul><ul><li>Entrepreneurial Management </li></ul><ul><li>Creativity and Innovation </li></ul><ul><li>Technology Entrepreneurship </li></ul><ul><li>Patent Law for Entrepreneurs </li></ul><ul><li>Global Entrepreneurial Marketing </li></ul><ul><li>Entrepreneurial Finance </li></ul>Business School Entrepreneurship School <ul><li>Courses </li></ul><ul><li>Managerial Finance/Accounting </li></ul><ul><li>Managing Groups and Teams </li></ul><ul><li>Financial Accounting </li></ul><ul><li>Operations </li></ul><ul><li>Modeling for Optimization </li></ul><ul><li>Global Value Chain Strategies </li></ul>
  • 44. Thanks www.steveblank.com

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