This presentation outlines two main startup/business development models: product development model, customer development model. The right methodology is to use both at the same time with constant feedback and learning.
win or lose? can you choose.. Understanding Science and TechnologyAsst. Prof. Dr. Ahmet BulutDepartment of Electrical Engineering and Computer Scienceİstanbul Şehir University, İstanbul,Turkeye-mail: email@example.com
losers• Segway thought that their market was everyone in the world, who walked. They targeted world class public relations instead of targeting real customers with real money. Cost: 200 million dollars.• Apple was ﬁrst to introduce Personal Digital Assistant (PDA), Newton. Apple marketed it as if they were in an existing market, while no one fully understood why she would need a PDA. Cost: 100 million dollars.• Motorola’s Iridium satellite-based phone system. They built an infrastructure to support a customer base of millions. No one asked whether customers wanted it. Cost: 5 billion dollars.
winners• Toyota’s Prius. They’ve found a proﬁtable niche for their electric hybrid car. In its ﬁrst ﬁve years sales grew to 5 billion dollars. By 2015 hybrids could make up 35% of U.S. car market.• General Mill’s Yoplait GoGurt. The goal was to keep their yogurt consumer base of toddlers and little kids for as long as possible. They invented tube packaging, yogurt in a tube.
what makes “you” a winner ora loser?• there are hundreds of winners.• there are thousands of losers.• is there a repeating pattern, which is eminent in every winner?• is there a repeating pattern, which is eminent in every loser?
compelling story• in the heyday of dot-com bubble, Webvan stood out as one of the most electrifying new startups.• Webvan raised over 800 million dollars.• they aimed to revolutionize the 450 billion dollars retail grocery business with online ordering and same-day delivery of household groceries.• the company (i) raced to build vast automated warehouses, (ii) purchased ﬂeets of delivery trucks, and (iii) built an easy to use website.• barely 24 months after the initial public offering, Webvan was bankrupt and out of business.
where are the customers?• Webvan blindly followed a model called Product Development.• in a nutshell, Product Development model is: “get big fast”• however, Webvan did not boldly ask: “where are the customers?”
product development model• the process evolved in manufacturing industries.• the process illustrates how to get a new product into the hands of customers that are waiting to buy.• the resulting model is a good ﬁt when you are launching a new product into an already established, well-deﬁned market, where the basis of competition is understood, and you know who your customers are.
product development model• the model has four stages.I. concept / II. product III. alpha / IV. launch / seed development beta test 1st ship
product development model• most startups use this model to manage their product development as well as a roadmap for ﬁnding customers and timing their sales launch and revenue plan.• the model is used as a catchall tool for every startup executive’s schedule, plan, and budget.• moreover, the investors use the model to set and plan for funding.• however, few startups ﬁt this criteria.• only a few know what their market is.
I. concept and seed stage• founders capture their passion and vision for the company and turn them into a set of key ideas: business plan. 1. what is the product or service concept? 2. is it possible to build? 3. is further technical research needed to ensure that the product can be built? 4. what are the product features and beneﬁts?
I. concept and seed stage• market research data plus potential customer interviews are used to guesstimate customer base.• lay out distribution channels.• consider competition and identify differentiating factors.• devise a ﬁnancial model to allure venture capital.
II. product development• everyone stops talking and starts working.• engineering focuses on building the product; it designs the product, speciﬁes the ﬁrst release, and hires a staff to build the product.• marketing reﬁnes the size of the market deﬁned in the business plan. they begin to target the ﬁrst customers. they run focus groups. marketing prepares a Marketing Requirements Document (MRD) for engineering.• marketing (i) builds a sales demo, (ii) writes sales materials, and (iii) hires a PR agency.
II. product development• engineering did two things: 1. built the automated warehouses and designed the web site. 2. designed an end-to-end system to manage the entire customer ordering and delivery ﬂow process.• marketing did two things: 1. planned a marketing and promotion program designed to strengthen the Webvan brand name. 2. run advertising campaigns, held promotional activities and events.
III. alpha / beta test• engineering works with a small group of outside users to make sure that the product works as speciﬁed and tests it for bugs.• marketing develops a complete marketing communications plan, provides sales with product demos and 1-page production description ﬂyers.• pr agency polishes positioning and rolls the public press ball.• sales signs up the ﬁrst beta customers, builds the distribution channels, staffs and scales the sales organization.• ceo reﬁnes her fund-raising pitch and hits the street for more investor money.
IV. product launch and ﬁrstcustomer ship• with the product working, the company goes into “big bang” spending mode. $• sales is heavily building and stafﬁng a national sales organization; the sales channel has quotas and sales goals.• marketing is at its peak.• company holds a large press event.• marketing launches a series of programs to create end user demand: a. trade shows, b. seminars, c. email, d. advertising• ceo hits the road for more investor money.
centricity of the model • product-centric • process-centric
what’s wrong with the model• where are the customers?• the focus is on the ﬁrst customer ship date.• the emphasis is on execution instead of learning and discovery.• there is a lack of meaningful milestones for sales, for marketing, and for business development.• the model is used to measure sales.• the model is used to measure marketing.• company scales prematurely.• the cost to operate increases exponentially.
what’s wrong with the model• not all startups are alike. • bringing a new product into an existing market. • bringing a new product into a new market. • bringing a new product into an existing market and trying to re-segment that market as a low-cost entrant. • bringing a new product into an existing market and trying to re-segment that market as a niche entrant.
what’s wrong with the model• there are unrealistic expectations. • model is used to explain activities that have nothing to do with product development: i. ﬁnding customers, ii. ﬁnding a market, and iii. ﬁnding a viable business model. • customers were to jump aboard automatically while product is being developed. • model is used to explain customer adoption and product acceptance rate for all startup companies. “build it and customers will come”
ask the right questions• how well do we understand what problems customers have?• how much will they pay us to solve those problems?• do our product features solve these problems?• do we understand our customer’s business?• do we understand the hierarchy of customer needs?• have we found visionary customers, ones who will buy our product early?
ask the right questions• is our product a must-have for these customers?• do we understand the sales roadmap well enough to consistently sell the product?• do we understand what we need to be proﬁtable?• are the sales and business plans realistic, scalable, and achievable?• what do we do if our model turns out to be wrong?
technology adoption• technology is adopted in phases by distinct groups: technology i. enthusiasts, ii. visionaries, iii. pragmatists, iv. conservatives, and v. skeptics.• the ﬁrst two groups are the “early market”.• the next two groups are the “mainstream market”.• the shape of the overall market is a bell curve. the early market starts small and grows exponentially into the mainstream market.• there is a chasm between each group. the largest chasm is between early market and mainstream market. a chasm is caused by different needs and buying habits of each group.
technology life cycleadoption curve customers early market
technology life cycleadoption curve customers mainstream market
technology life cycleadoption curve customers skeptics market
“the key to success is to move through this customer developmentcurve with learning and discovery.”
customer development• it starts with a simple premise: learn and discover who your initial customers will be, what markets they are in.• before any of the traditional functions of selling and marketing can happen: • the company has to prove that a market could exist, • the company has to verify that someone would pay real dollars for the solutions the company envisions, • the company goes out and creates the market.
customer development model customer customer customer company STOP STOP STOP STOP discovery validation creation building
parallel mode of operation• product development model• customer development model
parallel mode of operation• in each of the customer development steps, the product development team and customer development team meet in series to decide on when to move forward to the next step.• in customer discovery, the customer development team validates the product speciﬁcation. if there is a mismatch between customer’s expectations and the product speciﬁcation, then both teams together add features to the product or reﬁne existing features.• in customer discovery, when customers have consistently said that new or modiﬁed product features are required, vice president of product development goes out with the customer development team to listen to customer feedback.
parallel mode of operation• in customer validation, key members of the product development team go out in front of customers as part of the pre-sales support team.• in company building, the product development team does installations and support for initial product while training the support and service staff.
bottomline• use both models at the same time.• for questions and comments: firstname.lastname@example.org