Class 1: Introduction to web technology entrepreneurship

Allan ChaoStartup ConsultantStartup V8allan@startupv8.comUC Berkeley Extension, Summer 2012

Humor of the day: Question of the day:What makes a great entrepreneur?

The Agenda If you have business ideas during this class, write Intro to the class  Syllabus them down. We will do  Policies, outline practice pitches at the end of class. Context of Web Startups  Startup Culture (risk vs reward)  History of Startups and “disruptive innovation”  idea vs execution  Startup stories  Entrepreneurs (Personality test) The Lean Startup  Lean Startup Methodology  Customer development model Practice Pitches  Next week… real pitches and form teams

What is this class? Fast paced… lots to cover Hands on… all about tools and using them A real trial… build your own mini-startupWho is it for? Entrepreneurs… serious about starting startups The curious… have an idea but not sure what it takes

Syllabus Important Points Grading  60% = daily quizzes over reading material (8 of them)  40% = Final project and presentation Mondays and Wednesdays 6-9 pm. Last day is July 9th  No class July 4th  If you miss a session, you will fall behind. We move fast. Other notes  Textbook (“The Lean Startup”) is great, but not required  Weekly reading is for the quizzes  Best time to talk to me is before/after class, or by email

Course Outline 1: Today… context of web startups and the Lean Startup 2: Next session, immediately start building a startup  Pitches and teams  Business planning  Intro to Websites 3: Market research and web tools 4-7: Four sessions on web product development 8: Marketing your product 9: Finance and Legal 10: Final project presentations

The Context of Web Startups

Web Startups… What are they? Web  Websites, Mobile apps, Tablets  Infrastructure  Software as a Service Startups  New and unproven business model  = New way of solving an existing problem  Disruptive innovation = disrupts the existing market

A quick history of web startups Those who cannot remember the past are condemned to repeat it. - George Santayana1991 - World Wide Web becomes available for the public. Internet users multiply at a rate of3500 times a year, reaching the number of 295 million users by the year 2000.1992 - launch of Windows 3.11993 - price of a PC 486/33 with 250 MB HDD, 1MB memory and floppy disk: $1,260.001994 – Amazon.com founded by Tim Bezos as an online bookstore1995 - launch of Windows 951997 – Amazon.com IPO, made $70.5 million in one day, valuing the company at $438 M1995-1999 – Grow grow grow!1999 – Time names Tim Bezos person of the year.

Times were great! NASDAQ composite

Who said “Bubble”? NASDAQ composite

Amazon.com stock chart1997open at$18/share1999Peak$199/share,Closed at$107/share2001$5.67/share2012$208/share What happened during the bubble? “Growth over profits” = bad business models

Web Failures of the dotcom bubble Pets.com  sold pet supplies to retail customers.  Founded in 1998, bankrupt by 2000.  In 2 years, lost $300 M. Boo.com  online consumer fashion Web store  Founded , bankrupt in 2000  Spent about $188 M in 6 months WebVan  an online grocery store  Founded in 1999, bankrupt by 2001.  In 18 months, spent roughly $1.2 Billion Many, many more…

Venture Capital historyhttp://techowtest.files.wordpress.com/2012/03/historyofstartupsandbubbles1.png

Silicon Valley history “South Bay”, Especially Palo Alto, Santa Clara, San Jose Named for the number of silicon chip (semiconductor) manufacturers, back in 1971 A very special place in the world  Today, SV accounts for 1/3 of all venture capital in the USA  A 2006 The Wall Street Journal story found that 12 of the 20 most inventive towns in America were in California, and 10 of those were in Silicon Valley Culture of risk tolerance, of trying high risk ventures The “entrepreneurial spirit”

That’s all for history and context, back to startups

Web Startups… What are they? Web  Websites, Mobile apps, Tablets  Infrastructure  Software as a Service Startups  New and unproven business model  = New way of solving an existing problem  Disruptive innovation = disrupts the existing market

What is “disruptive innovation”? Let’s use the law firms industry as an example “Standard Process”  College student with good grades goes to law school  Studies for 3 years, graduates with law degree  Joins or starts a law firm  You need legal forms, so you go to this person. The result of this “standard process”?  Costs $$$ hourly  Requires in-person meetings  Non-standardized

Disrupt it! Enter LegalZoom.com  An online website with pre-made forms that consumers fill out via questionnaires New Process  You need legal forms, but don’t have the $$$ for an attorney  Go to the website, fill out questionnaire, pay $ fee, done! The result?  Mostly automated = minimal human interaction = low cost  Online = flexible hours and geographic location  Standardized forms = consistency Is it better?

Big and Famous Web Startups Amazon.c (1994)  Groupon (2008) Ebay (1995)  (2008) Googl (1998)  (2009) Paypal (1998) Wikipedia (2001)  (2010) LinkedIn ( (2003) Facebook (2004) YouTube (2005) (founding date) Twitter (2006)

Literally Thousands More

High Risk Literally thousands of web startups… Lots of direct competitors… Very few startups break even… Even fewer become profitable… The default future for any new startup is to die What’s the statistic? Depends on how you count… http://www.quora.com/What-is-the-truth-behind-9-out-of-10-startups-fail

Great Reward But those that do succeed are extremely successful… (over 1,000:1)  change the world (or at least their industry)  can make MEGA $$$$$$$$$$$$ (via IPO or Acquisition)

Back up… what about a small reward? That’s fine. Actually there’s 3 ways to exit a company. Option 1: IPO = Initial public offering  Makes the most money ($1 billion +)  Hardest to do (very few companies make it this far)  Notables: Facebook, Groupon, LinkedIN Option 2: Acquisition  Usually makes less money ($10 million - $1 billion)  “Easier” to do  Notables: YouTube (Google), Skype (Microsoft), Instagram (FB) Option 3: “Lifestyle business”  Makes the least money (recurring “passive” income of <$1 M)  “Easiest” to do  No angel or VC investor will invest in a lifestyle business.   Notables: 4-hour workweek

Make a decision, plan ahead How high do you want to aim?  Higher aim = more risk, greater potential reward  Lower aim = lower risk, less potential reward  You can’t really get the best of both worlds… it costs more to aim higher Pretend you’re starting a lemonade stand  What if your goal is to make $100?  What if your goal is to make $100 million?  The strategies differ a lot “Standard” web startups = aiming high

High Risk, Great Reward It’s playing the “Startup lottery” Assume financial loss, with the small possibility of great reward It’s done for the experience and the potential It’s NOT random.  You have control over many of the factors for success.  Skill  Hard Work  Luck

So then, how to Be Successful?  The idea is worth $0.00 = nothing

If you leave with nothing else from this class, leave with this:The idea has virtually no value. (it’s entirely in execution)

The fallacy of the idea The idea is only a seed.  Bags of seeds are cheap. Growing actual plants takes work  We will prove this later, with practice pitches Investors who bet on “ideas” are not betting on “ideas”  They are betting on the team behind the idea No one buys an “idea”  The closest you get to an idea being valuable is a patent, trademark, or copyright which is a lot more involved

How to Be Successful? The idea is worth $0.00 = nothing Execution is everything!! What does that mean? What is “Execution”?  Planning  Marketing Heres the truth of the matter: ideas are pretty much worth zilch. What IS  Design valuable is the ability to implement an  Development idea, turn it into a product, and then sell  Sales that product in the marketplace and  Fundraising make money. Thats the real work, and  Legal the real reward should go to the people who do that, not the fools who pretend  Accounting that they should be rewarded for the  Partnerships product of their divine creativity.

Better Execution Business Plans vs. The Lean Startup  Business Plans = Plan and Pray  Like planning a rocket ship. Every little detail planned ahead.  Lean Startup = Release and React  Like driving a car. Just go, and make adjustments on the way Lean Startup  Low overhead, low costs  Agile Software Development  Rapid customer-centric development

Break time before section 2 … A fun activity while we’re on break: Entrepreneur personality quizhttp://www.forbes.com/2010/08/02/entrepreneur-personality-quiz-thomas- harrison-entrepreneurs-management-serial-startups-10-quiz.html … Section 2: The Lean Startup

The Goal = Hockey Stick!http://smartfaststartup.com/2011/06/08/real-secret-to-startup-success/

The Reality… assuming successhttp://www.avc.com/a_vc/2012/03/the-startup-curve.html

The Startup Lifecycle http://www.netvalley.com/silicon_valley/Legal_Bridge_From_El_Dorado_to_Silicon_Valley.html

Top 20 Reasons Startups Fail

The Lean Startup (Eric Ries) A methodology/philosophy of building startups 1. Use of free and open source software  Groupon was started as a wordpress blog 2. Agile Software Development  Release as frequently as possible  Iterate development as quickly as possible 3. Ferocious customer-centric rapid iteration  Customer Development Process  Build a minimum viable product – launch fast!  Learn from your users/customers

Software Product Development Creating the Minimum Viable Product (MVP)  Functional Requirements  Wireframes  Graphic Design  Code  Content (Copywriting, Social Media accounts, analytics, etc.)  Deploy (aka Release)

Traditional Software Development

Agile Software Development Start Small  Minimum Viable Product Iterate quickly  Track user data  Flexible software  Release frequently Cycle weekly or every two weeks

Customer Development Process Customer Discovery = Understanding your customers Customer Validation = Develop a Repeatable Sales Process with early evangelist buyers Customer Creation = Scaling your customers from few to many Company Building = Rebuild your company’s organization and management. Re-look at your mission

Customer Discovery

Customer Validation

Customer Creation

Company Building

That’s it for customer development now… practice pitches!

Homework Think about what project you actually want to work on  Pitches next week to form teams Reading material  Fantasies vs Realities of a Startup infocomic  http://grasshopper.com/assets/blog/2011/03/fantasy-vs- reality-infocomic-v2.jpg  Steve Blank’s slides on customer development  http://www.slideshare.net/venturehacks/customer- development-methodology-presentation

Class 1: Introduction to web technology entrepreneurship

by allanchao on Jun 07, 2012

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