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Improving Your Entrepreneurial Odds:
 the Customer Development Process

             Steve Blank
Some Definitions
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OUR COMPANY




 •    Device
 •    Software
 •    IP
 •    Services


       Product

          •  Networks
             -...
OUR COMPANY


                                •  EE
                                •  System
                            ...
OUR COMPANY

                                 -'

                                                      Sales &
 •    Devi...
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The Search for the Business Model             The Execution of the Business Model


 ...
How Do Startups Search For A
     Business Model?
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More startups Fail from
a Lack of Customers than from
     a Failure of Product
         Development
It Started With a Question

  If Startups Fail from a Lack of customers
        not Product Development Failure

         ...
All We Had Was 30 Years of This


  Concept/      Product      Alpha/Beta   Launch/
 Seed Round      Dev.           Test  ...
It Resulted in a Few Hypotheses

•  Startups weren’t small versions of large companies
•  They were about learning and dis...
Which Turned Into A Model

                Product Development

Concept/         Product         Alpha/Beta   Launch/1st
B...
Customer Development: Key Ideas

•  Parallel process to Product Development
•  Measurable Checkpoints
•  Not tied to FCS, ...
Customer Discovery: Step 1

  Customer        Customer           Customer          Company
  Discovery       Validation   ...
Customer Discovery: Exit Criteria
•  What are your customers top problems?
  –  How much will they pay to solve them

•  D...
Customer Validation: Step 2


      Customer            Customer     Customer   Company
      Discovery           Validati...
Customer Validation: Exit Criteria
•  Can you draw your business model?
   –  Acquisition costs, path to profitability?

•...
Customer Creation: Step 3

 Customer     Customer      Customer     Company
 Discovery    Validation    Creation      Buil...
Customer Creation
                    Big Ideas
!    Big Idea 1: Grow customers from few to many

!    Big Idea 2: Four Cu...
Company Building: Step 4

     Customer    Customer     Customer   Company
     Discovery   Validation   Creation   Buildi...
Company Building: Big Ideas

   !    Big Idea 1:
        Management needs to change as the company grows
        "    Foun...
Iteration versus Execution

             Iteration                              Execution


 Customer                Custo...
What They Didn’t Teach You
         at Haas
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The Search for the Business Model            The Execution of t...
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The Search for the Business Model            The Execution of the Business Model


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Entrepreneurship School                 Business School

...
Books Available on Amazon and Cafepress




   Four Steps to the Epiphany   Not All Those Who Wander Are Lost




 Blog ww...
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Improving Your Entrepreneurial Odds: the Customer Development Process

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Transcript of "Improving Your Entrepreneurial Odds: the Customer Development Process"

  1. 1. Improving Your Entrepreneurial Odds: the Customer Development Process Steve Blank
  2. 2. Some Definitions
  3. 3. !"#$$%&'()*+((%!,#-,'.(% !"#$"%&' !"#$$%&'()*+((% - Business Model found - Profitable business -  Existing team < $10M in revenue •  5.7 million small businesses in the U.S. <500 employees •  They employ 99.5% of our workforce
  4. 4. !,#$#-$+%!,#-,'.% !(#)#*)+' /#-0+% !"#$"%&' 12".#*3% ,-.//012+#$' -  Total Available Market > $500m -  Company can grow to $100m/year -  Known business model -  Focused on execution and process •  In contrast a scalable startup is designed to grow big •  It typically needs risk capital •  These are what Silicon Valley means when they say “Startup”
  5. 5. !,#-,'.( % !"#$"%&' !"#$$%&'()*+((% - Business Model found - Profitable business -  Existing team < $10M !(#)#*)+' /#-0+% !"#$"%&' 12".#*3% ,-.//012+#$' -  Total Available Market > $500m -  Company can grow to $100m/year -  Known business model -  Focused on execution and process
  6. 6. !,#-,'.( % X X X !"#$"%&' !"#$$%&'()*+((% - Business Model found - Profitable business -  Existing team < $10M !(#)#*)+' /#-0+% !"#$"%&' 12".#*3% ,-.//012+#$' -  Total Available Market > $500m -  Company can grow to $100m/year -  Known business model -  Focused on execution and process
  7. 7. 46+%./#*()01*% !(#)#*)+' 3#$4+' 4-#*()52*% !"#$"%&' 567&#82' -  Founders depart -  Professional Mgmt -  Process -  Beginning of scale
  8. 8. 76#,8(%9%!,#-,'.:% !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' -  Business Model found -  Product/Market fit - Repeatable sales model - Managers hired A Startup is the organization you use to search for your scalable business model
  9. 9. OUR COMPANY •  Device •  Software •  IP •  Services Product •  Networks -  Technolog y - Customer - Partner •  Data •  Employees Resources
  10. 10. OUR COMPANY •  EE •  System •  Mechanica l •  Device •  Software •  Industrial Design •  IP •  Services Product •  Standard •  Tooled •  Networks •  Critical -  Technolog Sales & y Components Distribution - Customer - Partner •  Data Users •  Employees •  Knowledge Manufacturing Resources
  11. 11. OUR COMPANY -' Sales & •  Device Distribution •  Software •  IP -' •  Services Users Product -' Design •  Networks -  Demand Technolog Creation y -' - Customer Components - Partner •  Data -' •  Employees Manufacturin Resources g -' Customers
  12. 12. !,#-,'.(%;2*8,%/#(,%<2-+=+-% !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' -  Business Model found - Cash-flow breakeven -  Product/Market fit - Profitable - Repeatable sales model - Rapid scale - Managers hired - New Senior Mgmt ~ 150 people You fail if you remain a startup!
  13. 13. !,#-,'.(%!+#->6?%12".#*)+(%@A+>',+% The Search for the Business Model The Execution of the Business Model !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' -  Business Model found - Cash-flow breakeven -  Product/Market fit - Profitable - Repeatable sales model - Rapid scale - Managers hired - New Senior Mgmt ~ 150 people
  14. 14. How Do Startups Search For A Business Model?
  15. 15. 1'(,2"+-%;+=+$2."+*, %
  16. 16. More startups Fail from a Lack of Customers than from a Failure of Product Development
  17. 17. It Started With a Question If Startups Fail from a Lack of customers not Product Development Failure Then why do we have: •  process to manage product development? •  no process to manage customer development?
  18. 18. All We Had Was 30 Years of This Concept/ Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship Product Development Model
  19. 19. It Resulted in a Few Hypotheses •  Startups weren’t small versions of large companies •  They were about learning and discovery, not execution of a business model •  Entrepreneurs and their VC’s were executing on guesses •  But the facts were outside the building
  20. 20. Which Turned Into A Model Product Development Concept/ Product Alpha/Beta Launch/1st Bus. Plan Dev. Test Ship + Customer Development Customer Customer Customer Company Discovery Validation Creation Building
  21. 21. Customer Development: Key Ideas •  Parallel process to Product Development •  Measurable Checkpoints •  Not tied to FCS, but to customer milestones •  Notion of Market Types to represent reality •  Emphasis is on learning & discovery before execution
  22. 22. Customer Discovery: Step 1 Customer Customer Customer Company Discovery Validation Creation Building •  Stop selling, start listening –  There are no facts inside your building, so get outside •  Test your hypotheses –  Two are fundamental: problem and product concept
  23. 23. Customer Discovery: Exit Criteria •  What are your customers top problems? –  How much will they pay to solve them •  Does your product concept solve them? –  Do customers agree? –  How much will they pay? •  Draw a day-in-the-life of a customer (archetypes) –  before & after your product •  Draw the org chart of users & buyers
  24. 24. Customer Validation: Step 2 Customer Customer Customer Company Discovery Validation Creation Building Pivot •  Develop a repeatable and scalable sales process •  Only earlyvangelists are crazy enough to buy •  Pivot back to Discovery if no customers
  25. 25. Customer Validation: Exit Criteria •  Can you draw your business model? –  Acquisition costs, path to profitability? •  Do you have a proven sales roadmap? –  Org chart? Influence map? •  Do you understand the sales cycle? –  ASP, LTV, ROI, etc. •  Do you have a set of orders ($’s) validating the roadmap?
  26. 26. Customer Creation: Step 3 Customer Customer Customer Company Discovery Validation Creation Building •  Creation comes after proof of sales •  Creation is where you “cross the chasm” •  It is a strategy not a tactic 3 2
  27. 27. Customer Creation Big Ideas !  Big Idea 1: Grow customers from few to many !  Big Idea 2: Four Customer Creation activities: "  Year One objectives "  Positioning "  Launch "  Demand creation !  Big Idea 3: Creation is different for each of the three types of startups 3 3
  28. 28. Company Building: Step 4 Customer Customer Customer Company Discovery Validation Creation Building •  (Re)build your company’s organization & management •  Re look at your mission 3 4
  29. 29. Company Building: Big Ideas !  Big Idea 1: Management needs to change as the company grows "  Founders are casualties "  Development centric ! "  Mission-centric ! "  Process-centric !  Big Idea 2: Sales Growth needs to match market type Customer Development in the High-Tech Enterprise October 2008 3 5
  30. 30. Iteration versus Execution Iteration Execution Customer Customer Customer Company Discovery Validation Creation Building The Search for a Business The Growth of a Business Product/Market Fit
  31. 31. What They Didn’t Teach You at Haas
  32. 32. 1'(,2"+-%;+=+$2."+*,%B+-('(% C-2D'>,%E#*#0+"+*,% The Search for the Business Model The Execution of the Business Model !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' -  Delivers MRD’s -  Hypothesis Testing -  Feature Spec’s -  Minimum Feature Set -  Competitive Analysis -  Pivots Customer Development Product Management
  33. 33. E+,-)>(%B+-('(%9>>2'*5*0% The Search for the Business Model The Execution of the Business Model !(#)#*)+' 9$#8:;<68' 567&#82' !"#$"%&' Startup Metrics Traditional Accounting -  Customer Acquisition Cost -  Balance Sheet -  Viral coefficient -  Cash Flow Statement -  Customer Lifetime Value -  Income Statement -  Average Selling Price/Order Size -  Monthly burn rate -  etc.
  34. 34. /+#D+-(6).%B+-('(%E#*#0+"+*, % !(#)#*)+' 9$#8:;<68' 567&#82' !"#$"%&'
  35. 35. ;'-#*,%B+-('(%!$2#*% !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82'
  36. 36. &'()*+((%!>622$%B+-('(% @*,-+.-+*+'-(6).%!>622$ % Entrepreneurship School Business School !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' -  Hypothesis testing -  Execution -  Experiential -  Accounting -  Hands-on -  Management -  Chaotic -  Leadership
  37. 37. Books Available on Amazon and Cafepress Four Steps to the Epiphany Not All Those Who Wander Are Lost Blog www.steveblank.com
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