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  • 1. Customer Development Customer Validation Recap Customer Creation Part 1 Steve Blank/Eric Ries sblank@kandsranch.com 4/15/10 1
  • 2. Agenda !  Customer Validation Review !  Case: Ecton !  Customer Creation, Part 1
  • 3. Review: Customer Validation Customer Customer Customer Scale Discovery Validation Creation Company Pivot •  Develop a repeatable sales process •  Only earlyvangelists are crazy enough to buy
  • 4. Early Sales
  • 5. Sell: Contact Visionaries !  Looking for people with problems !  They are few are far between !  They need to become your cheerleaders… while paying you to do so
  • 6. Sell: Turn Visionaries into EarlyVangelists !  Very few are early customers !  Visionaries will emerge to buy an unfinished product if it truly solves a painful problem !  A lack of these early purchasers is a red-flag !  Market Type effects ease of execution
  • 7. Build the Organization Map Dave Jones CEO Karen Rogers VP Marketing Neil Garrett Suzanne Kellogg VP Database VP Merchandizing Marketing Our Potential Customer = in house competition = issues to be addressed before a sale
  • 8. One Step at A Time Dave Jones CEO Ben White Karen Rogers VP Sales VP Marketing Joe Black Neil Garrett Suzanne Kellogg Dir. Sales Operations VP Database VP Merchandizing Marketing Leslie Elders Financial Modeling Our Potential Customer = in house competition = issues to be addressed before a sale
  • 9. Organization Map Dave Jones CEO Ben White Karen Rogers Roger Smith VP Sales VP Marketing CIO Joe Black Neil Garrett Suzanne Kellogg Phil Whitry Dir. Sales Operations VP Database VP Merchandizing Director IT Marketing Leslie Elders Geoff Smith Financial Modeling Financial Tools Development Our Potential Customer = in house competition = issues to be addressed before a sale
  • 10. The Influence Map Functional Technical High Executive 1 Low
  • 11. The Influence Map Functional Technical High Executive 1 2 CIO or Division IT executive Low
  • 12. The Influence Map Functional Technical High Executive 1 2 CIO or Division IT executive Low End Users 3
  • 13. The Influence Map Functional Technical High Executive 1 2 CIO or Division IT executive Low End Users 3 4 Corp. IT staff or Division IT
  • 14. The Sales Roadmap: Starts with Influence Map Educate & Present Solution Operational Technical High Execs CIO End IT Users Low Staff
  • 15. The Sales RoadMap: Adds Access, Assessment & Strategy Access Assess Strategy Educate & Present Needs Solution Finance Product Operational Technical Mgmt High Execs CIO Sales Intro Account Meetings Strategy Corp. End IT Mktg Users Low Staff Support IT
  • 16. The Sales RoadMap Access Assess Strategy Educate & Present Sell, Sell, Sell, Sell Needs Solution Finance Product Operational Technical Mgmt High Execs CIO Sales Implement Intro Account Proposal Meetings Strategy Plan Corp. End IT Mktg Users Low Staff Support IT
  • 17. RoadMap becomes The Sales Pipeline 4. Understand 1. Prepare 2. Initial Meeting Existing Situation • Hoovers, One • Ask tough questions a) Technology Source, Web • Do Buy- In Demo 3. Qualify? b) Organization c) Competition T h e i m 5. Custom Pitch • Prepare! 6. Win Over IT 7. Define Problem 8. ROI Pitch • Get NDA signed • Tech deep dive • Develop Action Plan • Prove the Value! 9. Exec Session • Set expectations for this meeting early on. 10. Solution 11. Formal Pricing 12. Negotiate Session Proposal • Sales •  Detailed Tech discovery • 13. Close! •  No surprises! • Finance • Support
  • 18. Sell: Sell/Refine Channel Roadmap !  Early channel partners need to be “Visionaries” !  Indirect channels/integrators have $ minimum !  Indirect channels/integrators just fulfill !  Market Type affects channel adoption
  • 19. Ecton 19
  • 20. Today Customer Creation Customer Customer Customer Company Discovery Validation Creation Building Pivot •  Creation comes after proof of sales •  Creation is a strategy not a tactic •  Creating customer value not noise
  • 21. Agenda !  Customer Creation versus marketing communications !  The 4 building blocks !  The role of Branding
  • 22. 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 activities are different for each of the three types of startups
  • 23. Customer Creation Year 1 Objectives Year 1 Objectives Existing Market •  Market share Resegmenting Existing Market • Market resegmenting & new market share New • Market adoption Market
  • 24. What Am I Selling (and to Who?) Positioning
  • 25. Positioning Happens Before Demand Creation Demand Creation
  • 26. The Business Model and Sales & Marketing
  • 27. “Business Model” vs. “Sales & Marketing” What’s Our Strategy?: Business Model –  Target Customers? –  Which Sales Channel? –  Which vehicles to create Demand? –  What is our Pricing/Discounts? How Do I Execute the Strategy?: Sales & Marketing –  Sales Pipeline –  Marketing Metrics –  Go-to-Market Strategies (e.g., Pricing, Promotion) –  Demand Creation
  • 28. Parts $ Manufacturin g $ Purchase & Distribution Design Assembly / Manufacturing Users Product $ Demand $ Creation $ $ 3rd Party Customers Integration Resources
  • 29. Marketing and The Sales Pipeline
  • 30. Customers, Marketing and the Sales Funnel Positioning matters Demand Total Creation Available Served Market Available Acquisition Market Target Paying Market Customers $
  • 31. Demand Creation Feeds the Sales Funnel Demand Creation Acquisition Paying Customers $
  • 32. Demand Creation Example – Enterprise Software Demand Creation •  Print Advertising •  Direct Mail •  Viral marketing •  E-mail marketing •  Blogs •  Communities •  SEM/SEO
  • 33. Demand Creation Example – Enterprise Software Demand Creation •  Print Advertising •  Direct Mail •  Viral marketing •  E-mail marketing •  Blogs •  Communities •  SEM/SEO
  • 34. Demand Creation Example– Web Virtual World Demand Creation •  Search Engine Marketing (SEM) •  Search Engine Optimization (SEO) •  Viral marketing •  E-mail marketing •  Affiliate Marketing •  Bannering •  Communities
  • 35. Demand Creation on the Web is Different •  Search engine marketing (SEM) i.e. keyword advertising, paid search, etc. –  your ad in a search engine. Paid for on a per-click-basis (PPC - pay per click) •  Search engine optimization (SEO) –  free traffic by optimizing your website for readability by the search engines •  Viral marketing –  Spreads your message by your users/customer. i.e. Hotmail email tag line •  Affiliate management –  Partners that promote your product or service on their web own page. They earn money by selling your product. •  Bannering i.e. skyscrapers, superbanners, content ads, flash layers, etc. –  you buy media space on other websites on a PPC (pay per click) or CPM (cost per million.) Your banners displayed in predefined spaces.
  • 36. Demand Creation on the Web You Pay For These (SEM) These are Free (SEO)
  • 37. Customer Acquisition Cost How much do Demand you have To get one Creation to spend here customer here Acquisition Paying Customers $
  • 38. The Sales Funnel Acquisition Paying Customers $
  • 39. Distribution Channels How Does the Product Reach the Customer? Acquisition Paying Customers Distrib. Channel $
  • 40. Distribution Channels Pick One OEMs System Integrators Direct Sales Force Value-Added Your Your Resellers (VARs) Customers Company Dealers Distributors Retail/Mass Merchants/Online
  • 41. The Sales Funnel Enterprise Software Qualified Lead Leads First Sales Call Demonstration Feasibility Paying Customers Proposal Purchase Order $
  • 42. The Sales Funnel Enterprise Software Qualified Lead Leads First Sales Call Demonstration Feasibility Paying Customers Proposal Purchase Order $
  • 43. The Sales Funnel Web Funnel Registered Acquisition Log in First Conversation 5 Conversations Paying Customers Paid Once Subscription $ Revenue Retention Activation
  • 44. AARRR: Web Marketing Metrics ()*$ :67-6"2;.<$ ()+$ 89$ :=;3&.3. $ !"#$%&'$ (=?"65$ B&3C=>D. $ !5=2. $ ,45"63&. $ ,--.$/$ %">&?3<$@&5<$ 0"12&3. $ )76"5 $ @A $ %=76";. $ !5EFG+G;GHA% D0/(7% &331# % 46(07#%8% Emails & !7'/2#% widgets >73?#$%@++$% !C70(2'#$% n A'B#%=''"# % Ret entio 53*2'#2#% !"#$%&'("%)'*$% !"#$%&'$ +9#2'6%4:'*2#%8% +,-#./01203*#$% ;06'<-(#'"%='(2,/'#% 45366'/.' % Website.com
  • 45. The Sales Funnel Web Funnel Registered Acquisition Log in First Conversation 5 Conversations Paying Customers Paid Once Subscription $ Revenue Retention Activation
  • 46. 3D IM FUNNEL (30 DAY MOVING AVERAGE) Analyze The Funnel Over Time 100% Registered but didn't log in Logged in but didn't have convo Had one convo but not five Had five convos but didn't pay Paid 90% Registered but didn’t login 52.9% 52.7% 80% 43.3% 42.5% 42.2% 43.7% 43.8% 44.7% 47.3% 46.4% 47.6% 48.5% 48.2% 49.2% 70% Registered but didn't 60% Login but no conversation 50% 16.1% 20.0% 15.4% 16.8% 15.5% 15.7% 16.4% 15.7% 13.8% 14.2% 14.9% 16.6% Logged in but didn't have 40% convo 12.6% 19.1% 19.3% 20.3% 19.5% 19.5% 30% 16.9% 16.3% 16.6% 17.5% 13.2% 16.8% 15.1% Had 1 conversation but not 5 Had one convo but not five 17.0% 18.1% 20% Had five convos but didn't pay 20.7% 19.5% 20.9% 20.9% 21.2% 20.0% 19.7% 19.1% 18.1% 18.4% 19.3% 19.7% 10% 16.7% 16.3% Had 5 conversations but didn’t pay Paid 0% 1.5% 1.3% 1.2% 1.1% 1.3% 1.2% 1.0% 0.6% 0.9% 1.0% 1.2% 1.4% 1.0% 0.8% Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07
  • 47. Cohort Analysis of the Funnel 30, 60, 90 DAY RETENTION 50% Retention of active users who registered 30-60 45% days ago Retention of active users who 40% registered 60-90 days ago Retention of active 35% users who registered 90-120 days ago 30% 25% This plot measures retention by calculating the fraction of 'active' users who had a conversation in 20% the preceding 30 days. Active users are defined as having had at least 5 conversations total. 15% 10% 5% 0% 1/1/06 1/31/06 3/2/06 4/1/06 5/1/06 5/31/06 6/30/06 7/30/06 8/29/06 9/28/06 10/28/06 11/27/06 12/27/06
  • 48. 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 activities are different for each of the three types of startups
  • 49. Customer Creation Positioning Year 1 Objectives Positioning • Market share • Differentiation & credibility Existing Market • Product differentiation • Market • Segmentation & innovation Resegmenting resegmenting Existing Market • Redefining existing market & & new market share product differentiation • Market • Vision & innovation in new adoption New market • Defining the new market, the Market need & the solution • Early adopters
  • 50. Customer Creation Customer Customer Customer Discovery Validation Creation Year One •  Type of startup Objectives •  Distribution model • Articulate problem & Positioning product concept • Understand customer view of competitors Launch •  Day in the life •  Attend shows/conf’s •  Estimate mkt size. Demand • Press, analysts, Creation influencers list. • How do customers make buying decisions?
  • 51. Customer Creation Customer Customer Customer Discovery Validation Creation Year One •  Revenue model Objectives •  Channel model • Initial company & Positioning product positioning • Test w/early adopters Launch • Company & product launch strategy • Test with early adopters Demand •  How do customers Creation purchase? •  Understand analysts/ influencers view
  • 52. Customer Creation Customer Customer Customer Discovery Validation Creation Year One •  Launch model Objectives •  Sales model • Company/Product Positioning positioning by PR agency with audit Launch • Launch/Introduce • Launch type depends on type of startup Demand •  Implement demand Creation creation • Type depends on type of startup