Customer Development



          Company Building Part 1 & 2

              Steve Blank and Eric Ries
                  s...
Agenda

!    Logistics/Questions
!    Review
!    Matthew Brezina, Xobni
!    Company Building
Today
             Company Building

 Customer      Customer     Customer   Company
 Discovery     Validation   Creation  ...
From Earlyvangelists to
             Mainstream Customers
!    Early customers may not be indicative of later
     custome...
Intermission

Crossing the
  Chasm




               5
Technology Adoption Life Cycle


                   !    Innovators
                   !    Early Adopters
               ...
The Chasm




!    Between any two groups there is a gap
!    The disassociation between the two groups is the difficulty
...
Early Adopters
          Innovators: The Technology Enthusiasts

!    The first people to adopt technology
     "  The gat...
Early Adopters:
                             The Visionaries

!    Highly motivated and driven by a dream
!    Want a fund...
Mainstream Markets
                Early Majority: The Pragmatists

!    Dollars are in the hands of the pragmatists
!    ...
Late Majority:
                    The Conservatives

!    Against discontinuous innovation
!    Like to buy preassembled ...
Laggards: The Skeptics


!    Do not participate in the high tech marketplace
     except to block purchases
!    Continua...
Why is There a Chasm?

!    Markets are made of people who reference each
     other during the buying decision
!    Movin...
The Problem With Visionaries
               as Early Customers
                  Visionaries alienate pragmatists

#    Vi...
Crossing the Chasm
          Entering the Mainstream is an Act of Aggression


!    Transition to a strategic target in th...
Chasm Crossing Strategies

!    Create the Whole Product
!    Focus on only One or Two Segments
!    Pragmatists want to b...
Create the Whole Product

!    When something is left out the solution is
     incomplete, the selling promise is unfilled...
Focus on only 1 or 2 Segments

!    Word of mouth is the #1 source of reference
     "  Winning 1 or 2 customers in 5 or 1...
Pragmatist want to Buy from Market
             Leaders

!    Whole products grow up around market leaders
     "    To be...
Chasm Issues

!    Goal is to take a niche market approach to
     crossing the chasm
!    Most CEO’s won’t make niche com...
Beyond Niches

!    Longer term vision guides the immediate
     tactical choices
     "    Select strategic target market...
End of Intermission



                      22
New Market Chasm
New Market =
Hockey Stick Sales Curve
Existing Market Chasm
Existing Market =
Linear Sales Growth
Resegmented Market Chasm
Resegmenting: Existing Market Share
       Declines as New Market Grows

100%
                                 Revenues


...
Resegmented Market =
         Complex Sales Growth


                                             Year 7




             ...
New Management and
          Mission-Centric Culture

!    Founders sometimes cannot get past
     Learning & Discovery
! ...
Evolution of Management
               Strategy

 Customer       Company            Large
Development      Building       ...
Customer Development Versus
          Product Management

The Search for the Business Model      The Execution of the Busi...
Metrics Versus Accounting

  The Search for the Business Model         The Execution of the Business Model


           Sc...
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Corporate Mission Statement Template
Mission Element   Specifics

Why your           To build CafePress into the world’s l...
Back to Functional Depts

!    Customer Development team =
     learning and discovery
!    Functional departments = execu...
Customer Development Team
               Tasks Not Titles



                                   CEO


VP Product Dev   Tec...
Functional Departments-Silos
 Typical Startup
                                  CEO



VP Engineering     VP Marketing    ...
Department Mission Statement Template


Mission Element                    Specifics
Why department members             • ...
Mission Centric Management =
        Agile Company
!    Mission Culture
!    Information Culture
!    Leadership Culture

...
Mission-centric Management

 $  Mission intention
 $  Employee initiative

 $  Mutual trust and communication

 $  “Good e...
Information Culture

$  First-hand knowledge
$  An overall view

$  The view from the eyes of customers and

   competitors
Synchronization
      Customer                 Mission-Centric                   Process-Driven
      Development         ...
The Agile Company
                  Agile
                Company
               Company
                Mission


       ...
Summary

!    Management strategies need to change as the
     company grows
     "    Development-team centric ! Mission-...
Customer Development In the
        Real World

      The VC Presentation



                              51
Traditional VC Funding Model




                      Source: Peter Fenton, Benchmark Capital
Traditional VC Funding Assumptions

!    Company's risk decreased by hitting milestones
!    Which brought about a jump in...
Customer Development Funding Model




                          Source: Peter Fenton, Benchmark Capital
Customer Development
             Funding Assumptions

!    Company's risk decreased by shipping as early
     as possible...
Customer Development meets
           the Real World
!    I’m a believer, but…
     "  How to do I convince others?
     "...
What are Early Stage VC’s
               Really Asking?

!    Are you going to:
     "  Blow my initial investment?
     "...
The Traditional VC Pitch
     Since You Can’t Answer my real questions here’s the checklist



               !    Technol...
Kleiner Perkins
             Business Plan Outline
!    The opportunity
      "  company mission, vision

!    Team
      ...
Sequoia Capital’s
                            Business Plan Outline
!    Business                               !    Compe...
Business Plan Becomes the
                Funding Slides


          Business   Seed or                Fire
Concept     Pl...
“Lessons Learned” Drives Funding



                Business      Test        Lessons
Concept          Plan       Hypothes...
Credibility Increases Valuation

!    Customer Development and the Business Plan
     "    Extract the hypotheses from the...
IMVU
Background




             64
Founding IMVU
•  Customer Discovery and Validation
  –  Founded company in April 2004
  –  Sat in this class Fall of 2004
...
IMVU
VC Presentation
September 2005




                  66
Earlier Lessons Learned
•  Sandcastle
  –  Solve a big enough problem
  –  Don’t confuse technology with a business
•  The...
Landscape before IMVU
 Social networks and                2D “paperdoll” avatars         Social games and
 Communities (My...
Social networking with avatars




Customizable home pages with avatar pictures
                                          ...
Customer Discovery & Validation
                    Q4 2004
•    Product:                                9,000            ...
Customer Discovery & Validation
                     Q1 and Q2 2005
•    Product:                                 9,000   ...
Customer Discovery & Validation
                            Q3 2005
•    Product:
                                        ...
Execution Phase 1, Discovery Phase 2
                  Q4 2005 – Q1 2006
•  Execution, Phase I
    –  Real Board: 2 VCs, C...
Execution Phase 1, Discovery Phase 2
                     Q4 2005 – Q1 2006
•    Discovery, Phase 2
      –  Company Visio...
Vision Lessons Learned – IMVU
•  Principles
   –  Big vision: Avatars everywhere
   –  Two year focus: 3D instant messagin...
Agile Development
•  “Our highest priority is to satisfy the customer through early and
   continuous delivery of valuable...
Growth Strategy
•  No launch until we’re ready
   –  (Not even a press release for our VCs)
   –  Metrics tell us when we’...
Financing Lessons Learned –
              IMVU
•  Seed: Self funded $300k
   –  Low interest note
   –  Small, self-suffic...
Financing Results
•  Series B: VC funded $8MM
  –  Go for World Class VC’s at the Hockey-Stick
  –  Negotiate to sell some...
80
1999 - 2004 Revenue

           $12
Millions




                                                                         ...
820
830
Store/Hosting/Manufacturing/Fulfillment



                                          840
Revenue      Gross Profit       Pre-tax Income
                                       $80




               Thousands
   ...
Revenue           Gross Profit           Pre-tax Income
                                                        $1,200
   ...
Revenue           Gross Profit            Pre-tax Income
                                              $2,000




        ...
Revenue          Gross Profit           Pre-tax Income
                                                    $4,000
        ...
Revenue           Gross Profit           Pre-tax Income
                                                  $7,000




     ...
Revenue           Gross Profit           Pre-tax Income
                                                 $12,000




     ...
1999-2007 Revenue

           $160
Millions




           $140
           $120
           $100
            $80
          ...
041310 class 12 and 13
041310 class 12 and 13
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041310 class 12 and 13

  1. Customer Development Company Building Part 1 & 2 Steve Blank and Eric Ries sblank@kandsranch.com 4/15/10 1
  2. Agenda !  Logistics/Questions !  Review !  Matthew Brezina, Xobni !  Company Building
  3. Today Company Building Customer Customer Customer Company Discovery Validation Creation Building •  Move from earlyvangelists to mainstream customers •  Rebuild management •  Rebuild organization & culture
  4. From Earlyvangelists to Mainstream Customers !  Early customers may not be indicative of later customers !  Growth into mainstream driven by Market type From Earlyvangelists Manage Sales to Mainstream Growth by Customers Market Type
  5. Intermission Crossing the Chasm 5
  6. Technology Adoption Life Cycle !  Innovators !  Early Adopters !  Early Majority !  Late Majority !  Laggards
  7. The Chasm !  Between any two groups there is a gap !  The disassociation between the two groups is the difficulty any group will have accepting a new product if its presented in the same manner as it was to the group to its immediate left Geoff Moore; Crossing the Chasm
  8. Early Adopters Innovators: The Technology Enthusiasts !  The first people to adopt technology "  The gatekeepers for technology "  Moore believes they’re key to any high-tech marketing effort !  In large companies buys one of anything !  In small companies “designated techie” in IT !  Want to try it just to see if it works
  9. Early Adopters: The Visionaries !  Highly motivated and driven by a dream !  Want a fundamental breakthrough "  Value not from technology but from the strategic leap !  The least price-sensitive of any segment "  Can provide up front money for additional development "  Can alert the business community to advances "  Will serve as visible references !  Like project orientation - want to start with a pilot !  Represent an opportunity early in a life cycle to generate a burst of revenue and gain visibility "  Gives high-tech companies their first big break
  10. Mainstream Markets Early Majority: The Pragmatists !  Dollars are in the hands of the pragmatists !  Wants to make incremental, measurable progress "  Hard to win over, but loyal once won "  Care about; your company, product quality, “Whole Product” !  Interested in knowing what others in their industry think "  References and relationships are important !  They like competition, reasonably price sensitive !  Selling to pragmatists takes time
  11. Late Majority: The Conservatives !  Against discontinuous innovation !  Like to buy preassembled packages with everything bundled at heavily discounted prices !  Great opportunity to take low cost trailing edge technology components are repackage them into single function systems
  12. Laggards: The Skeptics !  Do not participate in the high tech marketplace except to block purchases !  Continually point to the discrepancies between the sales claims and the delivered product
  13. Why is There a Chasm? !  Markets are made of people who reference each other during the buying decision !  Moving from segment to segment in the life cycle we may have references, but not of the right sort !  The chasm is between visionaries and pragmatists "  Visionaries talk to enthusiasts "  Conservatives look to pragmatists "  Therefore no referenceable customer base when making the transition to the new segment
  14. The Problem With Visionaries as Early Customers Visionaries alienate pragmatists #  Visionaries lack respect for #  Pragmatists value the experience the value of colleagues of their colleagues experience #  Pragmatists want to talk about #  Visionaries are more industry specific issues interested in technology than #  Pragmatists expect existing their industry product infrastructure #  Visionaries fail to recognize #  Pragmatists view visionaries as the importance of existing disruptive; they soak up all the product infrastructure budgets for pet projects #  Visionaries want to get a #  Pragmatists want a productivity jump on competition improvement #  Visionaries will suffer thru a #  Pragmatists do not want to debug buggy product for an edge someone else’s product
  15. Crossing the Chasm Entering the Mainstream is an Act of Aggression !  Transition to a strategic target in the mainstream market "  Focus on a single beachhead and a single target niche market "  Pick one you can dominate from the outset "  Force the competitor out of your targeted niche markets "  Then take over additional market segments "  Develop a solid base of references, collateral and procedures & documentation
  16. Chasm Crossing Strategies !  Create the Whole Product !  Focus on only One or Two Segments !  Pragmatists want to buy from market leaders
  17. Create the Whole Product !  When something is left out the solution is incomplete, the selling promise is unfilled, and the customer is unavailable for referencing "  To secure references, ensure that the customer gets not just the product, but the whole product "  But make them sparingly and strategically - leveraging them over multiple sales
  18. Focus on only 1 or 2 Segments !  Word of mouth is the #1 source of reference "  Winning 1 or 2 customers in 5 or 10 segments will not create word of mouth "  4 or 5 customers in one segment will !  Lack of word of mouth makes it harder to sell "  Sales driven will get it much later if at all
  19. Pragmatist want to Buy from Market Leaders !  Whole products grow up around market leaders "  To be a leader you need the largest market share (over 40%) in your segment !  Take a “big fish, small pond” approach "  Focus on achieving a dominant position in one or two narrowly bounded market segments
  20. Chasm Issues !  Goal is to take a niche market approach to crossing the chasm !  Most CEO’s won’t make niche commitments "  Won’t stop pursuing any sale for any reason "  Sales driven not marketing driven !  The sole goal during this phase of the company should be to secure a beachhead "  And get a referenceable pragmatist customer base
  21. Beyond Niches !  Longer term vision guides the immediate tactical choices "  Select strategic target market niches – these are entry points into larger segments
  22. End of Intermission 22
  23. New Market Chasm
  24. New Market = Hockey Stick Sales Curve
  25. Existing Market Chasm
  26. Existing Market = Linear Sales Growth
  27. Resegmented Market Chasm
  28. Resegmenting: Existing Market Share Declines as New Market Grows 100% Revenues % of Existing market Vs New 1 5 # Years in business
  29. Resegmented Market = Complex Sales Growth Year 7 Year 6 Year 5 Year 3 Year 4 Year 2
  30. New Management and Mission-Centric Culture !  Founders sometimes cannot get past Learning & Discovery !  Mission-Centric Culture can be a bridge Develop Review “Mission-Centric” Management Culture
  31. Evolution of Management Strategy Customer Company Large Development Building Company Development Mission-centric Process-centric Team-centric
  32. Customer Development Versus Product Management The Search for the Business Model The Execution of the Business Model Scalable Large Transition Startup Company -  Delivers MRD’s -  Hypothesis Testing -  Feature Spec’s -  Minimum Feature Set -  Competitive Analysis -  Pivots Customer Development Product Management
  33. Metrics Versus Accounting The Search for the Business Model The Execution of the Business Model Scalable Large Transition Startup Company 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.
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  38. Corporate Mission Statement Template Mission Element Specifics Why your To build CafePress into the world’s largest retailer of customized goods !  employees come to work Make sure customers say we are the only place to go on the web to !  make and sell CDs, books, and promotional items. What they need to do all day !  Give sellers marketing tools to reach their customers !  Try to be a good citizen of our community. Print on recyclable materials, use environmentally friendly packaging, and use non-toxic inks wherever practical. How they will Customers say CafePress is the world’s best place to sell and buy !  know they have custom items succeeded !  Customers get great service for what they consider a fair price. !  Customers come back often (on average once every three weeks). Corporate !  An average store sells $45 per month. revenue and !  Acquire 25,000 new customers per month. profit goals !  Grow to $30 million in revenue by the end of next year. !  Maintain 40% profit margin. !  Take good care of the employees. Provide stock options and full medical and dental benefits.
  39. Back to Functional Depts !  Customer Development team = learning and discovery !  Functional departments = execution Department Department Roles Mission set by Market Type Statement
  40. Customer Development Team Tasks Not Titles CEO VP Product Dev Technical Visionary Business Visionary Business Execution
  41. Functional Departments-Silos Typical Startup CEO VP Engineering VP Marketing VP Sales VP Bus Dev
  42. Department Mission Statement Template Mission Element Specifics Why department members • Create end user demand and drive it into the sales channel come to work • Educate the channel and customers about why our products are superior • Help Engineering understand customer needs and desires What th ey need to do all day • Demand -creation activities (advertising, PR, tradeshows, seminars, web sites, etc.) • Competitive analyses, channel and customer collateral (white papers, data sheets, product reviews) • Customer surveys, market requirements documents How will they know they have • 40,000 active and accepted leads into the sales channel, succeeded company and product name recognition over 65% in target market • Five positive product review per quarter Contribution to corporate profit • 35% market share in year one goals • Headcount of five people, spend under $750K
  43. Mission Centric Management = Agile Company !  Mission Culture !  Information Culture !  Leadership Culture Implement Create an Build a Mission-centric “Information “Leadership Management Culture” Culture”
  44. Mission-centric Management $  Mission intention $  Employee initiative $  Mutual trust and communication $  “Good enough” decision making $  Mission synchronization
  45. Information Culture $  First-hand knowledge $  An overall view $  The view from the eyes of customers and competitors
  46. Synchronization Customer Mission-Centric Process-Driven Development Organization Organization Organization Who !  Customer-facing !  Department-to-department !  Corporate-to- teams & product !  Corporate-to-department department development !  Department-to-corporate teams Why !  Update hypothesis !  Keep departmental missions !  Transmit orders and versus reality aligned with corporate goals from top of !  Allow entire mission the organization company to !  Ensure that departmental downwards understand and missions are mutually !  Report status from react to change supportive bottom of !  Ensure that departments organization tactical moves are in step upwards with the corporate objective(s)
  47. The Agile Company Agile Company Company Mission Mission-Centric Management Department Mission Decisions Mission Timely Employee Intention Decisions Initiative Synchronization Trust & Communication Fast-Response Departments OODA Information Decentralized Gathering & Loops Decisions Dissemination Leadership
  48. Summary !  Management strategies need to change as the company grows "  Development-team centric ! Mission-centric ! Process-centric !  Mission-oriented culture is the “bridge” culture "  Unanimity and clear understanding of purpose, focus and direction "  Adaptability, empowerment, initiative
  49. Customer Development In the Real World The VC Presentation 51
  50. Traditional VC Funding Model Source: Peter Fenton, Benchmark Capital
  51. Traditional VC Funding Assumptions !  Company's risk decreased by hitting milestones !  Which brought about a jump in its valuation !  Additional funding was needed at each milestone !  Resulting in a high level of financial investment !  Lack of iteration meant resolution of success or failure was delayed
  52. Customer Development Funding Model Source: Peter Fenton, Benchmark Capital
  53. Customer Development Funding Assumptions !  Company's risk decreased by shipping as early as possible !  Continual product iteration assumed !  Capital burn kept low until adoption onset !  Additional funding needed refine the model and more to scale a proven model !  Time and cost between the founding and success/failure is greatly decreased
  54. Customer Development meets the Real World !  I’m a believer, but… "  How to do I convince others? "  How do I so without proselytizing? "  Yet how do I make the benefits compelling? !  Venture Capitalists are an early audience
  55. What are Early Stage VC’s Really Asking? !  Are you going to: "  Blow my initial investment? "  Or are you going to make me a ton of money? !  Are there customers for what you are building? "  How many are there? Now? Later? !  Is there a profitable business model? Can it scale?
  56. The Traditional VC Pitch Since You Can’t Answer my real questions here’s the checklist !  Technology !  Team !  Product !  Opportunity !  Customer Problem !  Business Model Better !  Customers
  57. Kleiner Perkins Business Plan Outline !  The opportunity "  company mission, vision !  Team "  Backgrounds, board, advisors !  Market "  Target customer segments, market size & need !  Technology "  Architecture, IP, measurable differentiation !  Go to market strategy "  Bus model, distribution, pricing, partnerships/slingshots? "  Alternatives, competition, comparisons !  Financial & operating plan "  Funding and use of funds "  Milestones
  58. Sequoia Capital’s Business Plan Outline !  Business !  Competition ! Company's business ! Competitors ! Mission statement ! Competitive advantages !  Products !  Team ! Product description ! Background of mgmt ! Development schedule ! Board composition ! Differentiation !  Financials ! Price point ! Historic and projected P&L !  Market (1st two years by qtr) ! Trends ! Projected cash flow (1st 2 yrs by qtrs) ! Historic and projected size in $’s ! Current balance sheet ! Product match to market definition ! Proj headcount by function !  Distribution (R&D, sales, marketing, G&A) ! Sales channels ! Capitalization schedule ! Partnerships !  Deal ! Customers ! Amount raised !  ! Use of proceeds ! Valuation asked
  59. Business Plan Becomes the Funding Slides Business Seed or Fire Concept Plan Series A Execute Founders
  60. “Lessons Learned” Drives Funding Business Test Lessons Concept Plan Hypotheses Learned Series A Do this first instead of fund raising
  61. Credibility Increases Valuation !  Customer Development and the Business Plan "  Extract the hypotheses from the plan "  Leave the building to test the hypothesis "  Present the results as: “Lessons Learned from our customers” "  Iterate Plan
  62. IMVU Background 64
  63. Founding IMVU •  Customer Discovery and Validation –  Founded company in April 2004 –  Sat in this class Fall of 2004 –  Shipped in 6 months –  Charged from Day 1 –  No press releases –  First and last press of 2004/5: The Wired article 65
  64. IMVU VC Presentation September 2005 66
  65. Earlier Lessons Learned •  Sandcastle –  Solve a big enough problem –  Don’t confuse technology with a business •  There.com –  Keep it real small until the hockey-stick –  Don’t scale without customers –  Don’t confuse your passion with “customers will get it later” –  Don’t bring in the suits until it’s just execution 67
  66. Landscape before IMVU Social networks and 2D “paperdoll” avatars Social games and Communities (Myspace) virtual worlds •  Sticky, but... •  Interactive, but... •  No realtime interaction •  Subset of games market, •  Low barrier to entry •  Expressive, but... not superset •  Hard to monetize •  No person-to-person interaction •  Hard to monetize in US 68
  67. Social networking with avatars Customizable home pages with avatar pictures Messages, gifts, blogs, picture galleries, rankings, stickers, wish lists, etc. 69
  68. Customer Discovery & Validation Q4 2004 •  Product: 9,000 $8,000 –  3D IM add-on for hanging out 8,000 $7,000 online with friends 7,000 $6,000 •  Piggy back on existing buddy 6,000 lists and IM programs $5,000 •  Our customers told us: 5,000 $4,000 –  Avatar customization is the key 4,000 $3,000 appeal. 3,000 –  “Add-on” concept is confusing. 2,000 $2,000 They actually want a separate $1,000 1,000 buddy list. 0 $0 •  So we: Dec-04 Feb-05 Apr-05 Nov-04 Jan-05 Mar-05 May-05 Aug-05 Jul-05 Jun-05 –  Ditched the IM add-on idea 70
  69. Customer Discovery & Validation Q1 and Q2 2005 •  Product: 9,000 $8,000 –  3D IM service for hanging out 8,000 $7,000 with friends and meeting people 7,000 $6,000 •  Introduced Chat Now feature (instant matching) 6,000 $5,000 •  Our customers told us: 5,000 $4,000 –  Meeting new friends is as 4,000 important as talking with existing $3,000 3,000 friends (50/50) $2,000 –  Not enough people on IMVU 2,000 –  Retention is a problem 1,000 $1,000 •  So we: 0 $0 –  Scaled up our advertising budget Dec-04 Feb-05 Apr-05 Nov-04 Jan-05 Mar-05 May-05 Aug-05 Jul-05 Jun-05 (to $40/day) –  Learned about retention from market leaders (Cyworld, Myspace) 71
  70. Customer Discovery & Validation Q3 2005 •  Product: 9,000 $8,000 –  3D IM service plus avatar home pages 8,000 $7,000 •  Introduced avatar home pages, plus messages, gifts, picture galleries blogs 7,000 $6,000 •  Our customers are telling us: 6,000 $5,000 –  Avatar home pages are highly 5,000 addictive 4,000 $4,000 –  2D and 3D complement each other $3,000 3,000 –  Messages in home pages and realtime $2,000 2,000 interaction complement each other $1,000 –  Want more than two avatars per 1,000 window: parties and chat rooms 0 $0 Dec-04 Feb-05 Apr-05 Nov-04 Jan-05 Mar-05 May-05 Aug-05 Jul-05 Jun-05 –  Fix the bugs; polish 72
  71. Execution Phase 1, Discovery Phase 2 Q4 2005 – Q1 2006 •  Execution, Phase I –  Real Board: 2 VCs, CEO, CTO, $90,000 and outside member $80,000 –  Hiring plan: one new hire per month (currently 11 people) $70,000 –  Process: Realistic AOP, monthly $60,000 books, Bugdb, teams, delegation $50,000 –  Product metrics: acquisition, $40,000 retention, monetization –  Financial metrics: margins, $30,000 profitability and growth $20,000 $10,000 $0 6/1/05 7/1/05 7/31/05 8/30/05 9/29/05 10/29/05 11/28/05 12/28/05 1/27/06 2/26/06 73
  72. Execution Phase 1, Discovery Phase 2 Q4 2005 – Q1 2006 •  Discovery, Phase 2 –  Company Vision $90,000 •  Big vision (“Avatars everywhere”), two-year focus (“3DIM platform”), $80,000 bounce off bad ideas (lots) –  Active Feedback $70,000 •  Sources: email, survey monkey, direct $60,000 outreach, “focus groups,” customer advisory board, developers, forums $50,000 •  Business Advisory Board $40,000 –  Relate product development to business goals $30,000 –  Give course-correction feedback, team synthesizes $20,000 –  Agile Development $10,000 •  Build software for flexibility, change •  Our customers are telling us: $0 6/1/05 7/1/05 7/31/05 8/30/05 9/29/05 10/29/05 11/28/05 12/28/05 1/27/06 2/26/06 –  What’s next? 74
  73. Vision Lessons Learned – IMVU •  Principles –  Big vision: Avatars everywhere –  Two year focus: 3D instant messaging with home pages –  Bounce off bad ideas: E.g., piggy back IM •  Process –  Ship a product early; get real reactions from real customers –  Expect to iterate –  No artificial barriers or dependencies 75
  74. Agile Development •  “Our highest priority is to satisfy the customer through early and continuous delivery of valuable software.” - http://agilemanifesto.org/ •  Embrace Change –  Build what you need today –  Process-oriented development so change is painless •  Prefer flexibility to perfection –  Ship early and often –  Test-driven to find and prevent bugs –  Continuous improvement vs. ship-and-maintain 76
  75. Growth Strategy •  No launch until we’re ready –  (Not even a press release for our VCs) –  Metrics tell us when we’re ready: acquisition, retention, monetization •  Stay focused on profitability –  Manage for margins as well as gross numbers –  Profitability monotically harder to achieve with each non-profitable day and each new hire •  Partnerships –  Seek win-win relationships with other community 77 sites and products
  76. Financing Lessons Learned – IMVU •  Seed: Self funded $300k –  Low interest note –  Small, self-sufficient team of founders (5) –  Viewed financing as a bridge to profitability •  Series A: Angel funded $600k –  Great advisory board of 8 people (“BAB”) •  Series B: VC funded $8MM –  Go for World Class VC’s at the Hockey-Stick –  Negotiate to sell some Founders’ stock in Series A, and more in Series B 78
  77. Financing Results •  Series B: VC funded $8MM –  Go for World Class VC’s at the Hockey-Stick –  Negotiate to sell some Founders’ stock in Series A, and more in Series B 79
  78. 80
  79. 1999 - 2004 Revenue $12 Millions $27M $10 2004YTD $8 $17M $6 2003 YTD $9.6M 2002 YTD $4 $4.7M $2 $1.4M 2001 YTD $70K 2000 YTD 1999 YTD $0 1999 2000 2001 2002 2003 2004 810
  80. 820
  81. 830
  82. Store/Hosting/Manufacturing/Fulfillment 840
  83. Revenue Gross Profit Pre-tax Income $80 Thousands $70K $40 1999 YTD $0 ($40) ($80) ($120) Q3-99 Q4-99 Shops Images Orders Products 10 Thousands 8 7K 6 SHOPS 4 2 0 Q399 Q499 Launched $70,920 Gross CafePress.com Revenue Q1 Q2 Q3 Q4 850 7,000 Shops
  84. Revenue Gross Profit Pre-tax Income $1,200 $1.4M Thousands $800 2000 YTD $400 $0 ($400) ($800) Q1-00 Q2-00 Q3-00 Q4-00 Shops Images Orders Products 200 Thousands 160 120 80 80K SHOPS 40 0 Q100 Q200 Q300 Q400 VC Funding Xoom.com Sore Loserman Q1 10,000 Shops Q2 25,000 Shops Q3 50,000 Shops Q4 860
  85. Revenue Gross Profit Pre-tax Income $2,000 Thousands $4.7M $1,500 2001 YTD $1,000 $500 $0 ($500) Q1-01 Q2-01 Q3-01 Q4-01 Shops Images Orders Products 800 Thousands 700 600 500 400 300 200K 200 SHOPS 100 0 Q101 Q201 Q301 Q401 19+ Products Java to .NET Webby Award Q1 Q2 Q3 Winner 100,000 Shops 150,000 Shops Q4 870 200,000 shops
  86. Revenue Gross Profit Pre-tax Income $4,000 $9.6M Thousands 2002 YTD` $3,000 $2,000 $1,000 $0 Q1-02 Q2-02 Q3-02 Q4-02 Shops Images Orders Products 2000 Thousands 1600 1200 800 400K 400 SHOPS 0 Q102 Q202 Q302 Q402 1Million Products Premium Shops 60+ Products Q1 Q2 Q3 Q4 880 250,000 Shops 300,000 Shops
  87. Revenue Gross Profit Pre-tax Income $7,000 Thousands $6,000 $17M $5,000 2003 YTD $4,000 $3,000 $2,000 $1,000 $0 Q1-03 Q2-03 Q3-03 Q4-03 Shops Images Orders Products 4000 Thousands 3500 3000 2500 2000 1500 1000 690K 500 SHOPS 0 Q103 Q203 Q303 Q403 CD Launch Books Launch Q1 500,000 Shops Q2 Q3 Q4 890 Million 1 Members
  88. Revenue Gross Profit Pre-tax Income $12,000 Thousands $10,000 $27M 2004YTD $8,000 $6,000 $4,000 $2,000 $0 Q1-04 Q2-04 Q3-04 Q4-04 Shops Images Orders Products 12000 Thousands 10000 8000 6000 4000 2000 1M SHOPS 0 Q104 Q204 Q304 Q404 New Manufacturing Facility 1 Million Shops Q1 Marketplace Q2 Q3 Q4 900
  89. 1999-2007 Revenue $160 Millions $140 $120 $100 $80 $60 $40 $20 $0 1999 2000 2001 2002 2003 2004 2005 2006 2007 910

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