ARPA- E Steve Blank Presentation

The Scientific Method for Getting Technology to Market Steve Blank www.steveblank.com Twitter: @sgblank

How to Fail LessWhen Bringing Technology to Market Steve Blank www.steveblank.com Twitter: @sgblank

I Write a Blogwww.steveblank.com

This Talk is Based On• Business Model Generation • Four Steps Owners Manual•The Startup to the Epiphany www.steveblank.com

Lesson 1 THE "ABCS OF INNOVATION

Startups Are Not Smaller Versions of Large Companies

Startups Are Not Smaller Versions of Large Companies Large Companies Execute Known Business Models

Startups Are Not Smaller Versions of Large Companies Startups Search for Unknown Business Models

Startups Fail Because TheyConfuse Search with Execute

Startups Search, Companies Execute The Execution of the Business Model Scalable Large Transition Startup Company Repeatable processes -Knowns: - customers, features, - channels, pricing, etc -Execution -Understood Job Functions

Startups Search and PivotThe Search for the Business Model Scalable Large Transition Startup Company Business Model found by founders - Solving for unknowns - Searching for a match: - customer needs product features i.e. Product/Market fit - Repeatable sales model

Metrics Versus Accounting The Execution of the Business ModelScalable Large TransitionStartup Company Traditional Accounting -Balance Sheet - Cash Flow Statement - Income Statement

Metrics Versus AccountingThe Search for the Business Model The Execution of the Business Model Scalable Large Transition Startup CompanyStartup Metrics- Average Selling Price/Order Size Traditional Accounting - Balance Sheet- Customer Acquisition Cost - Cash Flow Statement- Customer Lifetime Value - Income Statement- Monthly burn rate- etc.

Customer Validation Versus Sales The Execution of the Business Model Scalable Large Transition Startup Company Sales -Sales Organization - Job titles and functions - Price List/Data Sheets - Revenue Plan

Customer Validation Versus SalesThe Search for the Business Model The Execution of the Business Model Scalable Large Transition Startup CompanyCustomer Validation- Early Adopters Sales - Sales Organization- Pricing/Feature unstable - Scalable- Not yet repeatable - Price List/Data Sheets-“One-off’s” - Revenue Plan

Waterfall Engineering Versus Agile Development The Execution of the Business ModelScalable Large TransitionStartup Company Engineering - Requirements Docs. - Waterfall Development - QA - Tech Pubs

Engineering Versus Agile DevelopmentThe Search for the Business Model The Execution of the Business Model Scalable Large Transition Startup Company Engineering Agile Development - Requirements Docs. - Continuous Deployment - Waterfall Development - Continuous Learning - QA - Tech Pubs - Self Organizing Teams - Minimum Feature Set - Pivots

Startups Model, Companies Plan The Execution of the Business ModelScalable Large TransitionStartup Company Business Plan - describes “knowns” - features - customers/markets/channel - pricing - revenue forecast

Startups Model, Companies PlanThe Search for the Business Model The Execution of the Business Model Scalable Large Transition Startup Company-Business Model -Plan describes “knowns” - Known features for line extensions- describes “unknowns” - Known customers/markets-customer needs - Known business model- feature set- business model- found by iteration

Large Company Product Introduction Plan Concept/ Product Alpha/Beta Launch/Seed Round Dev. Test 1st Ship

When Adopted by Startups =The Leading Cause of Startup Death Concept/ Product Alpha/Beta Launch/Seed Round Dev. Test 1st Ship

Product Introduction Plan: Two Implicit Assumptions Customer Problem: known Concept/ Product Alpha/Beta Launch/Seed Round Dev. Test 1st Ship Product Features: known

Execute the Business Plan

Large Company Method – Hire Marketing Concept/ Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship - Create Marcom - Hire PR Agency - Create DemandMarketing Materials - Early Buzz - Launch Event - Create Positioning - “Branding”

Large Company Method – Hire Sales Concept/ Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship - Create Marcom - Hire PR Agency - Create DemandMarketing Materials - Early Buzz - Launch Event - Create Positioning - “Branding” • Hire Sales VP • Build SalesSales • Hire 1st Sales Staff Organization

Large Company Method – Hire Business Development Concept Product Alpha/Beta Launch/ Dev. Test 1st Ship - Create Marcom - Hire PR Agency - Create Demand Marketing Materials - Early Buzz - Launch Event - Create Positioning - “Branding” • Hire Sales VP • Build Sales Channel / Sales • Pick distribution Distribution Channel Business • Hire First • Do deals for FCSDevelopment Bus Dev

Large Company Method – Hire Engineering Concept Product Alpha/Beta Launch/ Dev. Test 1st Ship - Create Marcom - Hire PR Agency - Create Demand Marketing Materials - Early Buzz - Launch Event - Create Positioning - “Branding” • Hire Sales VP • Build Sales Channel / Sales • Pick distribution Distribution Channel Business • Hire First • Do deals for FCSDevelopment Bus DevEngineering • Write MRD • Waterfall • Q/A •Tech Pubs

Lesson 2 LETS CHANGE THE DEFINITION OF A STARTUP

Theory

All I Need to Do is Execute the Plan

Reality

No Business Plan Survives First Contact With Customers

Lets Change the Definition

A Startup is a temporary organization

A Startup is a temporary organization designed to search

A Startup is a temporary organizationdesigned to search for a repeatable and scalable business model

Startups need their own tools, different from those used in existing companies

Lesson 3 THE 3 TOOLS FOR STARTUPS

Startup Tool #1:Agile Engineering

Agile Engineering is How We Build Startups

Agile Engineering is theantithesis of Waterfall Development

Agile Engineering is the antithesis of WaterfallIt admits “We Cannot Know All the Features Customers Need”

Agile Engineering is the antithesis of WaterfallIt admits “We Cannot Know All the Features Customers Need” So lets build iterative and incrementally

Startup Tool #2:The Business Model

The Business Model:Any company can be described in 9 building blocks

sketch out yourbusiness model

Business Model Canvas – Any Business KEY KEY OFFER CUSTOMER CUSTOMERPARTNERS ACTIVITIES RELATIONSHIPS SEGMENTS KEY CHANNELS RESOURCES COST STRUCTURE REVENUE STREAMS

9 Guesses GuessGuess Guess Guess Guess Guess Guess Guess Guess

Startup Tool #3:Customer Development

Customer Development is How We Search for the Business Model

Lesson 4 CUSTOMER DEVELOPMENT

Customer DevelopmentThere are no facts inside your building So get the heck out

Customer Development is how you search for the model Search ExecutionCustomer Customer Customer CompanyDiscovery Validation Creation Building Pivot

Customer Development The Search For the Business Model SearchCustomer CustomerDiscovery Validation Pivot

Customer Development ExecutionCustomer Customer Customer CompanyDiscovery Validation Creation Building Pivot

Customer Discovery Search Customer Customer Customer Company Discovery Validation Creation Building Pivot Execution• Articulate and Test your hypotheses• Design experiments, start listening• Continuous Discovery• Done by founders

Discovery• How big is the market?• Who’s the customer? – What’s their problem/need• What’s the product/service/need? – Does it solve the customers problem?• How do you create demand?• How do you deliver the product?• How do you make money?

Customer Development = process to searchBusiness Model Canvas = the ScorecardAgile Engineering is How•ResearchLabs •Technology Design •Marketing •Cost •Farming conventions. •Demo, dem o, and •Organic •Demo and Reduction We Build Startups•EquipmentManufacturers customer feedback •Remove labor force demo!! •Proximity is paramount Farmers •Weeding Service•Distributio pains •IP – Providersn Network •Eliminate Patents •Conventio•Service •Video bio-waste •Dealers nal FarmersProviders Classifier hazards •Direct Service Files •Indirect Service • … then Dealers •Robust Technology Value- •Asset Sale Driven •Direct Service with equipment rental •… then Asset Sale

The Minimum Viable Product (MVP) •Smallest feature set that gets you the most … - orders, learning, feedback, failure… - incremental and iterative

Hypotheses Testing and Insight

Customer Validation Search Customer Customer Customer Company Discovery Validation Creation Building Pivot Execution• Repeatable and scalable business model?• Passionate earlyvangelists?• Pivot back to Discovery if no customers

The Pivot Search Customer Customer Discovery Validation Pivot•The heart of Customer Development•Iteration without crisis•Fast, agile and opportunistic

Instead of Firing Founders When They Don’t Make the Plan

Instead of Firing Founders When They Don’t Make the Plan First, Fire the Plan

Pivot Cycle Time Matters Search ExecutionCustomer Customer Customer CompanyDiscovery Validation Creation Building Pivot•Speed of cycle minimizes cash needs•Minimum feature set speeds up cycle time• Near instantaneous customer feedback drives feature set

Lesson 4 HOW DOES THIS REALLY WORK? LEAN LAUNCHPAD CLASS

How Does This Really Work? Lean LaunchPad Class National Science Foundation

Startups to Large Companies

How Does This Really Work?The National Science Foundation 8 Weeks From an Idea to a Business

Graphene FrontiersWe are a nanotechnology materialscompany with a proprietary process forproducing high quality, low cost, largearea graphene films at commercial scale

Team: Graphene FrontiersEL:Zhengtang Luo, PhD – Chief Science Officer10+ years experience in synthesis of carbonnanomaterials and product development for applicationsin the area of materials chemistry, chemical separationand electronic devices.Mentor: Mike Patterson – CEOExperienced entrepreneurial leader, manager, andtrusted adviser to startups and Fortune 500companies, providing expertise in growth strategy andinternational operations. Patterson is an Executive MBAcandidate (Entrepreneurial Management, April 2012) atthe Wharton School, University of Pennsylvania.PI: A.T. Charlie Johnson, PhD – Founder, Scientific Advisory BoardKnown internationally for his work in graphene electronics and carbon nanotube electronics. IP from his lab onDNA-carbon nanotube devices for use in an electronic nose system pursued by Nanosense. An author of over130 peer-reviewed articles, Johnson holds two issued patents, with 18 other patents submitted.

Background: Graphene Applications “Wonder Material” Graphene• Nano Material Subject of 2010 Nobel Prize in Physics• 2D Carbon: Strong, Flexible, Conductive, Transparent• Enables Next Generation Thin, Flexible Devices Flexible Transparent Thin, Flexible Touch Screen, Displays Electrodes Solar Cells

Problem: Lab Scale Not Enough Graphene Production Must Scale Up to Commercial Levels before Integration into Consumer Products Becomes a Reality…

Solution: Scalable Production ProcessOur Patent-Pending APCVDGraphene Production Process:•Operates at ambientpressure, reducing cost enablingflexible design•Industrial scale, continuous roll-to-roll production possible•Graphene sheet size limited only byCVD furnace dimensions•Same or better quality vis-à-visLPCVD graphene•Graphene growth at 900-1000°C, lower than other methods

Market: Size and Growth Nascent Graphene Market is Ready to Explode: Commercial Scale Production will be Catalyst • Thin, Flexible Displays • Solar Thin Film • Touch Screens Thin, Flexible Display • Thermal Management for Electronics Thermal Management $8.2B • Basic Materials and Research $6.4B • Microscopy (TEM) Sample Supports GF TAM: $1.2B Research/ Market for Thin Film Solar Mat’l/Other Graphene $4.6B $1.4B Films/Sheets $52M Graphene Frontiers Process & Product Offering • GF APCVD Process will Accelerate Graphene Adoption Curve 2012 2016

Recap• Graphene technology will change the world...• …but not until it is available in commercial volumes• We believe that APCVD is the best path to industrial scale• Whoever meets this challenge will be first mover in a fast growing market with multi-billion dollar potential• We are the right team with the right technology to do it

Enter I-Corps: Beginning HypothesesHere’s What We Thought: – Graphene can be used for just about anything – All of the big manufacturers are just waiting for our product – The market for graphene will explode in 2012 – We will become the world’s largest graphene manufacturer

The Business Model Canvas - Version 1 • R&D• Lead Customer • Scale up system Material • Warranty• Equipment Mfg design • Thermal Conduct. • Service/Maint.• Universities • Graphene product. • Defense • Elect. Conduct Agree• Downstream • IP creation/ • MEMS • Strength • Joint Marketing fabrication licensing • Chem/Bio Sensor • “Semiconductor” • Branding companies • Internal app. dev. • Researchers • Flexible • Education• Suppliers • Optoelectronics • Transparent • Transparent Process Conduct. (Touch) • Low Cost • Solar Cell • Higher Quality Electrodes • IP* • Distributor • Thermal Mgmt • Large Area (Patent/License) • Direct Sales • Supercapacitor • “Industrializable” • Team/Expertise • Online • Battery • Flexible Mfg • Credibility/Rep • License • TEM support • CVD Equipment • Partner/JV • Polymer/Compos. • Inputs (gas/foil) • Bundle • CVD Equip Mfg • Lab space • Website • Design/Engineerin • Team g • Lab space • Material Sales • Maintenance • Capital equipment • License/Royalty • Design • Direct Sales/Travel • Equipment Sales • Add’l IP • Consulting • Applications

So Here’s What We Did…• Research to identify target companies: Build the list – Web, industry/research reports, personal network, “Who else should we talk to?”• Calls to personal/professional/alumni network: “Do you know anyone…?”• Intros, warm calls, cold calls, cold calls, more calls

So Here’s What We Did…• Google AdWords Campaign + Survey Monkey – 3 days, 8,555 Impressions, 34 people clicking through to our site, ZERO contacts/closes. Retrospect: What were we trying to learn???• Serendipity: Casual conversation turns to Graphene Frontiers at alumni event: “That’s terrific! You know, I work at DuPont. Here’s my card… send me your deck and let me know how I can help.” –Tom Connelly, Chief Innovation Officer, DuPont

So Here’s What We Did…• 48 Companies Engaged, 70+ Conversations: – Lockheed Martin, GrafTech, Inventables, alphaMOS, FirstNano, Pannam Imaging, FujiFilm, Solutia, Dontech, Tramonto Circuits, Adamant Technologies, Intel, XG Sciences, Graphene Technologies, Densitron, Hotatouch, Touch International, Magic Touch, NJY Technology, Pangea Ventures, Display Search, Dow, DuPont, 3M, Corning, BASF, WL Gore, Morgan AM&T, Plextronics, SPI Supplies, New Metals and Chemicals, G.E., Innovalight, Siemens, Nelson-Miller, Essilor USA, Nexans, E- ink, Gamma Dynamics, Plastic Logic, Cabot Corporation, Thin Diamond, Knighthawk Engineering, Kopietz Consulting, DISPLAX, NineSigma, Evaporated Coatings, LiquaVista• 80 LLL Posts, 61 Comments/Responses – 79% comments positive or factual, 21% “Constructive”

Version 2 – Narrowed to 3 Customer SegmentsEquipment Mfg Scale up Low Cost Education Thermal Mgmt SolutionsUniversities Customization Higher Quality Service/Maint. Transparent Production Conduct.Downstream Large Area (Touch)fabricationcompanies Chem/Bio “Industrializable” IP License Sensor CVD Equipment Direct Sales Facilities/Lab License/Royalty Capital equipment Personnel Material Sales Direct Sales/Travel Lab space

So Here’s What We Learned…• Atmospheric pressure production is key value-add – Not “high-quality”, not single-layer• Many big companies are on the sidelines doing limited product dev, waiting for a proven production method• We need to focus on scaling up (bigger & faster)• We need a partner to break into consumer electronics• Cost matters, but not as much as we thought

Version 3 – Manufacturing Wasn’t Our BusinessEquipment Mfg Scale up Low Cost Education Thermal Mgmt SolutionsUniversities Customization Higher Quality Service/Maint. Transparent Production Conduct.Downstream Large Area (Touch)fabricationcompanies Chem/Bio “Industrializable” IP License Sensor CVD Equipment Direct Sales Facilities/Lab License/Royalty Capital equipment Personnel Material Sales Direct Sales/Travel Lab space

So Here’s What We Learned…• TEM grids are viable, near term but small market – Will rely on distribution partner• Displays will be next big thing – Focus on flexible/foldable thin displays – May require partnership with OEMs or sub-contractors• Extensive product characterization is next step – Transparency, haze, sheet resistance for displays (3M, Dow, DuPont) – Minimize layers and contamination for TEM (SPI, Halcyon)

Version 4 – Key Segment/Work with Other ProductsEquipment Mfg Scale up Low Cost Education Thermal Mgmt SolutionsUniversities Customization Higher Quality Service/Maint. Transparent Production Conduct.Downstream Large Area (Touch)fabricationcompanies Chem/Bio “Industrializable” IP License Sensor CVD Equipment Direct Sales Facilities/Lab License/Royalty Capital equipment Personnel Intermediate product Material Sales Direct Sales/Travel Lab space

Version 5 – Explored/Ruled Out New Segment Scale upEquipment Mfg Low Cost Education Thermal Mgmt Solutions Customization Service/Maint.Universities Higher Quality Transparent Collaborative R Conduct. Production &D (Touch)Downstream Large Areafabrication Membranecompanies switches “Industrializable” IP License Replace ITO CVD Equipment Direct Sales Facilities/Lab Chem/Bio Sensor License/Royalty Capital equipment Personnel Intermediate product Material Sales Direct Sales/Travel Lab space

Pivot, into near termand medium term

Version 6 – Near Term BusinessResearch Transfer Process Academic PapersGroups Optimization Atomically Thin and Robust Electron Trade Shows MicroscopistsTEMEquipment Higher QualityMfg. “Clean” IP CVD Equipment Facilities/Lab“Free” Revenue Sharing(Selling Byproduct) w/Distributor

Version 7 – Mid-Term Business Scale upEquipment Foldable / Education FlexibleMfg Bendable Transparent Customization Service/Maint. ConductorUniversities Higher Quality Collaborative R&DDownstream Large AreaFabricationCompanies “Industrializable” IP License Low Cost CVD Equipment Facilities/Lab Intermediate License/Royalty Capital Equipment Personnel product Direct Sales/Travel Lab space

What’s Next: Strategy and Roadmap 1H 2012Phase 4” Scale-UpProduct/ TEM GridsRevenue Materials BusinessMilestone 12” x 12” Sheet ProductionActivity Scale-Up Sheet Size Increase Area

What’s Next: Strategy and Roadmap 1H 2012 2012 4” Scale-Up Commercial Roll-to-Phase Roll Design & PrototypeProduct/ TEM Grids Process LicensingRevenue Materials Business 12” x 12” Sheet Roll-to-Roll Mfg.Milestone Production Industrial Scale PerfectActivity Scale-Up Sheet Size Continuous Process Increase Area Increase Throughput

What’s Next: Strategy and Roadmap 1H 2012 2012 2013+ Commercial Roll-to- ApplicationPhase 4” Scale-Up Development Roll Design & PrototypeProduct/ TEM Grids Process Licensing Intellectual Property Materials Business Thin, Flexible DisplaysRevenue 12” x 12” Sheet Roll-to-Roll Mfg. Application R&DMilestone Production Industrial Scale Team “World Leader in Perfect CVD GrapheneActivity Scale-Up Sheet Size Continuous Process Innovation” Increase Area Increase Throughput New Applications

What’s Next: Secure Partnerships + Investment Distribution Partners

What’s Next: Secure Partnerships + Investment Distribution Active Customer Partners Conversations

What’s Next: Secure Partnerships + Investment Distribution Active Customer Manufacturing Partners Conversations Partners

21 Teams in 2011 200 teams/year 2012National University Network Stanford University of Michigan Georgia Tech Others to be announced

National Science Foundation I-Corps I/UCRC SBIR ERC AIR/PFI GOALI STTR STC Industry NSF Primary Funding InvestorsResources Invested “Ditch of Death” Valley of Death Foundations Small Business University Discovery Development Commercialization

Crossing “The Ditch of Death” I-Corps SBIR ERC I/UCRC AIR/PFI GOALI STTR STC Industry NSF Primary FundingResources Invested Investors “Ditch of Death” Valley of Death Foundations Small Business University Discovery Development Commercialization

But This Can’t Possibly Work in Large Companies

Customer Development in GE Energy Storage 2010-2012

Durathon™ Battery SystemsGE Energy Storage

Make This a Billion Dollar Business

Build A $100M Factory

No, Let’s Get the Customers First

Cells and modules … building blocks ofthe Durathon system TM Cell High Power Durathon High Energy 113 Seconds Minutes Hours

Cells and modules … building blocks ofthe Durathon system TM Cell Battery Module (Application-Specific) Telecom: 84 Cells UPS: 216 Cells High Power Durathon High Energy 114 Seconds Minutes Hours

Cells and modules … building blocks ofthe Durathon system TM Cell Battery Module System (Application-Specific) Telecom: 84 Cells UPS: 216 Cells High Power Durathon High Energy 115 Seconds Minutes Hours

Segment Analysis “No Plan Survives First Contact With Customers” Segment Attractiveness• Size / Growth• Profitability explore invest – Price Premium – Cost to engage – Cost to serve• Technical Risk – Development Cost ignore harvest Ability to Compete • Technical Fit • Perceived Value • Competitive forces • Adoption Cycle • Channel fit GE – Transportation

Assess and Prioritize Opportunities Customer• EV Discovery• Rail• Mining 1• Signaling / Security• Grid / Utility• Material Handling• Military Requires in-depth understanding of benefits sought by customers GE – Transportation

Assess and Prioritize Opportunities• EV Customer• Rail Discovery• Mining• Signaling / Security• Grid / Utility 1• Material Handling• Military JUDGMENT-BASED • Generate Hypotheses • Interpret Results • Intuitive • “Why?” Requires in-depth understanding of benefits sought by customers GE – Transportation

Assess and Prioritize Opportunities• EV Customer Customer• Rail Discovery Validation• Mining • Market 1, 2, 3, . . . .• Signaling / Security• Grid / Utility 1 2• Material Handling• Military JUDGMENT-BASED DATA-DRIVEN • Generate Hypotheses • Test Hypotheses • Interpret Results • Analyze Data • Intuitive • Deductive • “Why?” • “Why?” and “What?” Requires in-depth understanding of benefits sought by customers GE – Transportation

Market ScreeningDiscussions with ~50 different “customers” Clustered into 15 Different Segments • EV – Small • Signaling • Commercial EV • Communications • Passenger EV • Wind • Mining • Solar • Marine • T&D Deferral • Rail • Building Level • APU • OEM - BESS Grid • Fire &Security GE – Transportation

Customer development plan 2010 2011 2012 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Test Problem & State Product Customer Discovery VerifyHypotheses Hypotheses GE – Transportation

Customer development plan 2010 2011 2012 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Test Problem & StateHypotheses Product Verify Customer Discovery Hypotheses Prep to Sell Customer Validation Sell to EarlyVangelists Develop Positioning GE – Transportation

Customer development plan 2010 2011 2012 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Test Problem & StateHypotheses Product Verify Customer Discovery Hypotheses Prep to Sell Customer Validation Sell to EarlyVangelists Develop Positioning Ready Create to Position Company & Product Demand Launch Launch GEES Customer Creation & Durathon GE – Transportation

Customer development plan 2010 2011 2012 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Test Problem & StateHypotheses Product Verify Customer Discovery Hypotheses Prep to Sell Customer Validation Sell to EarlyVangelists Develop Positioning Ready Create to Position Company & Product Demand Launch Launch GEES Customer Creation Company Building & Durathon Crossing the Chasm Move from EarlyVangelists to Mainstream Customers GE – Transportation

GEMX Business Model Scorecardcritical pending actions Key Partners Key Activities Value Proposition Customer Relationships Customer Segments Who are our key partners/ suppliers Which key activities does the biz What value do we deliver to the What type of relationship does each For whom are we creating value model require customer segment require of us Complete regional overview  Populate life cycle data for performance  key distinctive product features  product positioning/elevator pitch for  identify key market segments guarantees &benefits for the target customer each segment (geography/application) and customer segment  Prospect roadmap: how to get face-to- segments (e.g. operator versus owner)  Educate market on metric: $/kWh-day  total cost of ownership for segment face with right person at prospects in  how many customers in each segment delivered over life of asset versus alternatives each segment and estimated potential volume for  why will segment buy Durathon versus  key competitors in each segment and each customer  Establish strong partnerships with alternatives (i.e. value proposition) their market share  how do customers make money … key channel partners  minimum feature set (i.e. our launch  key competitors characteristics & customer pain/gain points in each configuration) and ultimate feature set dynamics segment  opportunities to claim IP or trademark /  What outbound marketing/ advertising/  how are buying decisions made in is there freedom to practice promotion activities are needed each segment - id 0  what regulatory/ certification/  support tools required by segment process, hurdles, decision makers transportation/ customs requirements (white papers, TCO calc., tradeshow)  what does an Earlyvangelist look like in should be met or could be differentiator  pipeline of leads each segment Key Resources 25  who influences purchases in each Which key resources does the biz segment (trade groups, key model require Channels resellers, trend watchers)  Integrated power system engineering – Through which channel does each compatibility for retrofit and optimized segment want to be reached system solutions  Financing options for Power services  which segments can only or best be operators reached through a channel partner  which channel partners are important to optimize sales in each segment  what are channel partners requirements and cost to become a proactive sales channel  initial channel partner response to value proposition & customer segments 12 25 4 50 Cost Structure Revenue Streams What are our cost drivers How much is each segment willing to pay and how would they like to pay us this amount  Launch reliability  What are price /performance characteristics of competing technology  What is the 2013 price target for 1 MM cells  What is the 2015 price target for 10 MM cells  what is optimum sales method for each segment (asset sale, lease, pay for performance, etc.) 3 X = number of in depth customer data points / data sources used to validate hypothesis x red = low hypothesis confidence x yellow = medium hypothesis confidence green = high hypothesis confidence x GE – Transportation

PIVOT: End Users, More Markets• “Partners” really wanted orders to fill, no risk, not a partnership• Channel partners expected GEMx to deliver customers• Initiate High-Speed End-User Customer Discovery• Value Proposition values notably by channel, user, geography GE – Transportation

PIVOT: END USERSNot all customers alike, even in identical verticals• Customer segmentation emerges: how they use, evaluate, buy, manage• Value proposition and pricing vary by customer use, metric• Openness to new technology, speed of piloting become key issues GE – Transportation

PIVOT: END USERSNot all customers alike, even in identical verticals• Customer segmentation emerges: how they use, evaluate, buy, manage• Value proposition and pricing vary by customer use, metric• Openness to new technology, speed of piloting become key issuesFocused Segment strategy; Value Prop varies by segment• Focus on <8 hours of grid/day, extreme temperature climates• Segment said “recharge rate” important to value proposition• Energy produced per day a key Value Proposition in this market GE – Transportation

Energy Storage on The Grid$1.5B in 2010, to $35.3B annually by 2020* T&D Support – Time Shifting – Load Following – Supply Capacity – Area Regulation – T&D DeferralT&D Support ExampleGolden Valley Electric Association,Alaska Renewables Integration – Firming – Curtailment – Smoothing 27 MW, 15 Minutes$750-900 $ / kW 1011 Modules 226,517 Cells60 percent reductionin power supply typeoutages End User Applications *Pike Research report –Time of Use –Power Quality –Demand Charge GE – Transportation

Cold Storage “Niche” for Durathon ? ™One battery vs Three to Four Batteries 3 – 6* batteries per 24/7 warehouse operators 24 hour truck Pb-acid Enersys 8 hr use 8 hr charge 8 hr cool 1.5 batteries per 24 hour truck NaMx Typical battery charging station Acid spill containment not shown. 8 hr use 8 hr charge 8 hr use*Freezer operations require 4~6 Pb acid batteries / truck, but only 1.5 Durathon batteries per truck !! GE – Transportation

But What Does This Mean For You?

Inventor of the Modern Corporation Scalable Large Transition Startup Company

Inventor of the Modern Corporation Scalable Large Transition Startup Company Alfred P. Sloan

Alfred P. Sloan Scalable Large Transition Startup CompanyGeneral Motors, President/Chairman- Cost Accounting- MIT Sloan School- Sloan Foundation- etc.

Founder of General MotorsScalable Large TransitionStartup Company

Founder of General MotorsScalable Large TransitionStartup Company Billy Durant

Billy DurantScalable Large TransitionStartup Company - Leader in horse-drawn buggy’s -Fired by board, starts Chevrolet - Regains control of GM -Fired by board, GM ~$3.6 billion* * GM Net sales in 1921 $304.5M = $3.6 Billion today

Durant Versus SloanScalable Large TransitionStartup Company

Durant Versus Sloan •Dies, rich, honored and famous

Durant Versus Sloan•Dies managing a bowling alley • Dies, rich, honored and famous

Durant Versus Sloan Accountant•Dies managing a bowling alley • Dies, rich, honored and famous

You are hereScalable Large TransitionStartup Company

This Talk is Based On• Business Model Generation • Four Steps Owners Manual•The Startup to the Epiphany www.steveblank.com

Book signing and copies of the Startup Owner’s Manual 4pm in the Students Room

I Write a Blogwww.steveblank.com

Thankswww.steveblank.com

# of customers: ~85 peopleHydrogen sensors in Chlor-alkali 151

Founding TeamDr. Jason Gu Principal inventor CEO and Entrepreneurial LeadDr. Peter Foller Former Director of R&D Chemical and Optical, PPG Industries Market Exploration and AcquisitionProf. Robert F. Davis Professor of Materials Science, CMU National Academy of Engineering Advisor and MentorProf. Lisa M. Porter Professor of Materials Science, CMU Technological Development and Principal InvestigatorMr. Jacob Melby Graduate Student, Carnegie Mellon University Principal Engineering Specialist

Major Commodity Market – Chlorine Production

Major Commodity Market – Chlorine Production Thorn in the lion’s paw (184 incidents in Europe, 4yrs) Plant cost: $1B Co-produced H2 + Cl2 =

[Current Standard-Operating Procedure] Once a week monitoring VS [Innovation] Real-time data [H2]Licensed Novel technology Hazardous Industrial Environments

Fragmented technologies and market 156ensors market 2011: $5.6B (US) $15B (World) 2014: $6.1B (US) $20B (World)

Sensors market 2011: $5.6B (US) $15B (World) 2014: $6.1B (US) $20B (World)Hydrogen in Chlorine: $94M• Hydrogen in [Fluorine, Bromine, Iodine]• Hydrocarbons in high pressure (methane hydrate exploration)• Hydrogen + hydrocarbons in high temperatures (refineries)• Wireless transmission of temperature at high temperatures (quality assurance)• pH and temperature in acidic solutions (steel making)• Hydrogen + hydrocarbons in anaerobic conditions (transformer gas monitoring)•…..

Partnership with dominant technology provider in C/A.Product development 66% completed. Customer pilot plant test approved. Plant visits.Market survey sent out to C/A plant managers

Explored ItemContract Design Product H2/HC Monitoring Provide Severe Shops Development In Severe infrastructure Environment Suppliers/ Production Environments Operators Component Manufacturers Applications sourcing Efficiency Research Chlorine Institutes and Regulatory/Insuran Production Journals ceDomain Suppliers IP and Expertise Direct Regulatory and Government Capital Assets Domain Specific Suppliers Distributors Supplier Monitoring Fixed Economics Sensor Sales Services Sales and Royalties Marketing

Value Propositions ‘Need-to-have’s ‘Nice-to-have’s Detects specific species (typically ratio  Extreme kinetics and sensitivity of species)  Wireless (if low volumes) Sufficient kinetics and sensitivity  Low-cost Signal reliability (no false  Extremely Long-lasting positives/negatives)  Detection of other species Wireless (if high volumes)  Low-power User interface (if software) Visualization of data  Can be display on sensor or even warning LEDs Sensor lifetimes matching replacement cycle of another more crucial part It only has to work, and be easy to use

Accepted Explored ItemContract Design Product H2/HC Monitoring Provide Severe Shops + Development In Severe infrastructure EnvironmentSuppliers/Manufa Operators Production Environments Component cturers sourcing Domain Specific Research Efficiency Suppliers Institutes and Regulatory/Insuran (especially if R&D Journals ce is needed) DomainSuppliers, Regulat Minimum Viable Applications ory and Product IP and Expertise Direct Chlorine Government Reliably detect Production Capital Assets species of interest Domain Specific Suppliers … Easy to use Sync with other Distributors cycle Wireless(if volume) Supplier Monitoring Fixed Economics Sensor Sales Services Sales and Royalties Marketing

Channel Interviews• C/A Partner – Regional • Director of R&D • Director of Marketing Emerging Markets Interviews • Director of Product Service • Senior Acct Managers 1.Jonathan Levine, Hydrate Research • R&D Engineers 2.NETL Methane Hydrate RG – Global 3.Berkeley sensors group • CTO• Jeff Farbacher, CEO Accutran• Charles Noll, Marcellus Shale Development Group• Former GE Employee• Tim Fogarty, Director of IW Energy• Ed Faust, Global Marketing, Siemens• Dr. Bob Lad, President of Environetix

 Each step process has different risk premium Detection limit of the sensor required is different for each step of the process. Discussions are in cell technologies Cell Technologies Liquifaction Current Measurement Gas chromatograph Drying Towers

 Each step process has different risk premium associated Detection limit of the sensor required is different for each step of the process. Discussions are in cell technologies#GOALPrice the same product differently based on whatwe protect as opposed to an agglomerate value add. Cell Technologies Liquefaction Current Measurement Gas chromatograph Drying Towers

Understand Economics of Plant + Sensors Understand Economics of Technology Supplier Technology Supplier

Understand Economics of Plant + Sensors Industrial Plants Understand Economics of Plant #1 Technology Supplier Plant #2 Plant #3 Technology Supplier

Accepted Explored Item ProductContract Design H2/HC Monitoring Provide Severe 167 Shops + Development In Severe infrastructure EnvironmentSuppliers/Manufa Operators Production Environments Component cturers sourcing Domain Specific Research Efficiency Suppliers Institutes and Regulatory/Insuran (especially if R&D Journals ce is needed) DomainSuppliers, Regulat Minimum Viable Applications ory and Product IP and Expertise Direct Chlorine Government Reliably detect Production Capital Assets species of interest Domain Specific Suppliers … Easy to use Sync with other Distributors maint. cycle Wireless(if volume) Supplier Monitoring Fixed Economics Sensor Sales Services Sales and Royalties Marketing

Diaphragm Membrane 168 $240/MT Cl2 Operational conditions Capital cost per incident Downtime per incident # of cells protected Cost of damages + downtime per incident per year Time between incidents Number of cells, US and worldwide Value per unit per year Diaphragm Membrane Membrane Header $2,500 $270 $10,600

Soft product launch projected for Q1-Q2 169 2012 General launch projected for Q4 2012Diaphragm Membrane Membrane Header $2,500 $270 $10,600 Year Type % Revenue [/year] 1 Innovators (US) 2.5 $271,500 Operating costs for 1st year projected to be $350,000 2 Early Adopters 16 $15,040,000 3 Early Majority 50 $47,000,000 4 Late Majority 84 $78,960,000 Full Penetration 100 $94,000,000

Low Volume / High Customization Where do they get their sensors?  Specialized systems distributors  Will fund R&D  Existing channel into markets  Specialized sensor providers  Industry technology providers  Will fund R&D  Excellent channel into specific market Current Chlor-alkali Partner

ProductContract Design H2/HC Monitoring Provide Severe 171 Shops Development In Severe infrastructure Environment Suppliers/ Production Environments Operators Component Manufacturers Applications Safety sourcing Research Chlorine Institutes and Efficiency Production Journals EnvironmentalDomain Suppliers IP and Expertise Direct Regulatory and Government Capital Assets Domain Specific Suppliers Distributors Supplier Monitoring Fixed Economics Sensor Sales Services Sales and Royalties Marketing

ProductContract Design H2/HC Monitoring Provide Severe 172 Shops Development In Severe infrastructure Environment Suppliers/ Production Environments Operators Component Manufacturers Applications Safety sourcing Research Chlorine Institutes and Efficiency Production Journals EnvironmentalDomain Suppliers IP and Expertise Direct Regulatory and Government Capital Assets Domain Specific Suppliers Distributors Supplier Monitoring Fixed Economics Sensor Sales Services Sales and Royalties Marketing

ProductContract Design H2/HC Monitoring Provide Severe 173 Shops + Development In Severe infrastructure EnvironmentSuppliers/Manufa Operators Production Environments Component cturers sourcing Domain Specific Research Efficiency Suppliers Institutes and Regulatory/Insuran (especially if R&D Journals ce is needed) DomainSuppliers, Regulat Minimum Viable Applications ory and Product IP and Expertise Direct Chlorine Government Reliably detect Production Capital Assets species of interest Domain Specific Oil and Gas Easy to use Suppliers Power Sync with other Distributors Infrastructure cycle Wireless(if volume) … Supplier Monitoring Fixed Economics Sensor Sales Services Sales and Royalties Marketing

ProductContract Design H2/HC Monitoring Provide Severe 174 Shops + Development In Severe infrastructure EnvironmentSuppliers/Manufa Operators Production Environments Component cturers sourcing Domain Specific Research Efficiency Suppliers Institutes and Regulatory/Insuran (especially if R&D Journals ce is needed)Domain Suppliers, Applications Minimum Viable Regulatory and Product Government IP and Expertise Direct Chlorine Reliably detect Production Capital Assets species of interest Domain Specific Oil and Gas Easy to use Suppliers Power Sync with other Distributors Infrastructure maint. cycle Wireless(if volume) … Supplier Monitoring Fixed Economics Sensor Sales Services Sales and Royalties Marketing

Accepted Explored Item ProductContract Design H2/HC Monitoring Provide Severe 175 Shops + Development In Severe infrastructure EnvironmentSuppliers/Manufa Operators Production Environments Component cturers sourcing Domain Specific Research Efficiency Suppliers Institutes and Regulatory/Insuran (especially if R&D Journals ce is needed)Domain Suppliers, Applications Minimum Viable Regulatory and Product Government IP and Expertise Direct Chlorine Reliably detect Production Capital Assets species of interest Domain Specific Suppliers … Easy to use Sync with other Distributors maint. cycle Wireless(if volume) Supplier Monitoring Fixed Economics Sensor Sales Services Sales and Royalties Marketing

CUSTOMER SEGMENTS which customers and users are you serving? which jobs do they really want to get done?

VALUE PROPOSITIONS what are you offering them? what is that getting done for them? do they care?

CHANNELShow does each customer segment want to be reached? through which interaction points?

CUSTOMER RELATIONSHIPSwhat relationships are you establishing with each segment? personal? automated? acquisitive? retentive?

REVENUE STREAMS what are customers really willing to pay for? how?are you generating transactional or recurring revenues?

KEY RESOURCESwhich resources underpin your business model? which assets are essential?

KEY ACTIVITIESwhich activities do you need to perform well in your business model? what is crucial? 183

KEY PARTNERSwhich partners and suppliers leverage your model? who do you need to rely on?

COST STRUCTURE what is the resulting cost structure?which key elements drive your costs?

key activities value customer proposition relationships key customerpartners segments cost revenuestructure key streams resources channels 186 images by JAM

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ARPA- E Steve Blank Presentation

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