Business Models Steve Blank www.steveblank.com Clean Tech Open Accelerator 2010

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It Starts With the “Idea ”

Where are CleanTech Ideas Born? Technology shifts Market changes Societal changes Dinosaur factor Irrational exuberance

Technology shifts

Market changes

Societal changes

Dinosaur factor

Irrational exuberance

Technology Driven Ideas Is it buildable now ? How much R, how much D? Does it depend on anything else? Are there IP issues? Does it solve an existing customer problem? Create a new market? How big a market and when? What do you need to turn the idea into a company? How do you test customer acceptance early?

Is it buildable now ? How much R, how much D?

Does it depend on anything else?

Are there IP issues?

Does it solve an existing customer problem?

Create a new market?

How big a market and when?

What do you need to turn the idea into a company?

How do you test customer acceptance early?

Customer Driven Ideas Is there an articulated customer need? How do you know? How big a market and when? Are others trying to solve it? If so, why you? What do you need to turn the idea into a company? How do you test your idea early?

Is there an articulated customer need?

How do you know?

How big a market and when?

Are others trying to solve it? If so, why you?

What do you need to turn the idea into a company?

How do you test your idea early?

Opportunity Driven Ideas Is there an opportunity no one sees but you do? How do you know it’s a vision not a hallucination? How do you test your idea early? How big a market and when? Are others trying to solve it? If so, why you? What do you need to turn the idea into a company?

Is there an opportunity no one sees but you do?

How do you know it’s a vision not a hallucination?

How do you test your idea early?

How big a market and when?

Are others trying to solve it? If so, why you?

What do you need to turn the idea into a company?

But an Idea By Itself is Not a Company

Idea/Product – Only a Start Your Idea itself does not have value Its fit with customer needs/demand is crucial The other parts of the company make it a business First-Mover Advantage is usually wrong

Your Idea itself does not have value

Its fit with customer needs/demand is crucial

The other parts of the company make it a business

First-Mover Advantage is usually wrong

Technology Risk , Market Risk or Both?

Clean Tech Markets Air, Water & Waste Energy Efficiency Green Building Renewables Smart Power Transport

Clean Tech Markets - Risk Which markets have technology risk ? Which markets have customer risk ? Which have both ? Air, Water & Waste Energy Efficiency Green Building Renewables Smart Power Transport

Which markets have technology risk ?

Which markets have customer risk ?

Which have both ?

Clean Tech Markets - Risk Definitions Technology Risk risk is in development of the product (i.e. fuel cells, thin-film arrays, etc.) then customers automatically adopt Customer risk risk is in customer and market adoption Which have both ? You spend your time differently depending on risk Air, Water & Waste Energy Efficiency Green Building Renewables Smart Power Transport

Technology Risk

risk is in development of the product (i.e. fuel cells, thin-film arrays, etc.) then customers automatically adopt

Customer risk

risk is in customer and market adoption

Which have both ?

You spend your time differently depending on risk

Next… CleanTech Business Plan Hypothesis

Clean Tech Markets - Hypotheses Your business plan is a set of untested hypothesis What are they? Size of Opportunity Customer Competition Sales Marketing Biz Dev Customer Dev Bus/Rev Model IP/Patents Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity

Your business plan is a set of untested hypothesis

What are they?

Clean Tech Markets - Hypotheses Size of Opportunity TAM, SAM Customer Who’s the end user? Economic buyer? Reimburser? Sales What’s the distribution channel? Marketing How do you create end-user demand Customer Development How do you test your hypothesis Business Model How do all the parts work to create profits? Financing What is the path to cash flow positive Size of Opportunity Customer Competition Sales Marketing Biz Dev Customer Dev Bus/Rev Model IP/Patents Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity

Size of Opportunity

TAM, SAM

Customer

Who’s the end user? Economic buyer? Reimburser?

Sales

What’s the distribution channel?

Marketing

How do you create end-user demand

Customer Development

How do you test your hypothesis

Business Model

How do all the parts work to create profits?

Financing

What is the path to cash flow positive

Clean Tech Markets - Hypotheses How do you test these hypotheses? How do you execute them? Size of Opportunity Customer Competition Sales Marketing Biz Dev Customer Dev Bus/Rev Model IP/Patents Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity

How do you test these hypotheses?

How do you execute them?

How Big is It ? So if You Succeed Do I Care?

“ Venture-Scale” Businesses Solve a significant problem/want or need, for which someone is willing to pay a premium A good fit with the founder(s) and team Can grow large (≥$100 million) for traditional VC’s Attractive returns for type of investor

Solve a significant problem/want or need, for which someone is willing to pay a premium

A good fit with the founder(s) and team

Can grow large (≥$100 million) for traditional VC’s

Attractive returns for type of investor

Total Available Market, Served Available Market, Target Market Target Market SAM = how many can I reach with my sales channel TAM = how big is the universe Target Market (for a startup) = who will be the most likely buyers Total Available Market Served Available Market

Market Size: Summary Market Size How big can this market be? How much of it can we get ? Market growth rate Market structure (Mature or in flux?) Most important : Talk to Customers and Channel Next important: Market size by competitive approximation Wall Street analyst reports are great Market research firms

Market Size

How big can this market be?

How much of it can we get ?

Market growth rate

Market structure (Mature or in flux?)

Most important : Talk to Customers and Channel

Next important: Market size by competitive approximation

Wall Street analyst reports are great

Market research firms

$4 Billion 18,500 MW (Worldwide Grid Tied) Based on lifetime value of all customers (20 yrs) Source: Amonix Market Size for SunStream 18,500 MW Source: NREL X 5.5 hours a day X 365 days a year X $150 dollars a MWh X .07 efficiency savings X 20 year lifetime X 40% cut for us = $4 Billion

Based on lifetime value of all customers (20 yrs)

Source: Amonix

$4 Billion 18,500 MW (Worldwide Grid Tied) $220 Million 1,000 MW ( US Grid Tied) Based on lifetime value of all customers (20 yrs) Source: Amonix Market Size for SunStream

Based on lifetime value of all customers (20 yrs)

Source: Amonix

Based on lifetime value of all customers (20 yrs) Source: Amonix Market Size for SunStream 33-500 Customers (25MW in sales = 1-15 customers) Source: Heliotex $4 Billion 18,500 MW (Worldwide Grid Tied) $182 Million 830 MW (US Commercial Grid Tied) $220 Million 1,000 MW (US Grid Tied)

Based on lifetime value of all customers (20 yrs)

Source: Amonix

33-500 Customers

(25MW in sales = 1-15 customers)

Source: Heliotex

Plan versus Model

I’m Confused What is a Business Model ? How does it differ from a Business Plan ?

What is a Business Model ?

How does it differ from a Business Plan ?

Business Plan A document your investors make you write that they don’t read A useful place for you to collect your guesses about your business Size of Opportunity Customers Channel Demand Creation Revenue/Expenses/Profit The template to look like everyone else when you do present to VC’s

A document your investors make you write that they don’t read

A useful place for you to collect your guesses about your business

Size of Opportunity

Customers

Channel

Demand Creation

Revenue/Expenses/Profit

The template to look like everyone else when you do present to VC’s

Business Plan - Sum of Hypotheses Business plan collects your hypothesis Adds facts as you know them today A plan of how to turn hypothesis into facts Extrapolates results if hypothesis turn into facts

Business plan collects your hypothesis

Adds facts as you know them today

A plan of how to turn hypothesis into facts

Extrapolates results if hypothesis turn into facts

No Business Plan survives first contact with customers

So Search for a Business Model

Business Model … Start with the Pieces

What Is a Business Model ? A diagram that shows all the flows between your company and its customers It describes the rationale of how an organization creates, delivers and captures value All on a single sheet of paper * Alex Osterwalder

A diagram that shows all the flows between your company and its customers

It describes the rationale of how an organization creates, delivers and captures value

All on a single sheet of paper

What Makes up a Business Model? A series of building blocks which describe: The product Customers/Users Demand Creation Motivations / problems Budget / Resources Flows of value Supply chain

A series of building blocks which describe:

The product

Customers/Users

Demand Creation

Motivations / problems

Budget / Resources

Flows of value

Supply chain

Users Customers Purchase Distribution Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $

Users Customers Purchase Distribution Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $

Users Customers Purchase Distribution Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $

Users Customers Purchase Distribution Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $

Users Customers Distribution Channel Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $

Users Customers Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ Distribution Channel $ $

Users Customers Distribution Channel Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $

Users Customers Distribution Channel Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $

Users Customers Distribution Channel Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $

Emphasis On Hypotheses Testing

Startups Continually Iterate & Pivot

VALUE PROPOSITION COST STRUCTURE CUSTOMER RELATIONSHIP TARGET CUSTOMER DISTRIBUTION CHANNEL VALUE CONFIGURATION CORE CAPABILITIES PARTNER NETWORK REVENUE STREAMS gives an overall view of a company's bundle of products and services portrays the network of cooperative agreements with other companies describes the channels to communicate and get in touch with customers describes the arrangement of activities and resources explains the relationships a company establishes with its customers sums up the monetary consequences to run a business model describes the revenue streams through which money is earned describes the customers a company wants to offer value to outlines the capabilities required to run a company's business model INFRASTRUCTURE CUSTOMER OFFER FINANCE Business Model = Keeping Score in a Startup

Business Model Generation Book

Business Model on Day One of Your Startup

Users Customers Distribution Channel Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ ? ? ? ? ? ? ? ? $ $

Hypothesis Testing Process Customer Development Customer Discovery Customer Validation Company Building Customer Creation Pivot

Stop selling, start listening Test your hypotheses Continuous Discovery Customer Discovery Customer Discovery Customer Validation Company Building Customer Creation

Stop selling, start listening

Test your hypotheses

Continuous Discovery

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

Repeatable and scalable business model ?

Passionate earlyvangelists ?

Pivot back to Discovery if no customers

The Pivot The heart of Customer Development Iteration without crisis Fast, agile and opportunistic

The heart of Customer Development

Iteration without crisis

Fast, agile and opportunistic

Customer Development Book

Putting It Together in A VC Pitch

What are 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?

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?

The Traditional VC Pitch Technology Team Product Opportunity Customer Problem Business Model Customers Better Since You Can’t Answer my real questions here’s the checklist

Technology

Team

Product

Opportunity

Customer Problem

Business Model

Customers

Facts Reduce VC Risk Business Model + Customer Development Extract the hypotheses Leave the building to test the hypothesis Present the results as: “Lessons Learned from our customers” Iterate Business Model

Business Model + Customer Development

Extract the hypotheses

Leave the building to test the hypothesis

Present the results as: “Lessons Learned from our customers”

Iterate Business Model

Tell The Story of What You Learned Start with your original business model Tell them why it was wrong Extra credit for getting thrown out of a customer Tell them what you learned Extra credit for customers saying “now we’ll buy” Use data if you have it

Start with your original business model

Tell them why it was wrong

Extra credit for getting thrown out of a customer

Tell them what you learned

Extra credit for customers saying “now we’ll buy”

Use data if you have it

Thanks www.steveblank.com