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Generating High Growth Innovation Hubs<br />Steve Blank<br />www.steveblank.com<br />Twitter: sgblank<br />
A Few Short Stories<br />Silicon Valley History<br />All Startups Are Not the Same<br />Why Startups and Companies Differ<...
To predict the future you need to understand the past<br />
Internet<br />PersonalComputers<br />IntegratedCircuits<br />FruitOrchards<br />FruitOrchards<br />FruitOrchards<br />The ...
Internet<br />PersonalComputers<br />IntegratedCircuits<br />Microwaves/Defense<br />TestEquipment<br />VacuumTubes<br />T...
Story 1: WWII  The First Electronic War<br />
<ul><li>The American’s by Day
 Precision Bombing
  B-17’s
  B-24’s
  Flew at 15 - 25 thousand feet</li></ul>Strategic Bombing of Germany The Combined Bomber Offensive<br />British bombed at...
Math ChallengeFor every 100 bombers on a mission 4 - 20% would not return<br />Crews had to fly 25 mission to go home<br />
Story 2: The Electronic Shield – Electronic Warfare<br />
Harvard Radio Research Lab (RRL) Signals Intelligence and Electronic Warfare<br />Reduce losses to fighters and flak<br />...
Electronically Blind German RadarJam the Radars with Noise<br />MANDREL<br />Jammer<br />Put Jammers on Airplanes<br />Jam...
Who Ran this Secret Lab and became the Father of Electronic Warfare?<br />Harvard Radio Research Lab<br />Ran all electron...
Fredrick Terman“the Father of Silicon Valley”<br />Stanford Professor of engineering 1926<br />encouraged his students, Wi...
Story 3: Stanford And The Cold War<br />
WWII Office of Scientific Research and Development (OSRD)<br />$450 million spent on weapons R&D <br />MIT $117 million<br...
Terman’s PostwarStrategy<br />Focus on microwaves and electronics<br />Not going to be left out of gov’t $’s this time<br ...
Stanford Spinouts - Microwave Components<br />Microwave Tube Startups:Klystrons, BWO’s, & TWT’s<br />Eitel-McCullough (193...
The Cold War and Stanford<br />The Cold War battlefield moves 500 miles east<br />Countermeasures, ELINT become critical<b...
Lockheed Comes to Town - 1956<br />Polaris missile SLBM<br />Built by Lockheed Missiles Division in Sunnyvale<br />20,000 ...
Stanford Spinouts - Military Systems <br />Sylvania Electronics Defense Laboratory (1953)<br />GE Microwave Laboratory (19...
Terman Changes the Startup/University RulesSilicon Valley as We Know it Starts Here<br />Graduate students encouraged to s...
Entrepreneurs<br />WeaponsFinance<br />Crisis<br />Profit<br />Motivation<br />Customer <br />Development<br />Mgmt Tools<...
Story 4:  1956 - The Year it Becomes Silicon Valley<br />
Meanwhile, on the Other Side of Town…<br />The Head of Radar Bombing training for Air Force starts a Company<br />
Internet<br />PersonalComputers<br />IntegratedCircuits<br />Microwaves/Defense<br />TestEquipment<br />VacuumTubes<br />T...
William Shockley“The Other Father of Silicon Valley”<br />Director of Navy anti-submarine warfare<br />Head of Radar Bombi...
William Shockley“Great Researcher, Awesome Talent Spotter, Horrible Manager”<br />Unintended consequences: “The traitorous...
Semiconductor Genealogy: 1955 - 1976<br />
Story 5: The Rise of VentureCapital<br />
Internet<br />PersonalComputers<br />IntegratedCircuits<br />Microwaves/Defense<br />TestEquipment<br />VacuumTubes<br />T...
The Rise of Risk CapitalFamily Money 	1940’s - 1960’s<br />J.H. Whitney	<br />1st family office 1946<br />Laurance Rockefe...
The Valley Attracts Financial AttentionThe 1st West Coast IPO’s<br />1956	Varian <br />1957	Hewlett Packard<br />1958	Ampe...
The Rise of Risk CapitalSBIC Act of 1958<br />Cold war program – Sputnik motivated<br />Gov’tmatch of private investments ...
The Rise of Venture CapitalThe Limited Partnership<br />Raise money from pension funds, private universities, wealthy indi...
 Rock and Davis 	 			  1961
 Sutter Hill					   1964
Patricof & Co.					   1969
Kleiner Perkins				   1972
 Sequoia Capital			    1972</li></li></ul><li>The Rise of Risk Capital1978/1979 - A Watershed<br />Capital gains slashed  ...
Entrepreneurs<br />VentureFinance<br />Crisis<br />Profit<br />Motivation<br />Customer <br />Development<br />Mgmt Tools<...
Story 6:Entrepreneurship as a Management Science<br />Not All Startups Are Equal<br />
Companies Get Educated<br />Gov’t charted companies ~1600’s<br />Modern corporations ~1800’s<br />Business Schools to educ...
Startups Get Educated<br />Every company began as a startup<br />Modern startups ~ 1950’s<br />Venture funded startups ~19...
Wait a Minute…Aren’t Startups Small Versions of Large Companies?<br />50 Years of Experience Says NO<br />
Story 7:Not All Startups Are Equal<br />Small Business<br />Scalable Startups<br />Large Company Innovation<br />
Small Business<br />Startup<br />Exit Criteria<br /><ul><li> Business Model found</li></ul>- Profitable business<br /><ul>...
Feed the family</li></li></ul><li>Small Business Startup:Internet Edition<br />Small Business<br />Startup<br />- Business...
Not all businesses on the Internet are “Scalable Startups”</li></li></ul><li>Scalable<br />Startup<br />Large Company<br /...
 Can grow to $100m/year
 Business model found
 Focused on execution and process</li></ul>Scalable Startup<br />Execute<br />Search<br />A Startup is a temporary organiz...
Scalable<br />Startup<br />Large Company<br />>$100M/year<br /><ul><li>Total Available Market > $500m
 Can grow to $100m/year
 Business model found
 Focused on execution and process
 Typically requires “risk capital”</li></ul>Scalable Startup<br />Execute<br />Search<br /><ul><li> In contrast a scalable...
 Typically needs risk capital
 What Silicon Valley means when they say “Startup”</li></li></ul><li>What VC’s Don’t Tell You:The Transition – Founders Le...
 Professional Mgmt
 Process
 Beginning of scale</li></li></ul><li>Large Company Sustaining Innovation<br />Sustaining Innovation<br />Transition<br />...
Known product feature needs</li></li></ul><li>Large Company Disruptive Innovation<br />New Division<br />Transition<br />L...
 New tech / Unknown product features
 Looks like a scalable startup</li></li></ul><li>Story 8:Why Startups Are Not Small Versions of Large Companies<br />
Startups Search, Companies Execute<br />The Search for the Business Model<br />Scalable<br />Startup<br />Transition<br />...
 Repeatable sales model</li></ul>- Managers hired<br />
Startups Search, Companies Execute<br />The Execution of the Business Model<br />The Search for the Business Model<br />Sc...
 Product/Market fit</li></ul>- Repeatable sales model<br />- Managers hired<br />
Customer Validation Versus Sales<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />...
 Scalable
 Price List/Data Sheets
 Revenue Plan</li></li></ul><li>Customer Validation Versus Sales<br />The Search for the Business Model<br />The Execution...
 Pricing/Feature unstable
 Not yet repeatable
“One-off’s”
 Done by founders</li></ul>Sales<br /><ul><li> Sales Organization
 Scalable
 Price List/Data Sheets
 Revenue Plan</li></li></ul><li>Engineering Versus Agile Development<br />The Execution of the Business Model<br />Scalabl...
 Waterfall Development
 QA
 Tech Pubs</li></li></ul><li>Engineering Versus Agile Development<br />The Search for the Business Model<br />The Executio...
 Waterfall Development
 QA
 Tech Pubs</li></ul>Agile Development<br /><ul><li> Continuous Deployment
 Continuous Learning
 Self Organizing Teams
 Minimum Feature Set
 Pivots</li></li></ul><li>Metrics Versus Accounting<br />The Execution of the Business Model<br />Scalable<br />Startup<br...
 Cash Flow Statement
 Income Statement</li></li></ul><li>Metrics Versus Accounting<br />The Search for the Business Model<br />The Execution of...
 Viral coefficient
 Customer Lifetime Value
 Average Selling Price/Order Size
 Monthly burn rate
 etc.  </li></ul>Traditional Accounting<br /><ul><li> Balance Sheet
 Cash Flow Statement
 Income Statement</li></li></ul><li>Risk Versus Safety<br />The Execution of the Business Model<br />Scalable<br />Startup...
 Reduce risk
 Optimize certainty
 Protect profits</li></li></ul><li>Risk Versus Safety<br />The Search for the Business Model<br />The Execution of the Bus...
 No profits to risk
 Searching equals risk
Pains in the butt
 Always looking at something different
 Doesn’t get with the program</li></li></ul><li>Learning Versus Failure<br />The Execution of the Business Model<br />Scal...
 Affects revenue/profit
 Reflects on individual/organization
 Covered up</li></li></ul><li>Learning Versus Failure<br />The Search for the Business Model<br />The Execution of the Bus...
 Normal part of startups
 Not a crisis
 Shared, lessons learned
 Iterations and Pivots
Pains in the butt
 Always looking at something different
 Doesn’t get with the program</li></li></ul><li>Story 9:Plan versus Model<br />
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Chile 1208 generating innovation hubs 2010

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  1. 1. Generating High Growth Innovation Hubs<br />Steve Blank<br />www.steveblank.com<br />Twitter: sgblank<br />
  2. 2. A Few Short Stories<br />Silicon Valley History<br />All Startups Are Not the Same<br />Why Startups and Companies Differ<br />E- School Versus B-School<br />
  3. 3. To predict the future you need to understand the past<br />
  4. 4. Internet<br />PersonalComputers<br />IntegratedCircuits<br />FruitOrchards<br />FruitOrchards<br />FruitOrchards<br />The Popular View of Silicon Valley History<br />Marc Andreessen<br />Steve Jobs<br />Moore/Noyce<br />Hewlett & Packard<br />Innovation Networks<br />1910<br />1960<br />1970<br />1980<br />2000<br />1990<br />1930<br />1940<br />1950<br />1920<br />
  5. 5. Internet<br />PersonalComputers<br />IntegratedCircuits<br />Microwaves/Defense<br />TestEquipment<br />VacuumTubes<br />The Real Story of Silicon Valley History<br />Venture Capital<br />Innovation Networks<br />1910<br />1960<br />1970<br />1980<br />2000<br />1990<br />1930<br />1940<br />1950<br />1920<br />
  6. 6. Story 1: WWII The First Electronic War<br />
  7. 7. <ul><li>The American’s by Day
  8. 8. Precision Bombing
  9. 9. B-17’s
  10. 10. B-24’s
  11. 11. Flew at 15 - 25 thousand feet</li></ul>Strategic Bombing of Germany The Combined Bomber Offensive<br />British bombed at Night<br />Area Bombing<br />Lancaster's<br />Halifax<br />Flew at 7 - 17 thousand feet<br />
  12. 12. Math ChallengeFor every 100 bombers on a mission 4 - 20% would not return<br />Crews had to fly 25 mission to go home<br />
  13. 13. Story 2: The Electronic Shield – Electronic Warfare<br />
  14. 14. Harvard Radio Research Lab (RRL) Signals Intelligence and Electronic Warfare<br />Reduce losses to fighters and flak<br />Find/understand German Air Defense <br />Electronic and Signals Intelligence<br />Jam/confuse German Air Defense<br />Radar Order of Battle<br />Chaff<br />Jammers<br />Top Secret 800 person lab<br />
  15. 15. Electronically Blind German RadarJam the Radars with Noise<br />MANDREL<br />Jammer<br />Put Jammers on Airplanes<br />Jam and shut down <br />Early Warning Radars<br />Anti-aircraft Radars<br />Fighter Radars<br />Ground Control Radars<br />Built over 30,000 jammers<br />DINA<br />Jammer<br />
  16. 16. Who Ran this Secret Lab and became the Father of Electronic Warfare?<br />Harvard Radio Research Lab<br />Ran all electronic warfare in WWII <br />800 people<br />Director: Fredrick Terman - Stanford<br />
  17. 17. Fredrick Terman“the Father of Silicon Valley”<br />Stanford Professor of engineering 1926<br />encouraged his students, William Hewlett and David Packard to start a company<br />Dean of Engineering 1946<br />Provost 1955<br />
  18. 18. Story 3: Stanford And The Cold War<br />
  19. 19. WWII Office of Scientific Research and Development (OSRD)<br />$450 million spent on weapons R&D <br />MIT $117 million<br />Caltech $83 million<br />Harvard and Columbia ~ $30 million<br />Stanford ~ $50K<br />
  20. 20. Terman’s PostwarStrategy<br />Focus on microwaves and electronics<br />Not going to be left out of gov’t $’s this time<br />Recruits 11 members of war lab as faculty<br />By 1950 Stanford was the MIT of the West<br />Students came from all over the U.S. <br />
  21. 21. Stanford Spinouts - Microwave Components<br />Microwave Tube Startups:Klystrons, BWO’s, & TWT’s<br />Eitel-McCullough (1934)<br />Varian Associates (1948)<br />Litton Industries (1946)<br />Huggins Laboratories (1948)<br />Stewart Engineering (1952) <br />Watkins-Johnson (1957)<br />Microwave Electronics Co. (1959)<br />
  22. 22. The Cold War and Stanford<br />The Cold War battlefield moves 500 miles east<br />Countermeasures, ELINT become critical<br />Stanford becomes a center of excellence for the CIA, NSA, Navy, Air Force<br />400-person weapons lab in engineering department<br />
  23. 23. Lockheed Comes to Town - 1956<br />Polaris missile SLBM<br />Built by Lockheed Missiles Division in Sunnyvale<br />20,000 employees by 1960 <br />From 0 in 4 years<br />HP: 3,000 employees 1960<br />
  24. 24. Stanford Spinouts - Military Systems <br />Sylvania Electronics Defense Laboratory (1953)<br />GE Microwave Laboratory (1956)<br />Granger Associates (1956)<br />Applied Technology (1959)<br />Electronic Systems Laboratories (ESL) (1964)<br />Argo Systems (1969)<br />Advent Systems (1972)<br />
  25. 25. Terman Changes the Startup/University RulesSilicon Valley as We Know it Starts Here<br />Graduate students encouraged to start companies<br />Professors encouraged to consult for companies<br />Terman and other professors take board seats<br />Technology transfer/IP licensing easy<br />Getting out in the real world was good for your academic career<br />Failure was accepted as part of the culture<br />
  26. 26. Entrepreneurs<br />WeaponsFinance<br />Crisis<br />Profit<br />Motivation<br />Customer <br />Development<br />Mgmt Tools<br />Agile<br />Development<br />Business ModelDesign<br />Design Thinking<br />Stanford and the Cold War Silicon Valley’s 1st Wave<br />Risk Taking<br />Culture<br />Entrepreneurial<br />Outward-Facing<br />Tech Universities<br />Free flow of<br />People/Info<br />Infrastructure<br />24/7 Utilities<br />Predictable<br />Economic System<br />Stable<br />Legal System<br />Research<br />Universities<br />
  27. 27. Story 4: 1956 - The Year it Becomes Silicon Valley<br />
  28. 28. Meanwhile, on the Other Side of Town…<br />The Head of Radar Bombing training for Air Force starts a Company<br />
  29. 29. Internet<br />PersonalComputers<br />IntegratedCircuits<br />Microwaves/Defense<br />TestEquipment<br />VacuumTubes<br />The Real Story of Silicon Valley History<br />Venture Capital<br />Innovation Networks<br />1910<br />1960<br />1970<br />1980<br />2000<br />1990<br />1930<br />1940<br />1950<br />1920<br />
  30. 30. William Shockley“The Other Father of Silicon Valley”<br />Director of Navy anti-submarine warfare<br />Head of Radar Bombing training for Air Force<br />Co-inventor of the transistor <br />Nobel Prize in 1956<br />Founded Shockley Semiconductor 1956<br />
  31. 31. William Shockley“Great Researcher, Awesome Talent Spotter, Horrible Manager”<br />Unintended consequences: “The traitorous 8” leave Shockley <br /> found Fairchild Semiconductor<br />1st VC-backed startup<br />Noyce & Moore leave Fairchild to start Intel<br />65 other chip companies in the next 20 years<br />
  32. 32. Semiconductor Genealogy: 1955 - 1976<br />
  33. 33. Story 5: The Rise of VentureCapital<br />
  34. 34. Internet<br />PersonalComputers<br />IntegratedCircuits<br />Microwaves/Defense<br />TestEquipment<br />VacuumTubes<br />The Real Story of Silicon Valley History<br />Venture <br />Capital<br />Innovation Networks<br />1910<br />1960<br />1970<br />1980<br />2000<br />1990<br />1930<br />1940<br />1950<br />1920<br />
  35. 35. The Rise of Risk CapitalFamily Money 1940’s - 1960’s<br />J.H. Whitney <br />1st family office 1946<br />Laurance Rockefeller<br />Draper Gaither & Anderson (1st limited Partnership) 1958<br />Spun out as Venrock in 1969<br />Bessemer<br />East Coast focus<br />Wide variety of industries<br />
  36. 36. The Valley Attracts Financial AttentionThe 1st West Coast IPO’s<br />1956 Varian <br />1957 Hewlett Packard<br />1958 Ampex <br />
  37. 37. The Rise of Risk CapitalSBIC Act of 1958<br />Cold war program – Sputnik motivated<br />Gov’tmatch of private investments 3:1<br />700 SBIC funds by 1965 <br />75% of all VC funding in 1968<br />7% in 1988<br />Replaced by the Limited Partnership<br />
  38. 38. The Rise of Venture CapitalThe Limited Partnership<br />Raise money from pension funds, private universities, wealthy individuals – the limited partners<br />Investment professionals manage the fund – the general partners i.e. the VC’s<br />Compensate the general partners via the “2 and 20”<br />2% management fee, 20% carried interest (i.e. of the profits)<br /><ul><li>Draper Gaither & Anderson 1958
  39. 39. Rock and Davis 1961
  40. 40. Sutter Hill 1964
  41. 41. Patricof & Co. 1969
  42. 42. Kleiner Perkins 1972
  43. 43. Sequoia Capital 1972</li></li></ul><li>The Rise of Risk Capital1978/1979 - A Watershed<br />Capital gains slashed (1978)<br />49.5% to 28%<br />Employee Retirement Income Security Act (1979) <br />Pension funds can invest <br />
  44. 44. Entrepreneurs<br />VentureFinance<br />Crisis<br />Profit<br />Motivation<br />Customer <br />Development<br />Mgmt Tools<br />Agile<br />Development<br />Business ModelDesign<br />Design Thinking<br />Venture CapitalSilicon Valley’s 2nd Wave<br />Risk Taking<br />Culture<br />Entrepreneurial<br />Outward-Facing<br />Tech Universities<br />Free flow of<br />People/Info<br />Infrastructure<br />24/7 Utilities<br />Predictable<br />Economic System<br />Stable<br />Legal System<br />Research<br />Universities<br />
  45. 45. Story 6:Entrepreneurship as a Management Science<br />Not All Startups Are Equal<br />
  46. 46. Companies Get Educated<br />Gov’t charted companies ~1600’s<br />Modern corporations ~1800’s<br />Business Schools to educate corporate execs<br />Organize body of knowledge<br />First Harvard MBA – 1908<br />
  47. 47. Startups Get Educated<br />Every company began as a startup<br />Modern startups ~ 1950’s<br />Venture funded startups ~1970’s<br />Entrepreneurship Schools to educate founders<br />Organize body of knowledge<br />Emerging now<br />
  48. 48. Wait a Minute…Aren’t Startups Small Versions of Large Companies?<br />50 Years of Experience Says NO<br />
  49. 49. Story 7:Not All Startups Are Equal<br />Small Business<br />Scalable Startups<br />Large Company Innovation<br />
  50. 50. Small Business<br />Startup<br />Exit Criteria<br /><ul><li> Business Model found</li></ul>- Profitable business<br /><ul><li> Existing team</li></ul>< $1M in revenue<br />Small Business Startups<br /><ul><li>known customer known product
  51. 51. Feed the family</li></li></ul><li>Small Business Startup:Internet Edition<br />Small Business<br />Startup<br />- Business Model found<br />- Profitable business<br /><ul><li> Existing team</li></ul>< $10M in revenue<br /><ul><li>The Internet allows a new class of Small Businesses
  52. 52. Not all businesses on the Internet are “Scalable Startups”</li></li></ul><li>Scalable<br />Startup<br />Large Company<br />>$100M/year<br />Exit Criteria<br /><ul><li>Total Available Market > $500m
  53. 53. Can grow to $100m/year
  54. 54. Business model found
  55. 55. Focused on execution and process</li></ul>Scalable Startup<br />Execute<br />Search<br />A Startup is a temporary organization used tosearch for a scalable business model <br />
  56. 56. Scalable<br />Startup<br />Large Company<br />>$100M/year<br /><ul><li>Total Available Market > $500m
  57. 57. Can grow to $100m/year
  58. 58. Business model found
  59. 59. Focused on execution and process
  60. 60. Typically requires “risk capital”</li></ul>Scalable Startup<br />Execute<br />Search<br /><ul><li> In contrast a scalable startup is designed to grow big
  61. 61. Typically needs risk capital
  62. 62. What Silicon Valley means when they say “Startup”</li></li></ul><li>What VC’s Don’t Tell You:The Transition – Founders Leave<br />Build<br />Execute<br />Search<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li>Founders depart
  63. 63. Professional Mgmt
  64. 64. Process
  65. 65. Beginning of scale</li></li></ul><li>Large Company Sustaining Innovation<br />Sustaining Innovation<br />Transition<br />Scalable<br />Startup<br />Large Company<br /><ul><li>Existing Market / Known customer
  66. 66. Known product feature needs</li></li></ul><li>Large Company Disruptive Innovation<br />New Division<br />Transition<br />Large Company<br />Disruptive Innovation<br /><ul><li> New Market / Unknown customer needs
  67. 67. New tech / Unknown product features
  68. 68. Looks like a scalable startup</li></li></ul><li>Story 8:Why Startups Are Not Small Versions of Large Companies<br />
  69. 69. Startups Search, Companies Execute<br />The Search for the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Business Model found<br /><ul><li> customer needs/product features found</li></ul> i.e. Product/Market fit<br /><ul><li> Found by founders, not employees
  70. 70. Repeatable sales model</li></ul>- Managers hired<br />
  71. 71. Startups Search, Companies Execute<br />The Execution of the Business Model<br />The Search for the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />- Cash-flow breakeven<br />- Profitable<br />- Rapid scale<br />- New Senior Mgmt<br />~ 150 people<br /><ul><li>Business Model found
  72. 72. Product/Market fit</li></ul>- Repeatable sales model<br />- Managers hired<br />
  73. 73. Customer Validation Versus Sales<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<br />Company<br />Sales<br /><ul><li>Sales Organization
  74. 74. Scalable
  75. 75. Price List/Data Sheets
  76. 76. Revenue Plan</li></li></ul><li>Customer Validation Versus Sales<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<br />Company<br />Customer Validation<br /><ul><li> Early Adopters
  77. 77. Pricing/Feature unstable
  78. 78. Not yet repeatable
  79. 79. “One-off’s”
  80. 80. Done by founders</li></ul>Sales<br /><ul><li> Sales Organization
  81. 81. Scalable
  82. 82. Price List/Data Sheets
  83. 83. Revenue Plan</li></li></ul><li>Engineering Versus Agile Development<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Engineering<br /><ul><li> Requirements Docs.
  84. 84. Waterfall Development
  85. 85. QA
  86. 86. Tech Pubs</li></li></ul><li>Engineering Versus Agile Development<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Engineering<br /><ul><li> Requirements Docs.
  87. 87. Waterfall Development
  88. 88. QA
  89. 89. Tech Pubs</li></ul>Agile Development<br /><ul><li> Continuous Deployment
  90. 90. Continuous Learning
  91. 91. Self Organizing Teams
  92. 92. Minimum Feature Set
  93. 93. Pivots</li></li></ul><li>Metrics Versus Accounting<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<br />Company<br />Traditional Accounting<br /><ul><li>Balance Sheet
  94. 94. Cash Flow Statement
  95. 95. Income Statement</li></li></ul><li>Metrics Versus Accounting<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<br />Company<br />Startup Metrics<br /><ul><li> Customer Acquisition Cost
  96. 96. Viral coefficient
  97. 97. Customer Lifetime Value
  98. 98. Average Selling Price/Order Size
  99. 99. Monthly burn rate
  100. 100. etc. </li></ul>Traditional Accounting<br /><ul><li> Balance Sheet
  101. 101. Cash Flow Statement
  102. 102. Income Statement</li></li></ul><li>Risk Versus Safety<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li>Lots to Lose
  103. 103. Reduce risk
  104. 104. Optimize certainty
  105. 105. Protect profits</li></li></ul><li>Risk Versus Safety<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li> Nothing to lose
  106. 106. No profits to risk
  107. 107. Searching equals risk
  108. 108. Pains in the butt
  109. 109. Always looking at something different
  110. 110. Doesn’t get with the program</li></li></ul><li>Learning Versus Failure<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li>Failure impedes execution
  111. 111. Affects revenue/profit
  112. 112. Reflects on individual/organization
  113. 113. Covered up</li></li></ul><li>Learning Versus Failure<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li> Failure = learning
  114. 114. Normal part of startups
  115. 115. Not a crisis
  116. 116. Shared, lessons learned
  117. 117. Iterations and Pivots
  118. 118. Pains in the butt
  119. 119. Always looking at something different
  120. 120. Doesn’t get with the program</li></li></ul><li>Story 9:Plan versus Model<br />
  121. 121. Business Plan<br />A document your investors make you write that they don’t read<br />A useful place for you to collect your guesses about your business<br /><ul><li>Size of Opportunity
  122. 122. Customers
  123. 123. Channel
  124. 124. Demand Creation
  125. 125. Revenue/Expenses/Profit</li></ul>The template to look like everyone else when you present to VC’s/Management <br />
  126. 126. No Business Plan survives first contact with customers<br />
  127. 127. So Search for a Business Model<br />
  128. 128. What Is a Business Model?<br />Diagram of flows between company and customers<br />Scorecard of hypotheses testing<br />Rapid change with each iteration and pivot<br />Founder-driven<br />* Alex Osterwalder<br />
  129. 129. 9 building blocks of a business model:<br />
  130. 130. CUSTOMER SEGMENTS<br />which customers and users are you serving? <br />which jobs do they really want to get done?<br />
  131. 131. VALUE PROPOSITIONS<br />what are you offering them? what is that <br />getting done for them? do they care?<br />
  132. 132. CHANNELS<br />how does each customer segment want to be reached? through which interaction points?<br />
  133. 133. CUSTOMER RELATIONSHIPS<br />what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?<br />
  134. 134. REVENUE STREAMS<br />what are customers really willing to pay for? how? <br />are you generating transactional or recurring revenues?<br />
  135. 135. KEY RESOURCES<br />which resources underpin your business model? which assets are essential?<br />
  136. 136. KEY ACTIVITIES<br />which activities do you need to perform well in your business model? what is crucial?<br />74<br />
  137. 137. KEY PARTNERS<br />which partners and suppliers leverage your model? <br />who do you need to rely on?<br />
  138. 138. COST STRUCTURE<br />what is the resulting cost structure? <br />which key elements drive your costs?<br />
  139. 139. value proposition<br />customer relationships<br />key activities<br />customer segments<br />key partners<br />cost structure<br />revenue streams<br />key <br />resources<br />channels<br />77<br />images by JAM<br />
  140. 140. sketch out your business model<br />
  141. 141. building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />
  142. 142. But,Realize They’re Hypotheses<br />
  143. 143. 9 Guesses<br />Guess<br />Guess<br />Guess<br />Guess<br />Guess<br />Guess<br />Guess<br />Guess<br />Guess<br />
  144. 144. How Do Startups Search For A Business Model?<br /><ul><li> The Search is called Customer Development
  145. 145. The Implementation is called Agile Development</li></li></ul><li>Customer Development<br />Solving For Customer Risk<br />
  146. 146. Story 10:Why Startups Fail<br />
  147. 147. Traditional Product Introduction Model:Two Implicit Assumptions<br />Customer Problem: known<br />Concept<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br /> Product Features: known<br />
  148. 148. More startups fail from a lack of customers than from a failure of product development<br />
  149. 149. Story 11:Customer Development<br />The founders<br />^<br />Get Out of the Building<br />
  150. 150. Product Development<br />Concept/Bus. Plan<br />Product Dev.<br />Alpha/Beta Test<br />Launch/1st Ship<br />CustomerDevelopment<br />Company<br />Building<br />CustomerDiscovery<br />CustomerValidation<br />Customer Creation<br />Customer Development<br />Pivot<br />
  151. 151. Customer Discovery<br />CustomerDiscovery<br />CustomerValidation<br />Company<br />Building<br />CustomerCreation<br />Stop selling, start listening<br />Test your hypotheses<br />Continuous Discovery<br />Done by founders<br />
  152. 152. Test Hypotheses:<br /><ul><li>Product
  153. 153. Market Type
  154. 154. Competition</li></ul>Turning Hypotheses to Facts<br />
  155. 155. Test Hypotheses:<br /><ul><li>Problem
  156. 156. Customer
  157. 157. User
  158. 158. Payer</li></li></ul><li>Test Hypotheses:<br /><ul><li>Channel</li></li></ul><li>Test Hypotheses:<br /><ul><li>Demand Creation</li></ul>Test Hypotheses:<br /><ul><li>Problem
  159. 159. Customer
  160. 160. User
  161. 161. Payer</li></ul>Test Hypotheses:<br /><ul><li>Product
  162. 162. Market Type
  163. 163. Competitive</li></ul>Test Hypotheses:<br /><ul><li>Channel
  164. 164. (Customer)
  165. 165. (Problem)</li></ul>Test Hypotheses:<br /><ul><li>Channel</li></ul>Test Hypotheses:<br /><ul><li>Pricing Model / Pricing</li></ul>Test Hypotheses:<br /><ul><li>Size of Opportunity/Market
  166. 166. Validate Business Model</li></li></ul><li>Test Hypotheses:<br /><ul><li>Demand Creation</li></ul>Test Hypotheses:<br /><ul><li>Problem
  167. 167. Customer
  168. 168. User
  169. 169. Payer</li></ul>Agile Development<br />Test Hypotheses:<br /><ul><li>Product
  170. 170. Market Type
  171. 171. Competitive</li></ul>Test Hypotheses:<br /><ul><li>Channel
  172. 172. (Customer)
  173. 173. (Problem)</li></ul>Customer Development Team<br />Test Hypotheses:<br /><ul><li>Channel</li></ul>Test Hypotheses:<br /><ul><li>Pricing Model / Pricing</li></ul>Test Hypotheses:<br /><ul><li>Size of Opportunity/Market
  174. 174. Validate Business Model</li></li></ul><li>Test Hypotheses:<br /><ul><li>Demand Creation</li></ul>Test Hypotheses:<br /><ul><li>Problem
  175. 175. Customer
  176. 176. User
  177. 177. Payer</li></ul>Agile Development<br />Test Hypotheses:<br /><ul><li>Product
  178. 178. Market Type
  179. 179. Competitive</li></ul>Test Hypotheses:<br /><ul><li>Channel
  180. 180. (Customer)
  181. 181. (Problem)</li></ul>Customer Development Team<br />Test Hypotheses:<br /><ul><li>Channel</li></ul>Test Hypotheses:<br /><ul><li>Pricing Model / Pricing</li></ul>Test Hypotheses:<br /><ul><li>Size of Opportunity/Market
  182. 182. Validate Business Model</li></li></ul><li>The Pivot<br /><ul><li>The heart of Customer Development
  183. 183. Iteration without crisis
  184. 184. Fast, agile and opportunistic</li></li></ul><li>Entrepreneurs<br />Angel / VentureFinance<br />Crisis<br />Profit<br />Motivation<br />Customer <br />Development<br />Mgmt Tools<br />Agile<br />Development<br />Business ModelDesign<br />Design Thinking<br />Entrepreneurship as A Mgmt ScienceSilicon Valley’s 3rd Wave<br />Risk Taking<br />Culture<br />Entrepreneurial<br />Outward-Facing<br />Tech Universities<br />Free flow of<br />People/Info<br />Infrastructure<br />24/7 Utilities<br />Predictable<br />Economic System<br />Stable<br />Legal System<br />Research<br />Universities<br />
  185. 185. Story 12:Entrepreneurship as a Management Science<br />E-School instead of B-School<br />
  186. 186. Business School Versus Entrepreneurship School<br />Business School<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li>Execution
  187. 187. Strategy
  188. 188. Accounting
  189. 189. Products
  190. 190. Engineering
  191. 191. Management
  192. 192. Administration</li></li></ul><li>Business School Versus Entrepreneurship School<br />Entrepreneurship School<br />Business School<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li>Hypothesis testing
  193. 193. Business Model testing
  194. 194. Customer Development
  195. 195. Agile Development
  196. 196. Metrics
  197. 197. Venture Finance
  198. 198. Design Thinking
  199. 199. Execution
  200. 200. Accounting
  201. 201. Products
  202. 202. Engineering
  203. 203. Management
  204. 204. Administrative</li></li></ul><li>Business School Courses Versus Entrepreneurship Courses<br />Business School<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Courses<br /><ul><li>Managerial Finance/Accounting
  205. 205. Managing Groups and Teams
  206. 206. Financial Accounting
  207. 207. Operations
  208. 208. Modeling for Optimization
  209. 209. Global Value Chain Strategies</li></li></ul><li>Business School Versus Entrepreneurship Courses<br />Business School<br />Entrepreneurship School<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Courses<br /><ul><li> Lean Launchpad
  210. 210. Customer/Agile Development
  211. 211. Business Model Design
  212. 212. Entrepreneurial Management
  213. 213. Creativity and Innovation
  214. 214. Entrepreneurial Finance</li></ul>Courses<br /><ul><li> Managerial Finance/Accounting
  215. 215. Managing Groups and Teams
  216. 216. Financial Accounting
  217. 217. Operations
  218. 218. Modeling for Optimization
  219. 219. Global Value Chain Strategies</li></li></ul><li>E-School Will Emerge<br /><ul><li> Entrepreneurial Education will change radically
  220. 220. E-School Students are not B-School Students
  221. 221. Entrepreneurship as its own management science</li></li></ul><li>Story 13:Why Accountants Don’t Run Startups<br />
  222. 222. Inventor of the Modern Corporation<br />Scalable<br />Startup<br />Transition<br />Large Company<br />
  223. 223. Inventor of the Modern Corporation<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Alfred P. Sloan<br />
  224. 224. Alfred P. Sloan<br />Scalable<br />Startup<br />Transition<br />Large Company<br />General Motors, President/Chairman<br /><ul><li> Cost Accounting
  225. 225. MIT Sloan School
  226. 226. Sloan Foundation
  227. 227. etc. </li></li></ul><li>Founder of General Motors<br />Scalable<br />Startup<br />Transition<br />Large Company<br />
  228. 228. Founder of General Motors<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Billy Durant<br />
  229. 229. Billy Durant<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li> Leader in horse-drawn buggy’s
  230. 230. Fired by board, starts Chevrolet
  231. 231. Regains control of GM
  232. 232. Fired by board, GM ~$3.6 billion*</li></ul>* GM Net sales in 1921 $304.5M = $3.6 Billion today<br />
  233. 233. Durant Versus Sloan<br />Scalable<br />Startup<br />Transition<br />Large Company<br />
  234. 234. Durant Versus Sloan<br /><ul><li>Dies, rich, honored and famous</li></li></ul><li>Durant Versus Sloan<br /><ul><li>Dies managing a bowling alley
  235. 235. Dies, rich, honored and famous</li></li></ul><li>Durant Versus Sloan<br />Accountant<br /><ul><li>Dies managing a bowling alley
  236. 236. Dies, rich, honored and famous</li></li></ul><li>You are here<br />Scalable<br />Startup<br />Transition<br />Large Company<br />
  237. 237. Entrepreneurs<br />Angel / VentureFinance<br />Crisis<br />Profit<br />Motivation<br />Customer <br />Development<br />Mgmt Tools<br />Agile<br />Development<br />Business ModelDesign<br />Design Thinking<br />Where is Chile?<br />Risk Taking<br />Culture<br />Entrepreneurial<br />Outward-Facing<br />Tech Universities<br />Free flow of<br />People/Info<br />Infrastructure<br />24/7 Utilities<br />Predictable<br />Economic System<br />Stable<br />Legal System<br />Research<br />Universities<br />
  238. 238. Lessons Learned<br />Culture needs to support and encourage risk<br />Failure is integral to the startup process<br />Technology hubs must be magnets for engineers <br />But they cluster around industry specialties<br />In what area will Chile build a world-class hub?<br />E-School reduces early stage startup risk<br />Healthy Venture Capital industry = large profits<br />Chilean market not large enough <br />Teach startups how to go global early<br />
  239. 239. I Write a Blog <br />www.steveblank.com<br />
  240. 240. This Presentation Combines<br />www.businessmodelgeneration.com<br />www.steveblank.com<br />
  241. 241. Thanks<br />www.steveblank.com<br />
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