Advanced Entrepreneurship:
Customer Development and the Lean Startup



           Introduction to the Course

           ...
You Are Here

       Plan                                 Liquidity


                         Company Timeline
Idea      ...
You Are Here

       Plan                                  Liquidity


                          Company Timeline
Idea    ...
How do You Get Here

       Plan                                 Liquidity


                         Company Timeline
Ide...
Entrepreneurship



   Logical
   Process
Entrepreneurship



   Logical
   Process
             Intuitive
             Passion
Today


Part 1: Introduction to the Course


Part 2: Key Concepts
Course Introduction
    Course Objectives
    Intro and Backgrounds
    How the Class Works
    Customer Development
Course Objectives

    Learn how to:
         Reduce product/market risk
         Organize sales, marketing and busines...
Course Prerequisites

    Officially – none
    Realistically:
       Experience in bringing a new product to market
  ...
Introduction and Backgrounds
    Steve Blank
    Eric Ries
    Guest Speakers
    Class
Introduction: Steve Blank
               8 startups in 20 years

2 strikeouts      Rocket Science, Ardent
2 walks         ...
Introduction: Eric Ries


Author:    Lean Startup, co/author Black Art of Java
  Game Programming

Company:      Co-founde...
Introduction: Class
Why are you taking the class?

    How many of you have:
         Been in start-ups?
         Been ...
How the Class Works
    Syllabus

    3 Application Exercises

    Research Project

    Grading
       Research Proj...
Class Issues
    Tech-heavy
    Enterprise-heavy
    For-profit versus non-profit
    Startups versus existing compani...
Logistics

      Steve Blank and Eric Ries
sblank@kandsranch.com   eric@theleanstartup.com
How the Class Works
                                        Part 1
                   Class                Case          A...
How the Class Works
                                        Part 2
                          Class              Case      ...
Study.Net

    All materials are on Study.Net
       Syllabus
       Reading

       Assignments

       Presentation...
Reading

Class Text:       Four Steps to the Epiphany
Assigned Reading: In Reader
Blogs:            www.steveblank.com
   ...
The Course

      Steve Blank and Eric Ries
sblank@kandsranch.com   eric@theleanstartup.com
Customer Development
    Business Plans
    The Value of “Models” for an Entrepreneur
    Key Concepts
         Market...
The Top Lies of Venture Capitalists

1.    “I liked your company, but my partners didn't.”
2.    “If you get a lead, we wi...
The Top Lies of Entrepreneurs

1.     “Our projections are conservative.”
2.     “(Big name research firm) says our market...
One Way to Plan a Startup
Business Plans – Why?

    Why write a plan?
       VC’s require it
       Planning (Strategic/Financial/Ops)

       ...
The Value of “Models”

    Model = shorthand for complicated idea

    This class teaches a “model” for product
     int...
Timmons Model of Entrepreneurship
                 (The Business Plan)

                     Communication


      Resourc...
Moore Model of Entrepreneurship
         (Chasm + Life Cycle)
New Product Introductions
                     What’s the Model?

    New Product introduction models
       Checklist o...
StageGate™ Model
(New Product Introduction)
Steve Blank Model of
 Entrepreneurship)
Venture Capital Model of a Startup
                   (Execution)



Concept/      Product      Alpha Test/   Launch/
Bus....
New Product Introduction
                 It Doesn’t Always Work


    New Product Development Process
       Works grea...
Issues in New Product Intros

    Current models:
        Confuse product development process with
         customer nee...
What is a startup?

    A startup is a human institution designed to
     deliver a new product or service under conditio...
Entrepreneurship is management

    Our goal is to create an institution, not just a
     product
    Traditional manage...
Value vs. Waste

    In a lean transformation, question #1 is – which
     activities are value-creating and which are wa...
Traditional Product Development
                      Unit of Progress: Advance to Next Stage

                  Waterfall...
Agile Product Development
                    Unit of Progress: A line of Working Code




                      “Product ...
Product Development at Lean Startup
         Unit of Progress: Validated Learning About Customers ($$$)

                 ...
Two Kinds of Waste

    Type 1 waste – “activities which generate no
     value but are currently necessary to create val...
Speed	
  Wins
                    	
  
             IDEAS




LEARN                 BUILD




 DATA
                      ...
Customer Development
     Turns Market Risk/Product Fit Hypothesis into Facts

           Customer    Customer     Custome...
Lean Startup Advantages
                                              Customer	

                                         ...
This is Our Class



                    Hypotheses,
Problem: unknown    Experiments,
                      Insights
     ...
Customer Development/Lean Startup 011910 Class 1
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Customer Development/Lean Startup 011910 Class 1

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Steve Blank/Eric Ries Customer Development / Lean Startup Class 1 at Haas Business School 011910

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Customer Development/Lean Startup 011910 Class 1

  1. 1. Advanced Entrepreneurship: Customer Development and the Lean Startup Introduction to the Course Steve Blank & Eric Ries sblank@kandsranch.com eric@theleanstartup.com www.steveblank.com www.startuplessonslearned.com/
  2. 2. You Are Here Plan Liquidity Company Timeline Idea 1st Round
  3. 3. You Are Here Plan Liquidity Company Timeline Idea 1st Round
  4. 4. How do You Get Here Plan Liquidity Company Timeline Idea 1st Round
  5. 5. Entrepreneurship Logical Process
  6. 6. Entrepreneurship Logical Process Intuitive Passion
  7. 7. Today Part 1: Introduction to the Course Part 2: Key Concepts
  8. 8. Course Introduction   Course Objectives   Intro and Backgrounds   How the Class Works   Customer Development
  9. 9. Course Objectives   Learn how to:   Reduce product/market risk   Organize sales, marketing and business development when bringing a product to market   Understand its relationship with engineering   Have Fun   Learn from Each Other
  10. 10. Course Prerequisites   Officially – none   Realistically:   Experience in bringing a new product to market   Entrepreneurship 295 or equivalent   Have written a business plan
  11. 11. Introduction and Backgrounds   Steve Blank   Eric Ries   Guest Speakers   Class
  12. 12. Introduction: Steve Blank 8 startups in 20 years 2 strikeouts Rocket Science, Ardent 2 walks ESL, Zilog 2 singles Convergent, MIPS 1 double SuperMac 1 home run E.piphany Non profits: Audubon, POST, Coastal Commission, CLCV, Trustee UCSC Blog: www.steveblank.com Twitter: sgblank
  13. 13. Introduction: Eric Ries Author: Lean Startup, co/author Black Art of Java Game Programming Company: Co-founder/CTO IMVU There.com Co-founder Catalyst Recruiting Blog: www.startuplessonslearned.com Twitter: ericries
  14. 14. Introduction: Class Why are you taking the class?   How many of you have:   Been in start-ups?   Been in a startup that failed?   Raised or tried to raise money?   How many are:   Sales, marketing or business development?   Engineers?
  15. 15. How the Class Works   Syllabus   3 Application Exercises   Research Project   Grading   Research Project (50%)   Application Exercises (25%)   Class Participation (25%)
  16. 16. Class Issues   Tech-heavy   Enterprise-heavy   For-profit versus non-profit   Startups versus existing companies   Methodology focused on product/customer risk reduction   Doesn’t work for technology risks (i.e Biotech)   Doesn’t match your experience or opinion
  17. 17. Logistics Steve Blank and Eric Ries sblank@kandsranch.com eric@theleanstartup.com
  18. 18. How the Class Works Part 1 Class Case Application Research Exercise Project Class 2/Jan 26th Three Types of In & Out Startups Burger Class 3/Feb 2nd Customer E-Ink Market Type Think! Development Class 4/Feb 9h Discovery - Part 1 Webvan/ Team Selection Amazon Class 5/Feb 16th Discovery – Part 2 IMVU/ Draft Concept Linden Labs Class 6/Feb 23rd Discovery – Part 3 Motive Approved Concept Class 7/Mar 2nd Validation Part 1 Wildfire Discovery Class 8/Mar 9th Validation Part 2 HPKittyhawk
  19. 19. How the Class Works Part 2 Class Case Application Research Exercise Project Class 9/Mar 16th Creation - Part 1 Ecton March 23rd No Class Class 10/Mar 30th Creation – Part 2 Erox Class 11/Apr 6th Creation Cases Tivo Interviews Done Class 12/Apr 13th Building - Part 1 Documentum Customer Creation Class 13/Apr 20th Building - Part 2 Class 14/Apr 27th Wrapup Final Paper Due 5/4/09
  20. 20. Study.Net   All materials are on Study.Net   Syllabus   Reading   Assignments   Presentations (after each class)
  21. 21. Reading Class Text: Four Steps to the Epiphany Assigned Reading: In Reader Blogs: www.steveblank.com http://startuplessonslearned.com/ Presentations: www.slideshare.net/ Google Group: http://groups.google.com/group/lean-startup-circle Twitter: sgblank ericries watch http://www.youtube.com/watch?v=R2lE3fgj7QA for what you could be in store for
  22. 22. The Course Steve Blank and Eric Ries sblank@kandsranch.com eric@theleanstartup.com
  23. 23. Customer Development   Business Plans   The Value of “Models” for an Entrepreneur   Key Concepts   Market versus Technology Risks   Vertical Markets   Three Types of Startups
  24. 24. The Top Lies of Venture Capitalists 1.  “I liked your company, but my partners didn't.” 2.  “If you get a lead, we will follow.” 3.  “Show us some traction, and we'll invest.” 4.  “We love to co-invest with other venture capitalists.” 5.  “We're investing in your team.” 6.  “I have lots of bandwidth to dedicate to your company.” 7.  “This is a vanilla term sheet.” 8.  “We can open up doors for you at our client companies.” 9.  “We like early-stage investing.” Source: Guy Kawasaki
  25. 25. The Top Lies of Entrepreneurs 1.  “Our projections are conservative.” 2.  “(Big name research firm) says our market will be $50 billion in 2010.” 3.  “(Big name company) is going to sign our purchase order next week.” 4.  “Key employees are set to join us as soon as we get funded.” 5.  “No one is doing what we're doing.”. 6.  “No one can do what we're doing.” 7.  “Hurry because several other venture capital firms are interested.” 8.  “Oracle is too big/dumb/slow to be a threat.” 9.  “We have a proven management team.” 10.  “Patents make our product defensible.” 11.  “All we have to do is get 1% of the market.” Source: Guy Kawasaki
  26. 26. One Way to Plan a Startup
  27. 27. Business Plans – Why?   Why write a plan?   VC’s require it   Planning (Strategic/Financial/Ops)   Articulate Bus Model/Assumptions   What’s wrong with a plan?   Static   Execution Oriented
  28. 28. The Value of “Models”   Model = shorthand for complicated idea   This class teaches a “model” for product introduction   How to reduce risk for customer/market fit   Side effect is rethinking timing in Sales, Marketing & Business Development
  29. 29. Timmons Model of Entrepreneurship (The Business Plan) Communication Resources Opportunity Business Plan Creativity Leadership Team
  30. 30. Moore Model of Entrepreneurship (Chasm + Life Cycle)
  31. 31. New Product Introductions What’s the Model?   New Product introduction models   Checklist of what to and when to do it   Market size and business case   Models try to ensure that product matches market   Technology and development “gates”
  32. 32. StageGate™ Model (New Product Introduction)
  33. 33. Steve Blank Model of Entrepreneurship)
  34. 34. Venture Capital Model of a Startup (Execution) Concept/ Product Alpha Test/ Launch/ Bus. Plan Development Beta Test 1st Ship
  35. 35. New Product Introduction It Doesn’t Always Work   New Product Development Process   Works great for some new products, fails miserably for others   Products usually are late, over cost   Typically fails to understand and satisfy customer needs   Why?
  36. 36. Issues in New Product Intros   Current models:   Confuse product development process with customer needs   Treat all startups as the same   We need a New Product Intro Process   Reduces Market RiskSimple, understood by all   Founders commitment   Cross function organization   Solid homework
  37. 37. What is a startup?   A startup is a human institution designed to deliver a new product or service under conditions of extreme uncertainty.   Nothing to do with size of company, sector of the economy, or industry
  38. 38. Entrepreneurship is management   Our goal is to create an institution, not just a product   Traditional management practices fail   “general management” as taught to MBAs   Need practices and principles geared to the startup context of extreme uncertainty
  39. 39. Value vs. Waste   In a lean transformation, question #1 is – which activities are value-creating and which are waste?   In traditional business, value is created by delivering products or services to customers   In a startup, the product and customer are unknowns   We need a new definition of value for startups
  40. 40. Traditional Product Development Unit of Progress: Advance to Next Stage Waterfall Requirements Specification Design Problem: known Solution: known Implementation Verification Maintenance
  41. 41. Agile Product Development Unit of Progress: A line of Working Code “Product Owner” or in-house customer Problem: known Solution: unknown
  42. 42. Product Development at Lean Startup Unit of Progress: Validated Learning About Customers ($$$) Customer Development Hypotheses, Problem: unknown Experiments, Insights Data, Solution: unknown Feedback, Insights
  43. 43. Two Kinds of Waste   Type 1 waste – “activities which generate no value but are currently necessary to create value”   Requires a change in structure   How do we prioritize?   Type 2 waste – “activities which create no value and could be eliminated immediately”   Requires only a change in behavior   Usually caused by “best practices”
  44. 44. Speed  Wins   IDEAS LEARN BUILD DATA CODE MEASURE
  45. 45. Customer Development Turns Market Risk/Product Fit Hypothesis into Facts Customer Customer Customer Company Discovery Validation Creation Building   Discovery: Test hypotheses i.e. problem and product   Validation: Build a repeatable and scalable sales process   Creation: Create end-user demand and fill the sales pipeline   Building: Scale via relentless execution
  46. 46. Lean Startup Advantages Customer Development   Builds low-burn companies by design "   Low cost market risk testing" Agile Product   Organized around learning and Development discovery"   Right model for current conditions" The next wave of capital efficient startups!
  47. 47. This is Our Class Hypotheses, Problem: unknown Experiments, Insights Data, Solution: unknown Feedback, Insights
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