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Customer Development/Lean Startup 020210 Class 3

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  • 1. Customer Development in the High Tech Enterprise MBA 295-F/EMBA 295-F Customer and Agile Development Steve Blank sblank@kandsranch.com 2 3/27/10
  • 2. Class 3: Agenda !  Logistics/Questions !  CASE: E-Ink !  Product Development !  Boyd & the OODA Loop !  Customer Development
  • 3. It Started With a Question If Startups Fail from a Lack of customers not Product Development Failure Then why do we have: •  process to manage product development? •  no process to manage customer development?
  • 4. I Started Reading •  Lead User Research - Von Hippel •  OODA Loop - Boyd •  Crossing the Chasm - Moore •  Question-based Selling - Freese •  Entrepreneurial Mindset - McGrath/MacMillan •  Solution Selling - Bosworth •  Innovators Dillema - Christensen •  Conceptual/Strategic Selling - Heiman •  Profitable Value - Lanning •  Spin Selling - Rackham •  Lanchester Strategy - Yano •  US Marine Corps Warfighting Manual •  High Tech Marketing - Davidow •  Tipping Point - Gladwell Customer Customer Customer Company Discovery Validation Creation Building
  • 5. All We Had Was 30 Years of This Concept/ Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship Product Development Model
  • 6. What’s Wrong With This? Product Development Concept/ Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship -  Create Marcom - Hire PR Agency - Create Demand Marketing Materials - Early Buzz - Launch Event - Create Positioning - “Branding” 7
  • 7. What’s Wrong With This? Product Development Concept/ Product Alpha/Beta Launch/ Seed Round 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 Sales •  Hire 1st Sales Staff Organization
  • 8. What’s Wrong With This? Product Development Concept/ Product Alpha/Beta Launch/ Seed Round 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 Sales •  Hire 1st Sales Staff Organization Business •  Hire First •  Do deals for FCS Development Bus Dev
  • 9. 10 Things I Hate About Product Development 1.  Where are the Customers? 2.  The Focus on First Customer Ship 3.  Emphasis on Execution vs. Learning & Discovery 4.  No Customer-centric milestones 5.  Product dev. to measure Sales 6.  Product dev. to measure Marketing 7.  Premature Scaling 8.  Death Spiral 9.  Three Types of Startups 10.  Unrealistic Expectations
  • 10. Chasing The FCS Date !  Sales & Marketing costs are front loaded "  focused on execution vs. learning & discovery !  First Customer Ship becomes the goal !  Execution & hiring predicated on business plan hypothesis !  Heavy spending hit if product launch is wrong !  Financial projections, assumes all startups are the same = You don’t know if you’re wrong until you’re out of business/money
  • 11. An Inexpensive Fix Focus on Customers and Markets from Day One How?
  • 12. Boyd’s OODA “Loop” Observe Orient Decide Act Implicit Implicit Unfolding Guidance Cultural Guidance Circumstances & Control Traditions & Control Genetic Heritage Analyses & Observations Feed Forward Synthesis Feed Decision Feed Action Forward Forward (Hypothesis) (Test) New Previous Information Experience Outside Unfolding Information Interaction With Unfolding Environment Interaction Feedback With Environment Feedback Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback and other phenomena coming into our observing window. Competitive advantage comes from quickness over the entire “loop,” not just from the O-to-O-to-D-to-A sequence.
  • 13. Build a Customer Development Process Product Development Concept/ Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship Customer Development ? ? ? ?
  • 14. Customer Development is as important as Product Development Product Development Concept/ Product Alpha/Beta Launch/ Bus. Plan Dev. Test 1st Ship Customer Development Customer Customer Customer Company Discovery Validation Creation Building
  • 15. Customer Development is as important as Product Development Product Development Concept/ Product Alpha/Beta Launch/ Bus. Plan Dev. Test 1st Ship Customer Development Customer Customer Customer Company Discovery Validation Creation Building
  • 16. Customer Development Heuristics !  There are no facts inside your building, so get outside "  Founders in front of customers !  Find a Market for the Product as spec’d "  I.e Develop for the Few, not the Many !  Learning and Discovery versus linear execution !  Earlyvangelists make your company !  Market Types Matter
  • 17. Customer & Product Development Synchronization Product Development Concept/ Product Alpha/Beta Launch/ Bus. Plan Dev. Test 1st Ship Customer Development Customer Customer Customer Scale Discovery Validation Creation Company
  • 18. Product Development Product Development Concept/ Product Alpha/Beta Launch/ Bus. Plan Dev. Test 1st Ship But really, how does this work?
  • 19. Customer Development: Big Ideas !  Parallel process to Product Development !  Measurable Checkpoints for the entire company !  Not tied to FCS, but to customer milestones !  Iterative to represent reality !  Executed by a small team including CEO
  • 20. It Resulted in a Few Hypotheses •  Startups weren’t small versions of large companies •  They were about learning/discovery, not execution •  Entrepreneurs and their VC’s were executing on guesses •  But the facts were outside the building
  • 21. Which Turned Into A Model Product Development Concept/ Product Alpha/Beta Launch/1st Bus. Plan Dev. Test Ship + Customer Development Customer Customer Customer Company Discovery Validation Creation Building
  • 22. Eric Ries Extends the Model •  Took my class at U.C. Berkeley •  Co-founded IMVU -  1st implementation of Customer Development -  Paired it with an Agile Development Model •  Observed that the sum of the two was powerful
  • 23. Eric Ries: Insight - 1 Startups assumed development was “known” Concept/ Product Alpha/ Launch/ Seed Dev. Beta Ship Waterfall !"#$%&"'"()*+ Solution: known ,"*%-(+ •  I understood the problem .'/0"'"()123(+ was unknown Problem: known 4"&%56123(+ •  Eric observed the solution 71%()"(1(6"+ was unknown in a startup
  • 24. Eric Ries: Insight - 2 Agile matches the Customer Dev speed Concept/ Product Alpha/ Launch/ Seed Dev. Beta Ship Solution: unknown •  Agile was the development methodology to use when the solution was unknown
  • 25. Eric Ries: Insight 3 Customer + Agile + Commodity = Lean •  Solving for both unknowns is the “Lean Startup” Problem: Unknown Solution: Unknown Source: Eric Ries
  • 26. Jon Feiber @ MDV Insight Not all Need Customer Development •  Market Risk vs. Technical Risk? -  Web is about customers & markets -  Biotech is about science & invention
  • 27. John Boyd - Insight The OODA “Loop” Observe Orient Decide Act Implicit Implicit Unfolding Guidance Cultural Guidance Circumstances & Control Traditions & Control Genetic Heritage Analyses & Observations Feed Forward Synthesis Feed Decision Feed Action Forward Forward (Hypothesis) (Test) New Previous Information Experience Outside Unfolding Information Interaction With Unfolding Environment Interaction Feedback With Environment Feedback Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback and other phenomena coming into our observing window.
  • 28. Iteration versus Execution Iteration Execution Customer Customer Customer Company Discovery Validation Creation Building The Search for a Business The Growth of a Business Product/Market Fit
  • 29. Iteration versus Execution Product/Market Fit
  • 30. Business Model Affects Metrics and Exit Criteria