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  • 1. Engineering 245 The Lean LaunchPad Session 1: Overview/Business Models/Customer Development Professors Steve Blank, Ann Miura-Ko, Jon Feiber http://e245.stanford.edu/
  • 2. Agenda “ Is This the Right Course for Me?”
    • Introductions
    • Course Objectives/teams/project
    • Class Logistics
    • Building a “Lean Startup”
      • Idea
      • Sizing the Opportunity
      • Business Models
      • Customer Development
    • Break : Stay If You Want to Be in the Class
    • Class “Culture” and Next Steps
  • 3. Introductions
  • 4. Steve Blank, Ann-Miura-Ko, Jon Feiber
    • 8 startups in Silicon Valley
    • Semiconductors
    • Supercomputers
    • Consumer electronics
    • Video games
    • Enterprise software
    • Military intelligence
    • [email_address]
    • twitter sgblank
    • www.steveblank.com
    • Yale BS EE
    • McKinsey and Co.
    • Charles River Ventures
    • Stanford Ph.D MS&E
    • TA: E145, Mayfield Fellows, MS&E 273
    • V.C. @ Floodgate
    • [email_address]
    • @annimaniac
    • BS CS/Astro Physics U of Colorado
    • VP Networking SUN
    • V.C. @ MDV since 1991
  • 5. Steve Blank, Ann-Miura-Ko , Jon Feiber
    • 8 startups - 32 years in Silicon Valley
    • Semiconductors
    • Supercomputers
    • Consumer electronics
    • Video games
    • Enterprise software
    • Military intelligence
    • Teach: Stanford, Berkeley, Columbia
    • Details at www.steveblank.com
    • Yale BS EE
    • McKinsey and Co.
    • Charles River Ventures
    • Stanford Ph.D MS&E
    • V.C. @ Floodgate
    • [email_address]
    • @annimaniac
    • BS CS/Astro Physics U of Colorado
    • VP Networking SUN
    • V.C. @ MDV since 1991
  • 6. Steve Blank, Ann-Miura-Ko, Jon Feiber
    • 8 startups - 32 years in Silicon Valley
    • Semiconductors
    • Supercomputers
    • Consumer electronics
    • Video games
    • Enterprise software
    • Military intelligence
    • Teach: Stanford, Berkeley, Columbia
    • Details at www.steveblank.com
    • Yale BS EE
    • McKinsey and Co.
    • Charles River Ventures
    • Stanford Ph.D MS&E
    • V.C. @ Floodgate
    • [email_address]
    • @annimaniac
    • BS CS/Astro Physics U of Colorado
    • 50 th employee, VP Networking @ Sun
    • V.C. @ MDV since 1991
    • [email_address]
  • 7. Course Assistant (CA ’s) Felix Huber
    • MS MS&E 2010
    • Google Translate Product Mgr
    • CA ’s role : Class/lecture questions, Grading and attendance
    Thomas Haymore
    • B.A. in Political Science
    • Stanford Law ( ‘06)
    • J.D. Stanford Law ( ‘12)
    [email_address] [email_address]
  • 8. Volunteer Course Assistant (CA ’s) Felix Huber
    • MS MS&E 2010
    • Google Translate Product Mgr
    • CA ’s role : Class/lecture questions, Grading and attendance
    Thomas Haymore
    • B.A. in Political Science
    • Stanford Law ( ‘06)
    • J.D. Stanford Law ( ‘12)
    [email_address] [email_address]
  • 9. Course Objectives
    • Understand the real world aspects of Entrepreneurship by getting out of the building
      • Analyze and assess an opportunity
      • Build the product
      • Get orders
      • Work with a team
    • Learn whether entrepreneurship is for you
  • 10. What Will you Learn?
    • Opportunity evaluation
    • Search for a Business Model
    • Customer Discovery and Validation
    • Operating and decision making in chaos with insufficient data
    • Teamwork
  • 11. The Course ‘By the Numbers’
    • 3/4 Units of Credit
    • 3 Instructors, 2 CAs, 25+ Mentors,
    • 8 Lectures
    • 8 Weekly 10-minute presentations
    • 1 Final 30 minute presentation
    • 3 Textbooks
    • 10-15 hours of work a week outside the classroom
  • 12. Course Reading
    • Business Model Generation
    • Four Steps to the Epiphany
    • Founders at Work
    copies available at the bookstore
  • 13. This Class is Hard
    • You can ’t pass by attending the class
    • Your grade is determined by the work you do outside the class
    • There ’s a lot of it
    • You are dependent on teamwork and teammates – communication is critical
  • 14. Teams
    • We are taking 10 teams
    • Suggested team size is 4 people
      • Deadline for team formation is Jan 6 th
      • Must contact your mentors by Jan 7 th
    • Present Weekly and for Final
      • Weekly lessons learned
      • Final is demo and summary
    • Class is about teamwork, discovery and fast iteration
  • 15. Team Projects
    • Any for-profit scalable startup
    • If you are a domain expert, that ’s your best bet (but not required)
    • If you pick a web project, you have to build it (and there needs to be some novelty)
  • 16. Team Deliverables
    • Each Week
      • Lessons Learned presentation 10 minutes
      • Updated blog/wiki
      • 10 ’s of hours of “outside the building” progress
    • Final Presentation
      • 30 minute Lessons Learned Summary
  • 17. Grading
    • Individual - 20%
    • Participation in class 20%
    • Team - 80%
    • Weekly summary and out of the building progress 50%
    • Final Presentation 30%
    You’re graded on how much learn , not how much you sell
  • 18. Mentors
    • Mentors are Venture Capitalists or Entrepreneurs
    • Mentors role is to:
      • Help you “Get you out of the building”
      • Share contacts
      • Offer “Real-world” entrepreneurial advice
      • Critical feedback
    • You arrange your schedule for the mentors, not the other way around
    • You will send your mentors your hypotheses weekly on Wednesday
    • On Tuesday you send them your presentation
  • 19. Class Logistics
  • 20. How the Class Works Class Topic Deliverable for the Next Week (Submit interview notes, present results, update wiki/blog) January 4 th Class 1 Business Model and Customer Development - Hypotheses for each part of business model. - Test for whether your business is worth  pursuing (market  size) - Test for each of the hypotheses     - What  constitutes a pass/fail signal for the  test (e.g. at what point would you say your hypotheses wasn ’t even close to  correct)?
  • 21. How the Class Works Class Topic Deliverable for the Next Week (Submit interview notes, present results, update wiki/blog) January 4 th Class 1 Business Model and Customer Development - Hypotheses for each part of business model. - Test for whether your business is worth  pursuing (market  size) - Test for each of the hypotheses     - What  constitutes a pass/fail signal for the  test (e.g. at what point would you say your hypotheses wasn ’t even close to  correct)? January 5 th Team Mixer - Teams by midnight Jan 5 th at the Treehouse Cafe Jan 6 Speed Dating with Professors – team ideas approved Form teams. Get ideas approved. Meet in Thornton 110
  • 22. How the Class Works Class Topic Deliverable for the Next Week (Submit interview notes, present results, update wiki/blog) January 4 th Class 1 Business Model and Customer Development - Hypotheses for each part of business model. - Test for whether your business is worth  pursuing (market  size) - Test for each of the hypotheses     - What  constitutes a pass/fail signal for the  test (e.g. at what point would you say your hypotheses wasn ’t even close to  correct)? January 6 th Team Mixer - Teams by midnight Jan 6 th January 11 th Class 2 Testing the Value Proposition
    • - Name your team.  
    • - What are your value proposition hypotheses?    
    • - What did you discover from customers?    
  • 23. How the Class Works Class Topic Deliverable for the Next Week ( Submit interview notes, present results, update wiki/blog) January 18 th Class 3 Testing Customers /Users / Payers
    • - What were your user/customer hypotheses?  
    • - Did  you learn anything different?    
    • - Anything change about Value Proposition?      -
    • - What are your customer acquisition costs?    
    • - What are the direct benefits (economic/other)?
    • - Who is the decision maker, how large is their   budget? What are they spending it on today?  
    • - How will this buying decision be made?  
    • - What  resonates with customers?
    • - For web startups, start coding the product .  
    • - Setup Google or Amazon cloud infrastructure
  • 24. How the Class Works Class Topic Deliverable for the Next Week ( Submit interview notes, present results, update wiki/blog) January 18 th Class 3 Testing Customers and Users  
    • - What were your user/customer hypotheses?  
    • - Did  you learn anything different?    
    • - Anything change about Value Proposition?      -
    • - What are your customer acquisition costs?    
    • - What are the direct benefits (economic/other)?
    • - Who is the decision maker, how large is their   budget? What are they spending it on today?  
    • - How will this buying decision be made?  
    • - What  resonates with customers?
    • - For web startups, start coding the product .  
    • - Setup Google or Amazon cloud infrastructure
    January 25 th Class 4 Testing Demand Creation - Anything change about Value Proposition or  Customers/Users or Channel? - Present and explain your marketing campaign.  - What  worked best and why?
  • 25. How the Class Works Class Topic Deliverable for the Next Week ( Submit interview notes, present results, update wiki/blog) Feb 1 st Class 5 Testing Sales Channel For web teams : Get working website/analytics up.  - Track where visitors are coming from, how behavior differs.  - What were your hypotheses about site results? - Anything in Value Proposition or Customers/Users?     For non-web  teams : Interview 10 people in channel - Anything change in Value Proposition, Channel or  Customers/Users? - Does your product extend/replace existing channel revenue? - What ’s the “cost” of your channel/ it’s efficiency vs. product selling price. For Everyone : What is your customer lifetime value? - What feedback did you receive from your users? - What are the entry barriers?
  • 26. How the Class Works Class Topic Deliverable for the Next Week ( Submit interview notes, present results, update wiki/blog, build website) Feb 1 st Class 5 Testing Sales Channel For web teams: Get working website/analytics up.  - Track where visitors are coming from, how behavior differs.  - What were your hypotheses about site results? - Did anything  change about Value  Proposition or Customers/Users?     For non-web  teams: Interview 10 people in channel - Did  anything  change  about  Value  Proposition  or  Customers/Users? - Does your product extend/replace existing channel revenue? - What ’s the “cost” of your channel/ it’s efficiency vs. product selling price. For Everyone: What is your customer lifetime value? - What feedback did you receive from your users? - What are the entry barriers? Feb 8 th Class 6 Testing Revenue Model - Assemble income statement for your business model.   - Lifetime  value  calculation   for  customers.    
  • 27. How the Class Works Class Topic Deliverable for the Next Week ( Submit interview notes, present results, update wiki/blog, build website) Feb 15 th Class 7 Testing Partners - Any change of Value Proposition, Customers/Users,  Channel, or Demand  Creation? - What are the partners incentives/impediments?
  • 28. How the Class Works Class Topic Deliverable for the Next Week ( Submit interview notes, present results, update wiki/blog, build website) Feb 15 th Class 7 Testing Partners - Any change of Value Proposition, Customers/Users,  Channel, or Demand  Creation? - What are the partners incentives/impediments? Feb 22 nd Class 8 Testing Key Resources and Cost Structure
    • - Assemble a “resources assumptions” spreadsheet.    
    • - Include  people, hardware, software, prototypes,  financing, etc.
    • - When will you need these resources?
  • 29. How the Class Works Class Topic Deliverable for the Next Week ( Submit interview notes, present results, update wiki/blog, build website) Feb 15 th Class 7 Testing Partners - Any change of Value Proposition, Customers/Users,  Channel, or Demand  Creation? - What are the partners incentives/impediments? Feb 22 nd Class 8 Testing Key Resources and Cost Structure
    • - Assemble a “resources assumptions” spreadsheet.    
    • - Include  people, hardware, software, prototypes,  financing, etc.
    • - When will you need these resources?
    March 1 st Class 9 Present!
    • Group 1 – 30 Minute Presentations
    March 8 th Class 10 Present!
    • Group 2 – 30 Minute Presentations
  • 30. How the Class Works Class Topic Deliverable for the Next Week ( Submit interview notes, present results, update wiki/blog, build website) Feb 15 th Class 7 Testing Partners - Any change of Value Proposition, Customers/Users,  Channel, or Demand  Creation? - What are the partners incentives/impediments? Feb 22 nd Class 8 Testing Key Resources and Cost Structure
    • - Assemble a “resources assumptions” spreadsheet.    
    • - Include  people, hardware, software, prototypes,  financing, etc.
    • - When will you need these resources?
    March 1 st Class 9 Present!
    • Group 1 – 30 Minute Presentations
    March 8 th Class 10 Present!
    • Group 2 – 30 Minute Presentations
  • 31. How to Build A Startup Idea Size Opportunity Business Model Customer Development
  • 32. How to Build A Startup Idea Size of the Opportunity Business Model(s) Customer Discovery Customer Validation
  • 33. How to Build A Startup Idea Size of the Opportunity Business Model(s) Customer Discovery Customer Validation Theory Practice
  • 34. How to Build A Startup Idea Size of the Opportunity Business Model(s) Customer Discovery Customer Validation
    • Web startups get the product in front of customers earlier
  • 35. How to Build A Startup Idea Size of the Opportunity Business Model(s) Customer Discovery Customer Validation
  • 36. Idea
  • 37. We ’re Engineers Darn It!
    • Aren ’t companies all about product?
    • I have a great technology idea
    • Teach me how to make a company around it
    • Just like Facebook and Google (or Intel or Apple)
    Stanford
  • 38. Sources of Startup Ideas?
    • Technology shifts
      • Moore ’s Law
      • Disruptive tech
      • Research
    • Market changes
      • Value chain disruption
      • Deregulation
    • Societal changes
      • Changes in ways we live, learn, work, etc.
      • The world is flat (outsourcing)
    • Dinosaur factor
      • Arrogance
      • Deadened reflexes
    • Irrational exuberance
      • Undervalued assets
  • 39. An Idea is _Not_ a Company
  • 40. Size of Opportunity
  • 41. This Class is about Scalable Startups
    • Not all startups are designed to scale
    • Small business startups have different goals
      • They are done by normal people
    • Scalable startups are designed to grow big
      • Typically require venture capital
    • This means the size of the opportunity needs to be $100’s of millions to billions
  • 42. Small Business Startups Small Business Startup
    • - Business Model found
    • - Profitable business
    • Existing team
    • < $1M in revenue
  • 43. Small Business Startups
    • - Business Model found
    • - Profitable business
    • Existing team
    • < $10M in revenue
    • 5.7 million small businesses in the U.S. <500 employees
    • 99.7% of all companies
    • ~ 50% of total U.S. workers
    http://www.sba.gov/advo/stats/sbfaq.pdf Small Business Startup
  • 44. Scalable Startup Scalable Startup Large Company >$100M/year
    • Total Available Market > $500m
    • Company can grow to $100m/year
    • Business model found
    • Focused on execution and process
  • 45. Scalable Startup Scalable Startup Large Company >$100M/year
    • Total Available Market > $500m
    • Company can grow to $100m/year
    • Business model found
    • Focused on execution and process
    • Typically requires “risk capital”
    • In contrast a scalable startup is designed to grow big
    • Typically needs risk capital
    • What Silicon Valley means when they say “Startup”
  • 46. Very Different Startup Goals Small Business Startup
    • - Business Model found
    • - Profitable business
    • Existing team
    • < $10M
    Scalable Startup Large Company
    • Total Available Market > $500m
    • Company can grow to $100m/year
    • Business model found
    • Focused on execution and process
    • Typically requires “ risk capital ”
  • 47. Venture Firms Invest in Scalable Startups Small Business Startup Scalable Startup Large Company
  • 48. Market/Opportunity Analysis
    • How Big is It?: Market/Opportunity Analysis
      • Identify a Customer and Market Need
      • Size the Market
      • Competitors
      • Growth Potential
  • 49. How Big is the Pie? Total Available Market Total Available Market
    • How many people would want/need the product?
    • How large is the market be (in $ ’s) if they all bought?
    • How many units would that be?
    • How Do I Find Out?
    • Industry Analysts – Gartner, Forrester
    • Wall Street Analysts – Goldman, Morgan
  • 50. How Big is My Slice? Served Available Market
    • How many people need/can use product?
    • How many people have the money to buy the product
    • How large would the market be (in $ ’s) if they all bought?
    • How many units would that be?
    • How Do I Find Out?
    • Talk to potential customers
    Served Available Market Total Available Market
  • 51. How Much Can I Eat? Target Market
    • Who am I going to sell to in year 1, 2 & 3?
    • How many customers is that?
    • How large is the market be (in $ ’s) if they all bought?
    • How many units would that be?
    • How Do I Find Out?
    • Talk to potential customers
    • Identify and talk to channel partners
    • Identify and talk to competitors
    Total Available Market Target Market Served Available Market
  • 52. Segmentation Identification of groups most likely to buy Target Market
    • Geographic
    • Demographic
    • Psychographic variables
    • Behavioral variables
    • Channel
    • etc…
    Total Available Market Served Available Market
  • 53. Market Size: Summary
    • Market Size Questions:
      • 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 Sales Channel
    • Next important: Market size by competitive approximation
      • Wall Street analyst reports are great
    • And : Market research firms Like Forester, Gartner
  • 54. Business Model
  • 55. What Is a Business Model ?
    • Diagram of flows between company and customers
    • Scorecard of hypotheses testing
    • Rapid change with each iteration and pivot
    • Founder- driven
    * Alex Osterwalder
  • 56. 9 building blocks of a business model:
  • 57. CUSTOMER SEGMENTS which customers and users are you serving? which jobs do they really want to get done?
  • 58. VALUE PROPOSITIONS what are you offering them? what is that getting done for them? do they care?
  • 59. CHANNELS how does each customer segment want to be reached? through which interaction points?
  • 60. CUSTOMER RELATIONSHIPS what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?
  • 61. REVENUE STREAMS what are customers really willing to pay for? how? are you generating transactional or recurring revenues?
  • 62. KEY RESOURCES which resources underpin your business model? which assets are essential?
  • 63. KEY ACTIVITIES which activities do you need to perform well in your business model? what is crucial?
  • 64. KEY PARTNERS which partners and suppliers leverage your model? who do you need to rely on?
  • 65. COST STRUCTURE what is the resulting cost structure? which key elements drive your costs?
  • 66. images by JAM customer segments key partners cost structure revenue streams channels customer relationships key activities key resources value proposition
  • 67. sketch out your business model
  • 68. building block building block building block building block building block building block building block building block building block building block building block building block
  • 69. But, Realize They ’re Hypotheses
  • 70. 9 Guesses Guess Guess Guess Guess Guess Guess Guess Guess Guess
  • 71. How Do Startups Search For A Business Model?
    • The Search is called Customer Development
    • The Implementation is called Agile Development
  • 72. Customer Development Solving For Customer Risk
  • 73. Customer Development Get Out of the Building The founders ^
  • 74. More startups fail from a lack of customers than from a failure of product development (focus on “who” more than “what”)
  • 75. Customer Development Concept/ Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship Product Introduction Model Customer Development Company Building Customer Discovery Customer Validation Customer Creation Pivot
  • 76.
    • Stop selling, start listening
    • Test your hypotheses
    • Continuous Discovery
    • Done by founders
    Customer Discovery Customer Discovery Customer Validation Company Building Customer Creation Pivot
  • 77. Turning Hypotheses to Facts
    • Test Hypotheses:
    • Product
    • Market Type
    • Competition
  • 78.
    • Test Hypotheses:
    • Problem
    • Customer
    • User
    • Payer
  • 79.
    • Test Hypotheses:
    • Channel
  • 80.
    • Test Hypotheses:
    • Problem
    • Customer
    • User
    • Payer
    • Test Hypotheses:
    • Demand Creation
    • Test Hypotheses:
    • Channel
    • Test Hypotheses:
    • Product
    • Market Type
    • Competitive
    • Test Hypotheses:
    • Pricing Model / Pricing
    • Test Hypotheses:
    • Size of Opportunity/Market
    • Validate Business Model
    • Test Hypotheses:
    • Channel
    • (Customer)
    • (Problem)
  • 81.
    • Test Hypotheses:
    • Problem
    • Customer
    • User
    • Payer
    • Test Hypotheses:
    • Demand Creation
    • Test Hypotheses:
    • Channel
    • Test Hypotheses:
    • Product
    • Market Type
    • Competitive
    • Test Hypotheses:
    • Pricing Model / Pricing
    • Test Hypotheses:
    • Size of Opportunity/Market
    • Validate Business Model
    • Test Hypotheses:
    • Channel
    • (Customer)
    • (Problem)
    Customer Development Team Agile Development
  • 82.
    • Test Hypotheses:
    • Problem
    • Customer
    • User
    • Payer
    • Test Hypotheses:
    • Demand Creation
    • Test Hypotheses:
    • Channel
    • Test Hypotheses:
    • Product
    • Market Type
    • Competitive
    • Test Hypotheses:
    • Pricing Model / Pricing
    • Test Hypotheses:
    • Size of Opportunity/Market
    • Validate Business Model
    • Test Hypotheses:
    • Channel
    • (Customer)
    • (Problem)
    Customer Development Team Agile Development
  • 83. The Pivot
    • The heart of Customer Development
    • Iteration without crisis
    • Fast, agile and opportunistic
  • 84. Break
  • 85. Our “Culture” for E245
    • Show up on time and stay ‘til we’re done
    • Pay attention to the other team presentations
    • Step outside if you must call, email, skype, twitter, chat, surf the web, or do anything unrelated to E245
    • Keep your commitments (in class and out)
    • Entrepreneurship is a team sport
      • 80% of your grade depends on working with others
  • 86. What Lies Ahead: “To Do” List
    • Check web site for admission lists
      • attendance is mandatory in session 2
      • waitlist (if any) will be cleared at beginning of class
    • Form full teams by Session 2
      • mixer on Thursday, 5:15 at Thornton 110
    • Team deliverable by next week:
      • Hypotheses for each part of business model.
      • - Test for whether your business is worth  pursuing (market  size)
      • - Test for each of the hypotheses    
      • - What  constitutes a pass/fail signal for the  test (e.g. at what point would you say your hypotheses wasn ’t even close to  correct)?