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Everything You Knew About Startups is Wrong, And How to Make it Right

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  • 1. Everything you knew about starting a company is wrong.  And how to do it right.
    Steve Blank
    Stanford School of Engineering
    www.steveblank.com
    Twitter: sgblank
  • 2. More startups fail from a lack of customers than from a failure of product development
  • 3. Traditional Product Introduction
    Concept
    Product Dev.
    Alpha/Beta Test
    Launch/
    1st Ship
  • 4. Traditional Product IntroductionHas Two Implicit Assumptions
    Customer Problem: known
    Concept
    Product Dev.
    Alpha/Beta Test
    Launch/
    1st Ship
    Product Features: known
  • 5. Tradition – HireMarketing
    Concept
    Product Dev.
    Alpha/Beta Test
    Launch/
    1st Ship
    - Create Demand
    - Launch Event
    - “Branding”
    - Hire PR Agency
    - Early Buzz
    • Create Marcom
    Materials
    - Create Positioning
    Marketing
  • 6. Tradition – Hire Sales
    Concept
    Product Dev.
    Alpha/Beta Test
    Launch/
    1st Ship
    - Create Demand
    - Launch Event
    - “Branding”
    - Hire PR Agency
    - Early Buzz
    • Create Marcom
    Materials
    - Create Positioning
    Marketing
    • Build Sales Organization
    • 7. Hire Sales VP
    • 8. Hire 1st Sales Staff
    Sales
  • 9. Tradition – HireBusiness Development
    Concept
    Product Dev.
    Alpha/Beta Test
    Launch/
    1st Ship
    - Create Demand
    - Launch Event
    - “Branding”
    - Hire PR Agency
    - Early Buzz
    • Create Marcom
    Materials
    - Create Positioning
    Marketing
    • Build Sales Organization
    • 10. Hire Sales VP
    • 11. Hire 1st Sales Staff
    Sales
    Business
    Development
    • Hire First Bus Dev
    • 12. Do deals for FCS
  • Tradition – HireEngineering/Product Management
    Concept
    Product Dev.
    Alpha/Beta Test
    Launch/
    1st Ship
    - Create Demand
    - Launch Event
    - “Branding”
    - Hire PR Agency
    - Early Buzz
    • Create Marcom
    Materials
    - Create Positioning
    Marketing
    • Build Sales Organization
    • 13. Hire Sales VP
    • 14. Hire 1st Sales Staff
    Sales
    Business
    Development
    • Hire First Bus Dev
    • 15. Do deals for FCS
    Engineering/Product Mgmt
  • Engineering Executes a Waterfall Process
    Concept
    Product Dev.
    Alpha/Beta Test
    Launch/
    1st Ship
    Require-ments
    Design
    Implement
    Verify
    Maintain
  • 19. Waterfall / Product ManagementExecution on Two “Knowns”
    Requirements
    Product Features: known
    Design
    Implementation
    Verification
    Customer Problem: known
    Maintenance
    Source: Eric Rieshttp://startuplessonslearned.blogspot.com
  • 20. This is A Plan For Failure
    Customer Problems and Product Features are hypotheses
    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 assume success
    =
    You don’t know if you’re wrong untilyou’re out of business/money
  • 21. An Inexpensive Fix
    Focus on Customers and Markets from Day One
    How?
  • 22. Traditional Product Introduction
    Concept/Bus. Plan
    Product Dev.
    Alpha/Beta Test
    Launch/1st Ship
    Customer Development
    Company
    Building
    CustomerDiscovery
    CustomerValidation
    Customer Creation
    Customer Development
  • 23. Agile Development
    Waterfall Product Development
    Require-ments
    Design
    Implement
    Verify
    Maintain
    Agile Product Development
  • 24. Lean StartupCustomer Problem + Product Features are Unknown
    Problem: Unknown
    Solution: Unknown
    Source: Eric Rieshttp://startuplessonslearned.blogspot.com
  • 25. Customer Development
    CustomerDiscovery
    Company
    Building
    CustomerValidation
    Customer Creation
    Pivot
    The founders
    Get the heck Out of the Building
    ^
  • 26. Customer Development
    CustomerDiscovery
    Company
    Building
    CustomerValidation
    Customer Creation
    Pivot
    • Discovery
    • 27. Test hypotheses I.e. problem and product concept
    • 28. Validation
    • 29. Build a repeatable and scalable sales process
    • 30. Creation
    • 31. Scale via relentless execution and fill the sales pipeline
    • 32. Building
    • 33. (Re)build company’s organization & management
  • Customer Discovery
    CustomerDiscovery
    CustomerValidation
    Company
    Building
    CustomerCreation
    Stop selling, start listening
    Test your hypotheses
    Continuous Discovery
    Done by founders
  • 34. Customer Validation
    CustomerDiscovery
    CustomerValidation
    Customer Creation
    Company
    Building
    Pivot
    • Repeatable and scalable business model?
    • 35. PassionateEarlyvangelists?
    • 36. Pivot back to Discovery if no customers
  • The Pivot
    • The heart of Customer Development
    • 37. Iteration without crisis
    • 38. Fast, agile and opportunistic
  • Speeding Up Cycle Time
    • Speed of cycle minimizes cash needs
    • 39. Minimum feature set speeds up cycle time
    • 40. Near instantaneous customer feedback drives feature set
  • 22
    Customer Creation
    CustomerDiscovery
    CustomerValidation
    Company
    Building
    CustomerCreation
    • Creation comes after proof of sales
    • 41. $’s for scale
    • 42. Lean Startups are not cheap startups
  • Company Building
    Company
    Building
    Customer Creation
    CustomerValidation
    CustomerDiscovery
    • (Re)build company’s organization & management
    • 43. Re look at your mission
  • Not All Startups Are Equal
  • 44. Small Business
    Startup
    Small Business Startups
    • Serve known customer with known product
    • 45. Feed the family
  • Small Business
    Startup
    Exit Criteria
    • Business Model found
    - Profitable business
    • Existing team
    < $1M in revenue
    Small Business Startups
    • known customer known product
    • 46. Feed the family
  • Scalable
    Startup
    Large Company
    >$100M/year
    Scalable Startup
    Goal is to solve for:
    unknown customer and unknown features
  • 47. Scalable
    Startup
    Large Company
    >$100M/year
    Exit Criteria
    • Total Available Market > $500m
    • 48. Can grow to $100m/year
    • 49. Business model found
    • 50. Focused on execution and process
    Scalable Startup
  • 51. Scalable
    Startup
    Large Company
    >$100M/year
    • Total Available Market > $500m
    • 52. Can grow to $100m/year
    • 53. Business model found
    • 54. Focused on execution and process
    • 55. Typically requires “risk capital”
    Scalable Startup
    • In contrast a scalable startup is designed to grow big
    • 56. Typically needs risk capital
    • 57. What Silicon Valley means when they say “Startup”
  • Scalable
    Startup
    Large Company
    Search
    • Business Model found
    • 58. i.e. Product/Market fit
    - Repeatable sales model
    - Managers hired
    What’s A Startup?
    A Startup is the organization used to search for a scalable business model
  • 59. What VC’s Don’t Tell You:The Transition – Founders Leave
    Scalable
    Startup
    Transition
    Large Company
    Build
  • Startup-to-Company Lifecycle
    Scalable
    Startup
    Transition
    Large Company
    Build
    Search
    Grow
  • 63. Why Startups Aren’t Run By Accountants
  • 64. Startups Search and Pivot
    The Search for the Business Model
    Scalable
    Startup
    Transition
    Large Company
    Business Model found
    • customer needs/product features found
    i.e. Product/Market fit
    • Found by founders, not employees
    • 65. Repeatable sales model
    - Managers hired
  • 66. Startups Search, Companies Execute
    The Execution of the Business Model
    The Search for the Business Model
    Scalable
    Startup
    Transition
    Large Company
    - Cash-flow breakeven
    - Profitable
    - Rapid scale
    - New Senior Mgmt
    ~ 150 people
    • Business Model found
    • 67. Product/Market fit
    - Repeatable sales model
    - Managers hired
  • 68. Metrics Versus Accounting
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large
    Company
    Traditional Accounting
    • Balance Sheet
    • 69. Cash Flow Statement
    • 70. Income Statement
  • Metrics Versus Accounting
    The Search for the Business Model
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large
    Company
    Startup Metrics
    • Customer Acquisition Cost
    • 71. Viral coefficient
    • 72. Customer Lifetime Value
    • 73. Average Selling Price/Order Size
    • 74. Monthly burn rate
    • 75. etc.
    Traditional Accounting
    • Balance Sheet
    • 76. Cash Flow Statement
    • 77. Income Statement
  • Customer Validation Versus Sales
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large
    Company
    Sales
    • Sales Organization
    • 78. Scalable
    • 79. Price List/Data Sheets
    • 80. Revenue Plan
  • Customer Validation Versus Sales
    The Search for the Business Model
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large
    Company
    Customer Validation
    • Early Adopters
    • 81. Pricing/Feature unstable
    • 82. Not yet repeatable
    • 83. “One-off’s”
    • 84. Done by founders
    Sales
    • Sales Organization
    • 85. Scalable
    • 86. Price List/Data Sheets
    • 87. Revenue Plan
  • Customer Development VersusProduct Management
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large Company
    Product Management
    • Delivers MRD’s
    • 88. Feature Spec’s
    • 89. Competitive Analysis
    • 90. Prod Mgmt driven
  • Customer Development Versus Product Management
    The Search for the Business Model
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large Company
    Product Management
    • Delivers MRD’s
    • 91. Feature Spec’s
    • 92. Competitive Analysis
    Customer Development
  • Engineering Versus Agile Development
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large Company
    Engineering
  • Engineering Versus Agile Development
    The Search for the Business Model
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large Company
    Engineering
    Agile Development
  • Startups Model, Companies Plan
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large Company
    • Plan describes “knowns”
    • 106. Known features for line extensions
    • 107. Known customers/markets
    • 108. Known business model
  • Startups Model, Companies Plan
    The Search for the Business Model
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large Company
    • Unknown customer needs
    • 109. Unknown feature set
    • 110. Unknown business model
    • 111. Model found by iteration
    • 112. Plan describes “knowns”
    • 113. Known features for line extensions
    • 114. Known customers/markets
    • 115. Known business model
  • Startups Don’t Last Forever
    Scalable
    Startup
    Transition
    Large Company
    - Cash-flow breakeven
    - Profitable
    - Rapid scale
    - New Senior Mgmt
    ~ 150 people
    • Business Model found
    • 116. Product/Market fit
    - Repeatable sales model
    - Managers hired
    You failif you remain a startup!
  • 117. I Wrote This
  • 118. I Write a Blog
    www.steveblank.com
  • 119. Thanks
    www.steveblank.com