Greycroft - Why Accountants Don’t Run Startups

Why Accountants Don’t Run Startups
Steve Blank
Stanford - School of Engineering
U.C. Berkeley - Haas School Of Business
www.steveblank.com
Twitter: sgblank

Early-Stage Ventures

I Drew This
CustomerDiscovery
Company
Building
CustomerValidation
Customer Creation
Pivot

I Called It:Customer Development
CustomerDiscovery
Company
Building
CustomerValidation
Customer Creation
Pivot

I Wrote This

A Few People Read It

I Write a Blog
www.steveblank.com

Five Short Stories

Not All Startups Are Equal

Small Business
Startup
Small Business Startups

Small Business
Startup
- Business Model found
- Profitable business
Existing team
< $10M in revenue

Small Business
Startup
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:Internet Edition
Small Business
Startup
Existing team
< $10M in revenue
The Internet allows a new class of Small Businesses
Not all businesses on the Internet are “Scalable Startups”

Large Company Sustaining Innovation
Sustaining Innovation
Transition
Scalable
Startup
Large Company
Existing Market
Incremental improvements

Large Company Disruptive Innovation
New Division
Transition
Large Company
Disruptive Innovation
New Market
New tech, customers, channels

Scalable
Startup
Large Company
>$100M/year
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
Scalable Startup

Scalable
Startup
Large Company
>$100M/year
Typically requires “risk capital”
Scalable Startup
In contrast a scalable startup is designed to grow big
Typically needs risk capital
What Silicon Valley means when they say “Startup”

Very Different Startup Goals
Small Business
Startup
Existing team
< $10M
Scalable
Startup
Large Company
Typically requires “risk capital”

Venture Firms Invest in Scalable Startups
Small Business
Startup
Scalable
Startup
Large Company

What VC’s Don’t Tell You:The Transition
Scalable
Startup
Transition
Large Company
Search
Build
Grow

What VC’s Don’t Tell You:The Transition – Founders Leave
Scalable
Startup
Transition
Large Company
Founders depart
Professional Mgmt
Process
Beginning of scale

Scalable
Startup
Transition
Large Company
Business Model found
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

Plan versus Model

No Business Plan survives first contact with customers

So Search for a Business Model

The Search for a Business Model
A Business Plan is static
A Business Model diagrams how a company creates, delivers and captures value – it’s dynamic
Or in English: How a company makes money

Emphasis On Hypotheses Testing

Startups Continually Pivot (Iterate)

Startups Search and Pivot
The Search for the Business Model
Scalable
Startup
Transition
Large Company
i.e. Product/Market fit
- Managers hired

Startups Search, Companies Execute
The Execution of the Business Model
Scalable
Startup
Transition
Large Company
- Cash-flow breakeven
- Profitable
- Rapid scale
- New Senior Mgmt
~ 150 people
Product/Market fit
- Managers hired

Metrics Versus Accounting
Scalable
Startup
Transition
Large
Company
Traditional Accounting
Balance Sheet
Cash Flow Statement
Income Statement

Metrics Versus Accounting
Scalable
Startup
Transition
Large
Company
Startup Metrics
Customer Acquisition Cost
Viral coefficient
Customer Lifetime Value
Average Selling Price/Order Size
Monthly burn rate
etc.
Traditional Accounting
Balance Sheet
Cash Flow Statement
Income Statement

Customer Validation Versus Sales
Scalable
Startup
Transition
Large
Company
Sales
Sales Organization
Scalable
Price List/Data Sheets
Revenue Plan

Customer Validation Versus Sales
Scalable
Startup
Transition
Large
Company
Customer Validation
Early Adopters
Pricing/Feature unstable
Not yet repeatable
“One-off’s”
Sales
Sales Organization
Scalable
Price List/Data Sheets
Revenue Plan

Customer Development VersusProduct Management
Scalable
Startup
Transition
Large Company
Product Management
Delivers MRD’s
Feature Spec’s
Competitive Analysis

Customer Development Versus Product Management
Scalable
Startup
Transition
Large Company
Product Management
Delivers MRD’s
Feature Spec’s
Competitive Analysis
Customer Development
Hypothesis Testing
Minimum Feature Set
Pivots

Engineering Versus Agile Development
Scalable
Startup
Transition
Large Company
Engineering
Requirements Docs.
Waterfall Development
QA
Tech Pubs

Engineering Versus Agile Development
Scalable
Startup
Transition
Large Company
Engineering
Requirements Docs.
Waterfall Development
QA
Tech Pubs
Agile Development
Continuous Deployment
Continuous Learning
Self Organizing Teams
Minimum Feature Set
Pivots

Startups Model, Companies Plan
Scalable
Startup
Transition
Large Company
Plan describes “knowns”
Known features for line extensions
Known customers/markets
Known business model

Startups Model, Companies Plan
Scalable
Startup
Transition
Large Company
Unknown customer needs
Unknown feature set
Unknown business model
Model found by iteration
Plan describes “knowns”
Known features for line extensions
Known customers/markets
Known business model

Startups Don’t Last Forever
Scalable
Startup
Transition
Large Company
- Cash-flow breakeven
- Profitable
- Rapid scale
- New Senior Mgmt
~ 150 people
Product/Market fit
- Managers hired
You failif you remain a startup!

How Do Startups Search For A Business Model?
The Search is called Customer Development
The Implementation is called Agile Development

The Lean Startup
The Search is called Customer Development
The Implementation is called Agile Development

Get the Hell Out of the Building

More startups fail from a lack of customers than from a failure of product development

Then why do we have:
process to manage product development?

Then why do we have:
process to manage product development?
no process to manage customer development?

Product Development Model
Concept/Seed Round
Product Dev.
Alpha/Beta Test
Launch/
1st Ship

Tradition – Hire Marketing
Concept/Seed Round
Product Dev.
Alpha/Beta Test
Launch/
1st Ship
- Create Demand
- Launch Event
- “Branding”
- Hire PR Agency
- Early Buzz
Create Marcom
Materials
- Create Positioning
Marketing

Tradition – Hire Sales
Concept/Seed Round
Product Dev.
Alpha/Beta Test
Launch/
1st Ship
- Create Demand
- Launch Event
- “Branding”
- Hire PR Agency
- Early Buzz
Create Marcom
Materials
Marketing
Build Sales Organization
Hire Sales VP
Hire 1st Sales Staff
Sales

Tradition – Hire Bus Development
Concept
Product Dev.
Alpha/Beta Test
Launch/
1st Ship
- Create Demand
- Launch Event
- “Branding”
- Hire PR Agency
- Early Buzz
Create Marcom
Materials
Marketing
Build Sales Channel / Distribution
Hire Sales VP
Pick distribution Channel
Sales
Business
Development
Hire First Bus Dev
Do deals for FCS

Tradition – Hire Engineering
Concept
Product Dev.
Alpha/Beta Test
Launch/
1st Ship
- Create Demand
- Launch Event
- “Branding”
- Hire PR Agency
- Early Buzz
Create Marcom
Materials
Marketing
Build Sales Channel / Distribution
Hire Sales VP
Pick distribution Channel
Sales
Business
Development
Hire First Bus Dev
Do deals for FCS
Engineering
Write MRD
Waterfall
Q/A
Tech Pubs

Product Development
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
+
CustomerDevelopment
Company
Building
CustomerDiscovery
CustomerValidation
Customer Creation

Customer Discovery
CustomerDiscovery
CustomerValidation
Company
Building
CustomerCreation
Stop selling, start listening
Test your hypotheses
Continuous Discovery

Customer Validation
CustomerDiscovery
CustomerValidation
Customer Creation
Company
Building
Pivot
Repeatable and scalable business model?
Passionate earlyvangelists?
Pivot back to Discovery if no customers

The Pivot
The heart of Customer Development
Iteration without crisis
Fast, agile and opportunistic

So What Does Engineering Do?

Traditional Product DevelopmentUnit of progress: Advance to Next Stage
Waterfall
Requirements
Design
Problem: known
Solution: known
Implementation
Verification
Maintenance
Source: Eric Rieshttp://startuplessonslearned.blogspot.com

When the Customer Problem is Known
“Product Owner” or
in-house customer
Problem: Known
Solution: Unknown

Agile - Customer Problem is KnownUnit of progress: a line of working code
“Product Owner” or
in-house customer
Problem: Known
Solution: Unknown

When the Customer Problem is Unknown
Problem: Unknown
Solution: Unknown

Lean Startup- Customer Problem is UnknownUnit of progress: learning about customers
Problem: Unknown
Solution: Unknown

Leadership Versus Management

Scalable
Startup
Transition
Large Company

Scalable
Startup
Transition
Large Company
Search

Scalable
Startup
Transition
Large
Company
Build
Search

Scalable
Startup
Transition
Large
Company
Build
Grow
Search

Why Startups Aren’t Run By Accountants

Inventor of the Modern Corporation
Scalable
Startup
Transition
Large Company

Inventor of the Modern Corporation
Scalable
Startup
Transition
Large Company
Alfred P. Sloan

Alfred P. Sloan
Scalable
Startup
Transition
Large Company
General Motors, President/Chairman
Cost Accounting
MIT Sloan School
Sloan Foundation
etc.

Founder of General Motors
Scalable
Startup
Transition
Large Company

Founder of General Motors
Scalable
Startup
Transition
Large Company
Billy Durant

Billy Durant
Scalable
Startup
Transition
Large Company
Leader in horse-drawn buggy’s
Fired by board, starts Chevrolet
Regains control of GM
Fired by board, GM ~$3.6 billion*
* GM Net sales in 1921 $304.5M = $3.6 Billion today

Durant Versus Sloan
Scalable
Startup
Transition
Large Company

Durant Versus Sloan
Dies, rich, honored and famous

Durant Versus Sloan
Dies managing a bowling alley

Durant Versus Sloan
Accountant
Dies managing a bowling alley

You are here
Scalable
Startup
Transition
Large Company

Thanks
www.steveblank.com

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Greycroft - Why Accountants Don’t Run Startups

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