Lecture 1: Business Model & Customer Development

The Lean LaunchPadLecture 1: Business Models and Customer Development Steve Blank Jon Feiber Jon Burke http://i245.stanford.edu/

What’s A Company?

What’s A Company? A business organization which sells aproduct or service in exchange for revenue and profit

How Are Companies Organized?

How Are Companies Organized?Companies are organized around Business Models

What’s a Business Model?

What’s a Business Model? A business model describes all the partsof the company necessary to make money

What About My Technology?

What About My Technology?Your technology is one of the many critical pieces necessary to build a company. It is part of the “Value Proposition”

What About My Technology?Customers don’t care about your technology They are trying to solve a problem

What’s A Startup?

What’s A Startup?A startup is a temporary organization designed to search for a repeatable and scalable business model

How to Build A Startup Idea Business Model Size Opportunity Customer Development

How to Build A Startup Business Size of the Customer CustomerIdea Model(s) Opportunity Discovery Validation

How to Build A Startup Size of the Business Size of the Business Customer CustomerIdea Opportunity Model(s) Opportunity Model(s) Discovery Validation Theory Practice

How to Build A Startup Size of the Business Size of the Business Customer CustomerIdea Opportunity Model(s) Opportunity Model(s) Discovery Validation • Web startups get the product in front of customers earlier

How to Build A Startup Size of the Business Size of the Business Customer CustomerIdea Opportunity Model(s) Opportunity Model(s) Discovery Validation

buzzgroup

A business model describes allthe parts of the companynecessary to make money

what are those parts? whatparts is a business modelcomposed of?

BusinessModel Canvas

to describe, challenge,design, and inventbusiness models moresystematically

buildingblocks

CUSTOMER SEGMENTS images by JAM

VALUE PROPOSITIONS images by JAM

CHANNELS images by JAM

CUSTOMER RELATIONSHIPS images by JAM

REVENUE STREAMS images by JAM

KEY RESOURCES images by JAM

KEY ACTIVITIES images by JAM

KEY PARTNERS images by JAM

COST STRUCTURE images by JAM

key value proposition customer activities relationships key customerpartners segments cost revenuestructure key streams resources channels images by JAM

images by JAM

CANVAS OVERLAYKEY KEY OFFER CUSTOMER CUSTOMERPARTNERS ACTIVITIES RELATIONSHIPS SEGMENTS KEY CHANNELS RESOURCESCOST STRUCTURE REVENUE STREAMS images by JAM

Business Model Canvas building block building block building block building building block block building block building block building block building building block block building building building building block block block block

illustration 45

why should some of thesmartest scientists in the worldwaste their time thinking abouta business model for coffee?

not just because most scientistsdrink a lot of coffee. we can learna lot from innovative businessmodels across industries

how much did the cost ofhome coffee consumptionchange for Swiss householdsover the last couple of years?

600%to800%more

Nespressochanged the business (model) for espresso

RESULTS

one of the fastest-growing businesses inthe Nestlé group

average growth of30% p.a. since 2000

over 3 billion CHF annualrevenue with 1 product line(3.2 bio USD)

buzz group 57

Discuss and describe how youwould design a business modelaround Nespresso’s invention

? ? ? ? ? ? ?60

Nespresso club production Nespresso machines Nespresso pods distribution Nespresso channels .com production coffee facilites 1x B2C machine distribution sales61

but Nespresso almost failed in1987 due to a nonperformingbusiness model

Nespresso system joint venture with manufacturer63

what is the most powerful aboutusing a shared language, such asthe Business Model Canvas?

buzz group

? ? ? ? ? ? ?71

possiblealternatives

radiation-free detection of hospitals breast cancer73

medicaldevicema proprietary IP nufacturers74

? ? ? ? ? ? ?75

But,Realize They’re Hypotheses

9 Guesses GuessGuess Guess Guess Guess Guess Guess Guess Guess

How Does This Really Work?Stanford Lean LaunchPad Class 8 Weeks From an Idea to a Business

I.I.T.Y.I.W.H.T.K.Y

Key Opinion Leaders (KOLs)

Key OpinionLeaders (KOLs)

••••••

Customer DevelopmentThe founders ^ Get Out of the Building and Search for the Business Model

The Customer Development Process Customer Customer Customer Company Discovery Validation Creation Building Pivot

The Minimum Viable Product (MVP) Customer Customer Customer Company Discovery Validation Creation Building Pivot •Smallest feature set that gets you the most … - orders, learning, feedback, failure…

A Pivot is the change of one ormore Business Model CanvasComponents

The PivotCustomer Customer Customer CompanyDiscovery Validation Creation Building Pivot•The heart of Customer Development•Iteration without crisis•Fast, agile and opportunistic

Pivot Cycle Time Matters Customer Customer Customer Company Discovery Validation Creation Building Pivot•Speed of cycle minimizes cash needs•Minimum feature set speeds up cycle time• Near instantaneous customer feedback drives feature set

The Customer Development Process Customer Discovery Customer Customer Customer Company Discovery Validation Creation BuildingBus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed

The Customer Development Process Customer Validation Customer Customer Customer Company Discovery Validation Creation Building Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed

Blog Your Progress

How?• Customer Development – The Process• Narrative – Interviews – Surveys – Videos – Prototypes• Business Model Canvas – Scorekeeping• Real-time Feedback• Physical Reality Checks – Skype – Face-to-face

We Made StudentsBlog Their ProgressIt Changed Everything

Interview

Photos Videos

Surveys

Interview& Photos

Competitive Analysis

Key Findings

A/B TestResults

Key Question

Strategy

Business Model Canvas as the Scorecard

Market TypeFour Types of Markets

Type of Market Changes EverythingClone Market Existing Market Resegmented New Market Market• Market • Sales • Customers – Market Size – Sales Model • Needs – Cost of Entry – Margins • Adoption – Launch Type – Sales Cycle – Competitive – Chasm Width Barriers •Finance • Ongoing Capital – Positioning • Time to Profitability

Definitions: Four Types of Markets Clone Market Existing Market Resegmented New Market Market• Clone Market – Copy of a U.S. business model• Existing Market – Faster/Better = High end• Resegmented Market – Niche = marketing/branding driven – Cheaper = low end• New Market – Cheaper/good enough, creates a new class of product/customer – Innovative/never existed before

Size of Opportunity

Market/Opportunity AnalysisHow Big is It?: Market/Opportunity Analysis – Identify a Customer and Market Need – Size the Market – Competitors – Growth Potential

How Big is the Pie? Total Available Market • How many people would want/need the product? • How large is the market be (in $’s) if they all bought?Total Available Market • How many units would that be? How Do I Find Out? • Industry Analysts – Gartner, Forrester • Wall Street Analysts – Goldman, Morgan

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 Total • How large would the market be (in $’s)Available Served if they all bought? Market Available • How many units would that be? Market How Do I Find Out? • Talk to potential customers

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? Total Served • How many units would that be?Available Available Market Market Target Market How Do I Find Out? • Talk to potential customers • Identify and talk to channel partners • Identify and talk to competitors

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

Team Deliverable by Tomorrow1. Hypotheses for each part of business model2. 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?3. Plan to get out of the building to test the hypotheses• Summarized in a 5 Minute PowerPoint Presentation – Business Model Canvas – Market Size – Getting out of the building plan Don’t Over Think Your Hypotheses

Sweet SensorsGlucose Monitor: We have developed a novel technology to use• Widely available any glucose monitor• Cheap without modifications to• Quantitative detect a wide range of information non-glucose targets at• $10 billion market very low concentrations (such as diseases (e.g.,However, it can detect TB), heavy metal ionsonly one target: glucose (e.g., Pb, Hg), organicand at very high toxins, bacteria, virusesconcentrations and cancers) Yu Xiang and Yi Lu, Nature Chem. 3, 697-703 (2011).

Examples

Market size Total availablemarket = $1.2 billion - 300 million patients worldwide - Required HbA1C testing every 60-90 days Serviceable Available Market = $600 million - Available in-home HbA1C tests today are $100/10 tests Target market - Assuming $1 per test, TAM = $1.2 billion = $120 million - Assuming 50% people have the access to a HbA1c test, SAM = $600 million - Assuming we can capture 20% of SAM (high-end diabetics and early adopters), Target market = $120 million

Market Size • Growing market – Aging population – Living Style & DietsTotal Available market – Chronic disease 170M (US & EU5) $25B • Driving factors – Healthcare costs – Reimbursement – Healthcare labor shortage Target market 3.5M (Resistant Hypertension) $500M

Business Model Canvas Yi Lu, Tian Lan Sweet Sensors Neil Kane Chris Sorensen Conferences Product R&D Diabetics At home Product supportsGlucose monitor QC Clinicians (in rural area) Convenient Patient manufacturers Marketing network/community Triage nurses Less exposure toKit manufacturers infectious diseases Pre-diabetics in the hospitalReagent suppliers Cheaper More frequent Retailers (Walgreen) IP Personnel Better indicator of Online vendors (Amazon) health (diabetic management) Direct sales Reagents Manufacture Disposable test kit (used repeatedly Licensing on a regular basis) FDA certification?

Action Plan Yi Lu, Tian Lan Sweet Sensors Neil Kane Chris Sorensen Conferences Product R&D Diabetics At home Product supportsGlucose monitor QC Clinicians (in rural area) Convenient Patient manufacturers Marketing network/community Triage nurses Less exposure toKit manufacturers infectious diseases Pre-diabetics in the hospitalReagent suppliers Cheaper More frequent Retailers (Walgreen) IP Personnel Better indicator of Online vendors (Amazon) health (diabetic management) Direct sales Reagents Manufacture Disposable test kit (used repeatedly Licensing on a regular basis) FDA certification?

The Business Model Canvas Technical AssistancecGMP manufacturer SOPs for precursors (Image Atlas) RadiopharmaciesRadiopharmacies and drugs Accessibility (RCY) FDA regulatory supportNuclear Medicine and Recruit clinical sites Purity Equipment producersRadiology In vivo animal studies Speeddepartments Develop regulatory PET/SPECT Prescribing physicians plan for pre IND Multiplatform meeting Technical assistance Sensitivity (nca) Radiologist who ID cGMP CRO Specific compounds Pharmaceutical perform studies Fund-raising development companies General IP methodology for PoP data Direct sales of Drug developers adding fluorine to precursor lead compounds of IP interest PoP data R&D and clinical studies presented in Radiologists Regulatory plan Understanding of journals and meetings the regulatory process Sales of intermediates Contract cGMP precursor manufacture Salary, Rents Technology license Clinical trials Product license (royalty)

The Business Model Canvas Technical AssistancecGMP manufacturer SOPs for precursors (Image Atlas) RadiopharmaciesRadiopharmacies and drugs Accessibility (RCY) FDA regulatory supportNuclear Medicine and Recruit clinical sites Purity Equipment producersRadiology In vivo animal studies Develop regulatory Speeddepartments PET/SPECT Prescribing physicians plan for pre IND meeting Multiplatform Technical assistance Sensitivity (nca) Radiologist who ID cGMP CRO Pharmaceutical Specific compounds perform studies Fund-raising development companies General Direct sales of IP methodology for precursor PoP data adding fluorine to Drug developers lead compounds of R&D and clinical IP interest studies presented in PoP data journals and meetings Radiologists Regulatory plan Understanding of Sales of precursor the regulatory through global finished process pharmaceutical distributor Sales of intermediates Contract cGMP precursor manufacture Salary, Rents Technology license Clinical trials Product license (royalty)

Critical Success Factors• Validation of the need – By talking to diabetic patients, clinician and nurses• Validation of the customer segmentation – By talking to glucose monitor and kit manufactures• Evidence of market accessibility – By talking to glucose monitor and kit distributors

Backup

Customer DiscoveryBus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed

Customer Discovery - PhysicalBus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed • TAM/SAM •Product MVP • Customers •Channel •Market Type • Customer Relationships: Get/Keep/Grow • Key Resources • Partners • Pricing

Customer Discovery - WebBus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed • TAM/SAM •Low Fidelity MVP • Customers/Source • Channel •Market Type • Customer Relationships: Acquire/Activate •Traffic Partners • Pricing

Customer Discovery - PhysicalBus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed •TAM/SAM • Low Fidelity MVP •Customer Contacts • Customers •Problem Understanding • Channel •Market Type • Customer Understanding •Cust Relationships • Traffic Partners •Market Knowledge • Pricing

Customer Discovery - WebBus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed •TAM/SAM • Low Fidelity MVP •Customer Engagement • Customers •Test Low Fidelity MVP • Channel •Market Type • Customer Understanding •Cust Relationships • Traffic Partners •Traffic & Competitive Analysis • Pricing

Customer Discovery - PhysicalBus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed • TAM/SAM • Low Fidelity MVP •Update Bus Model • Customers •Create Prototype/Prod Presentation • Channel •Market Type •Test Solution with Customer •Cust Relationships • Traffic Partners • Update Business Model • Pricing • 1st Advisory Board Members

Customer Discovery - WebBus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed • TAM/SAM • Customer Engagement • Low Fidelity MVP • Test Low Fidelity MVP • Update Bus Model • Customers • Customer Understanding •Test High Fidelity MVP • Channel • Traffic & Competitive Analysis •Market Type • Measure Customer Behavior •Cust Relationships • Traffic Partners • Update Business Model • Pricing • 1st Advisory Board Members

Customer Discovery – Web/PhysicalBus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed • TAM/SAM • Customer Engagement • Low Fidelity MVP • Test Low Fidelity MVP Verify the: • Customers • Customer Understanding •Value Prop • Channel • Traffic & Competitive Analysis •Market Type •Cust Segment •Cust Relationships • Traffic Partners •Cust Relationships • Pricing • Channel • Revenue Model • Pivot or Proceed

Customer Validation - WebGet Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed Pivot

Customer Validation - Physical Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed•Craft Positioning•Develop Sales Materials•Hire “Sales Closer”•Sales Channel Action Plan• Refine the Sales Roadmap• Formalize advisory board

Customer Validation - Web Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed•Craft Positioning•Acquire/Activate Plans and Tools• Build High Fidelity MVP• Build Metrics Toolset• Hire data analytics chief• Formalize advisory board

Customer Validation - Physical Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed•Craft Positioning•Acquire/Activate Plans• Build High Fidelity MVP •Find Earlyvangelists• Build Metrics Toolset• Hire data analytics chief • Test Sell – Out of the Building• Formalize advisory board • Refine Sales Roadmap • Test Sell Channel Partners

Customer Validation - Web Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed•Craft Positioning•Acquire/Activate Plans •Prepare Optimization Plans & Tools• Build High Fidelity MVP• Build Metrics Toolset • Out of the building Activation Test• Hire data analytics chief • Measure and Optimize Results• Formalize advisory board • Test Sell Traffic Partners

Customer Validation - Physical/Web Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed•Craft Positioning• Acquire/Activate Plans • Prepare Optimization Plans • Company Positioning• Build High Fidelity MVP • Out of the building Activation Test • Measure and Optimize Results • Product Positioning• Build Metrics Toolset• Hire data analytics chief • Test Sell Traffic Partners • Validate Positioning• Formalize advisory board

Customer Validation - Physical/Web Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed•Craft Positioning• Acquire/Activate Plans • Prepare Optimization Plans • Assemble Data• Build High Fidelity MVP • Out of the building Activation Test • Measure and Optimize Results • Validate Business Model• Build Metrics Toolset• Hire data analytics chief • Test Sell Traffic Partners • Validate Financial Model• Formalize advisory board • Pivot or Proceed

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Lecture 1: Business Model & Customer Development

by steve blank

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