National governors association july 2012

Growing The Next Big IdeaWhat We’ve Learned About Startups

What Have We Learned?

What Have We Learned?Lesson 1: Types of StartupsLesson 2: EcosystemLesson 3: How to Fail LessLesson 4: Can we Teach Entrepreneurship?

Lesson 1:Types of Startups

Lifestyle StartupsWork to Live their Passion

Lifestyle Startups Work to Live their Passion Startup• Serve known customer with known product• Work for their passion

Social Entrepreneurship Startups

Social Entrepreneurship Startups Social Large Startup Non-Profit• Solve pressing social problems• Social Enterprise: Profitable• Social Innovation: New Strategies

Small Business Startups Work to Feed the Family

Small Business Startups Work to Feed the Family Small Startup Business• Serve known customer with known product• Feed the family

Small Business Startups Work to Feed the Family Small Startup Business Exit Criteria• known customer - Business Model found known product - Profitable business• Feed the family - Existing team < $500K in revenue

Small Business Startups Small Startup Business• 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

Scalable Startup

Scalable Startup Search Execute Scalable Large Startup Company• In contrast a scalable startup is designed to grow big• Typically needs risk capital• What Silicon Valley means when they say “Startup”

Scalable Startup Search Scalable Large Startup CompanyGoal is to solve for: unknown customer and unknown features

Scalable Startup Born to Be BigSearch ExecuteScalable LargeStartup Company Exit Criteria - Business model found - Total Available Market > $500M - Can grow to $100M/year

Buyable Startup Born to Sell

Buyable Startup Born to Sell Search Sell Scalable $5 to 50M Startup AcquisitionTypically: Internet, Mobile, Gaming Apps

Buyable Startup Search Sell Scalable $5 to 50M Startup AcquisitionGoal is to solve for: Sell to larger company Internet and Mobile Apps

Large Company Sustaining Innovation Innovate or Evaporate Sustaining Innovation Scalable Large Transition Startup Company • Existing Market / Known customer •Known product feature needs

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

Large Company Disruptive Innovation New Large Transition Division Company Disruptive Innovation •Build •Partner •Acquire - IP - Talent - Product - Customers - Business

Large Company Disruptive Innovation New Large Transition Division Company Disruptive Innovation • Build • Partner •Acquire = an internal corporate startup

Summary Lesson 1: Multiple Types of Startups Policies, Funding and Tactics DifferTechniques to build them are the same

Lesson 2:History of a Startup Ecosystem

Silicon Valley Was a Series of Unintended Consequences

Outward-Facing Research University Building Weapons System 1946 – 1968 WWII/Cold War

Massive Government R&DInvestment in Weapons Systems 1956 – 1980’s Cold War

One Professor Changes The System1925 – 1965 University/Military/Industry

Sputnik LaunchesVenture Investing1958 – SBIC Program

Regulatory Change Accelerates Venture Capital 1979 – Change in Employee Retirement Income Security Act Pension Funds Pile In

Culture Embraced Technology Risk 1958 – TodayRecognized that 90% of startups fail

Culture Embraced Financial Risk 1968 – Today Experienced Advice Tolerance For RiskLong Term Interest Aligned

So What Lessons Can We Learn To Build Innovation? Without Cold War Funding

Technology Ecosystem: Infrastructure Venture Entrepreneurs Finance Motivation Crisis Profit Management Customer Agile Business Model Tools Development Development Design Culture Risk Taking Entrepreneurial Outward-Facing Free flow of Tech Universities People/InfoInfrastructure Research Predictable Stable 24/7 Utilities Universities Economic System Legal System

Technology Ecosystem: Culture Venture Entrepreneurs Finance Motivation Crisis Profit Management Customer Agile Business Model Tools Development Development DesignCulture Accelerators, Outward-Facing Free flow of Risk Taking Incubators Tech Universities People/InfoInfrastructure Research Predictable Stable 24/7 Utilities Universities Economic System Legal System

Technology Ecosystem: Tools Entrepreneurs Risk CapitalMotivation Crisis ProfitManagement Customer Agile Business Model Tools Development Development Design Culture Accelerators, Outward-Facing Free flow of Risk Taking Incubators Tech Universities People/Info Infrastructure Research Predictable Stable 24/7 Utilities Universities Economic System Legal System

Technology Ecosystem: Motivation Entrepreneurs Risk CapitalMotivation Crisis ProfitManagement Customer Agile Business Model Tools Development Development DesignCulture Accelerators, Outward-Facing Free flow of Risk Taking Incubators Tech Universities People/InfoInfrastructure Research Predictable Stable 24/7 Utilities Universities Economic System Legal System

Technology Ecosystem Entrepreneurs Risk CapitalMotivation Crisis ProfitManagement Customer Agile Business Model Tools Development Development DesignCulture Risk Taking Accelerators, Outward-Facing Free flow of Incubators Tech Universities People/InfoInfrastructure Research Predictable Stable 24/7 Utilities Universities Economic System Legal System

Lesson 3:Making Startups Fail LessLessons From Silicon Valley and the National Science Foundation

After 50 years of Silicon ValleyWe Now Know How To Build Startups

More startups fail froma lack of customers than from afailure of product development

What We Used to Believe

Startups are Smaller Versions of Large Companies

What We Now Know

Startups are Not Smaller Versions of Large Companies

Startups SearchLarge Companies Execute

What We Used to Believe

All I Need to Do is Execute the Plan

Actual Photo of What Happens When Plan Meets First Contact With Customers

All I Need is the 5- Year Forecast

Previous5-Year Plans

What We Now Know

No Business Plan Survives First Contact With Customers

Searching comes before the plan

What’s A Startup?

A temporary organization designed to searchfor a repeatable and scalable business model

But,Realize They’re Hypotheses

Customer Development ishow you search for the model

Summary Lesson 3:Making Startups Fail Less1. Startups Are Not Smaller Versions Of Large Companies2. Customer Development & Business Models – Replace Business Plans

Lesson 4:Can We Teach This?

Can We Teach This? Lean LaunchPad Class8 Weeks, 100 Customer Calls

Can We Teach This? Lean LaunchPad ClassNational Science Foundation

The Data Says Yes You Can

Knowledge about Startups? Coming Into the Class

Knowledge About Startups? After the Class

The Data SaysIt Will Create New Companies

Knowledge About Building a Company Coming Into the Class

Knowledge About Building a Company After the Class

What About the Other 99%Will this Work on Main Street?

Small businesses are being built with business tools from the 1950’s

These Techniques Now Can Help Small Business Fail Less

In Closing:So What Can States Do?

Recommendation 1EncourageFail Fast and Move Fast Culture

Recommendation 2Encourage Incubators / Accelerators

Recommendation 3 Incent Risk Capital to LocateNext to Your Entrepreneurial Centers

Recommendation 4Encourage Your Universities to build 21st Century Entrepreneurship Curriculum +

Recommendation 5 Encourage Small Business Initiativesto Adopt these Same Techniques

I’ve open-sourced all this material Happy to share it www.steveblank.com sblank@kandsranch.com Curriculum, Syllabus, Slides, Teaching Guide and On-line Courses all available for free www.steveblank.com

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National governors association july 2012

by steve blank on Jul 15, 2012

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