Stanford E245 Lean LaunchPad winter 10 session 01 course overview rev 4

Engineering 245 The Lean LaunchPad Session 1: Overview/Business Models/Customer Development Professors Steve Blank, Ann Miura-Ko, Jon Feiber http://e245.stanford.edu/

Agenda “ Is This the Right Course for Me?”
Course Objectives/teams/project
Introductions
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

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

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

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
5 -10 hours of work a week outside the classroom

Course Reading
Business Model Generation
Four Steps to the Epiphany
Founders at Work
copies available at the bookstore

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

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

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)

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

Grading
Individual - 20%
Participation in class 20%
Team - 80%
Weekly summary and out of the building progress 50%
Final Presentation 30%

Introductions

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

Steve Blank, Ann-Miura-Ko , Jon Feiber
8 startups - 32 years in Silicon Valley
Semiconductors
Supercomputers
Video games
Enterprise software
Teach: Stanford, Berkeley, Columbia
Details at www.steveblank.com
Yale BS EE
McKinsey and Co.
Stanford Ph.D MS&E
V.C. @ Floodgate
[email_address]
@annimaniac
VP Networking SUN

Steve Blank, Ann-Miura-Ko, Jon Feiber
8 startups - 32 years in Silicon Valley
Semiconductors
Supercomputers
Video games
Enterprise software
Teach: Stanford, Berkeley, Columbia
Details at www.steveblank.com
Yale BS EE
McKinsey and Co.
Stanford Ph.D MS&E
V.C. @ Floodgate
[email_address]
@annimaniac
50 th employee, VP Networking @ Sun
[email_address]

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]

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]

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

Class Logistics

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)?

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

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?

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

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?

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?

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.

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?

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!

March 1 st Class 9 Present!
March 8 th Class 10 Present!
March 11 th Funding!
Optional presentations at VC firm for funding

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

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

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

Web startups get the product in front of customers earlier

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

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

An Idea is _Not_ a Company

Size of Opportunity

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

Small Business Startups Small Business Startup
- Business Model found
- Profitable business
Existing team
< $1M in revenue

Small Business Startups
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

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”
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

Market/Opportunity Analysis
How 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 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

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 Do I Find Out?
Talk to potential customers
Served Available Market Total Available Market

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 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

Segmentation Identification of groups most likely to buy Target Market
Geographic
Demographic
Psychographic variables
Behavioral variables
Channel
etc…
Total Available Market Served Available Market

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

Business Model

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

9 building blocks of a business model:

CUSTOMER SEGMENTS which customers and users are you serving? which jobs do they really want to get done?

VALUE PROPOSITIONS what are you offering them? what is that getting done for them? do they care?

CHANNELS how does each customer segment want to be reached? through which interaction points?

CUSTOMER RELATIONSHIPS what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?

REVENUE STREAMS what are customers really willing to pay for? how? are you generating transactional or recurring revenues?

KEY RESOURCES which resources underpin your business model? which assets are essential?

KEY ACTIVITIES which activities do you need to perform well in your business model? what is crucial?

KEY PARTNERS which partners and suppliers leverage your model? who do you need to rely on?

COST STRUCTURE what is the resulting cost structure? which key elements drive your costs?

images by JAM customer segments key partners cost structure revenue streams channels customer relationships key activities key resources value proposition

sketch out your business model

building block building block building block building block building block building block building block building block building block building block building block building block

But, Realize They ’re Hypotheses

9 Guesses Guess Guess Guess Guess Guess Guess Guess Guess Guess

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

Customer Development Solving For Customer Risk

Customer Development Get Out of the Building The founders ^

More startups fail from a lack of customers than from a failure of product development (focus on “who” more than “what”)

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

Stop selling, start listening
Test your hypotheses
Continuous Discovery
Done by founders
Customer Discovery Customer Discovery Customer Validation Company Building Customer Creation Pivot

Turning Hypotheses to Facts
Test Hypotheses:
Product
Market Type
Competition

Test Hypotheses:
Problem
Customer
User
Payer

Test Hypotheses:
Channel

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)

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

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

Our “Culture” for E245
Show up on time and stay ‘til we’re done
Keep your commitments (in class and out)
Step outside if you must call, email, skype, twitter, chat, surf the web, or do anything unrelated to E245
Entrepreneurship is a team sport
80% of your grade depends on working with others

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)?

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Stanford E245 Lean LaunchPad winter 10 session 01 course overview rev 4

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Stanford E245 Lean LaunchPad winter 10 session 01 course overview rev 4 Presentation Transcript