Stanford Entrepreneurship Week 030211

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Stanford Entrepreneurship Week 030211

  1. The Democratization of Entrepreneurship<br />Steve Blank<br />Stanford - School of Engineering<br />www.steveblank.com<br />Twitter: @sgblank<br />
  2. This Presentation Combines<br />www.businessmodelgeneration.com<br />www.steveblank.com<br />
  3. I Write a Blog <br />www.steveblank.com<br />
  4. A Few Short Stories<br />
  5. Startup Constraints<br />
  6. High Cost to First Product<br />Startup Constraints<br />
  7. Buy expensive workstationsBuy expensive development tools<br />
  8. High Cost to First Product<br />Long Time to First Product<br />Startup Constraints<br />
  9. Use Waterfall DevelopmentFirst Customer Ship in months/years<br />
  10. High Cost to First Product<br />Long Time to First Product<br />Startup Constraints<br />Slow Customer Adoption<br />
  11. Customers – Gov’t/Businesses# of customers - hundreds/thousands<br />
  12. High Cost to First Product<br />Long Time to First Product<br />Startup Constraints<br />Slow Customer Adoption<br />High Startup Failure Rate<br />
  13. Startups are small versions of large companiesFocus is on execution of business plan<br />
  14. High Cost to First Product<br />Long Time to First Product<br />Startup Constraints<br />Limited Number of Venture Capitalists<br />Slow Customer Adoption<br />High Startup Failure Rate<br />
  15. 3000 Sand Hill Road<br />
  16. High Cost to First Product<br />Innovation Limited to a Few Regions<br />Long Time to First Product<br />Startup Constraints<br />Limited Number of Venture Capitalists<br />Slow Customer Adoption<br />High Startup Failure Rate<br />
  17. 3000 Sand Hill RoadMenlo Park, California<br />
  18. High Cost to First Product<br />Innovation Limited to a Few Regions<br />Long Time to First Product<br />Startup Constraints<br />Limited Number of Venture Capitalists<br />Slow Customer Adoption<br />High Startup Failure Rate<br />
  19. There’s Something Happening Here, What It Is Ain’t Exactly Clear<br />
  20. Startup Constraints<br />Entrepreneurial Explosion<br />
  21. Low Cost to 1st Product<br />Entrepreneurial <br />Explosion<br />
  22. Develop on inexpensive PC’s/Mac’sUse Open Source Software<br />
  23. Low Cost to First Product<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br />
  24. Use Agile DevelopmentFirst Customer Ship in weeks/months<br />
  25. Low Cost to First Product<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br />Fast Customer Adoption<br />
  26. Customers –Consumers# of customers -millions<br />
  27. Low Cost to First Product<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br />Fast Customer Adoption<br />Lower Startup Failure Rate<br />
  28. Startups arenot small versions of large companiesFocus is on Search for a business model<br />
  29. Low Cost to First Product<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br />Large Pool of Risk Capital<br />Fast Customer Adoption Rate<br />Lower Startup Failure Rate<br />
  30. Sand Hill Road<br />
  31. Low Cost to First Product<br />Global Innovation<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br />Large Pool of Risk Capital<br />Fast Customer Adoption Rate<br />Lower Startup Failure Rate<br />
  32. Menlo Park, San Francisco New York, Shanghai, Israel, Chile, Singapore<br />
  33. Low Cost to First Product<br />Global Innovation<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br />This talk<br />Large Pool of Risk Capital<br />Fast Customer Adoption Rate<br />Lower Startup Failure Rate<br />
  34. Not All Startups Are Equal<br />
  35. Small Business<br />Startup<br />Small Business Startups<br /><ul><li>Serve known customer with known product
  36. Feed the family</li></li></ul><li>Small Business<br />Startup<br />Exit Criteria<br /><ul><li> Business Model found</li></ul>- Profitable business<br /><ul><li> Existing team</li></ul>< $1M in revenue<br />Small Business Startups<br /><ul><li>known customer known product
  37. Feed the family</li></li></ul><li>Small Business<br />Startup<br />- Business Model found<br />- Profitable business<br /><ul><li> Existing team</li></ul>< $10M in revenue<br />Small Business Startups<br /><ul><li>5.7 million small businesses in the U.S. <500 employees
  38. 99.7% of all companies
  39. ~ 50% of total U.S. workers</li></ul>http://www.sba.gov/advo/stats/sbfaq.pdf<br />
  40. Large Company Sustaining Innovation<br />Sustaining Innovation<br />Transition<br />Scalable<br />Startup<br />Large Company<br /><ul><li> Existing Market / Known customer
  41. Known product feature needs</li></li></ul><li>Large Company Disruptive Innovation<br />New Division<br />Transition<br />Large Company<br />Disruptive Innovation<br /><ul><li>New Market
  42. New tech, customers, channels</li></li></ul><li>Large Company Disruptive Innovation<br />New Division<br />Transition<br />Large Company<br />Disruptive Innovation<br /><ul><li>Build
  43. Acquire</li></ul> - Talent<br /> - Product<br /> - Customers<br /> - Business<br />
  44. Scalable<br />Startup<br />Large Company<br />Scalable Startup<br />Search<br />Goal is to solve for:<br /> unknown customer and unknown features <br />
  45. Execute<br />Search<br />Scalable<br />Startup<br />Large Company<br />Exit Criteria<br /><ul><li> Business model found
  46. Total Available Market > $500m -$1B
  47. Can grow to $100m/year</li></ul>Scalable Startup<br />
  48. Scalable<br />Startup<br />Large Company<br /><ul><li>Total Available Market > $500m
  49. Company can grow to $100m/year
  50. Business model found
  51. Focused on execution and process
  52. Typically requires “risk capital”</li></ul>Scalable Startup<br />Execute<br />Search<br /><ul><li> In contrast a scalable startup is designed to grow big
  53. Typically needs risk capital
  54. What Silicon Valley means when they say “Startup”</li></li></ul><li>Scalable<br />Startup<br />Large Company<br /><ul><li>Business Model found
  55. i.e. Product/Market fit</li></ul>- Repeatable sales model<br />- Managers hired<br />What’s A Startup?<br />A Startup is a temporary organization used to search for a scalable and repeatable business model <br />
  56. What VC’s Don’t Tell You:The Transition<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Search<br />Build<br />Execute<br />
  57. What VC’s Don’t Tell You:The Transition – Founders Leave<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li>Founders depart
  58. CEO = Operating Exec
  59. Professional Mgmt
  60. Process
  61. Beginning of scale</li></li></ul><li>Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li>Business Model found
  62. i.e. Product/Market fit</li></ul>- Repeatable sales model<br />- Managers hired<br />What’s A Startup?<br />You fail if you stay a startup<br />
  63. Why Startups Are Not Small Versions of A Large Company<br />
  64. Startups Search and Pivot<br />The Search for the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br /> Business Model found by founders<br /><ul><li> customer needs/product features found</li></ul> i.e. Product/Market fit<br /><ul><li> Repeatable sales model</li></ul>- Managers hired<br />
  65. Startups Search, Companies Execute<br />The Execution of the Business Model<br />The Search for the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />- Cash-flow breakeven<br />- Profitable<br />- Rapid scale<br />- New Senior Mgmt<br />~ 150 people<br /><ul><li>Business Model found
  66. Product/Market fit</li></ul>- Repeatable sales model<br />- Managers hired<br />
  67. Metrics Versus Accounting<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<br />Company<br />Traditional Accounting<br /><ul><li>Balance Sheet
  68. Cash Flow Statement
  69. Income Statement</li></li></ul><li>Metrics Versus Accounting<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<br />Company<br />Startup Metrics<br /><ul><li> Customer Acquisition Cost
  70. Viral coefficient
  71. Customer Lifetime Value
  72. Average Selling Price/Order Size
  73. Monthly burn rate
  74. etc. </li></ul>Traditional Accounting<br /><ul><li> Balance Sheet
  75. Cash Flow Statement
  76. Income Statement</li></li></ul><li>Customer Validation Versus Sales<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<br />Company<br />Sales<br /><ul><li>Sales Organization
  77. Scalable
  78. Price List/Data Sheets
  79. Revenue Plan</li></li></ul><li>Customer Validation Versus Sales<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<br />Company<br />Customer Validation<br /><ul><li> Early Adopters
  80. Pricing/Feature unstable
  81. Not yet repeatable
  82. “One-off’s”</li></ul>Sales<br /><ul><li> Sales Organization
  83. Scalable
  84. Price List/Data Sheets
  85. Revenue Plan</li></li></ul><li>Engineering Versus Agile Development<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Engineering<br /><ul><li> Requirements Docs.
  86. Waterfall Development
  87. QA
  88. Tech Pubs</li></li></ul><li>Engineering Versus Agile Development<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Engineering<br /><ul><li> Requirements Docs.
  89. Waterfall Development
  90. QA
  91. Tech Pubs</li></ul>Agile Development<br /><ul><li> Continuous Deployment
  92. Continuous Learning
  93. Self Organizing Teams
  94. Minimum Feature Set
  95. Pivots</li></li></ul><li>Startups Model, Companies Plan<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Business Plan<br /><ul><li> describes “knowns”
  96. features
  97. customers/markets
  98. business model</li></li></ul><li>Startups Model, Companies Plan<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li>Business Model
  99. describes “unknowns”
  100. customer needs
  101. feature set
  102. business model
  103. found by iteration
  104. Plan describes “knowns”
  105. Known features for line extensions
  106. Known customers/markets
  107. Known business model</li></li></ul><li>How Do Startups Search For A Business Model?<br /><ul><li> The Search is called Customer Development
  108. The Implementation is called Agile Development</li></li></ul><li>Customer Development<br />
  109. Why Startups Fail<br />
  110. More startups fail from a lack of customers than from a failure of product development<br />
  111. Product Introduction Model:Two Implicit Assumptions<br />Customer Problem: known<br />Concept/Seed Round<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br /> Product Features: known<br />
  112. Tradition – Hire Marketing<br />Concept/Seed Round<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />- Create Demand<br />- Launch Event<br />- “Branding”<br />- Hire PR Agency<br />- Early Buzz<br /><ul><li> Create Marcom </li></ul> Materials<br />- Create Positioning<br />Marketing<br />
  113. Tradition – Hire Sales<br />Concept/Seed Round<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />- Create Demand<br />- Launch Event<br />- “Branding”<br />- Hire PR Agency<br />- Early Buzz<br /><ul><li> Create Marcom </li></ul> Materials<br />- Create Positioning<br />Marketing<br /><ul><li> Build Sales Organization
  114. Hire Sales VP
  115. Hire 1st Sales Staff</li></ul>Sales<br />
  116. Tradition – Hire Bus Development<br />Concept<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />- Create Demand<br />- Launch Event<br />- “Branding”<br />- Hire PR Agency<br />- Early Buzz<br /><ul><li> Create Marcom </li></ul> Materials<br />- Create Positioning<br />Marketing<br /><ul><li> Build Sales Channel / Distribution
  117. Hire Sales VP
  118. Pick distribution Channel</li></ul>Sales<br />Business <br />Development<br /><ul><li> Hire First Bus Dev
  119. Do deals for FCS</li></li></ul><li>Tradition – Hire Engineering<br />Concept<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />- Create Demand<br />- Launch Event<br />- “Branding”<br />- Hire PR Agency<br />- Early Buzz<br /><ul><li> Create Marcom </li></ul> Materials<br />- Create Positioning<br />Marketing<br /><ul><li> Build Sales Channel / Distribution
  120. Hire Sales VP
  121. Pick distribution Channel</li></ul>Sales<br />Business <br />Development<br /><ul><li> Hire First Bus Dev
  122. Do deals for FCS</li></ul>Engineering<br /><ul><li> Write MRD
  123. Waterfall
  124. Q/A
  125. Tech Pubs</li></li></ul><li>How Startups Succeed<br />
  126. Customer Development<br />The founders<br />^<br />Get Out of the Building<br />
  127. Product Development<br />Concept/Bus. Plan<br />Product Dev.<br />Alpha/Beta Test<br />Launch/1st Ship<br />+<br />CustomerDevelopment<br />Company<br />Building<br />CustomerDiscovery<br />CustomerValidation<br />Customer Creation<br />Customer Development<br />Pivot<br />
  128. Customer Discovery<br />CustomerDiscovery<br />CustomerValidation<br />Company<br />Building<br />CustomerCreation<br />Test yourbusiness model hypotheses<br />Continuous Discovery<br />Done by founders<br />
  129. No Business Plan survives first contact with customers<br />
  130. So Search for a Business Model<br />
  131. The Business Model:<br />Any company can be described in 9 building blocks<br />
  132. CUSTOMER SEGMENTS<br />which customers and users are you serving? <br />which jobs do they really want to get done?<br />
  133. VALUE PROPOSITIONS<br />what are you offering them? what is that <br />getting done for them? do they care?<br />
  134. CHANNELS<br />how does each customer segment want to be reached? through which interaction points?<br />
  135. CUSTOMER RELATIONSHIPS<br />what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?<br />
  136. REVENUE STREAMS<br />what are customers really willing to pay for? how? <br />are you generating transactional or recurring revenues?<br />
  137. KEY RESOURCES<br />which resources underpin your business model? which assets are essential?<br />
  138. KEY ACTIVITIES<br />which activities do you need to perform well in your business model? what is crucial?<br />82<br />
  139. KEY PARTNERS<br />which partners and suppliers leverage your model? <br />who do you need to rely on?<br />
  140. COST STRUCTURE<br />what is the resulting cost structure? <br />which key elements drive your costs?<br />
  141. value proposition<br />customer relationships<br />key activities<br />customer segments<br />key partners<br />cost structure<br />revenue streams<br />key <br />resources<br />channels<br />85<br />images by JAM<br />
  142. Test Hypotheses:<br /><ul><li>Product
  143. Market Type
  144. Competition</li></ul>Turning Hypotheses to Facts<br />
  145. Test Hypotheses:<br /><ul><li>Problem
  146. Customer
  147. User
  148. Payer</li></li></ul><li>Test Hypotheses:<br /><ul><li>Channel</li></li></ul><li>Test Hypotheses:<br /><ul><li>Demand Creation</li></ul>Test Hypotheses:<br /><ul><li>Problem
  149. Customer
  150. User
  151. Payer</li></ul>Test Hypotheses:<br /><ul><li>Product
  152. Market Type
  153. Competitive</li></ul>Test Hypotheses:<br /><ul><li>Channel
  154. (Customer)
  155. (Problem)</li></ul>Test Hypotheses:<br /><ul><li>Channel</li></ul>Test Hypotheses:<br /><ul><li>Pricing Model / Pricing</li></ul>Test Hypotheses:<br /><ul><li>Size of Opportunity/Market
  156. Validate Business Model</li></li></ul><li>Test Hypotheses:<br /><ul><li>Demand Creation</li></ul>Test Hypotheses:<br /><ul><li>Problem
  157. Customer
  158. User
  159. Payer</li></ul>Agile Development<br />Test Hypotheses:<br /><ul><li>Product
  160. Market Type
  161. Competitive</li></ul>Test Hypotheses:<br /><ul><li>Channel
  162. (Customer)
  163. (Problem)</li></ul>Customer Development Team<br />Test Hypotheses:<br /><ul><li>Channel</li></ul>Test Hypotheses:<br /><ul><li>Pricing Model / Pricing</li></ul>Test Hypotheses:<br /><ul><li>Size of Opportunity/Market
  164. Validate Business Model</li></li></ul><li>Test Hypotheses:<br /><ul><li>Demand Creation</li></ul>Test Hypotheses:<br /><ul><li>Problem
  165. Customer
  166. User
  167. Payer</li></ul>Agile Development<br />Test Hypotheses:<br /><ul><li>Product
  168. Market Type
  169. Competitive</li></ul>Test Hypotheses:<br /><ul><li>Channel
  170. (Customer)
  171. (Problem)</li></ul>Customer Development Team<br />Test Hypotheses:<br /><ul><li>Channel</li></ul>Test Hypotheses:<br /><ul><li>Pricing Model / Pricing</li></ul>Test Hypotheses:<br /><ul><li>Size of Opportunity/Market
  172. Validate Business Model</li></li></ul><li>The Minimum Viable Product (MVP)<br /><ul><li> Smallest feature set that gets you the most …orders, learning, feedback, failure…
  173. MVP + Customer are the first two you need to nail
  174. MVP is just 1 of the 9 parts of your model</li></li></ul><li>The Pivot<br /><ul><li>The heart of Customer Development
  175. Iteration without crisis
  176. Fast, agile and opportunistic</li></li></ul><li>Wrap Up<br />Startup are not small versions of large companies<br />Traditional big company planning tools fail<br />Startups are built on hypotheses<br />You need to test each one of them<br />Business Models help you keep score<br />Customer Development is how you test hypotheses<br />
  177. Why Startups Aren’t Run By Accountants<br />
  178. Inventor of the Modern Corporation<br />Scalable<br />Startup<br />Transition<br />Large Company<br />
  179. Inventor of the Modern Corporation<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Alfred P. Sloan<br />
  180. Alfred P. Sloan<br />Scalable<br />Startup<br />Transition<br />Large Company<br />General Motors, President/Chairman<br /><ul><li> Cost Accounting
  181. MIT Sloan School
  182. Sloan Foundation
  183. etc. </li></li></ul><li>Founder of General Motors<br />Scalable<br />Startup<br />Transition<br />Large Company<br />
  184. Founder of General Motors<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Billy Durant<br />
  185. Billy Durant<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li> Leader in horse-drawn buggy’s
  186. Fired by board, starts Chevrolet
  187. Regains control of GM
  188. Fired by board, GM ~$3.6 billion*</li></ul>* GM Net sales in 1921 $304.5M = $3.6 Billion today<br />
  189. Durant Versus Sloan<br />Scalable<br />Startup<br />Transition<br />Large Company<br />
  190. Durant Versus Sloan<br /><ul><li>Dies, rich, honored and famous</li></li></ul><li>Durant Versus Sloan<br /><ul><li>Dies managing a bowling alley
  191. Dies, rich, honored and famous</li></li></ul><li>Durant Versus Sloan<br />Accountant<br /><ul><li>Dies managing a bowling alley
  192. Dies, rich, honored and famous</li></li></ul><li>You are here<br />Scalable<br />Startup<br />Transition<br />Large Company<br />
  193. Thanks<br />www.steveblank.com<br />

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