Sxsw New Rules for the New Bubble 031211

New Rules for the New Bubble
Steve Blank
Stanford - School of Engineering
U.C. Berkeley - Haas School Of Business
www.steveblank.com
Twitter: sgblank

I Write a Blog
www.steveblank.com

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

This Talk is Based On
Business Model Generation
Four Steps to the Epiphany
Lean Startup

Premise
Beginning of another tech bubble
Rules are different in a bubble
What are they?
How do they differ from what you did before?

A Few Short Stories

How Did We Get Here?

Paths to Startup Liquidity
1970 – 1995 build a business (revenue)
1995 – 2000 flip the business (concept IPO)
2001 – 2010 build a business (M&A)
2011 – 2014 flip a built business (M&A / IPO)

1970 – 1995Building a BusinessStartups Are Small Versions of A Large Company

1970 - 1995 Building a Startup the Hard Way
$Millions’sto start (Proprietary hdwr/sftwr)
Long product dev cycle (Waterfall)
Thousands customers (Businesses)
Liquidity = IPO (5qtrsrevenue/profit)
No repeatable methodology(Smallerbig company)

1970 - 1995Making Money the Hard Way
Goal was long term company success
VC’s/Founders were company builders
Exits were IPO’s
Founders and VC success ≤ $10 million

1970 – 1995 Playbook

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

Product Introduction Model
The Leading Cause of Startup Death
Concept/Seed Round
Product Dev.
Alpha/Beta Test
Launch/
1st Ship

Product Introduction Model:Two Implicit Assumptions
Customer Problem: known
Concept/Seed Round
Product Dev.
Alpha/Beta Test
Launch/
1st Ship
Product Features: known

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

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

1995 – 2000Flipping A BusinessThe Dot.comBubble

1995 - 2000The Dot-com Bubble
10’s $millions to start (get big fast, create a brand)
Long product dev cycle (ship beta, 1st mover adv)
Millions customers (1st consumer internet wave)
Liquidity - IPO (Little/no revenue, no profits)
Repeatable methodology(brand, hype, flip or IPO)

1995 - 2000The Dot-com Bubble – Making Money
Goal = short term exit
VC’sengineering financial transactions
Founders hyped their company
“Musical Chairs” – last one standing looked dumb
Everyone else got absurdly rich

1995 – 2000 Playbook
Netscape

2001 – 2010Why Startups Are Not Small Versions of A Large Company

2001 - 2010The Lean Startup
≤ $½ million to start (open source, commodity hdwr)
Short product dev cycle (Agile Development)
100’s millions Customers (Social networks, consumer)
Liquidity -M&A(revenue & network of users)
Repeatable methodology(Agile + Cust Dev)

Scalable
Startup
Large Company
Business Model found
i.e. Product/Market fit
- Repeatable sales model
- Managers hired
What’s A Startup?
Search
Execute
A Startup is a temporary organization used to search for a repeatable and scalable business model

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

Startups Search and Pivot
The Search for the Business Model
Scalable
Startup
Transition
Large Company
Business Model found by founders
customer needs/product features found
i.e. Product/Market fit
Repeatable sales model
- 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
Business Model found
Product/Market fit
- Repeatable sales model
- 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

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
Business Plan
describes “knowns”
features
customers/markets
business model

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

2001 - 2010The Lean Startup
IPO market ~closed, M&A liquidity path
Build for long term but take short term sale
Founders learn Lean skills
Focus on building customers
Minimum hype

2001 - 2010 Playbook
Many Agile Texts

But We Were Still Using This

No Business Plan survives first contact with customers

So Search for a Business Model

The Business Model:
Any company can be described in 9 building blocks

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?
54

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?

value proposition
customer relationships
key activities
customer segments
key partners
cost structure
revenue streams
key
resources
channels
57
images by JAM

How Do Startups Search For A Business Model?
The Search is Customer Development
The Implementation is Agile Development
The Sum is the Lean Startup

Customer Development

Customer Development
The founders
^
Get Out of the Building

Customer DevelopmentThe Search For the Business Model
Company
Building
CustomerDiscovery
CustomerValidation
Customer Creation
Pivot

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

Test Hypotheses:
Product
Market Type
Competition
Turning Hypotheses to Facts

Test Hypotheses:
Problem
Customer
User
Payer

Test Hypotheses:
Channel

Test Hypotheses:
Demand Creation
Test Hypotheses:
Problem
Customer
User
Payer
Test Hypotheses:
Product
Market Type
Competitive
Test Hypotheses:
Channel
(Customer)
(Problem)
Test Hypotheses:
Channel
Test Hypotheses:
Pricing Model / Pricing
Test Hypotheses:
Size of Opportunity/Market
Validate Business Model

Test Hypotheses:
Demand Creation
Test Hypotheses:
Problem
Customer
User
Payer
Agile Development
Test Hypotheses:
Product
Market Type
Competitive
Test Hypotheses:
Channel
(Customer)
(Problem)
Customer Development Team
Test Hypotheses:
Channel
Test Hypotheses:
Pricing Model / Pricing
Test Hypotheses:
Size of Opportunity/Market
Validate Business Model

The Minimum Viable Product (MVP)
Smallest feature set that gets you the most …orders, learning, feedback, failure…
MVP + Customer are the first two you need to nail
MVP is just 1 of the 9 parts of your model

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

How Does This Really Work?Stanford Lean LaunchPad Class

Pivot ExampleOn-line Social Buying Platform
Talked to 250 Customers in 8 weeks

OURCRAVE is an online social shopping platform where customers can make their own deals on products or services of their choosing with sellers who can offer them in bulk at a discounted price.

Business Canvas #1
Seller: - Access to large online customer pool
- Bulk sales with reduced commission
Buyer: - Better discounts
- Maintainingonline buyer/seller communities and credibilityof transactions- Promotionof website and brand
- Powerful sellers
- Server providers
- Automated services- Communities of buyers and sellers- Co-creation of value through customer feedback
Multi-sided platformSeller:
Pro-sellers in Amazon and eBay who sell electronicsBuyer:
Online shoppers
Web & App sales
-Online social networks
- Physical resources (IT infrastructure)- Existing social networks -Buyer and seller communities,- Brand awareness
Seller side:- transaction fees
Buyer side:- targeted ads
- Variable costs: server and traffic maintenance costs- Fixed Cost: rent, salaries

Seller Side Test with a fake E-MAIL
Give me a quote
for a bulk sale!
Electronics Sellers on Amazon/Ebay
FAKE CEO
(Steve Feiberg)
57%
showed interest
90%
sell products
on Amazon
56% paid 10~20% transaction fee
22% paid 5~10% transaction fee
78% agreed it was too much
33% actually provided discount proportional to group size

Seller Side
Interview with Industry Specialist (LG Electronics)
Main Target
Bestbuy
Target,
Walmart
25%
Associations of
RegionalBig Sellers
25%
40%

User Side
: Online User Survey
Power to choose products
Discount on products
Buyer community feedback

Business Canvas #2
Seller: - More customer traffic
- Power to choose product deal
- Buyer community feedback on products and sellers
Powerful sellers
Sellers who need more traffic
- Server providers
Trustworthy online sellers with verifiable websitesBuyer:
Online shoppers who are willing to wait to get significant discounts on products
Web & App sales
-Online social networks
- Variable costs: server and traffic maintenance costs- Fixed Cost: rent, salaries

Key Question for Business Canvas #2
HOW CAN WE ATTRACT BUYERS?
CUSTOMER ACQUISION COST?

Buyer Demand Test
Best Marketing Channel for having buyers is Facebook Wall
: 144 Unique Visits, 10 e-mail subscriptions for 3 days
Facebook Wall
Google Adwords
Facebook Ads
5%
0.08%
0.005%
(CTR)
$7.52
$4.88
$0
(COST)

Business Canvas #3
Server providers
Established services- Online Marketing : Google/Facebook
Web & App sales
Online social networks
Online advertising
Variable costs: server and traffic maintenance costs- Fixed Cost: rent, salaries
- Online ad campaigns

Key Question for Business Canvass #3
HOW CAN WE ATTRACT SELLERS?
COOPERATION WITH SELLERS?

Seller Contact
Deal with sellers failed because no group pricing or discount too low.
Organize Real Group Deal
Contact popular online sellers
3 products: HD camera, protein drink, videogame
Videogame was for pre-order
Result
Most sellers: no group discounts
Discounts offered < 10%
With shipping and tax still >= Amazon price
David vs. Goliath problem

To Pivot or Not to Pivot?
Although dismayedat seller response, we did not give up.
What do do?
Deal with sellers disappointing
Seller problem intractable?
Teaching staff: Pivot or else…
Beaten, but not defeated
Lost one battle, but not the war!
Only contacted larger sellers
Sellers need more value
Show them a real website
Filter advice and stay determined!
No Pivot Yet

Solution 1 : Rapid Implementation
Implement seller & buyer side features to give sellers fuller experience.
Site Upgrade Frenzy
Improved site design
Buyer facebook login
Online social networking integration
Seller login and registration
Seller bidding
Seller group deal creation page

Humble beginnings

The Real Deal

Main page
Facebook connect
Deal creation by sellers
Bidding dialog

Solution 2 : More seller value & spamming
Add value for sellers based on mentor and industry expert interviews
Add Seller Value
Low transaction fees
Customer contact information
Cross-selling products
Ad banners
Power to create group deal
The Art of Spam
Massive seller e-mail campaign (16,000 in total)
Stanford takes notice and issues warning (oops)
Enumerate value propositions
Show live website
Hand out registration codes

Seller Invitation Result
180 sellers
# of sellers who signed up
# of deals made by sellers
80 deals
(below Amazon price)

Seller Invitation Result
# of sellers who replied to our email
200 sellers
# of sellers who made suggestions on OURCRAVE
50 sellers

Business Canvas #4
Bulk sales with reduced commission
- Access to customer contact information
Cross-sell their products.- Site advertising- Power to create deals
Server providers
-Payment Gateway : Paypal- Customer Service (Front side webservice) : Self- Customer Service (Product side) : Sellers- Delivery : Sellers
Web & App sales
Online advertising

Key Question for Business Canvass #4
Key Activities for Next Stage
Can we make enough money?

Key Activity – Seller Management
We should manage main feedbacks from sellers by making basic function,
1. Convenient System
Auto Sales Tax Calculator
Bulk List Uploading Function
Notification to Sellers
for relevant cravebags
2. Building credibility
FAQ List for Sellers
Share buyer information
F2F meeting with big sellers
3. More Incentives
Cross selling Option
Seller Advertisement Feature

Key Activity – Initial Advertisement
By price comparison site and online ads, test our early service model. Then, Crazy deals needed for jumping
2nd Active : Crazy Deals
20~30 % sales for Promotion Deals
Very very very famous products
1st Passive : Online Ads
Google / Facebook / Yahoo Ads
Price Comparison Site ( very important)

Key Activity – Encouraging Buyer’s Viral
We will implement incentive system for sharing deals and help buyers communicate with each other in our service
Incentive for sharing
Buyer Community
14%
22%
People who willing to share deals in FB*
People who shared deals
In FB*
OurCrave Point
Extra Discount
Free shipping or tax Coupon
Live comment on cravebags
Weekly Best cravebag vote
Youtube Ads Competition
* OurCrave User Survey in 2/3 weeks

Revenue / Cost Source
Revenue
Cost
Product Ads
Transaction Fee ( Main )
Float Money
Site Maintenance
Marketing ( Main )
Customer Support
Server/Traffic
/Mobie Apps
15% of transaction
Ads for buyer
Seller Management
3~5% ( paypal)
Outsourcing
20%/60days*
* google/groupon’s rule, we are asking sellers about this rule.

Business Canvas Final
Bulk sales with reduced commission
Cross-sell their products.- Site advertising- Power to create deals
Server providers
- Payment Gateway : Paypal- Customer Service (Front side webservice) : Self- Customer Service (Product side) : Sellers- Delivery : Sellers
Growing and maintaining online buyer/seller communities and credibilityof transactions- Promotionof website and brand
- Establishing credibility
Web & App sales
Online advertising
- float money

Business Canvas – Week 1
Seller : - More customer traffic
- Bulk sales- Lower transaction feesBuyer : - Better discounts
- Platform/Networkmanagement (maintaining online buyer/seller communities and credibility)- promotion of website and brand
- Powerful sellers
- Server providers
Multi-sided platformSeller :pro-sellers on Amazon and eBayBuyer :Online shoppers
- Web & App sales
- Online social networks
- Physical resources (IT infrastructure)- Existing social networks - Buyer and seller communities,- Brand awareness
- Variable costs: server and traffic maintenance costs- Fixed costs: rent, salaries

- Bulk sales- Lower transaction fees- Brand name marketingBuyer : - Better discounts
- Powerful sellers
- Server providers
Multi-sided platformSeller :pro-sellers on Amazon and eBayBuyer :Online shoppers
- Web & App sales

- Bulk sales- Lower transaction fees- Brand name marketingBuyer : - Better discounts
- Powerful sellers
-Regionalsellers
- Server providers
Multi-sided platformSeller :
Sellers on Amazon and eBayBuyer :Online shoppers who are willing to waitto get significant discounts on products
- Web & App sales

Bulk sales- Lower transaction fees- Brand name marketingBuyer : - Better discounts
- Sellers who need more traffic
-Regionalsellers
- Server providers
Sellers on Amazon and eBayBuyer :Online shoppers who are willing to waitto get significant discounts on products
- Web & App sales
- Onlineadvertising

- Bulk sales- Lower transaction fees- Brand name marketing
- Ability to cross-sell products
- Site advertising
Buyer : - Better discounts
-Regionalsellers
- Server providers
Sellers on Amazon and eBayBuyer :Online shoppers who arewilling to waitto get significant discounts on products
- Web & App sales
- Onlineadvertising
- Online ads

- Bulk sales- Lower transaction fees- Access to customer contact information
- Cross-sell their products.- Site advertising- Power to create dealsBuyer : - Better discounts- Power to choose product deal- Buyer community feedback on products and sellers
-Regionalsellers
- Server providers
Sellers on Amazon and eBayBuyer :Online shoppers who arewilling to waitto get significant discounts on products
- Web & App sales
- Onlineadvertising
- Online ads
- float money

- Platform/Networkmanagement (maintaining online buyer/seller communities and credibility)- Promotion of website and brand
- Regionalsellers
- Server providers
Established services- Online Marketing : Google/Facebook -Payment Gateway : Paypal- Customer Service (Front side webservice) : Self- Customer Service (Product side) : Sellers- Delivery : Sellers
Multi-sided platformSeller :Sellers on Amazon and eBay
Seller:
Trustworthy sellers with verifiable websites.Buyer :Online shoppers who arewilling to waitto get significant discounts on products
- Web & App sales
- Onlineadvertising
- Online ads
- float money

- Platform/Networkmanagement (maintaining and growing online buyer/seller communities and credibility)- Promotion of website and brand
- Establishing credibility
Established services- Online Marketing : Google/Facebook -Payment Gateway : Paypal- Customer Service (Front side webservice) : Self- Customer Service (Product side) : Sellers- Delivery : Sellers
Multi-sided platform
Seller:
Trustworthy sellers with verifiable websites.Buyer :Online shoppers who are willing to wait to get significant discounts on products
- Web & App sales
- Onlineadvertising
- Online ads
- float money

Pivot ExampleRobotic Weeding
Talked 75 Customers in 8 Weeks

Our initial plan
Confidential

20 interviews, 6 site visits…We got OUR Boots dirty
Weeding
Visited two farms in Salinas Valley to better understand problem
Interviewed:
Bolthouse Farms, Large Agri-Industry in Bakersfield
White Farms, Large Peanut farmer in Georgia
REFCO Farms, large grower in Salinas Valley
Rincon Farms, large grower in Salinas Valley
Small Organic Corn/Soy grower in Nebraska
Heirloom Organics, small owner/operator, Santa Cruz Mts
Two small organic farmers at farmers market
Ag Services of Salinas, Fertilizer applicator
Mowing
Interviewed:
Golf: Stanford Golf course
Parks: Stanford Grounds Supervisor, head of maintenance and lead operator (has crew of 6)
Toro dealer (large mower manufacturer)
User of back-yard mowing system
Maintenance Services for City of Los Altos
Colony Landscaping (Mowing service for stadiums)
Confidential

Business Plan Autonomous Vehicles for Mowing & Weeding
Dealers sell, installs and supports customer
Co. trains dealers, supports dealers
- Innovation
- Customer Education
- Dealer training
Mowing
- Owners of public or commercially used green spaces (e.g. golf courses)
- Landscaping service provider
Weeding
- Farmers with manual weeding operations
We reduce operating cost
- Labor reduction
- Better utilization of assets (eg mow or weed at nights)
- Improved performance (less rework, food safety)
- Dealers (Mowing and Ag)
- Vehicle OEMs (John Deere, Toro, Jacobsen, etc)
- Research labs
- Mowing Dealers
- Ag Dealers
Engineers on Autonomous vehicles, GPS, path-planning
Dealer discount
COGS seek a 50-60% Gross Margin
Heavy R&D investment
Asset sale
Our revenue stream derives from selling the equipment

Autonomous vehiclesWEEDING
Dealers sell, installs and supports customer
Co. trains dealers, supports dealers
- Innovation
- Dealer training
- Low density vegetable growers
- High density vegetable growers
- Thinning operations
- Conventional vegetables
- Labor reduction (100 to 1)
- Reduced risk of contamination
- Mitigate labor availability concerns
- Ag Dealers
- Ag Service providers
- Research labs
- Ag Dealers
Engineers on Machine Vision
Two problems:
- Identification
- Elimination
Dealer discount
Asset sale
Our revenue stream derives from selling the equipment

1 Week – 1 CarrotBot
Confidential

The Business Plan Canvas Updated
Technology Design
Marketing
Demo and customer feedback
Farming conventions.
Demo, demo, and demo!!
Proximity is paramount
Organic Farmers
Weeding Service Providers
Conventional Farmers
Cost Reduction
Remove labor force pains
Eliminate bio-waste hazards
Research Labs
Equipment Manufacturers
Distribution Network
Service Providers
IP – Patents
Video Classifier Files
Robust Technology
Dealers
Direct Service
Indirect Service
… then Dealers
Asset Sale
Direct Service with equipment rental
… then Asset Sale
Value-Driven

Technology Design
Marketing
Mid/Large Organic Farmers
Agricultural corporations
Mid/Large Conventional Farmers
Cost Reduction
Research Labs
Equipment Manufacturers
Service Providers
IP – Patents
Robust Technology
Direct Service
Indirect Service
… then Dealers
($1,500/d; 120d/yr )
Low density: $1,500/d
High density: $6,000/d
Value-Driven

World Ag Expo interviews:the need is real and wide spread
10+ interviews at show
Everyone confirmed the need
Robocrop, UK based, crude competitor sells for $171 K
Revenue Stream
Mid to small growers prefer a service
Large growers prefer to buy, but OK with service until technology is proven
Charging for labor cost saved is OK, as we provide other benefits (food safety, labor availability)
Confidential

Technology Design
Marketing
Mid/Large Organic Farmers
Agricultural corporations
Mid/Large Conventional Farmers
Research Labs
Equipment Manufacturer
Service Providers
2 or 3 Key Farms
Cost Reduction
IP – Patents
Robust Technology
Direct Service
Indirect Service
… then Dealers
Low density: $1,500/d
High density: $6,000/d
Value-Driven
R&D
Bill of Materials
Training & Service
Sales

Autonomous weeding - Final
Direct
- Provide high quality service at competitive price
- Innovation
- Dealer training
- Low density vegetable growers
- High density vegetable growers
- Thinning operations
- Conventional vegetables
- Labor reduction (100 to 1)
- Reduced risk of contamination
- Mitigate labor availability concerns
- Research Institutes (eg UC Davis, Laser Zentrum Hannover)
- 3-4 key farms
Direct
- Alliance with service providers
- Eventually sell through dealers
Engineers on Machine Vision
Two problems:
- Identification
- Elimination
Costs for service provision
Service provision
- Charge by the acre with modifier according to weed density
- Eventually move to asset sale

2011 – 2014Rules for the New Bubble

New Bubble Hypotheses
We’re in one
Rules are different in 2011 then 2006
Exits will be IPO and M&A
Unlike last bubble initial IPO’s will be “real”
Quality of IPO pipeline will diminish rapidly
Acquirers can be “targeted”
You can “engineer for an acquisition”

2011 – 2014The New Bubble
Short product dev cycle (Agile Development)
Customers 10’s/100’s millions(Social networks, consumer)
Liquidity through M&A & IPO(revenue & network of users)
Repeatable methodology (Agile + Cust Dev + Bus Model)
Target acquirers (Adoption, Visibility, order of battle)

2011 - 2014Rules for the New Bubble
Founders/VC’s can engineer financial transactions
Transactions economically or usage accretive
Still require Agile, Cust Dev & Bus Model
Add: Adoption, Order of Battle and Visibility

2011 - 2014 Playbook
Business Model Generation
Lean Startup
Liquidity Strategy

Lean & Pivots is the Minimum Entry
Continuous Customer Discovery
Rapid Bus Model iteration
Extreme Agile Development

2011 – 2014Order of Battle
Each market has a finite number of acquirers
Each with a finite number of deal makers
Each looking to fill specific product/market holes
Each read/go to finite number of blogs/conferences
This is not an NP-complete problem

2011 – 2014Adoption
Get wide adoption (freemium, low costs, etc)
Go for massive distribution
Monetize later
Can only be done Lean, requires Pivots

2011 – 2014Visibility
Be everywhere
Look larger than life
Conference, blogs, social networks
PR is your best friend, invest in it

Closing Thoughts
We’re at the beginning of another tech bubble
Rules for making money are different in a bubble
Founders & VC’s can engineer financial transactions
Transactions need to be economically or usage accretive
Still require Agile, Cust Dev & Bus Model
Add: Adoption, Order of Battle and Visibility

Thanks
www.steveblank.com

BACKUP

Pivot ExamplePersonal Libraries

Version 1.0: Personal Libraries

something-something-something.com
Original idea
Invincible Business Model: Version 1.0
SHORT TERMResearchers
Lawyers
Scientists
LONG TERMAvid book readers
Professionals
FB/TW posts from users you know
Company blog, FB, TW, support forums
Import, organize and share thousands of papers
Targeted marketing
Product development
Constant iteration & testing
Libraries, Universities, Research Centers
Bloggers and media targeting customer segment
Academic Database providers
Affiliate program
SEO/SEM/SM
IE/FF/Chrome App Stores
Developers
Marketers
Affiliate program fees
Licensing
Subscription fees
Ad revenue
AWS Infrastructure
SEM
Eng & Marketing OpEx

Got out of the building
100+ Interviews
Extensive Surveys
33,000+ Adwords
Compete Review
Market Sizing
50 bloggers
6 Social Networks
Usability Tests
Rapid Iteration

Version 2.0: Trusted Advice

Original idea
Upwardly mobile young professionals making $2-10K of discretionary online purchases a year (excluding travel)
Company blog, FB, TW accounts
Discover online goods recommended by friends at the lowest possible price from trusted vendors
Developing trusted advice and advisors
Web marketing
Affiliate partnerships
Bloggers and Media targeting customer segment
Retail marketing partners
IE/FF/Chrome teams
Affiliate Program Providers
Affiliate program
SEO/SEM/SM
Developers
Marketers
Content Library
Install base
Readership base
Licensing
Subscription fees
Ad revenue
AWS Infrastructure
SEM

New Hypotheses

Here’s What We Did

Got out of the building, again
40+ Interviews
Extensive Surveys
Landing Page Tests
Market Research
Compete Research
Revenue Analysis
Two Prototypes
Refined Personas

Top ~6M US Influentials (~$9B/year)

Original idea
Upwardly mobile young professionals making $2-10K of discretionary online purchases a year (excluding travel)
Discover online goods recommended by friends at the lowest possible price from trusted vendors
Web marketing
IE/FF/Chrome teams
Affiliate program
SEO/SEM/SM
Developers
Marketers
Content Library
Install base
Readership base
Licensing
Subscription fees
Ad revenue
AWS Infrastructure
SEM

The adventure continuesTrusted Advice 2.0
Protection against SEO-spammers
Next Experiments:
Trusted Lead Gen
Trusted Advice website powered by Shopping Add-in

Original idea
PAT THE PROFESSIONALUpwardly mobile young professionals making $2-10K of discretionary online purchases a year (excluding travel)
TRUSTED ADVICE Discover online goods recommended by friends at the lowest possible price from trusted vendors
Foil advertorial spammers polluting the Interweb with toxic pseudo-content
Web marketing
IE/FF/Chrome teams
Affiliate program
SEO/SEM/SM
Developers
Marketers
Content Library
Install base
Readership base
Licensing
Subscription fees
Ad revenue
AWS Infrastructure
SEM

Pivot ExampleCloud Services

Week 1

Cloud compute marketplace
Build a cloud marketplace
Many different customer segments on buy-side and sell-side
Direct sales to both buyers and sellers
Huge dependency on technical platform

Week 2

Cloud Services Match Maker
Pivot away from technical platform
Help buyers find the best provider
Removed financial, consumer segments
Act as channel for sellers

Week 3

Automated Cloud Capacity Planning
Pivot 1:
Capacity Planning
Pivot 2:
Focus on enterprises with variable workload

Week 4

Week 5

Week 6

Week 7

Week 8
Capacity Planning
· High variability in usage
Service Matching
Companies unfamiliar with using cloud infrastructure
SLA Monitoring
Companies with high SLA requirements with their customers
· For enterprise segment, higher touch model with field sales force
· Reduced cloud infrastructure cost· Better compute needs matching
· Increased visibility on service level
Integrators:
· Increased budget for consulting services
Design and refine capacity planning and match making algorithms
Develop and maintain cloud infrastructure vendors relationships
Develop brand as go-to place for cloud lifecycle management
· Technology partners – cloud vendors, management tools
· System integrators / Consultants
· Intellectual property – prediction algorithm· Developers· Inside sales force
· Field sales force · Biz dev (channel partners and technology partners)
· Integrators / consultants specialized in cloud infrastructure
Inside sales and field sales· Development Costs· Infrastructure costs – AWS· Support costs
Subscription charge to buyers
Pricing table scales based on # of servers and # of seats, with tiers

Cloud Lifecycle Management
Agora – FINAL
Develop capacity planning algorithm
Develop IaaS vendor relationships
Marketing and sales
· Technology partners – cloud vendors, management tools
· System integrators / Consultants
Partner with Integrators
Capacity Planning
· High variability in usage
Service Matching
Companies new to cloud
SLA Monitoring
Companies with high SLA requirements
· For enterprise, higher touch model with field sales
Customers
· Reduced cloud infrastructure cost· Increased visibility on service level
Integrators:
· Increased revenue
Position product for lifecycle management
Leverage both inside and field sales
· IP– prediction · Developers· Inside sales force
· Field sales force · Biz dev (channel and technology partners)
· IaaS Integrators / consultants
Inside and field sales· Development Costs· Infrastructure costs – AWS· Support costs
Subscription charge to buyers
Pricing table scales based on # of servers and # of seats, with tiers

Pivot ExampleUser Generated Real-Time Traffic Info

Initial Product Idea
Mobile application providing crowd-sourced real time traffic map in developing countries
Lahore
Shanghai
Jakarta
Bangkok

Business Canvas Change Progress
1

2

3

Customer Segment: Corporate
The Drivers:
Are you questioning our expertise?
Archetypes
Users
International, local, large, and small companies
Influencers
and
Recommenders
Economic Buyers,
Decision Makers
Saboteurs

Pass/Fail
FAIL

4

5

6

7

FINAL

Pivot ExampleResidential Wind Turbines

Business Model Canvas #1
Continue R&D
Get certifications
Get approvals from city councils
Cheap wind
Green status symbol
Diversify energy portfolio
Faster payback than alternatives
Single family homeowner
House rental groups
Contractors in home remodeling
5 yr full service Warranty
Want re-buy from customers
Environmental, bird, wildlife groups (regulations, publicity)
City councils (new regulations, permits).
Contractors
Faster payback than alternatives
Wind
Cheap manufacturing process- Intellectual property
Need Initial capital
Endorsements by environmental groups, and local governments
Direct sales
Web site
Home Depot
Direct sales
Cost-driven model to provide inexpensive, quality product
Asset sales

Initial Idea
Affordable
New home appliance
Status

Business Model Canvas # 2
Continuous advertise and recruit new customers (city councils)
Build relationship with city engineers and council members
Understand customer, influencers, motivations, problems, competitors
Form partnerships for maximum reach
Submit bids for city RFPs
Continue R&D
Get certifications
Gain Credibility
Retrofit wind turbine for street and highway lamps.
Create own wind turbines with pole manufacturers
Be owner of cheap green status symbol
Diversify green energy portfolio
Fast payback than alternatives
Single family wealthy, green home and land owner in CA, TX ,CO, WI, NY
Cities
Lighting Companies
5 year full service Warranty
After 5 years, service charge
Utility to manage after warranty expiration
Extended warranty option
City councils not HOA(new regulations, permits).
Lighting Manufacturers
Electricians and Contractors for Installation/Maintenance
Research Labs
Turbine Certifiers
City councils not HOA
Cities
$1.5 MM of capital to start manufacturing and distribution for year 1 and 2
Manufacturing Parts
Direct sales to cities
Web site
Home Depot
Direct Sales
Service Calls
Leasing
Manufacturing costs and customer acquisition costs.
May consider in-house leasing option, if upfront costs is large obstacle for customer and sufficient funding obtained (must be in future)

City Process
Policies
Community Culture
State Mandates
City Budget Plan
Learn about city approval Process
City Values
Planning Commission
Technical Evaluation and Recommendation
Back to the envelop metrics
IDEA
Request for Quote
City Council Approval
City Council “Pet-Project”
Finance Approval

Business Model Canvas – Final
Continuously advertise and recruit new customers (city councils)
Form partnerships (developers, cities, installers, maintenance) for maximum reach
Continue R&D
Get certifications
Gain Credibility
Cities (pilot)
Cities leasing
Lighting Companies
Developer -> Utilities -> City
5 year full service Warranty,
City council (new regulations, permits).
Research Labs
Turbine Certifiers
Small Wind Developers
Utilities
R&D talent
Finance
Direct sales to cities (long term) PILOTS
Small Wind Developer
Cities leasing
Finance
Leasing, PPA
Direct Sales to wind developers?
Leasing, PPA

Business Model Canvas – Week 1
Continue R&D
Get certifications
Cheap affordable wind turbine for the everyday American
Diversify energy portfolio,
Fast payback than alternatives, < 5 yrs
House rental groups
Contractors in home remodelling
Want re-buy from customers
Contractors
Need initial capital
Direct sales
Web site
Home Depot
Sale of Product

Continuous advertise and recruit new customers
Continue R&D
Get certifications
Single family homeowner in CA, TX ,CO, WI, NY
House rental groups
Want rebuy from customers
City councils and neighborhood/??? (new regulations, permits).
Contractors
Need Iniitial capital
Direct sales
Web site
Home Depot
May consider in-house leasing option, if upfront costs is large obstacle for customer and sufficient funding obtained.
Direct Sales
Leasing
Service Calls

Continue R&D
Get certifications
Gain Credibility
House rental groups
Additional Maintenance after
Contractors
Need Iniitial capital (600k)
Manufacturing Facilities and Areas
Direct sales
Web site
Home Depot
Direct Sales
Leasing
Service Calls

Continue R&D
Get certifications
Gain Credibility
Cheap product more readily available
House rental groups
Additional Maintenance after
Contractors
Need Iniitial capital (600k)
Manufacturing Parts
Direct sales
Web site
Home Depot
Direct Sales
Leasing
Service Calls

Continuous advertise and recruit new customers (city councils)
Continue R&D
Get certifications
Gain Credibility
Cheap product more readily
Cities
Lighting Companies
Utilities
Manufacturing Parts
Direct sales to cities (long term)
Web site
Home Depot
Direct Sales
Service Calls
Leasing

Use competitive, local, renewable energy, strong green symbol
Fast payback than alternatives.
Cities
Lighting Companies
Utilities
County – State Level
5 year maintenance and warranty
Light manufacturers, installers to package product/services
Electricians, contractors, light maintenance for additional workforce
Endorsements by environmental groups, city consortiums for renewable energy, public utilities, city council planning department
Direct sales to the city or utility, and forming long term relationship for maintenance and replacements.
Asset sales and service calls
Leasing and PPA? (under review)

Use competitive, local, renewable energy, strong green symbol
Fast payback than alternatives.
Cities
Utilities
County – State Level
5 year maintenance and warranty
Environmental, bird, wildlife groups
Light manufacturers,
Installers/maintainers
Research Labs
Turbine Certifiers
Endorsements by environmental groups, city consortiums for renewable energy, public utilities, city council planning department
Direct sales to the city or utility, and forming long term relationship for maintenance and replacements.
Asset sales and service calls
Leasing and PPA (Future)

Business Model Canvas – Final
Continuously advertise and recruit new customers (city councils)
Form partnerships (developers, cities, installers, maintenance) for maximum reach
Continue R&D
Get certifications
Gain Credibility
Cities (pilot)
Cities leasing
Lighting Companies
5 year full service Warranty,
City council (new regulations, permits).
Research Labs
Turbine Certifiers
Small Wind Developers
Utilities
R&D talent
Finance
Direct sales to cities (long term) PILOTS
Small Wind Developer
Leasing, PPA
Leasing, PPA

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Sxsw New Rules for the New Bubble 031211

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Sxsw New Rules for the New Bubble 031211 Presentation Transcript