The Entrepreneurial Explosion<br />Steve Blank<br />Stanford - School of Engineering<br />www.steveblank.com<br />Twitter:...
This Presentation Combines<br />www.businessmodelgeneration.com<br />www.steveblank.com<br />
I Write a Blog  <br />www.steveblank.com<br />
A Few Short Stories<br />
Startup Constraints<br />
High Cost to First Product<br />Startup Constraints<br />
Buy expensive workstationsBuy expensive development tools<br />
Low Cost to 1st Product<br />Entrepreneurial <br />Explosion<br />
Develop on inexpensive PC’s/Mac’sUse Open Source Software<br />
High Cost to First Product<br />Long Time to First Product<br />Startup Constraints<br />
Use Waterfall DevelopmentFirst Customer Ship in months/years<br />
Low Cost to First Product<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br />
Use Agile DevelopmentFirst Customer Ship in weeks/months<br />
High Cost to First Product<br />Long Time to First Product<br />Startup Constraints<br />Slow Customer Adoption<br />
Customers – Gov’t/Businesses# of customers - hundreds/thousands<br />
Low Cost to First Product<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br />Fast Customer Adoptio...
Customers – Consumers# of customers - millions<br />
High Cost to First Product<br />Long Time to First Product<br />Startup Constraints<br />Slow Customer Adoption<br />High ...
Startups are small versions of large companiesFocus is on execution of business plan<br />
Low Cost to First Product<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br />Fast Customer Adoptio...
Startups are not small versions of large companiesFocus is on Search for a business model<br />
High Cost to First Product<br />Long Time to First Product<br />Startup Constraints<br />Limited Number of Venture Capital...
3000 Sand Hill Road<br />
Low Cost to First Product<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br />Large Pool of Risk Ca...
Sand Hill Road<br />
High Cost to First Product<br />Innovation Limited to a Few Regions<br />Long Time to First Product<br />Startup Constrain...
3000 Sand Hill RoadMenlo Park, California<br />
Low Cost to First Product<br />Global Innovation<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br ...
Menlo Park, San Francisco New York, Shanghai, Israel, Chile, Singapore<br />
Low Cost to First Product<br />Global Innovation<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br ...
Why Startups Are Not Small Versions of A Large Company<br />
Startups Search, Companies Execute<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Search<br />Build<br...
Startups Search and Pivot<br />The Search for the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Com...
Startups Search, Companies Execute<br />The Execution of the Business Model<br />The Search for the Business Model<br />Sc...
 Product/Market fit</li></ul>- Repeatable sales model<br />- Managers hired<br />
Metrics Versus Accounting<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<b...
 Cash Flow Statement
 Income Statement</li></li></ul><li>Metrics Versus Accounting<br />The Search for the Business Model<br />The Execution of...
 Viral coefficient
 Customer Lifetime Value
 Average Selling Price/Order Size
 Monthly burn rate
 etc.  </li></ul>Traditional Accounting<br /><ul><li> Balance Sheet
 Cash Flow Statement
 Income Statement</li></li></ul><li>Customer Validation Versus Sales<br />The Execution of the Business Model<br />Scalabl...
 Scalable
 Price List/Data Sheets
 Revenue Plan</li></li></ul><li>Customer Validation Versus Sales<br />The Search for the Business Model<br />The Execution...
 Pricing/Feature unstable
 Not yet repeatable
“One-off’s”</li></ul>Sales<br /><ul><li> Sales Organization
 Scalable
 Price List/Data Sheets
 Revenue Plan</li></li></ul><li>Engineering Versus Agile Development<br />The Execution of the Business Model<br />Scalabl...
 Waterfall Development
 QA
 Tech Pubs</li></li></ul><li>Engineering Versus Agile Development<br />The Search for the Business Model<br />The Executio...
 Waterfall Development
 QA
 Tech Pubs</li></ul>Agile Development<br /><ul><li> Continuous Deployment
 Continuous Learning
 Self Organizing Teams
 Minimum Feature Set
 Pivots</li></li></ul><li>Startups Model, Companies Plan<br />The Execution of the Business Model<br />Scalable<br />Start...
 features
 customers/markets
 business model</li></li></ul><li>Startups Model, Companies Plan<br />The Search for the Business Model<br />The Execution...
 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</li></li></ul><li>How Do Startups Search For A Business Model?<br /><ul><li> The Search is called Cu...
 The Implementation is called Agile Development</li></li></ul><li>Customer Development<br />
Why Startups Fail<br />
More startups fail from a lack of customers than from a failure of product development<br />
Customer Problem: known<br />	Product Features: known<br />
No Business Plan survives first contact with customers<br />
So Search for a Business Model<br />
The Business Model:<br />Any company can be described in 9 building blocks<br />
CUSTOMER SEGMENTS<br />which customers and users are you serving? <br />which jobs do they really want to get done?<br />
VALUE PROPOSITIONS<br />what are you offering them? what is that <br />getting done for them? do they care?<br />
CHANNELS<br />how does each customer segment want to be reached? through which interaction points?<br />
CUSTOMER RELATIONSHIPS<br />what relationships are you establishing with each segment? personal? automated? acquisitive? r...
REVENUE STREAMS<br />what are customers really willing to pay for? how? <br />are you generating transactional or recurrin...
KEY RESOURCES<br />which resources underpin your business model? which assets are essential?<br />
KEY ACTIVITIES<br />which activities do you need to perform well in your business model? what is crucial?<br />58<br />
KEY PARTNERS<br />which partners and suppliers leverage your model? <br />who do you need to rely on?<br />
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University of Michigan in Silicon Valley 030211

  1. 1. The Entrepreneurial Explosion<br />Steve Blank<br />Stanford - School of Engineering<br />www.steveblank.com<br />Twitter: @sgblank<br />
  2. 2. This Presentation Combines<br />www.businessmodelgeneration.com<br />www.steveblank.com<br />
  3. 3. I Write a Blog <br />www.steveblank.com<br />
  4. 4. A Few Short Stories<br />
  5. 5. Startup Constraints<br />
  6. 6. High Cost to First Product<br />Startup Constraints<br />
  7. 7. Buy expensive workstationsBuy expensive development tools<br />
  8. 8. Low Cost to 1st Product<br />Entrepreneurial <br />Explosion<br />
  9. 9. Develop on inexpensive PC’s/Mac’sUse Open Source Software<br />
  10. 10. High Cost to First Product<br />Long Time to First Product<br />Startup Constraints<br />
  11. 11. Use Waterfall DevelopmentFirst Customer Ship in months/years<br />
  12. 12. Low Cost to First Product<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br />
  13. 13. Use Agile DevelopmentFirst Customer Ship in weeks/months<br />
  14. 14. High Cost to First Product<br />Long Time to First Product<br />Startup Constraints<br />Slow Customer Adoption<br />
  15. 15. Customers – Gov’t/Businesses# of customers - hundreds/thousands<br />
  16. 16. Low Cost to First Product<br />Short Time to First Product<br />Entrepreneurial <br />Explosion<br />Fast Customer Adoption<br />
  17. 17. Customers – Consumers# of customers - millions<br />
  18. 18. High Cost to First Product<br />Long Time to First Product<br />Startup Constraints<br />Slow Customer Adoption<br />High Startup Failure Rate<br />
  19. 19. Startups are small versions of large companiesFocus is on execution of business plan<br />
  20. 20. 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 />
  21. 21. Startups are not small versions of large companiesFocus is on Search for a business model<br />
  22. 22. 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 />
  23. 23. 3000 Sand Hill Road<br />
  24. 24. 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 />
  25. 25. Sand Hill Road<br />
  26. 26. 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 />
  27. 27. 3000 Sand Hill RoadMenlo Park, California<br />
  28. 28. 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 />
  29. 29. Menlo Park, San Francisco New York, Shanghai, Israel, Chile, Singapore<br />
  30. 30. 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 />
  31. 31. Why Startups Are Not Small Versions of A Large Company<br />
  32. 32. Startups Search, Companies Execute<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Search<br />Build<br />Execute<br />
  33. 33. 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 />
  34. 34. 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
  35. 35. Product/Market fit</li></ul>- Repeatable sales model<br />- Managers hired<br />
  36. 36. 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
  37. 37. Cash Flow Statement
  38. 38. 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
  39. 39. Viral coefficient
  40. 40. Customer Lifetime Value
  41. 41. Average Selling Price/Order Size
  42. 42. Monthly burn rate
  43. 43. etc. </li></ul>Traditional Accounting<br /><ul><li> Balance Sheet
  44. 44. Cash Flow Statement
  45. 45. 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
  46. 46. Scalable
  47. 47. Price List/Data Sheets
  48. 48. 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
  49. 49. Pricing/Feature unstable
  50. 50. Not yet repeatable
  51. 51. “One-off’s”</li></ul>Sales<br /><ul><li> Sales Organization
  52. 52. Scalable
  53. 53. Price List/Data Sheets
  54. 54. 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.
  55. 55. Waterfall Development
  56. 56. QA
  57. 57. 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.
  58. 58. Waterfall Development
  59. 59. QA
  60. 60. Tech Pubs</li></ul>Agile Development<br /><ul><li> Continuous Deployment
  61. 61. Continuous Learning
  62. 62. Self Organizing Teams
  63. 63. Minimum Feature Set
  64. 64. 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”
  65. 65. features
  66. 66. customers/markets
  67. 67. 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
  68. 68. describes “unknowns”
  69. 69. customer needs
  70. 70. feature set
  71. 71. business model
  72. 72. found by iteration
  73. 73. Plan describes “knowns”
  74. 74. Known features for line extensions
  75. 75. Known customers/markets
  76. 76. Known business model</li></li></ul><li>How Do Startups Search For A Business Model?<br /><ul><li> The Search is called Customer Development
  77. 77. The Implementation is called Agile Development</li></li></ul><li>Customer Development<br />
  78. 78. Why Startups Fail<br />
  79. 79. More startups fail from a lack of customers than from a failure of product development<br />
  80. 80.
  81. 81. Customer Problem: known<br /> Product Features: known<br />
  82. 82. No Business Plan survives first contact with customers<br />
  83. 83. So Search for a Business Model<br />
  84. 84. The Business Model:<br />Any company can be described in 9 building blocks<br />
  85. 85. CUSTOMER SEGMENTS<br />which customers and users are you serving? <br />which jobs do they really want to get done?<br />
  86. 86. VALUE PROPOSITIONS<br />what are you offering them? what is that <br />getting done for them? do they care?<br />
  87. 87. CHANNELS<br />how does each customer segment want to be reached? through which interaction points?<br />
  88. 88. CUSTOMER RELATIONSHIPS<br />what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?<br />
  89. 89. REVENUE STREAMS<br />what are customers really willing to pay for? how? <br />are you generating transactional or recurring revenues?<br />
  90. 90. KEY RESOURCES<br />which resources underpin your business model? which assets are essential?<br />
  91. 91. KEY ACTIVITIES<br />which activities do you need to perform well in your business model? what is crucial?<br />58<br />
  92. 92. KEY PARTNERS<br />which partners and suppliers leverage your model? <br />who do you need to rely on?<br />
  93. 93. COST STRUCTURE<br />what is the resulting cost structure? <br />which key elements drive your costs?<br />
  94. 94. 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 />61<br />images by JAM<br />
  95. 95. sketch out your business model<br />
  96. 96. building<br />block<br />
  97. 97. building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />
  98. 98. building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />
  99. 99. But,Realize They’re Hypotheses<br />
  100. 100. 9 Guesses<br />Guess<br />Guess<br />Guess<br />Guess<br />Guess<br />Guess<br />Guess<br />Guess<br />Guess<br />
  101. 101. How Startups Succeed<br />
  102. 102. Customer Development<br />The founders<br />^<br />Get Out of the Building<br />
  103. 103. 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 />
  104. 104. 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 />
  105. 105. Test Hypotheses:<br /><ul><li>Product
  106. 106. Market Type
  107. 107. Competition</li></ul>Turning Hypotheses to Facts<br />
  108. 108. Test Hypotheses:<br /><ul><li>Problem
  109. 109. Customer
  110. 110. User
  111. 111. 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
  112. 112. Customer
  113. 113. User
  114. 114. Payer</li></ul>Test Hypotheses:<br /><ul><li>Product
  115. 115. Market Type
  116. 116. Competitive</li></ul>Test Hypotheses:<br /><ul><li>Channel
  117. 117. (Customer)
  118. 118. (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
  119. 119. Validate Business Model</li></li></ul><li>Test Hypotheses:<br /><ul><li>Demand Creation</li></ul>Test Hypotheses:<br /><ul><li>Problem
  120. 120. Customer
  121. 121. User
  122. 122. Payer</li></ul>Agile Development<br />Test Hypotheses:<br /><ul><li>Product
  123. 123. Market Type
  124. 124. Competitive</li></ul>Test Hypotheses:<br /><ul><li>Channel
  125. 125. (Customer)
  126. 126. (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
  127. 127. 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…
  128. 128. MVP + Customer are the first two you need to nail
  129. 129. 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
  130. 130. Iteration without crisis
  131. 131. 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 />
  132. 132. Why Startups Aren’t Run By Accountants<br />
  133. 133. Inventor of the Modern Corporation<br />Scalable<br />Startup<br />Transition<br />Large Company<br />
  134. 134. Inventor of the Modern Corporation<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Alfred P. Sloan<br />
  135. 135. Alfred P. Sloan<br />Scalable<br />Startup<br />Transition<br />Large Company<br />General Motors, President/Chairman<br /><ul><li> Cost Accounting
  136. 136. MIT Sloan School
  137. 137. Sloan Foundation
  138. 138. etc. </li></li></ul><li>Founder of General Motors<br />Scalable<br />Startup<br />Transition<br />Large Company<br />
  139. 139. Founder of General Motors<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Billy Durant<br />
  140. 140. Billy Durant<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li> Leader in horse-drawn buggy’s
  141. 141. Fired by board, starts Chevrolet
  142. 142. Regains control of GM
  143. 143. Fired by board, GM ~$3.6 billion*</li></ul>* GM Net sales in 1921 $304.5M = $3.6 Billion today<br />
  144. 144. Durant Versus Sloan<br />Scalable<br />Startup<br />Transition<br />Large Company<br />
  145. 145. 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
  146. 146. Dies, rich, honored and famous</li></li></ul><li>Durant Versus Sloan<br />Accountant<br /><ul><li>Dies managing a bowling alley
  147. 147. Dies, rich, honored and famous</li></li></ul><li>You are here<br />Scalable<br />Startup<br />Transition<br />Large Company<br />
  148. 148. Thanks<br />www.steveblank.com<br />
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