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Why Accountants Don't Run Startups

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  • 1. Why Accountants Don’t Run Startups Steve Blank Stanford - School of Engineering U.C. Berkeley - Haas School Of Business www.steveblank.com Twitter: sgblank
  • 2. News From Silicon Valley Source: Dave McClure 500hats.com Small VC Funds ($50-250M) Union Square Ventures First Round Capital Traditional VC Funds (>$250M) Benchmark Sequoia Angels & Incubators ($0-10M) Y-Combinator TechStars Seed Funds ($10-50M) SoftTech (Clavier) Maples Investments Felicis (Senkut) SV Angel (Conway)
  • 3. News From Silicon Valley Small VC Funds ($50-250M) Traditional VC Funds (>$250M) Angels & Incubators ($0-10M) Seed Funds ($10-50M) Source: Dave McClure 500hats.com Innovation is happening here
  • 4. News From Silicon Valley
    • Internet startups - $500K is the new $5M
      • Driven by the top of the pyramid
    • Seed Funds providing entrepreneurial education
      • Ycombinator, TechStars, SeedCamp, LaunchBox, etc
    • Customer Development/Lean Startup adoption
      • Methodology to test hypothesis and business model
  • 5. Some Definitions
  • 6. Small Business Startups Small Business Startup
  • 7. Small Business Startups Small Business Startup
    • - Business Model found
    • - Profitable business
    • Existing team
    • < $10M in revenue
  • 8. Small Business Startups
    • - Business Model found
    • - Profitable business
    • 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
  • 9. Small Business Startup: Internet Edition Small Business Startup
    • - Business Model found
    • - Profitable business
    • Existing team
    • < $10M in revenue
    • The Internet allows a new class of Small Businesses
    • Not all businesses on the Internet are “ Scalable Startups”
  • 10. Scalable Startup Scalable Startup Large Company >$100M/year
  • 11. 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
  • 12. 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
    • Typically requires “risk capital”
    • In contrast a scalable startup is designed to grow big
    • It typically needs risk capital
    • These are what Silicon Valley means when they say “Startup”
  • 13. Very Different Startup Goals Small Business Startup
    • - Business Model found
    • - Profitable business
    • Existing team
    • < $10M
    Scalable Startup Large Company
    • Total Available Market > $500m
    • Company can grow to $100m/year
    • Business model found
    • Focused on execution and process
    • Typically requires “risk capital”
  • 14. Silicon Valley Venture Firms Invest in Scalable Startups Small Business Startup Scalable Startup Large Company
  • 15. What VC’s Don’t Tell You: The Transition Scalable Startup Large Company Transition Search Build Grow
  • 16. What VC’s Don’t Tell You: The Transition Scalable Startup Large Company Transition
    • Founders depart
    • Professional Mgmt
    • Process
    • Beginning of scale
  • 17. What’s A Startup? Scalable Startup Large Company Transition
    • Business Model found
    • Product/Market fit
    • - Repeatable sales model
    • - Managers hired
    A Startup is the organization used to search for a scalable business model
  • 18. The Search for a Business Model
    • No Business Plan survives first contact with customers
    • A Business Model diagrams how a company creates, delivers and captures value
    • Or in English: How a company makes money
  • 19. Emphasis On Hypotheses Testing
  • 20. Startups Continually Pivot (Iterate)
  • 21. Startups Search and Pivot Scalable Startup Large Company Transition
    • Business Model found
    • Product/Market fit
    • - Repeatable sales model
    • - Managers hired
    The Search for the Business Model
  • 22. Startups Search, Companies Execute Scalable Startup Large Company Transition
    • Business Model found
    • Product/Market fit
    • - Repeatable sales model
    • - Managers hired
    - Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people The Search for the Business Model The Execution of the Business Model
  • 23. Metrics Versus Accounting Scalable Startup Large Company Transition
    • Traditional Accounting
    • Balance Sheet
    • Cash Flow Statement
    • Income Statement
    The Execution of the Business Model
  • 24. Metrics Versus Accounting Scalable Startup Large Company Transition
    • 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
    The Search for the Business Model The Execution of the Business Model
  • 25. Customer Development Versus Product Management Scalable Startup Large Company Transition
    • Product Management
    • Delivers MRD’s
    • Feature Spec’s
    • Competitive Analysis
    The Execution of the Business Model
  • 26. Customer Development Versus Product Management Scalable Startup Large Company Transition
    • Customer Development
    • Hypothesis Testing
    • Minimum Feature Set
    • Pivots
    The Search for the Business Model The Execution of the Business Model
    • Product Management
    • Delivers MRD’s
    • Feature Spec’s
    • Competitive Analysis
  • 27. Engineering Versus Agile Development Scalable Startup Large Company Transition The Search for the Business Model The Execution of the Business Model
    • Engineering
    • Requirements Docs.
    • Waterfall Development
    • QA
    • Tech Pubs
  • 28. Engineering Versus Agile Development Scalable Startup Large Company Transition
    • Agile Development
    • Continuous Deployment
    • Continuous Learning
    • Self Organizing Teams
    • Minimum Feature Set
    • Pivots
    The Search for the Business Model The Execution of the Business Model
    • Engineering
    • Requirements Docs.
    • Waterfall Development
    • QA
    • Tech Pubs
  • 29. How Do Startups Search For A Business Model?
    • The Search is called Customer Development
    • The Implementation is called Agile Development
  • 30. The Lean Startup
    • The Search is called Customer Development
    • The Implementation is called Agile Development
  • 31. Startups Don’t Last Forever Scalable Startup Large Company Transition
    • Business Model found
    • Product/Market fit
    • - Repeatable sales model
    • - Managers hired
    - Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people You fail if you remain a startup!
  • 32. Why Startups Aren’t Run By Accountants
  • 33. Leadership Versus Management Scalable Startup Large Company Transition
  • 34. Leadership Versus Management Scalable Startup Large Company Transition
  • 35. Leadership Versus Management Scalable Startup Large Company Transition Search
  • 36. Leadership Versus Management Scalable Startup Large Company Transition Build Search
  • 37. Leadership Versus Management Scalable Startup Large Company Transition Build Grow Search
  • 38. E-School instead of B-School
  • 39. Durant Versus Sloan Scalable Startup Large Company Transition
  • 40. Business School Versus Entrepreneurship School Scalable Startup Large Company Transition
    • Execution
    • Accounting
    • Products
    • Engineering
    • Management
    • Administrative
    Business School
  • 41. Entrepreneurship School Scalable Startup Large Company Transition Entrepreneurship School
    • Hypothesis testing
    • Business Model testing
    • Customer Development
    • Agile Development
    • Metrics
    • Venture Finance
    • Hands-on
    • Execution
    • Accounting
    • Products
    • Engineering
    • Management
    • Administrative
    Business School
  • 42. Business School Versus Entrepreneurship School Scalable Startup Large Company Transition Business School
    • Courses
    • Managerial Finance/Accounting
    • Managing Groups and Teams
    • Financial Accounting
    • Operations
    • Modeling for Optimization
    • Global Value Chain Strategies
  • 43. Business School Versus Entrepreneurship School Scalable Startup Large Company Transition
    • Courses
    • Entrepreneurial Management
    • Creativity and Innovation
    • Technology Entrepreneurship
    • Patent Law for Entrepreneurs
    • Global Entrepreneurial Marketing
    • Entrepreneurial Finance
    Business School Entrepreneurship School
    • Courses
    • Managerial Finance/Accounting
    • Managing Groups and Teams
    • Financial Accounting
    • Operations
    • Modeling for Optimization
    • Global Value Chain Strategies
  • 44. Thanks www.steveblank.com

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