Why Accountants Don't Run Startups

Why Accountants Don’t Run Startups Steve Blank Stanford - School of Engineering U.C. Berkeley - Haas School Of Business www.steveblank.com Twitter: sgblank

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)

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

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

Some Definitions

Small Business Startups Small Business Startup

Small Business Startups Small Business Startup
- Business Model found
- Profitable business
Existing team
< $10M 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

Small Business Startup: Internet Edition Small Business Startup
Existing team
< $10M in revenue
The Internet allows a new class of Small Businesses
Not all businesses on the Internet are “ Scalable Startups”

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”

Very Different Startup Goals Small Business Startup
Existing team
< $10M
Scalable Startup Large Company
Typically requires “risk capital”

Silicon Valley Venture Firms Invest in Scalable Startups Small Business Startup Scalable Startup Large Company

What VC’s Don’t Tell You: The Transition Scalable Startup Large Company Transition Search Build Grow

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

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

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

Emphasis On Hypotheses Testing

Startups Continually Pivot (Iterate)

Startups Search and Pivot Scalable Startup Large Company Transition
Product/Market fit
- Managers hired
The Search for the Business Model

Startups Search, Companies Execute Scalable Startup Large Company Transition
Product/Market fit
- 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

Metrics Versus Accounting Scalable Startup Large Company Transition
Traditional Accounting
Balance Sheet
Cash Flow Statement
Income Statement
The Execution of the Business Model

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

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

Customer Development Versus Product Management Scalable Startup Large Company Transition
Customer Development
Hypothesis Testing
Minimum Feature Set
Pivots
Product Management
Delivers MRD’s
Feature Spec’s
Competitive Analysis

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

Engineering Versus Agile Development Scalable Startup Large Company Transition
Agile Development
Continuous Deployment
Continuous Learning
Self Organizing Teams
Minimum Feature Set
Pivots
Engineering
Requirements Docs.
Waterfall Development
QA
Tech Pubs

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

The Lean Startup
The Search is called Customer Development
The Implementation is called Agile Development

Startups Don’t Last Forever Scalable Startup Large Company Transition
Product/Market fit
- Managers hired
- Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people You fail if you remain a startup!

Why Startups Aren’t Run By Accountants

Leadership Versus Management Scalable Startup Large Company Transition

Leadership Versus Management Scalable Startup Large Company Transition Search

Leadership Versus Management Scalable Startup Large Company Transition Build Search

Leadership Versus Management Scalable Startup Large Company Transition Build Grow Search

E-School instead of B-School

Durant Versus Sloan Scalable Startup Large Company Transition

Business School Versus Entrepreneurship School Scalable Startup Large Company Transition
Execution
Accounting
Products
Engineering
Management
Administrative
Business School

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

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

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

Thanks www.steveblank.com

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Why Accountants Don't Run Startups

by steve blank

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