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    Why fighter pilots run startups 090511 Why fighter pilots run startups 090511 Presentation Transcript

    • Why Fighter Pilots Run Startups
      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
    • This Talk is Based On
      Business Model Generation
      Four Steps to the Epiphany
      The Lean Startup
    • The Life of an Entrepreneur
    • Top Gun dogfight scene
    • First -What’s A Startup?
      Six Types of Startups
    • Startup
      Lifestyle Startups Work to Live their Passion
      • Serve known customer with known product
      • Get paid for their passion
    • Small Business
      Startup
      Small Business StartupsWork to Feed the Family
      • Serve known customer with known product
      • Feed the family
    • Small Business
      Startup
      Exit Criteria
      • Business Model found
      - Profitable business
      • Existing team
      < €100K in revenue
      Small Business StartupsWork to Feed the Family
      • known customer known product
      • Feed the family
    • Small Business
      Startup
      - Business Model found
      - Profitable business
      • Existing team
      < $10M in revenue
      Small Business Startups
      • 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
    • Scalable
      Startup
      Large Company
      Scalable Startup
      Search
      Goal is to solve for:
      unknown customer and unknown features
    • Execute
      Search
      Scalable
      Startup
      Large Company
      Exit Criteria
      • Business model found
      • Total Available Market > €300m
      • Can grow to €50/year
      Scalable StartupBorn to Be Big
    • 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”
      Scalable StartupBorn to Be Big
      Execute
      Search
      • In contrast a scalable startup is designed to grow big
      • Typically needs risk capital
      • What Silicon Valley means when they say “Startup”
    • The Transition – Founders Leave
      Scalable
      Startup
      Transition
      Large Company
      Build
      Execute
      Search
      Founders depart
      • Operating executives
      • Professional Mgmt
      • Process
      • Beginning of scale
    • Buyable StartupBorn to Be Sold
      Search
      Sell
      Scalable
      Startup
      €3 to 30M Acquisition
      Goal is to solve for:
      Internet, Mobile, Gaming Apps
    • Buyable Startup
      Search
      Sell
      Scalable
      Startup
      €3 to e0M Acquisition
      Goal is to solve for:
      Internet and Mobile Apps
      Sell to larger company
    • 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
    • Venture Firms Invest in Scalable and BuyableStartups
      Small Business
      Startup
      Scalable
      Startup
      Large Company
    • Large Company Sustaining InnovationInnovate or Evaporate
      Sustaining Innovation
      Transition
      Scalable
      Startup
      Large Company
      • Existing Market / Known customer
      • Known product feature needs
    • Large Company Disruptive Innovation
      New Division
      Transition
      Large Company
      Disruptive Innovation
      • New Market
      • New tech, customers, channels
    • Large Company Disruptive Innovation
      New Division
      Transition
      Large Company
      Disruptive Innovation
      • Build
      • Partner
      • Acquire
      - IP- Talent
      - Product
      - Customers
      - Business
    • Large Non-Profit
      Social Startup
      Social Entrepreneurship Startups
      • Solve pressing social problems
      • Social Enterprise: Profitable
      • Social Innovation: New Strategies
    • Search Versus ExecutionWhy Accountants Don’t Run Startups
    • Startups Search and Pivot
      The Search for the Business Model
      Scalable
      Startup
      Transition
      Large Company
      Searching for the Business Model
      • customer needs/product features
      i.e. Product/Market fit
      • Found by founders, not employees
      • Repeatable sales model
    • Startups Search, Companies Execute
      The Execution of the Business Model
      The Search for the Business Model
      Scalable
      Startup
      Transition
      Large Company
      • Business Model found
      • Product/Market fit
      - Repeatable sales model
      - Managers hired
      Executing a known Business Model
      • Known customers, and product
      • Profitable
      ~ 150 people
    • Metrics Versus Accounting
      The Execution of the Business Model
      Scalable
      Startup
      Transition
      Large
      Company
      Traditional Accounting
      • Balance Sheet
      • Cash Flow Statement
      • Income Statement
    • Metrics Versus Accounting
      The Search for the Business Model
      The Execution of the Business Model
      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
      The Execution of the Business Model
      Scalable
      Startup
      Transition
      Large
      Company
      Sales
      • Sales Organization
      • Scalable
      • Price List/Data Sheets
      • Revenue Plan
    • Customer Validation Versus Sales
      The Search for the Business Model
      The Execution of the Business Model
      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
      The Execution of the Business Model
      Scalable
      Startup
      Transition
      Large Company
      Engineering
      • Requirements Docs.
      • Waterfall Development
      • QA
      • Tech Pubs
    • Engineering Versus Agile Development
      The Search for the Business Model
      The Execution of the Business Model
      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
      The Execution of the Business Model
      Scalable
      Startup
      Transition
      Large Company
      Business Plan
      • Plan describes “knowns”
      • Known features for line extensions
      • Known customers/markets
      • Known business model
    • Startups Model, Companies Plan
      The Search for the Business Model
      The Execution of the Business Model
      Scalable
      Startup
      Transition
      Large Company
      Business Model
      - Unknown customer needs
      • Unknown feature set
      • Unknown business model
      • Model found by iteration
      • Plan describes “knowns”
      • Known features for line extensions
      • Known customers/markets
      • Known business model
    • All I Need to Do is Execute the Plan
    • 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
      - Create Positioning
      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
      - Create Positioning
      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
      - Create Positioning
      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
    • Then why do we have:
      process to manage product development?
    • Then why do we have:
      process to manage product development?
      no process to manage customer development?
    • 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
    • Solving For Customer Risk:Customer Development
      Get the Hell Out of the Building
    • Solving For Customer Risk:Customer Development
      Get the Hell Out of the Building
      Country
    • Product Development
      Concept/Bus. Plan
      Product Dev.
      Alpha/Beta Test
      Launch/1st Ship
      +
      CustomerDevelopment
      Company
      Building
      CustomerDiscovery
      CustomerValidation
      Customer Creation
      Customer Development
    • Customer Discovery
      CustomerDiscovery
      CustomerValidation
      Company
      Building
      CustomerCreation
      Stop coding, stop selling, start listening
      Test your hypotheses
      Continuous Discovery
    • Customer Validation
      CustomerDiscovery
      CustomerValidation
      Customer Creation
      Company
      Building
      Pivot
      • Repeatable and scalable business model?
      • Passionate earlyvangelists?
      • Pivot back to Discovery if no customers
    • The Pivot
      • The heart of Customer Development
      • Iteration without crisis
      • Fast, agile and opportunistic
    • Pivot Cycle Time Matters
      • Speed of cycle minimizes cash needs
      • Minimum feature set speeds up cycle time
      • Near instantaneous customer feedback drives feature set
    • The Minimum Viable Product (MVP)
      • Smallest feature set that gets you the most …
      - orders, learning, feedback, failure…
    • 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)
    • 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
      Asset sale
      Our revenue stream derives from selling the equipment
      Dealer discount
      COGS seek a 50-60% Gross Margin
      Heavy R&D investment
    • Found weeding in organic crops is HUGE problem; 50 - 75% of costs
      Crews of 100s-1000
      Back-breaking task
      (Ilegal) labor harder to get
      1-5 weedings per year/field
      $250-3,500 per acre and increasing
      Food contamination risk
    • Decision to make – mowing vs weeding
    • Autonomous vehiclesWEEDING
      Dealers sell, installs and supports customer
      Co. trains dealers, supports dealers
      - Innovation
      - Customer Education
      - Dealer training
      - Low density vegetable growers
      - High density vegetable growers
      - Thinning operations
      - Conventional vegetables
      We reduce operating cost
      - Labor reduction (100 to 1)
      - Reduced risk of contamination
      - Mitigate labor availability concerns
      - Ag Dealers
      - Ag Service providers
      - Research labs
      - Ag Dealers
      - Ag Service providers
      Engineers on Machine Vision
      Two problems:
      - Identification
      - Elimination
      Asset sale
      Our revenue stream derives from selling the equipment
      Dealer discount
      COGS seek a 50-60% Gross Margin
      Heavy R&D investment
    • 1 Week – 1 CarrotBot
      Confidential
    • CarrotBot
      Machine Vision data collection platform
      Monochrome & Color Cameras
      Laser-line sweep (depth measurement)
      Encoders (position/velocity)
      Onboard data acquisition & power
      CarrotBot 1.0
    • The Business Plan Canvas Updated
      • Farming conventions.
      • Demo, demo, and demo!!
      • Proximity is paramount
      • Technology Design
      • Marketing
      • Demo and customer feedback
      • 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
    • Visit Highlights
      Above: Organic Carrots, 7wks.
      Top right: Conventional carrots
      Bottom Right: Very weedy. Will require multiple passes of hand weeding
    • Visit Highlights
      Carrot vs. Weeds
      Due to small root systems, carrots have no chance against weeds
    • Visit Highlights
      Organic Broccoli, closely cultivated. Weeds close to plants are hand-picked
    • Visit Highlights
      State of the Art in Weeding Technology for Organic Crops
    • Customer Hypothesis
      Pre-Test
      Hypothesis Confirmed
      • Growers interested in own equipment
      • Industrial (10,000s of acres)
      • Large (1,000s of acres)
      • Willing to pay $100k for one unit
      • Smaller growers (100s of acres) usually subcontract the labor services or rent equipment
      • All purchases through local dealers
      • Customer service is essential
      Post-Test
    • Customer Map #1 – Industrial Growers
      Example: Bolthouse Farms – Large Industrial Carrot Producer – 8K acres/yr
      • Equipment Operator
      • Local Farm Mgr
      • Cliff Kirkpatrick, visited
      • Director, Ag Technology
      • Justin Grove, interviewed
      Equipment Operator
      • VP, Growing Operations
      • CFO, CEO (Jeff Dunn)
      Cliff, Farm Mgr
    • Customer Map #2 – Service Providers
      Example: Ag Services – Service Provider, Salinas Valley
      • Equipment Operator
      • Grower
      • Service Mgr
      Me (left), Marty (middle, Service Mgr), Doug (right, Grower)
      • ?? (service mgr’s boss)
    • The Business Plan Canvas Updated
      • Farming conventions.
      • Demo, demo, and demo!!
      • Proximity is paramount
      • Technology Design
      • Marketing
      • Demo and customer feedback
      • Mid/Large Organic Farmers
      • Agricultural corporations
      • Weeding Service Providers
      • Mid/Large 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
      • Direct Service
      • Indirect Service
      • … then Dealers
      • Direct Service with equipment rental
      • ($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
    • The Business Plan Canvas Updated
      • Farming conventions.
      • Demo, demo, and demo!!
      • Proximity is paramount
      • Technology Design
      • Marketing
      • Demo and customer feedback
      • Mid/Large Organic Farmers
      • Agricultural corporations
      • Weeding Service Providers
      • Mid/Large Conventional Farmers
      • Research Labs
      • Equipment Manufacturer
      • Distribution Network
      • Service Providers
      • 2 or 3 Key Farms
      • Cost Reduction
      • Remove labor force pains
      • Eliminate bio-waste hazards
      • IP – Patents
      • Video Classifier Files
      • Robust Technology
      • Direct Service
      • Indirect Service
      • … then Dealers
      • Direct Service with equipment rental
      • 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
      - Customer Education
      - Dealer training
      - Low density vegetable growers
      - High density vegetable growers
      - Thinning operations
      - Conventional vegetables
      We reduce operating cost
      - Labor reduction (100 to 1)
      - Reduced risk of contamination
      - Mitigate labor availability concerns
      - Ag Service providers
      - 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
      Service provision
      - Charge by the acre with modifier according to weed density
      - Eventually move to asset sale
      Costs for service provision
      COGS seek a 50-60% Gross Margin
      Heavy R&D investment
    • Why Fighter Pilots Run Startups
    • No Surprises in an Airline
      Scalable
      Startup
      Transition
      Large Company
      Scheduled Airline
      • Scheduled
      • Routine
      • Burn rate preplanned
    • Air-Air Combat is Constant Surprise
      Scalable
      Startup
      Transition
      Large Company
      Air-Air Combat
      • Uncertain environment
      • Rapid, unanticipated changes
      • Changes lead to disorientation
      • Burn rate (time, fuel, bullets, $’s)limits window of opportunity
    • Observe, Orient, Decide and Act:OODA Loop
      John Boyd
    • Observe, Orient, Decide and Act:OODA Loop
      • Agility requires continuous interactions with the environment
      • Winning requires constant assessment of change and ways to mitigate risk
      • Iterating faster than competitors yields substantial advantage
      = Victory
    • 92
      Boyd’s OODA Loop
      Observe
      Orient
      Decide
      Act
      ImplicitGuidance& Control
      ImplicitGuidance& Control
      UnfoldingCircumstances
      CulturalTraditions
      Observations
      GeneticHeritage
      Decision(Hypothesis)
      Analyses &Synthesis
      Action(Test)
      FeedForward
      FeedForward
      FeedForward
      NewInformation
      PreviousExperience
      OutsideInformation
      InteractionWithEnvironment
      Interaction w/Environment
    • Customer Development = OODA Loop
      Observe
      Orient
      Act
      Decide
    • OODA Loop is Not an Intelligence Test
      • It’s about Agility
      • It’s about Resilience
      • It’s not about winning arguments inside the company
      • Fighters pilots vs. military intelligence
    • Am IFighter Pilot For a Startup?
    • Am I an Entrepreneur?Startup Personal Checklist
      Are you comfortable with:
      Chaos
      Uncertainty
      Are you:
      Curious
      Resilient
      Agile
      Passionate
      Driven
      Articulate
      Tenacious
    • EntrepreneurshipYour Role in a Startup
      Decreasing chaos/reward
      Founder
      Co-founder
      Early Employee
      Late Employee
      They don’t require the same risk/personality profile
    • February 28, 2009
      One candidate got a C in macroeconomics. “That’s troubling to me,” Ms. Mayer says. “Good students are good at all things.”Marissa MayerGoogle
    • The “Good Student”
      Will go to work for Google, Microsoft, NokiaIBM or Apple
      Successful tech entrepreneurs and grades have at best zero correlation
    • The Following People Would Never Have Been Hired by Marissa Mayer and Google
    • Thanks
      www.steveblank.com