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  • 1. Why Fighter Pilots Run Startups
    Steve Blank
    Stanford - School of Engineering
    U.C. Berkeley - Haas School Of Business
    www.steveblank.com
    Twitter: sgblank
  • 2. I Write a Blog
    www.steveblank.com
  • 3. This Talk is Based On
    Business Model Generation
    Four Steps to the Epiphany
    The Lean Startup
  • 4. The Life of an Entrepreneur
  • 5. Top Gun dogfight scene
  • 6. First -What’s A Startup?
    Six Types of Startups
  • 7. Startup
    Lifestyle Startups Work to Live their Passion
    • Serve known customer with known product
    • 8. Get paid for their passion
  • Small Business
    Startup
    Small Business StartupsWork to Feed the Family
    • Serve known customer with known product
    • 9. 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
    • 10. 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
    • 11. 99.7% of all companies
    • 12. ~ 50% of total U.S. workers
    http://www.sba.gov/advo/stats/sbfaq.pdf
  • 13. Scalable
    Startup
    Large Company
    Scalable Startup
    Search
    Goal is to solve for:
    unknown customer and unknown features
  • 14. Execute
    Search
    Scalable
    Startup
    Large Company
    Exit Criteria
    • Business model found
    • 15. Total Available Market > €300m
    • 16. Can grow to €50/year
    Scalable StartupBorn to Be Big
  • 17. Scalable
    Startup
    Large Company
    • Total Available Market > $500m
    • 18. Company can grow to $100m/year
    • 19. Business model found
    • 20. Focused on execution and process
    • 21. Typically requires “risk capital”
    Scalable StartupBorn to Be Big
    Execute
    Search
    • In contrast a scalable startup is designed to grow big
    • 22. Typically needs risk capital
    • 23. What Silicon Valley means when they say “Startup”
  • The Transition – Founders Leave
    Scalable
    Startup
    Transition
    Large Company
    Build
    Execute
    Search
    Founders depart
    • Operating executives
    • 24. Professional Mgmt
    • 25. Process
    • 26. 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
  • 27. Buyable Startup
    Search
    Sell
    Scalable
    Startup
    €3 to e0M Acquisition
    Goal is to solve for:
    Internet and Mobile Apps
    Sell to larger company
  • 28. Scalable
    Startup
    Large Company
    • Business Model found
    • 29. 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
  • 30. Venture Firms Invest in Scalable and BuyableStartups
    Small Business
    Startup
    Scalable
    Startup
    Large Company
  • 31. Large Company Sustaining InnovationInnovate or Evaporate
    Sustaining Innovation
    Transition
    Scalable
    Startup
    Large Company
    • Existing Market / Known customer
    • 32. Known product feature needs
  • Large Company Disruptive Innovation
    New Division
    Transition
    Large Company
    Disruptive Innovation
    • New Market
    • 33. New tech, customers, channels
  • Large Company Disruptive Innovation
    New Division
    Transition
    Large Company
    Disruptive Innovation
    - IP- Talent
    - Product
    - Customers
    - Business
  • 36. Large Non-Profit
    Social Startup
    Social Entrepreneurship Startups
    • Solve pressing social problems
    • 37. Social Enterprise: Profitable
    • 38. Social Innovation: New Strategies
  • Search Versus ExecutionWhy Accountants Don’t Run Startups
  • 39. 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
    • 40. 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
    • 41. Product/Market fit
    - Repeatable sales model
    - Managers hired
    Executing a known Business Model
    • Known customers, and product
    • 42. Profitable
    ~ 150 people
  • 43. Metrics Versus Accounting
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large
    Company
    Traditional Accounting
    • Balance Sheet
    • 44. Cash Flow Statement
    • 45. 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
    • 46. Viral coefficient
    • 47. Customer Lifetime Value
    • 48. Average Selling Price/Order Size
    • 49. Monthly burn rate
    • 50. etc.
    Traditional Accounting
    • Balance Sheet
    • 51. Cash Flow Statement
    • 52. Income Statement
  • Customer Validation Versus Sales
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large
    Company
    Sales
    • Sales Organization
    • 53. Scalable
    • 54. Price List/Data Sheets
    • 55. 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
    • 56. Pricing/Feature unstable
    • 57. Not yet repeatable
    • 58. “One-off’s”
    Sales
    • Sales Organization
    • 59. Scalable
    • 60. Price List/Data Sheets
    • 61. Revenue Plan
  • Engineering Versus Agile Development
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large Company
    Engineering
  • Engineering Versus Agile Development
    The Search for the Business Model
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large Company
    Engineering
    Agile Development
    • Continuous Deployment
    • 68. Continuous Learning
    • 69. Self Organizing Teams
    • 70. Minimum Feature Set
    • 71. Pivots
  • Startups Model, Companies Plan
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large Company
    Business Plan
    • Plan describes “knowns”
    • 72. Known features for line extensions
    • 73. Known customers/markets
    • 74. 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
    • 75. Unknown business model
    • 76. Model found by iteration
    • 77. Plan describes “knowns”
    • 78. Known features for line extensions
    • 79. Known customers/markets
    • 80. Known business model
  • All I Need to Do is Execute the Plan
  • 81. Product Introduction Model
    Concept/Seed Round
    Product Dev.
    Alpha/Beta Test
    Launch/
    1st Ship
  • 82. Product Introduction Model
    The Leading Cause of Startup Death
    Concept/Seed Round
    Product Dev.
    Alpha/Beta Test
    Launch/
    1st Ship
  • 83. Product Introduction Model:Two Implicit Assumptions
    Customer Problem: known
    Concept/Seed Round
    Product Dev.
    Alpha/Beta Test
    Launch/
    1st Ship
    Product Features: known
  • 84. 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
  • 85. 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
    • 86. Hire Sales VP
    • 87. Hire 1st Sales Staff
    Sales
  • 88. 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
    • 89. Hire Sales VP
    • 90. Pick distribution Channel
    Sales
    Business
    Development
    • Hire First Bus Dev
    • 91. 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
    • 92. Hire Sales VP
    • 93. Pick distribution Channel
    Sales
    Business
    Development
    • Hire First Bus Dev
    • 94. Do deals for FCS
    Engineering
  • More startups fail from a lack of customers than from a failure of product development
  • 98. Then why do we have:
    process to manage product development?
  • 99. Then why do we have:
    process to manage product development?
    no process to manage customer development?
  • 100. No Business Plan survives first contact with customers
  • 101. So Search for a Business Model
  • 102. The Business Model:
    Any company can be described in 9 building blocks
  • 103. CUSTOMER SEGMENTS
    which customers and users are you serving?
    which jobs do they really want to get done?
  • 104. VALUE PROPOSITIONS
    what are you offering them? what is that
    getting done for them? do they care?
  • 105. CHANNELS
    how does each customer segment want to be reached? through which interaction points?
  • 106. CUSTOMER RELATIONSHIPS
    what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?
  • 107. REVENUE STREAMS
    what are customers really willing to pay for? how?
    are you generating transactional or recurring revenues?
  • 108. KEY RESOURCES
    which resources underpin your business model? which assets are essential?
  • 109. KEY ACTIVITIES
    which activities do you need to perform well in your business model? what is crucial?
    54
  • 110. KEY PARTNERS
    which partners and suppliers leverage your model?
    who do you need to rely on?
  • 111. COST STRUCTURE
    what is the resulting cost structure?
    which key elements drive your costs?
  • 112. value proposition
    customer relationships
    key activities
    customer segments
    key partners
    cost structure
    revenue streams
    key
    resources
    channels
    57
    images by JAM
  • 113. Solving For Customer Risk:Customer Development
    Get the Hell Out of the Building
  • 114. Solving For Customer Risk:Customer Development
    Get the Hell Out of the Building
    Country
  • 115. Product Development
    Concept/Bus. Plan
    Product Dev.
    Alpha/Beta Test
    Launch/1st Ship
    +
    CustomerDevelopment
    Company
    Building
    CustomerDiscovery
    CustomerValidation
    Customer Creation
    Customer Development
  • 116. Customer Discovery
    CustomerDiscovery
    CustomerValidation
    Company
    Building
    CustomerCreation
    Stop coding, stop selling, start listening
    Test your hypotheses
    Continuous Discovery
  • 117. Customer Validation
    CustomerDiscovery
    CustomerValidation
    Customer Creation
    Company
    Building
    Pivot
    • Repeatable and scalable business model?
    • 118. Passionate earlyvangelists?
    • 119. Pivot back to Discovery if no customers
  • The Pivot
    • The heart of Customer Development
    • 120. Iteration without crisis
    • 121. Fast, agile and opportunistic
  • Pivot Cycle Time Matters
    • Speed of cycle minimizes cash needs
    • 122. Minimum feature set speeds up cycle time
    • 123. Near instantaneous customer feedback drives feature set
  • The Minimum Viable Product (MVP)
    • Smallest feature set that gets you the most …
    - orders, learning, feedback, failure…
  • 124. Pivot ExampleRobotic Weeding
    Talked 75 Customers in 8 Weeks
  • 125. Our initial plan
    Confidential
  • 126. 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
    • 127. White Farms, Large Peanut farmer in Georgia
    • 128. REFCO Farms, large grower in Salinas Valley
    • 129. Rincon Farms, large grower in Salinas Valley
    • 130. Small Organic Corn/Soy grower in Nebraska
    • 131. Heirloom Organics, small owner/operator, Santa Cruz Mts
    • 132. Two small organic farmers at farmers market
    • 133. Ag Services of Salinas, Fertilizer applicator
    Mowing
    Interviewed:
    • Golf: Stanford Golf course
    • 134. Parks: Stanford Grounds Supervisor, head of maintenance and lead operator (has crew of 6)
    • 135. Toro dealer (large mower manufacturer)
    • 136. User of back-yard mowing system
    • 137. Maintenance Services for City of Los Altos
    • 138. 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
  • 139. 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
  • 140. Decision to make – mowing vs weeding
  • 141. 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
  • 142. 1 Week – 1 CarrotBot
    Confidential
  • 143. CarrotBot
    Machine Vision data collection platform
    Monochrome & Color Cameras
    Laser-line sweep (depth measurement)
    Encoders (position/velocity)
    Onboard data acquisition & power
    CarrotBot 1.0
  • 144. The Business Plan Canvas Updated
    Value-Driven
  • 170. Visit Highlights
    Above: Organic Carrots, 7wks.
    Top right: Conventional carrots
    Bottom Right: Very weedy. Will require multiple passes of hand weeding
  • 171. Visit Highlights
    Carrot vs. Weeds
    Due to small root systems, carrots have no chance against weeds
  • 172. Visit Highlights
    Organic Broccoli, closely cultivated. Weeds close to plants are hand-picked
  • 173. Visit Highlights
    State of the Art in Weeding Technology for Organic Crops
  • 174. Customer Hypothesis
    Pre-Test
    Hypothesis Confirmed
    • Growers interested in own equipment
    • 175. Industrial (10,000s of acres)
    • 176. Large (1,000s of acres)
    • 177. Willing to pay $100k for one unit
    • 178. Smaller growers (100s of acres) usually subcontract the labor services or rent equipment
    • 179. All purchases through local dealers
    • 180. Customer service is essential
    Post-Test
  • 181. Customer Map #1 – Industrial Growers
    Example: Bolthouse Farms – Large Industrial Carrot Producer – 8K acres/yr
    • Equipment Operator
    • 182. Local Farm Mgr
    • 183. Cliff Kirkpatrick, visited
    • 184. Director, Ag Technology
    • 185. Justin Grove, interviewed
    Equipment Operator
    • VP, Growing Operations
    • 186. CFO, CEO (Jeff Dunn)
    Cliff, Farm Mgr
  • 187. Customer Map #2 – Service Providers
    Example: Ag Services – Service Provider, Salinas Valley
    Me (left), Marty (middle, Service Mgr), Doug (right, Grower)
    • ?? (service mgr’s boss)
  • The Business Plan Canvas Updated
    Value-Driven
  • 216. 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
  • 217. The Business Plan Canvas Updated
    Value-Driven
  • 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
  • 247. Why Fighter Pilots Run Startups
  • 248. No Surprises in an Airline
    Scalable
    Startup
    Transition
    Large Company
    Scheduled Airline
  • Air-Air Combat is Constant Surprise
    Scalable
    Startup
    Transition
    Large Company
    Air-Air Combat
    • Uncertain environment
    • 251. Rapid, unanticipated changes
    • 252. Changes lead to disorientation
    • 253. Burn rate (time, fuel, bullets, $’s)limits window of opportunity
  • Observe, Orient, Decide and Act:OODA Loop
    John Boyd
  • 254. Observe, Orient, Decide and Act:OODA Loop
    • Agility requires continuous interactions with the environment
    • 255. Winning requires constant assessment of change and ways to mitigate risk
    • 256. Iterating faster than competitors yields substantial advantage
    = Victory
  • 257. 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
  • 258. Customer Development = OODA Loop
    Observe
    Orient
    Act
    Decide
  • 259. OODA Loop is Not an Intelligence Test
    • It’s about Agility
    • 260. It’s about Resilience
    • 261. It’s not about winning arguments inside the company
    • 262. Fighters pilots vs. military intelligence
  • Am IFighter Pilot For a Startup?
  • 263. Am I an Entrepreneur?Startup Personal Checklist
    Are you comfortable with:
    Chaos
    Uncertainty
    Are you:
    Curious
    Resilient
    Agile
    Passionate
    Driven
    Articulate
    Tenacious
  • 264. EntrepreneurshipYour Role in a Startup
    Decreasing chaos/reward
    Founder
    Co-founder
    Early Employee
    Late Employee
    They don’t require the same risk/personality profile
  • 265. 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
  • 266. The “Good Student”
    Will go to work for Google, Microsoft, NokiaIBM or Apple
    Successful tech entrepreneurs and grades have at best zero correlation
  • 267. The Following People Would Never Have Been Hired by Marissa Mayer and Google
  • 268.
  • 269. Thanks
    www.steveblank.com