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Why fighter pilots run startups
 

Why fighter pilots run startups

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    Why fighter pilots run startups Why fighter pilots run startups 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
    • Early-Stage Ventures
    • I Drew This
      CustomerDiscovery
      Company
      Building
      CustomerValidation
      Customer Creation
      Pivot
    • I Called It:Customer Development
      CustomerDiscovery
      Company
      Building
      CustomerValidation
      Customer Creation
      Pivot
    • I Wrote This
    • I Write a Blog
      www.steveblank.com
    • Six Short Stories
    • Not All Startups Are Equal
    • Small Business
      Startup
      Small Business Startups
    • Small Business
      Startup
      - Business Model found
      - Profitable business
      • Existing team
      < $10M in revenue
      Small Business Startups
    • Small Business
      Startup
      - Business Model found
      - Profitable business
      • Existing team
      < $10M in revenue
      Small Business Startups
      • 97% of all companies in Israel are small businesses
      http://www.milkeninstitute.org/pdf/israel_small_business_0105.pdf
    • 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”
    • Large Company Sustaining Innovation
      Sustaining Innovation
      Transition
      Scalable
      Startup
      Large Company
      • Existing Market
      • Incremental improvements
    • Large Company Disruptive Innovation
      New Division
      Transition
      Large Company
      Disruptive Innovation
      • New Market
      • New tech, customers, channels
    • Scalable
      Startup
      Large Company
      >$100M/year
      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
      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”
      Scalable Startup
      • In contrast a scalable startup is designed to grow big
      • Typically needs venture (risk) capital
      • What Silicon Valley means when they say “Startup”
    • 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”
    • Venture Firms Invest in Scalable Startups
      Small Business
      Startup
      Scalable
      Startup
      Large Company
    • Scalable
      Startup
      Transition
      Large Company
      • Business Model found
      • i.e. Product/Market fit
      - Repeatable sales model
      - Managers hired
      What’s A Startup?
      A Startup is the organization used to search for a scalable business model
    • What VC’s Don’t Tell You:The Transition
      Scalable
      Startup
      Transition
      Large Company
      Search
      Build
      Grow
    • What VC’s Don’t Tell You:The Transition – Founders Leave
      Scalable
      Startup
      Transition
      Large Company
      • Founders depart
      • Professional Mgmt
      • Process
      • Beginning of scale
    • Plan versus Model
    • No Business Plan survives first contact with customers
    • So Search for a Business Model
    • The Search for a Business Model
      • A Business Plan is static
      • A Business Model diagrams how a company creates, delivers and captures value – it’s dynamic
      • Or in English: How a company makes money
    • Emphasis On Hypotheses Testing
    • Startups Continually Pivot (Iterate)
    • Startups versus Companies
    • Startups Search and Pivot
      The Search for the Business Model
      Scalable
      Startup
      Transition
      Large Company
      • Business Model found
      • i.e. Product/Market fit
      - Repeatable sales model
      - Managers hired
    • Startups Search, Companies Execute
      The Execution of the Business Model
      The Search for the Business Model
      Scalable
      Startup
      Transition
      Large Company
      - Cash-flow breakeven
      - Profitable
      - Rapid scale
      - New Senior Mgmt
      ~ 150 people
      • Business Model found
      • Product/Market fit
      - Repeatable sales model
      - Managers hired
    • 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
    • Customer Development VersusProduct Management
      The Execution of the Business Model
      Scalable
      Startup
      Transition
      Large Company
      Product Management
      • Delivers MRD’s
      • Feature Spec’s
      • Competitive Analysis
    • Customer Development Versus Product Management
      The Search for the Business Model
      The Execution of the Business Model
      Scalable
      Startup
      Transition
      Large Company
      Product Management
      • Delivers MRD’s
      • Feature Spec’s
      • Competitive Analysis
      Customer Development
      • Hypothesis Testing
      • Minimum Feature Set
      • Pivots
    • 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
      • 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
      • 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
    • Startups Don’t Last Forever
      Scalable
      Startup
      Transition
      Large Company
      - Cash-flow breakeven
      - Profitable
      - Rapid scale
      - New Senior Mgmt
      ~ 150 people
      • Business Model found
      • Product/Market fit
      - Repeatable sales model
      - Managers hired
      You failif you remain a startup!
    • Customer Risk Versus Technology Risk
    • Industry Affects Type of Risk
      • Web 2.0
      • Enterprise Software
      • Enterprise Hardware
      • Communication Hardware
      • Communication Software
      • Consumer Electronics
      • Game Software
      • Semiconductors
      • Electronic Design Automation
      • Cleantech
      • Med Dev / Health Care
      • Life Science / Biotech
      • Personalized Medicine
      Large Company
      Transition
    • Technology Known,Customers Unknown
      • Web 2.0
      • Enterprise Software
      • Enterprise Hardware
      • Communication Hardware
      • Communication Software
      • Consumer Electronics
      • Game Software
      • Semiconductors
      • Electronic Design Automation
      • Cleantech
      • Med Dev / Health Care
      • Life Science / Biotech
      • Personalized Medicine
      Customer Risk
      Large Company
      Transition
    • Technology Unknown, Customers Known
      • Web 2.0
      • Enterprise Software
      • Enterprise Hardware
      • Communication Hardware
      • Communication Software
      • Consumer Electronics
      • Game Software
      • Semiconductors
      • Electronic Design Automation
      • Cleantech
      • Med Dev / Health Care
      • Life Science / Biotech
      • Personalized Medicine
      Large Company
      Transition
      Technology Risk
    • Technology and Customers Unknown
      • Web 2.0
      • Enterprise Software
      • Enterprise Hardware
      • Communication Hardware
      • Communication Software
      • Consumer Electronics
      • Game Software
      • Semiconductors
      • Electronic Design Automation
      • Cleantech
      • Med Dev / Health Care
      • Life Science / Biotech
      • Personalized Medicine
      Customer and
      Technology Risk
    • Rewards Differ by Industry
      • Web 2.0
      • Enterprise Software
      • Enterprise Hardware
      • Communication Hardware
      • Communication Software
      • Consumer Electronics
      • Game Software
      • Semiconductors
      • Electronic Design Automation
      • Cleantech
      • Med Dev / Health Care
      • Life Science / Biotech
      • Personalized Medicine
      • Huge payoff in biotech for solving technology problem
      • In other industries you’re giving away your hard work
      Technology Risk
    • Rewards Differ by Industry
      • Web 2.0
      • Enterprise Software
      • Enterprise Hardware
      • Communication Hardware
      • Communication Software
      • Consumer Electronics
      • Game Software
      • Semiconductors
      • Electronic Design Automation
      • Cleantech
      • Med Dev / Health Care
      • Life Science / Biotech
      • Personalized Medicine
      Customer Risk
      • No payoff in Web 2.0 until you solve the customer risk
      Technology Risk
    • 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
    • Customer Development
    • Solving For Customer Risk:Customer Development
    • 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
    • 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?
    • Because:
      The smarter the founders the more likely, “I know what customers want”
      Usually wrong
      Usually come from military intelligence
      Startups are not an intelligence test
    • Product Development Model
      Concept/Seed Round
      Product Dev.
      Alpha/Beta Test
      Launch/
      1st Ship
    • 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
    • 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 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
    • So What Does Engineering Do?
    • Traditional Product DevelopmentUnit of progress: Advance to Next Stage
      Waterfall
      Requirements
      Design
      Problem: known
      Solution: known
      Implementation
      Verification
      Maintenance
      Source: Eric Rieshttp://startuplessonslearned.blogspot.com
    • When the Customer Problem is Known
      “Product Owner” or
      in-house customer
      Problem: Known
      Solution: Unknown
      Source: Eric Rieshttp://startuplessonslearned.blogspot.com
    • Agile - Customer Problem is KnownUnit of progress: a line of working code
      “Product Owner” or
      in-house customer
      Problem: Known
      Solution: Unknown
      Source: Eric Rieshttp://startuplessonslearned.blogspot.com
    • When the Customer Problem is Unknown
      Problem: Unknown
      Solution: Unknown
      Source: Eric Rieshttp://startuplessonslearned.blogspot.com
    • Customer Problem is UnknownUnit of progress: learning about customers
      Problem: Unknown
      Solution: Unknown
      Source: Eric Rieshttp://startuplessonslearned.blogspot.com
    • Leadership Versus Management
    • Scalable
      Startup
      Transition
      Large Company
      Leadership Versus Management
    • Scalable
      Startup
      Transition
      Large Company
      Leadership Versus Management
    • Scalable
      Startup
      Transition
      Large Company
      Leadership Versus Management
      Search
    • Scalable
      Startup
      Transition
      Large
      Company
      Leadership Versus Management
      Build
      Search
    • Scalable
      Startup
      Transition
      Large
      Company
      Leadership Versus Management
      Build
      Grow
      Search
    • 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
    • 86
      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
    • Warfare (Startups) Changes Forever
    • Thanks
      www.steveblank.com