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Why fighter pilots run startups

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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. Early-Stage Ventures
  • 3. I Drew This
    CustomerDiscovery
    Company
    Building
    CustomerValidation
    Customer Creation
    Pivot
  • 4. I Called It:Customer Development
    CustomerDiscovery
    Company
    Building
    CustomerValidation
    Customer Creation
    Pivot
  • 5. I Wrote This
  • 6. I Write a Blog
    www.steveblank.com
  • 7. Six Short Stories
  • 8. Not All Startups Are Equal
  • 9. Small Business
    Startup
    Small Business Startups
  • 10. Small Business
    Startup
    - Business Model found
    - Profitable business
    • Existing team
    < $10M in revenue
    Small Business Startups
  • 11. 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
  • 12. 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
    • 13. Not all businesses on the Internet are “Scalable Startups”
  • Large Company Sustaining Innovation
    Sustaining Innovation
    Transition
    Scalable
    Startup
    Large Company
    • Existing Market
    • 14. Incremental improvements
  • Large Company Disruptive Innovation
    New Division
    Transition
    Large Company
    Disruptive Innovation
    • New Market
    • 15. New tech, customers, channels
  • Scalable
    Startup
    Large Company
    >$100M/year
    Scalable Startup
  • 16. Scalable
    Startup
    Large Company
    >$100M/year
    • Total Available Market > $500m
    • 17. Company can grow to $100m/year
    • 18. Business model found
    • 19. Focused on execution and process
    Scalable Startup
  • 20. Scalable
    Startup
    Large Company
    >$100M/year
    • Total Available Market > $500m
    • 21. Company can grow to $100m/year
    • 22. Business model found
    • 23. Focused on execution and process
    • 24. Typically requires “risk capital”
    Scalable Startup
    • In contrast a scalable startup is designed to grow big
    • 25. Typically needs venture (risk) capital
    • 26. 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
    • 27. Company can grow to $100m/year
    • 28. Business model found
    • 29. Focused on execution and process
    • 30. Typically requires “risk capital”
  • Venture Firms Invest in Scalable Startups
    Small Business
    Startup
    Scalable
    Startup
    Large Company
  • 31. Scalable
    Startup
    Transition
    Large Company
    • Business Model found
    • 32. 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
  • 33. What VC’s Don’t Tell You:The Transition
    Scalable
    Startup
    Transition
    Large Company
    Search
    Build
    Grow
  • 34. What VC’s Don’t Tell You:The Transition – Founders Leave
    Scalable
    Startup
    Transition
    Large Company
  • Plan versus Model
  • 38. No Business Plan survives first contact with customers
  • 39. So Search for a Business Model
  • 40. The Search for a Business Model
    • A Business Plan is static
    • 41. A Business Model diagrams how a company creates, delivers and captures value – it’s dynamic
    • 42. Or in English: How a company makes money
  • Emphasis On Hypotheses Testing
  • 43. Startups Continually Pivot (Iterate)
  • 44. Startups versus Companies
  • 45. Startups Search and Pivot
    The Search for the Business Model
    Scalable
    Startup
    Transition
    Large Company
    • Business Model found
    • 46. i.e. Product/Market fit
    - Repeatable sales model
    - Managers hired
  • 47. 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
    • 48. Product/Market fit
    - Repeatable sales model
    - Managers hired
  • 49. Metrics Versus Accounting
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large
    Company
    Traditional Accounting
    • Balance Sheet
    • 50. Cash Flow Statement
    • 51. 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
    • 52. Viral coefficient
    • 53. Customer Lifetime Value
    • 54. Average Selling Price/Order Size
    • 55. Monthly burn rate
    • 56. etc.
    Traditional Accounting
    • Balance Sheet
    • 57. Cash Flow Statement
    • 58. Income Statement
  • Customer Validation Versus Sales
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large
    Company
    Sales
    • Sales Organization
    • 59. Scalable
    • 60. Price List/Data Sheets
    • 61. 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
    • 62. Pricing/Feature unstable
    • 63. Not yet repeatable
    • 64. “One-off’s”
    Sales
    • Sales Organization
    • 65. Scalable
    • 66. Price List/Data Sheets
    • 67. Revenue Plan
  • Customer Development VersusProduct Management
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large Company
    Product Management
    • Delivers MRD’s
    • 68. Feature Spec’s
    • 69. 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
    • 70. Feature Spec’s
    • 71. Competitive Analysis
    Customer Development
    • Hypothesis Testing
    • 72. Minimum Feature Set
    • 73. Pivots
  • 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
    • 80. Continuous Learning
    • 81. Self Organizing Teams
    • 82. Minimum Feature Set
    • 83. Pivots
  • Startups Model, Companies Plan
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large Company
    • Plan describes “knowns”
    • 84. Known features for line extensions
    • 85. Known customers/markets
    • 86. 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
    • 87. Unknown feature set
    • 88. Unknown business model
    • 89. Model found by iteration
    • 90. Plan describes “knowns”
    • 91. Known features for line extensions
    • 92. Known customers/markets
    • 93. 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
    • 94. Product/Market fit
    - Repeatable sales model
    - Managers hired
    You failif you remain a startup!
  • 95. Customer Risk Versus Technology Risk
  • 96. Industry Affects Type of Risk
    Large Company
    Transition
  • 109. Technology Known,Customers Unknown
    Customer Risk
    Large Company
    Transition
  • 122. Technology Unknown, Customers Known
    Large Company
    Transition
    Technology Risk
  • 135. Technology and Customers Unknown
    Customer and
    Technology Risk
  • 148. Rewards Differ by Industry
    • Web 2.0
    • 149. Enterprise Software
    • 150. Enterprise Hardware
    • 151. Communication Hardware
    • 152. Communication Software
    • 153. Consumer Electronics
    • 154. Game Software
    • 155. Semiconductors
    • 156. Electronic Design Automation
    • 157. Cleantech
    • 158. Med Dev / Health Care
    • 159. Life Science / Biotech
    • 160. Personalized Medicine
    • 161. Huge payoff in biotech for solving technology problem
    • 162. In other industries you’re giving away your hard work
    Technology Risk
  • 163. Rewards Differ by Industry
    Customer Risk
    • No payoff in Web 2.0 until you solve the customer risk
    Technology Risk
  • 176. How Do Startups Search For A Business Model?
    • The Search is called Customer Development
    • 177. The Implementation is called Agile Development
  • The Lean Startup
    • The Search is called Customer Development
    • 178. The Implementation is called Agile Development
  • Customer Development
  • 179. Solving For Customer Risk:Customer Development
  • 180. Solving For Customer Risk:Customer Development
    Get the Hell Out of the Building
  • 181. Solving For Customer Risk:Customer Development
    Get the Hell Out of the Building
    Country
  • 182. More startups fail from a lack of customers than from a failure of product development
  • 183. Then why do we have:
    process to manage product development?
  • 184. Then why do we have:
    process to manage product development?
    no process to manage customer development?
  • 185. 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
  • 186. Product Development Model
    Concept/Seed Round
    Product Dev.
    Alpha/Beta Test
    Launch/
    1st Ship
  • 187. 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
  • 188. 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
    • 189. Hire Sales VP
    • 190. Hire 1st Sales Staff
    Sales
  • 191. 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
    • 192. Hire Sales VP
    • 193. Pick distribution Channel
    Sales
    Business
    Development
    • Hire First Bus Dev
    • 194. 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
    • 195. Hire Sales VP
    • 196. Pick distribution Channel
    Sales
    Business
    Development
    • Hire First Bus Dev
    • 197. Do deals for FCS
    Engineering
  • Product Development
    Concept/Bus. Plan
    Product Dev.
    Alpha/Beta Test
    Launch/1st Ship
    +
    CustomerDevelopment
    Company
    Building
    CustomerDiscovery
    CustomerValidation
    Customer Creation
    Customer Development
  • 201. Customer Discovery
    CustomerDiscovery
    CustomerValidation
    Company
    Building
    CustomerCreation
    Stop selling, start listening
    Test your hypotheses
    Continuous Discovery
  • 202. Customer Validation
    CustomerDiscovery
    CustomerValidation
    Customer Creation
    Company
    Building
    Pivot
    • Repeatable and scalable business model?
    • 203. Passionate earlyvangelists?
    • 204. Pivot back to Discovery if no customers
  • The Pivot
    • The heart of Customer Development
    • 205. Iteration without crisis
    • 206. Fast, agile and opportunistic
  • So What Does Engineering Do?
  • 207. 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
  • 208. When the Customer Problem is Known
    “Product Owner” or
    in-house customer
    Problem: Known
    Solution: Unknown
    Source: Eric Rieshttp://startuplessonslearned.blogspot.com
  • 209. 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
  • 210. When the Customer Problem is Unknown
    Problem: Unknown
    Solution: Unknown
    Source: Eric Rieshttp://startuplessonslearned.blogspot.com
  • 211. Customer Problem is UnknownUnit of progress: learning about customers
    Problem: Unknown
    Solution: Unknown
    Source: Eric Rieshttp://startuplessonslearned.blogspot.com
  • 212. Leadership Versus Management
  • 213. Scalable
    Startup
    Transition
    Large Company
    Leadership Versus Management
  • 214. Scalable
    Startup
    Transition
    Large Company
    Leadership Versus Management
  • 215. Scalable
    Startup
    Transition
    Large Company
    Leadership Versus Management
    Search
  • 216. Scalable
    Startup
    Transition
    Large
    Company
    Leadership Versus Management
    Build
    Search
  • 217. Scalable
    Startup
    Transition
    Large
    Company
    Leadership Versus Management
    Build
    Grow
    Search
  • 218. Why Fighter Pilots Run Startups
  • 219. 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
    • 222. Rapid, unanticipated changes
    • 223. Changes lead to disorientation
    • 224. Burn rate (time, fuel, bullets, $’s)limits window of opportunity
  • Observe, Orient, Decide and Act:OODA Loop
    John Boyd
  • 225. Observe, Orient, Decide and Act:OODA Loop
    • Agility requires continuous interactions with the environment
    • 226. Winning requires constant assessment of change and ways to mitigate risk
    • 227. Iterating faster than competitors yields substantial advantage
    = Victory
  • 228. 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
  • 229. Customer Development = OODA Loop
    Observe
    Orient
    Act
    Decide
  • 230. OODA Loop is Not an Intelligence Test
    • It’s about Agility
    • 231. It’s about Resilience
    • 232. It’s not about winning arguments inside the company
    • 233. Fighters pilots vs. military intelligence
  • Warfare (Startups) Changes Forever
  • 234. Thanks
    www.steveblank.com