Why Startups Are _Not_ Small Versions of Large Companies

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Why Startups Are _Not_ Small Versions of Large Companies

  1. Why Startups Are Not Small Versions of Large Companies<br />Steve Blank<br />www.steveblank.com<br />Twitter: sgblank<br />
  2. I Wrote This<br />
  3. Five Short Stories<br />
  4. Not All Startups Are Equal<br />
  5. Small Business<br />Startup<br />Small Business Startups<br /><ul><li>Serve known customer with known product
  6. Feed the family</li></li></ul><li>Small Business<br />Startup<br />Exit Criteria<br /><ul><li> Business Model found</li></ul>- Profitable business<br /><ul><li> Existing team</li></ul>< $1M in revenue<br />Small Business Startups<br /><ul><li>known customer known product
  7. Feed the family</li></li></ul><li>Small Business<br />Startup<br />- Business Model found<br />- Profitable business<br /><ul><li> Existing team</li></ul>< $10M in revenue<br />Small Business Startups<br /><ul><li>5.7 million small businesses in the U.S. <500 employees
  8. 99.7% of all companies
  9. ~ 50% of total U.S. workers</li></ul>http://www.sba.gov/advo/stats/sbfaq.pdf<br />
  10. Large Company Sustaining Innovation<br />Sustaining Innovation<br />Transition<br />Scalable<br />Startup<br />Large Company<br /><ul><li>Existing Market / Known customer
  11. Known product feature needs</li></li></ul><li>Large Company Disruptive Innovation<br />New Division<br />Transition<br />Large Company<br />Disruptive Innovation<br /><ul><li> New Market / Unknown customer needs
  12. New tech / Unknown product features
  13. Looks like a scalable startup</li></li></ul><li>Scalable<br />Startup<br />Large Company<br />>$100M/year<br />Scalable Startup<br />Goal is to solve for:<br /> unknown customer and unknown features <br />
  14. Scalable<br />Startup<br />Large Company<br />>$100M/year<br />Exit Criteria<br /><ul><li> Business model found
  15. Total Available Market > $500m -$1B
  16. Can grow to $100m/year
  17. Focused on execution and process</li></ul>Scalable Startup<br />
  18. Scalable<br />Startup<br />Large Company<br />>$100M/year<br /><ul><li>Total Available Market > $500m
  19. Can grow to $100m/year
  20. Business model found
  21. Focused on execution and process
  22. Typically requires “risk capital”</li></ul>Scalable Startup<br /><ul><li> In contrast a scalable startup is designed to grow big
  23. Typically needs risk capital
  24. What Silicon Valley means when they say “Startup”</li></li></ul><li>Scalable<br />Startup<br />Large Company<br />Search <br /><ul><li>customer needs/product features found</li></ul> i.e. Product/Market fit<br /><ul><li> Business Model found</li></ul>- Repeatable sales model<br />- Managers hired<br />What’s A Startup?<br />A Startup is the organization used to search for a scalable business model <br />
  25. What VC’s Don’t Tell You:The Transition – Founders Leave<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Build<br /><ul><li>Founders depart
  26. Professional Mgmt
  27. Process
  28. Beginning of scale</li></li></ul><li>Why Product Managers Wear Sneakers<br />
  29. Startups Search and Pivot<br />The Search for the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Business Model found<br /><ul><li> customer needs/product features found</li></ul> i.e. Product/Market fit<br /><ul><li>Found by founders, not employees
  30. Repeatable sales model</li></ul>- Managers hired<br />
  31. Startups Search, Companies Execute<br />The Execution of the Business Model<br />The Search for the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />- Cash-flow breakeven<br />- Profitable<br />- Rapid scale<br />- New Senior Mgmt<br />~ 150 people<br /><ul><li>Business Model found
  32. Product/Market fit</li></ul>- Repeatable sales model<br />- Managers hired<br />
  33. Metrics Versus Accounting<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<br />Company<br />Traditional Accounting<br /><ul><li>Balance Sheet
  34. Cash Flow Statement
  35. Income Statement</li></li></ul><li>Metrics Versus Accounting<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<br />Company<br />Startup Metrics<br /><ul><li> Customer Acquisition Cost
  36. Viral coefficient
  37. Customer Lifetime Value
  38. Average Selling Price/Order Size
  39. Monthly burn rate
  40. etc. </li></ul>Traditional Accounting<br /><ul><li> Balance Sheet
  41. Cash Flow Statement
  42. Income Statement</li></li></ul><li>Customer Validation Versus Sales<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<br />Company<br />Sales<br /><ul><li>Sales Organization
  43. Scalable
  44. Price List/Data Sheets
  45. Revenue Plan</li></li></ul><li>Customer Validation Versus Sales<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<br />Company<br />Customer Validation<br /><ul><li> Early Adopters
  46. Pricing/Feature unstable
  47. Not yet repeatable
  48. “One-off’s”
  49. Done by founders</li></ul>Sales<br /><ul><li> Sales Organization
  50. Scalable
  51. Price List/Data Sheets
  52. Revenue Plan</li></li></ul><li>Customer Development VersusProduct Management<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Product Management<br /><ul><li> Delivers MRD’s
  53. Feature Spec’s
  54. Competitive Analysis
  55. Prod Mgmt driven</li></li></ul><li>Customer Development Versus Product Management<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Product Management<br /><ul><li> Delivers MRD’s
  56. Feature Spec’s
  57. Competitive Analysis</li></ul>Customer Development<br /><ul><li> Hypothesis Testing
  58. Minimum Feature Set
  59. Pivots
  60. Founder-driven</li></li></ul><li>Engineering Versus Agile Development<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Engineering<br /><ul><li> Requirements Docs.
  61. Waterfall Development
  62. QA
  63. Tech Pubs</li></li></ul><li>Engineering Versus Agile Development<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Engineering<br /><ul><li> Requirements Docs.
  64. Waterfall Development
  65. QA
  66. Tech Pubs</li></ul>Agile Development<br /><ul><li> Continuous Deployment
  67. Continuous Learning
  68. Self Organizing Teams
  69. Minimum Feature Set
  70. Pivots</li></li></ul><li>Startups Model, Companies Plan<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li> Plan describes “knowns”
  71. Known features for line extensions
  72. Known customers/markets
  73. Known business model</li></li></ul><li>Startups Model, Companies Plan<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li>Unknown customer needs
  74. 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</li></li></ul><li>Startups Protect Mavericks, Companies Fire Mavericks<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li>Pains in the butt
  81. Always looking at something different
  82. Doesn’t get with the program</li></li></ul><li>Startups Protect Mavericks, Companies Fire Mavericks<br />The Search for the Business Model<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li> CEO of your company
  83. Finds your next market
  84. Pains in the butt
  85. Always looking at something different
  86. Doesn’t get with the program</li></li></ul><li>Startups Don’t Last Forever<br />Scalable<br />Startup<br />Transition<br />Large Company<br />- Cash-flow breakeven<br />- Profitable<br />- Rapid scale<br />- New Senior Mgmt<br />~ 150 people<br /><ul><li> Business Model found
  87. Product/Market fit</li></ul>- Repeatable sales model<br />- Managers hired<br />You failif you remain a startup!<br />
  88. Plan versus Model<br />
  89. Business Plan<br />A document your investors make you write that they don’t read<br />A useful place for you to collect your guesses about your business<br /><ul><li>Size of Opportunity
  90. Customers
  91. Channel
  92. Demand Creation
  93. Revenue/Expenses/Profit</li></ul>The template to look like everyone else when you present to VC’s/Management <br />
  94. No Business Plan survives first contact with customers<br />
  95. So Search for a Business Model<br />
  96. What Is a Business Model?<br />Diagram of flows between company and customers<br />Scorecard of hypotheses testing<br />Rapid change with each iteration and pivot<br />Product Management-driven<br />* Alex Osterwalder<br />
  97. Business Model = <br />Keeping Score in a Startup<br />CUSTOMER<br />RELATIONSHIP<br />PARTNER<br />NETWORK<br />INFRASTRUCTURE<br />CUSTOMER<br />OFFER<br />TARGET<br />CUSTOMER<br />CORE<br />CAPABILITIES<br />portrays the network of cooperative agreements with other companies<br />explains the relationships a company establishes with its customers<br />VALUE<br />PROPOSITION<br />describes the customers a company wants to offer value to<br />outlines the capabilities required to run a company's business model<br />gives an overall view of a company's bundle of products and services<br />DISTRIBUTION<br />CHANNEL<br />VALUE<br />CONFIGURATION<br />describes the channels to communicate and get in touch with customers<br />describes the arrangement of activities and resources<br />sums up the monetary consequences to run a business model<br />describes the revenue streams through which money is earned<br />COST<br />STRUCTURE<br />REVENUE<br />STREAMS<br />FINANCE<br />
  98. Business Model Generation Book<br />
  99. How Do Startups Search For A Business Model?<br /><ul><li> The Search is called Customer Development
  100. The Implementation is called Agile Development</li></li></ul><li>The Lean Startup<br />
  101. Who Does This Search?<br />The Founders<br />Not Employees<br />How?<br />
  102. Customer Development<br />
  103. Solving For Customer and Product Unknowns:Customer Development<br />
  104. Customer Development<br />The founders<br />Get the Hell Out of the Building<br />^<br />
  105. More startups fail from a lack of customers than from a failure of product development<br />
  106. Then why do we have:<br />process to manage product development?<br />
  107. Then why do we have:<br />Process to manage product development?<br />None to manage customer development?<br />
  108. Startup - Back of the Napkin Model<br />Concept/Seed Round<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />
  109. Tradition – Hire Marketing<br />Concept/Seed Round<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />- Create Demand<br />- Launch Event<br />- “Branding”<br />- Hire PR Agency<br />- Early Buzz<br /><ul><li> Create Marcom </li></ul> Materials<br />- Create Positioning<br />Marketing<br />
  110. Tradition – Hire Sales<br />Concept/Seed Round<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />- Create Demand<br />- Launch Event<br />- “Branding”<br />- Hire PR Agency<br />- Early Buzz<br /><ul><li> Create Marcom </li></ul> Materials<br />- Create Positioning<br />Marketing<br /><ul><li> Build Sales Organization
  111. Hire Sales VP
  112. Hire 1st Sales Staff</li></ul>Sales<br />
  113. Tradition – Hire Bus Development<br />Concept<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />- Create Demand<br />- Launch Event<br />- “Branding”<br />- Hire PR Agency<br />- Early Buzz<br /><ul><li> Create Marcom </li></ul> Materials<br />- Create Positioning<br />Marketing<br /><ul><li> Build Sales Channel / Distribution
  114. Hire Sales VP
  115. Pick distribution Channel</li></ul>Sales<br />Business <br />Development<br /><ul><li> Hire First Bus Dev
  116. Do deals for FCS</li></li></ul><li>Tradition – Hire Engineering/Product Mgmt<br />Concept<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />- Create Demand<br />- Launch Event<br />- “Branding”<br />- Hire PR Agency<br />- Early Buzz<br /><ul><li> Create Marcom </li></ul> Materials<br />- Create Positioning<br />Marketing<br /><ul><li> Build Sales Channel / Distribution
  117. Hire Sales VP
  118. Pick distribution Channel</li></ul>Sales<br />Business <br />Development<br /><ul><li> Hire First Bus Dev
  119. Do deals for FCS</li></ul>Engineering/Product Mgmt<br /><ul><li> Write MRD
  120. Waterfall
  121. Q/A
  122. Tech Pubs</li></li></ul><li>Product Development<br />Concept/Bus. Plan<br />Product Dev.<br />Alpha/Beta Test<br />Launch/1st Ship<br />+<br />CustomerDevelopment<br />Company<br />Building<br />CustomerDiscovery<br />CustomerValidation<br />Customer Creation<br />Customer Development<br />
  123. Customer Discovery<br />CustomerDiscovery<br />CustomerValidation<br />Company<br />Building<br />CustomerCreation<br />Stop selling, start listening<br />Test your hypotheses<br />Continuous Discovery<br />Done by founders<br />
  124. Customer Discovery<br />Phase 3<br />Test<br />ProductHypothesis<br />Phase 4Verify, Iterate & <br />Expand<br />CustomerDiscovery<br />To Validation<br />Phase 1Author<br />Hypothesis<br />Phase 2Test<br />ProblemHypothesis<br />
  125. Hypothesis<br />Product<br />Customer/Problem<br />Distribution/Pricing<br />Demand Creation<br />Market Type<br />Competition<br />
  126. Customer Validation<br />CustomerDiscovery<br />CustomerValidation<br />Customer Creation<br />Company<br />Building<br />Pivot<br /><ul><li>Repeatable and scalable business model?
  127. PassionateEarlyvangelists?
  128. Pivot back to Discovery if no customers</li></li></ul><li>Customer Validation<br />Phase 4Business <br />ModelVerified<br />Phase 3Positioning<br />CustomerValidation<br />From Discovery<br />To Creation<br />Phase 1Get <br />Readyto Sell<br />Phase 2Sell toEarlyVangelists<br />
  129. The Pivot<br /><ul><li> The heart of Customer Development
  130. Iteration without crisis
  131. Fast, agile and opportunistic</li></li></ul><li>Speeding Up Cycle Time<br /><ul><li>Speed of cycle minimizes cash needs
  132. Minimum feature set speeds up cycle time
  133. Near instantaneous customer feedback drives feature set</li></li></ul><li>So What Does Engineering Do?<br />
  134. Waterfall / Product ManagementExecution on Two “Knowns”<br />Requirements<br />Product Features: known<br />Design<br />Implementation<br />Verification<br />Customer Problem: known<br />Maintenance<br />Source: Eric Rieshttp://startuplessonslearned.blogspot.com<br />
  135. Agile - Customer Problem is KnownExisting Company/Market<br />“Product Owner” or <br />in-house customer <br />Unit of progress: a line of working code<br />Problem: Known<br />Solution: Unknown<br />Source: Eric Rieshttp://startuplessonslearned.blogspot.com<br />
  136. Lean StartupCustomer Problem + Product Features are Unknown<br />Problem: Unknown<br />Solution: Unknown<br />Source: Eric Rieshttp://startuplessonslearned.blogspot.com<br />
  137. 64<br />Customer Creation<br />CustomerDiscovery<br />CustomerValidation<br />Company<br />Building<br />CustomerCreation<br /><ul><li>Creation comes after proof of sales
  138. $’s for scale
  139. Lean Startups are not cheap startups</li></li></ul><li>Company Building<br />Company<br />Building<br />Customer Creation<br />CustomerValidation<br />CustomerDiscovery<br /><ul><li>(Re)build company’s organization & management
  140. Re look at your mission</li></li></ul><li>I Write a Blog <br />www.steveblank.com<br />
  141. Summary<br />Founders can’t delegate customer discovery<br />Startups are about speed of pivots<br />Product<br />Customer<br />Channel<br />They are not about MRD’s and process <br />Product management can be an asset or an albatross in startups<br />You can make the difference…with sneakers<br />
  142. Thanks<br />www.steveblank.com<br />

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