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Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
Why Startups Are _Not_ Small Versions of Large Companies
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Why Startups Are _Not_ Small Versions of Large Companies

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  • 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>&lt; $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>&lt; $10M in revenue<br />Small Business Startups<br /><ul><li>5.7 million small businesses in the U.S. &lt;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 />&gt;$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 />&gt;$100M/year<br />Exit Criteria<br /><ul><li> Business model found
  • 15. Total Available Market &gt; $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 />&gt;$100M/year<br /><ul><li>Total Available Market &gt; $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&apos;s business model<br />gives an overall view of a company&apos;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 &amp; <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 &amp; 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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