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 Why Startups Are _Not_ Small Versions of Large Companies Presentation Transcript

  • Why Startups Are Not Small Versions of Large Companies
    Steve Blank
    www.steveblank.com
    Twitter: sgblank
  • I Wrote This
  • Five Short Stories
  • Not All Startups Are Equal
  • Small Business
    Startup
    Small Business Startups
    • Serve known customer with known product
    • Feed the family
  • Small Business
    Startup
    Exit Criteria
    • Business Model found
    - Profitable business
    • Existing team
    < $1M in revenue
    Small Business Startups
    • known customer known product
    • 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
    • 99.7% of all companies
    • ~ 50% of total U.S. workers
    http://www.sba.gov/advo/stats/sbfaq.pdf
  • Large Company Sustaining Innovation
    Sustaining Innovation
    Transition
    Scalable
    Startup
    Large Company
    • Existing Market / Known customer
    • Known product feature needs
  • Large Company Disruptive Innovation
    New Division
    Transition
    Large Company
    Disruptive Innovation
    • New Market / Unknown customer needs
    • New tech / Unknown product features
    • Looks like a scalable startup
  • Scalable
    Startup
    Large Company
    >$100M/year
    Scalable Startup
    Goal is to solve for:
    unknown customer and unknown features
  • Scalable
    Startup
    Large Company
    >$100M/year
    Exit Criteria
    • Business model found
    • Total Available Market > $500m -$1B
    • Can grow to $100m/year
    • Focused on execution and process
    Scalable Startup
  • Scalable
    Startup
    Large Company
    >$100M/year
    • Total Available Market > $500m
    • 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 risk capital
    • What Silicon Valley means when they say “Startup”
  • Scalable
    Startup
    Large Company
    Search
    • customer needs/product features found
    i.e. Product/Market fit
    • Business Model found
    - 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 – Founders Leave
    Scalable
    Startup
    Transition
    Large Company
    Build
    • Founders depart
    • Professional Mgmt
    • Process
    • Beginning of scale
  • Why Product Managers Wear Sneakers
  • Startups Search and Pivot
    The Search for the Business Model
    Scalable
    Startup
    Transition
    Large Company
    Business Model found
    • customer needs/product features found
    i.e. Product/Market fit
    • Found by founders, not employees
    • 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”
    • Done by founders
    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
    • Prod Mgmt driven
  • 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
    • Founder-driven
  • 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 Protect Mavericks, Companies Fire Mavericks
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large Company
    • Pains in the butt
    • Always looking at something different
    • Doesn’t get with the program
  • Startups Protect Mavericks, Companies Fire Mavericks
    The Search for the Business Model
    The Execution of the Business Model
    Scalable
    Startup
    Transition
    Large Company
    • CEO of your company
    • Finds your next market
    • Pains in the butt
    • Always looking at something different
    • Doesn’t get with the program
  • 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!
  • Plan versus Model
  • Business Plan
    A document your investors make you write that they don’t read
    A useful place for you to collect your guesses about your business
    • Size of Opportunity
    • Customers
    • Channel
    • Demand Creation
    • Revenue/Expenses/Profit
    The template to look like everyone else when you present to VC’s/Management
  • No Business Plan survives first contact with customers
  • So Search for a Business Model
  • What Is a Business Model?
    Diagram of flows between company and customers
    Scorecard of hypotheses testing
    Rapid change with each iteration and pivot
    Product Management-driven
    * Alex Osterwalder
  • Business Model =
    Keeping Score in a Startup
    CUSTOMER
    RELATIONSHIP
    PARTNER
    NETWORK
    INFRASTRUCTURE
    CUSTOMER
    OFFER
    TARGET
    CUSTOMER
    CORE
    CAPABILITIES
    portrays the network of cooperative agreements with other companies
    explains the relationships a company establishes with its customers
    VALUE
    PROPOSITION
    describes the customers a company wants to offer value to
    outlines the capabilities required to run a company's business model
    gives an overall view of a company's bundle of products and services
    DISTRIBUTION
    CHANNEL
    VALUE
    CONFIGURATION
    describes the channels to communicate and get in touch with customers
    describes the arrangement of activities and resources
    sums up the monetary consequences to run a business model
    describes the revenue streams through which money is earned
    COST
    STRUCTURE
    REVENUE
    STREAMS
    FINANCE
  • Business Model Generation Book
  • How Do Startups Search For A Business Model?
    • The Search is called Customer Development
    • The Implementation is called Agile Development
  • The Lean Startup
  • Who Does This Search?
    The Founders
    Not Employees
    How?
  • Customer Development
  • Solving For Customer and Product Unknowns:Customer Development
  • Customer Development
    The founders
    Get the Hell Out of the Building
    ^
  • 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?
    None to manage customer development?
  • Startup - Back of the Napkin 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/Product Mgmt
    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/Product Mgmt
    • 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
    Done by founders
  • Customer Discovery
    Phase 3
    Test
    ProductHypothesis
    Phase 4Verify, Iterate &
    Expand
    CustomerDiscovery
    To Validation
    Phase 1Author
    Hypothesis
    Phase 2Test
    ProblemHypothesis
  • Hypothesis
    Product
    Customer/Problem
    Distribution/Pricing
    Demand Creation
    Market Type
    Competition
  • Customer Validation
    CustomerDiscovery
    CustomerValidation
    Customer Creation
    Company
    Building
    Pivot
    • Repeatable and scalable business model?
    • PassionateEarlyvangelists?
    • Pivot back to Discovery if no customers
  • Customer Validation
    Phase 4Business
    ModelVerified
    Phase 3Positioning
    CustomerValidation
    From Discovery
    To Creation
    Phase 1Get
    Readyto Sell
    Phase 2Sell toEarlyVangelists
  • The Pivot
    • The heart of Customer Development
    • Iteration without crisis
    • Fast, agile and opportunistic
  • Speeding Up Cycle Time
    • Speed of cycle minimizes cash needs
    • Minimum feature set speeds up cycle time
    • Near instantaneous customer feedback drives feature set
  • So What Does Engineering Do?
  • Waterfall / Product ManagementExecution on Two “Knowns”
    Requirements
    Product Features: known
    Design
    Implementation
    Verification
    Customer Problem: known
    Maintenance
    Source: Eric Rieshttp://startuplessonslearned.blogspot.com
  • Agile - Customer Problem is KnownExisting Company/Market
    “Product Owner” or
    in-house customer
    Unit of progress: a line of working code
    Problem: Known
    Solution: Unknown
    Source: Eric Rieshttp://startuplessonslearned.blogspot.com
  • Lean StartupCustomer Problem + Product Features are Unknown
    Problem: Unknown
    Solution: Unknown
    Source: Eric Rieshttp://startuplessonslearned.blogspot.com
  • 64
    Customer Creation
    CustomerDiscovery
    CustomerValidation
    Company
    Building
    CustomerCreation
    • Creation comes after proof of sales
    • $’s for scale
    • Lean Startups are not cheap startups
  • Company Building
    Company
    Building
    Customer Creation
    CustomerValidation
    CustomerDiscovery
    • (Re)build company’s organization & management
    • Re look at your mission
  • I Write a Blog
    www.steveblank.com
  • Summary
    Founders can’t delegate customer discovery
    Startups are about speed of pivots
    Product
    Customer
    Channel
    They are not about MRD’s and process
    Product management can be an asset or an albatross in startups
    You can make the difference…with sneakers
  • Thanks
    www.steveblank.com