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