Customer Development: The Second Decade by Bob Dorf

Customer Development: The Second Decade(aka Why Accountants Don’t Run Startups)
Bob Dorf
serial entrepreneur, startup advisor, partner, “supporting author”
www.steveblank.com
©2010 K+S Ranch Consulting Inc.

…Is there a roadmap?

Scalable
Startup
Transition
Large Company
Business Model found
i.e. Product/Market fit
- Repeatable sales model
- Managers hired
What’s A Startup?
A Startup is the temporary organization
used to search for a scalable business model
(c)2010 K+S Ranch Consulting Inc. www.steveblank.com
4

Scalable
Startup
Large Company
>$100M/year
Total Available Market > $500m
Company can grow to $100m/year
Business model found
Focused on execution and process
Typically requires “risk capital”
ScalableStartup
Designed to grow big
Typically needs risk capital
How this room defines “Startup”
5

Venture Firms Invest in Scalable Startups
Small Business
Startup
Scalable
Startup
Large Company
6

What VC’s Don’t Tell You:The Transition – Founders Leave
Scalable
Startup
Transition
Large Company
Founders depart
Professional Mgmt
Process
Beginning of scale
7

not quite the beginning of startups, but…100 Years Ago in Detroit

Inventorof the Modern Corporation
Scalable
Startup
Transition
Large Company
Alfred P. Sloan
9

Alfred P. Sloan
Scalable
Startup
Transition
Large Company
General Motors, President/Chairman
Cost Accounting
MIT’s Sloan School
Sloan Kettering
Kettering Institute
10

Founder of General Motors
Scalable
Startup
Transition
Large Company
Billy Durant
11

Billy Durant
Scalable
Startup
Transition
Large Company
Leader in horse-drawn buggys
Fired by board, starts Chevrolet
Regains control of GM
Fired again, GM ~$3.6 billion*
* GM Net sales in 1921 $304.5M = $3.6 Billion today
12

Durant vs Sloan
Scalable
Startup
Transition
Large Company
13

Durant vs. Sloan
Dies, rich, honored and famous
14

Durantvs. Sloan
Dies penniless…
…managing a bowling alley
15

Durant vs. Sloan
Accountant
Dies managing a bowling alley
16

You are here
Scalable
Startup
Transition
Large Company
17

50 Years Ago in Detroit…

GM Owns the U.S. Car Market
Scalable
Startup
Transition
Large Company
Roger B. Smith
19

Roger B. Smith
Scalable
Startup
Transition
Large Company
General Motors, President/Chairman
GM >50% market share
Knew what the customer wanted
5 years to bring a car to market
Huge inventories eliminate stoppages
20

Founderof Toyota and Lean Production
Scalable
Startup
Transition
Large Company
Kiichiro Toyoda
TaiichiOhno
21

Toyoda and Ohno
Scalable
Startup
Transition
Large Company
Taught by Americans post WWII
Couldn’t afford inventory like US auto companies
Toured GM plants and…
Built Kaizen/lean manufacturing
Toyota Lean Production System
22

1960: Agile, Lean, Customer Centric
Scalable
Startup
Transition
Large Company
Short runs vs. Long option lists
Agile Product Development
Lean Manufacturing
Continuous Improvement
Customer Development
… talk about ”a day in the life”
23

Toyoda/Ohnovs. Smith
Integrate Customer Development vs. Options
Agile Development plus Lean Manufacturing
U.S. Market share goes from 0 to 20%
24

Buys $35 billion of Japanese robots to “fix” GM
Market share drops 50% to <25%
25

Toyoda/Ohno vs. Smith
Accountant
26

You are here
27

10 Years Ago in Silicon Valley…

More startups fail from a lack of customers than from a failure of product development

Yet All We Had WasThis…
Concept/Seed Round
Product Dev.
Alpha/Beta Test
Launch/
1st Ship
New Product Introduction Model
30

Traditional Product Introduction:Two Implicit Assumptions
Customer Problem: known
Concept
Product Dev.
Alpha/Beta Test
Launch/
1st Ship
Product Features: known
31

This Was A Plan For Failure
Long-term “lockdown” of Product Development/Engineering
Assumed we understood customer problem/product solution
But they are hypotheses
the facts were outside the building
Sales & Marketing focused on execution to First Customer Ship
Costs and burn rate became front loaded
Execution & hiring predicated on business plan hypothesis
Financial projections assume success
Heavy spending hit if product launch is wrong
Failure always a bad reflection on Management, Board, Investors
You don’t know if you’re wrong until you’re
out of business, out of money, or (usually) both!
32

8 Startups later,Steve Blank Drew This…
CustomerDiscovery
Company
Building
CustomerValidation
Customer Creation
“Do-Over”
33

Customer Development
Company
Building
CustomerDiscovery
CustomerValidation
Customer Creation
Which Turned Into A Model
Product Introduction Model
Concept
Product Dev.
Alpha/Beta Test
Launch/
1st Ship
became
34

Customer Development:“one (great) entrepreneur’s theory,” 2001-2003
CustomerDiscovery
Company
Building
CustomerValidation
Customer Creation
Pivot
35

Customer Development: happy 10th birthday…extensive “real world” deployment…morphed, tested, debated: CE0s, CM0s, VCs, MBAs…and a “slight” investment cycle change since ‘01-3!
CustomerDiscovery
Company
Building
CustomerValidation
Customer Creation
Pivot
…a very short Customer Development overview
36

Customer Discovery
CustomerDiscovery
CustomerValidation
Company
Building
CustomerCreation
Stop selling, start listening
Test your hypotheses
Continuous Discovery and Feedback
Done by founders…OUTSIDE the building!
37

Customer Validation
CustomerDiscovery
CustomerValidation
Customer Creation
Company
Building
Do-Over
Repeatable and scalable business model?
Passionate Earlyvangelists?
Return to Discovery absent passionate customers
38

The “Do It Again” Loop
Iteration was at the heart of Customer Development
Fast, agile and opportunistic
(Almost) celebrate failure…whenever it’s instructive
But it didn’t have a name “Do over” is just so juvenile
39

Customer Creation
CustomerDiscovery
CustomerValidation
Company
Building
CustomerCreation
Creation comes after proof of sales
Spend to scale based on FACTS, not Hypotheses
Begins only with repeatable, scalable processesfor sales, marketing, demand creation
40

Company Building
Company
Building
Customer Creation
CustomerValidation
CustomerDiscovery
(Re)build company, management, infrastructure
(Re)visit the mission
Go Global
Get a Porsche (or a Towncar)rganization& management
Re look at your mission
41

So what’s new since 2003??
Customer Development startups have surged
Customer Development “Rules” emerged
Key Customer Development approaches have converged
Product Development cycle times submerged
…and easy money has been purged
42

5 Years Ago…
43

Eric Ries Extends the Model
Took Steve’s class at U.C. Berkeley
Co-founded IMVU
Ditched Waterfall and paired Customer Development with an Agile Development Model
Used off-the-shelf commodity software stack

Eric Ries: Insight1Engineering acts as if features are “known”
Concept/Seed
Product Dev.
Alpha/
Beta
Launch/Ship
Waterfall
Requirements
Solution: known
Design
Implementation
Verification
Problem: known
Maintenance
Eric observedthe solution
was unknown in a startup
Waterfall process could only build known features

Eric Ries: Insight #2Match Agile Dev to Customer Dev speed
Concept/Seed
Product Dev.
Alpha/
Beta
Launch/Ship
Solution: unknown
Agile was the development
methodology to use when the
product solution was unknown

Problem: Unknown
Solution: Unknown
Source: Eric Ries
New #1: Eric Ries: Insight 3Customer + Agile + Commodity = Lean
Solving customer + feature unknowns is the “Lean Startup”
47

Orient
Decide
Act
Observe
ImplicitGuidance& Control
ImplicitGuidance& Control
UnfoldingCircumstances
CulturalTraditions
Observations
GeneticHeritage
Decision(Hypothesis)
Analyses &Synthesis
Action(Test)
FeedForward
FeedForward
FeedForward
NewInformation
PreviousExperience
OutsideInformation
UnfoldingInteractionWithEnvironment
UnfoldingInteractionWithEnvironment
Feedback
Feedback
Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback and other phenomena coming into our observing window.
New #2: Reduced Cycle TimesJohn Boyd Insight: The OODA “Loop”

Speed Up Cycle Time
Speed of cycle minimizes cash needs
Minimum feature set speeds up cycle time
Near instantaneous feedback drives feature set
49

New #3: Jon Feiber@MDVNot all Startups Need Customer Development
Market Risk vs. Technical Risk?
Web is about customers & markets
Biotech is about science & invention

SEO
Campaigns, Contests
SEM
PR
Biz Dev
Social Networks
Affiliates
Blogs
ACQUISITION
Apps & Widgets
Direct, Tel, TV
REFERRAL
Email
Viral Loops
Domains
Retention
Emails & widgets
Emails & Alerts
Website.com
Affiliates, Contests
Blogs, RSS, News Feeds
System Events & Time-based Features
Biz Dev
Revenue $$$
Ads, Lead Gen, Subscriptions, ECommerce
New #4: Dave McClureDifferent Metricsfor (Web) Startups
From Dave McClure
http://500hats.typepad.com/
51

More Helpful Startup Metrics
The Search for the Business Model
The Execution of the Business Model
Scalable
Startup
Transition
Large
Company
Startup Metrics
Customer Acquisition Cost
Viral/Unique/Session Growth
Customer LTV change
Average Selling Price/Order Size
Monthly burn rate
Traditional Accounting
Balance Sheet
Cash Flow Statement
Income Statement
52

New #5: Business Model, Not PlanFront-end to Customer Development
Business Plans are Rigid, Static
“No Business Plan Survives First Contact with Customers” who don’t read them --Steve Blank
The Four Steps had:
Business model flow for Enterprise Software
Business model summary for each step
Checklist for Enterprise Software
It said, “modify it to fit your business”
Now we can
53

Osterwalder’s Business Model - Insight
value proposition
customer relationships
key activities
customer segments
key partners
cost structure
revenue streams
key resources
channels
images by JAM
54

KEY
PARTNERS
OFFER
CUSTOMER RELATIONSHIPS
CUSTOMER
SEGMENTS
KEY
ACTIVITIES
building
block
building
block
building
block
building
block
building
block
building
block
building
block
building
block
building
block
building
block
building
block
building
block
CHANNELS
KEY
RESOURCES
REVENUE STREAMS
COST STRUCTURE
Business Model Canvas – Any Business
55
55

…and The Pivot Gets A Name
Fueled by Customer Feedback
Head by Founders, Not Consultants
The heart of Customer Development
Iteratiowithout crisis
Fueled by Customer Feedback
Heard by Founders, Not Consultants
The heart of Customer Development
Iteration without crisis
56

A few rules from the “Blank Manifesto”
Align all parties upfront…prepare to lose termsheets
No VPs, no factories…MVP to the “champagne cork”
No more business plans!
Commit to Iterate and Pivot, “celebrate,” tolerate failure when it propels you forward
Integrate Customer Development with Agile Manufacturing
Agree to very different benchmarks and metrics
Faster Cycle Times say Run like hell*
57

When Doesn’t Customer Development work?
Lack of “honest” commitment to Customer Development
Progress over Passion
Oops…we promised to ship on…
Oops…the factory is about to open
Founders delegate Discovery and Validation
Too many times ‘round the barn
Pharmaceuticals, regulation, innovation risk
Too many MBA’s, not enough failure celebration
58

So What Happens Next?
50 Years After Toyota Invents Lean: …The Next Big Lean Revolution

50 Years Later
Customer & Agile Development change the rules for Consumer Internet startups
Economics
Development Cycle Time
Easy, Overnight MVPs, Iterations, even Pivots
Oceans of Fast, Cheap Feedback
Time to market
“No Money Down”
60

50 Years Later – Full Circle
Customer & Agile Development will change the rules in all industries
Enterprise Software
Consumer Hardware
Everything else
61

Where to learn more:
www.steveblank.com

Thanks…Now Go PIVOT!
bob@kandsranch.com
www.steveblank.com

Customer Development: The Second Decade by Bob Dorf

by Simeon Simeonov on Oct 07, 2010

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Customer Development: The Second Decade by Bob Dorf — Presentation Transcript