Customer Development: The Second Decade by Bob Dorf


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Customer Development: The Second Decade by Bob Dorf

  1. 1.
  2. 2. Customer Development: The Second Decade(aka Why Accountants Don’t Run Startups)<br />Bob Dorf<br />serial entrepreneur, startup advisor, partner, “supporting author”<br /><br />©2010 K+S Ranch Consulting Inc. <br />
  3. 3. …Is there a roadmap?<br />
  4. 4. Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li>Business Model found
  5. 5. i.e. Product/Market fit</li></ul>- Repeatable sales model<br />- Managers hired<br />What’s A Startup?<br />A Startup is the temporary organization<br />used to search for a scalable business model<br />(c)2010 K+S Ranch Consulting Inc.<br />4<br />
  6. 6. Scalable<br />Startup<br />Large Company<br />>$100M/year<br /><ul><li>Total Available Market > $500m
  7. 7. Company can grow to $100m/year
  8. 8. Business model found
  9. 9. Focused on execution and process
  10. 10. Typically requires “risk capital”</li></ul>ScalableStartup<br /><ul><li> Designed to grow big
  11. 11. Typically needs risk capital
  12. 12. How this room defines “Startup”</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />5<br />
  13. 13. Venture Firms Invest in Scalable Startups<br />Small Business<br />Startup<br />Scalable<br />Startup<br />Large Company<br />(c)2010 K+S Ranch Consulting Inc.<br />6<br />
  14. 14. What VC’s Don’t Tell You:The Transition – Founders Leave<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li>Founders depart
  15. 15. Professional Mgmt
  16. 16. Process
  17. 17. Beginning of scale</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />7<br />
  18. 18. not quite the beginning of startups, but…100 Years Ago in Detroit<br />
  19. 19. Inventorof the Modern Corporation<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Alfred P. Sloan<br />(c)2010 K+S Ranch Consulting Inc.<br />9<br />
  20. 20. Alfred P. Sloan<br />Scalable<br />Startup<br />Transition<br />Large Company<br />General Motors, President/Chairman<br /><ul><li> Cost Accounting
  21. 21. MIT’s Sloan School
  22. 22. Sloan Kettering
  23. 23. Kettering Institute</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />10<br />
  24. 24. Founder of General Motors<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Billy Durant<br />(c)2010 K+S Ranch Consulting Inc.<br />11<br />
  25. 25. Billy Durant<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li> Leader in horse-drawn buggys
  26. 26. Fired by board, starts Chevrolet
  27. 27. Regains control of GM
  28. 28. Fired again, GM ~$3.6 billion*</li></ul>* GM Net sales in 1921 $304.5M = $3.6 Billion today<br />(c)2010 K+S Ranch Consulting Inc.<br />12<br />
  29. 29. Durant vs Sloan<br />Scalable<br />Startup<br />Transition<br />Large Company<br />(c)2010 K+S Ranch Consulting Inc.<br />13<br />
  30. 30. Durant vs. Sloan<br /><ul><li>Dies, rich, honored and famous</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />14<br />
  31. 31. Durantvs. Sloan<br /><ul><li> Dies, rich, honored and famous
  32. 32. Dies penniless…</li></ul>…managing a bowling alley<br />(c)2010 K+S Ranch Consulting Inc.<br />15<br />
  33. 33. Durant vs. Sloan<br />Accountant<br /><ul><li>Dies managing a bowling alley
  34. 34. Dies, rich, honored and famous</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />16<br />
  35. 35. You are here<br />Scalable<br />Startup<br />Transition<br />Large Company<br />(c)2010 K+S Ranch Consulting Inc.<br />17<br />
  36. 36. 50 Years Ago in Detroit…<br />
  37. 37. GM Owns the U.S. Car Market<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Roger B. Smith<br />(c)2010 K+S Ranch Consulting Inc.<br />19<br />
  38. 38. Roger B. Smith<br />Scalable<br />Startup<br />Transition<br />Large Company<br /> General Motors, President/Chairman<br /><ul><li> GM >50% market share
  39. 39. Knew what the customer wanted
  40. 40. 5 years to bring a car to market
  41. 41. Huge inventories eliminate stoppages</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />20<br />
  42. 42. Founderof Toyota and Lean Production<br />Scalable<br />Startup<br />Transition<br />Large Company<br />Kiichiro Toyoda<br />TaiichiOhno<br />(c)2010 K+S Ranch Consulting Inc.<br />21<br />
  43. 43. Toyoda and Ohno<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li> Taught by Americans post WWII
  44. 44. Couldn’t afford inventory like US auto companies
  45. 45. Toured GM plants and…
  46. 46. Built Kaizen/lean manufacturing
  47. 47. Toyota Lean Production System</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />22<br />
  48. 48. 1960: Agile, Lean, Customer Centric<br />Scalable<br />Startup<br />Transition<br />Large Company<br /><ul><li>Short runs vs. Long option lists
  49. 49. Agile Product Development
  50. 50. Lean Manufacturing
  51. 51. Continuous Improvement
  52. 52. Customer Development</li></ul>… talk about ”a day in the life”<br />(c)2010 K+S Ranch Consulting Inc.<br />23<br />
  53. 53. Toyoda/Ohnovs. Smith<br /><ul><li>Integrate Customer Development vs. Options
  54. 54. Agile Development plus Lean Manufacturing
  55. 55. U.S. Market share goes from 0 to 20%</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />24<br />
  56. 56. Toyoda/Ohnovs. Smith<br /><ul><li>Buys $35 billion of Japanese robots to “fix” GM
  57. 57. Market share drops 50% to <25%</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />25<br />
  58. 58. Toyoda/Ohno vs. Smith<br />Accountant<br />(c)2010 K+S Ranch Consulting Inc.<br />26<br />
  59. 59. Toyoda/Ohnovs. Smith<br />You are here<br />(c)2010 K+S Ranch Consulting Inc.<br />27<br />
  60. 60. 10 Years Ago in Silicon Valley…<br />
  61. 61. More startups fail from a lack of customers than from a failure of product development<br />
  62. 62. Yet All We Had WasThis…<br />Concept/Seed Round<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />New Product Introduction Model<br />(c)2010 K+S Ranch Consulting Inc.<br />30<br />
  63. 63. Traditional Product Introduction:Two Implicit Assumptions<br />Customer Problem: known<br />Concept<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br /> Product Features: known<br />(c)2010 K+S Ranch Consulting Inc.<br />31<br />
  64. 64. This Was A Plan For Failure<br />Long-term “lockdown” of Product Development/Engineering<br />Assumed we understood customer problem/product solution<br />But they are hypotheses<br />the facts were outside the building<br />Sales & Marketing focused on execution to First Customer Ship<br />Costs and burn rate became front loaded<br />Execution & hiring predicated on business plan hypothesis<br />Financial projections assume success<br />Heavy spending hit if product launch is wrong<br />Failure always a bad reflection on Management, Board, Investors<br />You don’t know if you’re wrong until you’re<br /> out of business, out of money, or (usually) both!<br />32<br />
  65. 65. 8 Startups later,Steve Blank Drew This…<br />CustomerDiscovery<br />Company <br /> Building<br />CustomerValidation<br />Customer Creation<br />“Do-Over”<br />33<br />
  66. 66. Customer Development<br />Company<br />Building<br />CustomerDiscovery<br />CustomerValidation<br />Customer Creation<br />Which Turned Into A Model<br />Product Introduction Model<br />Concept<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />became<br />(c)2010 K+S Ranch Consulting Inc.<br />34<br />
  67. 67. Customer Development:“one (great) entrepreneur’s theory,” 2001-2003<br />CustomerDiscovery<br />Company <br /> Building<br />CustomerValidation<br />Customer Creation<br />Pivot<br />35<br />
  68. 68. 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!<br />CustomerDiscovery<br />Company <br /> Building<br />CustomerValidation<br />Customer Creation<br />Pivot<br />…a very short Customer Development overview<br />36<br />
  69. 69. Customer Discovery<br />CustomerDiscovery<br />CustomerValidation<br />Company<br />Building<br />CustomerCreation<br />Stop selling, start listening<br />Test your hypotheses<br />Continuous Discovery and Feedback<br />Done by founders…OUTSIDE the building!<br />(c)2010 K+S Ranch Consulting Inc.<br />37<br />
  70. 70. Customer Validation<br />CustomerDiscovery<br />CustomerValidation<br />Customer Creation<br />Company<br />Building<br />Do-Over<br /><ul><li>Repeatable and scalable business model?
  71. 71. Passionate Earlyvangelists?
  72. 72. Return to Discovery absent passionate customers</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />38<br />
  73. 73. The “Do It Again” Loop<br /><ul><li> Iteration was at the heart of Customer Development
  74. 74. Fast, agile and opportunistic
  75. 75. (Almost) celebrate failure…whenever it’s instructive
  76. 76. But it didn’t have a name “Do over” is just so juvenile</li></ul>39<br />
  77. 77. Customer Creation<br />CustomerDiscovery<br />CustomerValidation<br />Company<br />Building<br />CustomerCreation<br /><ul><li>Creation comes after proof of sales
  78. 78. Spend to scale based on FACTS, not Hypotheses
  79. 79. Begins only with repeatable, scalable processesfor sales, marketing, demand creation</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />40<br />
  80. 80. Company Building<br />Company<br />Building<br />Customer Creation<br />CustomerValidation<br />CustomerDiscovery<br /><ul><li>(Re)build company, management, infrastructure
  81. 81. (Re)visit the mission
  82. 82. Go Global
  83. 83. Get a Porsche (or a Towncar)rganization& management
  84. 84. Re look at your mission</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />41<br />
  85. 85. So what’s new since 2003??<br />Customer Development startups have surged<br />Customer Development “Rules” emerged<br />Key Customer Development approaches have converged<br />Product Development cycle times submerged<br />…and easy money has been purged<br />42<br />
  86. 86. 5 Years Ago…<br />(c)2010 K+S Ranch Consulting Inc.<br />43<br />
  87. 87. Eric Ries Extends the Model<br />Took Steve’s class at U.C. Berkeley <br />Co-founded IMVU <br />Ditched Waterfall and paired Customer Development with an Agile Development Model<br />Used off-the-shelf commodity software stack<br />
  88. 88. Eric Ries: Insight1Engineering acts as if features are “known”<br />Concept/Seed<br />Product Dev.<br />Alpha/<br />Beta<br />Launch/Ship<br />Waterfall<br />Requirements<br />Solution: known<br />Design<br />Implementation<br />Verification<br />Problem: known<br />Maintenance<br /><ul><li> Eric observedthe solution</li></ul> was unknown in a startup<br /><ul><li> Waterfall process could only build known features</li></li></ul><li>Eric Ries: Insight #2Match Agile Dev to Customer Dev speed<br />Concept/Seed<br />Product Dev.<br />Alpha/<br />Beta<br />Launch/Ship<br />Solution: unknown<br /><ul><li> Agile was the development</li></ul> methodology to use when the <br /> product solution was unknown<br />
  89. 89. Problem: Unknown<br />Solution: Unknown<br />Source: Eric Ries<br />New #1: Eric Ries: Insight 3Customer + Agile + Commodity = Lean<br /><ul><li>Solving customer + feature unknowns is the “Lean Startup”</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />47<br />
  90. 90. Orient<br />Decide<br />Act<br />Observe<br />ImplicitGuidance& Control<br />ImplicitGuidance& Control<br />UnfoldingCircumstances<br />CulturalTraditions<br />Observations<br />GeneticHeritage<br />Decision(Hypothesis)<br />Analyses &Synthesis<br />Action(Test)<br />FeedForward<br />FeedForward<br />FeedForward<br />NewInformation<br />PreviousExperience<br />OutsideInformation<br />UnfoldingInteractionWithEnvironment<br />UnfoldingInteractionWithEnvironment<br />Feedback<br />Feedback<br />Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback and other phenomena coming into our observing window.<br /> New #2: Reduced Cycle TimesJohn Boyd Insight: The OODA “Loop”<br />
  91. 91. Speed Up Cycle Time<br /><ul><li>Speed of cycle minimizes cash needs
  92. 92. Minimum feature set speeds up cycle time
  93. 93. Near instantaneous feedback drives feature set</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />49<br />
  94. 94. New #3: Jon Feiber@MDVNot all Startups Need Customer Development<br />Market Risk vs. Technical Risk?<br />Web is about customers & markets<br />Biotech is about science & invention<br />
  95. 95. SEO<br />Campaigns, Contests<br />SEM<br />PR<br />Biz Dev<br />Social Networks<br />Affiliates<br />Blogs<br />ACQUISITION<br />Apps & Widgets<br />Direct, Tel, TV<br />REFERRAL<br />Email<br />Viral Loops<br />Domains<br />Retention<br />Emails & widgets<br />Emails & Alerts<br /><br />Affiliates, Contests<br />Blogs, RSS, News Feeds<br />System Events & Time-based Features<br />Biz Dev<br />Revenue $$$<br />Ads, Lead Gen, Subscriptions, ECommerce<br />New #4: Dave McClureDifferent Metricsfor (Web) Startups <br />From Dave McClure<br /><br />(c)2010 K+S Ranch Consulting Inc.<br />51<br />
  96. 96. More Helpful Startup Metrics<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
  97. 97. Viral/Unique/Session Growth
  98. 98. Customer LTV change
  99. 99. Average Selling Price/Order Size
  100. 100. Monthly burn rate</li></ul>Traditional Accounting<br /><ul><li> Balance Sheet
  101. 101. Cash Flow Statement
  102. 102. Income Statement</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />52<br />
  103. 103. New #5: Business Model, Not PlanFront-end to Customer Development<br />Business Plans are Rigid, Static<br />“No Business Plan Survives First Contact with Customers” who don’t read them --Steve Blank<br />The Four Steps had:<br />Business model flow for Enterprise Software<br />Business model summary for each step<br />Checklist for Enterprise Software<br />It said, “modify it to fit your business”<br />Now we can<br />(c)2010 K+S Ranch Consulting Inc.<br />53<br />
  104. 104. Osterwalder’s Business Model - Insight<br />value proposition<br />customer relationships<br />key activities<br />customer segments<br />key partners<br />cost structure<br />revenue streams<br />key resources<br />channels<br />images by JAM<br />(c)2010 K+S Ranch Consulting Inc.<br />54<br />
  105. 105. KEY<br />PARTNERS<br />OFFER<br /> CUSTOMER RELATIONSHIPS<br />CUSTOMER<br />SEGMENTS<br />KEY<br />ACTIVITIES<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />building<br />block<br />CHANNELS<br />KEY<br />RESOURCES<br />REVENUE STREAMS<br />COST STRUCTURE<br />Business Model Canvas – Any Business<br />55<br />(c)2010 K+S Ranch Consulting Inc.<br />55<br />
  106. 106. …and The Pivot Gets A Name<br /><ul><li> Fueled by Customer Feedback
  107. 107. Head by Founders, Not Consultants
  108. 108. The heart of Customer Development
  109. 109. Iteratiowithout crisis
  110. 110. Fast, agile and opportunistic
  111. 111. Fueled by Customer Feedback
  112. 112. Heard by Founders, Not Consultants
  113. 113. The heart of Customer Development
  114. 114. Iteration without crisis
  115. 115. Fast, agile and opportunistic</li></ul>(c)2010 K+S Ranch Consulting Inc.<br />56<br />
  116. 116. A few rules from the “Blank Manifesto”<br />Align all parties upfront…prepare to lose termsheets<br />No VPs, no factories…MVP to the “champagne cork”<br />No more business plans!<br />Commit to Iterate and Pivot, “celebrate,” tolerate failure when it propels you forward<br />Integrate Customer Development with Agile Manufacturing<br />Agree to very different benchmarks and metrics<br />Faster Cycle Times say Run like hell* <br />57<br />
  117. 117. When Doesn’t Customer Development work?<br />Lack of “honest” commitment to Customer Development<br />Progress over Passion<br />Oops…we promised to ship on…<br />Oops…the factory is about to open<br />Founders delegate Discovery and Validation<br />Too many times ‘round the barn<br />Pharmaceuticals, regulation, innovation risk<br />Too many MBA’s, not enough failure celebration<br />58<br />
  118. 118. So What Happens Next?<br />50 Years After Toyota Invents Lean: …The Next Big Lean Revolution<br />
  119. 119. 50 Years Later<br />Customer & Agile Development change the rules for Consumer Internet startups<br />Economics<br />Development Cycle Time<br />Easy, Overnight MVPs, Iterations, even Pivots<br />Oceans of Fast, Cheap Feedback<br />Time to market<br />“No Money Down”<br />(c)2010 K+S Ranch Consulting Inc.<br />60<br />
  120. 120. 50 Years Later – Full Circle<br />Customer & Agile Development will change the rules in all industries<br />Enterprise Software<br />Consumer Hardware<br />Everything else<br />(c)2010 K+S Ranch Consulting Inc.<br />61<br />
  121. 121. Where to learn more:<br /><br />
  122. 122. Thanks…Now Go PIVOT!<br /><br /><br />