Customer Development Steve Blank Stanford - School of Engineering U.C. Berkeley - Haas School Of  Business www.steveblank....
I Wrote This
I Write a Blog  www.steveblank.com
Early-Stage Ventures
What’s A Startup? Scalable Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>i.e. Product/Ma...
Startups  Search and Pivot Scalable Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>i.e. P...
Startups Search,  Companies Execute Scalable Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><...
How Do Startups  Search  For A Business Model? <ul><li>The Search is called Customer Development </li></ul><ul><li>The Imp...
Customer Development
More startups Fail from  a  Lack of Customers   than from a Failure of Product Development
<ul><li>Then why do we have: </li></ul><ul><li>process to manage product development? </li></ul><ul><li>no process   to ma...
Product Development Model Concept/ Seed Round Product Dev. Alpha/Beta Test Launch/ 1 st  Ship
Tradition – Hire  Marketing Concept/ Seed Round Product Dev. Alpha/Beta Test Launch/ 1 st  Ship Product Development <ul><l...
Tradition – Hire  Sales Concept/ Seed Round Product Dev. Alpha/Beta Test Launch/ 1 st  Ship Product Development <ul><li>Cr...
Tradition – Hire  Bus Development Concept Product Dev. Alpha/Beta Test Launch/ 1 st  Ship Product Development <ul><li>Crea...
Tradition – Hire  Engineering Concept Product Dev. Alpha/Beta Test Launch/ 1 st  Ship Product Development <ul><li>Create M...
Two Startup Fallacies <ul><li>Assumes  customer  problem  is known </li></ul><ul><li>Assumes engineering  solution is know...
Consequences <ul><li>Sales and Marketing  costs are front loaded </li></ul><ul><li>Execution </li></ul><ul><li>Announcemen...
Conundrum <ul><li>Processes to manage product development </li></ul><ul><li>No processes  to manage  customer  development...
An Inexpensive Fix <ul><li>Test  Customer/Market  Hypotheses </li></ul><ul><li>Use an  Engineering Process for Unknowns </...
Customer Development Concept/ Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship Product Development Customer   Develo...
Customer + Agile Development Agile Development + Customer   Development Company Building Customer Discovery Customer Valid...
Key Ideas <ul><li>Tests unknowns  in Business Model </li></ul><ul><li>Parallel  process  to Product Development </li></ul>...
<ul><li>Stop selling, start  listening </li></ul><ul><li>Test  your  hypotheses </li></ul>Customer Discovery Customer Disc...
Hypotheses <ul><li>Problem/Need </li></ul><ul><ul><li>Magnitude </li></ul></ul><ul><ul><li>Organizational impact  </li></u...
Discovery:  Exit Criteria <ul><li>Customers  top  problems ? </li></ul><ul><li>Product  concept  solve them ? </li></ul><u...
Customer Validation Customer Discovery Customer Validation Customer Creation Company Building <ul><li>Repeatable and scala...
Earlyvangelists Budget Put Together  a Solution out of Piece Parts Actively Looking  For a Solution You Know  They Have A ...
Customer Validation:  Rules <ul><li>Sales roadmap, not sales staff </li></ul><ul><li>No sales staffing until the roadmap i...
Customer Development is a Search for a  Business  Model
The  Search  for a  Business Model <ul><li>No Business Plan survives first contact with customers </li></ul><ul><li>A Busi...
Emphasis On  Hypotheses Testing
Startups  Continually Pivot  (Iterate)
Validation:  Exit Criteria <ul><li>Draw your business model ? </li></ul><ul><li>Understood  sales cycle  & sales roadmap? ...
Customer Creation <ul><li>Creation comes after proof of sales </li></ul><ul><li>$’s for scale </li></ul><ul><li>Lean Start...
Customer Creation  Big Ideas <ul><li>Grow customers  from few to many </li></ul><ul><li>Positioning </li></ul><ul><li>Laun...
Sidebar Market Type
Product Introduction Conundrum <ul><li>Product introductions aren’t  predictable </li></ul><ul><ul><li>Why? </li></ul></ul...
Three Types of Markets <ul><li>Type of Market changes EVERYTHING </li></ul><ul><li>Sales, marketing and business developme...
Type of Market Changes Everything <ul><li>Market </li></ul><ul><ul><li>Market Size </li></ul></ul><ul><ul><li>Cost of Entr...
Three Types of Markets <ul><li>Existing  Market </li></ul><ul><ul><li>Faster/Better = High end </li></ul></ul><ul><li>Rese...
Company Building Customer Discovery Customer Validation Customer Creation Company Building <ul><li>(Re)build company’s org...
What VC’s Don’t Tell You: The  Transition Scalable Startup Large Company Transition Search Build Grow
What VC’s Don’t Tell You: The  Transition – Founders Leave Scalable Startup Large Company Transition <ul><li>Founders depa...
Thanks www.steveblank.com
Backup
So What Does Engineering Do?
Traditional Product Development Unit of progress: Advance to Next Stage Problem:  known Solution:  known Waterfall Require...
Agile Unit of progress: a line of working code Problem:  Known Solution:  Unknown “ Product Owner” or  in-house customer  ...
Product Development at Lean Startup Unit of progress: validated learning about customers ($$$) Problem:  Unknown Solution:...
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Introduction to Customer Development at the Lean Startup Intensive at Web 2.0 Expo by Steve Blank

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Presentation by Steve Blank at the Lean Startup Intensive at the Web 2.0 Expo May 3, 2010 in SF

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  • Steve Blank has an additional screen for opportunity – the “Type of Market” Three types of markets Each with a radically different set of needs Palm in 1995 created a “New Market” Handspring in 2000 with the exact same product, entered an “Existing Market Microsoft with the Pocket PC, is attempting to “Resegment” the Market Why does this matter in weighing and assessing opportunity?
  • Each “type of market” is radically different Different ways to size the market opportunity Different sales costs Different demand creation costs Different time to liquidity Very different capital requirements And as we’ll see market type choices radically effect the Customer Development process.
  • In looking at how companies succeed and fail, their success tends to be organized around groupings of customers and markets. More importantly it is how these groupings of customers view their needs and how your new product satisfies those needs
  • IMVU started life as an “IM add-on” product. It sounded like a brilliant strategy – on a whiteboard.
  • Introduction to Customer Development at the Lean Startup Intensive at Web 2.0 Expo by Steve Blank

    1. 1. Customer Development Steve Blank Stanford - School of Engineering U.C. Berkeley - Haas School Of Business www.steveblank.com Twitter: sgblank Lean Startup Intensive at Web 2.0 Expo
    2. 2. I Wrote This
    3. 3. I Write a Blog www.steveblank.com
    4. 4. Early-Stage Ventures
    5. 5. What’s A Startup? Scalable Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>i.e. Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>A Startup is the organization used to search for a scalable business model
    6. 6. Startups Search and Pivot Scalable Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>i.e. Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>The Search for the Business Model
    7. 7. Startups Search, Companies Execute Scalable Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>- Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people The Search for the Business Model The Execution of the Business Model
    8. 8. How Do Startups Search For A Business Model? <ul><li>The Search is called Customer Development </li></ul><ul><li>The Implementation is called Agile Development </li></ul>
    9. 9. Customer Development
    10. 10. More startups Fail from a Lack of Customers than from a Failure of Product Development
    11. 11. <ul><li>Then why do we have: </li></ul><ul><li>process to manage product development? </li></ul><ul><li>no process to manage customer development? </li></ul>
    12. 12. Product Development Model Concept/ Seed Round Product Dev. Alpha/Beta Test Launch/ 1 st Ship
    13. 13. Tradition – Hire Marketing Concept/ Seed Round Product Dev. Alpha/Beta Test Launch/ 1 st Ship Product Development <ul><li>Create Marcom </li></ul><ul><li>Materials </li></ul><ul><li>- Create Positioning </li></ul>- Hire PR Agency - Early Buzz - Create Demand - Launch Event - “Branding” Marketing
    14. 14. Tradition – Hire Sales Concept/ Seed Round Product Dev. Alpha/Beta Test Launch/ 1 st Ship Product Development <ul><li>Create Marcom </li></ul><ul><li>Materials </li></ul><ul><li>- Create Positioning </li></ul>- Hire PR Agency - Early Buzz - Create Demand - Launch Event - “Branding” <ul><li>Build Sales Organization </li></ul>Marketing Sales <ul><li>Hire Sales VP </li></ul><ul><li>Hire 1 st Sales Staff </li></ul>
    15. 15. Tradition – Hire Bus Development Concept Product Dev. Alpha/Beta Test Launch/ 1 st Ship Product Development <ul><li>Create Marcom </li></ul><ul><li>Materials </li></ul><ul><li>- Create Positioning </li></ul>- Hire PR Agency - Early Buzz - Create Demand - Launch Event - “Branding” <ul><li>Hire Sales VP </li></ul><ul><li>Pick distribution Channel </li></ul><ul><li>Build Sales Channel / Distribution </li></ul>Marketing Sales <ul><li>Hire First Bus Dev </li></ul><ul><li>Do deals for FCS </li></ul>Business Development
    16. 16. Tradition – Hire Engineering Concept Product Dev. Alpha/Beta Test Launch/ 1 st Ship Product Development <ul><li>Create Marcom </li></ul><ul><li>Materials </li></ul><ul><li>- Create Positioning </li></ul>- Hire PR Agency - Early Buzz - Create Demand - Launch Event - “Branding” <ul><li>Hire Sales VP </li></ul><ul><li>Pick distribution Channel </li></ul><ul><li>Build Sales Channel / Distribution </li></ul>Marketing Sales <ul><li>Hire First Bus Dev </li></ul><ul><li>Do deals for FCS </li></ul>Business Development Engineering <ul><li>Write MRD </li></ul><ul><li>Waterfall </li></ul><ul><li>Q/A </li></ul><ul><li>Tech Pubs </li></ul>
    17. 17. Two Startup Fallacies <ul><li>Assumes customer problem is known </li></ul><ul><li>Assumes engineering solution is known </li></ul>
    18. 18. Consequences <ul><li>Sales and Marketing costs are front loaded </li></ul><ul><li>Execution </li></ul><ul><li>Announcement is the goal </li></ul><ul><li>Hiring and revenue per “plan” </li></ul><ul><li>Iterate plan by firing execs </li></ul>
    19. 19. Conundrum <ul><li>Processes to manage product development </li></ul><ul><li>No processes to manage customer development </li></ul>
    20. 20. An Inexpensive Fix <ul><li>Test Customer/Market Hypotheses </li></ul><ul><li>Use an Engineering Process for Unknowns </li></ul><ul><li>How? </li></ul>
    21. 21. Customer Development Concept/ Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship Product Development Customer Development Company Building Customer Discovery Customer Validation Customer Creation +
    22. 22. Customer + Agile Development Agile Development + Customer Development Company Building Customer Discovery Customer Validation Customer Creation
    23. 23. Key Ideas <ul><li>Tests unknowns in Business Model </li></ul><ul><li>Parallel process to Product Development </li></ul><ul><li>Measurable Checkpoints </li></ul><ul><li>Not tied to shipment , but customer milestones </li></ul>
    24. 24. <ul><li>Stop selling, start listening </li></ul><ul><li>Test your hypotheses </li></ul>Customer Discovery Customer Discovery Customer Validation Company Building Customer Creation
    25. 25. Hypotheses <ul><li>Problem/Need </li></ul><ul><ul><li>Magnitude </li></ul></ul><ul><ul><li>Organizational impact </li></ul></ul><ul><ul><li>ROI Justification </li></ul></ul><ul><ul><li>Problem Recognition </li></ul></ul><ul><li>Pricing </li></ul><ul><ul><li>Revenue Model </li></ul></ul><ul><ul><li>Pricing </li></ul></ul><ul><ul><li>Demand Creation </li></ul></ul><ul><li>Market Type </li></ul><ul><ul><li>Existing </li></ul></ul><ul><ul><li>New </li></ul></ul><ul><ul><li>Resegment </li></ul></ul><ul><li>Customer </li></ul><ul><ul><li>Archetype(s) </li></ul></ul><ul><ul><li>A Day in the Life </li></ul></ul><ul><li>Distribution </li></ul><ul><ul><li>Channel </li></ul></ul><ul><ul><li>Sales Cycle/Ramp </li></ul></ul><ul><ul><li>Channel strategy </li></ul></ul><ul><ul><li>Organization Map </li></ul></ul><ul><ul><li>Demand Creation </li></ul></ul><ul><li>Product </li></ul><ul><ul><li>Minimum Feature Set </li></ul></ul><ul><ul><li>Dependency Analysis </li></ul></ul><ul><ul><li>Benefits </li></ul></ul><ul><ul><li>Intellectual Property </li></ul></ul><ul><ul><li>Total Cost of Ownership </li></ul></ul>
    26. 26. Discovery: Exit Criteria <ul><li>Customers top problems ? </li></ul><ul><li>Product concept solve them ? </li></ul><ul><li>A day-in-the-life of a customer (archetypes) </li></ul><ul><li>Draw the org chart of users & buyers </li></ul>
    27. 27. Customer Validation Customer Discovery Customer Validation Customer Creation Company Building <ul><li>Repeatable and scalable business model ? </li></ul><ul><li>Passionate earlyvangelists ? </li></ul><ul><li>Pivot back to Discovery if no customers </li></ul>Pivot
    28. 28. Earlyvangelists Budget Put Together a Solution out of Piece Parts Actively Looking For a Solution You Know They Have A Problem They Know They Have a Problem
    29. 29. Customer Validation: Rules <ul><li>Sales roadmap, not sales staff </li></ul><ul><li>No sales staffing until the roadmap is proven </li></ul><ul><li>Tested customer acquisition model </li></ul><ul><li>Goal: prove a profitable business model </li></ul>
    30. 30. Customer Development is a Search for a Business Model
    31. 31. The Search for a Business Model <ul><li>No Business Plan survives first contact with customers </li></ul><ul><li>A Business Model diagrams how a company creates, delivers and captures value </li></ul><ul><li>Or in English: How a company makes money </li></ul>
    32. 32. Emphasis On Hypotheses Testing
    33. 33. Startups Continually Pivot (Iterate)
    34. 34. Validation: Exit Criteria <ul><li>Draw your business model ? </li></ul><ul><li>Understood sales cycle & sales roadmap? </li></ul><ul><li>Proven customer acquisition model? </li></ul><ul><li>Orders ($’s) validating the business model? </li></ul>
    35. 35. Customer Creation <ul><li>Creation comes after proof of sales </li></ul><ul><li>$’s for scale </li></ul><ul><li>Lean Startups are not cheap startups </li></ul>Customer Discovery Customer Validation Company Building Customer Creation
    36. 36. Customer Creation Big Ideas <ul><li>Grow customers from few to many </li></ul><ul><li>Positioning </li></ul><ul><li>Launch </li></ul><ul><li>Demand creation </li></ul><ul><li>Different for each of the Market Types </li></ul>
    37. 37. Sidebar Market Type
    38. 38. Product Introduction Conundrum <ul><li>Product introductions aren’t predictable </li></ul><ul><ul><li>Why? </li></ul></ul><ul><ul><li>Is it the people that are different? </li></ul></ul><ul><ul><li>Is it the product that are different? </li></ul></ul><ul><li>Are there different “types” of startups ? </li></ul>
    39. 39. Three Types of Markets <ul><li>Type of Market changes EVERYTHING </li></ul><ul><li>Sales, marketing and business development differ radically by market type </li></ul>Existing Market Resegmented Market New Market
    40. 40. Type of Market Changes Everything <ul><li>Market </li></ul><ul><ul><li>Market Size </li></ul></ul><ul><ul><li>Cost of Entry </li></ul></ul><ul><ul><li>Launch Type </li></ul></ul><ul><ul><li>Competitive Barriers </li></ul></ul><ul><ul><li>Positioning </li></ul></ul><ul><li>Sales </li></ul><ul><ul><li>Sales Model </li></ul></ul><ul><ul><li>Margins </li></ul></ul><ul><ul><li>Sales Cycle </li></ul></ul><ul><ul><li>Chasm Width </li></ul></ul><ul><li>Finance </li></ul><ul><ul><li>Ongoing Capital </li></ul></ul><ul><ul><li>Time to Profitability </li></ul></ul><ul><li>Customers </li></ul><ul><ul><li>Needs </li></ul></ul><ul><ul><li>Adoption </li></ul></ul>Existing Market Resegmented Market New Market
    41. 41. Three Types of Markets <ul><li>Existing Market </li></ul><ul><ul><li>Faster/Better = High end </li></ul></ul><ul><li>Resegmented Market </li></ul><ul><ul><li>Niche = marketing/branding driven </li></ul></ul><ul><ul><li>Cheaper = low end </li></ul></ul><ul><li>New Market </li></ul><ul><ul><li>Cheaper/good enough = creates a new class of product/customer </li></ul></ul><ul><ul><li>Innovative/never existed before </li></ul></ul>Existing Market Resegmented Market New Market
    42. 42. Company Building Customer Discovery Customer Validation Customer Creation Company Building <ul><li>(Re)build company’s organization & management </li></ul><ul><li>Re look at your mission </li></ul>
    43. 43. What VC’s Don’t Tell You: The Transition Scalable Startup Large Company Transition Search Build Grow
    44. 44. What VC’s Don’t Tell You: The Transition – Founders Leave Scalable Startup Large Company Transition <ul><li>Founders depart </li></ul><ul><li>Professional Mgmt </li></ul><ul><li>Process </li></ul><ul><li>Beginning of scale </li></ul>
    45. 45. Thanks www.steveblank.com
    46. 46. Backup
    47. 47. So What Does Engineering Do?
    48. 48. Traditional Product Development Unit of progress: Advance to Next Stage Problem: known Solution: known Waterfall Requirements Design Implementation Verification Maintenance Source: Eric Ries http://startuplessonslearned.blogspot.com
    49. 49. Agile Unit of progress: a line of working code Problem: Known Solution: Unknown “ Product Owner” or in-house customer Source: Eric Ries http://startuplessonslearned.blogspot.com
    50. 50. Product Development at Lean Startup Unit of progress: validated learning about customers ($$$) Problem: Unknown Solution: Unknown Source: Eric Ries http://startuplessonslearned.blogspot.com

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