The Lean Startup


Low Burn by Design not Crisis




     Steve Blank and Eric Ries
The Economy

Before
• Cash was readily available
• Follow on financing was readily available


After
• Debt markets are tig...
State of Startups


• High burn rate
• Swing for the fences
• Full management teams
• Assume customer is known
• Assume fe...
Top Gun dogfight scene
Warfare Changes Forever
Boyd: Winning is about Agility



                 The OODA Loop

                 • Observe

                 • Orient

 ...
Boyd Redefines the Rules to Win



               • Agility requires a continuous
                 cycle of interactions w...
Winners are Those Who Can Move
 Faster Than Their Competitors


              • Winning requires constant
                ...
Facing Reality at Today’s Startup
        There is no 2nd Place


               • Uncertain environment
               • ...
Using OODA to Create “Lean Startups”
     And Changing the Startup Rules


                            Customer
          ...
Lean Startups
Building a New Wave of Companies in Silicon Valley


                          • Continuous customer
       ...
IMVU
Founding IMVU

• History:
 - Company founded in April 2004
 - Founders audit Steve Blank's B-school class Fall of 2004
• T...
IMVU: Q4 2004

• Product                                  9,000                                                           ...
IMVU: Q1 and Q2 2005

• Product
 -   3D IM service for hanging out with
                                                9,...
IMVU: Q3 2005

• Product                             9,000                                                                ...
Lean Startup Principles
Extraordinary Value at Low cost in Little Time


                        • Leverages:
     Custome...
The Lean Startup
   Agile Product Development



                  • Continuous cycle of
                    Product Devel...
What has changed? Technology
Lean Startups Leverage Commoditized Technology


  Licensed Software/              Open Sourc...
Product Development a la Microsoft
          Unit of progress: Advance to Next Stage

                        Waterfall


...
Product Development at Typical Venture Startup
    Assumes Customers and Markets are Understood


                        ...
Product Development at Lean Startup
             Assumes Customers and Markets are Unknown


                       Custom...
The Lean Startup
     Customer Development

                • Continuous cycle of
                  customer interaction
 ...
The Lean Startup
Customer Development Parallels Agile Development

                           Agile Development


       C...
Customer Development
  Turns Market Risk/Product Fit Hypothesis into Facts


        Customer    Customer        Customer ...
Lean Startup Advantages
                                          Customer
                                         Develo...
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Lean Startup presentation for Maples Investments by Steve Blank and Eric Ries

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  • everyone in IT should see this
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  • Yes download sucks. Great presentation. I have been building a 'network of shareholder agents' model, eliminating all overhead, taking all the free services and tools I can get my hands on and obviating anything that even remotely smells like a fixed expense. Tough market is the customer acquisition thing in this market is tougher than the slides would imply. IMVU happened 4 years ago. Would the the traction play-out similarly if they were starting today?
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  • it would be better if the download link actually worked. God, I hate slideshare.
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  • very well done gents. excellent advice and a strategy I'm so glad I was already following before the crisis even happened.
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Lean Startup presentation for Maples Investments by Steve Blank and Eric Ries

  1. 1. The Lean Startup Low Burn by Design not Crisis Steve Blank and Eric Ries
  2. 2. The Economy Before • Cash was readily available • Follow on financing was readily available After • Debt markets are tight • IPO & M&A window closed • VC!s deep pessimism Venture fund returns have been on decline for a decade - no end in sight
  3. 3. State of Startups • High burn rate • Swing for the fences • Full management teams • Assume customer is known • Assume features are known • Assumes growth is by execution Traditional startups are fighting yesterday’s war
  4. 4. Top Gun dogfight scene
  5. 5. Warfare Changes Forever
  6. 6. Boyd: Winning is about Agility The OODA Loop • Observe • Orient • Decide • Act
  7. 7. Boyd Redefines the Rules to Win • Agility requires a continuous cycle of interactions with the environment • But you can’t do it from a desk
  8. 8. Winners are Those Who Can Move Faster Than Their Competitors • Winning requires constant assessment of change and ways to mitigate risk • Iterating faster than competitors yields substantial advantage
  9. 9. Facing Reality at Today’s Startup There is no 2nd Place • Uncertain environment • Rapid, unanticipated changes that lead to disorientation • Constant threats to any initiative • Burn rate (time, fuel, bullets, dollars) limits window of opportunity
  10. 10. Using OODA to Create “Lean Startups” And Changing the Startup Rules Customer Development Agile Product Development
  11. 11. Lean Startups Building a New Wave of Companies in Silicon Valley • Continuous customer Customer Development interaction • Revenue goals from day one • No scaling until revenue • Assumes customer and features are unknowns Agile Product • Low Burn by Design - Not Development Crisis
  12. 12. IMVU
  13. 13. Founding IMVU • History: - Company founded in April 2004 - Founders audit Steve Blank's B-school class Fall of 2004 • Tactics: - Shipped in 6 months - Charged from Day 1 - No press releases - Ship 20 times a day • Results: - Continuous iteration with customers - 2007 revenues of $10MM • Here's what it looked like to their first venture investors
  14. 14. IMVU: Q4 2004 • Product 9,000 $8,000 - 3D Instant Messenger (IM) add-on hanging out online with friends 8,000 $7,000 - Piggy-back on existing buddy lists 7,000 $6,000 and IM programs 6,000 • Customer reaction $5,000 - Avatar customization is key appeal 5,000 $4,000 - “Add-on” concept is confusing. They 4,000 actually want a separate buddy list $3,000 3,000 • So we... $2,000 - Ditched the IM add-on idea 2,000 1,000 $1,000 0 $0 Feb-05 Dec-04 Mar-05 Jan-05 Nov-04 May-05 Aug-05 Apr-05 Jul-05 Jun-05
  15. 15. IMVU: Q1 and Q2 2005 • Product - 3D IM service for hanging out with 9,000 $8,000 friends and meeting people 8,000 $7,000 - Introduced Chat Now feature (instant 7,000 matching) $6,000 • Customer reaction 6,000 $5,000 - Meeting new friends is as important 5,000 as talking with existing friends (50/50) $4,000 - Not enough people on IMVU 4,000 $3,000 - Retention is a problem 3,000 • So we... 2,000 $2,000 - Scaled up advertising budget (to 1,000 $1,000 $40/day) - Learned about retention from market 0 $0 leaders (Cyworld, Myspace) Feb-05 Dec-04 Mar-05 Jan-05 Nov-04 May-05 Aug-05 Apr-05 Jul-05 Jun-05
  16. 16. IMVU: Q3 2005 • Product 9,000 $8,000 - 3D IM service plus avatar home 8,000 $7,000 pages - Also introduced messages, gifts, 7,000 $6,000 picture galleries and blogs 6,000 • Customer reaction $5,000 - Avatar home pages are highly 5,000 $4,000 addictive 4,000 - 2D and 3D complement one 3,000 $3,000 another - Messages in home pages and real 2,000 $2,000 time interaction complement one another 1,000 $1,000 0 $0 Feb-05 Dec-04 Mar-05 Jan-05 Nov-04 May-05 Aug-05 Apr-05 Jul-05 Jun-05
  17. 17. Lean Startup Principles Extraordinary Value at Low cost in Little Time • Leverages: Customer - Technology commoditization Development - Agile management practices - Customer Development • Designed to test hypothesis and answer the unknowns Agile Product Development
  18. 18. The Lean Startup Agile Product Development • Continuous cycle of Product Development - Product release cycle in hours not years - Tightly coupled with customer development - Minimum feature sets, Agile maximum customer coverage Product Development
  19. 19. What has changed? Technology Lean Startups Leverage Commoditized Technology Licensed Software/ Open Source/ Proprietary Hardware Commodity Technology
  20. 20. Product Development a la Microsoft Unit of progress: Advance to Next Stage Waterfall Problem: known Solution: known
  21. 21. Product Development at Typical Venture Startup Assumes Customers and Markets are Understood Agile (XP)! “Product Owner” or in-house customer Problem: known Solution: unknown
  22. 22. Product Development at Lean Startup Assumes Customers and Markets are Unknown Customer Development Engineering Customer Customer Customer Scale Discovery Validation Creation Company Data, feedback, insights Problem: unknown Solution: unknown Hypotheses, experiments, insights
  23. 23. The Lean Startup Customer Development • Continuous cycle of customer interaction Customer Development - Rapid hypothesis testing about market, pricing, customers, … - Extreme low cost, low burn, tight focus - Measurable gates for investors
  24. 24. The Lean Startup Customer Development Parallels Agile Development Agile Development Concept / Agile Continuous Continuous Business Plan Development Test Ship Customer Development Customer Customer Customer Company Discovery Validation Creation Building
  25. 25. Customer Development Turns Market Risk/Product Fit Hypothesis into Facts Customer Customer Customer Company Discovery Validation Creation Building • Discovery - Test hypotheses I.e. problem and product concept • Validation - Build a repeatable and scalable sales process • Creation - Create end-user demand and fill the sales pipeline • Building - Scale via relentless execution
  26. 26. Lean Startup Advantages Customer Development • Builds low-burn companies by design - Low cost market risk testing Agile • Organized around learning and Product Development discovery • Right model for current conditions The next wave of capital efficient startups
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