Why accountants don't run startups #sllconf by Steve Blank

Why Accountants Don’t Run Startups Steve Blank Stanford - School of Engineering U.C. Berkeley - Haas School Of Business www.steveblank.com Twitter: sgblank

I Drew This Customer Customer Customer Company Discovery Validation Creation Building Pivot

I Called It: Customer Development Customer Customer Customer Company Discovery Validation Creation Building Pivot

I Wrote This

A Few People Read It

I Write a Blog www.steveblank.com

When the Student is ready, the Master appears. Buddhist proverb

When the Student is ready, the Master appears. Buddhist proverb When the Master is ready, the Student appears. Steve Blank proverb

Five Short Stories

Tectonic Shifts in Entrepreneurship

The Silicon Valley Funding Pyramid Angels & TechStars Incubators Y-Combinator ($0-10M) Floodgate Seed Funds SoftTech (Clavier) ($10-50M) SV Angel (Conway) Felicis (Senkut) First Round Capital Small VC Funds Union Square Ventures ($50-250M) Sequoia Benchmark Traditional VC Funds (>$250M) Source: Dave McClure 500hats.com

Innovation in Financing Angels & Incubators ($0-10M) Innovation is Seed Funds happening here ($10-50M) Small VC Funds ($50-250M) Traditional VC Funds (>$250M) Source: Dave McClure 500hats.com

New Trends In Silicon Valley •  Internet startups - $500K is the new $5M –  Driven by the top of the pyramid •  Seed Funds providing entrepreneurial education* –  Ycombinator, TechStars, SeedCamp, LaunchBox, etc •  Customer Development/Lean Startup adoption –  Methodology to test hypothesis and business model *~100 startup accelerator programs: http://blog.shedd.us/321987608/

Not All Startups Are Equal

Small Business Startups !"#$$% !"#$"%&' &'()*+((%

Small Business Startups !"#$$% !"#$"%&' &'()*+((% - Business Model found - Profitable business -  Existing team < $10M in revenue

Small Business Startups !"#$$% !"#$"%&' &'()*+((% - Business Model found - Profitable business -  Existing team < $10M in revenue •  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

Small Business Startup: Internet Edition !"#$$% !"#$"%&' &'()*+((% - Business Model found - Profitable business -  Existing team < $10M in revenue •  The Internet allows a new class of Small Businesses •  Not all businesses on the Internet are “Scalable Startups”

Scalable Startup !(#)#*)+' ,#-.+% !"#$"%&' /0"1#*2% ,-.//012+#$'

Scalable Startup !(#)#*)+' ,#-.+% !"#$"%&' /0"1#*2% ,-.//012+#$' -  Total Available Market > $500m -  Company can grow to $100m/year -  Business model found -  Focused on execution and process

Scalable Startup !(#)#*)+' ,#-.+% !"#$"%&' /0"1#*2% ,-.//012+#$' -  Total Available Market > $500m -  Company can grow to $100m/year -  Business model found -  Focused on execution and process -  Typically requires “risk capital” •  In contrast a scalable startup is designed to grow big •  Typically needs risk capital •  What Silicon Valley means when they say “Startup”

Very Different Startup Goals !"#$$% !"#$"%&' &'()*+((% - Business Model found - Profitable business -  Existing team < $10M !(#)#*)+' ,#-.+% !"#$"%&' /0"1#*2% -  Total Available Market > $500m -  Company can grow to $100m/year -  Business model found -  Focused on execution and process -  Typically requires “risk capital”

Silicon Valley Venture Firms Invest in Scalable Startups !"#$"%&' !"#$$%&'()*+((% !(#)#*)+' ,#-.+% !"#$"%&' /0"1#*2%

What VC’s Don’t Tell You: The Transition !(#)#*)+' 3#$4+' 3-#*()40*% !"#$"%&' 567&#82' Search Build Grow

What VC’s Don’t Tell You: The Transition – Founders Leave !(#)#*)+' 3#$4+' 3-#*()40*% !"#$"%&' 567&#82' -  Founders depart -  Professional Mgmt -  Process -  Beginning of scale

What’s A Startup? !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' -  Business Model found -  i.e. Product/Market fit - Repeatable sales model - Managers hired A Startup is the organization used to search for a scalable business model

Plan versus Model

No Business Plan survives first contact with customers

So Search for a Business Model

The Search for a Business Model •  A Business Plan is static • A Business Model diagrams how a company creates, delivers and captures value – it’s dynamic •  Or in English: How a company makes money

Emphasis On Hypotheses Testing

Startups Continually Pivot (Iterate)

Startups Search and Pivot The Search for the Business Model !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' -  Business Model found -  i.e. Product/Market fit - Repeatable sales model - Managers hired

Startups Search, Companies Execute The Search for the Business Model The Execution of the Business Model !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' -  Business Model found - Cash-flow breakeven -  Product/Market fit - Repeatable sales model - Profitable - Managers hired - Rapid scale - New Senior Mgmt ~ 150 people

Metrics Versus Accounting The Execution of the Business Model !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Traditional Accounting -  Balance Sheet -  Cash Flow Statement -  Income Statement

Metrics Versus Accounting The Search for the Business Model The Execution of the Business Model !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Startup Metrics -  Customer Acquisition Cost Traditional Accounting -  Balance Sheet -  Viral coefficient -  Cash Flow Statement -  Customer Lifetime Value -  Income Statement -  Average Selling Price/Order Size -  Monthly burn rate -  etc.

Customer Validation Versus Sales The Execution of the Business Model !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' 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 !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Customer Validation -  Early Adopters Sales -  Sales Organization -  Pricing/Feature unstable -  Scalable -  Not yet repeatable -  Price List/Data Sheets - “One-off’s” -  Revenue Plan

Customer Development Versus Product Management The Execution of the Business Model !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Product Management -  Delivers MRD’s -  Feature Spec’s -  Competitive Analysis

Customer Development Versus Product Management The Search for the Business Model The Execution of the Business Model !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Product Management Customer Development -  Delivers MRD’s -  Hypothesis Testing -  Feature Spec’s -  Minimum Feature Set -  Competitive Analysis -  Pivots

Engineering Versus Agile Development The Execution of the Business Model !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Engineering -  Requirements Docs. -  Waterfall Development -  QA -  Tech Pubs

Engineering Versus Agile Development The Search for the Business Model The Execution of the Business Model !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Engineering Agile Development -  Requirements Docs. -  Continuous Deployment -  Waterfall Development -  Continuous Learning -  QA -  Tech Pubs -  Self Organizing Teams -  Minimum Feature Set -  Pivots

How Do Startups Search For A Business Model? •  The Search is called Customer Development •  The Implementation is called Agile Development

The Lean Startup •  The Search is called Customer Development •  The Implementation is called Agile Development

Startups Don’t Last Forever !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' -  Business Model found - Cash-flow breakeven -  Product/Market fit - Profitable - Repeatable sales model - Rapid scale - Managers hired - New Senior Mgmt ~ 150 people You fail if you remain a startup!

562%!7#-7'1(%8-+*97%:'*%&2% 8;;0'*7#*7(%

Leadership Versus Management !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82'

Leadership Versus Management !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Search

Leadership Versus Management !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Search Build

Leadership Versus Management !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Search Build Grow

Inventor of the Modern Corporation !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82'

Inventor of the Modern Corporation !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Alfred P. Sloan

Alfred P. Sloan !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' General Motors, President/Chairman -  Cost Accounting -  MIT Sloan School -  Sloan Foundation -  etc.

Founder of General Motors !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82'

Founder of General Motors !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Billy Durant

Billy Durant !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' -  Leader in horse-drawn buggy’s -  Fired by board, starts Chevrolet -  Regains control of GM -  Fired by board, GM ~$3.6 billion* * GM Net sales in 1921 $304.5M = $3.6 Billion today

Durant Versus Sloan !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82'

Durant Versus Sloan •  Dies, rich, honored and famous

Durant Versus Sloan •  Dies managing a bowling alley •  Dies, rich, honored and famous

Durant Versus Sloan Accountant •  Dies managing a bowling alley •  Dies, rich, honored and famous

You are here !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82'

E-School instead of B-School

Business School Versus Entrepreneurship School Business School !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' -  Execution -  Strategy -  Accounting -  Products -  Engineering -  Management -  Administrative

Business School Versus Entrepreneurship School Business School Entrepreneurship School !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' -  Hypothesis testing -  Execution -  Business Model testing -  Accounting -  Customer Development -  Products -  Agile Development -  Engineering -  Metrics -  Management -  Administrative -  Venture Finance -  Hands-on

Business School Courses Versus Entrepreneurship Courses Business School !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Courses -  Managerial Finance/Accounting -  Managing Groups and Teams -  Financial Accounting -  Operations -  Modeling for Optimization -  Global Value Chain Strategies

Business School Versus Entrepreneurship Courses Business School Entrepreneurship School !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Courses -  Entrepreneurial Management Courses -  Creativity and Innovation -  Managerial Finance/Accounting -  Managing Groups and Teams -  Technology Entrepreneurship -  Financial Accounting -  Patent Law for Entrepreneurs -  Operations -  Global Entrepreneurial Marketing-  Modeling for Optimization -  Entrepreneurial Finance -  Global Value Chain Strategies

E-School Will Emerge •  Entrepreneurial Education will change radically •  E-School Students are not B-School Students •  Y-Combinator/Techstars first inkling •  Today ~100 startup accelerator programs *~100 startup accelerator programs: http://blog.shedd.us/321987608/

E-School – Let’s Help Build It •  Startup Accelerators - great coaching/networking but minimal methodology •  Lean/Customer Development - great methodology but no education •  Need to be connected to Engineering School •  Stanford, Harvard and others get it…but… *~100 startup accelerator programs: http://blog.shedd.us/321987608/

Durant School of Entrepreneurship

The Durant School of Entrepreneurship http://www.cafepress.com/durantschool

Thanks ===>:"+?+*)#8@>(67'

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Why accountants don't run startups #sllconf by Steve Blank

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