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

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Presented by Steve Blank at http://sllconf.com on April 23, 2010 in SF

Presented by Steve Blank at http://sllconf.com on April 23, 2010 in SF

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  • 1. Why Accountants Don’t Run Startups Steve Blank Stanford - School of Engineering U.C. Berkeley - Haas School Of Business www.steveblank.com Twitter: sgblank
  • 2. I Drew This Customer Customer Customer Company Discovery Validation Creation Building Pivot
  • 3. I Called It: Customer Development Customer Customer Customer Company Discovery Validation Creation Building Pivot
  • 4. I Wrote This
  • 5. A Few People Read It
  • 6. I Write a Blog www.steveblank.com
  • 7. When the Student is ready, the Master appears. Buddhist proverb
  • 8. When the Student is ready, the Master appears. Buddhist proverb When the Master is ready, the Student appears. Steve Blank proverb
  • 9. Five Short Stories
  • 10. Tectonic Shifts in Entrepreneurship
  • 11. 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
  • 12. 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
  • 13. 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/
  • 14. Not All Startups Are Equal
  • 15. Small Business Startups !"#$$% !"#$"%&' &'()*+((%
  • 16. Small Business Startups !"#$$% !"#$"%&' &'()*+((% - Business Model found - Profitable business -  Existing team < $10M in revenue
  • 17. Small Business Startups !"#$$% !"#$"%&' &'()*+((% - Business Model found - Profitable business -  Existing team < $10M in revenue •  5.7 million small businesses in the U.S. <500 employees •  99.7% of all companies •  ~ 50% of total U.S. workers http://www.sba.gov/advo/stats/sbfaq.pdf
  • 18. Small Business Startup: Internet Edition !"#$$% !"#$"%&' &'()*+((% - Business Model found - Profitable business -  Existing team < $10M in revenue •  The Internet allows a new class of Small Businesses •  Not all businesses on the Internet are “Scalable Startups”
  • 19. Scalable Startup !(#)#*)+' ,#-.+% !"#$"%&' /0"1#*2% ,-.//012+#$'
  • 20. Scalable Startup !(#)#*)+' ,#-.+% !"#$"%&' /0"1#*2% ,-.//012+#$' -  Total Available Market > $500m -  Company can grow to $100m/year -  Business model found -  Focused on execution and process
  • 21. Scalable Startup !(#)#*)+' ,#-.+% !"#$"%&' /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”
  • 22. Very Different Startup Goals !"#$$% !"#$"%&' &'()*+((% - Business Model found - Profitable business -  Existing team < $10M !(#)#*)+' ,#-.+% !"#$"%&' /0"1#*2% -  Total Available Market > $500m -  Company can grow to $100m/year -  Business model found -  Focused on execution and process -  Typically requires “risk capital”
  • 23. Silicon Valley Venture Firms Invest in Scalable Startups !"#$"%&' !"#$$%&'()*+((% !(#)#*)+' ,#-.+% !"#$"%&' /0"1#*2%
  • 24. What VC’s Don’t Tell You: The Transition !(#)#*)+' 3#$4+' 3-#*()40*% !"#$"%&' 567&#82' Search Build Grow
  • 25. 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
  • 26. 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
  • 27. Plan versus Model
  • 28. No Business Plan survives first contact with customers
  • 29. So Search for a Business Model
  • 30. 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
  • 31. Emphasis On Hypotheses Testing
  • 32. Startups Continually Pivot (Iterate)
  • 33. 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
  • 34. 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
  • 35. 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
  • 36. 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.
  • 37. 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
  • 38. 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
  • 39. 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
  • 40. 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
  • 41. 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
  • 42. 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
  • 43. How Do Startups Search For A Business Model? •  The Search is called Customer Development •  The Implementation is called Agile Development
  • 44. The Lean Startup •  The Search is called Customer Development •  The Implementation is called Agile Development
  • 45. 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!
  • 46. 562%!7#-7'1(%8-+*97%:'*%&2% 8;;0'*7#*7(%
  • 47. Leadership Versus Management !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82'
  • 48. Leadership Versus Management !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82'
  • 49. Leadership Versus Management !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Search
  • 50. Leadership Versus Management !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Search Build
  • 51. Leadership Versus Management !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Search Build Grow
  • 52. Inventor of the Modern Corporation !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82'
  • 53. Inventor of the Modern Corporation !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Alfred P. Sloan
  • 54. Alfred P. Sloan !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' General Motors, President/Chairman -  Cost Accounting -  MIT Sloan School -  Sloan Foundation -  etc.
  • 55. Founder of General Motors !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82'
  • 56. Founder of General Motors !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' Billy Durant
  • 57. 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
  • 58. Durant Versus Sloan !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82'
  • 59. Durant Versus Sloan •  Dies, rich, honored and famous
  • 60. Durant Versus Sloan •  Dies managing a bowling alley •  Dies, rich, honored and famous
  • 61. Durant Versus Sloan Accountant •  Dies managing a bowling alley •  Dies, rich, honored and famous
  • 62. You are here !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82'
  • 63. E-School instead of B-School
  • 64. Business School Versus Entrepreneurship School Business School !(#)#*)+' 3#$4+' 9$#8:;<68' !"#$"%&' 567&#82' -  Execution -  Strategy -  Accounting -  Products -  Engineering -  Management -  Administrative
  • 65. 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
  • 66. 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
  • 67. 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
  • 68. 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/
  • 69. 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/
  • 70. Durant School of Entrepreneurship
  • 71. The Durant School of Entrepreneurship http://www.cafepress.com/durantschool
  • 72. The Durant School of Entrepreneurship http://www.cafepress.com/durantschool
  • 73. The Durant School of Entrepreneurship http://www.cafepress.com/durantschool
  • 74. Thanks ===>:"+?+*)#8@>(67'