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CBI-dagen Bob Dorf


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CBI-dagen Bob Dorf

  1. 1. Customer Development: The Second Decade(aka Why Accountants Don’t Run Startups) Bob Dorfserial entrepreneur, startup advisor, partner, “supporting author” ©2010 K+S Ranch Consulting Inc.
  2. 2. …Is there a roadmap?
  3. 3. What’s A Startup?Scalable Large TransitionStartup Company - Business Model found - i.e. Product/Market fit - Repeatable sales model - Managers hiredA Startup is the temporary organization used to search for a scalable business model3 (c)2010 K+S Ranch Consulting Inc.
  4. 4. Venture Firms Invest in Scalable Startups Startup Small BusinessScalable LargeStartup Company 4 (c)2010 K+S Ranch Consulting Inc.
  5. 5. not quite the beginning of startups, but…100 Years Ago in Detroit
  6. 6. Alfred P. Sloan: Inventor of the Modern Corporation Scalable Large Transition Startup CompanyGeneral Motors, President/Chairman• Cost Accounting• MIT‘s Sloan School• Sloan Kettering• Kettering Institute 6 (c)2010 K+S Ranch Consulting Inc.
  7. 7. Billy DurantScalable Large TransitionStartup Company Leading horse-drawn buggy maker 7 (c)2010 K+S Ranch Consulting Inc.
  8. 8. Durant vs. Sloan • Dies, rich, honored and famous 8 (c)2010 K+S Ranch Consulting Inc.
  9. 9. Durant vs. Sloan • Dies, rich, honored and famous• Dies penniless……managing a bowling alley 9 (c)2010 K+S Ranch Consulting Inc.
  10. 10. Durant vs. Sloan Accountant• Dies managing a bowling alley • Dies, rich, honored and famous 10 (c)2010 K+S Ranch Consulting Inc.
  11. 11. WE are hereScalable Large TransitionStartup Company 11 (c)2010 K+S Ranch Consulting Inc.
  12. 12. 50 years ago: Roger B. Smith Scalable Large Transition Startup Company General Motors, President/Chairman- GM >50% market share- Knew what the customer wanted- 5 years to bring a car to market- Huge inventories eliminate stoppages 12 (c)2010 K+S Ranch Consulting Inc.
  13. 13. Toyoda and OhnoScalable Large TransitionStartup Company • Taught by Americans post WWII • Couldn‘t afford inventory like US auto companies • Toured GM plants and… • Built Kaizen/lean manufacturing • Toyota Lean Production System 13 (c)2010 K+S Ranch Consulting Inc.
  14. 14. 1960: Agile, Lean, Customer Centric Scalable Large Transition Startup Company • Short runs vs. Long option lists • Agile Product Development • Lean Manufacturing • Continuous Improvement • Customer Development … talk about ‖a day in the life‖ 14 (c)2010 K+S Ranch Consulting Inc.
  15. 15. Toyoda/Ohno vs. Smith• Integrate Customer Development vs. Options• Agile Development plus Lean Manufacturing• U.S. Market share goes from 0 to 20% 15 (c)2010 K+S Ranch Consulting Inc.
  16. 16. Toyoda/Ohno vs. Smith • Buys $35 billion of Japanese robots to ―fix‖ GM • Market share drops 50% to <25% 16 (c)2010 K+S Ranch Consulting Inc.
  17. 17. Toyoda/Ohno vs. Smith Accountant 17 (c)2010 K+S Ranch Consulting Inc.
  18. 18. Toyoda/Ohno vs. Smith WE are here 18 (c)2010 K+S Ranch Consulting Inc.
  19. 19. 10 Years Ago in Silicon Valley…
  20. 20. More startups fail froma lack of customers than from afailure of product development
  21. 21. Traditional Product Introduction: Two Implicit AssumptionsCustomer Problem: known Concept Product Alpha/Beta Launch/ Dev. Test 1st Ship Product Features: known 21 (c)2010 K+S Ranch Consulting Inc.
  22. 22. This Was A Plan For Failure• Long-term “lockdown” of Product Development/Engineering• Assumed we understood customer problem/product solution – But they are hypotheses – the facts were outside the building• Sales & Marketing focused on execution to First Customer Ship – Costs and burn rate became front loaded – Execution & hiring predicated on business plan hypothesis• Financial projections assume success – Heavy spending hit if product launch is wrong – Failure always a bad reflection on Management, Board, Investors You don’t know if you’re wrong until you’re out of business, out of money, or (usually) both!
  23. 23. 8 Startups later, Steve Blank Drew This…Customer Customer Customer CompanyDiscovery Validation Creation Building ―Do-Over‖
  24. 24. Which Turned Into A Model Product Introduction ModelConcept Product Alpha/Beta Launch/ Dev. Test 1st Ship became Customer DevelopmentCustomer Customer Customer CompanyDiscovery Validation Creation Building 24 (c)2010 K+S Ranch Consulting Inc.
  25. 25. Customer Development:happy 10th birthday…extensive ―real world‖ deployment…morphed, tested, debated: CE0s, CM0s, VCs, MBAs…start of a new ―entrepreneurial science‖ syllabus with its own library Customer Customer Customer Company Discovery Validation Creation Building Do-Over …a very short Customer Development overview
  26. 26. Customer Discovery Customer Customer Customer Company Discovery Validation Creation Building Do-Over• Stop selling, start listening• Test your hypotheses• Continuous Discovery and Feedback• Done by founders…OUTSIDE the building! 26 (c)2010 K+S Ranch Consulting Inc.
  27. 27. Customer Validation Customer Customer Customer Company Discovery Validation Creation Building Do-Over• Can I avoid the “land of the living dead?”• Repeatable and scalable business model?• Passionate Earlyvangelists who ―gotta have it?‖• Return to Discovery without passionate customers 27 (c)2010 K+S Ranch Consulting Inc.
  28. 28. The “Do Over” Loop Do-Over• Iteration was at the heart of Customer Development• Fast, agile and opportunistic• (Almost) celebrate failure…whenever it‘s instructive• But it didn‘t have a name ―Do over‖ is just so juvenile
  29. 29. Customer Creation Customer Customer Customer Company Discovery Validation Creation Building• Creation comes after proof of sales• Spend to scale based on FACTS, not Hypotheses• Begins only with repeatable, scalable processes for sales, marketing, demand creation 29 (c)2010 K+S Ranch Consulting Inc.
  30. 30. Company Building Customer Customer Customer Company Discovery Validation Creation Building• (Re)build company, management, infrastructure• (Re)visit the mission• Go Global• Get a Porsche (or a Towncar)rganization & management• Re look at your mission 30 (c)2010 K+S Ranch Consulting Inc.
  31. 31. 100 Startups: National Science Foundation• Apply Customer Development principles to 100 top funded NSF innovators—pay‘em!• ―Short Course‖ at Stanford, midterm update• Remote Mentoring for 25 teams/quarter• Finals: VC ―bakeoff‖
  32. 32. So what’s new since 2003??• Customer Development startups have surged• Customer Development “Rules” emerged• Key Customer Development approaches have converged• Product Development cycle times submerged• …and easy money has been purged
  33. 33. Eric Ries: Insight Engineering acts as if features are “known” Concept/ Product Alpha/ Launch/ Seed Dev. Beta Ship Waterfall Requirements Design Solution: known• Eric observed the solution Implementation was unknown in a startup Problem: known Verification• Waterfall process could only Maintenance build known features
  34. 34. New #1:Customer + Agile + Commodity = Lean• Solving customer + feature unknowns is the ―Lean Startup‖ Problem: Unknown Solution: Unknown 34 Source: Eric RiesConsulting Ranch (c)2010 K+S Inc.
  35. 35. #2: Cycle Times Speed Up• Speed of cycle minimizes cash needs• Minimum feature set speeds up cycle time• Near instantaneous feedback drives feature set 35 (c)2010 K+S Ranch Consulting Inc.
  36. 36. New #3: Jon Feiber @ MDV Not all Startups Need Customer Development• Market Risk vs. Technical Risk? – Web is about customers & markets – Biotech is about science & invention – Absolutely valid for .com, social…but differently
  37. 37. New #4: Dave McClure Different Metrics for (Web) Startups SEO Campaigns, SEM PR Contests Biz Dev Social Networks Blogs Affiliates Apps & Direct, Tel, Widgets Email TV Viral Domains ACQUISITION Loops Emails & Alerts Emails & widgetsBlogs, RSS, Affiliates,News Feeds Contests Ads, Lead Gen, Biz Dev System Events & Subscriptions, Time-based Features ECommerce From Dave McClure 37 (c)2010 K+S Ranch Consulting Inc.
  38. 38. Startups Need the Right MetricsThe Search for the Business Model The Execution of the Business Model Scalable Large Transition Startup Company Startup Metrics- Customer Acquisition Cost Traditional Accounting - Balance Sheet- Viral/Unique/Session Growth - Cash Flow Statement- Customer LTV change - Income Statement- Average Selling Price/Order Size- Monthly burn rate 38 (c)2010 K+S Ranch Consulting Inc.
  39. 39. New #5: Business Model, Not Plan a Front-end to Customer Development• Business Plans are Rigid, Static• “No Business Plan Survives First Contact with Customers” who don’t read them --Steve Blank• The Four Steps had: – Business model flow for Enterprise Software – Business model summary for each step – Checklists for Enterprise Software• It said, “modify it to fit your business”• Now we can 39 (c)2010 K+S Ranch Consulting Inc.
  40. 40. Osterwalder’s Business Model - Insight key value customer activities proposition relationships key customerpartners segments cost revenuestructure key streams resources channels 40 (c)2010 K+S Ranch Consulting Inc.
  42. 42. Turning Hypotheses to Facts Test Hypotheses: • Product • Market Type • Competition
  43. 43. Business Model Practice Session: Let‘s all be Steve Jobs for 15 minutes• “I’m thinking about Apple tv”• “Surely it’s not just another tv set”• “Is it an ecosystem somehow?”• “How will it help all of Apple grow?”• “What will make it as distinct as the iPhone?... or the iPod…or the iPad?FOCUS ON THREE BOXES OF THE CANVAS:VALUE PROPOSITION: features, benefits, competitive, priceCUSTOMER SEGMENTS: who will most want to buy it?CHANNEL: where should I let them buy it? 43 (c)2010 K+S Ranch Consulting Inc.
  44. 44. 9 Guesses GuessGuess Guess Guess Guess Guess Guess Guess Guess
  45. 45. A few rules from the “Blank Manifesto”1. Align all parties upfront…prepare to lose termsheets2. No VPs, no factories…MVP to the “champagne cork”3. No more business plans!4. Commit to Iterate and Pivot, “celebrate,” tolerate failure when it propels you forward5. Integrate Customer Development with Agile Development6. Agree to very different benchmarks and metrics7. Faster Cycle Times say Run like hell* 45
  46. 46. OK, Bob, slow down for a minute….QUESTIONS!!
  47. 47. A Deeper Look at Customer DiscoveryCustomer Phase 3 Phase 4Discovery Test Verify, Iterate & Product Expand Hypothesis To Validation Phase 1 Phase 2 Author Test Hypothesis Problem Hypothesis
  48. 48. Customer Discovery Customer Customer Customer Company Discovery Validation Creation Building• Stop selling, start listening• Develop your Key Hypotheses• Test ―Problem‖ Hypotheses with Customers• Then test the GEMx ―Solution• Confirm Discovery Completion
  49. 49. The Discovery Methodology• Remember: ―Search‖ vs. ―Execute‖ This is SEARCH!• Customer Discovery can take months or years• Each Vertical(some Geographies) have a set of phases• Each Discovery mission follows the same 4 steps – Identify and Adjust the ―Variable Hypotheses‖ – Test/Validate the PROBLEM with customers – Test/Validate the product SOLUTION with customers – Determine How/When Discovery is complete• Put the Plan in writing: who, what, when, ―success‖• Be prepared for lots of wrong and left turns
  50. 50. Customer Discovery HypothesesProductHypothesis Inside the Building Customer & Problem Hypothesis Distribution & Pricing Hypothesis Demand Creation Hypothesis Market Type Hypothesis Competitive Hypothesis Test “Problem” Hypothesis Friendly ―Problem‖ Customer Market First Contacts Presentation Understanding Knowledge Outside the “Product” Hypothesis Test Building First Reality ―Product‖ Yet More Second Check Presentation Customer Reality Check Verify Visits Verify the Verify the Verify the Iterate or Product Problem Business Exit Model
  51. 51. Before You Start: #1• Know your stuff: – Lots of casual, ―deep dive‖ conversations – You‘ll be ―trading knowledge,‖ so it‘s good to have some – Know the vertical to ask good questions, process answers – Bring technical experts to key technical conversations• Do your Homework: – Market knowledge a key Discovery element – Customer sizes, current behavior is important – Start early to ―network‖ your way to the right folk – Keep detailed records on all interactions
  52. 52. Before You Start: #2• Capture History/Learning from predecessors: – Industry knowledge among team members – Public, available information resources – Consolidate learning experience-to-date• GET ORGANIZED to – Capture/organize/summarize findings – Which customers address which hypotheses – Find people willing to talk to you
  53. 53. Phase 1: Author Hypotheses Phase 3 Product Phase 4 Iterate & • One-time writing Concept Expand Testing exercise • All other time spent in Phase 1 front of customersPhase 2Test AuthorProblemHypothesis Hypotheses • Assumes you‘re smart but guessing
  54. 54. Step 1:Develop Your Hypotheses• What are Hypotheses?• Where do Hypotheses come from?• Why Test them?• How do you test them?• Why not test them all?
  55. 55. What’s a Hypothesis?• My (well) educated “best GUESS”• …in a one-page bullet point list• Based on Knowledge: – …of the Vertical and/or Geography – …of similar Markets/Verticals/Countries – …that I’ll confirm with the RIGHT types/number of customers• Goal: One Page of Bullets Per Hypothesis – NO long-winded narratives – NO jargon, simple to understand – Use appendices for detailed product, other specs – Be sure the team agrees – Create a “matched set” of Hypotheses for the vertical/marketMBA295-F
  56. 56. Hypotheses to Focus on: 5 Will Change Most Often 1. Product/Value Proposition 2. Customer/Problem 3. Distribution/Pricing 4. Competitive Hypothesis 5. Demand CreationProduct Customer Distribution Competitive DemandHypothesis & Problem & Pricing Hypothesis Creation Hypothesis Hypothesis Hypothesis
  57. 57. 1. Product Hypotheses aka Value Proposition• Features we‘re trying to sell exactly what we‘re building• Benefits vary widely by customer type, need, behavior• Product Delivery Schedule flex for big opportunities• Total Cost of Ownership differs by customer, for sure• Other typical elements you can “ignore:” – Product Cost/Manufacturing – Long-term sales volume(at least for now) – Long-term product plan – Minimum Viable Product
  58. 58. 2. Customer/Problem Hypotheses• Define the Problem price vs performance vs power vs pretty?• Magnitude of the problem how much does anybody care?• Types of Customers/Archetypes may questions here: – Customer type: specifier/buyer/decisionmaker/saboteur types to watch for – Distinct types: Earlyvangelist vs. mainstream; Direct vs. Indirect; Rent vs Buy – Archetypes: draw me the profile of the ideal customer in this vertical – ―Multi-sided:‖ engineers, architects, consultants, other referrers/validators• Visionaries who are the Earlyvangelist candidates/why• Who will grab me and say “I need this now.”
  59. 59. 3. Distribution/Pricing Hypotheses• Distribution Model who sells, services, delivers in vertical• Distribution Diagram how it ―works,‖ who ―owns‖ what• Channel strategy best approach for market/vertical/geography• Sales Cycle/Ramp direct, referrals, viral growth• Pricing and channel costs
  60. 60. 4. Competitive Hypotheses• Key Product Benefits/Attributes• Variations on Benefits by customer type• Who is out there in this vertical or geography?• Why are they important? How do they sell?• Which customers use them today? How?• What are their weaknesses?
  61. 61. 5. Demand Creation Hypotheses• Marketing: it‘s all about Sales Leads. Period.• How do competitors create demand?• How will you create demand in this vertical?• Who are influencers/recommenders?• Key trade shows? Industry groups/events?• Key trends where your product fits, leads?
  62. 62. Phase 2: Test & Qualify Problem Hypothesis Phase 3 Phase 4 Test Product Iterate & Expand • Get out of the building Hypothesis • Test the problem Phase 1 • Become the customerPhase 2 AuthorTest Hypothesis • Solve a real problemProblemHypothesis
  63. 63. Test & Qualify the Problem: 1. Plan First Contacts ALWAYSWarning: this step may not be needed everywhere!• ―Let‘s talk about your problems, not the product‖• Build a Rolodex• Research Industry Associations, Publications• Other relationships with company/geographies• Develop ―Innovators‖ list• Create reference story/sales script• Schedule Customer Visits
  64. 64. Test & Qualify the Problem:2. Create Problem Presentation LIKELY• Absolutely Not a Sales Pitch: – Tests your understanding of the customer‘s problem – Determine how serious a problem you‘re solving(demand) – Learn about customers: how they work, how they buy• Learn to Listen, not to Talk or Present – This is a discussion, not a pitch – Avoid large group meetings where possible – Begin to Validate Hypotheses: pain, gain, how they buy – Probe for the customer‘s ‗win‘• Talk about “possible” Problems/Solutions• Capture missing market, competitive, marketing data
  65. 65. Test & Qualify the Problem:3. Customer Understanding ALWAYS • Become a Domain Expert • Understand their ―Day-in-the Life‖ • Understand their problems/pain • Get a feel of how this impacts their life/work • Who has similar products to solve this problem • How do customers learn about new
  66. 66. Test & Qualify the Problem: 4. Market Knowledge ALWAYS• Get a feel for the ―lay of the land‖• Build a complete ―data set‖ on market, players• Adjacent Market players• Industry Influencers• Key Analysts• Attend Key Conferences/Tradeshows
  67. 67. Discovery: The PROBLEM• What is the problem?• Who has the problem?• How important is solving the problem to this customer?• Where do they turn for solutions?• How valuable is the solution to this customer?• Can I turn interest into an order before I retire?
  68. 68. Phase 3: Test Product HypothesisPhase 3 Phase 4 • First reality checkTest Iterate &Product Expand w/teamHypothesis • The product hits the Phase 1 street Phase 2 Hypothesis Test & Qualify • Lots of customer visits Hypothesis • More doses of reality EVERYONE does this in EVERY MARKET…but it
  69. 69. Test Product Hypothesis: 1. First Reality Check• How did ―Problem‖ Discovery change the Hypotheses?• Do any changes yield Pivots? Pricing? Product?• Build a Workflow Map of customer – First: preliminary sales roadmap – Second: life before and after the new product• Problem scale• Key insights• How did the product spec match needs?• Re-review product feature List• Re-review competitive analysis
  70. 70. Test Product Hypothesis:2. Product Presentation• Start with Problem Presentation• Then describe the Product• Demo if possible
  71. 71. Test Product Hypothesis:3. More Customer Visits: SOLUTION • Set up More Calls • Validate Solution • Validate Product • Validate Positioning • Understand Customer and Organizational Pain • Validate Pricing and Budget • Understand ―Whole Product‖ needs • Understand Approval Process/sales cycle
  72. 72. TIME OUT: What‘s your Discovery Plan?• WHO do you need to talk to?• HOW will you find them?• WHAT “problem” questions do you have?• WHAT “solution” questions do you have?• WHEN will you be done? 72 (c)2010 K+S Ranch Consulting Inc.
  73. 73. Phase 4: Where/When are we done with Customer Discovery? Customer Phase 3 Phase 4 Discovery Test Verify, Iterate & Product Expand Hypothesis To Validation Phase 1 Phase 2 Author Test Hypothesis Problem Hypothesis
  74. 74. Customer Discovery: Exit Criteria• Consistent answers from “enough” people?• What are the customers’ top problems? – How much will they pay to solve them• Is there high demand for your solution? – Do customers agree? – How much will they pay? When?• Draw a day-in-the-life of a customer• Draw the org chart of users & buyers• Enough feedback? How much is that?
  75. 75. When You’re Finished……do it all again: Validation!Customer Phase 3 Phase 4Discovery Test Verify, Iterate & Product Expand Hypothesis To Validation Phase 1 Phase 2 Author Test Hypothesis Problem Hypothesis
  76. 76. Where to learn more: Special Book Offer HereTONS ofINFO here
  77. 77. Thanks …Now Go PIVOT!