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Business Models and
          Customer Development:
          How to FAIL Less
(hint: it’s not just a method for startups!)
                     Bob Dorf
    allegedly retired serial entrepreneur, educator
                  Partner, K&S Ranch Inc.
                 www.steveblank.com
                 bob@kandsranch.com
ME: 7 startups, >20 investments, 3 vests…




                                            2
7 IPOs, 6 disasters, Columbia B-School Prof.




                                           3
608 pages….500+ startup misteaks




                               4
More startups fail from
a lack of customers than from a
failure of product development


                                  5
Why Most Startups Fail…

Assume Customer Problem: known

 Concept/        Product    Alpha/Beta     Launch/
Seed Round        Dev.         Test        1st Ship



                Assume Product Features:   known

                                                      6
Startup Enemy #1:




                    7
No Business Plan
survives first contact
with customers!

         …ask Groupon!
                         8
9
10
11
12
13
14
15
When you’re done…
9 best GUESSES
         …ask Webvan!

                        16
17
18
19
Where Discovery Begins:
       Minimum Viable Product
• Google without ads (two years+)
• Zappos without any shoes
• Diapers.com without diapers

…Fewest possible features to make the point!
…When did a powerpoint last get YOU excited?
…YOU can use this process to test new ideas
                                               20
Customer Discovery
      Customer       Customer     Customer   Company
      Discovery      Validation   Creation    Building




•   Stop selling, start listening
•   Test your hypotheses
•   Continuous Discovery
•   …execute while running your current business
•   …isolate the “startup” within your business 21
The Pivot
                      Search

          Customer             Customer
          Discovery            Validation

                  Pivot

• The heart of Customer Development
• Iteration without crisis
• Fast, agile and opportunistic             22
Just a few(of many) Historic Pivots

•   Steve Blank: “Page 6”
•   Perimeter: “there are 9000 of us”
•   Groupon: the $12billion pivot
•   Ning

• …and thousands more!
                                        23
Pivot Cycle Time Matters
         Search                     Execution
 Customer        Customer     Customer     Company
 Discovery       Validation   Creation      Building
             Pivot


• MVP speeds up cycle time
•Speed of cycle minimizes cash needs
• Customer feedback drives the product!                24
How do you know when Discovery is “done?”
Key Partners                               Key Activities                                Value Proposition                                  Customer Relationships                                      Customer Segments
Who are our key partners/ suppliers        Which key activities does the biz model                                                          What type of relationship does each                         For whom are we creating value
                                           require                                       What value do we deliver to the customer           segment require of us

Complete regional overview                  Populate life cycle data for performance     key distinctive product features &                 product positioning/elevator pitch for each               identify key market segments
                                                                                           benefits for the target customer                    segment                                                    (geography/application) and customer
                                             guarantees                                                                                       Prospect roadmap: how to get face-to-face with             segments (e.g. operator versus owner)
                                                                                           segment                                             right person at prospects in each segment                 how many customers in each segment
                                            Educate market on metric: $/kWh-day          total cost of ownership for segment                key competitors in each segment and their                  and estimated potential volume for
                                                                                                                                               market share                                               each customer
                                             delivered over life of asset                  versus alternatives                                key competitors' characteristics & dynamics
                                                                                          why will segment buy Durathon versus                                                                          how do customers make money … key
                                                                                                                                              What outbound marketing/ advertising/                      customer pain/gain points in each
                                            Establish strong partnerships with            alternatives (i.e. value proposition)               promotion activities are needed                            segment
                                                                                                                                              support tools required by segment (white
                                             channel partners                             minimum feature set (i.e. our launch                papers, TCO calc., tradeshow)
                                                                                                                                                                                                         how are buying decisions made in
                                                                                     0     configuration) and ultimate feature set            pipeline of leads                                          each segment - id
                                                                                          opportunities to claim IP or trademark /                                                                       process, hurdles, decision makers
                                                                                                                                                                                                         what does an Earlyvangelist look like in
                                           Key Resources                                   is there freedom to practice                                                                      25           each segment
                                           Which key resources does the biz model         what regulatory/ certification/                                                                               who influences purchases in each
                                           require                                         transportation/ customs requirements             Channels                                                      segment (trade groups, key
                                                                                                                                                                                                          resellers, trend watchers)
                                            Integrated power system engineering –         should be met or could be differentiator         Through which channel does each
                                                                                                                                            segment want to be reached
                                             compatibility for retrofit and optimized
                                             system solutions                                                                                 which segments can only or best be reached
                                                                                                                                               through a channel partner
                                            Financing options for Power services                                                             which channel partners are important to optimize
                                             operators                                                                                         sales in each segment
                                                                                                                                              what are channel partners' requirements and
                                                                                                                                               cost to become a proactive sales channel
                                                                                                                                              initial channel partner response to value
                                                                                                                                               proposition & customer segments

                                      12                                                                                           25                                                         4                                                 50


Cost Structure                                                                                                  Revenue Streams
What are our cost drivers                                                                                       How much is each segment willing to pay and how would they like to pay us this amount

 Launch reliability                                                                                                What are price /performance characteristics of competing technology
                                                                                                                    What is the 2013 price target for 1 MM cells
                                                                                                                    What is the 2015 price target for 10 MM cells
                                                                                                                    what is optimum sales method for each segment (asset sale, lease, pay for performance, etc.)                               3




                                                                               X = number of in depth customer data points / data sources used to validate hypothesis
                                                                      x


                                                                      x        red = low hypothesis confidence
                                                                               yellow = medium hypothesis confidence                                                                                                                            25
                                                                      x
                                                                               green = high hypothesis confidence
Customer Validation
           Search

      Customer            Customer     Customer     Company
      Discovery           Validation   Creation      Building

                  Pivot                       Execution

• Repeatable and scalable business model?
• Passionate earlyvangelists?
• Pivot back to Discovery if no customers                       26
Why Startups Aren’t Run By Accountants


  Scalable                     Large
                Transition
  Startup                    Company




       Alfred P. Sloan
                                       27
Founder of General Motors


Scalable                      Large
            Transition
Startup                     Company




                    Billy Durant
                                      28
FIRED by General Motors Board


Scalable                     Large
           Transition
Startup                    Company




                   Billy Durant
                                     29
Durant Versus Sloan


    • Dies, rich, honored and famous




                                  30
Durant Versus Sloan


• Dies managing a bowling alley   • Dies, rich, honored and famous




                                                              31
Durant Versus Sloan

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




                                                              32
Innovators look out!
               WE are here
Scalable                        Large
                 Transition
Startup                       Company




                                        33
“Get Out of the Building!!!”




      bob@kandsranch.com
       www.steveblank.com

  ON SALE HERE…also in ebook   34

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Business Models and Customer Development: How to FAIL Less

  • 1. Business Models and Customer Development: How to FAIL Less (hint: it’s not just a method for startups!) Bob Dorf allegedly retired serial entrepreneur, educator Partner, K&S Ranch Inc. www.steveblank.com bob@kandsranch.com
  • 2. ME: 7 startups, >20 investments, 3 vests… 2
  • 3. 7 IPOs, 6 disasters, Columbia B-School Prof. 3
  • 5. More startups fail from a lack of customers than from a failure of product development 5
  • 6. Why Most Startups Fail… Assume Customer Problem: known Concept/ Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship Assume Product Features: known 6
  • 8. No Business Plan survives first contact with customers! …ask Groupon! 8
  • 9. 9
  • 10. 10
  • 11. 11
  • 12. 12
  • 13. 13
  • 14. 14
  • 15. 15
  • 16. When you’re done… 9 best GUESSES …ask Webvan! 16
  • 17. 17
  • 18. 18
  • 19. 19
  • 20. Where Discovery Begins: Minimum Viable Product • Google without ads (two years+) • Zappos without any shoes • Diapers.com without diapers …Fewest possible features to make the point! …When did a powerpoint last get YOU excited? …YOU can use this process to test new ideas 20
  • 21. Customer Discovery Customer Customer Customer Company Discovery Validation Creation Building • Stop selling, start listening • Test your hypotheses • Continuous Discovery • …execute while running your current business • …isolate the “startup” within your business 21
  • 22. The Pivot Search Customer Customer Discovery Validation Pivot • The heart of Customer Development • Iteration without crisis • Fast, agile and opportunistic 22
  • 23. Just a few(of many) Historic Pivots • Steve Blank: “Page 6” • Perimeter: “there are 9000 of us” • Groupon: the $12billion pivot • Ning • …and thousands more! 23
  • 24. Pivot Cycle Time Matters Search Execution Customer Customer Customer Company Discovery Validation Creation Building Pivot • MVP speeds up cycle time •Speed of cycle minimizes cash needs • Customer feedback drives the product! 24
  • 25. How do you know when Discovery is “done?” Key Partners Key Activities Value Proposition Customer Relationships Customer Segments Who are our key partners/ suppliers Which key activities does the biz model What type of relationship does each For whom are we creating value require What value do we deliver to the customer segment require of us Complete regional overview  Populate life cycle data for performance  key distinctive product features &  product positioning/elevator pitch for each  identify key market segments benefits for the target customer segment (geography/application) and customer guarantees  Prospect roadmap: how to get face-to-face with segments (e.g. operator versus owner) segment right person at prospects in each segment  how many customers in each segment  Educate market on metric: $/kWh-day  total cost of ownership for segment  key competitors in each segment and their and estimated potential volume for market share each customer delivered over life of asset versus alternatives  key competitors' characteristics & dynamics  why will segment buy Durathon versus  how do customers make money … key  What outbound marketing/ advertising/ customer pain/gain points in each  Establish strong partnerships with alternatives (i.e. value proposition) promotion activities are needed segment  support tools required by segment (white channel partners  minimum feature set (i.e. our launch papers, TCO calc., tradeshow)  how are buying decisions made in 0 configuration) and ultimate feature set  pipeline of leads each segment - id  opportunities to claim IP or trademark / process, hurdles, decision makers  what does an Earlyvangelist look like in Key Resources is there freedom to practice 25 each segment Which key resources does the biz model  what regulatory/ certification/  who influences purchases in each require transportation/ customs requirements Channels segment (trade groups, key resellers, trend watchers)  Integrated power system engineering – should be met or could be differentiator Through which channel does each segment want to be reached compatibility for retrofit and optimized system solutions  which segments can only or best be reached through a channel partner  Financing options for Power services  which channel partners are important to optimize operators sales in each segment  what are channel partners' requirements and cost to become a proactive sales channel  initial channel partner response to value proposition & customer segments 12 25 4 50 Cost Structure Revenue Streams What are our cost drivers How much is each segment willing to pay and how would they like to pay us this amount  Launch reliability  What are price /performance characteristics of competing technology  What is the 2013 price target for 1 MM cells  What is the 2015 price target for 10 MM cells  what is optimum sales method for each segment (asset sale, lease, pay for performance, etc.) 3 X = number of in depth customer data points / data sources used to validate hypothesis x x red = low hypothesis confidence yellow = medium hypothesis confidence 25 x green = high hypothesis confidence
  • 26. Customer Validation Search Customer Customer Customer Company Discovery Validation Creation Building Pivot Execution • Repeatable and scalable business model? • Passionate earlyvangelists? • Pivot back to Discovery if no customers 26
  • 27. Why Startups Aren’t Run By Accountants Scalable Large Transition Startup Company Alfred P. Sloan 27
  • 28. Founder of General Motors Scalable Large Transition Startup Company Billy Durant 28
  • 29. FIRED by General Motors Board Scalable Large Transition Startup Company Billy Durant 29
  • 30. Durant Versus Sloan • Dies, rich, honored and famous 30
  • 31. Durant Versus Sloan • Dies managing a bowling alley • Dies, rich, honored and famous 31
  • 32. Durant Versus Sloan Accountant • Dies managing a bowling alley • Dies, rich, honored and famous 32
  • 33. Innovators look out! WE are here Scalable Large Transition Startup Company 33
  • 34. “Get Out of the Building!!!” bob@kandsranch.com www.steveblank.com ON SALE HERE…also in ebook 34