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Customer Development Deep Dive

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Bryan Guido Hassin, global cleantech entrepreneur and Entrepreneur in Residence at the Rice University Center for Engineering Leadership, walks through a case study of how his own startup has used lean startup customer development to validate its market, its product, and build up a huge sales pipeline before even launching its offering.

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Customer Development Deep Dive

  1. 1. Customer Development2013-06-12Bryan Guido HassinEntrepreneur In Residence
  2. 2. Entrepreneurship RoadmapThe BasicsDesigning a BusinessDeveloping a Business2
  3. 3. It will take more than a businessmodel to realize your venture“Strategy without execution is a dream.”-oft quoted business truismThe rest of the quote:“Execution without strategy is anightmare!”So congrats on at least having a strategy!3
  4. 4. Even gnomes fail without properexecution4
  5. 5. Remember that you start withguesses that are proven iterativelyGuess GuessGuessGuessGuessGuessGuessGuessGuess5
  6. 6. Get out of the building and testhypotheses with real clients• Stop selling, start listening• Test your hypotheses• Continuous Discovery• Done by foundersCustomerDiscoveryCustomerValidationCompanyBuildingCustomerCreationSource: Four Steps to the Epiphany6
  7. 7. Let’s walk through a case study ofmy own startup venture7
  8. 8. WirelessMesh SmartSocketsEnergy ManagementDashboardsDesktopAppsMobileAppsMonitoring andAnalysis ServicesSmartMonitorsSmart OES reduces office energy consumption 25%without modifying the building8
  9. 9. Client’s 20,000 sq ft, 3 story office buildingreduced energy 25% with payback < 2 years• Identified lights left on by janitorialstaff, avoided $20k HVAC upgrade• Replaced most wasteful copiers• Automatically shut off power tounused devices nights andweekends• Employees changed behaviors tocompete with each other for lowestenergy use; productivity increasedSource: Client StudiesMeasure 10%Manage 9%Motivate 6%M3™ Energy SavingsSavings: $5k / year Cost: $5k + $1k / year9
  10. 10. 20%17%16%15%13%12%7%Energy TaxesInsurance MaintenanceAdministration CleaningOther2009: Goal to launch scalable CleanWeb startupaddressing office energy efficiency• Energy is the #1 officebuilding operationalexpense• Up to 70% of energy usein offices is simply wasted• $280 billion per year spentglobally on office energy• Energy prices forecast toincreaseOffice Building ExpensesSource: Energy Information Administration 10
  11. 11. • team managementValue PropositionDistribution ChannelTarget CustomerCustomer RelationshipKEY ACTIVITIESKEYRESOURCESKEYPARTNERCOST CENTERS REVENUE STREAMS• Office buildingowners• High touch• VARs (ESCOs)• Reduce topoperationalexpense (energy)by up to 25%• Make building moreappealing• Increase buildingresale value• Asset sale of hardware• Channelmanagement• COGS of hardware• Marketing / channel management personnel• Hardware/softwaresupplier• Fundraising• SalesSOES Biz Model Canvas 2009 11
  12. 12. • Client interviews• Business partnerdiscussionsInitial hypotheses were based on marketresearch so . . . We got out of the building!• Market research• Consultantreports• Speculation12
  13. 13. Prime Building Owners Prime Building TenantsOther Building Owners Other Building TenantsWe learned that our customers were really utility-paying office occupants, not owners• Retrofit solutionsrequire $1M+ capitalexpenditures• 6+ years for typicalpayback on retrofits• Specialized personnel toinstall, maintain retrofitsRetrofit Adoption Potential inOffice Market$15 BILLION POTENTIALMARKET forUTILITY-PAYING OFFICEOCCUPANTSCanAdoptCan NotAdoptCan NotAdoptCan NotAdoptSource: Client Surveys 13
  14. 14. • team managementValue PropositionDistribution ChannelTarget CustomerCustomer RelationshipKEY ACTIVITIESKEYRESOURCESKEYPARTNERCOST CENTERS REVENUE STREAMS• Utility-paying officeoccupants• Owner-occupiedbuildings• Submeteredtenants• High touch• VARs (ESCOs)• Reduce topoperationalexpense (energy)by up to 25%• Make building moreappealing• Increase buildingresale value• Engage employees• Reduce CO2 /Green• Asset sale of hardware• Channelmanagement• COGS of hardware• Marketing / channel management personnel• Hardware/softwaresupplier• Fundraising• SalesSOES Biz Model Canvas 2010 14
  15. 15. We launched [paid] pilot installationsto learn what customers really wantedHardware Software ServicesMinimum Viable Product 1.0Supplier Supplier SOES15
  16. 16. We learned that we needed 4 “P”s to winthe utility-paying office occupant market• Scalable, turnkeyenterprisesolution• Sticky employeeengagement• Not embedded inbuilding• Immediate: 1-2yearsPayback PortabilityProfessionalPeople16
  17. 17. We also learned that no supplierscould provide us with all four “P”sSmart OES(Needs) * * * *Honeywell *JCI *Siemens *SiteControls * *Enistic (UK) * * *Energy Hub * *PeoplePower* * *Powerhouse * *Payback Portability Professional PeopleSelect Energy Efficiency Providers17
  18. 18. So we would need to build ourown hardware and softwareHardware Software ServicesMinimum Viable Product 2.0SOES SOES SOES18
  19. 19. • team managementValue PropositionDistribution ChannelTarget CustomerCustomer RelationshipKEY ACTIVITIESKEYRESOURCESKEYPARTNERCOST CENTERS REVENUE STREAMS• Utility-paying officeoccupants• Owner-occupiedbuildings• Submeteredtenants• High touch• VARs (ESCOs)• Rapid payback• Portable• Professional• Reduce topoperationalexpense (energy)by up to 25%• Engage employees• Reduce CO2 /Green• Asset sale of hardware• Subscription to website• Energy management services• Productengineering• User engagement• Marketing• Channelmanagement• Service• COGS of hardware• Marketing / channel management personnel• Cloud operations• Hardware / softwaresupplier• Initially engineeringsuppliers before webring in house• Remote energymanagement staff• UI design• Hardware design• Effective energymanagement• AI barrier• Brand barrier• Low cost scalemanufacturingSOES Biz Model Canvas 2011 19
  20. 20. We tested our marketing strategy bysigning up real Value-Added ResellersVAR Reality• ESCOs not assuited for our newtarget• PropertyManagement firmsa possibility• VARs won’t workfor small clientsOur Idealized VARNetwork20
  21. 21. We validated much more effective near-term sales channels for our target market2012: Direct SalesValidated withpaying pilotcustomers60-day sales cycle80% trial conversionto $100k averagecustomer2013: Inbound Web/Viral MarketingValidating withongoing onlinecampaigns$100 cost to acquire$5,000 averagecustomer2014: Resellers10 VARs alreadyjoined waiting listRapid expansionwithin existing clientbases21
  22. 22. • team managementValue PropositionDistribution ChannelTarget CustomerCustomer RelationshipKEY ACTIVITIESKEYRESOURCESKEYPARTNERCOST CENTERS REVENUE STREAMS• Utility-paying officeoccupants• Owner-occupiedbuildings• Submeteredtenants• High touch• Light touchthrough webengagement• Excellent service,communication• Direct• Inbound• VARs (ESCOs,Propertymanagement firms,Business solutionsproviders, LEEDconsultants)• Rapid payback• Portable• Professional• Reduce topoperationalexpense (energy)by up to 25%• Engage employees• Reduce CO2 /Green• Asset sale of hardware• Subscription to website• Energy management services• Productengineering• User engagement• Marketing• Channelmanagement• Service• COGS of hardware• Marketing / channel management personnel• Cloud operations• Initially engineeringsuppliers before webring in house• Remote energymanagement staff• UI design• Hardware design• Effective energymanagement• AI barrier• Brand barrier• Low cost scalemanufacturingSOES Biz Model Canvas 2012 22
  23. 23. • team managementValue PropositionDistribution ChannelTarget CustomerCustomer RelationshipKEY ACTIVITIESKEYRESOURCESKEYPARTNERCOST CENTERS REVENUE STREAMS• Utility-paying officeoccupants• Owner-occupiedbuildings• Submeteredtenants• Light touchthrough webengagement• Excellent service,communication• Direct• Inbound• VARs (ESCOs,Propertymanagement firms,Business solutionsproviders, LEEDconsultants)• Rapid payback• Portable• Professional• Reduce topoperationalexpense (energy)by up to 25%• Engage employees• Reduce CO2 /Green• Asset sale of hardware• Subscription to website• Energy management services• Solution As A Service?• Demand Response?• Productengineering• User engagement• Marketing• Service• COGS of hardware• Marketing / channel management personnel• Cloud operations• Initially engineeringsuppliers before webring in house• Remote energymanagement staff• Utilities?• UI design• Hardware design• Effective energymanagement• AI barrier• Brand barrier• Low cost scalemanufacturing• Financing?SOES Biz Model Canvas 2013 23
  24. 24. Smart OES has raised $400K to validate its technologyand business model with paying clients24Prototypes Proven ResultsPilot Installations•Hardwarecomponents“off the shelf”but from UK•“Glued”together withSmart OESsoftware•Plugged intoproprietary M3™methodology•25% savingsongoing > 1year•$500K / yearsavings•Payback < 2year•5 otheroffices•$46M salespipeline
  25. 25. Breakout• How will you validate each area of yourbusiness model?– Customer surveys?– Google AdWords?– Product testing?– Supplier research?– Competitor research?25
  26. 26. Customer Development2013-06-12Bryan Guido HassinEntrepreneur In Residence

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