Customer Development/Lean Startup 012610 Class 2

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Steve Blank/Eric Ries Customer Development / Lean Startup Class 1 at Haas Business School 012610

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Customer Development/Lean Startup 012610 Class 2

  1. Customer Development in High Tech: Sales, Marketing & Business Development in a Startup MBA & EMBA 295-F Three Types of Markets Steve Blank and Eric Ries 1/26/10 1
  2. Class 2: Agenda   Scalable Startups   Case: In N Out   Market Type   Definitions   Examples   Risks 2
  3. Scalable Startup 3
  4. Small Business vs. Scalable Startup   Small business = reasonable risk and return   Scalable startup = unreasonable risk and return   Vision of large market or new market   Willing to make a large bet of time and money   Reality Distortion field 4
  5. Small  Business  vs.  Scalable  Startup   Small   Startup   Business   Scalable   Large   Startup   Company   >$100M/year  
  6. Small  Business  vs.  Scalable  Startup   Small   Startup   Business   -­‐  Business  Model  found   -­‐  Profitable  business   -­‐   ExisEng  team   <  $10M   Scalable   Large   Startup   Company   >$100M/year   -­‐   Total  Available  Market  >  $500m   -­‐   Company  can  grow  to  $100m/year   -­‐   Known  business  model   -­‐   Focused  on  execuEon  and  process  
  7. Scalable  Startup  to  Company   The  TransiEon   Scalable   TransiEon   Company   Startup  
  8. Scalable  Startup  Exit  Criteria   Scalable   TransiEon   Company   Startup   -  Business Model found -  Product/Market fit - Repeatable sales model - Managers hired
  9. TransiEon  to  Company  Exit  Criteria   Scalable   TransiEon   Company   Startup   -  Business Model found - Cash-flow breakeven -  Product/Market fit - Profitable - Repeatable sales model - Rapid scale - Managers hired - New Senior Mgmt ~ 150 people
  10. What  is  a  Startup:  DefiniEon   a  startup  is  an  organiza-on  formed  to   search  for  a  repeatable  and  scalable   business  model.  
  11. What  is  the  Purpose  of  a  Startup?   The Search for the Business Model The Execution of the Business Model Scalable   TransiEon   Company   Startup   -  Business Model found - Cash-flow breakeven -  Product/Market fit - Profitable - Repeatable sales model - Rapid scale - Managers hired - New Senior Mgmt ~ 150 people
  12. What is a Scalable Startup: Definition A  startup  is  an  organiza-on  formed  to   search  for  a  repeatable  and  scalable   business  model.   So  what’s  a  Business  Model?  
  13. Business  Model  =     Keeping  Score  itomorrow’s organization. today. n  a  Startup   INFRASTRUCTURE PARTNER CUSTOMER CUSTOMER NETWORK RELATIONSHIP OFFER CORE TARGET explains the CAPABILITIES portrays the network of relationships a company CUSTOMER cooperative agreements VALUE establishes with its with other companies PROPOSITION customers outlines the capabilities describes the customers required to run a a company wants to company's business offer value to model DISTRIBUTION VALUE gives an overall view of CONFIGURATION a company's bundle of CHANNEL products and services describes the describes the channels arrangement of to communicate and get activities and resources in touch with customers sums up the monetary describes the revenue consequences to run a COST FINANCE REVENUE streams through which business model STRUCTURE STREAMS money is earned
  14. Where  Does  this  Class  Fit?   Scalable Startup Customer Development Hypotheses, Data, TransiEon   Company   Experiments Feedback, , Insights Insights Agile Development
  15. Where  Does  this  Class  Fit?   This is what our class is about Scalable Startup Customer Development Hypotheses, Data, TransiEon   Company   Experiments Feedback, , Insights Insights Agile Development
  16. In-N-Out Case 16
  17. In-N-Out Secret Menu   X by Y   Grilled Cheese   X meat patties and Y slices of cheese   Two slices of melted cheese, tomato, (for example, a 3 by 3 or a 2 by 4) lettuce and spread on a bun, with no meat.   Double Meat   Extra Everything   Two meat patties without cheese.   Adds extra spread, tomato, lettuce, and   Triple Meat onions (regular or grilled).   Three meat patties without cheese.   Fries "Light"   Animal Style   Almost raw fries that are cooked for less time.   A mustard cooked beef patty served on a bun with pickles, lettuce, tomatoes, extra   Fries "Well" (aka "Wellies") spread and grilled onions. Any burger   Fries that are cooked longer to be extra (including veggie and grilled cheeses) may crisp. be made this way.   Cheese Fries   Flying Dutchman   Fries with two slices of melted cheese   Two meat patties, two slices of melted placed on top. cheese and nothing else.   Animal Style Fries   Protein Style   Fries with cheese, spread, and grilled   Instead of a bun, the burger is wrapped in onions. lettuce. Any burger (including veggie and   Neapolitan Shake grilled cheeses) may be made this way.   All three shake flavors (strawberry, vanilla   Veggie Burger (Wish Burger) and chocolate) combined in one shake.   A burger without the meat and cheese. 17
  18. In-N-Out Meat Factory 18
  19. Further Reading 19
  20. Market Type Who Cares? 20
  21. So Why Are We Talking About This? Existing Market Resegmented New Market Market 21
  22. Type of Market Changes Everything Existing Market Resegmented New Market Market   Market Sales   •  Customers   Market Size   Sales Model •  Needs   Cost of Entry   Margins •  Adoption   Launch Type   Sales Cycle Competitive   Chasm Width   •  Finance Barriers •  Ongoing Capital   Positioning •  Time to Profitability 22
  23. Definitions: Three Types of Markets Existing Market Resegmented New Market Market   Existing Market   Faster/Better = High end   Resegmented Market   Niche = marketing/branding driven   Cheaper = low end   New Market   Cheaper/good enough can create a new class of product/customer   Innovative/never existed before 23
  24. Existing Market Definition   Are there current customers who would:   Need the most performance possible?   Is there a scalable business model at this point?   Is there a defensible business model   Are there sufficient barriers to competition from incumbents? 24
  25. Existing Market Performance! Our Company! Existing! Companies! 25
  26. Oops, forgot about Time Performance! Our Company! Existing! th Companies! an ce Grow Today! any Perform Existin g Comp Time! 26
  27. Existing Market Risks   “Better/Faster” is an engineering driven axiom   Incumbents defend high-end, high-margin businesses   Factor in:   Network effect of incumbent   Sustaining innovation of incumbent   Industry (or you own) “standards”   “They’ll never catch up” is not a business strategy   Established companies almost always win 27
  28. Resegmented Market Definition (1) Low End   Are there customers at the low end of the market who would:   buy less (but good enough) performance   if they could get it at a lower price?   Is there a business profitable at this low-end?   Are there sufficient barriers to competition from incumbents? 28
  29. Low-end Resegmentation “Good Enough” Performance Performance! Existing! th Companies! an ce Grow Today! a ny Perform Existin g Comp Our Company! At the Low-end! Time! 29
  30. Resegmented Market Definition (2) Niche   Are there customers in the current market who would:   buy if it addressed their specific needs   if it was the same price?   If it cost more?   Is there a defensible business model at this point?   Are there barriers to competition from incumbents? 30
  31. Niche Resegmentation “Branding” has its place Existing Customers! Performance! New Niches! ny ew Compa for a N Niche ny ew Compa for a N Niche y gCompan Existin Time! 31
  32. Resegmented Market Risks   “Cheaper” is a sales-driven axiom   Incumbents abandon low-end, low-margin businesses   For sometimes the right reasons   Low-end must be coupled with a profitable business model   Up migration 32
  33. New Market Definition   Is there a large customer base who couldn’t do this before?   Because of cost, availability, skill…?   Did they have to go to an inconvenient, centralized location?   Are there barriers to competition from incumbents? 33
  34. New Market Customers That Don’t Yet Exist Existing Customers! New Niches! Performance! New Customers! New Markets! pan y g Com Existin t New Marke Time! 34
  35. New Market Risks   “New” is a marketing-driven axiom   New has to be unique enough that:   There is a large customer base who couldn’t do this before   They want/need/can be convinced   Adoption occurs in your lifetime   Company manages adoption burn rate   Investors are patient and have deep pockets 35
  36. Hybrid Markets   Some products fall into Hybrid Markets   Combine characteristics of both a new market and low-end resegmentation   SouthWest Airlines   Dell Computers   Cell Phones   Apple IPhone? 36
  37. Market  Type    
  38. New Product Conundrum   New Product Introduction methodologies sometimes work, yet sometimes fail   Why?   Is it the people that are different?   Is it the product that are different?   Perhaps there are different “types” of startups? 38
  39. Business  Model  ExecuEon  Differs  by   “Market  Type”   organization. today. tomorrow’s INFRASTRUCTURE PARTNER CUSTOMER CUSTOMER NETWORK RELATIONSHIP OFFER CORE TARGET explains the CAPABILITIES portrays the network of relationships a company CUSTOMER cooperative agreements VALUE establishes with its with other companies PROPOSITION customers outlines the capabilities describes the customers required to run a a company wants to company's business offer value to model DISTRIBUTION VALUE gives an overall view of CONFIGURATION a company's bundle of CHANNEL products and services describes the describes the channels arrangement of to communicate and get activities and resources in touch with customers sums up the monetary describes the revenue consequences to run a COST FINANCE REVENUE streams through which business model STRUCTURE STREAMS money is earned
  40. Lean  Startup  ExecuEon  Differs  by   “Market  Type”   organization. today. tomorrow’s Customer Development Hypotheses, Data, Experiments, Feedback, Insights Insights Agile Development
  41. Next Week   Read   CASE: E.Ink and E.Ink 2005   Boyd – OODA Loop PowerPoint slides   Fast Company : The Strategy of a Fighter pilot   McGrath & MacMillan: Entrepreneurial Mindset Chapter 10 pages 231-245   Blank – Four Steps to the E.piphany Chapter 2 41

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