Business Models & Customer Development
Teaching Points www.steveblank.com @sgblank

Business Model Canvas
Why?
How?

TEACHING POINT
Why?
This Class

The Search for a Path
1602 - 1908

© 2012 Steve Blank

The MBA the Path to
Business Execution

© 2012 Steve Blank

TEACHING POINT
Business Schools

Business Schools • Made the
American Century • Embraced entrepreneurship – Myles Mace HBS 1947, Stanford 1953 – But as an activity you execute • Now embracing search TEACHING POINT

What We Used to Believe

Startups are a Smaller Version
of a Large Company

What We Now Know

Startups Search
Companies Execute

TEACHING POINT Why? Startups are
Not Smaller Versions of a Large Company Search versus Execution

Startups versus existing companies •
That startups begin with a series of unknowns (mostly) – They Search • That existing companies deal with execution of knowns (mostly) – They Execute • The insight is that management tools built to execute do not work in search • Early stage ventures need their own tools TEACHING POINT

What’s a Startup?

© 2012 Steve Blank

TEACHING POINT Why? Why a
definition of a startup?

What’s A Startup A temporary
organization designed to search for a repeatable and scalable business model • This is what the class is about • It’s a definition filled with action • Each word has meaning – Temporary – Search – Repeatable – Scalable – Business Model TEACHING POINT

What We Used to Believe
Strategy

Start With an Operating Plan
and Financial Model

What We Now Know
Strategy

Planning comes before the plan

Business Models

TEACHING POINT Why? Business Model
versus Business Plan

Business Model versus Business Plan
• We are not saying never to a business plan • We are saying, “not first” • Plans are static • Models are dynamic • Planning comes before the plan TEACHING POINT

What We Used to Believe
Process

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

Tradition – Hire Marketing Concept/
Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship - Create Marcom - Hire PR Agency - Create Demand Marketing Materials - Early Buzz - Launch Event - Create Positioning - “Branding”

Tradition – Hire Sales Concept/
Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship - Create Marcom - Hire PR Agency - Create Demand Marketing Materials - Early Buzz - Launch Event - Create Positioning - “Branding” • Hire Sales VP • Build Sales Sales • Hire 1st Sales Staff Organization

Tradition – Hire Bus Development
Concept Product Alpha/Beta Launch/ Dev. Test 1st Ship - Create Marcom - Hire PR Agency - Create Demand Marketing Materials - Early Buzz - Launch Event - Create Positioning - “Branding” • Hire Sales VP • Build Sales Channel / Sales • Pick distribution Distribution Channel Business • Hire First • Do deals for FCS Development Bus Dev

Tradition – Hire Engineering Concept
Product Alpha/Beta Launch/ Dev. Test 1st Ship - Create Marcom - Hire PR Agency - Create Demand Marketing Materials - Early Buzz - Launch Event - Create Positioning - “Branding” • Hire Sales VP • Build Sales Channel / Sales • Pick distribution Distribution Channel Business • Hire First • Do deals for FCS Development Bus Dev Engineering • Write MRD • Waterfall • Q/A •Tech Pubs

Waterfall / Product Management Execution
on Two “Knowns” Requirements Product Features: known Design Implementation Verification Customer Problem: known Maintenance Source: Eric Ries http://startuplessonslearned.blogspot.com

What We Now Know
Process

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

Customer Development

Agile Development

+

TEACHING POINT Why? Customer &
Agile Development versus Product Launch and Waterfall

Customer & Agile Development versus
Product Launch and Waterfall • Product Launch process assumes hypotheses are facts • Waterfall development assumes you know: – the customer problem – Entire solution TEACHING POINT

What We Used to Believe
Organization

Hire and Build a Functional
Organization

What We Now Know
Organization

Founders run a Customer Development
Team No sales, marketing and business development

TEACHING POINT
Why?
Functional Organizations

Functional Organizations • An easy
trap for startups • Large companies have VP’s of Sales, Marketing & Business Development • I guess we should too • Titles are the same, functions are radically different TEACHING POINT

TEACHING POINT How? Business Model
Canvas

The Canvas in Class •
Forces students to articulate all 9 parts of a business model (static) • Used to keep score of customer development progress (dynamic) • Allows visualization of the entrepreneurial process • 9 boxes provides a convenient tempo for weekly classes Different from Osterwalder's original intent - strategy TEACHING POINT

What’s a Business Model?

Value Proposition What Are You
Building and For Who?

Customer Segments Who Are They?
Why Would They Buy?

TEACHING POINT
Multiple Customer Segments

Multiple Customer Segments • Might
have multiple segments of users • Might have users and payers • Might have 5 or 6 different customers – Medical devices have doctors, hospitals, patient, insurance company, FDA, etc. • For every customer segment you need: – Value proposition – Revenue model – And may have unique channels, cust relationships, etc. TEACHING POINT

TEACHING POINT Product/Market Fit Value
Proposition + Customer Segment

Product/Market Fit Does the Value
Proposition MVP match the Customer Segment Archetype? TEACHING POINT

Channels How does your Product
Get to Customers?

Customer Relationships How do you
Get, Keep and Grow Customers?

TEACHING POINT We define Customer
Relationships as Get, Keep and Grow Different and more actionable than Osterwalder

TEACHING POINT

Revenue Streams How do you
Make Money?

Key Resources What are your
most important Assets?

Key Partners Who are your
Partners and Suppliers?

Key Activities What’s Most Important
for the Business?

Cost Structure What are the
Costs and Expenses

TEACHING POINT How? Business Model
Canvas Components

Canvas Components • We overview
all the 9 boxes in the first lecture • Subsequent classes detail each of canvas components • But that’s a sleight of hand • What we are really doing is getting the students to talk to 100 customers in a quarter • The class is not about the lectures • It’s about the work the students do outside the building TEACHING POINT

But,
Realize They’re Hypotheses

9 Guesses Guess Guess Guess
Guess Guess Guess Guess Guess Guess

TEACHING POINT
How?
Customer Development

Customer Development • While so
far the class looked like an easy business model canvas class … • The class is actually all about Customer Development! • Drawing the canvas hypotheses are easy • Testing them is really, really hard • Just like a startup TEACHING POINT

Customer Development Test the Problem,
Then the Solution

TEACHING POINT How? Test the
problem, then the solution

Test the Problem then the
Solution • Customer development is about hypothesis testing • It’s why scientists do great in this class • What are you testing? All the nice, neat assumptions in the business model canvas • First, you test basic assumptions • Then, you test the solution itself • Customer discovery and validation is a fairly rigorous process TEACHING POINT

Customer Development The Minimum Viable
Product

TEACHING POINT How? Build the
minimum viable product

Build the minimum viable product
• This is easy if you use Agile development • You build your product iteratively and incrementally • The goal is feedback, learning, insight, orders, etc. with the minimum feature set TEACHING POINT

Customer Development
The Pivot

TEACHING POINT
How?
The Pivot

The Pivot • A core
concept of Customer Development • In the past a failure to make “the plan” meant a failure of an individual to execute • In the past we fixed problems and changed strategies by firing executives • Now we first fire the plan • A pivot is a substantive change in one or more business model canvas components • An iteration is a minor change in one or more business model canvas components TEACHING POINT

Customer Development Done By the
Founders

Customer Development Canvas to Keep
Score

TEACHING POINT How? Keeping Score
with the Canvas

Keeping Score with the Canvas
• A core concept of the class • Weekly updates of the canvas allow the teaching team to visually see customer development process • Visualize the canvas extending in the Z-axis • That axis represents the customer development process over time TEACHING POINT

Customer Development
Details

Customer Development is how you
search for the model

Customer Development Physical vs. Web/Mobile
Products and Channels

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