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Business plans versus business models - 2010

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Business plans versus business models - 2010

  1. Business Models Steve Blank www.steveblank.com Clean Tech Open Accelerator 2010
  2. I Wrote This
  3. I Write a Blog www.steveblank.com
  4. It Starts With the “Idea
  5. Where are CleanTech Ideas Born? <ul><li>Technology shifts </li></ul><ul><li>Market changes </li></ul><ul><li>Societal changes </li></ul><ul><li>Dinosaur factor </li></ul><ul><li>Irrational exuberance </li></ul>
  6. Technology Driven Ideas <ul><li>Is it buildable now ? How much R, how much D? </li></ul><ul><li>Does it depend on anything else? </li></ul><ul><li>Are there IP issues? </li></ul><ul><li>Does it solve an existing customer problem? </li></ul><ul><li>Create a new market? </li></ul><ul><li>How big a market and when? </li></ul><ul><li>What do you need to turn the idea into a company? </li></ul><ul><li>How do you test customer acceptance early? </li></ul>
  7. Customer Driven Ideas <ul><li>Is there an articulated customer need? </li></ul><ul><li>How do you know? </li></ul><ul><li>How big a market and when? </li></ul><ul><li>Are others trying to solve it? If so, why you? </li></ul><ul><li>What do you need to turn the idea into a company? </li></ul><ul><li>How do you test your idea early? </li></ul>
  8. Opportunity Driven Ideas <ul><li>Is there an opportunity no one sees but you do? </li></ul><ul><li>How do you know it’s a vision not a hallucination? </li></ul><ul><li>How do you test your idea early? </li></ul><ul><li>How big a market and when? </li></ul><ul><li>Are others trying to solve it? If so, why you? </li></ul><ul><li>What do you need to turn the idea into a company? </li></ul>
  9. But an Idea By Itself is Not a Company
  10. Idea/Product – Only a Start <ul><li>Your Idea itself does not have value </li></ul><ul><li>Its fit with customer needs/demand is crucial </li></ul><ul><li>The other parts of the company make it a business </li></ul><ul><li>First-Mover Advantage is usually wrong </li></ul>
  11. Technology Risk , Market Risk or Both?
  12. Clean Tech Markets Air, Water & Waste Energy Efficiency Green Building Renewables Smart Power Transport
  13. Clean Tech Markets - Risk <ul><li>Which markets have technology risk ? </li></ul><ul><li>Which markets have customer risk ? </li></ul><ul><li>Which have both ? </li></ul>Air, Water & Waste Energy Efficiency Green Building Renewables Smart Power Transport
  14. Clean Tech Markets - Risk Definitions <ul><li>Technology Risk </li></ul><ul><ul><li>risk is in development of the product (i.e. fuel cells, thin-film arrays, etc.) then customers automatically adopt </li></ul></ul><ul><li>Customer risk </li></ul><ul><ul><li>risk is in customer and market adoption </li></ul></ul><ul><li>Which have both ? </li></ul><ul><li>You spend your time differently depending on risk </li></ul>Air, Water & Waste Energy Efficiency Green Building Renewables Smart Power Transport
  15. Next… CleanTech Business Plan Hypothesis
  16. Clean Tech Markets - Hypotheses <ul><li>Your business plan is a set of untested hypothesis </li></ul><ul><li>What are they? </li></ul>Size of Opportunity Customer Competition Sales Marketing Biz Dev Customer Dev Bus/Rev Model IP/Patents Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity
  17. Clean Tech Markets - Hypotheses <ul><li>Size of Opportunity </li></ul><ul><ul><li>TAM, SAM </li></ul></ul><ul><li>Customer </li></ul><ul><ul><li>Who’s the end user? Economic buyer? Reimburser? </li></ul></ul><ul><li>Sales </li></ul><ul><ul><li>What’s the distribution channel? </li></ul></ul><ul><li>Marketing </li></ul><ul><ul><li>How do you create end-user demand </li></ul></ul><ul><li>Customer Development </li></ul><ul><ul><li>How do you test your hypothesis </li></ul></ul><ul><li>Business Model </li></ul><ul><ul><li>How do all the parts work to create profits? </li></ul></ul><ul><li>Financing </li></ul><ul><ul><li>What is the path to cash flow positive </li></ul></ul>Size of Opportunity Customer Competition Sales Marketing Biz Dev Customer Dev Bus/Rev Model IP/Patents Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity
  18. Clean Tech Markets - Hypotheses <ul><li>How do you test these hypotheses? </li></ul><ul><li>How do you execute them? </li></ul>Size of Opportunity Customer Competition Sales Marketing Biz Dev Customer Dev Bus/Rev Model IP/Patents Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity
  19. How Big is It ? So if You Succeed Do I Care?
  20. “ Venture-Scale” Businesses <ul><li>Solve a significant problem/want or need, for which someone is willing to pay a premium </li></ul><ul><li>A good fit with the founder(s) and team </li></ul><ul><li>Can grow large (≥$100 million) for traditional VC’s </li></ul><ul><li>Attractive returns for type of investor </li></ul>
  21. Total Available Market, Served Available Market, Target Market Target Market SAM = how many can I reach with my sales channel TAM = how big is the universe Target Market (for a startup) = who will be the most likely buyers Total Available Market Served Available Market
  22. Market Size: Summary <ul><li>Market Size </li></ul><ul><ul><li>How big can this market be? </li></ul></ul><ul><ul><li>How much of it can we get ? </li></ul></ul><ul><ul><li>Market growth rate </li></ul></ul><ul><ul><li>Market structure (Mature or in flux?) </li></ul></ul><ul><li>Most important : Talk to Customers and Channel </li></ul><ul><li>Next important: Market size by competitive approximation </li></ul><ul><ul><li>Wall Street analyst reports are great </li></ul></ul><ul><ul><li>Market research firms </li></ul></ul>
  23. $4 Billion 18,500 MW (Worldwide Grid Tied) <ul><li>Based on lifetime value of all customers (20 yrs) </li></ul><ul><li>Source: Amonix </li></ul>Market Size for SunStream 18,500 MW Source: NREL X 5.5 hours a day X 365 days a year X $150 dollars a MWh X .07 efficiency savings X 20 year lifetime X 40% cut for us = $4 Billion
  24. $4 Billion 18,500 MW (Worldwide Grid Tied) $220 Million 1,000 MW ( US Grid Tied) <ul><li>Based on lifetime value of all customers (20 yrs) </li></ul><ul><li>Source: Amonix </li></ul>Market Size for SunStream
  25. <ul><li>Based on lifetime value of all customers (20 yrs) </li></ul><ul><li>Source: Amonix </li></ul>Market Size for SunStream <ul><li>33-500 Customers </li></ul><ul><li>(25MW in sales = 1-15 customers) </li></ul><ul><li>Source: Heliotex </li></ul>$4 Billion 18,500 MW (Worldwide Grid Tied) $182 Million 830 MW (US Commercial Grid Tied) $220 Million 1,000 MW (US Grid Tied)
  26. Plan versus Model
  27. I’m Confused <ul><li>What is a Business Model ? </li></ul><ul><li>How does it differ from a Business Plan ? </li></ul>
  28. Business Plan <ul><li>A document your investors make you write that they don’t read </li></ul><ul><li>A useful place for you to collect your guesses about your business </li></ul><ul><ul><li>Size of Opportunity </li></ul></ul><ul><ul><li>Customers </li></ul></ul><ul><ul><li>Channel </li></ul></ul><ul><ul><li>Demand Creation </li></ul></ul><ul><ul><li>Revenue/Expenses/Profit </li></ul></ul><ul><li>The template to look like everyone else when you do present to VC’s </li></ul>
  29. Business Plan - Sum of Hypotheses <ul><li>Business plan collects your hypothesis </li></ul><ul><li>Adds facts as you know them today </li></ul><ul><li>A plan of how to turn hypothesis into facts </li></ul><ul><li>Extrapolates results if hypothesis turn into facts </li></ul>
  30. No Business Plan survives first contact with customers
  31. So Search for a Business Model
  32. Business Model … Start with the Pieces
  33. What Is a Business Model ? <ul><li>A diagram that shows all the flows between your company and its customers </li></ul><ul><li>It describes the rationale of how an organization creates, delivers and captures value </li></ul><ul><li>All on a single sheet of paper </li></ul>* Alex Osterwalder
  34. What Makes up a Business Model? <ul><li>A series of building blocks which describe: </li></ul><ul><ul><li>The product </li></ul></ul><ul><ul><li>Customers/Users </li></ul></ul><ul><ul><li>Demand Creation </li></ul></ul><ul><ul><li>Motivations / problems </li></ul></ul><ul><ul><li>Budget / Resources </li></ul></ul><ul><ul><li>Flows of value </li></ul></ul><ul><ul><li>Supply chain </li></ul></ul>
  35. Users Customers Purchase Distribution Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $
  36. Users Customers Purchase Distribution Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $
  37. Users Customers Purchase Distribution Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $
  38. Users Customers Purchase Distribution Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $
  39. Users Customers Distribution Channel Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $
  40. Users Customers Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ Distribution Channel $ $
  41. Users Customers Distribution Channel Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $
  42. Users Customers Distribution Channel Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $
  43. Users Customers Distribution Channel Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ $ $
  44. Emphasis On Hypotheses Testing
  45. Startups Continually Iterate & Pivot
  46. VALUE PROPOSITION COST STRUCTURE CUSTOMER RELATIONSHIP TARGET CUSTOMER DISTRIBUTION CHANNEL VALUE CONFIGURATION CORE CAPABILITIES PARTNER NETWORK REVENUE STREAMS gives an overall view of a company's bundle of products and services portrays the network of cooperative agreements with other companies describes the channels to communicate and get in touch with customers describes the arrangement of activities and resources explains the relationships a company establishes with its customers sums up the monetary consequences to run a business model describes the revenue streams through which money is earned describes the customers a company wants to offer value to outlines the capabilities required to run a company's business model INFRASTRUCTURE CUSTOMER OFFER FINANCE Business Model = Keeping Score in a Startup
  47. Business Model Generation Book
  48. Business Model on Day One of Your Startup
  49. Users Customers Distribution Channel Demand Creation Product Resources $ $ Assembly / Manufacturing 3 rd Party Integration $ $ ? ? ? ? ? ? ? ? $ $
  50. Hypothesis Testing Process Customer Development Customer Discovery Customer Validation Company Building Customer Creation Pivot
  51. <ul><li>Stop selling, start listening </li></ul><ul><li>Test your hypotheses </li></ul><ul><li>Continuous Discovery </li></ul>Customer Discovery Customer Discovery Customer Validation Company Building Customer Creation
  52. Customer Validation Customer Discovery Customer Validation Customer Creation Company Building <ul><li>Repeatable and scalable business model ? </li></ul><ul><li>Passionate earlyvangelists ? </li></ul><ul><li>Pivot back to Discovery if no customers </li></ul>Pivot
  53. The Pivot <ul><li>The heart of Customer Development </li></ul><ul><li>Iteration without crisis </li></ul><ul><li>Fast, agile and opportunistic </li></ul>
  54. Customer Development Book
  55. Putting It Together in A VC Pitch
  56. What are VC’s Really Asking? <ul><li>Are you going to: </li></ul><ul><ul><li>Blow my initial investment? </li></ul></ul><ul><ul><li>Or are you going to make me a ton of money? </li></ul></ul><ul><li>Are there customers for what you are building? </li></ul><ul><ul><li>How many are there? Now? Later? </li></ul></ul><ul><li>Is there a profitable business model? </li></ul><ul><li>Can it scale? </li></ul>
  57. The Traditional VC Pitch <ul><li>Technology </li></ul><ul><li>Team </li></ul><ul><li>Product </li></ul><ul><li>Opportunity </li></ul><ul><li>Customer Problem </li></ul><ul><li>Business Model </li></ul><ul><li>Customers </li></ul>Better Since You Can’t Answer my real questions here’s the checklist
  58. Facts Reduce VC Risk <ul><li>Business Model + Customer Development </li></ul><ul><ul><li>Extract the hypotheses </li></ul></ul><ul><ul><li>Leave the building to test the hypothesis </li></ul></ul><ul><ul><li>Present the results as: “Lessons Learned from our customers” </li></ul></ul><ul><ul><li>Iterate Business Model </li></ul></ul>
  59. Tell The Story of What You Learned <ul><li>Start with your original business model </li></ul><ul><li>Tell them why it was wrong </li></ul><ul><ul><li>Extra credit for getting thrown out of a customer </li></ul></ul><ul><li>Tell them what you learned </li></ul><ul><ul><li>Extra credit for customers saying “now we’ll buy” </li></ul></ul><ul><ul><li>Use data if you have it </li></ul></ul>
  60. Thanks www.steveblank.com

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