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Lecture 1: Business Model & Customer Development

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The Lean LaunchPad
Lecture 1: Business Models and
    Customer Development


              Steve Blank
              Jon Feiber
               Jon Burke

        http://i245.stanford.edu/
What’s A Company?
What’s A Company?

  A business organization which sells a
product or service in exchange for revenue
                 and profit
How Are Companies
   Organized?
How Are Companies
    Organized?
Companies are organized around
      Business Models
What’s a Business Model?

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Lecture 1: Business Model & Customer Development

  • 1. The Lean LaunchPad Lecture 1: Business Models and Customer Development Steve Blank Jon Feiber Jon Burke http://i245.stanford.edu/
  • 3. What’s A Company? A business organization which sells a product or service in exchange for revenue and profit
  • 4. How Are Companies Organized?
  • 5. How Are Companies Organized? Companies are organized around Business Models
  • 7. What’s a Business Model? A business model describes all the parts of the company necessary to make money
  • 8. What About My Technology?
  • 9. What About My Technology? Your technology is one of the many critical pieces necessary to build a company. It is part of the “Value Proposition”
  • 10. What About My Technology? Customers don’t care about your technology They are trying to solve a problem
  • 12. What’s A Startup? A startup is a temporary organization designed to search for a repeatable and scalable business model
  • 13. How to Build A Startup Idea Business Model Size Opportunity Customer Development
  • 14. How to Build A Startup Business Size of the Customer Customer Idea Model(s) Opportunity Discovery Validation
  • 15. How to Build A Startup Size of the Business Size of the Business Customer Customer Idea Opportunity Model(s) Opportunity Model(s) Discovery Validation Theory Practice
  • 16. How to Build A Startup Size of the Business Size of the Business Customer Customer Idea Opportunity Model(s) Opportunity Model(s) Discovery Validation • Web startups get the product in front of customers earlier
  • 17. How to Build A Startup Size of the Business Size of the Business Customer Customer Idea Opportunity Model(s) Opportunity Model(s) Discovery Validation
  • 20. A business model describes all the parts of the company necessary to make money
  • 21. what are those parts? what parts is a business model composed of?
  • 22. 22
  • 23. ? ?
  • 28. to describe, challenge, design, and invent business models more systematically
  • 30. CUSTOMER SEGMENTS images by JAM
  • 31. VALUE PROPOSITIONS images by JAM
  • 32. CHANNELS images by JAM
  • 33. CUSTOMER RELATIONSHIPS images by JAM
  • 34. REVENUE STREAMS images by JAM
  • 35. KEY RESOURCES images by JAM
  • 36. KEY ACTIVITIES images by JAM
  • 37. KEY PARTNERS images by JAM
  • 38. COST STRUCTURE images by JAM
  • 39. key value proposition customer activities relationships key customer partners segments cost revenue structure key streams resources channels images by JAM
  • 40. key value proposition customer activities relationships key customer partners segments cost revenue structure key streams resources channels images by JAM
  • 42. CANVAS OVERLAY KEY KEY OFFER CUSTOMER CUSTOMER PARTNERS ACTIVITIES RELATIONSHIPS SEGMENTS KEY CHANNELS RESOURCES COST STRUCTURE REVENUE STREAMS images by JAM
  • 43. CANVAS OVERLAY KEY KEY OFFER CUSTOMER CUSTOMER PARTNERS ACTIVITIES RELATIONSHIPS SEGMENTS KEY CHANNELS RESOURCES COST STRUCTURE REVENUE STREAMS images by JAM
  • 44. Business Model Canvas building block building block building block building building block block building block building block building block building building block block building building building building block block block block
  • 47. why should some of the smartest scientists in the world waste their time thinking about a business model for coffee?
  • 48. not just because most scientists drink a lot of coffee. we can learn a lot from innovative business models across industries
  • 49. how much did the cost of home coffee consumption change for Swiss households over the last couple of years?
  • 52. Nespresso changed the business (model) for espresso
  • 54. one of the fastest- growing businesses in the Nestlé group
  • 55. average growth of 30% p.a. since 2000
  • 56. over 3 billion CHF annual revenue with 1 product line (3.2 bio USD)
  • 58. Discuss and describe how you would design a business model around Nespresso’s invention
  • 60. ? ? ? ? ? ? ? 60
  • 61. Nespresso club production Nespresso machines Nespresso pods distribution Nespresso channels .com production coffee facilites 1x B2C machine distribution sales 61
  • 62. but Nespresso almost failed in 1987 due to a nonperforming business model
  • 63. Nespresso system joint venture with manufacturer 63
  • 65. what is the most powerful about using a shared language, such as the Business Model Canvas?
  • 71. ? ? ? ? ? ? ? 71
  • 73. radiation-free detection of hospitals breast cancer 73
  • 74. medicaldevicema proprietary IP nufacturers 74
  • 75. ? ? ? ? ? ? ? 75
  • 78. 9 Guesses Guess Guess Guess Guess Guess Guess Guess Guess Guess
  • 79. How Does This Really Work? Stanford Lean LaunchPad Class 8 Weeks From an Idea to a Business
  • 146. Customer Development The founders ^ Get Out of the Building and Search for the Business Model
  • 147. The Customer Development Process Customer Customer Customer Company Discovery Validation Creation Building Pivot
  • 148. The Minimum Viable Product (MVP) Customer Customer Customer Company Discovery Validation Creation Building Pivot •Smallest feature set that gets you the most … - orders, learning, feedback, failure…
  • 149. A Pivot is the change of one or more Business Model Canvas Components
  • 150. The Pivot Customer Customer Customer Company Discovery Validation Creation Building Pivot •The heart of Customer Development •Iteration without crisis •Fast, agile and opportunistic
  • 151. Pivot Cycle Time Matters Customer Customer Customer Company Discovery Validation Creation Building Pivot •Speed of cycle minimizes cash needs •Minimum feature set speeds up cycle time • Near instantaneous customer feedback drives feature set
  • 152. The Customer Development Process Customer Discovery Customer Customer Customer Company Discovery Validation Creation Building Bus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed
  • 153. The Customer Development Process Customer Validation Customer Customer Customer Company Discovery Validation Creation Building Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed
  • 155. How? • Customer Development – The Process • Narrative – Interviews – Surveys – Videos – Prototypes • Business Model Canvas – Scorekeeping • Real-time Feedback • Physical Reality Checks – Skype – Face-to-face
  • 156. We Made Students Blog Their Progress It Changed Everything
  • 158. Photos Videos
  • 166. Business Model Canvas as the Scorecard
  • 167. Market Type Four Types of Markets
  • 168. Type of Market Changes Everything Clone Market 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 Barriers •Finance • Ongoing Capital – Positioning • Time to Profitability
  • 169. Definitions: Four Types of Markets Clone Market Existing Market Resegmented New Market Market • Clone Market – Copy of a U.S. business model • Existing Market – Faster/Better = High end • Resegmented Market – Niche = marketing/branding driven – Cheaper = low end • New Market – Cheaper/good enough, creates a new class of product/customer – Innovative/never existed before
  • 171. Market/Opportunity Analysis How Big is It?: Market/Opportunity Analysis – Identify a Customer and Market Need – Size the Market – Competitors – Growth Potential
  • 172. How Big is the Pie? Total Available Market • How many people would want/need the product? • How large is the market be (in $’s) if they all bought? Total Available Market • How many units would that be? How Do I Find Out? • Industry Analysts – Gartner, Forrester • Wall Street Analysts – Goldman, Morgan
  • 173. How Big is My Slice? Served Available Market • How many people need/can use product? • How many people have the money to buy the product Total • How large would the market be (in $’s) Available Served if they all bought? Market Available • How many units would that be? Market How Do I Find Out? • Talk to potential customers
  • 174. How Much Can I Eat? Target Market • Who am I going to sell to in year 1, 2 & 3? • How many customers is that? • How large is the market be (in $’s) if they all bought? Total Served • How many units would that be? Available Available Market Market Target Market How Do I Find Out? • Talk to potential customers • Identify and talk to channel partners • Identify and talk to competitors
  • 175. Market Size: Summary • Market Size Questions: – How big can this market be? – How much of it can we get? – Market growth rate – Market structure (Mature or in flux?) • Most important: Talk to Customers and Sales Channel • Next important: Market size by competitive approximation – Wall Street analyst reports are great • And : Market research firms Like Forester, Gartner
  • 176. Team Deliverable by Tomorrow 1. Hypotheses for each part of business model 2. Test for each of the hypotheses What constitutes a pass/fail signal for the test (e.g. at what point would you say your hypotheses wasn’t even close to correct? 3. Plan to get out of the building to test the hypotheses • Summarized in a 5 Minute PowerPoint Presentation – Business Model Canvas – Market Size – Getting out of the building plan Don’t Over Think Your Hypotheses
  • 177. Sweet Sensors Glucose Monitor: We have developed a novel technology to use • Widely available any glucose monitor • Cheap without modifications to • Quantitative detect a wide range of information non-glucose targets at • $10 billion market very low concentrations (such as diseases (e.g., However, it can detect TB), heavy metal ions only one target: glucose (e.g., Pb, Hg), organic and at very high toxins, bacteria, viruses concentrations and cancers) Yu Xiang and Yi Lu, Nature Chem. 3, 697-703 (2011).
  • 179. Market size Total available market = $1.2 billion - 300 million patients worldwide - Required HbA1C testing every 60-90 days Serviceable Available Market = $600 million - Available in-home HbA1C tests today are $100/10 tests Target market - Assuming $1 per test, TAM = $1.2 billion = $120 million - Assuming 50% people have the access to a HbA1c test, SAM = $600 million - Assuming we can capture 20% of SAM (high-end diabetics and early adopters), Target market = $120 million
  • 180. Market Size • Growing market – Aging population – Living Style & Diets Total Available market – Chronic disease 170M (US & EU5) $25B • Driving factors – Healthcare costs – Reimbursement – Healthcare labor shortage Target market 3.5M (Resistant Hypertension) $500M
  • 181. Business Model Canvas Yi Lu, Tian Lan Sweet Sensors Neil Kane Chris Sorensen Conferences Product R&D Diabetics At home Product supports Glucose monitor QC Clinicians (in rural area) Convenient Patient manufacturers Marketing network/community Triage nurses Less exposure to Kit manufacturers infectious diseases Pre-diabetics in the hospital Reagent suppliers Cheaper More frequent Retailers (Walgreen) IP Personnel Better indicator of Online vendors (Amazon) health (diabetic management) Direct sales Reagents Manufacture Disposable test kit (used repeatedly Licensing on a regular basis) FDA certification?
  • 182. Action Plan Yi Lu, Tian Lan Sweet Sensors Neil Kane Chris Sorensen Conferences Product R&D Diabetics At home Product supports Glucose monitor QC Clinicians (in rural area) Convenient Patient manufacturers Marketing network/community Triage nurses Less exposure to Kit manufacturers infectious diseases Pre-diabetics in the hospital Reagent suppliers Cheaper More frequent Retailers (Walgreen) IP Personnel Better indicator of Online vendors (Amazon) health (diabetic management) Direct sales Reagents Manufacture Disposable test kit (used repeatedly Licensing on a regular basis) FDA certification?
  • 183. The Business Model Canvas Technical Assistance cGMP manufacturer SOPs for precursors (Image Atlas) Radiopharmacies Radiopharmacies and drugs Accessibility (RCY) FDA regulatory support Nuclear Medicine and Recruit clinical sites Purity Equipment producers Radiology In vivo animal studies Speed departments Develop regulatory PET/SPECT Prescribing physicians plan for pre IND Multiplatform meeting Technical assistance Sensitivity (nca) Radiologist who ID cGMP CRO Specific compounds Pharmaceutical perform studies Fund-raising development companies General IP methodology for PoP data Direct sales of Drug developers adding fluorine to precursor lead compounds of IP interest PoP data R&D and clinical studies presented in Radiologists Regulatory plan Understanding of journals and meetings the regulatory process Sales of intermediates Contract cGMP precursor manufacture Salary, Rents Technology license Clinical trials Product license (royalty)
  • 184. The Business Model Canvas Technical Assistance cGMP manufacturer SOPs for precursors (Image Atlas) Radiopharmacies Radiopharmacies and drugs Accessibility (RCY) FDA regulatory support Nuclear Medicine and Recruit clinical sites Purity Equipment producers Radiology In vivo animal studies Develop regulatory Speed departments PET/SPECT Prescribing physicians plan for pre IND meeting Multiplatform Technical assistance Sensitivity (nca) Radiologist who ID cGMP CRO Pharmaceutical Specific compounds perform studies Fund-raising development companies General Direct sales of IP methodology for precursor PoP data adding fluorine to Drug developers lead compounds of R&D and clinical IP interest studies presented in PoP data journals and meetings Radiologists Regulatory plan Understanding of Sales of precursor the regulatory through global finished process pharmaceutical distributor Sales of intermediates Contract cGMP precursor manufacture Salary, Rents Technology license Clinical trials Product license (royalty)
  • 185. Critical Success Factors • Validation of the need – By talking to diabetic patients, clinician and nurses • Validation of the customer segmentation – By talking to glucose monitor and kit manufactures • Evidence of market accessibility – By talking to glucose monitor and kit distributors
  • 186. Backup
  • 187. Customer Discovery Bus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed
  • 188. Customer Discovery - Physical Bus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed • TAM/SAM •Product MVP • Customers •Channel •Market Type • Customer Relationships: Get/Keep/Grow • Key Resources • Partners • Pricing
  • 189. Customer Discovery - Web Bus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed • TAM/SAM •Low Fidelity MVP • Customers/Source • Channel •Market Type • Customer Relationships: Acquire/Activate •Traffic Partners • Pricing
  • 190. Customer Discovery - Physical Bus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed •TAM/SAM • Low Fidelity MVP •Customer Contacts • Customers •Problem Understanding • Channel •Market Type • Customer Understanding •Cust Relationships • Traffic Partners •Market Knowledge • Pricing
  • 191. Customer Discovery - Web Bus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed •TAM/SAM • Low Fidelity MVP •Customer Engagement • Customers •Test Low Fidelity MVP • Channel •Market Type • Customer Understanding •Cust Relationships • Traffic Partners •Traffic & Competitive Analysis • Pricing
  • 192. Customer Discovery - Physical Bus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed • TAM/SAM • Low Fidelity MVP •Update Bus Model • Customers •Create Prototype/Prod Presentation • Channel •Market Type •Test Solution with Customer •Cust Relationships • Traffic Partners • Update Business Model • Pricing • 1st Advisory Board Members
  • 193. Customer Discovery - Web Bus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed • TAM/SAM • Customer Engagement • Low Fidelity MVP • Test Low Fidelity MVP • Update Bus Model • Customers • Customer Understanding •Test High Fidelity MVP • Channel • Traffic & Competitive Analysis •Market Type • Measure Customer Behavior •Cust Relationships • Traffic Partners • Update Business Model • Pricing • 1st Advisory Board Members
  • 194. Customer Discovery – Web/Physical Bus Model Extract Pivot or Test Problem Test Solution Canvas Hypotheses Proceed • TAM/SAM • Customer Engagement • Low Fidelity MVP • Test Low Fidelity MVP Verify the: • Customers • Customer Understanding •Value Prop • Channel • Traffic & Competitive Analysis •Market Type •Cust Segment •Cust Relationships • Traffic Partners •Cust Relationships • Pricing • Channel • Revenue Model • Pivot or Proceed
  • 195. Customer Validation - Web Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed Pivot
  • 196. Customer Validation - Physical Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed •Craft Positioning •Develop Sales Materials •Hire “Sales Closer” •Sales Channel Action Plan • Refine the Sales Roadmap • Formalize advisory board
  • 197. Customer Validation - Web Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed •Craft Positioning •Acquire/Activate Plans and Tools • Build High Fidelity MVP • Build Metrics Toolset • Hire data analytics chief • Formalize advisory board
  • 198. Customer Validation - Physical Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed •Craft Positioning •Acquire/Activate Plans • Build High Fidelity MVP •Find Earlyvangelists • Build Metrics Toolset • Hire data analytics chief • Test Sell – Out of the Building • Formalize advisory board • Refine Sales Roadmap • Test Sell Channel Partners
  • 199. Customer Validation - Web Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed •Craft Positioning •Acquire/Activate Plans •Prepare Optimization Plans & Tools • Build High Fidelity MVP • Build Metrics Toolset • Out of the building Activation Test • Hire data analytics chief • Measure and Optimize Results • Formalize advisory board • Test Sell Traffic Partners
  • 200. Customer Validation - Physical/Web Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed •Craft Positioning • Acquire/Activate Plans • Prepare Optimization Plans • Company Positioning • Build High Fidelity MVP • Out of the building Activation Test • Measure and Optimize Results • Product Positioning • Build Metrics Toolset • Hire data analytics chief • Test Sell Traffic Partners • Validate Positioning • Formalize advisory board
  • 201. Customer Validation - Physical/Web Get Ready to Pivot or Sell, Sell, Sell Positioning Sell Proceed •Craft Positioning • Acquire/Activate Plans • Prepare Optimization Plans • Assemble Data • Build High Fidelity MVP • Out of the building Activation Test • Measure and Optimize Results • Validate Business Model • Build Metrics Toolset • Hire data analytics chief • Test Sell Traffic Partners • Validate Financial Model • Formalize advisory board • Pivot or Proceed