1. New Rules for the New Internet Bubble Steve Blank Stanford - School of Engineering www.steveblank.com Twitter: @sgblank

2. I Write a Blog www.steveblank.com

3. This Talk is Based On Business Model Generation Four Steps to the Epiphany Lean Startup

4. First -What’s A Startup? Five Types of Startups

8. 99.7% of all companies

9. ~ 50% of total U.S. workershttp://www.sba.gov/advo/stats/sbfaq.pdf

11. Social Enterprise: Profitable

15. Acquire - IP- Talent - Product - Customers - Business

16. Scalable Startup Large Company Scalable Startup Search Goal is to solve for: unknown customer and unknown features

18. Total Available Market > $500m -$1B

19. Can grow to $100m/yearScalable Startup

21. Company can grow to $100m/year

22. Business model found

23. Focused on execution and process

25. Typically needs risk capital

27. Total Available Market > $500m -$1B

29. 13% of all public companies

30. 4% of total sales of all U.S. public companies ~$1 trillionSource: Josh Lerner, Harvard: VC and Innovation in Energey

31. Buyable Startup Search Sell Scalable Startup $5 to 50M Acquisition Goal is to solve for: Internet and Mobile Apps

32. Buyable Startup Search Sell Scalable Startup $5 to 50M Acquisition Goal is to solve for: Internet and Mobile Apps Sell to larger company

34. i.e. Product/Market fit- Repeatable sales model - Managers hired What’s A Startup? Search Execute A Startup is a temporary organization used to search for a repeatable and scalable business model

35. Next,What’s A Founder?

36. What You and I Saw

37. What Michelangelo Saw

38. What You and I Saw

39. What Van Gogh Saw

40. Founders See Things Others Don’t

41. Founders See Things Others Don’t Founders are Artists. Actually They are Composers. They Create Something From Nothing

42. Founders See Things Others Don’t They Build a Company By Convincing Others To See What They Do

43. Founders See Things Others Don’t The Early Employees Who Join Them Are the Performers

44. A Few Short Stories

45. How Did We Get Here?

46. Paths to Building a Startup 1970 – 1995 build a business (revenue) 1995 – 2000 flip the business (concept IPO) 2001 – 2011 build a business (M&A) 2011 – 2014 flip a built business (M&A / IPO)

47. 1970 – 1995Building a BusinessStartups Are Small Versions of A Large Company

48. 1970 - 1995 Building a Startup the Hard Way $Millions’sto start(Proprietary hdwr/sftwr) Long product dev cycle (Waterfall) Thousands customers (Businesses) How you made Money= IPO(5 qtrsrevenue/profit) No repeatable methodology(Smaller big company)

49. 1970 – 1995 Playbook

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

51. Product Introduction Model The Leading Cause of Startup Death Concept/Seed Round Product Dev. Alpha/Beta Test Launch/ 1st Ship

52. Product Introduction Model:Two Implicit Assumptions Customer Problem: known Concept/Seed Round Product Dev. Alpha/Beta Test Launch/ 1st Ship Product Features: known

55. Hire Sales VP

56. Hire 1st Sales StaffSales

58. Hire Sales VP

61. Hire Sales VP

64. Waterfall

65. Q/A

67. 1995 – 2000Flipping A BusinessThe Dot.comBubble

68. 1995 - 2000The Dot-com Bubble 10’s $millions to start (get big fast, create a brand) Long product dev cycle (ship beta, 1st mover adv) Millions customers (1st consumer internet wave) How you made money= IPO(Little/no revenue, no profits) Repeatable methodology (brand, hype, flip or IPO)

69. 1995 – 2000 Playbook Netscape

70. 2001 – 2010Why Startups Are Not Small Versions of A Large Company

71. 2001 - 2010The Lean Startup ≤ $½ million to start(open source, commodity hdwr) Short product dev cycle (Agile Development) 100’s millions Customers (Social networks, consumer) Liquidity -M&A(revenue & network of users) Repeatable methodology (Agile + Cust Dev)

74. Product/Market fit- Repeatable sales model - Managers hired

76. Cash Flow Statement

78. Viral coefficient

79. Customer Lifetime Value

80. Average Selling Price/Order Size

81. Monthly burn rate

83. Cash Flow Statement

85. Scalable

86. Price List/Data Sheets

88. Pricing/Feature unstable

89. Not yet repeatable

91. Scalable

92. Price List/Data Sheets

94. Waterfall Development

95. QA

97. Waterfall Development

98. QA

100. Continuous Learning

101. Self Organizing Teams

102. Minimum Feature Set

104. features

105. customers/markets

107. describes “unknowns”

108. customer needs

109. feature set

110. business model

111. found by iteration

112. Plan describes “knowns”

113. Known features for line extensions

114. Known customers/markets

116. 2001 - 2011 Playbook Four Steps to the Epiphany Many Agile Texts

117. But We Were Still Using This

118. No Business Plan survives first contact with customers

119. So Search for a Business Model

120. The Business Model: Any company can be described in 9 building blocks

121. CUSTOMER SEGMENTS which customers and users are you serving? which jobs do they really want to get done?

122. VALUE PROPOSITIONS what are you offering them? what is that getting done for them? do they care?

123. CHANNELS how does each customer segment want to be reached? through which interaction points?

124. CUSTOMER RELATIONSHIPS what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?

125. REVENUE STREAMS what are customers really willing to pay for? how? are you generating transactional or recurring revenues?

126. KEY RESOURCES which resources underpin your business model? which assets are essential?

127. KEY ACTIVITIES which activities do you need to perform well in your business model? what is crucial? 69

128. KEY PARTNERS which partners and suppliers leverage your model? who do you need to rely on?

129. COST STRUCTURE what is the resulting cost structure? which key elements drive your costs?

130. value proposition customer relationships key activities customer segments key partners cost structure revenue streams key resources channels 72 images by JAM

131. sketch out your business model

132. But,Realize They’re Hypotheses

133. 9 Guesses Guess Guess Guess Guess Guess Guess Guess Guess Guess

135. The Implementation is Agile Development

137. Customer Development The founders ^ Get Out of the Building

138. Customer DevelopmentThe Search For the Business Model Company Building CustomerDiscovery CustomerValidation Customer Creation Pivot

139. Customer Discovery CustomerDiscovery CustomerValidation Company Building CustomerCreation Stop selling, start listening Test your hypotheses Continuous Discovery Done by founders

141. Market Type

142. CompetitionTurning Hypotheses to Facts

144. Customer

145. User

147. Customer

148. User

150. Market Type

152. (Customer)

155. Customer

156. User

158. Market Type

160. (Customer)

163. MVP + Customer are the first two you need to nail

165. Iteration without crisis

167. OURCRAVE is an online social shopping platform where customers can make their own deals on products or services of their choosing with sellers who can offer them in bulk at a discounted price.

169. Key Question for Business Canvass #1 WHO WILL BE OUR CUSTOMERS? DO THEY FEEL ENOUGH VALUE?

171. 22% paid 5~10% transaction fee

172. 78% agreed it was too much

175. User Side : Online User Survey Power to choose products Discount on products Buyer community feedback

178. Key Question for Business Canvass #2 HOW CAN WE ATTRACT BUYERS? CUSTOMER ACQUISITION COST?

179. Buyer Demand Test Best Marketing Channel for having buyers is Facebook Wall : 144 Unique Visits,10 e-mail subscriptions for 3 days Facebook Wall Google Adwords Facebook Ads 5% 0.08% 0.005% (CTR) $7.52 $4.88 $0 (COST)

182. Online social networks

184. Key Question for Business Canvass #3 HOW CAN WE ATTRACT SELLERS? COOPERATE WITH SELLERS?

186. 3 products: HD camera, protein drink, videogame

188. Discounts offered < 10%

189. With shipping and tax still >= Amazon price

191. Seller problem intractable?

193. Only contacted larger sellers

194. Sellers need more value

195. Show them a real websiteFilter advice and stay determined! No Pivot Yet

197. Buyer facebook login

198. Online social networking integration

199. Seller login and registration

200. Seller bidding

202. Solution 1 : Rapid Implementation The Real Deal

203. Solution 1 : Rapid Implementation Main page Facebook connect Deal creation by sellers Bidding dialog

205. Customer contact information

206. Cross-selling products

207. Ad banners

209. Stanford takes notice and issues warning (oops)

210. Enumerate value propositions

211. Show live website

213. Seller Invitation Result # of sellers who replied to our email 200 sellers # of sellers who made suggestions on OURCRAVE 50 sellers

214. Seller Invitation Feedback We’ve got two major pieces of feedback Who will be in charge of Shipping Cost & Sales Tax ? There are too diverse Product Categories

217. Online social networks

219. Key Question for Business Canvass #4 Key Activities for Next Stage Can we make enough money?

221. Bulk List Uploading Function

223. Share buyer information

228. Extra Discount

229. Free shipping or tax Coupon

230. Live comment on cravebags

231. Weekly Best cravebag vote

232. Youtube Ads Competition* OurCrave User Survey in 2/3 weeks

233. Revenue / Cost Source Revenue Cost Product Ads Transaction Fee ( Main ) Float Money Site Maintenance Marketing ( Main ) Customer Support Server/Traffic /Mobie Apps 15% of transaction Ads for buyer Seller Management 3~5% ( paypal) Outsourcing 20%/60days* * google/groupon’s rule, we are asking sellers about this rule.

235. MARKETING COEST IS MAIN COST

236. BREAK-EVEN IS 3 DEALS/DAY*Appendix in Blogs

239. Online social networks

241. Key Lessons

242. Business Canvas – Week 1 Seller : - More customer traffic - Bulk sales- Lower transaction feesBuyer : - Better discounts - Platform/Networkmanagement (maintaining online buyer/seller communities and credibility)- promotion of website and brand - Powerful sellers - Server providers - Automated services- Communities of buyers and sellers- Co-creation of value through customer feedback Multi-sided platformSeller :pro-sellers on Amazon and eBayBuyer :Online shoppers - Web & App sales - Online social networks - Physical resources (IT infrastructure)- Existing social networks - Buyer and seller communities,- Brand awareness - Variable costs: server and traffic maintenance costs- Fixed costs: rent, salaries Seller side:- transaction fees Buyer side:- targeted ads

243. Business Canvas – Week 2 Seller : - More customer traffic - Bulk sales- Lower transaction fees- Brand name marketingBuyer : - Better discounts - Power to choose product deal - Platform/Networkmanagement (maintaining online buyer/seller communities and credibility)- promotion of website and brand - Powerful sellers - Server providers - Automated services- Communities of buyers and sellers- Co-creation of value through customer feedback Multi-sided platformSeller :pro-sellers on Amazon and eBayBuyer :Online shoppers - Web & App sales - Online social networks - Physical resources (IT infrastructure)- Existing social networks - Buyer and seller communities,- Brand awareness - Variable costs: server and traffic maintenance costs- Fixed costs: rent, salaries Seller side:- transaction fees Buyer side:- targeted ads

244. Business Canvas – Week 3 Seller : - More customer traffic - Bulk sales- Lower transaction fees- Brand name marketingBuyer : - Better discounts - Power to choose product deal - Buyer community feedback on products and sellers - Platform/Networkmanagement (maintaining online buyer/seller communities and credibility)- promotion of website and brand - Powerful sellers -Regionalsellers - Server providers - Automated services- Communities of buyers and sellers- Co-creation of value through customer feedback Multi-sided platformSeller : Sellers on Amazon and eBayBuyer :Online shoppers who are willing to waitto get significant discounts on products - Web & App sales - Online social networks - Physical resources (IT infrastructure)- Existing social networks - Buyer and seller communities,- Brand awareness - Variable costs: server and traffic maintenance costs- Fixed costs: rent, salaries Seller side:- transaction fees Buyer side:- targeted ads

246. Business Canvas – Week 5 - Platform/Networkmanagement (maintaining online buyer/seller communities and credibility)- promotion of website and brand Seller : - More customer traffic - Bulk sales- Lower transaction fees- Brand name marketing - Access to customer contact information - Ability to cross-sell products - Site advertising Buyer : - Better discounts - Power to choose product deal - Buyer community feedback on products and sellers - Sellers who need more traffic -Regionalsellers - Server providers - Automated services- Communities of buyers and sellers- Co-creation of value through customer feedback Multi-sided platformSeller : Sellers on Amazon and eBayBuyer :Online shoppers who arewilling to waitto get significant discounts on products - Web & App sales - Online social networks - Onlineadvertising - Physical resources (IT infrastructure)- Existing social networks - Buyer and seller communities,- Brand awareness - Variable costs: server and traffic maintenance costs- Fixed costs: rent, salaries - Online ads Seller side:- transaction fees Buyer side:- targeted ads

247. Business Canvas – Week 6 Seller : - More customer traffic - Bulk sales- Lower transaction fees- Access to customer contact information - Cross-sell their products.- Site advertising- Power to create dealsBuyer : - Better discounts- Power to choose product deal- Buyer community feedback on products and sellers - Platform/Networkmanagement (maintaining online buyer/seller communities and credibility)- promotion of website and brand - Sellers who need more traffic -Regionalsellers - Server providers - Automated services- Communities of buyers and sellers- Co-creation of value through customer feedback Multi-sided platformSeller : Sellers on Amazon and eBayBuyer :Online shoppers who arewilling to waitto get significant discounts on products - Web & App sales - Online social networks - Onlineadvertising - Physical resources (IT infrastructure)- Existing social networks - Buyer and seller communities,- Brand awareness - Variable costs: server and traffic maintenance costs- Fixed costs: rent, salaries - Online ads Seller side:- transaction fees Buyer side:- targeted ads - float money

248. Business Canvas – Week 7 Seller : - More customer traffic - Bulk sales- Lower transaction fees- Access to customer contact information - Cross-sell their products.- Site advertising- Power to create dealsBuyer : - Better discounts- Power to choose product deal- Buyer community feedback on products and sellers - Platform/Networkmanagement (maintaining online buyer/seller communities and credibility)- Promotion of website and brand - Sellers who need more traffic - Regionalsellers - Server providers Established services- Online Marketing : Google/Facebook -Payment Gateway : Paypal- Customer Service (Front side webservice) : Self- Customer Service (Product side) : Sellers- Delivery : Sellers - Automated services- Communities of buyers and sellers- Co-creation of value through customer feedback Multi-sided platformSeller :Sellers on Amazon and eBay Seller: Trustworthy sellers with verifiable websites.Buyer :Online shoppers who arewilling to waitto get significant discounts on products - Web & App sales - Online social networks - Onlineadvertising - Physical resources (IT infrastructure)- Existing social networks - Buyer and seller communities,- Brand awareness - Variable costs: server and traffic maintenance costs- Fixed costs: rent, salaries - Online ads Seller side:- transaction fees Buyer side:- targeted ads - float money

249. Business Canvas – Week 8 Seller : - More customer traffic - Bulk sales- Lower transaction fees- Access to customer contact information - Cross-sell their products.- Site advertising- Power to create dealsBuyer : - Better discounts- Power to choose product deal- Buyer community feedback on products and sellers - Platform/Networkmanagement (maintaining and growing online buyer/seller communities and credibility)- Promotion of website and brand - Establishing credibility - Sellers who need more traffic Established services- Online Marketing : Google/Facebook -Payment Gateway : Paypal- Customer Service (Front side webservice) : Self- Customer Service (Product side) : Sellers- Delivery : Sellers - Automated services- Communities of buyers and sellers- Co-creation of value through customer feedback Multi-sided platform Seller: Trustworthy sellers with verifiable websites.Buyer :Online shoppers who are willing to wait to get significant discounts on products - Web & App sales - Online social networks - Onlineadvertising - Physical resources (IT infrastructure)- Existing social networks - Buyer and seller communities,- Brand awareness - Variable costs: server and traffic maintenance costs- Fixed costs: rent, salaries - Online ads Seller side:- transaction fees Buyer side:- targeted ads - float money

250. Pivot ExampleRobotic Weeding Talked 75 Customers in 8 Weeks

251. Our initial plan Confidential

253. White Farms, Large Peanut farmer in Georgia

254. REFCO Farms, large grower in Salinas Valley

255. Rincon Farms, large grower in Salinas Valley

256. Small Organic Corn/Soy grower in Nebraska

257. Heirloom Organics, small owner/operator, Santa Cruz Mts

258. Two small organic farmers at farmers market

260. Parks: Stanford Grounds Supervisor, head of maintenance and lead operator (has crew of 6)

261. Toro dealer (large mower manufacturer)

262. User of back-yard mowing system

263. Maintenance Services for City of Los Altos

264. Colony Landscaping (Mowing service for stadiums)Confidential

265. Business Plan Autonomous Vehicles for Mowing & Weeding Dealers sell, installs and supports customer Co. trains dealers, supports dealers - Innovation - Customer Education - Dealer training Mowing - Owners of public or commercially used green spaces (e.g. golf courses) - Landscaping service provider Weeding - Farmers with manual weeding operations We reduce operating cost - Labor reduction - Better utilization of assets (eg mow or weed at nights) - Improved performance (less rework, food safety) - Dealers (Mowing and Ag) - Vehicle OEMs (John Deere, Toro, Jacobsen, etc) - Research labs - Mowing Dealers - Ag Dealers Engineers on Autonomous vehicles, GPS, path-planning Dealer discount COGS seek a 50-60% Gross Margin Heavy R&D investment Asset sale Our revenue stream derives from selling the equipment

266. Autonomous vehiclesWEEDING Dealers sell, installs and supports customer Co. trains dealers, supports dealers - Innovation - Customer Education - Dealer training - Low density vegetable growers - High density vegetable growers - Thinning operations - Conventional vegetables We reduce operating cost - Labor reduction (100 to 1) - Reduced risk of contamination - Mitigate labor availability concerns - Ag Dealers - Ag Service providers - Research labs - Ag Dealers - Ag Service providers Engineers on Machine Vision Two problems: - Identification - Elimination Dealer discount COGS seek a 50-60% Gross Margin Heavy R&D investment Asset sale Our revenue stream derives from selling the equipment

267. 1 Week – 1 CarrotBot Confidential

269. Marketing

270. Demo and customer feedback

271. Farming conventions.

272. Demo, demo, and demo!!

273. Proximity is paramount

274. Organic Farmers

275. Weeding Service Providers

276. Conventional Farmers

277. Cost Reduction

278. Remove labor force pains

279. Eliminate bio-waste hazards

280. Research Labs

281. Equipment Manufacturers

282. Distribution Network

283. Service Providers

284. IP – Patents

285. Video Classifier Files

286. Robust Technology

287. Dealers

288. Direct Service

289. Indirect Service

290. … then Dealers

291. Asset Sale

292. Direct Service with equipment rental

293. … then Asset SaleValue-Driven

295. Marketing

296. Demo and customer feedback

297. Farming conventions.

298. Demo, demo, and demo!!

299. Proximity is paramount

300. Mid/Large Organic Farmers

301. Agricultural corporations

302. Weeding Service Providers

303. Mid/Large Conventional Farmers

304. Cost Reduction

305. Remove labor force pains

306. Eliminate bio-waste hazards

307. Research Labs

308. Equipment Manufacturers

309. Distribution Network

310. Service Providers

311. IP – Patents

312. Video Classifier Files

313. Robust Technology

314. Direct Service

315. Indirect Service

316. … then Dealers

317. Direct Service with equipment rental

318. ($1,500/d; 120d/yr )

319. Low density: $1,500/d

320. High density: $6,000/dValue-Driven

321. World Ag Expo interviews:the need is real and wide spread 10+ interviews at show Everyone confirmed the need Robocrop, UK based, crude competitor sells for $171 K Revenue Stream Mid to small growers prefer a service Large growers prefer to buy, but OK with service until technology is proven Charging for labor cost saved is OK, as we provide other benefits (food safety, labor availability) Confidential

323. Marketing

324. Demo and customer feedback

325. Farming conventions.

326. Demo, demo, and demo!!

327. Proximity is paramount

328. Mid/Large Organic Farmers

329. Agricultural corporations

330. Weeding Service Providers

331. Mid/Large Conventional Farmers

332. Research Labs

333. Equipment Manufacturer

334. Distribution Network

335. Service Providers

336. 2 or 3 Key Farms

337. Cost Reduction

338. Remove labor force pains

339. Eliminate bio-waste hazards

340. IP – Patents

341. Video Classifier Files

342. Robust Technology

343. Direct Service

344. Indirect Service

345. … then Dealers

346. Direct Service with equipment rental

347. Low density: $1,500/d

349. Bill of Materials

350. Training & Service

352. Why Startups Aren’t Run By Accountants

353. Inventor of the Modern Corporation Scalable Startup Transition Large Company

354. Inventor of the Modern Corporation Scalable Startup Transition Large Company Alfred P. Sloan

356. MIT Sloan School

357. Sloan Foundation

359. Founder of General Motors Scalable Startup Transition Large Company Billy Durant

361. Fired by board, starts Chevrolet

362. Regains control of GM

363. Fired by board, GM ~$3.6 billion** GM Net sales in 1921 $304.5M = $3.6 Billion today

364. Durant Versus Sloan Scalable Startup Transition Large Company

368. Carpe Diem www.steveblank.com

369. Thanks www.steveblank.com