Why Accountants Don’t Run Startups
Steve Blank Stanford - School of Engineering U.C. Berkeley - Haas School Of Business www.steveblank.com Twitter: sgblank

News From Silicon Valley Source:
Dave McClure 500hats.com Small VC Funds ($50-250M) Union Square Ventures First Round Capital Traditional VC Funds (>$250M) Benchmark Sequoia Angels & Incubators ($0-10M) Y-Combinator TechStars Seed Funds ($10-50M) SoftTech (Clavier) Maples Investments Felicis (Senkut) SV Angel (Conway)

News From Silicon Valley Small
VC Funds ($50-250M) Traditional VC Funds (>$250M) Angels & Incubators ($0-10M) Seed Funds ($10-50M) Source: Dave McClure 500hats.com Innovation is happening here

News From Silicon Valley <ul><li>Internet
startups - $500K is the new $5M </li></ul><ul><ul><li>Driven by the top of the pyramid </li></ul></ul><ul><li>Seed Funds providing entrepreneurial education </li></ul><ul><ul><li>Ycombinator, TechStars, SeedCamp, LaunchBox, etc </li></ul></ul><ul><li>Customer Development/Lean Startup adoption </li></ul><ul><ul><li>Methodology to test hypothesis and business model </li></ul></ul>

Some Definitions

Small Business Startups Small Business
Startup

Small Business Startups Small Business
Startup <ul><li>- Business Model found </li></ul><ul><li>- Profitable business </li></ul><ul><li>Existing team </li></ul><ul><li>< $10M in revenue </li></ul>

Small Business Startups <ul><li>- Business
Model found </li></ul><ul><li>- Profitable business </li></ul><ul><li>Existing team </li></ul><ul><li>< $10M in revenue </li></ul><ul><li>5.7 million small businesses in the U.S. <500 employees </li></ul><ul><li>99.7% of all companies </li></ul><ul><li>~ 50% of total U.S. workers </li></ul>http://www.sba.gov/advo/stats/sbfaq.pdf Small Business Startup

Small Business Startup: Internet Edition
Small Business Startup <ul><li>- Business Model found </li></ul><ul><li>- Profitable business </li></ul><ul><li>Existing team </li></ul><ul><li>< $10M in revenue </li></ul><ul><li>The Internet allows a new class of Small Businesses </li></ul><ul><li>Not all businesses on the Internet are “ Scalable Startups” </li></ul>

Scalable Startup Scalable Startup Large
Company >$100M/year

Scalable Startup Scalable Startup Large
Company >$100M/year <ul><li>Total Available Market > $500m </li></ul><ul><li>Company can grow to $100m/year </li></ul><ul><li>Business model found </li></ul><ul><li>Focused on execution and process </li></ul>

Scalable Startup Scalable Startup Large
Company >$100M/year <ul><li>Total Available Market > $500m </li></ul><ul><li>Company can grow to $100m/year </li></ul><ul><li>Business model found </li></ul><ul><li>Focused on execution and process </li></ul><ul><li>Typically requires “risk capital” </li></ul><ul><li>In contrast a scalable startup is designed to grow big </li></ul><ul><li>It typically needs risk capital </li></ul><ul><li>These are what Silicon Valley means when they say “Startup” </li></ul>

Very Different Startup Goals Small
Business Startup <ul><li>- Business Model found </li></ul><ul><li>- Profitable business </li></ul><ul><li>Existing team </li></ul><ul><li>< $10M </li></ul>Scalable Startup Large Company <ul><li>Total Available Market > $500m </li></ul><ul><li>Company can grow to $100m/year </li></ul><ul><li>Business model found </li></ul><ul><li>Focused on execution and process </li></ul><ul><li>Typically requires “risk capital” </li></ul>

Silicon Valley Venture Firms Invest
in Scalable Startups Small Business Startup Scalable Startup Large Company

What VC’s Don’t Tell You:
The Transition Scalable Startup Large Company Transition Search Build Grow

What VC’s Don’t Tell You:
The Transition Scalable Startup Large Company Transition <ul><li>Founders depart </li></ul><ul><li>Professional Mgmt </li></ul><ul><li>Process </li></ul><ul><li>Beginning of scale </li></ul>

What’s A Startup? Scalable Startup
Large Company Transition <ul><li>Business Model found </li></ul><ul><li>Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>A Startup is the organization used to search for a scalable business model

The Search for a Business
Model <ul><li>No Business Plan survives first contact with customers </li></ul><ul><li>A Business Model diagrams how a company creates, delivers and captures value </li></ul><ul><li>Or in English: How a company makes money </li></ul>

Emphasis On Hypotheses Testing

Startups Continually Pivot (Iterate)

Startups Search and Pivot Scalable
Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>The Search for the Business Model

Startups Search, Companies Execute Scalable
Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>- Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people The Search for the Business Model The Execution of the Business Model

Metrics Versus Accounting Scalable Startup
Large Company Transition <ul><li>Traditional Accounting </li></ul><ul><li>Balance Sheet </li></ul><ul><li>Cash Flow Statement </li></ul><ul><li>Income Statement </li></ul>The Execution of the Business Model

Metrics Versus Accounting Scalable Startup
Large Company Transition <ul><li>Startup Metrics </li></ul><ul><li>Customer Acquisition Cost </li></ul><ul><li>Viral coefficient </li></ul><ul><li>Customer Lifetime Value </li></ul><ul><li>Average Selling Price/Order Size </li></ul><ul><li>Monthly burn rate </li></ul><ul><li>etc. </li></ul><ul><li>Traditional Accounting </li></ul><ul><li>Balance Sheet </li></ul><ul><li>Cash Flow Statement </li></ul><ul><li>Income Statement </li></ul>The Search for the Business Model The Execution of the Business Model

Customer Development Versus Product Management
Scalable Startup Large Company Transition <ul><li>Product Management </li></ul><ul><li>Delivers MRD’s </li></ul><ul><li>Feature Spec’s </li></ul><ul><li>Competitive Analysis </li></ul>The Execution of the Business Model

Customer Development Versus Product Management
Scalable Startup Large Company Transition <ul><li>Customer Development </li></ul><ul><li>Hypothesis Testing </li></ul><ul><li>Minimum Feature Set </li></ul><ul><li>Pivots </li></ul>The Search for the Business Model The Execution of the Business Model <ul><li>Product Management </li></ul><ul><li>Delivers MRD’s </li></ul><ul><li>Feature Spec’s </li></ul><ul><li>Competitive Analysis </li></ul>

Engineering Versus Agile Development Scalable
Startup Large Company Transition The Search for the Business Model The Execution of the Business Model <ul><li>Engineering </li></ul><ul><li>Requirements Docs. </li></ul><ul><li>Waterfall Development </li></ul><ul><li>QA </li></ul><ul><li>Tech Pubs </li></ul>

Engineering Versus Agile Development Scalable
Startup Large Company Transition <ul><li>Agile Development </li></ul><ul><li>Continuous Deployment </li></ul><ul><li>Continuous Learning </li></ul><ul><li>Self Organizing Teams </li></ul><ul><li>Minimum Feature Set </li></ul><ul><li>Pivots </li></ul>The Search for the Business Model The Execution of the Business Model <ul><li>Engineering </li></ul><ul><li>Requirements Docs. </li></ul><ul><li>Waterfall Development </li></ul><ul><li>QA </li></ul><ul><li>Tech Pubs </li></ul>

How Do Startups Search For
A Business Model? <ul><li>The Search is called Customer Development </li></ul><ul><li>The Implementation is called Agile Development </li></ul>

The Lean Startup <ul><li>The Search
is called Customer Development </li></ul><ul><li>The Implementation is called Agile Development </li></ul>

Startups Don’t Last Forever Scalable
Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>- Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people You fail if you remain a startup!

Why Startups Aren’t Run By
Accountants

Leadership Versus Management Scalable Startup
Large Company Transition

Leadership Versus Management Scalable Startup
Large Company Transition

Leadership Versus Management Scalable Startup
Large Company Transition Search

Leadership Versus Management Scalable Startup
Large Company Transition Build Search

Leadership Versus Management Scalable Startup
Large Company Transition Build Grow Search

E-School instead of B-School

Durant Versus Sloan Scalable Startup
Large Company Transition

Business School Versus Entrepreneurship School
Scalable Startup Large Company Transition <ul><li>Execution </li></ul><ul><li>Accounting </li></ul><ul><li>Products </li></ul><ul><li>Engineering </li></ul><ul><li>Management </li></ul><ul><li>Administrative </li></ul>Business School

Entrepreneurship School Scalable Startup Large
Company Transition Entrepreneurship School <ul><li>Hypothesis testing </li></ul><ul><li>Business Model testing </li></ul><ul><li>Customer Development </li></ul><ul><li>Agile Development </li></ul><ul><li>Metrics </li></ul><ul><li>Venture Finance </li></ul><ul><li>Hands-on </li></ul><ul><li>Execution </li></ul><ul><li>Accounting </li></ul><ul><li>Products </li></ul><ul><li>Engineering </li></ul><ul><li>Management </li></ul><ul><li>Administrative </li></ul>Business School

Business School Versus Entrepreneurship School
Scalable Startup Large Company Transition Business School <ul><li>Courses </li></ul><ul><li>Managerial Finance/Accounting </li></ul><ul><li>Managing Groups and Teams </li></ul><ul><li>Financial Accounting </li></ul><ul><li>Operations </li></ul><ul><li>Modeling for Optimization </li></ul><ul><li>Global Value Chain Strategies </li></ul>

Business School Versus Entrepreneurship School
Scalable Startup Large Company Transition <ul><li>Courses </li></ul><ul><li>Entrepreneurial Management </li></ul><ul><li>Creativity and Innovation </li></ul><ul><li>Technology Entrepreneurship </li></ul><ul><li>Patent Law for Entrepreneurs </li></ul><ul><li>Global Entrepreneurial Marketing </li></ul><ul><li>Entrepreneurial Finance </li></ul>Business School Entrepreneurship School <ul><li>Courses </li></ul><ul><li>Managerial Finance/Accounting </li></ul><ul><li>Managing Groups and Teams </li></ul><ul><li>Financial Accounting </li></ul><ul><li>Operations </li></ul><ul><li>Modeling for Optimization </li></ul><ul><li>Global Value Chain Strategies </li></ul>

Thanks www.steveblank.com