Customer Development/Lean Startup 012610 Class 2
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This document discusses three types of markets that startups can enter: existing markets, resegmented markets, and new markets. It defines each market type and discusses the risks associated with each. Existing markets involve competing with incumbents for performance-seeking customers. Resegmented markets involve targeting underserved customer niches or a lower price point. New markets serve customer needs that have never been addressed before. The risks vary depending on the market type and how incumbent companies may respond. Overall, understanding the market type is important for developing the right business model and execution strategy.
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Customer Development/Lean Startup 012610 Class 2
- 1. Customer Development in High Tech: Sales, Marketing & Business Development in a Startup MBA & EMBA 295-F Three Types of Markets Steve Blank and Eric Ries 1/26/10 1
- 2. Class 2: Agenda Scalable Startups Case: In N Out Market Type Definitions Examples Risks 2
- 3. Scalable Startup 3
- 4. Small Business vs. Scalable Startup Small business = reasonable risk and return Scalable startup = unreasonable risk and return Vision of large market or new market Willing to make a large bet of time and money Reality Distortion field 4
- 5. Small Business vs. Scalable Startup Small Startup Business Scalable Large Startup Company >$100M/year
- 6. Small Business vs. Scalable Startup Small Startup Business -‐ Business Model found -‐ Profitable business -‐ ExisEng team < $10M Scalable Large Startup Company >$100M/year -‐ Total Available Market > $500m -‐ Company can grow to $100m/year -‐ Known business model -‐ Focused on execuEon and process
- 7. Scalable Startup to Company The TransiEon Scalable TransiEon Company Startup
- 8. Scalable Startup Exit Criteria Scalable TransiEon Company Startup - Business Model found - Product/Market fit - Repeatable sales model - Managers hired
- 9. TransiEon to Company Exit Criteria Scalable TransiEon Company Startup - Business Model found - Cash-flow breakeven - Product/Market fit - Profitable - Repeatable sales model - Rapid scale - Managers hired - New Senior Mgmt ~ 150 people
- 10. What is a Startup: DefiniEon a startup is an organiza-on formed to search for a repeatable and scalable business model.
- 11. What is the Purpose of a Startup? The Search for the Business Model The Execution of the Business Model Scalable TransiEon Company Startup - Business Model found - Cash-flow breakeven - Product/Market fit - Profitable - Repeatable sales model - Rapid scale - Managers hired - New Senior Mgmt ~ 150 people
- 12. What is a Scalable Startup: Definition A startup is an organiza-on formed to search for a repeatable and scalable business model. So what’s a Business Model?
- 13. Business Model = Keeping Score itomorrow’s organization. today. n a Startup INFRASTRUCTURE PARTNER CUSTOMER CUSTOMER NETWORK RELATIONSHIP OFFER CORE TARGET explains the CAPABILITIES portrays the network of relationships a company CUSTOMER cooperative agreements VALUE establishes with its with other companies PROPOSITION customers outlines the capabilities describes the customers required to run a a company wants to company's business offer value to model DISTRIBUTION VALUE gives an overall view of CONFIGURATION a company's bundle of CHANNEL products and services describes the describes the channels arrangement of to communicate and get activities and resources in touch with customers sums up the monetary describes the revenue consequences to run a COST FINANCE REVENUE streams through which business model STRUCTURE STREAMS money is earned
- 14. Where Does this Class Fit? Scalable Startup Customer Development Hypotheses, Data, TransiEon Company Experiments Feedback, , Insights Insights Agile Development
- 15. Where Does this Class Fit? This is what our class is about Scalable Startup Customer Development Hypotheses, Data, TransiEon Company Experiments Feedback, , Insights Insights Agile Development
- 16. In-N-Out Case 16
- 17. In-N-Out Secret Menu X by Y Grilled Cheese X meat patties and Y slices of cheese Two slices of melted cheese, tomato, (for example, a 3 by 3 or a 2 by 4) lettuce and spread on a bun, with no meat. Double Meat Extra Everything Two meat patties without cheese. Adds extra spread, tomato, lettuce, and Triple Meat onions (regular or grilled). Three meat patties without cheese. Fries "Light" Animal Style Almost raw fries that are cooked for less time. A mustard cooked beef patty served on a bun with pickles, lettuce, tomatoes, extra Fries "Well" (aka "Wellies") spread and grilled onions. Any burger Fries that are cooked longer to be extra (including veggie and grilled cheeses) may crisp. be made this way. Cheese Fries Flying Dutchman Fries with two slices of melted cheese Two meat patties, two slices of melted placed on top. cheese and nothing else. Animal Style Fries Protein Style Fries with cheese, spread, and grilled Instead of a bun, the burger is wrapped in onions. lettuce. Any burger (including veggie and Neapolitan Shake grilled cheeses) may be made this way. All three shake flavors (strawberry, vanilla Veggie Burger (Wish Burger) and chocolate) combined in one shake. A burger without the meat and cheese. 17
- 18. In-N-Out Meat Factory 18
- 19. Further Reading 19
- 20. Market Type Who Cares? 20
- 21. So Why Are We Talking About This? Existing Market Resegmented New Market Market 21
- 22. Type of Market Changes Everything 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 • Finance Barriers • Ongoing Capital Positioning • Time to Profitability 22
- 23. Definitions: Three Types of Markets Existing Market Resegmented New Market Market Existing Market Faster/Better = High end Resegmented Market Niche = marketing/branding driven Cheaper = low end New Market Cheaper/good enough can create a new class of product/customer Innovative/never existed before 23
- 24. Existing Market Definition Are there current customers who would: Need the most performance possible? Is there a scalable business model at this point? Is there a defensible business model Are there sufficient barriers to competition from incumbents? 24
- 25. Existing Market Performance! Our Company! Existing! Companies! 25
- 26. Oops, forgot about Time Performance! Our Company! Existing! th Companies! an ce Grow Today! any Perform Existin g Comp Time! 26
- 27. Existing Market Risks “Better/Faster” is an engineering driven axiom Incumbents defend high-end, high-margin businesses Factor in: Network effect of incumbent Sustaining innovation of incumbent Industry (or you own) “standards” “They’ll never catch up” is not a business strategy Established companies almost always win 27
- 28. Resegmented Market Definition (1) Low End Are there customers at the low end of the market who would: buy less (but good enough) performance if they could get it at a lower price? Is there a business profitable at this low-end? Are there sufficient barriers to competition from incumbents? 28
- 29. Low-end Resegmentation “Good Enough” Performance Performance! Existing! th Companies! an ce Grow Today! a ny Perform Existin g Comp Our Company! At the Low-end! Time! 29
- 30. Resegmented Market Definition (2) Niche Are there customers in the current market who would: buy if it addressed their specific needs if it was the same price? If it cost more? Is there a defensible business model at this point? Are there barriers to competition from incumbents? 30
- 31. Niche Resegmentation “Branding” has its place Existing Customers! Performance! New Niches! ny ew Compa for a N Niche ny ew Compa for a N Niche y gCompan Existin Time! 31
- 32. Resegmented Market Risks “Cheaper” is a sales-driven axiom Incumbents abandon low-end, low-margin businesses For sometimes the right reasons Low-end must be coupled with a profitable business model Up migration 32
- 33. New Market Definition Is there a large customer base who couldn’t do this before? Because of cost, availability, skill…? Did they have to go to an inconvenient, centralized location? Are there barriers to competition from incumbents? 33
- 34. New Market Customers That Don’t Yet Exist Existing Customers! New Niches! Performance! New Customers! New Markets! pan y g Com Existin t New Marke Time! 34
- 35. New Market Risks “New” is a marketing-driven axiom New has to be unique enough that: There is a large customer base who couldn’t do this before They want/need/can be convinced Adoption occurs in your lifetime Company manages adoption burn rate Investors are patient and have deep pockets 35
- 36. Hybrid Markets Some products fall into Hybrid Markets Combine characteristics of both a new market and low-end resegmentation SouthWest Airlines Dell Computers Cell Phones Apple IPhone? 36
- 37. Market Type
- 38. New Product Conundrum New Product Introduction methodologies sometimes work, yet sometimes fail Why? Is it the people that are different? Is it the product that are different? Perhaps there are different “types” of startups? 38
- 39. Business Model ExecuEon Differs by “Market Type” organization. today. tomorrow’s INFRASTRUCTURE PARTNER CUSTOMER CUSTOMER NETWORK RELATIONSHIP OFFER CORE TARGET explains the CAPABILITIES portrays the network of relationships a company CUSTOMER cooperative agreements VALUE establishes with its with other companies PROPOSITION customers outlines the capabilities describes the customers required to run a a company wants to company's business offer value to model DISTRIBUTION VALUE gives an overall view of CONFIGURATION a company's bundle of CHANNEL products and services describes the describes the channels arrangement of to communicate and get activities and resources in touch with customers sums up the monetary describes the revenue consequences to run a COST FINANCE REVENUE streams through which business model STRUCTURE STREAMS money is earned
- 40. Lean Startup ExecuEon Differs by “Market Type” organization. today. tomorrow’s Customer Development Hypotheses, Data, Experiments, Feedback, Insights Insights Agile Development
- 41. Next Week Read CASE: E.Ink and E.Ink 2005 Boyd – OODA Loop PowerPoint slides Fast Company : The Strategy of a Fighter pilot McGrath & MacMillan: Entrepreneurial Mindset Chapter 10 pages 231-245 Blank – Four Steps to the E.piphany Chapter 2 41