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The Customer Development Model

      Past, Present, Future

      Lean Startup Circle - San Francisco
      19 November 2009

                  Steve Blank
             Stanford School of Engineering /
            UC Berkeley, Haas Business School
                www.steveblank.com
Agenda

• How did we get here?
• Where are we?
• What can the Lean Startup Circle do?
Past
In the Beginning
Insight - The Chasm
No Time To Think

• Eight startups 1978 -1999
  – Semiconductors, video games, signals
    intelligence, supercomputers, Mac
    peripherals, enterprise software
• Training instructor to CEO
• Four IPO’s, one a “go home” and stay
It Started With a Question

  If Startups Fail from a Lack of customers
        not Product Development Failure

            Then why do we have:
• process to manage product development?

• no process to manage customer development?
All We Had Was 30 Years of This


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


              Product Development Model
I Started Reading
• Lead User Research - Von Hippel                  • OODA Loop - Boyd
• Crossing the Chasm - Moore                       • Question-based Selling - Freese
• Entrepreneurial Mindset - McGrath/MacMillan      • Solution Selling - Bosworth
• Innovators Dillema - Christensen                 • Conceptual/Strategic Selling - Heiman
• Profitable Value - Lanning                       • Spin Selling - Rackham
• Lanchester Strategy - Yano                       • US Marine Corps Warfighting Manual
• High Tech Marketing - Davidow                    • Tipping Point - Gladwell




         Customer         Customer              Customer          Company
         Discovery        Validation            Creation          Building
It Resulted in a Few Hypotheses

• Startups weren’t small versions of large companies
• They were about learning/discovery, not execution
• Entrepreneurs and their VC’s were executing on
  guesses
• But the facts were outside the building
Which Turned Into A Model

               Product Development

Concept/        Product         Alpha/Beta   Launch/1st
Bus. Plan        Dev.              Test         Ship



                            +
             Customer Development

 Customer      Customer         Customer     Company
 Discovery     Validation       Creation     Building
Eric Ries Extends the Model

• Took my class at U.C. Berkeley
• Co-founded IMVU
  - 1st implementation of Customer Development
  - Paired it with an Agile Development Model
• Observed that the sum of the two was powerful
Eric Ries: Insight - 1
     Startups assumed development was “known”


  Concept/   Product    Alpha/   Launch
    Seed      Dev.       Beta     /Ship


                                                              Waterfall

                                          Requirements

                                                         Design
                                                                          Solution: known


• I understood the problem                 Implementa1on


  was unknown               Problem: known          Verifica1on


• Eric observed the solution                                Maintenance


  was unknown in a startup
Eric Ries: Insight - 2
           Agile matches the Customer Dev speed


Concept/    Product    Alpha/   Launch
  Seed       Dev.       Beta     /Ship




                                         Solution: unknown




• Agile was the development
  methodology to use when the
  solution was unknown
Eric Ries: Insight 3
   Customer + Agile + Commodity = Lean

• Solving for both unknowns is the “Lean Startup”




     Problem: Unknown         Solution: Unknown
                                        Source: Eric Ries
Jon Feiber @ MDV Insight
    Not all Need Customer Development


• Market Risk vs. Technical Risk?
  - Web is about customers & markets
  - Biotech is about science & invention
John Boyd - Insight
                                             The OODA “Loop”


         Observe                                    Orient                                Decide                     Act
                               Implicit                                                         Implicit
   Unfolding                  Guidance                                                         Guidance
                                                       Cultural
Circumstances                 & Control               Traditions                               & Control


                                             Genetic
                                                                   Analyses &
                Observations        Feed
                                   Forward
                                             Heritage
                                                                   Synthesis     Feed       Decision        Feed     Action
                                                                                Forward                    Forward
                                                                                          (Hypothesis)               (Test)
                                                  New
                                              Information      Previous
                                                              Experience
   Outside                                                                                                               Unfolding
 Information                                                                                                            Interaction
                                                                                                                           With
                 Unfolding
                                                                                                                       Environment
                Interaction                          Feedback
                   With
               Environment                                   Feedback



      Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback
      and other phenomena coming into our observing window.
Iteration versus Execution

             Iteration                        Execution

 Customer            Customer        Customer             Company
 Discovery           Validation      Creation             Building




The Search for a Business           The Growth of a Business


                         Product/Market Fit
Iteration versus Execution
         Product/Market Fit
Present
Business Model
Affects Metrics and Exit Criteria
Appendix B: Business Model
                   Checklist
• The Four Steps had:
  – Business model flow for Enterprise Software
  – Business model summary for each step
  – Checklist for Enterprise Software
• It said, “modify it to fit your business”
The Flow
                                       State Your Hypotheses
                     Customer &             Distribution &            Demand                Market Type        Competitive
 Product                                       Pricing
                      Problem                                         Creation              Hypothesis         Hypothesis
Hypothesis                                   Hypothesis
                     Hypothesis                                      Hypothesis




                                                    Test Problem Hypothesis
       Friendly                 roblem�                Customer                 Market
    First Contacts           Presentation            Understanding            Knowledge




                                            Test Product Hypothesis
             First Reality                                       Yet More                                 1st Advisory
                                      �Product�                  Customer
                                                                                       Second
                Check                                                                Reality Check            Board
                                     Presentation                 Visits




      Verify the                                        Verify the            Iterate or
                              Verify the
      Problem
                              Product                   Business                 Exit          Verify
                                                         Model
Customer Discovery Summary
                                            The Summary
Phase                             Goals                                                                                       Deliverables
0. Get Buy-In                      Investors/founders agree on Customer Development, key hires, and values.                   Buy-In, Core Values
1. State Hypotheses                Set product specs, develop detailed hypotheses of product, first customers, channels and   Hypothesis Briefs
                                   pricing, demand, market, and competition.
A. Product Hypotheses              Get agreement on product features, benefits, and release schedules.                        Product Brief
B. Customer Hypotheses             Describe customers, their problems, and why they will use the product.                     Customer Brief
C. Channel & Pricing Hypotheses    Develop a channel strategy and pricing model.                                              Channel and Pricing Brief

D. Demand Creation Hypotheses      Identify demand creation strategy, influencers, and trends.                                Demand Creation Brief

E. Market Type Hypotheses          Describe what market you are in (new, existing, resegmented).                              Market Type Brief
F. Competitive Hypotheses          Develop competitive analysis that fits your Market Type.                                   Competitive Brief
2. Test & Qualify Hypotheses       Test hypotheses from phase 1. Understand customers’ “day in the life”                      Validate
A. First Customer Contacts         Create customer list and schedule the first customer contacts.                             Customer List
B. Problem Presentation            Develop presentation of problems, current solutions, product solution.                     Problem Presentation
C. In-Depth Customer               Understand how customers work, their problems and who else influences their decisions. Customer Brief
    Understanding
D. Market Knowledge                Understand the market: meet w/analysts & media, trade shows, research.                     Positioning Brief
3. Test & Qualify Prod Concept     Test product concept. Do customers’ needs match the product?                               Hypotheses
A. First Reality Check             Review customer/product feedback & test phase 1 customer problem assumptions.              Revise Product
                                                                                                                              Customer Briefs
B. Product Presentation            Create product presentation on how product solves customers’ problems.                     Product Presentation
C. More Customer Visits            Expand customer list to include five new potential customers.                              Customer List
D. Second Reality Check            Review product feature feedback and test.                                                  Updated Feature List
E. First Advisory Board Members    Spot and recruit first advisory board members.                                             Advisors on Board

4. Verify                          Found the right market? Have a profitable business?                                        Validate
A. Problem Verification            Verify that you have identified a problem that a customer wants solved.                    Problem Statement
B. Product Verification            Verify that the product solves customers’ needs and its ROI.                               Product Requirement Doc
C. Business Model Verification     Verify that you have a profitable business model.                                          Updated Revenue/Sales
                                                                                                                              Plan
D. Iterate or Exit                 Decide whether you have learned enough to go sell.                                         Business/Prod Plan
The Workbook
                                                                                                                      Customer Validation                   V e r i f ication: Sales
Customer Discovery Hypothesis: The Customer Worksheet 1-b                                                                                                         Worksheet 4-b
                    Customer &                             Demand            Market Type       Competitive                                                           Verify the                       Iterate or
   Product
                     Problem
                                     Distribution &
                                                           Creation                            Hypothesis
                                                                                                                         Verify the            Verify the                              Verify the
  Hypothesis                             Pricing                             Hypothesis
                                                                                                                          Product                Sales                Channel                            Exit
                    Hypothesis        Hypothesis
                                                          Hypothesis                                                                                                                   Business
                                                                                                                                               Roadmap               Roadmap
                                                                                                                                                                                        Model
Goal of phase 1b: Develop a hypothesis of who the customer is and what problems
they have that will drive them to use your product, before you leave the building.                                    Goal of phase 4b: You’ve gone all around the Customer Validation circle. You
                                                                                                                      assembled your sales materials, found visionary prospects and tried to sell and close 3
A u t h o r : Business Execution, Business Visionary                                                                  to 5 customers. In this phase you summarize everything you learned from selling.
Approval: Founding Team and Executive Staff
Presenter: Founding Technical Team                                                                                    Author: Sales Closer, Business Execution
   Time/Effort:     3-5 days of authoring by VP Business Execution or Business                                        Approval: A l l
                Visionary, day presentation/ strategy meeting with founding team and                                  Presenter: Sales Closer
                executive staff                                                                                          Time/Effort:    1-3 days of authoring by VP Business Execution or Business
                                                                                                                                     Visionary, day presentation/strategy meeting with founding team and
   1. Define the different types of “customer”
   2.  W ho will be the actual day-to-day user of the product?
                                                                                                                                     executive staff
   3.  W ho are the influencers and recommenders?
   4.  W ho is the “Economic Buyer?” (I.e. whose budget paid for it?)                                                    1. P r o s p ecting
   5.  Do you think the Economic Buyer has an existing budget for this product or do they need to get                    2. H o w easy was it to get an appointment?
        one approved?                                                                                                    3. Did customers understand what you wanted to sell?
   6 . W ho are the “Decision Makers?”
   7 . W ho else needs to approve the purchase?                                                                          4 . Presenting
                                                                                                                         5.   Did you understand the real pain the buyers had?
   8 . C u s tomer Visionaries understand they have a pain and can visualize that there is a solution. Where do you      6.   H o w did your solution match their needs?
        think you will find them?                                                                                        7.   Did you understand the impact on others in the company?
   9. In what title or function?                                                                                         8.   Did you need a demo or prototype to sell?
   10. In what company type?                                                                                             9.   W h e r e the sales materials adequate?
   11. In what industry Segment?
   12. R eminder: a visionary is a paying customer                                                                       10. Customer Organizational Issues
                                                                                                                         11. Did you identify the right decision makers?
   13. Where in an organization you think your first customers are?                                                      12. Did you understand the other key players in the organization?
   14. What departments                                                                                                  13. Did you lose deals because others in the organization objected?
   15. What are their titles?
   16. How do they differ from later customers? (Hint: Lots in a new market, little in an existing                       1 4 . Pricing
       market.)                                                                                                          15. Did you lose deals over pricing?
                                                                                                                         16. Do you have the right pricing model?
   17. What problem does the customer have?                                                                              17. What is the Average Selling Price?
   18. What do you think the biggest pain is in how they work?                                                           18. Over the next 3 years how many units will a customer buy?
   19. I s it the same on all levels of the company?
   20. I f they could wave a magic wand and change anything what would it be?                                            19. What is the lifetime value of each customer?
   21. Since your product doesn’t exist, what do people do today to solve their problem?                                 20. Was their any objection to your pricing? (If not, your product may be priced too low—you should
        D o n’t do it ?Do it badly? Don’t recognize the need?                                                                always get a modicum of grumbling.)
                                                                                                                         21. Besides the absolute price of the product, do you have the right pricing model?
   22. Where on the “problem recognition scale” is each type of customer (users, recommenders, economic
       buyers)                                                                                                           22. R O I Model
   • L a t e nt Need (you recognize that the buyer needs your product but they don’t…yet)                                23. Do you understand the ROI for a customer? Revenues? Costs- reduction or containment?
   • A c tive Need – the Buyer is in pain (they recognizes a need but doesn’t know how to solve it)                           Displaced costs? Avoided costs? Productivity improvements? Time-savings? Intangible?
   • H a s a vision of a solution (the buyer has a vision of how to solve their problem)                                 24. Is the ROI demonstrable or provable?

   23. What is the organizational impact of this pain?                                                                   25. Distribution Model
   24. Individual?                                                                                                       • Are your assumptions about distribution channel correct?
   25. Departmental?                                                                                                     26. What will the cost of the distribution channel be?
   1 . C orporate?
The Metrics
• Goals to be accomplished to exit steps
• Quantitative
  – Talk to 50+ customers in Discovery
  – Close 5 orders in Validation
• Qualitative
  – Develop product & company positioning
  – Choose Market Type
Dave McClure - Insight
                                        Metrics for Web Marketing
                                            SEO          Campaigns,
                              SEM                 PR     Contests             Biz	
  Dev
             Social
             Networks
                                Blogs                       Affiliates
         Apps	
  &                                                            Direct,	
  Tel,
         Widgets                        Email                                 TV

                          Domains
                                                  ACQUISITION



            Emails	
  &
            Alerts


Blogs,	
  RSS,
News	
  Feeds
                                 o      n
                      Re te n ti

                                                       Ads,	
  Lead	
  Gen,      Rev                Biz	
  Dev
             System	
  Events	
  &                     Subscriptions,
             Time-­‐based
                                                                                     enu
                                                       ECommerce
             Features
                                                                                        e	
  $$

                                                       Website.com                                                  From Dave McClure
                                                                                                                 http://500hats.typepad.com/
                                                                                                $
Maples Investments - Insight
     Funding the Lean Startup Model


• Mike Maples was a business school case
• Started a venture firm
  – 1st VC adoption of Customer Development
  – Introduced Mike to my Stanford Teach Asst
  – Ann Miura-Ko now Mike’s partner
Business Model Iteration
               The Pivot

                 Strategic


                 Business
                   Model
                 Iteration




  Customer                   Agile Product
 Development                 Development
                 Tactical


                               Source: Ann Miura-Ko Maples Investments
Market Type
Affects Spending and Sales Curve
Type of Market Changes Everything

        Existing Market        Resegmented      New Market
                                  Market


  • Market            • Sales                • Customers
    – Market Size         –   Sales Model       • Needs
    – Cost of Entry       –   Margins          • Adoption
                          –   Sales Cycle
    – Launch Type
                          –   Chasm Width
    – Competitive                            • Finance
      Barriers                                   • Ongoing Capital
    – Positioning                               • Time to Profitability
Definitions: 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
New Market =
Hockey Stick Sales Curve
Existing Market =
Linear Sales Growth
Future
What Can the Lean Startup Circle
          Contribute?
• Enumerate Business Models
  - I.e. Dave Cohen/Techstar’s list
      http://www.coloradostartups.com/2009/11/07/internet-business-models-of-the-techstars/

• For each Business Model develop:
  -   Business Model Flow
  -   Summary
  -   Checklist
  -   Metics
Book Available on Amazon and Cafepress

   www.amazon.com/Four-Steps-Epiphany-Steven-Blank/dp/0976470705
                 www.cafepress.com/kandsranch




                         Blogs
Steve Blank          www.steveblank.com
Lean Startups        http://startuplessonslearned.com/

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Customer Development Past Present Future Steve Blank 111909

  • 1.
  • 2. The Customer Development Model Past, Present, Future Lean Startup Circle - San Francisco 19 November 2009 Steve Blank Stanford School of Engineering / UC Berkeley, Haas Business School www.steveblank.com
  • 3. Agenda • How did we get here? • Where are we? • What can the Lean Startup Circle do?
  • 6. No Time To Think • Eight startups 1978 -1999 – Semiconductors, video games, signals intelligence, supercomputers, Mac peripherals, enterprise software • Training instructor to CEO • Four IPO’s, one a “go home” and stay
  • 7. It Started With a Question If Startups Fail from a Lack of customers not Product Development Failure Then why do we have: • process to manage product development? • no process to manage customer development?
  • 8. All We Had Was 30 Years of This Concept/ Product Alpha/Beta Launch/ Seed Round Dev. Test 1st Ship Product Development Model
  • 9. I Started Reading • Lead User Research - Von Hippel • OODA Loop - Boyd • Crossing the Chasm - Moore • Question-based Selling - Freese • Entrepreneurial Mindset - McGrath/MacMillan • Solution Selling - Bosworth • Innovators Dillema - Christensen • Conceptual/Strategic Selling - Heiman • Profitable Value - Lanning • Spin Selling - Rackham • Lanchester Strategy - Yano • US Marine Corps Warfighting Manual • High Tech Marketing - Davidow • Tipping Point - Gladwell Customer Customer Customer Company Discovery Validation Creation Building
  • 10. It Resulted in a Few Hypotheses • Startups weren’t small versions of large companies • They were about learning/discovery, not execution • Entrepreneurs and their VC’s were executing on guesses • But the facts were outside the building
  • 11. Which Turned Into A Model Product Development Concept/ Product Alpha/Beta Launch/1st Bus. Plan Dev. Test Ship + Customer Development Customer Customer Customer Company Discovery Validation Creation Building
  • 12. Eric Ries Extends the Model • Took my class at U.C. Berkeley • Co-founded IMVU - 1st implementation of Customer Development - Paired it with an Agile Development Model • Observed that the sum of the two was powerful
  • 13. Eric Ries: Insight - 1 Startups assumed development was “known” Concept/ Product Alpha/ Launch Seed Dev. Beta /Ship Waterfall Requirements Design Solution: known • I understood the problem Implementa1on was unknown Problem: known Verifica1on • Eric observed the solution Maintenance was unknown in a startup
  • 14. Eric Ries: Insight - 2 Agile matches the Customer Dev speed Concept/ Product Alpha/ Launch Seed Dev. Beta /Ship Solution: unknown • Agile was the development methodology to use when the solution was unknown
  • 15. Eric Ries: Insight 3 Customer + Agile + Commodity = Lean • Solving for both unknowns is the “Lean Startup” Problem: Unknown Solution: Unknown Source: Eric Ries
  • 16. Jon Feiber @ MDV Insight Not all Need Customer Development • Market Risk vs. Technical Risk? - Web is about customers & markets - Biotech is about science & invention
  • 17. John Boyd - Insight The OODA “Loop” Observe Orient Decide Act Implicit Implicit Unfolding Guidance Guidance Cultural Circumstances & Control Traditions & Control Genetic Analyses & Observations Feed Forward Heritage Synthesis Feed Decision Feed Action Forward Forward (Hypothesis) (Test) New Information Previous Experience Outside Unfolding Information Interaction With Unfolding Environment Interaction Feedback With Environment Feedback Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback and other phenomena coming into our observing window.
  • 18. Iteration versus Execution Iteration Execution Customer Customer Customer Company Discovery Validation Creation Building The Search for a Business The Growth of a Business Product/Market Fit
  • 19. Iteration versus Execution Product/Market Fit
  • 21. Business Model Affects Metrics and Exit Criteria
  • 22. Appendix B: Business Model Checklist • The Four Steps had: – Business model flow for Enterprise Software – Business model summary for each step – Checklist for Enterprise Software • It said, “modify it to fit your business”
  • 23. The Flow State Your Hypotheses Customer & Distribution & Demand Market Type Competitive Product Pricing Problem Creation Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis Hypothesis Test Problem Hypothesis Friendly roblem� Customer Market First Contacts Presentation Understanding Knowledge Test Product Hypothesis First Reality Yet More 1st Advisory �Product� Customer Second Check Reality Check Board Presentation Visits Verify the Verify the Iterate or Verify the Problem Product Business Exit Verify Model
  • 24. Customer Discovery Summary The Summary Phase Goals Deliverables 0. Get Buy-In Investors/founders agree on Customer Development, key hires, and values. Buy-In, Core Values 1. State Hypotheses Set product specs, develop detailed hypotheses of product, first customers, channels and Hypothesis Briefs pricing, demand, market, and competition. A. Product Hypotheses Get agreement on product features, benefits, and release schedules. Product Brief B. Customer Hypotheses Describe customers, their problems, and why they will use the product. Customer Brief C. Channel & Pricing Hypotheses Develop a channel strategy and pricing model. Channel and Pricing Brief D. Demand Creation Hypotheses Identify demand creation strategy, influencers, and trends. Demand Creation Brief E. Market Type Hypotheses Describe what market you are in (new, existing, resegmented). Market Type Brief F. Competitive Hypotheses Develop competitive analysis that fits your Market Type. Competitive Brief 2. Test & Qualify Hypotheses Test hypotheses from phase 1. Understand customers’ “day in the life” Validate A. First Customer Contacts Create customer list and schedule the first customer contacts. Customer List B. Problem Presentation Develop presentation of problems, current solutions, product solution. Problem Presentation C. In-Depth Customer Understand how customers work, their problems and who else influences their decisions. Customer Brief Understanding D. Market Knowledge Understand the market: meet w/analysts & media, trade shows, research. Positioning Brief 3. Test & Qualify Prod Concept Test product concept. Do customers’ needs match the product? Hypotheses A. First Reality Check Review customer/product feedback & test phase 1 customer problem assumptions. Revise Product Customer Briefs B. Product Presentation Create product presentation on how product solves customers’ problems. Product Presentation C. More Customer Visits Expand customer list to include five new potential customers. Customer List D. Second Reality Check Review product feature feedback and test. Updated Feature List E. First Advisory Board Members Spot and recruit first advisory board members. Advisors on Board 4. Verify Found the right market? Have a profitable business? Validate A. Problem Verification Verify that you have identified a problem that a customer wants solved. Problem Statement B. Product Verification Verify that the product solves customers’ needs and its ROI. Product Requirement Doc C. Business Model Verification Verify that you have a profitable business model. Updated Revenue/Sales Plan D. Iterate or Exit Decide whether you have learned enough to go sell. Business/Prod Plan
  • 25. The Workbook Customer Validation V e r i f ication: Sales Customer Discovery Hypothesis: The Customer Worksheet 1-b Worksheet 4-b Customer & Demand Market Type Competitive Verify the Iterate or Product Problem Distribution & Creation Hypothesis Verify the Verify the Verify the Hypothesis Pricing Hypothesis Product Sales Channel Exit Hypothesis Hypothesis Hypothesis Business Roadmap Roadmap Model Goal of phase 1b: Develop a hypothesis of who the customer is and what problems they have that will drive them to use your product, before you leave the building. Goal of phase 4b: You’ve gone all around the Customer Validation circle. You assembled your sales materials, found visionary prospects and tried to sell and close 3 A u t h o r : Business Execution, Business Visionary to 5 customers. In this phase you summarize everything you learned from selling. Approval: Founding Team and Executive Staff Presenter: Founding Technical Team Author: Sales Closer, Business Execution Time/Effort: 3-5 days of authoring by VP Business Execution or Business Approval: A l l Visionary, day presentation/ strategy meeting with founding team and Presenter: Sales Closer executive staff Time/Effort: 1-3 days of authoring by VP Business Execution or Business Visionary, day presentation/strategy meeting with founding team and 1. Define the different types of “customer” 2. W ho will be the actual day-to-day user of the product? executive staff 3. W ho are the influencers and recommenders? 4. W ho is the “Economic Buyer?” (I.e. whose budget paid for it?) 1. P r o s p ecting 5. Do you think the Economic Buyer has an existing budget for this product or do they need to get 2. H o w easy was it to get an appointment? one approved? 3. Did customers understand what you wanted to sell? 6 . W ho are the “Decision Makers?” 7 . W ho else needs to approve the purchase? 4 . Presenting 5. Did you understand the real pain the buyers had? 8 . C u s tomer Visionaries understand they have a pain and can visualize that there is a solution. Where do you 6. H o w did your solution match their needs? think you will find them? 7. Did you understand the impact on others in the company? 9. In what title or function? 8. Did you need a demo or prototype to sell? 10. In what company type? 9. W h e r e the sales materials adequate? 11. In what industry Segment? 12. R eminder: a visionary is a paying customer 10. Customer Organizational Issues 11. Did you identify the right decision makers? 13. Where in an organization you think your first customers are? 12. Did you understand the other key players in the organization? 14. What departments 13. Did you lose deals because others in the organization objected? 15. What are their titles? 16. How do they differ from later customers? (Hint: Lots in a new market, little in an existing 1 4 . Pricing market.) 15. Did you lose deals over pricing? 16. Do you have the right pricing model? 17. What problem does the customer have? 17. What is the Average Selling Price? 18. What do you think the biggest pain is in how they work? 18. Over the next 3 years how many units will a customer buy? 19. I s it the same on all levels of the company? 20. I f they could wave a magic wand and change anything what would it be? 19. What is the lifetime value of each customer? 21. Since your product doesn’t exist, what do people do today to solve their problem? 20. Was their any objection to your pricing? (If not, your product may be priced too low—you should D o n’t do it ?Do it badly? Don’t recognize the need? always get a modicum of grumbling.) 21. Besides the absolute price of the product, do you have the right pricing model? 22. Where on the “problem recognition scale” is each type of customer (users, recommenders, economic buyers) 22. R O I Model • L a t e nt Need (you recognize that the buyer needs your product but they don’t…yet) 23. Do you understand the ROI for a customer? Revenues? Costs- reduction or containment? • A c tive Need – the Buyer is in pain (they recognizes a need but doesn’t know how to solve it) Displaced costs? Avoided costs? Productivity improvements? Time-savings? Intangible? • H a s a vision of a solution (the buyer has a vision of how to solve their problem) 24. Is the ROI demonstrable or provable? 23. What is the organizational impact of this pain? 25. Distribution Model 24. Individual? • Are your assumptions about distribution channel correct? 25. Departmental? 26. What will the cost of the distribution channel be? 1 . C orporate?
  • 26. The Metrics • Goals to be accomplished to exit steps • Quantitative – Talk to 50+ customers in Discovery – Close 5 orders in Validation • Qualitative – Develop product & company positioning – Choose Market Type
  • 27. Dave McClure - Insight Metrics for Web Marketing SEO Campaigns, SEM PR Contests Biz  Dev Social Networks Blogs Affiliates Apps  & Direct,  Tel, Widgets Email TV Domains ACQUISITION Emails  & Alerts Blogs,  RSS, News  Feeds o n Re te n ti Ads,  Lead  Gen, Rev Biz  Dev System  Events  & Subscriptions, Time-­‐based enu ECommerce Features e  $$ Website.com From Dave McClure http://500hats.typepad.com/ $
  • 28. Maples Investments - Insight Funding the Lean Startup Model • Mike Maples was a business school case • Started a venture firm – 1st VC adoption of Customer Development – Introduced Mike to my Stanford Teach Asst – Ann Miura-Ko now Mike’s partner
  • 29. Business Model Iteration The Pivot Strategic Business Model Iteration Customer Agile Product Development Development Tactical Source: Ann Miura-Ko Maples Investments
  • 30. Market Type Affects Spending and Sales Curve
  • 31. Type of Market Changes Everything Existing Market Resegmented New Market Market • Market • Sales • Customers – Market Size – Sales Model • Needs – Cost of Entry – Margins • Adoption – Sales Cycle – Launch Type – Chasm Width – Competitive • Finance Barriers • Ongoing Capital – Positioning • Time to Profitability
  • 32. Definitions: 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
  • 33. New Market = Hockey Stick Sales Curve
  • 34. Existing Market = Linear Sales Growth
  • 36. What Can the Lean Startup Circle Contribute? • Enumerate Business Models - I.e. Dave Cohen/Techstar’s list http://www.coloradostartups.com/2009/11/07/internet-business-models-of-the-techstars/ • For each Business Model develop: - Business Model Flow - Summary - Checklist - Metics
  • 37. Book Available on Amazon and Cafepress www.amazon.com/Four-Steps-Epiphany-Steven-Blank/dp/0976470705 www.cafepress.com/kandsranch Blogs Steve Blank www.steveblank.com Lean Startups http://startuplessonslearned.com/