This document provides an agenda and overview for an introductory class on web startups and the Lean Startup methodology. The class covers the context and history of web startups, including the dot-com bubble. It discusses that ideas have little value on their own and that execution is key to success. The document then introduces the Lean Startup methodology, including minimum viable products, agile development, and the customer development process of discovery, validation, creation and company building. It concludes with assigning reading materials and noting that next class will involve practice startup pitches to form project teams.

1. Allan Chao
Startup Consultant
Startup V8
allan@startupv8.com
UC Berkeley Extension, Summer 2012

2. Humor of the day:
Question of the day:
What makes a great entrepreneur?

3. The Agenda If you have business ideas
during this class, write
 Intro to the class
 Syllabus
them down. We will do
 Policies, outline practice pitches at the end
of class.
 Context of Web Startups
 Startup Culture (risk vs reward)
 History of Startups and “disruptive innovation”
 idea vs execution
 Startup stories
 Entrepreneurs (Personality test)
 The Lean Startup
 Lean Startup Methodology
 Customer development model
 Practice Pitches
 Next week… real pitches and form teams

4. What is this class?
 Fast paced… lots to cover
 Hands on… all about tools and using them
 A real trial… build your own mini-startup
Who is it for?
 Entrepreneurs… serious about starting startups
 The curious… have an idea but not sure what it takes

5. Syllabus Important Points
 Grading
 60% = daily quizzes over reading material (8 of them)
 40% = Final project and presentation
 Mondays and Wednesdays 6-9 pm. Last day is July 9th
 No class July 4th
 If you miss a session, you will fall behind. We move fast.
 Other notes
 Textbook (“The Lean Startup”) is great, but not required
 Weekly reading is for the quizzes
 Best time to talk to me is before/after class, or by email

6. Course Outline
 1: Today… context of web startups and the Lean Startup
 2: Next session, immediately start building a startup
 Pitches and teams
 Business planning
 Intro to Websites
 3: Market research and web tools
 4-7: Four sessions on web product development
 8: Marketing your product
 9: Finance and Legal
 10: Final project presentations

7. The Context of Web Startups

8. Web Startups… What are they?
 Web
 Websites, Mobile apps, Tablets
 Infrastructure
 Software as a Service
 Startups
 New and unproven business model
 = New way of solving an existing problem
 Disruptive innovation = disrupts the existing market

9. A quick history of web startups
Those who cannot remember the past are condemned to repeat it.
- George Santayana
1991 - World Wide Web becomes available for the public. Internet users multiply at a rate of
3500 times a year, reaching the number of 295 million users by the year 2000.
1992 - launch of Windows 3.1
1993 - price of a PC 486/33 with 250 MB HDD, 1MB memory and floppy disk: $1,260.00
1994 – Amazon.com founded by Tim Bezos as an online bookstore
1995 - launch of Windows 95
1997 – Amazon.com IPO, made $70.5 million in one day, valuing the company at $438 M
1995-1999 – Grow grow grow!
1999 – Time names Tim Bezos person of the year.

10. Times were great!
 NASDAQ composite

11. Who said “Bubble”?
 NASDAQ composite

12. Amazon.com stock chart
1997
open at
$18/share
1999
Peak
$199/share,
Closed at
$107/share
2001
$5.67/share
2012
$208/share
What happened during the bubble?
“Growth over profits” = bad business models

13. Web Failures of the dotcom bubble
 Pets.com
 sold pet supplies to retail customers.
 Founded in 1998, bankrupt by 2000.
 In 2 years, lost $300 M.
 Boo.com
 online consumer fashion Web store
 Founded , bankrupt in 2000
 Spent about $188 M in 6 months
 WebVan
 an online grocery store
 Founded in 1999, bankrupt by 2001.
 In 18 months, spent roughly $1.2 Billion
 Many, many more…

14. Venture Capital history
http://techowtest.files.wordpress.com/2012/03/historyofstartupsandbubbles1.png

15. Silicon Valley history
 “South Bay”, Especially Palo Alto, Santa Clara, San Jose
 Named for the number of silicon chip (semiconductor)
manufacturers, back in 1971
 A very special place in the world
 Today, SV accounts for 1/3 of all venture capital in the USA
 A 2006 The Wall Street Journal story found that 12 of the 20
most inventive towns in America were in California, and 10 of
those were in Silicon Valley
 Culture of risk tolerance, of trying high risk ventures
 The “entrepreneurial spirit”

16. That’s all for history and context,
back to startups

17. Web Startups… What are they?
 Web
 Websites, Mobile apps, Tablets
 Infrastructure
 Software as a Service
 Startups
 New and unproven business model
 = New way of solving an existing problem
 Disruptive innovation = disrupts the existing market

18. What is “disruptive innovation”?
 Let’s use the law firms industry as an example
 “Standard Process”
 College student with good grades goes to law school
 Studies for 3 years, graduates with law degree
 Joins or starts a law firm
 You need legal forms, so you go to this person.
 The result of this “standard process”?
 Costs $$$ hourly
 Requires in-person meetings
 Non-standardized

19. Disrupt it!
 Enter LegalZoom.com
 An online website with pre-made forms that consumers fill
out via questionnaires
 New Process
 You need legal forms, but don’t have the $$$ for an attorney
 Go to the website, fill out questionnaire, pay $ fee, done!
 The result?
 Mostly automated = minimal human interaction = low cost
 Online = flexible hours and geographic location
 Standardized forms = consistency
 Is it better?

20. Big and Famous Web Startups
 Amazon.c (1994)  Groupon (2008)
 Ebay (1995)  (2008)
 Googl (1998)  (2009)
 Paypal (1998)
 Wikipedia (2001)  (2010)
 LinkedIn ( (2003)
 Facebook (2004)
 YouTube (2005) (founding date)
 Twitter (2006)

21. Literally Thousands More

22. High Risk
 Literally thousands of web startups…
 Lots of direct competitors…
 Very few startups break even…
 Even fewer become profitable…
 The default future for any new startup is to die
 What’s the statistic? Depends on how you count…
http://www.quora.com/What-is-the-truth-behind-9-out-of-10-startups-fail

23. Great Reward
 But those that do succeed are extremely successful…
(over 1,000:1)
 change the world (or at least their industry)
 can make MEGA $$$$$$$$$$$$ (via IPO or Acquisition)

24. Back up… what about a small reward?
 That’s fine. Actually there’s 3 ways to exit a company.
 Option 1: IPO = Initial public offering
 Makes the most money ($1 billion +)
 Hardest to do (very few companies make it this far)
 Notables: Facebook, Groupon, LinkedIN
 Option 2: Acquisition
 Usually makes less money ($10 million - $1 billion)
 “Easier” to do
 Notables: YouTube (Google), Skype (Microsoft), Instagram (FB)
 Option 3: “Lifestyle business”
 Makes the least money (recurring “passive” income of <$1 M)
 “Easiest” to do
 No angel or VC investor will invest in a lifestyle business. 
 Notables: 4-hour workweek

25. Make a decision, plan ahead
 How high do you want to aim?
 Higher aim = more risk, greater potential
reward
 Lower aim = lower risk, less potential reward
 You can’t really get the best of both worlds…
it costs more to aim higher
 Pretend you’re starting a lemonade
stand
 What if your goal is to make $100?
 What if your goal is to make $100 million?
 The strategies differ a lot
 “Standard” web startups = aiming high

26. High Risk, Great Reward
 It’s playing the “Startup lottery”
 Assume financial loss, with the small possibility of
great reward
 It’s done for the experience and the potential
 It’s NOT random.
 You have control over many of the factors for success.
 Skill
 Hard Work
 Luck

27. So then, how to Be Successful?
 The idea is worth $0.00 = nothing

28. If you leave with nothing else from this class,
leave with this:
The idea has virtually no value.
(it’s entirely in execution)

29. The fallacy of the idea
 The idea is only a seed.
 Bags of seeds are cheap. Growing actual plants takes work
 We will prove this later, with practice pitches
 Investors who bet on “ideas” are not betting on “ideas”
 They are betting on the team behind the idea
 No one buys an “idea”
 The closest you get to an idea being valuable is a patent,
trademark, or copyright which is a lot more involved

30. How to Be Successful?
 The idea is worth $0.00 = nothing
 Execution is everything!!
 What does that mean? What is “Execution”?
 Planning
 Marketing Here's the truth of the matter: ideas are
pretty much worth zilch. What IS
 Design
valuable is the ability to implement an
 Development idea, turn it into a product, and then sell
 Sales that product in the marketplace and
 Fundraising make money. That's the real work, and
 Legal the real reward should go to the people
who do that, not the fools who pretend
 Accounting that they should be rewarded for the
 Partnerships product of their divine creativity.

31. Better Execution
 Business Plans vs. The Lean Startup
 Business Plans = Plan and Pray
 Like planning a rocket ship. Every little detail planned ahead.
 Lean Startup = Release and React
 Like driving a car. Just go, and make adjustments on the way
 Lean Startup
 Low overhead, low costs
 Agile Software Development
 Rapid customer-centric development

32. Break time before section 2
…
A fun activity while we’re on break:
Entrepreneur personality quiz
http://www.forbes.com/2010/08/02/entrepreneur-personality-quiz-thomas-
harrison-entrepreneurs-management-serial-startups-10-quiz.html
…
Section 2: The Lean Startup

33. The Goal = Hockey Stick!
http://smartfaststartup.com/2011/06/08/real-secret-to-startup-success/

34. The Reality… assuming success
http://www.avc.com/a_vc/2012/03/the-startup-curve.html

35. The Startup Lifecycle
 http://www.netvalley.com/silicon_valley/Legal_Bridge_From_El_Dorado_to_Silicon_Valley.html

36. Top 20 Reasons Startups Fail

37. The Lean Startup (Eric Ries)
 A methodology/philosophy of building
startups
 1. Use of free and open source software
 Groupon was started as a wordpress blog
 2. Agile Software Development
 Release as frequently as possible
 Iterate development as quickly as possible
 3. Ferocious customer-centric rapid
iteration
 Customer Development Process
 Build a minimum viable product – launch fast!
 Learn from your users/customers

38. Software Product Development
 Creating the Minimum Viable Product (MVP)
 Functional Requirements
 Wireframes
 Graphic Design
 Code
 Content (Copywriting, Social Media accounts, analytics, etc.)
 Deploy (aka Release)

39. Traditional Software Development

40. Agile Software Development
 Start Small
 Minimum Viable
Product
 Iterate quickly
 Track user data
 Flexible software
 Release frequently
 Cycle weekly or every
two weeks

41. Customer Development Process
 Customer Discovery = Understanding your customers
 Customer Validation = Develop a Repeatable Sales Process with
early evangelist buyers
 Customer Creation = Scaling your customers from few to many
 Company Building = Rebuild your company’s organization and
management. Re-look at your mission

42. Customer Discovery

43. Customer Validation

44. Customer Creation

45. Company Building

47. That’s it for customer development
now… practice pitches!

48. Homework
 Think about what project you actually want to work on
 Pitches next week to form teams
 Reading material
 Fantasies vs Realities of a Startup infocomic
 http://grasshopper.com/assets/blog/2011/03/fantasy-vs-
reality-infocomic-v2.jpg
 Steve Blank’s slides on customer development
 http://www.slideshare.net/venturehacks/customer-
development-methodology-presentation