The document describes different types of startups and business models. It discusses how startups have evolved over time from building small businesses in the 1970s-1990s to flipping companies during the dot-com bubble to today's focus on building scalable businesses using the lean startup methodology. The lean startup approach involves searching for a repeatable business model through customer development and validating hypotheses via iterative customer feedback, rather than relying on upfront business plans. Pivoting based on learning is key. Later sections provide examples of applying these concepts through the Lean LaunchPad class, testing business model hypotheses for a proposed startup called OurCrave.

1. New Rules for the New Internet BubbleSteve BlankStanford - School of Engineeringwww.steveblank.comTwitter: @sgblank

2. I Write a Blog www.steveblank.com

3. This Talk is Based OnBusiness Model GenerationFour Steps to the EpiphanyLean Startup

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

5. Small BusinessStartupSmall Business StartupsServe known customer with known product

6. Feed the familySmall BusinessStartupExit Criteria Business Model found- Profitable business Existing team< $1M in revenueSmall Business Startupsknown customer known product

7. Feed the familySmall BusinessStartup- Business Model found- Profitable business Existing team< $10M in revenueSmall Business Startups5.7 million small businesses in the U.S. <500 employees

8. 99.7% of all companies

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

10. Large Non-ProfitSocial StartupSocial Entrepreneurship StartupsSolve pressing social problems

11. Social Enterprise: Profitable

12. Social Innovation: New StratagiesLarge Company Sustaining InnovationSustaining InnovationTransitionScalableStartupLarge Company Existing Market / Known customer

13. Known product feature needsLarge Company Disruptive InnovationNew DivisionTransitionLarge CompanyDisruptive InnovationNew Market

14. New tech, customers, channelsLarge Company Disruptive InnovationNew DivisionTransitionLarge CompanyDisruptive InnovationBuild

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

16. ScalableStartupLarge CompanyScalable StartupSearchGoal is to solve for: unknown customer and unknown features

17. ExecuteSearchScalableStartupLarge CompanyExit Criteria Business model found

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

19. Can grow to $100m/yearScalable Startup

20. ScalableStartupLarge CompanyTotal Available Market > $500m

21. Company can grow to $100m/year

22. Business model found

23. Focused on execution and process

24. Typically requires “risk capital”Scalable StartupExecuteSearch In contrast a scalable startup is designed to grow big

25. Typically needs risk capital

26. What Silicon Valley means when they say “Startup”ScalableStartupLarge CompanyExit Criteria Business model found

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

28. Can grow to $100m/yearScalable StartupExecuteSearch VC-backed scalable startups:

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 StartupSearchSellScalableStartup$5 to 50M AcquisitionGoal is to solve for: Internet and Mobile Apps

32. Buyable StartupSearchSellScalableStartup$5 to 50M AcquisitionGoal is to solve for: Internet and Mobile AppsSell to larger company

33. ScalableStartupLarge CompanyBusiness Model found

34. i.e. Product/Market fit- Repeatable sales model- Managers hiredWhat’s A Startup?Search ExecuteA 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’tFounders are Artists.Actually They are Composers.They Create Something From Nothing

42. Founders See Things Others Don’tThey Build a Company By Convincing Others To See What They Do

43. Founders See Things Others Don’tThe Early Employees Who Join Them Are the Performers

44. A Few Short Stories

45. How Did We Get Here?

46. Paths to Building a Startup1970 – 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 ModelConcept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1st Ship

51. Product Introduction ModelThe Leading Cause of Startup DeathConcept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1st Ship

52. Product Introduction Model:Two Implicit AssumptionsCustomer Problem: knownConcept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1st Ship Product Features: known

53. Tradition – Hire MarketingConcept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1st Ship- Create Demand- Launch Event- “Branding”- Hire PR Agency- Early Buzz Create Marcom Materials- Create PositioningMarketing

54. Tradition – Hire SalesConcept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1st Ship- Create Demand- Launch Event- “Branding”- Hire PR Agency- Early Buzz Create Marcom Materials- Create PositioningMarketing Build Sales Organization

55. Hire Sales VP

56. Hire 1st Sales StaffSales

57. Tradition – Hire Bus DevelopmentConceptProduct Dev.Alpha/Beta TestLaunch/1st Ship- Create Demand- Launch Event- “Branding”- Hire PR Agency- Early Buzz Create Marcom Materials- Create PositioningMarketing Build Sales Channel / Distribution

58. Hire Sales VP

59. Pick distribution ChannelSalesBusiness Development Hire First Bus Dev

60. Do deals for FCSTradition – Hire EngineeringConceptProduct Dev.Alpha/Beta TestLaunch/1st Ship- Create Demand- Launch Event- “Branding”- Hire PR Agency- Early Buzz Create Marcom Materials- Create PositioningMarketing Build Sales Channel / Distribution

61. Hire Sales VP

62. Pick distribution ChannelSalesBusiness Development Hire First Bus Dev

63. Do deals for FCSEngineering Write MRD

64. Waterfall

65. Q/A

66. Tech PubsMore startups fail from a lack of customers than from a failure of product development

67. 1995 – 2000Flipping A BusinessThe Dot.comBubble

68. 1995 - 2000The Dot-com Bubble10’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 PlaybookNetscape

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)

72. Startups Search and PivotThe Search for the Business ModelScalableStartupTransitionLarge Company Business Model found by founders customer needs/product features found i.e. Product/Market fit Repeatable sales model- Managers hired

73. Startups Search, Companies ExecuteThe Execution of the Business ModelThe Search for the Business ModelScalableStartupTransitionLarge Company- Cash-flow breakeven- Profitable- Rapid scale- New Senior Mgmt~ 150 peopleBusiness Model found

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

75. Metrics Versus AccountingThe Execution of the Business ModelScalableStartupTransitionLargeCompanyTraditional AccountingBalance Sheet

76. Cash Flow Statement

77. Income StatementMetrics Versus AccountingThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLargeCompanyStartup Metrics Customer Acquisition Cost

78. Viral coefficient

79. Customer Lifetime Value

80. Average Selling Price/Order Size

81. Monthly burn rate

82. etc. Traditional Accounting Balance Sheet

83. Cash Flow Statement

84. Income StatementCustomer Validation Versus SalesThe Execution of the Business ModelScalableStartupTransitionLargeCompanySalesSales Organization

85. Scalable

86. Price List/Data Sheets

87. Revenue PlanCustomer Validation Versus SalesThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLargeCompanyCustomer Validation Early Adopters

88. Pricing/Feature unstable

89. Not yet repeatable

90. “One-off’s”Sales Sales Organization

91. Scalable

92. Price List/Data Sheets

93. Revenue PlanEngineering Versus Agile DevelopmentThe Execution of the Business ModelScalableStartupTransitionLarge CompanyEngineering Requirements Docs.

94. Waterfall Development

95. QA

96. Tech PubsEngineering Versus Agile DevelopmentThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLarge CompanyEngineering Requirements Docs.

97. Waterfall Development

98. QA

99. Tech PubsAgile Development Continuous Deployment

100. Continuous Learning

101. Self Organizing Teams

102. Minimum Feature Set

103. PivotsStartups Model, Companies PlanThe Execution of the Business ModelScalableStartupTransitionLarge CompanyBusiness Plan describes “knowns”

104. features

105. customers/markets

106. business modelStartups Model, Companies PlanThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLarge CompanyBusiness Model

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

115. Known business model2001 - 2011The Lean StartupIPO market ~closed, M&A liquidity pathBuild for long term but take short term saleFounders learn Lean skillsFocus on building customersMinimum hype

116. 2001 - 2011 PlaybookFour Steps to the EpiphanyMany 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 SEGMENTSwhich customers and users are you serving? which jobs do they really want to get done?

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

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

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

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

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

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

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

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

130. value propositioncustomer relationshipskey activitiescustomer segmentskey partnerscost structurerevenue streamskey resourceschannels72images by JAM

131. sketch out your business model

132. But,Realize They’re Hypotheses

133. 9 GuessesGuessGuessGuessGuessGuessGuessGuessGuessGuess

134. How Do Startups Search For A Business Model?The Search is Customer Development

135. The Implementation is Agile Development

136. The Sum is the Lean StartupCustomer Development

137. Customer DevelopmentThe founders^Get Out of the Building

138. Customer DevelopmentThe Search For the Business ModelCompanyBuildingCustomerDiscoveryCustomerValidationCustomer CreationPivot

139. Customer DiscoveryCustomerDiscoveryCustomerValidationCompanyBuildingCustomerCreationStop selling, start listeningTest your hypothesesContinuous DiscoveryDone by founders

140. Test Hypotheses:Product

141. Market Type

142. CompetitionTurning Hypotheses to Facts

143. Test Hypotheses:Problem

144. Customer

145. User

146. PayerTest Hypotheses:ChannelTest Hypotheses:Demand CreationTest Hypotheses:Problem

147. Customer

148. User

149. PayerTest Hypotheses:Product

150. Market Type

151. CompetitiveTest Hypotheses:Channel

152. (Customer)