The document provides an overview of Customer Development, which is the process startups use to search for a business model. It discusses how startups should test hypotheses about their problem, customer, product, and other business model components by getting out of the building and talking to customers. The Lean LaunchPad process of building a minimum viable product and continuously pivoting based on customer feedback is highlighted. An example is given of a team that conducted customer interviews over 8 weeks and pivoted from an autonomous mowing idea to focus on weeding for organic farmers after determining a bigger problem and opportunity.

1. Welcome to Customer DevelopmentSteve BlankStanford - School of EngineeringU.C. Berkeley - Haas School Of Businesswww.steveblank.comTwitter: sgblankSlides at: slideshare.net/sblank

2. I Write a Blog www.steveblank.com

3. I Drew ThisCustomerDiscoveryCompany BuildingCustomerValidationCustomer CreationPivot

4. I Called It:Customer DevelopmentCustomerDiscoveryCompany BuildingCustomerValidationCustomer CreationPivot

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

6. ScalableStartupLarge CompanyBusiness Model found

7. 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

8. The Memo You Never GetThe Transition – Founders LeaveScalableStartupTransitionLarge CompanySearch BuildExecuteFounders depart

9. Professional Mgmt

10. Process

11. Beginning of scaleStartups 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

12. 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

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

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

15. Cash Flow Statement

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

17. Viral coefficient

18. Customer Lifetime Value

19. Average Selling Price/Order Size

20. Monthly burn rate

21. etc. Traditional Accounting Balance Sheet

22. Cash Flow Statement

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

24. Scalable

25. Price List/Data Sheets

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

27. Pricing/Feature unstable

28. Not yet repeatable

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

30. Scalable

31. Price List/Data Sheets

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

33. Waterfall Development

34. QA

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

36. Waterfall Development

37. QA

38. Tech PubsAgile Development Continuous Deployment

39. Continuous Learning

40. Self Organizing Teams

41. Minimum Feature Set

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

43. features

44. customers/markets

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

46. describes “unknowns”

47. customer needs

48. feature set

49. business model

50. found by iteration

51. Plan describes “knowns”

52. Known features for line extensions

53. Known customers/markets

54. Known business modelHow Do Startups Search For A Business Model?The Search is Customer Development

55. The Implementation is Agile Development

56. The Sum is the Lean StartupCustomer Development

57. I Have a Vision

58. I Know What Needs to Be Done

59. Lets Launch a New Product!

60. Five Ways Founders Fail

61. #1I Know Who The Customer Is

62. #2I Know Exactly the Product They Need

63. #3I Know the Problem They Have

64. #4We Can Fix It After We Ship It All

65. #5All I Need to Do is Execute the Plan

66. Product Introduction ModelConcept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1st Ship

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

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

69. 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

70. 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

71. Hire Sales VP

72. Hire 1st Sales StaffSales

73. 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

74. Hire Sales VP

75. Pick distribution ChannelSalesBusiness Development Hire First Bus Dev

76. 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

77. Hire Sales VP

78. Pick distribution ChannelSalesBusiness Development Hire First Bus Dev

79. Do deals for FCSEngineering Write MRD

80. Waterfall

81. Q/A

82. Tech PubsNo Business Plan survives first contact with customers

83. Startups Are Not Smaller Versions of Large Companies

84. Startups Are Not Smaller Versions of Large CompaniesLarge Companies Execute Known Business Models

85. Startups Are Not Smaller Versions of Large CompaniesStartups Search for Unknown Business Models

86. So Search for a Business Model

87. The Business Model:Any company can be described in 9 building blocks

88. CUSTOMER SEGMENTSwhich customers and users are you serving? which jobs do they really want to get done?

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

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

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

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

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

94. KEY ACTIVITIESwhich activities do you need to perform well in your business model? what is crucial?48

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

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

97. value propositioncustomer relationshipskey activitiescustomer segmentskey partnerscost structurerevenue streamskey resourceschannels51images by JAM

98. sketch out your business model

99. sketch out your business models

100. But,Realize They’re Hypotheses

101. 9 GuessesGuessGuessGuessGuessGuessGuessGuessGuessGuess

102. Customer DevelopmentThe founders^Get Out of the Building

103. Customer DevelopmentThe Search For the Business ModelCompanyBuildingCustomerDiscoveryCustomerValidationCustomer CreationPivot

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

105. Test Hypotheses:Product

106. Market Type

107. CompetitionTurning Hypotheses to Facts

108. Test Hypotheses:Problem

109. Customer

110. User

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

112. Customer

113. User

114. PayerTest Hypotheses:Product

115. Market Type

116. CompetitiveTest Hypotheses:Channel

117. (Customer)

118. (Problem)Test Hypotheses:ChannelTest Hypotheses:Size of Opportunity/Market

119. Validate Business ModelTest Hypotheses:Pricing Model / PricingTest Hypotheses:Demand CreationTest Hypotheses:Problem

120. Customer

121. User

122. PayerAgile DevelopmentTest Hypotheses:Product

123. Market Type

124. CompetitiveTest Hypotheses:Channel

125. (Customer)

126. (Problem)Customer Development TeamTest Hypotheses:ChannelTest Hypotheses:Size of Opportunity/Market

127. Validate Business ModelTest Hypotheses:Pricing Model / PricingThe Minimum Viable Product (MVP) Smallest feature set that gets you the most … - orders, learning, feedback, failure…

128. The PivotThe heart of Customer Development

129. Iteration without crisis

130. Fast, agile and opportunisticPivot Cycle Time MattersSpeed of cycle minimizes cash needs

131. Minimum feature set speeds up cycle time

132. Near instantaneous customer feedback drives feature setThe PivotA Pivot is the change of one or more Business Model Canvas Components

133. The PivotStrong clinical dataTrainingMaintenanceConferencesCME coursesProduct DevelopmentIPClinical trialsFDAPublishingDoctors:Earlier detectionPriceAccuracyPatients:Radiation FreeNon-InvasiveA Pivot is the change of one or more Business Model Canvas Components Leading doctorsKey Opinion Leaders3rd party manufacturersDistributorsBreast Cancer FoundationsACOGACSOB/GYNsPCPsDirect Sales to hospitalsDistributorIP Leading doctorsTechnical ExpertiseProduct DevelopmentClinical trialsOperating CostsMarketing CostsCapital Equipment Sales and disposable itemPer use fees

134. How Does This Really Work?Stanford Lean LaunchPad Class

135. How Does This Really Work?Stanford Lean LaunchPad Class8 Weeks From an Idea to a Business

136. Pivot ExampleRobotic WeedingTalked 75 Customers in 8 Weeks

137. Our initial planConfidential

138. 20 interviews, 6 site visits…We got OUR Boots dirtyWeedingVisited two farms in Salinas Valley to better understand problemInterviewed:Bolthouse Farms, Large Agri-Industry in Bakersfield

139. White Farms, Large Peanut farmer in Georgia

140. REFCO Farms, large grower in Salinas Valley

141. Rincon Farms, large grower in Salinas Valley

142. Small Organic Corn/Soy grower in Nebraska

143. Heirloom Organics, small owner/operator, Santa Cruz Mts

144. Two small organic farmers at farmers market

145. Ag Services of Salinas, Fertilizer applicatorMowingInterviewed:Golf: Stanford Golf course

146. Parks: Stanford Grounds Supervisor, head of maintenance and lead operator (has crew of 6)

147. Toro dealer (large mower manufacturer)

148. User of back-yard mowing system

149. Maintenance Services for City of Los Altos

150. Colony Landscaping (Mowing service for stadiums)Business Plan Autonomous Vehicles for Mowing & WeedingDealers sell, installs and supports customerCo. trains dealers, supports dealers- Innovation- Customer Education- Dealer trainingMowing- Owners of public or commercially used green spaces (e.g. golf courses)- Landscaping service providerWeeding- Farmers with manual weeding operationsWe reduce operating cost- Labor reduction- Better utilization of assets (eg mow or weed at nights)- Improved performance (less rework, food safety)- Dealers (Mowing and Ag)- Vehicle OEMs (John Deere, Toro, Jacobsen, etc)- Research labs- Mowing Dealers- Ag DealersEngineers on Autonomous vehicles, GPS, path-planningAsset saleOur revenue stream derives from selling the equipmentDealer discount COGS seek a 50-60% Gross MarginHeavy R&D investment

151. Found weeding in organic crops is HUGE problem; 50 - 75% of costsCrews of 100s-1000Back-breaking task(Ilegal) labor harder to get 1-5 weedings per year/field$250-3,500 per acre and increasingFood contamination risk

152. Decision to make – mowing vs weeding

153. Autonomous vehiclesWEEDINGDealers sell, installs and supports customerCo. trains dealers, supports dealers- Innovation- Customer Education- Dealer training- Low density vegetable growers- High density vegetable growers- Thinning operations- Conventional vegetablesWe reduce operating cost- Labor reduction (100 to 1)- Reduced risk of contamination- Mitigate labor availability concerns- Ag Dealers- Ag Service providers- Research labs- Ag Dealers- Ag Service providersEngineers on Machine VisionTwo problems:- Identification- EliminationAsset saleOur revenue stream derives from selling the equipmentDealer discount COGS seek a 50-60% Gross MarginHeavy R&D investment

154. 1 Week – 1 CarrotBotConfidential

155. CarrotBotMachine Vision data collection platformMonochrome & Color CamerasLaser-line sweep (depth measurement)Encoders (position/velocity)Onboard data acquisition & powerCarrotBot 1.0

156. The Business Plan Canvas UpdatedFarming conventions.

157. Demo, demo, and demo!!

158. Proximity is paramount

159. Technology Design

160. Marketing

161. Demo and customer feedback

162. Organic Farmers

163. Weeding Service Providers

164. Conventional Farmers

165. Cost Reduction

166. Remove labor force pains

167. Eliminate bio-waste hazards

168. Research Labs

169. Equipment Manufacturers

170. Distribution Network

171. Service Providers

172. IP – Patents

173. Video Classifier Files

174. Robust Technology

175. Dealers

176. Direct Service

177. Indirect Service

178. … then Dealers

179. Asset Sale

180. Direct Service with equipment rental

181. … then Asset SaleValue-Driven

182. Visit HighlightsAbove: Organic Carrots, 7wks. Top right: Conventional carrotsBottom Right: Very weedy. Will require multiple passes of hand weeding

183. Visit HighlightsCarrot vs. WeedsDue to small root systems, carrots have no chance against weeds

184. Visit HighlightsOrganic Broccoli, closely cultivated. Weeds close to plants are hand-picked

185. Visit HighlightsState of the Art in Weeding Technology for Organic Crops

186. Customer HypothesisPre-TestHypothesis Confirmed Growers interested in own equipment

187. Industrial (10,000s of acres)

188. Large (1,000s of acres)

189. Willing to pay $100k for one unit

190. Smaller growers (100s of acres) usually subcontract the labor services or rent equipment

191. All purchases through local dealers

192. Customer service is essentialPost-Test

193. Customer Map #1 – Industrial GrowersExample: Bolthouse Farms – Large Industrial Carrot Producer – 8K acres/yr Equipment Operator

194. Local Farm Mgr

195. Cliff Kirkpatrick, visited

196. Director, Ag Technology

197. Justin Grove, interviewedEquipment Operator VP, Growing Operations

198. CFO, CEO (Jeff Dunn)Cliff, Farm Mgr

199. Customer Map #2 – Service ProvidersExample: Ag Services – Service Provider, Salinas Valley Equipment Operator

200. Grower

201. Service MgrMe (left), Marty (middle, Service Mgr), Doug (right, Grower) ?? (service mgr’s boss)The Business Plan Canvas UpdatedFarming conventions.

202. Demo, demo, and demo!!

203. Proximity is paramount

204. Technology Design

205. Marketing

206. Demo and customer feedback

207. Mid/Large Organic Farmers

208. Agricultural corporations

209. Weeding Service Providers

210. Mid/Large Conventional Farmers

211. Cost Reduction

212. Remove labor force pains

213. Eliminate bio-waste hazards

214. Research Labs

215. Equipment Manufacturers

216. Distribution Network

217. Service Providers

218. IP – Patents

219. Video Classifier Files

220. Robust Technology

221. Direct Service

222. Indirect Service

223. … then Dealers

224. Direct Service with equipment rental

225. ($1,500/d; 120d/yr )

226. Low density: $1,500/d

227. High density: $6,000/dValue-Driven

228. World Ag Expo interviews:the need is real and wide spread10+ interviews at showEveryone confirmed the needRobocrop, UK based, crude competitor sells for $171 KRevenue StreamMid to small growers prefer a serviceLarge growers prefer to buy, but OK with service until technology is provenCharging for labor cost saved is OK, as we provide other benefits (food safety, labor availability)Confidential

229. The Business Plan Canvas UpdatedFarming conventions.

230. Demo, demo, and demo!!

231. Proximity is paramount

232. Technology Design

233. Marketing

234. Demo and customer feedback

235. Mid/Large Organic Farmers

236. Agricultural corporations

237. Weeding Service Providers

238. Mid/Large Conventional Farmers

239. Research Labs

240. Equipment Manufacturer

241. Distribution Network

242. Service Providers

243. 2 or 3 Key Farms

244. Cost Reduction

245. Remove labor force pains

246. Eliminate bio-waste hazards

247. IP – Patents

248. Video Classifier Files

249. Robust Technology

250. Direct Service

251. Indirect Service

252. … then Dealers

253. Direct Service with equipment rental

254. Low density: $1,500/d

255. High density: $6,000/dValue-Driven R&D

256. Bill of Materials

257. Training & Service

258. SalesAutonomous weeding - FinalDirect- Provide high quality service at competitive price- Innovation- Customer Education- Dealer training- Low density vegetable growers- High density vegetable growers- Thinning operations- Conventional vegetablesWe reduce operating cost- Labor reduction (100 to 1)- Reduced risk of contamination- Mitigate labor availability concerns- Ag Service providers- Research Institutes (eg UC Davis, Laser Zentrum Hannover)- 3-4 key farmsDirect - Alliance with service providers- Eventually sell through dealersEngineers on Machine VisionTwo problems:- Identification- EliminationService provision- Charge by the acre with modifier according to weed density - Eventually move to asset saleCosts for service provisionCOGS seek a 50-60% Gross MarginHeavy R&D investment

259. MammOpticsFinal project presentation for E 245 Winter 2011

260. Project OverviewInitial industry guesses and customer hypothesis

261. MammOpticsInitial IdeaBreast cancerMammographyLeading cause of cancer in women190,000 diagnosis every year US41,000 deaths every year USIncreasing diagnosis rates15%-25% false negatives rate25% false positives rateRequires X-ray radiationLow resolutionMammOpticsNovel technology based on RF-modulated optical spectroscopy Earlier detection

262. Non-radiative

263. Non-invasiveMammOpticsTechnology ComparisonI.I.T.Y.I.W.H.T.K.Y

264. MammOpticsBusiness Model Canvas 1 of 4Strong clinical dataTrainingMaintenanceProduct DevelopmentIPClinical trialsFDAHospitalsLeading doctors3rd party manufacturersDistributorsPioneering radiologists inhospitalsRadiation-freeEarlier detectionNon-invasiveIP Leading doctorsTechnical ExpertiseDirect sales to hospitalsProduct DevelopmentClinical trialsOperating CostsCapital equipment sales and disposable item

265. MammOpticsMammOpticsBusiness Model Canvas 1 of 4Business Model Canvas 1 of 4Strong clinical dataTrainingMaintenanceProduct DevelopmentIPClinical trialsFDAInitial guessInitial guessHospitalsLeading doctors3rd party manufacturersDistributorsPioneering radiologists inhospitalsRadiation-freeEarlier detectionNon-invasiveTest: Customer segment Value propositionInitial guessIP Leading doctorsTechnical ExpertiseDirect sales to hospitalsProduct DevelopmentClinical trialsOperating CostsInitial guessCapital equipment sales and disposable item

266. Finding the right customerFrom radiologists to gynecologists

267. MammOpticsExcursions into hospitalsDebra IkedaJason DaviesJafi Alissa LipsonSunita PalLeading doctors6 women >40 8 women <40PatientsAlicia X-ray mammographyTechniciansHospital ManagersPaul BillingsHolly V. Gautier

268. MammOpticsHospital purchasing decision tree

269. MammOpticsHospital purchasing decision treeHospitalsComplex purchasing decision tree. Several saboteours

270. MammOpticsPrivate practice purchasing decision tree

271. MammOpticsPrivate practice purchasing decision treePrivate practiceFaster adoption rateAttractive value proposition✔