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Introduction to Customer Development at the Lean Startup Intensive at Web 2.0 Expo by Steve Blank

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Presentation by Steve Blank at the Lean Startup Intensive at the Web 2.0 Expo May 3, 2010 in SF

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Introduction to Customer Development at the Lean Startup Intensive at Web 2.0 Expo by Steve Blank

  1. Customer Development Steve Blank Stanford - School of Engineering U.C. Berkeley - Haas School Of Business www.steveblank.com Twitter: sgblank Lean Startup Intensive at Web 2.0 Expo
  2. I Wrote This
  3. I Write a Blog www.steveblank.com
  4. Early-Stage Ventures
  5. What’s A Startup? Scalable Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>i.e. Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>A Startup is the organization used to search for a scalable business model
  6. Startups Search and Pivot Scalable Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>i.e. Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>The Search for the Business Model
  7. Startups Search, Companies Execute Scalable Startup Large Company Transition <ul><li>Business Model found </li></ul><ul><li>Product/Market fit </li></ul><ul><li>- Repeatable sales model </li></ul><ul><li>- Managers hired </li></ul>- Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people The Search for the Business Model The Execution of the Business Model
  8. How Do Startups Search For A Business Model? <ul><li>The Search is called Customer Development </li></ul><ul><li>The Implementation is called Agile Development </li></ul>
  9. Customer Development
  10. More startups Fail from a Lack of Customers than from a Failure of Product Development
  11. <ul><li>Then why do we have: </li></ul><ul><li>process to manage product development? </li></ul><ul><li>no process to manage customer development? </li></ul>
  12. Product Development Model Concept/ Seed Round Product Dev. Alpha/Beta Test Launch/ 1 st Ship
  13. Tradition – Hire Marketing Concept/ Seed Round Product Dev. Alpha/Beta Test Launch/ 1 st Ship Product Development <ul><li>Create Marcom </li></ul><ul><li>Materials </li></ul><ul><li>- Create Positioning </li></ul>- Hire PR Agency - Early Buzz - Create Demand - Launch Event - “Branding” Marketing
  14. Tradition – Hire Sales Concept/ Seed Round Product Dev. Alpha/Beta Test Launch/ 1 st Ship Product Development <ul><li>Create Marcom </li></ul><ul><li>Materials </li></ul><ul><li>- Create Positioning </li></ul>- Hire PR Agency - Early Buzz - Create Demand - Launch Event - “Branding” <ul><li>Build Sales Organization </li></ul>Marketing Sales <ul><li>Hire Sales VP </li></ul><ul><li>Hire 1 st Sales Staff </li></ul>
  15. Tradition – Hire Bus Development Concept Product Dev. Alpha/Beta Test Launch/ 1 st Ship Product Development <ul><li>Create Marcom </li></ul><ul><li>Materials </li></ul><ul><li>- Create Positioning </li></ul>- Hire PR Agency - Early Buzz - Create Demand - Launch Event - “Branding” <ul><li>Hire Sales VP </li></ul><ul><li>Pick distribution Channel </li></ul><ul><li>Build Sales Channel / Distribution </li></ul>Marketing Sales <ul><li>Hire First Bus Dev </li></ul><ul><li>Do deals for FCS </li></ul>Business Development
  16. Tradition – Hire Engineering Concept Product Dev. Alpha/Beta Test Launch/ 1 st Ship Product Development <ul><li>Create Marcom </li></ul><ul><li>Materials </li></ul><ul><li>- Create Positioning </li></ul>- Hire PR Agency - Early Buzz - Create Demand - Launch Event - “Branding” <ul><li>Hire Sales VP </li></ul><ul><li>Pick distribution Channel </li></ul><ul><li>Build Sales Channel / Distribution </li></ul>Marketing Sales <ul><li>Hire First Bus Dev </li></ul><ul><li>Do deals for FCS </li></ul>Business Development Engineering <ul><li>Write MRD </li></ul><ul><li>Waterfall </li></ul><ul><li>Q/A </li></ul><ul><li>Tech Pubs </li></ul>
  17. Two Startup Fallacies <ul><li>Assumes customer problem is known </li></ul><ul><li>Assumes engineering solution is known </li></ul>
  18. Consequences <ul><li>Sales and Marketing costs are front loaded </li></ul><ul><li>Execution </li></ul><ul><li>Announcement is the goal </li></ul><ul><li>Hiring and revenue per “plan” </li></ul><ul><li>Iterate plan by firing execs </li></ul>
  19. Conundrum <ul><li>Processes to manage product development </li></ul><ul><li>No processes to manage customer development </li></ul>
  20. An Inexpensive Fix <ul><li>Test Customer/Market Hypotheses </li></ul><ul><li>Use an Engineering Process for Unknowns </li></ul><ul><li>How? </li></ul>
  21. Customer Development Concept/ Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship Product Development Customer Development Company Building Customer Discovery Customer Validation Customer Creation +
  22. Customer + Agile Development Agile Development + Customer Development Company Building Customer Discovery Customer Validation Customer Creation
  23. Key Ideas <ul><li>Tests unknowns in Business Model </li></ul><ul><li>Parallel process to Product Development </li></ul><ul><li>Measurable Checkpoints </li></ul><ul><li>Not tied to shipment , but customer milestones </li></ul>
  24. <ul><li>Stop selling, start listening </li></ul><ul><li>Test your hypotheses </li></ul>Customer Discovery Customer Discovery Customer Validation Company Building Customer Creation
  25. Hypotheses <ul><li>Problem/Need </li></ul><ul><ul><li>Magnitude </li></ul></ul><ul><ul><li>Organizational impact </li></ul></ul><ul><ul><li>ROI Justification </li></ul></ul><ul><ul><li>Problem Recognition </li></ul></ul><ul><li>Pricing </li></ul><ul><ul><li>Revenue Model </li></ul></ul><ul><ul><li>Pricing </li></ul></ul><ul><ul><li>Demand Creation </li></ul></ul><ul><li>Market Type </li></ul><ul><ul><li>Existing </li></ul></ul><ul><ul><li>New </li></ul></ul><ul><ul><li>Resegment </li></ul></ul><ul><li>Customer </li></ul><ul><ul><li>Archetype(s) </li></ul></ul><ul><ul><li>A Day in the Life </li></ul></ul><ul><li>Distribution </li></ul><ul><ul><li>Channel </li></ul></ul><ul><ul><li>Sales Cycle/Ramp </li></ul></ul><ul><ul><li>Channel strategy </li></ul></ul><ul><ul><li>Organization Map </li></ul></ul><ul><ul><li>Demand Creation </li></ul></ul><ul><li>Product </li></ul><ul><ul><li>Minimum Feature Set </li></ul></ul><ul><ul><li>Dependency Analysis </li></ul></ul><ul><ul><li>Benefits </li></ul></ul><ul><ul><li>Intellectual Property </li></ul></ul><ul><ul><li>Total Cost of Ownership </li></ul></ul>
  26. Discovery: Exit Criteria <ul><li>Customers top problems ? </li></ul><ul><li>Product concept solve them ? </li></ul><ul><li>A day-in-the-life of a customer (archetypes) </li></ul><ul><li>Draw the org chart of users & buyers </li></ul>
  27. Customer Validation Customer Discovery Customer Validation Customer Creation Company Building <ul><li>Repeatable and scalable business model ? </li></ul><ul><li>Passionate earlyvangelists ? </li></ul><ul><li>Pivot back to Discovery if no customers </li></ul>Pivot
  28. Earlyvangelists Budget Put Together a Solution out of Piece Parts Actively Looking For a Solution You Know They Have A Problem They Know They Have a Problem
  29. Customer Validation: Rules <ul><li>Sales roadmap, not sales staff </li></ul><ul><li>No sales staffing until the roadmap is proven </li></ul><ul><li>Tested customer acquisition model </li></ul><ul><li>Goal: prove a profitable business model </li></ul>
  30. Customer Development is a Search for a Business Model
  31. The Search for a Business Model <ul><li>No Business Plan survives first contact with customers </li></ul><ul><li>A Business Model diagrams how a company creates, delivers and captures value </li></ul><ul><li>Or in English: How a company makes money </li></ul>
  32. Emphasis On Hypotheses Testing
  33. Startups Continually Pivot (Iterate)
  34. Validation: Exit Criteria <ul><li>Draw your business model ? </li></ul><ul><li>Understood sales cycle & sales roadmap? </li></ul><ul><li>Proven customer acquisition model? </li></ul><ul><li>Orders ($’s) validating the business model? </li></ul>
  35. Customer Creation <ul><li>Creation comes after proof of sales </li></ul><ul><li>$’s for scale </li></ul><ul><li>Lean Startups are not cheap startups </li></ul>Customer Discovery Customer Validation Company Building Customer Creation
  36. Customer Creation Big Ideas <ul><li>Grow customers from few to many </li></ul><ul><li>Positioning </li></ul><ul><li>Launch </li></ul><ul><li>Demand creation </li></ul><ul><li>Different for each of the Market Types </li></ul>
  37. Sidebar Market Type
  38. Product Introduction Conundrum <ul><li>Product introductions aren’t predictable </li></ul><ul><ul><li>Why? </li></ul></ul><ul><ul><li>Is it the people that are different? </li></ul></ul><ul><ul><li>Is it the product that are different? </li></ul></ul><ul><li>Are there different “types” of startups ? </li></ul>
  39. Three Types of Markets <ul><li>Type of Market changes EVERYTHING </li></ul><ul><li>Sales, marketing and business development differ radically by market type </li></ul>Existing Market Resegmented Market New Market
  40. Type of Market Changes Everything <ul><li>Market </li></ul><ul><ul><li>Market Size </li></ul></ul><ul><ul><li>Cost of Entry </li></ul></ul><ul><ul><li>Launch Type </li></ul></ul><ul><ul><li>Competitive Barriers </li></ul></ul><ul><ul><li>Positioning </li></ul></ul><ul><li>Sales </li></ul><ul><ul><li>Sales Model </li></ul></ul><ul><ul><li>Margins </li></ul></ul><ul><ul><li>Sales Cycle </li></ul></ul><ul><ul><li>Chasm Width </li></ul></ul><ul><li>Finance </li></ul><ul><ul><li>Ongoing Capital </li></ul></ul><ul><ul><li>Time to Profitability </li></ul></ul><ul><li>Customers </li></ul><ul><ul><li>Needs </li></ul></ul><ul><ul><li>Adoption </li></ul></ul>Existing Market Resegmented Market New Market
  41. Three Types of Markets <ul><li>Existing Market </li></ul><ul><ul><li>Faster/Better = High end </li></ul></ul><ul><li>Resegmented Market </li></ul><ul><ul><li>Niche = marketing/branding driven </li></ul></ul><ul><ul><li>Cheaper = low end </li></ul></ul><ul><li>New Market </li></ul><ul><ul><li>Cheaper/good enough = creates a new class of product/customer </li></ul></ul><ul><ul><li>Innovative/never existed before </li></ul></ul>Existing Market Resegmented Market New Market
  42. Company Building Customer Discovery Customer Validation Customer Creation Company Building <ul><li>(Re)build company’s organization & management </li></ul><ul><li>Re look at your mission </li></ul>
  43. What VC’s Don’t Tell You: The Transition Scalable Startup Large Company Transition Search Build Grow
  44. What VC’s Don’t Tell You: The Transition – Founders Leave Scalable Startup Large Company Transition <ul><li>Founders depart </li></ul><ul><li>Professional Mgmt </li></ul><ul><li>Process </li></ul><ul><li>Beginning of scale </li></ul>
  45. Thanks www.steveblank.com
  46. Backup
  47. So What Does Engineering Do?
  48. Traditional Product Development Unit of progress: Advance to Next Stage Problem: known Solution: known Waterfall Requirements Design Implementation Verification Maintenance Source: Eric Ries http://startuplessonslearned.blogspot.com
  49. Agile Unit of progress: a line of working code Problem: Known Solution: Unknown “ Product Owner” or in-house customer Source: Eric Ries http://startuplessonslearned.blogspot.com
  50. Product Development at Lean Startup Unit of progress: validated learning about customers ($$$) Problem: Unknown Solution: Unknown Source: Eric Ries http://startuplessonslearned.blogspot.com

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