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Introduction to Customer Development at the Lean Startup Intensive at Web 2.0 Expo by Steve Blank
Introduction to Customer Development at the Lean Startup Intensive at Web 2.0 Expo by Steve Blank
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
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
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
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
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>
<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>
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
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>
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
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>
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>
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 +
Customer + Agile Development Agile
Development + Customer Development Company Building Customer Discovery Customer Validation Customer Creation
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>
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>
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>
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
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
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>
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>
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 ($’s) validating the business model? </li></ul>
Customer Creation <ul><li>Creation comes after
proof of sales </li></ul><ul><li>$’s for scale </li></ul><ul><li>Lean Startups are not cheap startups </li></ul>Customer Discovery Customer Validation Company Building Customer Creation
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>
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>
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
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
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
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>
What VC’s Don’t Tell You:
The Transition Scalable Startup Large Company Transition Search Build Grow
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>
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
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
Product Development at Lean Startup
Unit of progress: validated learning about customers ($$$) Problem: Unknown Solution: Unknown Source: Eric Ries http://startuplessonslearned.blogspot.com
Editor's Notes
Steve Blank has an additional screen for opportunity – the “Type of Market” Three types of markets Each with a radically different set of needs Palm in 1995 created a “New Market” Handspring in 2000 with the exact same product, entered an “Existing Market Microsoft with the Pocket PC, is attempting to “Resegment” the Market Why does this matter in weighing and assessing opportunity?
Each “type of market” is radically different Different ways to size the market opportunity Different sales costs Different demand creation costs Different time to liquidity Very different capital requirements And as we’ll see market type choices radically effect the Customer Development process.
In looking at how companies succeed and fail, their success tends to be organized around groupings of customers and markets. More importantly it is how these groupings of customers view their needs and how your new product satisfies those needs
IMVU started life as an “IM add-on” product. It sounded like a brilliant strategy – on a whiteboard.