Lean Startup presentation for Maples Investments by Steve Blank and Eric Ries

Eric Ries
Eric RiesEric Ries
The Lean Startup


Low Burn by Design not Crisis




     Steve Blank and Eric Ries
The Economy

Before
• Cash was readily available
• Follow on financing was readily available


After
• Debt markets are tight
• IPO & M&A window closed
• VC!s deep pessimism


Venture fund returns have been on decline for a decade
                   - no end in sight
State of Startups


• High burn rate
• Swing for the fences
• Full management teams
• Assume customer is known
• Assume features are known
• Assumes growth is by execution




   Traditional startups are fighting yesterday’s war
Top Gun dogfight scene
Warfare Changes Forever
Boyd: Winning is about Agility



                 The OODA Loop

                 • Observe

                 • Orient

                 • Decide

                 • Act
Boyd Redefines the Rules to Win



               • Agility requires a continuous
                 cycle of interactions with the
                 environment
               • But you can’t do it from a desk
Winners are Those Who Can Move
 Faster Than Their Competitors


              • Winning requires constant
                assessment of change and
                ways to mitigate risk

              • Iterating faster than
                competitors yields
                substantial advantage
Facing Reality at Today’s Startup
        There is no 2nd Place


               • Uncertain environment
               • Rapid, unanticipated changes
                 that lead to disorientation
               • Constant threats to any initiative
               • Burn rate (time, fuel, bullets,
                 dollars) limits window of
                 opportunity
Using OODA to Create “Lean Startups”
     And Changing the Startup Rules


                            Customer
                           Development




                              Agile
                             Product
                           Development
Lean Startups
Building a New Wave of Companies in Silicon Valley


                          • Continuous customer
         Customer
        Development         interaction
                          • Revenue goals from day one
                          • No scaling until revenue
                          • Assumes customer and
                            features are unknowns
           Agile
          Product         • Low Burn by Design - Not
        Development         Crisis
IMVU
Founding IMVU

• History:
 - Company founded in April 2004
 - Founders audit Steve Blank's B-school class Fall of 2004
• Tactics:
 - Shipped in 6 months
 - Charged from Day 1
 - No press releases
 - Ship 20 times a day
• Results:
 - Continuous iteration with customers
 - 2007 revenues of $10MM


 • Here's what it looked like to their first venture investors
IMVU: Q4 2004

• Product                                  9,000                                                                                             $8,000
 -   3D Instant Messenger (IM) add-on
     hanging out online with friends       8,000                                                                                             $7,000

 -   Piggy-back on existing buddy lists    7,000
                                                                                                                                             $6,000
     and IM programs
                                           6,000
• Customer reaction                                                                                                                          $5,000

 -   Avatar customization is key appeal    5,000
                                                                                                                                             $4,000
 -   “Add-on” concept is confusing. They   4,000
     actually want a separate buddy list                                                                                                     $3,000
                                           3,000
• So we...                                                                                                                                   $2,000
 -   Ditched the IM add-on idea            2,000

                                           1,000                                                                                             $1,000


                                              0                                                                                              $0
                                                                              Feb-05
                                                            Dec-04




                                                                                       Mar-05
                                                                     Jan-05
                                                   Nov-04




                                                                                                         May-05




                                                                                                                                    Aug-05
                                                                                                Apr-05




                                                                                                                           Jul-05
                                                                                                                  Jun-05
IMVU: Q1 and Q2 2005

• Product
 -   3D IM service for hanging out with
                                                9,000                                                                                             $8,000

     friends and meeting people                 8,000                                                                                             $7,000
 -   Introduced Chat Now feature (instant
                                                7,000
     matching)                                                                                                                                    $6,000

• Customer reaction                             6,000
                                                                                                                                                  $5,000
 -   Meeting new friends is as important        5,000
     as talking with existing friends (50/50)                                                                                                     $4,000

 -   Not enough people on IMVU
                                                4,000
                                                                                                                                                  $3,000
 -   Retention is a problem                     3,000

• So we...                                      2,000
                                                                                                                                                  $2,000

 -   Scaled up advertising budget (to
                                                1,000                                                                                             $1,000
     $40/day)
 -   Learned about retention from market           0                                                                                              $0
     leaders (Cyworld, Myspace)
                                                                                   Feb-05
                                                                 Dec-04




                                                                                            Mar-05
                                                                          Jan-05
                                                        Nov-04




                                                                                                              May-05




                                                                                                                                         Aug-05
                                                                                                     Apr-05




                                                                                                                                Jul-05
                                                                                                                       Jun-05
IMVU: Q3 2005

• Product                             9,000                                                                                             $8,000

 - 3D IM service plus avatar home     8,000                                                                                             $7,000
   pages
 - Also introduced messages, gifts,   7,000
                                                                                                                                        $6,000
   picture galleries and blogs
                                      6,000
• Customer reaction                                                                                                                     $5,000

 - Avatar home pages are highly       5,000
                                                                                                                                        $4,000
   addictive                          4,000
 - 2D and 3D complement one           3,000
                                                                                                                                        $3,000
   another
 - Messages in home pages and real    2,000
                                                                                                                                        $2,000

   time interaction complement one
   another                            1,000                                                                                             $1,000


                                         0                                                                                              $0
                                                                         Feb-05
                                                       Dec-04




                                                                                  Mar-05
                                                                Jan-05
                                              Nov-04




                                                                                                    May-05




                                                                                                                               Aug-05
                                                                                           Apr-05




                                                                                                                      Jul-05
                                                                                                             Jun-05
Lean Startup Principles
Extraordinary Value at Low cost in Little Time


                        • Leverages:
     Customer            - Technology commoditization
    Development          - Agile management practices
                         - Customer Development
                        • Designed to test hypothesis
                          and answer the unknowns

        Agile
       Product
     Development
The Lean Startup
   Agile Product Development



                  • Continuous cycle of
                    Product Development
                   - Product release cycle in
                     hours not years
                   - Tightly coupled with customer
                     development
                   - Minimum feature sets,
   Agile             maximum customer coverage
  Product
Development
What has changed? Technology
Lean Startups Leverage Commoditized Technology


  Licensed Software/              Open Source/
 Proprietary Hardware          Commodity Technology
Product Development a la Microsoft
          Unit of progress: Advance to Next Stage

                        Waterfall




Problem: known                            Solution: known
Product Development at Typical Venture Startup
    Assumes Customers and Markets are Understood


                        Agile (XP)!

   “Product Owner” or
   in-house customer




    Problem: known                Solution: unknown
Product Development at Lean Startup
             Assumes Customers and Markets are Unknown


                       Customer Development Engineering

Customer        Customer     Customer      Scale
Discovery       Validation   Creation    Company

                                                   Data, feedback, insights


                  Problem: unknown                 Solution: unknown


            Hypotheses, experiments, insights
The Lean Startup
     Customer Development

                • Continuous cycle of
                  customer interaction
 Customer
Development      - Rapid hypothesis testing about
                   market, pricing, customers, …
                 - Extreme low cost, low burn,
                   tight focus
                 - Measurable gates for investors
The Lean Startup
Customer Development Parallels Agile Development

                           Agile Development


       Concept /          Agile      Continuous     Continuous
      Business Plan    Development     Test            Ship




                       Customer Development

      Customer          Customer         Customer         Company
      Discovery         Validation       Creation         Building
Customer Development
  Turns Market Risk/Product Fit Hypothesis into Facts


        Customer    Customer        Customer   Company
        Discovery   Validation      Creation   Building




• Discovery
 - Test hypotheses I.e. problem and product concept
• Validation
 - Build a repeatable and scalable sales process
• Creation
 - Create end-user demand and fill the sales pipeline
• Building
 - Scale via relentless execution
Lean Startup Advantages
                                          Customer
                                         Development


• Builds low-burn companies by design
 - Low cost market risk testing
                                            Agile
• Organized around learning and            Product
                                         Development
  discovery
• Right model for current conditions



  The next wave of capital efficient startups
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Lean Startup presentation for Maples Investments by Steve Blank and Eric Ries

  • 1. The Lean Startup Low Burn by Design not Crisis Steve Blank and Eric Ries
  • 2. The Economy Before • Cash was readily available • Follow on financing was readily available After • Debt markets are tight • IPO & M&A window closed • VC!s deep pessimism Venture fund returns have been on decline for a decade - no end in sight
  • 3. State of Startups • High burn rate • Swing for the fences • Full management teams • Assume customer is known • Assume features are known • Assumes growth is by execution Traditional startups are fighting yesterday’s war
  • 6. Boyd: Winning is about Agility The OODA Loop • Observe • Orient • Decide • Act
  • 7. Boyd Redefines the Rules to Win • Agility requires a continuous cycle of interactions with the environment • But you can’t do it from a desk
  • 8. Winners are Those Who Can Move Faster Than Their Competitors • Winning requires constant assessment of change and ways to mitigate risk • Iterating faster than competitors yields substantial advantage
  • 9. Facing Reality at Today’s Startup There is no 2nd Place • Uncertain environment • Rapid, unanticipated changes that lead to disorientation • Constant threats to any initiative • Burn rate (time, fuel, bullets, dollars) limits window of opportunity
  • 10. Using OODA to Create “Lean Startups” And Changing the Startup Rules Customer Development Agile Product Development
  • 11. Lean Startups Building a New Wave of Companies in Silicon Valley • Continuous customer Customer Development interaction • Revenue goals from day one • No scaling until revenue • Assumes customer and features are unknowns Agile Product • Low Burn by Design - Not Development Crisis
  • 12. IMVU
  • 13. Founding IMVU • History: - Company founded in April 2004 - Founders audit Steve Blank's B-school class Fall of 2004 • Tactics: - Shipped in 6 months - Charged from Day 1 - No press releases - Ship 20 times a day • Results: - Continuous iteration with customers - 2007 revenues of $10MM • Here's what it looked like to their first venture investors
  • 14. IMVU: Q4 2004 • Product 9,000 $8,000 - 3D Instant Messenger (IM) add-on hanging out online with friends 8,000 $7,000 - Piggy-back on existing buddy lists 7,000 $6,000 and IM programs 6,000 • Customer reaction $5,000 - Avatar customization is key appeal 5,000 $4,000 - “Add-on” concept is confusing. They 4,000 actually want a separate buddy list $3,000 3,000 • So we... $2,000 - Ditched the IM add-on idea 2,000 1,000 $1,000 0 $0 Feb-05 Dec-04 Mar-05 Jan-05 Nov-04 May-05 Aug-05 Apr-05 Jul-05 Jun-05
  • 15. IMVU: Q1 and Q2 2005 • Product - 3D IM service for hanging out with 9,000 $8,000 friends and meeting people 8,000 $7,000 - Introduced Chat Now feature (instant 7,000 matching) $6,000 • Customer reaction 6,000 $5,000 - Meeting new friends is as important 5,000 as talking with existing friends (50/50) $4,000 - Not enough people on IMVU 4,000 $3,000 - Retention is a problem 3,000 • So we... 2,000 $2,000 - Scaled up advertising budget (to 1,000 $1,000 $40/day) - Learned about retention from market 0 $0 leaders (Cyworld, Myspace) Feb-05 Dec-04 Mar-05 Jan-05 Nov-04 May-05 Aug-05 Apr-05 Jul-05 Jun-05
  • 16. IMVU: Q3 2005 • Product 9,000 $8,000 - 3D IM service plus avatar home 8,000 $7,000 pages - Also introduced messages, gifts, 7,000 $6,000 picture galleries and blogs 6,000 • Customer reaction $5,000 - Avatar home pages are highly 5,000 $4,000 addictive 4,000 - 2D and 3D complement one 3,000 $3,000 another - Messages in home pages and real 2,000 $2,000 time interaction complement one another 1,000 $1,000 0 $0 Feb-05 Dec-04 Mar-05 Jan-05 Nov-04 May-05 Aug-05 Apr-05 Jul-05 Jun-05
  • 17. Lean Startup Principles Extraordinary Value at Low cost in Little Time • Leverages: Customer - Technology commoditization Development - Agile management practices - Customer Development • Designed to test hypothesis and answer the unknowns Agile Product Development
  • 18. The Lean Startup Agile Product Development • Continuous cycle of Product Development - Product release cycle in hours not years - Tightly coupled with customer development - Minimum feature sets, Agile maximum customer coverage Product Development
  • 19. What has changed? Technology Lean Startups Leverage Commoditized Technology Licensed Software/ Open Source/ Proprietary Hardware Commodity Technology
  • 20. Product Development a la Microsoft Unit of progress: Advance to Next Stage Waterfall Problem: known Solution: known
  • 21. Product Development at Typical Venture Startup Assumes Customers and Markets are Understood Agile (XP)! “Product Owner” or in-house customer Problem: known Solution: unknown
  • 22. Product Development at Lean Startup Assumes Customers and Markets are Unknown Customer Development Engineering Customer Customer Customer Scale Discovery Validation Creation Company Data, feedback, insights Problem: unknown Solution: unknown Hypotheses, experiments, insights
  • 23. The Lean Startup Customer Development • Continuous cycle of customer interaction Customer Development - Rapid hypothesis testing about market, pricing, customers, … - Extreme low cost, low burn, tight focus - Measurable gates for investors
  • 24. The Lean Startup Customer Development Parallels Agile Development Agile Development Concept / Agile Continuous Continuous Business Plan Development Test Ship Customer Development Customer Customer Customer Company Discovery Validation Creation Building
  • 25. Customer Development Turns Market Risk/Product Fit Hypothesis into Facts Customer Customer Customer Company Discovery Validation Creation Building • Discovery - Test hypotheses I.e. problem and product concept • Validation - Build a repeatable and scalable sales process • Creation - Create end-user demand and fill the sales pipeline • Building - Scale via relentless execution
  • 26. Lean Startup Advantages Customer Development • Builds low-burn companies by design - Low cost market risk testing Agile • Organized around learning and Product Development discovery • Right model for current conditions The next wave of capital efficient startups