Presented by Steve Blank at http://sllconf.com on April 23, 2010 in SF

1. Why Accountants Don’t Run Startups
Steve Blank
Stanford - School of Engineering
U.C. Berkeley - Haas School Of Business
www.steveblank.com
Twitter: sgblank

2. I Drew This
Customer Customer Customer Company
Discovery Validation Creation Building
Pivot

3. I Called It:
Customer Development
Customer Customer Customer Company
Discovery Validation Creation Building
Pivot

4. I Wrote This

5. A Few People Read It

6. I Write a Blog
www.steveblank.com

7. When the Student is ready,
the Master appears.
Buddhist proverb

8. When the Student is ready,
the Master appears.
Buddhist proverb
When the Master is ready,
the Student appears.
Steve Blank proverb

9. Five Short Stories

10. Tectonic Shifts in
Entrepreneurship

11. The Silicon Valley
Funding Pyramid
Angels &
TechStars Incubators Y-Combinator
($0-10M)
Floodgate Seed Funds SoftTech (Clavier)
($10-50M)
SV Angel (Conway) Felicis (Senkut)
First Round Capital Small VC Funds Union Square Ventures
($50-250M)
Sequoia Benchmark
Traditional VC Funds
(>$250M)
Source: Dave McClure 500hats.com

12. Innovation in Financing
Angels &
Incubators
($0-10M)
Innovation is
Seed Funds happening here
($10-50M)
Small VC Funds
($50-250M)
Traditional VC Funds
(>$250M)
Source: Dave McClure 500hats.com

13. New Trends In Silicon Valley
• Internet startups - $500K is the new $5M
– Driven by the top of the pyramid
• Seed Funds providing entrepreneurial education*
– Ycombinator, TechStars, SeedCamp, LaunchBox, etc
• Customer Development/Lean Startup adoption
– Methodology to test hypothesis and business model
*~100 startup accelerator programs: http://blog.shedd.us/321987608/

14. Not All Startups Are Equal

15. Small Business Startups
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16. Small Business Startups
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- Business Model found
- Profitable business
- Existing team
< $10M in revenue

17. Small Business Startups
!"#$$%
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- Business Model found
- Profitable business
- Existing team
< $10M in revenue
• 5.7 million small businesses in the U.S. <500 employees
• 99.7% of all companies
• ~ 50% of total U.S. workers http://www.sba.gov/advo/stats/sbfaq.pdf

18. Small Business Startup:
Internet Edition
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- Business Model found
- Profitable business
- Existing team
< $10M in revenue
• The Internet allows a new class of Small Businesses
• Not all businesses on the Internet are “Scalable Startups”

19. Scalable Startup
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20. Scalable Startup
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- Total Available Market > $500m
- Company can grow to $100m/year
- Business model found
- Focused on execution and process

21. Scalable Startup
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- Total Available Market > $500m
- Company can grow to $100m/year
- Business model found
- Focused on execution and process
- Typically requires “risk capital”
• In contrast a scalable startup is designed to grow big
• Typically needs risk capital
• What Silicon Valley means when they say “Startup”

22. Very Different Startup Goals
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- Business Model found
- Profitable business
- Existing team
< $10M
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- Total Available Market > $500m
- Company can grow to $100m/year
- Business model found
- Focused on execution and process
- Typically requires “risk capital”

23. Silicon Valley Venture Firms Invest
in Scalable Startups
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24. What VC’s Don’t Tell You:
The Transition
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25. What VC’s Don’t Tell You:
The Transition – Founders Leave
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- Founders depart
- Professional Mgmt
- Process
- Beginning of scale

26. What’s A Startup?
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- Business Model found
- i.e. Product/Market fit
- Repeatable sales model
- Managers hired
A Startup is the organization used to search for
a scalable business model

27. Plan versus Model

28. No Business Plan survives first
contact with customers

29. So Search for a Business Model

30. The Search for a Business Model
• A Business Plan is static
• A Business Model diagrams how a company
creates, delivers and captures value – it’s
dynamic
• Or in English: How a company makes money

31. Emphasis On Hypotheses Testing

32. Startups Continually Pivot (Iterate)

33. Startups Search and Pivot
The Search for the Business Model
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- Business Model found
- i.e. Product/Market fit
- Repeatable sales model
- Managers hired

34. Startups Search, Companies Execute
The Search for the Business Model The Execution of the Business Model
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- Business Model found - Cash-flow breakeven
- Product/Market fit
- Repeatable sales model - Profitable
- Managers hired - Rapid scale
- New Senior Mgmt
~ 150 people

35. Metrics Versus Accounting
The Execution of the Business Model
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Traditional Accounting
- Balance Sheet
- Cash Flow Statement
- Income Statement

36. Metrics Versus Accounting
The Search for the Business Model The Execution of the Business Model
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Startup Metrics
- Customer Acquisition Cost Traditional Accounting
- Balance Sheet
- Viral coefficient - Cash Flow Statement
- Customer Lifetime Value - Income Statement
- Average Selling Price/Order Size
- Monthly burn rate
- etc.

37. Customer Validation Versus Sales
The Execution of the Business Model
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Sales
- Sales Organization
- Scalable
- Price List/Data Sheets
- Revenue Plan

38. Customer Validation Versus Sales
The Search for the Business Model The Execution of the Business Model
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Customer Validation
- Early Adopters Sales
- Sales Organization
- Pricing/Feature unstable - Scalable
- Not yet repeatable - Price List/Data Sheets
- “One-off’s” - Revenue Plan

39. Customer Development Versus
Product Management
The Execution of the Business Model
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Product Management
- Delivers MRD’s
- Feature Spec’s
- Competitive Analysis

40. Customer Development Versus
Product Management
The Search for the Business Model The Execution of the Business Model
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Product Management
Customer Development - Delivers MRD’s
- Hypothesis Testing - Feature Spec’s
- Minimum Feature Set - Competitive Analysis
- Pivots

41. Engineering Versus
Agile Development
The Execution of the Business Model
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Engineering
- Requirements Docs.
- Waterfall Development
- QA
- Tech Pubs

42. Engineering Versus
Agile Development
The Search for the Business Model The Execution of the Business Model
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Engineering
Agile Development - Requirements Docs.
- Continuous Deployment - Waterfall Development
- Continuous Learning - QA
- Tech Pubs
- Self Organizing Teams
- Minimum Feature Set
- Pivots

43. How Do Startups Search For A
Business Model?
• The Search is called Customer Development
• The Implementation is called Agile Development

44. The Lean Startup
• The Search is called Customer Development
• The Implementation is called Agile Development

45. Startups Don’t Last Forever
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- Business Model found - Cash-flow breakeven
- Product/Market fit - Profitable
- Repeatable sales model - Rapid scale
- Managers hired - New Senior Mgmt
~ 150 people
You fail if you remain a startup!

46. 562%!7#-7'1(%8-+*97%:'*%&2%
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47. Leadership Versus Management
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48. Leadership Versus Management
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49. Leadership Versus Management
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Search

50. Leadership Versus Management
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51. Leadership Versus Management
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52. Inventor of the Modern Corporation
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53. Inventor of the Modern Corporation
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Alfred P. Sloan

54. Alfred P. Sloan
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General Motors, President/Chairman
- Cost Accounting
- MIT Sloan School
- Sloan Foundation
- etc.

55. Founder of General Motors
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56. Founder of General Motors
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Billy Durant

57. Billy Durant
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- Leader in horse-drawn buggy’s
- Fired by board, starts Chevrolet
- Regains control of GM
- Fired by board, GM ~$3.6 billion*
* GM Net sales in 1921 $304.5M = $3.6 Billion today

58. Durant Versus Sloan
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59. Durant Versus Sloan
• Dies, rich, honored and famous

60. Durant Versus Sloan
• Dies managing a bowling alley • Dies, rich, honored and famous

61. Durant Versus Sloan
Accountant
• Dies managing a bowling alley • Dies, rich, honored and famous

62. You are here
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63. E-School instead of B-School

64. Business School Versus
Entrepreneurship School
Business School
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- Execution
- Strategy
- Accounting
- Products
- Engineering
- Management
- Administrative

65. Business School Versus
Entrepreneurship School
Business School
Entrepreneurship School
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- Hypothesis testing
- Execution
- Business Model testing - Accounting
- Customer Development - Products
- Agile Development - Engineering
- Metrics - Management
- Administrative
- Venture Finance
- Hands-on

66. Business School Courses Versus
Entrepreneurship Courses
Business School
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Courses
- Managerial Finance/Accounting
- Managing Groups and Teams
- Financial Accounting
- Operations
- Modeling for Optimization
- Global Value Chain Strategies

67. Business School Versus
Entrepreneurship Courses
Business School
Entrepreneurship School
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Courses
- Entrepreneurial Management Courses
- Creativity and Innovation - Managerial Finance/Accounting
- Managing Groups and Teams
- Technology Entrepreneurship - Financial Accounting
- Patent Law for Entrepreneurs - Operations
- Global Entrepreneurial Marketing- Modeling for Optimization
- Entrepreneurial Finance - Global Value Chain Strategies

68. E-School Will Emerge
• Entrepreneurial Education will change radically
• E-School Students are not B-School Students
• Y-Combinator/Techstars first inkling
• Today ~100 startup accelerator programs
*~100 startup accelerator programs: http://blog.shedd.us/321987608/

69. E-School – Let’s Help Build It
• Startup Accelerators - great coaching/networking
but minimal methodology
• Lean/Customer Development - great methodology
but no education
• Need to be connected to Engineering School
• Stanford, Harvard and others get it…but…
*~100 startup accelerator programs: http://blog.shedd.us/321987608/

70. Durant School of
Entrepreneurship

72. The Durant School of
Entrepreneurship
http://www.cafepress.com/durantschool

73. The Durant School of
Entrepreneurship
http://www.cafepress.com/durantschool

74. The Durant School of
Entrepreneurship
http://www.cafepress.com/durantschool

75. Thanks
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