3. What’s A Startup?
Scalable Large
Transition
Startup Company
- Business Model found
- i.e. Product/Market fit
- Repeatable sales model
- Managers hired
A Startup is the temporary organization
used to search for
a scalable business model3 (c)2010 K+S Ranch
Consulting Inc.
4. Venture Firms Invest in
Scalable Startups
Startup Small Business
Scalable Large
Startup Company
4 (c)2010 K+S Ranch
Consulting Inc.
5. not quite the beginning of startups, but…
100 Years Ago in Detroit
6. Alfred P. Sloan:
Inventor of the Modern Corporation
Scalable Large
Transition
Startup Company
General Motors, President/Chairman
• Cost Accounting
• MIT‘s Sloan School
• Sloan Kettering
• Kettering Institute
6 (c)2010 K+S Ranch
Consulting Inc.
7. Billy Durant
Scalable Large
Transition
Startup Company
Leading horse-drawn buggy maker
7 (c)2010 K+S Ranch
Consulting Inc.
8. Durant vs. Sloan
• Dies, rich, honored and famous
8 (c)2010 K+S Ranch
Consulting Inc.
9. Durant vs. Sloan
• Dies, rich, honored and famous
• Dies penniless…
…managing a bowling alley
9 (c)2010 K+S Ranch
Consulting Inc.
10. Durant vs. Sloan
Accountant
• Dies managing a bowling alley • Dies, rich, honored and famous
10 (c)2010 K+S Ranch
Consulting Inc.
11. WE are here
Scalable Large
Transition
Startup Company
11 (c)2010 K+S Ranch
Consulting Inc.
12. 50 years ago: Roger B. Smith
Scalable Large
Transition
Startup Company
General Motors, President/Chairman
- GM >50% market share
- Knew what the customer wanted
- 5 years to bring a car to market
- Huge inventories eliminate stoppages
12 (c)2010 K+S Ranch
Consulting Inc.
13. Toyoda and Ohno
Scalable Large
Transition
Startup Company
• Taught by Americans post WWII
• Couldn‘t afford inventory like US
auto companies
• Toured GM plants and…
• Built Kaizen/lean manufacturing
• Toyota Lean Production System
13 (c)2010 K+S Ranch
Consulting Inc.
14. 1960: Agile, Lean, Customer Centric
Scalable Large
Transition
Startup Company
• Short runs vs. Long option lists
• Agile Product Development
• Lean Manufacturing
• Continuous Improvement
• Customer Development
… talk about ‖a day in the life‖
14 (c)2010 K+S Ranch
Consulting Inc.
15. Toyoda/Ohno vs. Smith
• Integrate Customer Development vs. Options
• Agile Development plus Lean Manufacturing
• U.S. Market share goes from 0 to 20%
15 (c)2010 K+S Ranch
Consulting Inc.
16. Toyoda/Ohno vs. Smith
• Buys $35 billion of Japanese
robots to ―fix‖ GM
• Market share drops 50% to <25%
16 (c)2010 K+S Ranch
Consulting Inc.
20. More startups fail from
a lack of customers than from a
failure of product development
21. Traditional Product Introduction:
Two Implicit Assumptions
Customer Problem: known
Concept Product Alpha/Beta Launch/
Dev. Test 1st Ship
Product Features: known
21 (c)2010 K+S Ranch
Consulting Inc.
22. This Was A Plan For Failure
• Long-term “lockdown” of Product Development/Engineering
• Assumed we understood customer problem/product solution
– But they are hypotheses
– the facts were outside the building
• Sales & Marketing focused on execution to First Customer Ship
– Costs and burn rate became front loaded
– Execution & hiring predicated on business plan hypothesis
• Financial projections assume success
– Heavy spending hit if product launch is wrong
– Failure always a bad reflection on Management, Board, Investors
You don’t know if you’re wrong until you’re
out of business, out of money, or (usually) both!
23. 8 Startups later,
Steve Blank Drew This…
Customer Customer Customer Company
Discovery Validation Creation Building
―Do-Over‖
24. Which Turned Into A Model
Product Introduction Model
Concept Product Alpha/Beta Launch/
Dev. Test 1st Ship
became
Customer Development
Customer Customer Customer Company
Discovery Validation Creation Building
24 (c)2010 K+S Ranch
Consulting Inc.
25. Customer Development:
happy 10th birthday
…extensive ―real world‖ deployment
…morphed, tested, debated: CE0s, CM0s, VCs, MBAs
…start of a new ―entrepreneurial science‖ syllabus with its own library
Customer Customer Customer Company
Discovery Validation Creation Building
Do-Over
…a very short Customer Development overview
26. Customer Discovery
Customer Customer Customer Company
Discovery Validation Creation Building
Do-Over
• Stop selling, start listening
• Test your hypotheses
• Continuous Discovery and Feedback
• Done by founders…OUTSIDE the building!
26 (c)2010 K+S Ranch
Consulting Inc.
27. Customer Validation
Customer Customer Customer Company
Discovery Validation Creation Building
Do-Over
• Can I avoid the “land of the living dead?”
• Repeatable and scalable business model?
• Passionate Earlyvangelists who ―gotta have it?‖
• Return to Discovery without passionate customers
27 (c)2010 K+S Ranch
Consulting Inc.
28. The “Do Over” Loop
Do-Over
• Iteration was at the heart of Customer Development
• Fast, agile and opportunistic
• (Almost) celebrate failure…whenever it‘s instructive
• But it didn‘t have a name ―Do over‖ is just so juvenile
29. Customer Creation
Customer Customer Customer Company
Discovery Validation Creation Building
• Creation comes after proof of sales
• Spend to scale based on FACTS, not Hypotheses
• Begins only with repeatable, scalable processes
for sales, marketing, demand creation
29 (c)2010 K+S Ranch
Consulting Inc.
30. Company Building
Customer Customer Customer Company
Discovery Validation Creation Building
• (Re)build company, management, infrastructure
• (Re)visit the mission
• Go Global
• Get a Porsche (or a Towncar)rganization & management
• Re look at your mission
30 (c)2010 K+S Ranch
Consulting Inc.
31. 100 Startups:
National Science Foundation
• Apply Customer Development principles to
100 top funded NSF innovators—pay‘em!
• ―Short Course‖ at Stanford, midterm update
• Remote Mentoring for 25 teams/quarter
• Finals: VC ―bakeoff‖
32. So what’s new since 2003??
• Customer Development startups have surged
• Customer Development “Rules” emerged
• Key Customer Development approaches have converged
• Product Development cycle times submerged
• …and easy money has been purged
33. Eric Ries: Insight
Engineering acts as if features are “known”
Concept/ Product Alpha/ Launch/
Seed Dev. Beta Ship
Waterfall
Requirements
Design
Solution: known
• Eric observed the solution Implementation
was unknown in a startup Problem: known Verification
• Waterfall process could only Maintenance
build known features
34. New #1:
Customer + Agile + Commodity = Lean
• Solving customer + feature unknowns is the ―Lean Startup‖
Problem: Unknown Solution: Unknown
34 Source: Eric RiesConsulting Ranch
(c)2010 K+S
Inc.
35. #2: Cycle Times Speed Up
• Speed of cycle minimizes cash needs
• Minimum feature set speeds up cycle time
• Near instantaneous feedback drives feature set
35 (c)2010 K+S Ranch
Consulting Inc.
36. New #3: Jon Feiber @ MDV
Not all Startups Need Customer
Development
• Market Risk vs. Technical Risk?
– Web is about customers & markets
– Biotech is about science & invention
– Absolutely valid for .com, social…but differently
37. New #4: Dave McClure
Different Metrics for (Web) Startups
SEO Campaigns,
SEM PR Contests Biz Dev
Social
Networks
Blogs Affiliates
Apps & Direct, Tel,
Widgets Email TV
Viral
Domains
ACQUISITION Loops
Emails & Alerts Emails &
widgets
Blogs, RSS, Affiliates,
News Feeds Contests
Ads, Lead Gen, Biz Dev
System Events & Subscriptions,
Time-based Features ECommerce
Website.com From Dave McClure
37 (c)2010 K+S Ranch
http://500hats.typepad.com/
Consulting Inc.
38. Startups Need the Right Metrics
The Search for the Business Model The Execution of the Business Model
Scalable Large
Transition
Startup Company
Startup Metrics
- Customer Acquisition Cost Traditional Accounting
- Balance Sheet
- Viral/Unique/Session Growth - Cash Flow Statement
- Customer LTV change - Income Statement
- Average Selling Price/Order Size
- Monthly burn rate
38 (c)2010 K+S Ranch
Consulting Inc.
39. New #5: Business Model, Not Plan
a Front-end to Customer Development
• Business Plans are Rigid, Static
• “No Business Plan Survives First Contact with
Customers” who don’t read them --Steve Blank
• The Four Steps had:
– Business model flow for Enterprise Software
– Business model summary for each step
– Checklists for Enterprise Software
• It said, “modify it to fit your business”
• Now we can
39 (c)2010 K+S Ranch
Consulting Inc.
40. Osterwalder’s Business Model - Insight
key value customer
activities proposition relationships
key customer
partners segments
cost revenue
structure key streams
resources channels
40 (c)2010 K+S Ranch
Consulting Inc.
41. Business Model Canvas – Any Business
KEY KEY OFFER CUSTOMER CUSTOMER
PARTNERS ACTIVITIES RELATIONSHIPS SEGMENTS
KEY CHANNELS
RESOURCES
COST STRUCTURE REVENUE STREAMS
41 (c)2010 K+S Ranch
41
Consulting Inc.
43. Business Model Practice Session:
Let‘s all be Steve Jobs for 15 minutes
• “I’m thinking about Apple tv”
• “Surely it’s not just another tv set”
• “Is it an ecosystem somehow?”
• “How will it help all of Apple grow?”
• “What will make it as distinct as the iPhone?...
or the iPod…or the iPad?
FOCUS ON THREE BOXES OF THE CANVAS:
VALUE PROPOSITION: features, benefits, competitive, price
CUSTOMER SEGMENTS: who will most want to buy it?
CHANNEL: where should I let them buy it?
43 (c)2010 K+S Ranch
Consulting Inc.
45. A few rules from the “Blank Manifesto”
1. Align all parties upfront…prepare to lose termsheets
2. No VPs, no factories…MVP to the “champagne cork”
3. No more business plans!
4. Commit to Iterate and Pivot, “celebrate,” tolerate failure
when it propels you forward
5. Integrate Customer Development with Agile Development
6. Agree to very different benchmarks and metrics
7. Faster Cycle Times say Run like hell*
45
47. A Deeper Look at
Customer Discovery
Customer Phase 3 Phase 4
Discovery Test Verify, Iterate &
Product Expand
Hypothesis
To Validation
Phase 1
Phase 2 Author
Test Hypothesis
Problem
Hypothesis
48. Customer Discovery
Customer Customer Customer Company
Discovery Validation Creation Building
• Stop selling, start listening
• Develop your Key Hypotheses
• Test ―Problem‖ Hypotheses with Customers
• Then test the GEMx ―Solution
• Confirm Discovery Completion
49. The Discovery Methodology
• Remember: ―Search‖ vs. ―Execute‖ This is SEARCH!
• Customer Discovery can take months or years
• Each Vertical(some Geographies) have a set of phases
• Each Discovery mission follows the same 4 steps
– Identify and Adjust the ―Variable Hypotheses‖
– Test/Validate the PROBLEM with customers
– Test/Validate the product SOLUTION with customers
– Determine How/When Discovery is complete
• Put the Plan in writing: who, what, when, ―success‖
• Be prepared for lots of wrong and left turns
50. Customer Discovery
Hypotheses
Product
Hypothesis Inside the Building
Customer
& Problem
Hypothesis
Distribution
& Pricing
Hypothesis
Demand
Creation
Hypothesis
Market Type
Hypothesis
Competitive
Hypothesis
Test “Problem” Hypothesis
Friendly ―Problem‖ Customer Market
First Contacts Presentation Understanding Knowledge
Outside the “Product” Hypothesis
Test Building
First Reality ―Product‖ Yet More Second
Check Presentation Customer Reality Check
Verify Visits
Verify the Verify the Verify the Iterate or
Product Problem Business Exit
Model
51. Before You Start: #1
• Know your stuff:
– Lots of casual, ―deep dive‖ conversations
– You‘ll be ―trading knowledge,‖ so it‘s good to have some
– Know the vertical to ask good questions, process
answers
– Bring technical experts to key technical conversations
• Do your Homework:
– Market knowledge a key Discovery element
– Customer sizes, current behavior is important
– Start early to ―network‖ your way to the right folk
– Keep detailed records on all interactions
52. Before You Start: #2
• Capture History/Learning from
predecessors:
– Industry knowledge among team members
– Public, available information resources
– Consolidate learning experience-to-date
• GET ORGANIZED to
– Capture/organize/summarize findings
– Which customers address which hypotheses
– Find people willing to talk to you
53. Phase 1: Author Hypotheses
Phase 3
Product
Phase 4
Iterate &
• One-time writing
Concept Expand
Testing exercise
• All other time spent in
Phase 1 front of customers
Phase 2
Test Author
Problem
Hypothesis Hypotheses • Assumes you‘re smart
but guessing
54. Step 1:
Develop Your Hypotheses
• What are Hypotheses?
• Where do Hypotheses come from?
• Why Test them?
• How do you test them?
• Why not test them all?
55. What’s a Hypothesis?
• My (well) educated “best GUESS”
• …in a one-page bullet point list
• Based on Knowledge:
– …of the Vertical and/or Geography
– …of similar Markets/Verticals/Countries
– …that I’ll confirm with the RIGHT types/number of customers
• Goal: One Page of Bullets Per Hypothesis
– NO long-winded narratives
– NO jargon, simple to understand
– Use appendices for detailed product, other specs
– Be sure the team agrees
– Create a “matched set” of Hypotheses for the vertical/market
MBA295-F
56. Hypotheses to Focus on:
5 Will Change Most Often
1. Product/Value Proposition
2. Customer/Problem
3. Distribution/Pricing
4. Competitive Hypothesis
5. Demand Creation
Product Customer Distribution Competitive Demand
Hypothesis & Problem & Pricing Hypothesis Creation
Hypothesis Hypothesis Hypothesis
57. 1. Product Hypotheses aka Value Proposition
• Features we‘re trying to sell exactly what we‘re building
• Benefits vary widely by customer type, need, behavior
• Product Delivery Schedule flex for big
opportunities
• Total Cost of Ownership differs by customer, for
sure
• Other typical elements you can “ignore:”
– Product Cost/Manufacturing
– Long-term sales volume(at least for now)
– Long-term product plan
– Minimum Viable Product
58. 2. Customer/Problem Hypotheses
• Define the Problem price vs performance vs power vs
pretty?
• Magnitude of the problem how much does anybody
care?
• Types of Customers/Archetypes may questions
here:
– Customer type: specifier/buyer/decisionmaker/saboteur types to watch for
– Distinct types: Earlyvangelist vs. mainstream; Direct vs. Indirect; Rent vs Buy
– Archetypes: draw me the profile of the ideal customer in this vertical
– ―Multi-sided:‖ engineers, architects, consultants, other referrers/validators
• Visionaries who are the Earlyvangelist candidates/why
• Who will grab me and say “I need this
now.”
59. 3. Distribution/Pricing Hypotheses
• Distribution Model who sells, services, delivers in vertical
• Distribution Diagram how it ―works,‖ who ―owns‖ what
• Channel strategy best approach for
market/vertical/geography
• Sales Cycle/Ramp direct, referrals, viral growth
• Pricing and channel costs
60. 4. Competitive Hypotheses
• Key Product Benefits/Attributes
• Variations on Benefits by customer type
• Who is out there in this vertical or geography?
• Why are they important? How do they sell?
• Which customers use them today? How?
• What are their weaknesses?
61. 5. Demand Creation Hypotheses
• Marketing: it‘s all about Sales Leads. Period.
• How do competitors create demand?
• How will you create demand in this vertical?
• Who are influencers/recommenders?
• Key trade shows? Industry groups/events?
• Key trends where your product fits, leads?
62. Phase 2:
Test & Qualify Problem
Hypothesis
Phase 3 Phase 4
Test
Product
Iterate &
Expand • Get out of the building
Hypothesis
• Test the problem
Phase 1
• Become the customer
Phase 2 Author
Test Hypothesis • Solve a real problem
Problem
Hypothesis
63. Test & Qualify the Problem:
1. Plan First Contacts ALWAYS
Warning: this step may not be needed everywhere!
• ―Let‘s talk about your problems, not the product‖
• Build a Rolodex
• Research Industry Associations, Publications
• Other relationships with company/geographies
• Develop ―Innovators‖ list
• Create reference story/sales script
• Schedule Customer Visits
64. Test & Qualify the Problem:
2. Create Problem Presentation LIKELY
• Absolutely Not a Sales Pitch:
– Tests your understanding of the customer‘s problem
– Determine how serious a problem you‘re solving(demand)
– Learn about customers: how they work, how they buy
• Learn to Listen, not to Talk or Present
– This is a discussion, not a pitch
– Avoid large group meetings where possible
– Begin to Validate Hypotheses: pain, gain, how they buy
– Probe for the customer‘s ‗win‘
• Talk about “possible” Problems/Solutions
• Capture missing market, competitive, marketing data
65. Test & Qualify the Problem:
3. Customer Understanding ALWAYS
• Become a Domain Expert
• Understand their ―Day-in-the Life‖
• Understand their problems/pain
• Get a feel of how this impacts their
life/work
• Who has similar products to solve this
problem
• How do customers learn about new
66. Test & Qualify the Problem:
4. Market Knowledge ALWAYS
• Get a feel for the ―lay of the land‖
• Build a complete ―data set‖ on market,
players
• Adjacent Market players
• Industry Influencers
• Key Analysts
• Attend Key Conferences/Tradeshows
67. Discovery: The PROBLEM
• What is the problem?
• Who has the problem?
• How important is solving the problem to
this customer?
• Where do they turn for solutions?
• How valuable is the solution to this
customer?
• Can I turn interest into an order before I
retire?
68. Phase 3:
Test Product Hypothesis
Phase 3 Phase 4 • First reality check
Test Iterate &
Product Expand w/team
Hypothesis
• The product hits the
Phase 1
street
Phase 2 Hypothesis
Test
& Qualify
• Lots of customer visits
Hypothesis
• More doses of reality
EVERYONE does this in
EVERY MARKET…but it
69. Test Product Hypothesis:
1. First Reality Check
• How did ―Problem‖ Discovery change the Hypotheses?
• Do any changes yield Pivots? Pricing? Product?
• Build a Workflow Map of customer
– First: preliminary sales roadmap
– Second: life before and after the new product
• Problem scale
• Key insights
• How did the product spec match needs?
• Re-review product feature List
• Re-review competitive analysis
70. Test Product Hypothesis:
2. Product Presentation
• Start with Problem Presentation
• Then describe the Product
• Demo if possible
71. Test Product Hypothesis:
3. More Customer Visits: SOLUTION
• Set up More Calls
• Validate Solution
• Validate Product
• Validate Positioning
• Understand Customer and Organizational Pain
• Validate Pricing and Budget
• Understand ―Whole Product‖ needs
• Understand Approval Process/sales cycle
72. TIME OUT: What‘s your Discovery Plan?
• WHO do you need to talk to?
• HOW will you find them?
• WHAT “problem” questions do you have?
• WHAT “solution” questions do you have?
• WHEN will you be done?
72 (c)2010 K+S Ranch
Consulting Inc.
73. Phase 4: Where/When are we done
with Customer Discovery?
Customer Phase 3 Phase 4
Discovery Test Verify, Iterate &
Product Expand
Hypothesis
To Validation
Phase 1
Phase 2 Author
Test Hypothesis
Problem
Hypothesis
74. Customer Discovery:
Exit Criteria
• Consistent answers from “enough”
people?
• What are the customers’ top problems?
– How much will they pay to solve them
• Is there high demand for your solution?
– Do customers agree?
– How much will they pay? When?
• Draw a day-in-the-life of a customer
• Draw the org chart of users & buyers
• Enough feedback? How much is that?
75. When You’re Finished…
…do it all again: Validation!
Customer Phase 3 Phase 4
Discovery Test Verify, Iterate &
Product Expand
Hypothesis
To Validation
Phase 1
Phase 2 Author
Test Hypothesis
Problem
Hypothesis
76. Where to learn more:
www.steveblank.com
Special Book
Offer Here
TONS
of
INFO
here
77. Thanks
…Now Go PIVOT!
bob@kandsranch.com
www.steveblank.com