This presentation outlines two main startup/business development models: product development model, customer development model. The right methodology is to use both at the same time with constant feedback and learning.

1. win or lose? can you
choose..
Understanding Science and Technology
Asst. Prof. Dr. Ahmet Bulut
Department of Electrical Engineering and Computer Science
İstanbul Şehir University, İstanbul,Turkey
e-mail: ahmetbulut@sehir.edu.tr

2. losers
• Segway thought that their market was everyone in the world,
who walked. They targeted world class public relations
instead of targeting real customers with real money. Cost:
200 million dollars.
• Apple was first to introduce Personal Digital Assistant (PDA),
Newton. Apple marketed it as if they were in an existing
market, while no one fully understood why she would need a
PDA. Cost: 100 million dollars.
• Motorola’s Iridium satellite-based phone system. They built an
infrastructure to support a customer base of millions. No
one asked whether customers wanted it. Cost: 5 billion
dollars.

3. winners
• Toyota’s Prius. They’ve found a profitable niche for their
electric hybrid car. In its first five years sales grew to 5 billion
dollars. By 2015 hybrids could make up 35% of U.S. car
market.
• General Mill’s Yoplait GoGurt. The goal was to keep their
yogurt consumer base of toddlers and little kids for as long as
possible. They invented tube packaging, yogurt in a tube.

4. what makes “you” a winner or
a loser?
• there are hundreds of winners.
• there are thousands of losers.
• is there a repeating pattern, which is eminent in every
winner?
• is there a repeating pattern, which is eminent in every
loser?

5. compelling story
• in the heyday of dot-com bubble, Webvan
stood out as one of the most electrifying new startups.
• Webvan raised over 800 million dollars.
• they aimed to revolutionize the 450 billion dollars retail
grocery business with online ordering and same-day
delivery of household groceries.
• the company (i) raced to build vast automated
warehouses, (ii) purchased fleets of delivery trucks,
and (iii) built an easy to use website.
• barely 24 months after the initial public
offering, Webvan was bankrupt and out of business.

6. where are the customers?
• Webvan blindly followed a model called Product
Development.
• in a nutshell, Product Development model is:
“get big fast”
• however, Webvan did not boldly ask: “where are the
customers?”

7. product development model
• the process evolved in manufacturing industries.
• the process illustrates how to get a new product into
the hands of customers that are waiting to buy.
• the resulting model is a good fit when you are
launching a new product into an already established,
well-defined market, where the basis of competition
is understood, and you know who your customers
are.

8. product development model
• the model has four stages.
I. concept / II. product III. alpha / IV. launch /
seed development beta test 1st ship

9. product development model
• most startups use this model to manage their product
development as well as a roadmap for finding
customers and timing their sales launch and revenue
plan.
• the model is used as a catchall tool for every startup
executive’s schedule, plan, and budget.
• moreover, the investors use the model to set and plan
for funding.
• however, few startups fit this criteria.
• only a few know what their market is.

10. I. concept and seed stage
• founders capture their passion and vision for the
company and turn them into a set of key ideas:
business plan.
1. what is the product or service concept?
2. is it possible to build?
3. is further technical research needed to ensure that
the product can be built?
4. what are the product features and benefits?

11. I. concept and seed stage
• market research data plus potential customer
interviews are used to guesstimate customer base.
• lay out distribution channels.
• consider competition and identify differentiating
factors.
• devise a financial model to allure venture capital.

12. II. product development
• everyone stops talking and starts working.
• engineering focuses on building the product; it
designs the product, specifies the first release, and
hires a staff to build the product.
• marketing refines the size of the market defined in
the business plan. they begin to target the first
customers. they run focus groups. marketing
prepares a Marketing Requirements Document
(MRD) for engineering.
• marketing (i) builds a sales demo, (ii) writes sales
materials, and (iii) hires a PR agency.

13. II. product development
• engineering did two things:
1. built the automated warehouses and designed the
web site.
2. designed an end-to-end system to manage the
entire customer ordering and delivery flow process.
• marketing did two things:
1. planned a marketing and promotion program
designed to strengthen the Webvan brand name.
2. run advertising campaigns, held promotional
activities and events.

14. III. alpha / beta test
• engineering works with a small group of outside users to make
sure that the product works as specified and tests it for bugs.
• marketing develops a complete marketing communications
plan, provides sales with product demos and 1-page production
description flyers.
• pr agency polishes positioning and rolls the public press ball.
• sales signs up the first beta customers, builds the distribution
channels, staffs and scales the sales organization.
• ceo refines her fund-raising pitch and hits the street for more
investor money.

15. IV. product launch and first
customer ship
• with the product working, the company goes into “big bang”
spending mode.
$
• sales is heavily building and staffing a national sales
organization; the sales channel has quotas and sales goals.
• marketing is at its peak.
• company holds a large press event.
• marketing launches a series of programs to create end user
demand:
a. trade shows, b. seminars, c. email, d. advertising
• ceo hits the road for more investor money.

16. centricity of the model
• product-centric
• process-centric

17. what’s wrong with the
model?

18. what’s wrong with the model
• where are the customers?
• the focus is on the first customer ship date.
• the emphasis is on execution instead of learning and discovery.
• there is a lack of meaningful milestones for sales, for
marketing, and for business development.
• the model is used to measure sales.
• the model is used to measure marketing.
• company scales prematurely.
• the cost to operate increases exponentially.

19. what’s wrong with the model
• not all startups are alike.
• bringing a new product into an existing market.
• bringing a new product into a new market.
• bringing a new product into an existing market and trying to
re-segment that market as a low-cost entrant.
• bringing a new product into an existing market and trying to
re-segment that market as a niche entrant.

20. what’s wrong with the model
• there are unrealistic expectations.
• model is used to explain activities that have nothing to do
with product development: i. finding customers, ii. finding a
market, and iii. finding a viable business model.
• customers were to jump aboard automatically while
product is being developed.
• model is used to explain customer adoption and product
acceptance rate for all startup companies.
“build it and customers will come”

21. ask the right questions
• how well do we understand what problems customers have?
• how much will they pay us to solve those problems?
• do our product features solve these problems?
• do we understand our customer’s business?
• do we understand the hierarchy of customer needs?
• have we found visionary customers, ones who will buy our
product early?

22. ask the right questions
• is our product a must-have for these customers?
• do we understand the sales roadmap well enough to
consistently sell the product?
• do we understand what we need to be profitable?
• are the sales and business plans realistic, scalable, and
achievable?
• what do we do if our model turns out to be wrong?

23. how to proceed?

24. technology adoption
• technology is adopted in phases by distinct groups: technology
i. enthusiasts, ii. visionaries, iii. pragmatists, iv. conservatives, and
v. skeptics.
• the first two groups are the “early market”.
• the next two groups are the “mainstream market”.
• the shape of the overall market is a bell curve. the early market
starts small and grows exponentially into the mainstream
market.
• there is a chasm between each group. the largest chasm is
between early market and mainstream market. a chasm is
caused by different needs and buying habits of each group.

25. technology life cycle
adoption curve
customers
early
market

26. technology life cycle
adoption curve
customers
mainstream
market

27. technology life cycle
adoption curve
customers
skeptics
market

28. “the key to success is to
move through this
customer development
curve with learning and
discovery.”

29. customer development
• it starts with a simple premise: learn and discover who your
initial customers will be, what markets they are in.
• before any of the traditional functions of selling and marketing
can happen:
• the company has to prove that a market could exist,
• the company has to verify that someone would pay real
dollars for the solutions the company envisions,
• the company goes out and creates the market.

30. customer development model
customer customer customer company
STOP STOP STOP STOP
discovery validation creation building

31. parallel mode of
operation
• product development model
• customer development model

32. parallel mode of operation
• in each of the customer development steps, the product
development team and customer development team meet in
series to decide on when to move forward to the next step.
• in customer discovery, the customer development team
validates the product specification. if there is a mismatch
between customer’s expectations and the product
specification, then both teams together add features to the
product or refine existing features.
• in customer discovery, when customers have consistently said
that new or modified product features are required, vice
president of product development goes out with the customer
development team to listen to customer feedback.

33. parallel mode of operation
• in customer validation, key members of the product
development team go out in front of customers as part of the
pre-sales support team.
• in company building, the product development team does
installations and support for initial product while training the
support and service staff.

34. bottomline
• use both models at the same time.
• for questions and comments:
ahmetbulut@sehir.edu.tr