Everything You Knew About Startups is Wrong, And How to Make it Right

Everything you knew about starting a company is wrong.  

And how to do it right.

Steve Blank

Stanford School of Engineeringwww.steveblank.com

Twitter: sgblank

More startups fail from a lack of customers than from a failure of product development

Traditional Product Introduction

Concept Product Dev.

Alpha/Beta Test

Launch/1st Ship

Traditional Product IntroductionHas Two Implicit Assumptions

Concept Product Dev.

Alpha/Beta Test

Launch/1st Ship

Customer Problem: known

Product Features: known

Tradition – Hire Marketing

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

Marketing

Concept Product Dev.

Alpha/Beta Test

Launch/1st Ship

Tradition – Hire Sales

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

• Build Sales Organization

Marketing

Sales• Hire Sales VP• Hire 1st Sales

Staff

Concept Product Dev.

Alpha/Beta Test

Launch/1st Ship

Tradition – Hire Business Development

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

• Build Sales Organization

Marketing

Sales• Hire Sales VP• Hire 1st Sales

Staff

Concept Product Dev.

Alpha/Beta Test

Launch/1st Ship

• Hire First Bus Dev

• Do deals for FCS

Business Development

Tradition – Hire Engineering/Product Management

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

• Build Sales Organization

Marketing

Sales• Hire Sales VP• Hire 1st Sales

Staff

Concept Product Dev.

Alpha/Beta Test

Launch/1st Ship

• Hire First Bus Dev

• Do deals for FCS

Business Development

Engineering/Product Mgmt

• Write Requirements

• Waterfall Development

• Q/A • Tech Pubs

Engineering Executes a Waterfall Process

Concept Product Dev.

Alpha/Beta Test

Launch/1st Ship

Require-ments

Design Implement Verify Maintain

Customer Problem: known

Product Features: known

Waterfall / Product ManagementExecution on Two “Knowns”

Requirements

Design

Implementation

Verification

Maintenance

Source: Eric Rieshttp://startuplessonslearned.blogspot.com

This is A Plan For Failure

• Customer Problems and Product Features are hypotheses

• Sales & Marketing costs are front loaded– focused on execution vs. learning & discovery

• First Customer Ship becomes the goal

• Execution & hiring predicated on business plan hypothesis

• Heavy spending hit if product launch is wrong

• Financial projections assume success

=You don’t know if you’re wrong until

you’re out of business/money

An Inexpensive Fix

Focus on Customers and Markets from Day One

How?

Customer Development

Concept/Bus. Plan

Product Dev.

Alpha/Beta Test

Launch/1st Ship

Traditional Product Introduction

Customer Development

CompanyBuilding

CustomerDiscovery

CustomerValidation

Customer Creation

Agile Development

Waterfall Product Development

Require-ments Design Implement Verify Maintain

Agile Product Development

Problem: Unknown Solution: Unknown

Lean StartupCustomer Problem + Product Features are Unknown

Source: Eric Rieshttp://startuplessonslearned.blogspot.com

Customer Development

CustomerDiscovery

CustomerValidation

Company Building

Customer Creation

Pivot

Get the heck Out of the Building

The founders

^

Customer Development

CustomerDiscovery

CustomerValidation

Company Building

Customer Creation

Pivot

Discovery Test hypotheses I.e. problem and product concept

Validation Build a repeatable and scalable sales process

Creation Scale via relentless execution and fill the sales pipeline

Building (Re)build company’s organization & management

• Stop selling, start listening• Test your hypotheses• Continuous Discovery• Done by founders

Customer Discovery

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

Customer Validation

Customer

Discovery

CustomerValidatio

n

Customer Creation

CompanyBuilding

• Repeatable and scalable business model?• Passionate Earlyvangelists?• Pivot back to Discovery if no customers

Pivot

The Pivot

• The heart of Customer Development

• Iteration without crisis

• Fast, agile and opportunistic

Speeding Up Cycle Time

• Speed of cycle minimizes cash needs

• Minimum feature set speeds up cycle time

• Near instantaneous customer feedback drives feature set

22

Customer Creation

• Creation comes after proof of sales

• $’s for scale

• Lean Startups are not cheap startups

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

Company Building

CustomerDiscovery

CustomerValidation

Customer Creation

Company

Building

• (Re)build company’s organization & management

• Re look at your mission

Not All Startups Are Equal

Small BusinessStartup

Small Business Startups

• Serve known customer with known product

• Feed the family

Small BusinessStartup

Exit Criteria- Business Model found- Profitable business- Existing team< $1M in revenue

Small Business Startups

• known customer known product

• Feed the family

ScalableStartup

Large Company>$100M/year

Scalable Startup

Goal is to solve for: unknown customer and

unknown features

ScalableStartup

Large Company>$100M/year

Exit Criteria- Total Available Market > $500m- Can grow to $100m/year- Business model found- Focused on execution and process

Scalable Startup

ScalableStartup

Large Company>$100M/year

- Total Available Market > $500m- Can grow to $100m/year- Business model found- Focused on execution and process- Typically requires “risk capital”

Scalable Startup

• In contrast a scalable startup is designed to grow big• Typically needs risk capital• What Silicon Valley means when they say “Startup”

ScalableStartup

Large Company

- Business Model found- i.e. Product/Market fit- Repeatable sales model- Managers hired

What’s A Startup?

A Startup is the organization used to search for a scalable business model

Search

ScalableStartup

Large CompanyTransition

- Founders depart- Professional Mgmt- Process- Beginning of scale

What VC’s Don’t Tell You:The Transition – Founders Leave

Build

ScalableStartup

Large CompanyTransition

Startup-to-Company Lifecycle

BuildSearch Grow

Why Startups Aren’t Run By Accountants

ScalableStartup

Large CompanyTransition

Business Model found- customer needs/product features found i.e. Product/Market fit- Found by founders, not employees- Repeatable sales model- Managers hired

The Search for the Business Model

Startups Search and Pivot

ScalableStartup

Large CompanyTransition

- Business Model found- Product/Market fit- Repeatable sales model- Managers hired

- Cash-flow breakeven- Profitable- Rapid scale- New Senior Mgmt~ 150 people

The Search for the Business Model The Execution of the Business Model

Startups Search, Companies Execute

ScalableStartup

LargeCompanyTransition

Traditional Accounting- Balance Sheet- Cash Flow Statement- Income Statement

The Execution of the Business Model

Metrics Versus Accounting

ScalableStartup

LargeCompanyTransition

Startup Metrics- Customer Acquisition Cost- Viral coefficient- Customer Lifetime Value- Average Selling Price/Order Size- Monthly burn rate- etc.

Traditional Accounting- Balance Sheet- Cash Flow Statement- Income Statement

The Search for the Business Model The Execution of the Business Model

Metrics Versus Accounting

ScalableStartup

LargeCompanyTransition

Sales- Sales Organization- Scalable- Price List/Data Sheets- Revenue Plan

The Execution of the Business Model

Customer Validation Versus Sales

ScalableStartup

LargeCompanyTransition

Customer Validation- Early Adopters- Pricing/Feature unstable- Not yet repeatable- “One-off’s”- Done by founders

Sales- Sales Organization- Scalable- Price List/Data Sheets- Revenue Plan

The Search for the Business Model The Execution of the Business Model

Customer Validation Versus Sales

ScalableStartup

Large CompanyTransition

Product Management- Delivers MRD’s- Feature Spec’s- Competitive Analysis- Prod Mgmt driven

The Execution of the Business Model

Customer Development VersusProduct Management

ScalableStartup

Large CompanyTransition

Customer Development- Hypothesis Testing- Minimum Feature Set- Pivots - Founder-driven

The Search for the Business Model The Execution of the Business Model

Customer Development Versus Product Management

Product Management- Delivers MRD’s- Feature Spec’s- Competitive Analysis

ScalableStartup

Large CompanyTransition

The Execution of the Business Model

Engineering Versus Agile Development

Engineering- Requirements Docs.- Waterfall Development- QA - Tech Pubs

ScalableStartup

Large CompanyTransition

Agile Development- Continuous Deployment- Continuous Learning- Self Organizing Teams- Minimum Feature Set- Pivots

The Search for the Business Model The Execution of the Business Model

Engineering Versus Agile Development

Engineering- Requirements Docs.- Waterfall Development- QA - Tech Pubs

ScalableStartup

Large CompanyTransition

- Plan describes “knowns”- Known features for line extensions- Known customers/markets- Known business model

The Execution of the Business Model

Startups Model, Companies Plan

ScalableStartup

Large CompanyTransition

- Unknown customer needs- Unknown feature set- Unknown business model- Model found by iteration

The Search for the Business Model

Startups Model, Companies Plan

The Execution of the Business Model

- Plan describes “knowns”- Known features for line extensions- Known customers/markets- Known business model

ScalableStartup

Large CompanyTransition

- Business Model found- Product/Market fit- Repeatable sales model- Managers hired

- Cash-flow breakeven- Profitable- Rapid scale- New Senior Mgmt~ 150 people

Startups Don’t Last Forever

You fail if you remain a startup!

I Wrote This

I Write a Blog www.steveblank.com

Thanks

www.steveblank.com