387 Million Ways For a Startup to Fail…

and How to Avoid Them

Steve Blankwww.steveblank.com

Twitter: sgblank

I Write a Blog www.steveblank.com

Startups Fail Because They Confuse Search with Execute

ScalableStartup

Large Company>$100M/year

What’s A Startup

Goal is to search for: unknown customer and

unknown features

Search Execute

ScalableStartup

Large Company

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

What’s A Startup?

A Startup is a temporary organization used to search for a scalable and repeatable business model

Search

Startups Fail Because They Execute When They Should Search

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- 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

387 Million Ways to Fail

And the 5 Key Reasons Why

Business Model Universe387 Million Choices (9x9x9x9x9x9x9x9x9) choices

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

Failure 1

No Business Plan survives first contact with customers

You Need a Scientific Method to Search this Space

So,Structure the Search

with a Business Model

Any Business Model in 9 Boxes

Failure 2

Assume Your Business Model is Correct

So,Realize They’re Hypotheses

9 Guesses

Guess Guess

GuessGuess

GuessGuess

Guess

GuessGuess

Failure 3

There Are No Facts Inside Your Building

So,Formalize Testing

Hypotheses Outside

Testing the Business Model =

Customer Development

Test Hypotheses:• Product• Market Type• Competition

Turning Hypotheses to Facts

Test Hypotheses:• Problem• Customer• User• Payer

Test Hypotheses:• Channel

Test Hypotheses:• Problem• Customer• User• Payer

Test Hypotheses:• Demand

Creation

Test Hypotheses:• Channel

Test Hypotheses:• Product• Market Type• Competitive

Test Hypotheses:• Pricing Model / Pricing

Test Hypotheses:• Size of Opportunity/Market• Validate Business Model

Test Hypotheses:• Channel• (Customer)• (Problem)

Test Hypotheses:• Problem• Customer• User• Payer

Test Hypotheses:• Demand

Creation

Test Hypotheses:• Channel

Test Hypotheses:• Product• Market Type• Competitive

Test Hypotheses:• Pricing Model / Pricing

Test Hypotheses:• Size of Opportunity/Market• Validate Business Model

Test Hypotheses:• Channel• (Customer)• (Problem) Customer

Development Team

Agile Development

Test Hypotheses:• Problem• Customer• User• Payer

Test Hypotheses:• Demand

Creation

Test Hypotheses:• Channel

Test Hypotheses:• Product• Market Type• Competitive

Test Hypotheses:• Pricing Model / Pricing

Test Hypotheses:• Size of Opportunity/Market• Validate Business Model

Test Hypotheses:• Channel• (Customer)• (Problem) Customer

Development Team

Agile Development

Testing the Business Model is Customer Development

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

Pivot

Search Execution

Customer Development is the Search

CustomerDiscovery

CustomerValidation

Pivot

Search

Failure 4

A Mistaken Hypothesis Creates A Crisis

So,Pivots are Business Model

Changes Without Crisis

The Pivot Turns Failure Into Insight

• The heart of Customer Development

• Business Model changes without crisis• Fast, agile and opportunistic

A Pivot Changes the Business Model

Test Hypotheses:• Problem• Customer• User• Payer

Test Hypotheses:• Demand

Creation

Test Hypotheses:• Channel

Test Hypotheses:• Product• Market

Type•

Competitive

Test Hypotheses:• Pricing Model /

Pricing

Test Hypotheses:• Size of

Opportunity/Market• Validate Business

Model

Test Hypotheses:• Channel• (Customer)• (Problem)

Customer Development Team

Agile Development

The Business Model/Customer Development Canvas

Failure 5

We Have Plenty of Time

So,Startups Are Built for

Rapid Search

Pivot Cycle Time Matters

• Speed of cycle minimizes cash needs• Minimum feature set speeds up cycle time• Near instantaneous customer feedback drives feature set

387 Million Ways to Fail

• No business plan survives first contact with customers

• Assume your business model is correct

• There are no facts inside your building

• A mistaken hypothesis creates a crisis

• We have plenty of time

Both Books on Amazon

Thanks

www.steveblank.com