Why Accountants Don’t Run Startups
Steve Blankwww.steveblank.com
Twitter: sgblank
I Write a Blog www.steveblank.com
This Presentation Combines
www.businessmodelgeneration.comwww.steveblank.com
Five Short Stories
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
Small BusinessStartup
- Business Model found- Profitable business- Existing team< $10M in revenue
Small Business Startups
• 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
Small BusinessStartup
- Business Model found- Profitable business- Existing team< $10M in revenue
Small Business Startup: Internet Edition
• The Internet allows a new class of Small Businesses• Not all businesses on the Internet are “Scalable Startups”
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 a temporary 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 ExecuteSearch
Transition Large Company
ScalableStartup
Sustaining Innovation
• Existing Market / Known customer• Known product feature needs
Large Company Sustaining Innovation
Large Company Disruptive Innovation
New Division Transition Large Company
Disruptive Innovation
• New Market / Unknown customer needs• New tech / Unknown product features• Looks like a scalable startup
Why Startups Are Not Small Versions of Large Companies
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
- Pains in the butt- Always looking at something different- Doesn’t get with the program
Startups Protect Mavericks, Companies Fire Mavericks
The Execution of the Business Model
ScalableStartup
Large CompanyTransition
- Pains in the butt- Always looking at something different- Doesn’t get with the program
The Search for the Business Model
Startups Protect Mavericks, Companies Fire Mavericks
The Execution of the Business Model
- CEO of your company- Finds your next market
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!
Plan versus Model
Business Plan
• A document your investors make you write that they don’t read
• A useful place for you to collect your guesses about your business- Size of Opportunity- Customers- Channel- Demand Creation- Revenue/Expenses/Profit
• The template to look like everyone else when you present to VC’s/Management
No Business Plan survives first contact with customers
So Search for a Business Model
What Is a Business Model?
• Diagram of flows between company and customers• Scorecard of hypotheses testing• Rapid change with each iteration and pivot• Product Management-driven
* Alex Osterwalder
9 building blocks of a business model:
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CUSTOMER SEGMENTS
images by JAM
which customers and users are you serving? which jobs do they really want to get done?
40
VALUE PROPOSITIONS
images by JAM
what are you offering them? what is that getting done for them? do they care?
41
CHANNELS
images by JAM
how does each customer segment want to be reached? through which interaction points?
42
CUSTOMER RELATIONSHIPS
images by JAM
what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?
43
REVENUE STREAMS
images by JAM
what are customers really willing to pay for? how? are you generating transactional or recurring
revenues?
44
KEY RESOURCES
images by JAM
which resources underpin your business model? which assets are essential?
45
KEY ACTIVITIES
images by JAM
which activities do you need to perform well in your business model? what is crucial?
46
KEY PARTNERS
images by JAM
which partners and suppliers leverage your model?
who do you need to rely on?
47
COST STRUCTURE
images by JAM
what is the resulting cost structure? which key elements drive your costs?
48images by JAM
customer segments
key partners
cost structure
revenue streams
channels
customer relationships
key activities
key resources
value proposition
sketch out your business model
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But,Realize They’re Hypotheses
9 Guesses
Guess Guess
Guess
Guess
GuessGuess
Guess
GuessGuess
How Do Startups Search For A Business Model?
• The Search is called Customer Development• The Implementation is called Agile
Development
The Lean Startup
Customer Development
Solving For Customer Risk
The Two Reasons Startups Fail
Yet All We Had WasThis…
Concept/Seed
Round
Product Dev.
Alpha/Beta Test
Launch/1st Ship
New Product Introduction Model
Traditional Product Introduction Model:Two Implicit Assumptions
Concept Product Dev.
Alpha/Beta Test
Launch/1st Ship
Customer Problem: known
Product Features: known
Tradition – Hire Marketing
Concept/Seed
Round
Product Dev.
Alpha/Beta Test
Launch/1st Ship
- Create Marcom Materials- Create Positioning
- Hire PR Agency- Early Buzz
- Create Demand- Launch Event- “Branding”
Marketing
Tradition – Hire Sales
Concept/Seed
Round
Product Dev.
Alpha/Beta Test
Launch/1st Ship
- 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
Tradition – Hire Bus Development
Concept Product Dev.
Alpha/Beta Test
Launch/1st Ship
- Create Marcom Materials- Create Positioning
- Hire PR Agency- Early Buzz
- Create Demand- Launch Event- “Branding”
• Hire Sales VP• Pick distribution
Channel
• Build Sales Channel / Distribution
Marketing
Sales
• Hire First Bus Dev
• Do deals for FCS
Business Development
Tradition – Hire Engineering/Product Mgmt
Concept Product Dev.
Alpha/Beta Test
Launch/1st Ship
- Create Marcom Materials- Create Positioning
- Hire PR Agency- Early Buzz
- Create Demand- Launch Event- “Branding”
• Hire Sales VP• Pick distribution
Channel
• Build Sales Channel / Distribution
Marketing
Sales
• Hire First Bus Dev
• Do deals for FCS
Business Development
Engineering/Product Mgmt
• Write MRD
• Waterfall
• Q/A • Tech Pubs
More startups fail from a lack of customers than from a failure of product development
Customer Development
Get the Hell Out of the BuildingThe founders
^
Customer Development
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
Customer Development
CompanyBuilding
CustomerDiscovery
CustomerValidation
Customer Creation
+
Pivot
• Stop selling, start listening• Test your hypotheses• Continuous Discovery• Done by founders
Customer Discovery
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
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
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
Sidebar
There Are Three Types Of Startups The Role of Market Type
New Product Conundrum
• Product introductions aren’t predictable– Why?– Is it the people that are different?– Is it the product that are different?
• Are there different “types” of startups?
Three Types of Markets
• Existing Market– Faster/Better = High end
• Resegmented Market– Niche = marketing/branding driven– Cheaper = low end
• New Market– Cheaper/good enough = creates a new class of
product/customer– Innovative/never existed before
Existing Market Resegmented Market
New Market
So What Does Engineering Do?
Customer Problem: known
Product Features: known
Waterfall / Product ManagementExecution on Two “Knowns”
Requirements
Design
Implementation
Verification
Maintenance
Source: Eric Rieshttp://startuplessonslearned.blogspot.com
Problem: Known Solution: Unknown
“Product Owner” or in-house customer
Agile - Customer Problem is KnownExisting Company/Market
Source: Eric Rieshttp://startuplessonslearned.blogspot.com
Unit of progress: a line of working code
Problem: Unknown Solution: Unknown
Lean StartupCustomer Problem + Product Features are Unknown
Source: Eric Rieshttp://startuplessonslearned.blogspot.com
84
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
Why Startups Aren’t Run By Accountants
ScalableStartup
Large CompanyTransition
Inventor of the Modern Corporation
ScalableStartup
Large CompanyTransition
Inventor of the Modern Corporation
Alfred P. Sloan
ScalableStartup
Large CompanyTransition
Alfred P. Sloan
General Motors, President/Chairman- Cost Accounting- MIT Sloan School- Sloan Foundation- etc.
ScalableStartup
Large CompanyTransition
Founder of General Motors
ScalableStartup
Large CompanyTransition
Founder of General Motors
Billy Durant
ScalableStartup
Large CompanyTransition
Billy Durant
- 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
ScalableStartup
Large CompanyTransition
Durant Versus Sloan
Durant Versus Sloan
• Dies, rich, honored and famous
Durant Versus Sloan
• Dies, rich, honored and famous• Dies managing a bowling alley
Durant Versus Sloan
• Dies, rich, honored and famous• Dies managing a bowling alley
Accountant
ScalableStartup
Large CompanyTransition
You are here
Summary
• Companies execute business models• Startups search for business models• Business Model / Customer Development /
Agile Development is the solution stack for startups
Thanks
www.steveblank.com
One More Thing…
• International Business Model Competition• $50K prizes• Jan 24th 2011• http://www.businessmodelcompetition.com/