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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
