387 Million Ways

For a Startup to Fail…

and How to Avoid Them

Steve Blank

www.steveblank.comTwitter: sgblank

This Talk is Based On

• Business Model Generation

• Four Steps to the Epiphany

• Lean Startup

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 Company

Transition

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 Company

Transition

-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

LargeCompany

Transition

Traditional Accounting

-Balance Sheet

- Cash Flow Statement

- Income Statement

The Execution of the Business Model

Metrics Versus Accounting

ScalableStartup

LargeCompany

Transition

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

LargeCompany

Transition

Sales

-Sales Organization

- Scalable

- Price List/Data Sheets

- Revenue Plan

The Execution of the Business Model

Customer Validation Versus Sales

ScalableStartup

LargeCompany

Transition

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 Company

Transition

Product Management

- Delivers MRD’s

- Feature Spec’s

- Competitive Analysis

- Prod Mgmt driven

The Execution of the Business Model

Customer Development Versus

Product Management

ScalableStartup

Large Company

Transition

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 Company

Transition

The Execution of the Business Model

Engineering Versus

Agile Development

Engineering

- Requirements Docs.

- Waterfall Development

- QA

- Tech Pubs

ScalableStartup

Large Company

Transition

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

CUSTOMER SEGMENTS

which customers and users are you serving?

which jobs do they really want to get done?

VALUE PROPOSITIONS

what are you offering them? what is that

getting done for them? do they care?

CHANNELS

how does each customer segment want to be reached?

through which interaction points?

CUSTOMER RELATIONSHIPS

what relationships are you establishing with each segment?

personal? automated? acquisitive? retentive?

REVENUE STREAMS

what are customers really willing to pay for? how?

are you generating transactional or recurring revenues?

KEY RESOURCES

which resources underpin your business model? which

assets are essential?

30

KEY ACTIVITIES

which activities do you need to perform well in your

business model? what is crucial?

KEY PARTNERS

which partners and suppliers leverage your model?

who do you need to rely on?

COST STRUCTURE

what is the resulting cost structure?

which key elements drive your costs?

33images by JAM

customer

segments

key

partners

cost

structure

revenue

streams

channels

customer

relationships

key activities

key

resources

value

proposition

Any Business Model in 9 Boxes

Failure 2

Assume Your Business Model

is Correct

So,

Realize They’re Hypotheses

9 Guesses

Guess Guess

Guess

Guess

Guess

Guess

Guess

GuessGuess

Failure 3

There Are No Facts Inside Your

Building

So,

Formalize Testing

Hypotheses Outside

Testing the Business

Model =

Customer Development

How Do Startups Search For A

Business Model?

•The Search is Customer Development

•The Implementation is Agile Development

•The Sum is the Lean Startup

Customer

Development

Customer Development

Get Out of the Building

The founders

^

Customer DevelopmentThe Search For the Business Model

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

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

Developme

nt Team

Agile

Developme

nt

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

Thanks

www.steveblank.com

Pivot Example

Personal Libraries

Talked to 75 Customers in 8 weeks

ScalableStartup

Large Company

Transition

Leadership Versus Management

ScalableStartup

Large Company

Transition

Leadership Versus Management

Search

ScalableStartup

LargeCompany

Transition

Leadership Versus Management

BuildSearch

ScalableStartup

LargeCompany

Transition

Leadership Versus Management

Build ExecuteSearch

Why Startups Aren’t Run By

Accountants

ScalableStartup

Large Company

Transition

Inventor of the Modern Corporation

ScalableStartup

Large Company

Transition

Inventor of the Modern Corporation

Alfred P. Sloan

ScalableStartup

Large Company

Transition

Alfred P. Sloan

General Motors, President/Chairman

- Cost Accounting

- MIT Sloan School

- Sloan Foundation

- etc.

ScalableStartup

Large Company

Transition

Founder of General Motors

ScalableStartup

Large Company

Transition

Founder of General Motors

Billy Durant

ScalableStartup

Large Company

Transition

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 Company

Transition

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 Company

Transition

You are here