business plans versus business models - 2010
TRANSCRIPT
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Business ModelsSteve Blank
www.steveblank.comClean Tech Open Accelerator 2010
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I Wrote This
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I Write a Blog www.steveblank.com
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It Starts With the “Idea”
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Where are CleanTech Ideas Born?
Technology shifts Market changes Societal changes Dinosaur factor Irrational exuberance
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Technology Driven Ideas
Is it buildable now? How much R, how much D? Does it depend on anything else? Are there IP issues? Does it solve an existing customer problem? Create a new market? How big a market and when? What do you need to turn the idea into a company? How do you test customer acceptance early?
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Customer Driven Ideas
Is there an articulated customer need? How do you know? How big a market and when? Are others trying to solve it? If so, why you? What do you need to turn the idea into a company? How do you test your idea early?
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Opportunity Driven Ideas
Is there an opportunity no one sees but you do? How do you know it’s a vision not a hallucination? How do you test your idea early? How big a market and when? Are others trying to solve it? If so, why you? What do you need to turn the idea into a company?
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But an Idea By Itselfis Not a Company
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Idea/Product – Only a Start
Your Idea itself does not have value Its fit with customer needs/demand is crucial The other parts of the company make it a business First-Mover Advantage is usually wrong
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Technology Risk, Market Risk or Both?
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Clean Tech Markets
Air, Water & Waste
Energy Efficiency
Green Building
Renewables Smart Power
Transport
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Clean Tech Markets - Risk
Air, Water & Waste
Energy Efficiency
Green Building
Renewables Smart Power
Transport
• Which markets have technology risk?• Which markets have customer risk?• Which have both?
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Clean Tech Markets - Risk Definitions
Air, Water & Waste
Energy Efficiency
Green Building
Renewables Smart Power
Transport
• Technology Risk
– risk is in development of the product (i.e. fuel cells, thin-film arrays, etc.) then customers automatically adopt
• Customer risk– risk is in customer and market adoption
• Which have both?
• You spend your time differently depending on risk
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Next…
CleanTech Business Plan Hypothesis
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Size of Opportunity
Customer
Competition
Sales
Marketing
Biz Dev
Customer Dev
Bus/Rev Model
IP/Patents
Regulatory
Time to Market
Prod Dev Model
Manufacturing
Team
Seed Financing
Follow-on
Liquidity
Clean Tech Markets - Hypotheses
• Your business plan is a set of untested hypothesis
• What are they?
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Clean Tech Markets - Hypotheses
• Size of Opportunity– TAM, SAM
• Customer– Who’s the end user? Economic buyer? Reimburser?
• Sales – What’s the distribution channel?
• Marketing– How do you create end-user demand
• Customer Development– How do you test your hypothesis
• Business Model– How do all the parts work to create profits?
• Financing– What is the path to cash flow positive
Size of Opportunity
Customer
Competition
Sales
Marketing
Biz Dev
Customer Dev
Bus/Rev Model
IP/Patents
Regulatory
Time to Market
Prod Dev Model
Manufacturing
Team
Seed Financing
Follow-on
Liquidity
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Size of Opportunity
Customer
Competition
Sales
Marketing
Biz Dev
Customer Dev
Bus/Rev Model
IP/Patents
Regulatory
Time to Market
Prod Dev Model
Manufacturing
Team
Seed Financing
Follow-on
Liquidity
Clean Tech Markets - Hypotheses
• How do you test these hypotheses?• How do you execute them?
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How Big is It??
So if You Succeed Do I Care?
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“Venture-Scale” Businesses
Solve a significant problem/want or need, for which someone is willing to pay a premium
A good fit with the founder(s) and team Can grow large (≥$100 million) for traditional
VC’s Attractive returns for type of investor
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TotalAvailableMarket
Total Available Market, Served Available Market, Target Market
21
ServedAvailableMarket
Target MarketSAM = how many can I reach
with my sales channelSAM = how many can I reach with my sales channel
TAM = how big is the universeTAM = how big is the universe
Target Market (for a startup) = who will be the most likely buyersTarget Market (for a startup) = who will be the most likely buyers
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Market Size: Summary
Market Size How big can this market be? How much of it can we get? Market growth rate Market structure (Mature or in flux?)
Most important: Talk to Customers and Channel Next important: Market size by competitive
approximation Wall Street analyst reports are great Market research firms
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$4 Billion 18,500 MW
(Worldwide Grid Tied)
• Based on lifetime value of all customers (20 yrs)
Source: Amonix
18,500 MW Source: NREL
X 5.5 hours a day
X 365 days a year
X $150 dollars a MWh
X .07 efficiency savings
X 20 year lifetime
X 40% cut for us
= $4 Billion
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$4 Billion 18,500 MW
(Worldwide Grid Tied)
$220 Million
1,000 MW (US Grid
Tied)
• Based on lifetime value of all customers (20 yrs)
Source: Amonix
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$4 Billion 18,500 MW
(Worldwide Grid Tied)
$182 Million830 MW
(US Commercial Grid Tied)
$220 Million1,000 MW
(US Grid Tied)
• Based on lifetime value of all customers (20 yrs)
Source: Amonix
• 33-500 Customers (25MW in sales = 1-15 customers)
Source: Heliotex
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Plan versus Model
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I’m ConfusedI’m Confused
• What is a Business Model?• How does it differ from a Business Plan?
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Business Business PlanPlan
1. A document your investors make you write that they don’t read
2. A useful place for you to collect your guesses about your business• Size of Opportunity
• Customers
• Channel
• Demand Creation
• Revenue/Expenses/Profit
3. The template to look like everyone else when you do present to VC’s
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Business Plan - Sum of Hypotheses
• Business plan collects your hypothesis• Adds facts as you know them today• A plan of how to turn hypothesis into facts• Extrapolates results if hypothesis turn into facts
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No Business Plan survives first contact with customers
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So Search for a Business Model
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Business Model…
Start with the Pieces
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What Is a Business Model?
A diagram that shows all the flows between your company and its customers
It describes the rationale of how an organization creates, delivers and captures value
All on a single sheet of paper
* Alex Osterwalder
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What Makes up a Business Model?
A series of building blocks which describe: The product Customers/Users Demand Creation Motivations / problems Budget / Resources Flows of value Supply chain
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Users
Customers
Purchase Distributio
n
Demand Creation
$
Product
Resources
$$
$$
Assembly / Manufacturing
3rd Party Integration
$$
$$
$
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Users
Customers
Purchase Distributio
n
Demand Creation
$
Product
Resources
$$
$$
Assembly / Manufacturing
3rd Party Integration
$$
$$
$
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Users
Customers
Purchase Distributio
n
Demand Creation
$
Product
Resources
$$
$$
Assembly / Manufacturing
3rd Party Integration
$$
$$
$
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Users
Customers
Purchase Distribution
Demand Creation
$
Product
Resources
$$
$$
Assembly / Manufacturing
3rd Party Integration
$$
$$
$
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Users
Customers
Distribution Channel
Demand Creation
$
Product
Resources
$$
$$
Assembly / Manufacturing
3rd Party Integration
$$
$$
$
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Users
Customers
Demand Creation
$
Product
Resources
$$
$$
Assembly / Manufacturing
3rd Party Integration
$$
$$
$
Distribution Channel
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Users
Customers
DistributionChannel
Demand Creation
$
Product
Resources
$$
$$
Assembly / Manufacturing
3rd Party Integration
$$
$$
$
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Users
Customers
Distribution Channel
Demand Creation
$
Product
Resources
$$
$$
Assembly / Manufacturing
3rd Party Integration
$$
$$
$
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Users
Customers
Distribution Channel
Demand Creation
$
Product
Resources
$$
$$
Assembly / Manufacturing
3rd Party Integration
$$
$$
$
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Emphasis On Hypotheses Testing
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Startups Continually Iterate & Pivot
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VALUEPROPOSITION
COSTSTRUCTURE
CUSTOMERRELATIONSHIP
TARGETCUSTOMER
DISTRIBUTIONCHANNEL
VALUECONFIGURATION
CORECAPABILITIES
PARTNERNETWORK
REVENUESTREAMS
gives an overall view of a
company's bundle of products and
services
portrays the network of cooperative
agreements with other companies
describes the channels to
communicate and get in touch with
customers
describes the arrangement of activities and
resources
explains the relationships a
company establishes with
its customers
sums up the monetary
consequences to run a business
model
describes the revenue streams through which
money is earned
describes the customers a
company wants to offer value to
outlines the capabilities
required to run a company's
business model
INFRASTRUCTURE CUSTOMER
OFFER
FINANCE
Business Model = Keeping Score in a Startup
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Business Model Generation Book
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Business Model on Day One of Your Startup
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Users
Customers
Distribution Channel
Demand Creation
$
Product
Resources
$$
$$
Assembly / Manufacturing
3rd Party Integration
$$
$$
$
? ?
?
?
?
?
?
?
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Hypothesis Testing Process
Customer Development
Customer
Discovery
CustomerValidatio
n
Company
Building
Customer
Creation
Pivot
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• Stop selling, start listening
• Test your hypotheses
• Continuous Discovery
Customer Discovery
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
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Customer Validation
CustomerDiscover
y
CustomerValidatio
n
Customer
Creation
Company
Building
• Repeatable and scalable business model?
• Passionate earlyvangelists?
• Pivot back to Discovery if no customers
Pivot
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The Pivot
• The heart of Customer Development
• Iteration without crisis
• Fast, agile and opportunistic
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Customer Development Book
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Putting It Together in A VC Pitch
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What are VC’s Really Asking?
• Are you going to:– Blow my initial investment? – Or are you going to make me a ton of money?
• Are there customers for what you are building?– How many are there? Now? Later?
• Is there a profitable business model?
• Can it scale?
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The Traditional VC Pitch
• Technology• Team• Product• Opportunity• Customer Problem• Business Model• CustomersBetter
Since You Can’t Answer my real questions here’s the checklist
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58
Facts Reduce VC Risk
• Business Model + Customer Development
– Extract the hypotheses
– Leave the building to test the hypothesis
– Present the results as: “Lessons Learned from our customers”
– Iterate Business Model
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Tell The Story of What You Learned
• Start with your original business model• Tell them why it was wrong
– Extra credit for getting thrown out of a customer
• Tell them what you learned– Extra credit for customers saying “now we’ll buy”– Use data if you have it
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Thanks
www.steveblank.com