steve blank presentation on startups
TRANSCRIPT
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The Customer DevelopmentMethodology
Engineering 140AManagement of Technology Ventures
Session 7 - April 24, 2007
Steve [email protected]
E 140A Management of Technology Ventures Spring 2007 2
Presentation Goals
A new model for execution in early stage ventures
Introduce the Customer Development model
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IMVU Case
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IMVU Questions
What were the three operating principles of the IMVU Owners Manual?How long do you think the development cycle for each release of the IMVU software was? Why?What strategy should IMVU pursue and why?
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Build It And They Will Come
Only true for life and death productsi.e. Biotech Cancer CureIssues are development risks and distribution, not customer acceptance
Not true for most other productsSoftware, Consumer, WebIssues are customer acceptance and marketadoption
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More startups fail from a lack of customers than from a failure of product development
We have process to manage product development
We have no process to managecustomer development
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Product Development
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
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What’s Wrong With This?
Concept/Seed Round
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
- Create Marcom Materials
- Create Positioning
- Hire PR Agency- Early Buzz
- Create Demand- Launch Event- “Branding”
Marketing
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What’s Wrong With This?
Concept/Seed Round
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
- Create Marcom Materials
- Create Positioning
- Hire PR Agency- Early Buzz
- Create Demand- Launch Event- “Branding”
• Build Sales Organization
• Hire Sales VP• Hire 1st Sales Staff
Marketing
Sales
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What’s Wrong With This?
Concept/Seed Round
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
- Create Marcom Materials
- Create Positioning
- Hire PR Agency- Early Buzz
- Create Demand- Launch Event- “Branding”
• Hire Sales VP• Hire 1st Sales Staff
• Build Sales Organization
Marketing
Sales
• Hire FirstBus Dev
• Do deals for FCSBusiness
Development
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Chasing The FCS DateSales & 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, assumes all startups are the same
=You don’t know if you’re wrong until you’re out of
business/money
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Traditional Funding Model
Source: Peter Fenton, Benchmark Capital
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Traditional Funding Assumptions
A company's risk decreased by hitting milestonesWhich raises its valuationProduct delivered after long development cycleAdditional funding needed at each milestoneHigh level of financial investment until resultsLack of iteration meant you didn’t know if you succeeded or failed until late in the game
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An Inexpensive Fix
Focus on Customers and Markets from Day One
How?
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Customer Development: Big Ideas
Parallel process to Product Development
Measurable Checkpoints
Not tied to FCS, but to customer milestones
Notion of Market Types to represent reality
Emphasis is on learning & discovery before execution
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CompanyBuilding
Customer Development
CustomerDiscovery
Customer Development vs.Product Development
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
CustomerValidation
Customer Creation
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Customer Development
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
Scale Company
Customer Development
CustomerDiscovery
CustomerValidation
Customer Creation
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Stop selling, start listening
Test your hypothesesTwo are fundamental: problem and product concept
Customer Discovery
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
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Customer Discovery: Exit Criteria
What are your customers top problems?How much will they pay to solve them
Does your product concept solve them?Do customers agree? How much will they pay?
Draw a day-in-the-life of a customerbefore & after your product
Draw the org chart of users & buyers
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Customer Validation
CustomerDiscovery
CustomerValidation
Customer Creation
CompanyBuilding
• Develop a repeatable and scalable sales process
• Only earlyvangelists are crazy enough to buy
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Customer Validation: Exit Criteria
Do you have a proven sales roadmap?Org chart? Influence map?
Do you understand the sales cycle?ASP, LTV, ROI, etc.
Do you have a set of orders ($’s) validating the roadmap?
Does the financial model make sense?
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Customer Creation
CustomerDiscovery
CustomerValidation
Customer Creation
CompanyBuilding
• Creation comes after proof of sales
• Creation is a strategy not a tactic
• Creating customer value not noise
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Customer Creation Big Ideas
Big Idea 1: Grow customers from few to many
Big Idea 2: Four Customer Creation activities:Year One objectivesPositioningLaunchDemand creation
Big Idea 3: Creation is different for each of the three types of startups
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Company Building: Step 4
CustomerDiscovery
CustomerValidation
Customer Creation
CompanyBuilding
• (Re)build your company’s organization & management
• Re look at your mission
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Company Building: Big Ideas
Big Idea 1:Management needs to change as the company grows
Founders are casualtiesDevelopment centric ⇒Mission-centric ⇒Process-centric
Big Idea 2:Sales Growth needs to match market type
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Customer Development Funding Model
Source: Peter Fenton, Benchmark Capital
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Customer DevelopmentFunding Assumptions
A company's risk decreased by shipping as early as possibleContinual product iterationCapital burn kept low until adoption onsetAdditional funding needed refine the model and more to scale a proven modelTime and cost between the founding and success/failure is greatly decreased
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Further Reading
www.cafepress.com/kandsranchor
www.amazon.com