why accountants don't run startups
TRANSCRIPT
Why Accountants Don’t Run Startups
Steve BlankStanford - School of Engineering
U.C. Berkeley - Haas School Of Businesswww.steveblank.com
Twitter: sgblank
News From Silicon Valley
Small VC Funds ($50-250M)
Union Square VenturesFirst Round Capital
Traditional VC Funds (>$250M)
BenchmarkSequoia
Angels & Incubators($0-10M)
Y-CombinatorTechStars
Seed Funds ($10-50M)
SoftTech (Clavier)Maples InvestmentsFelicis (Senkut)SV Angel (Conway)
Source: Dave McClure 500hats.com
News From Silicon Valley
Small VC Funds ($50-250M)
Traditional VC Funds (>$250M)
Angels & Incubators($0-10M)
Seed Funds ($10-50M)
Source: Dave McClure 500hats.com
Innovation is happening here
News From Silicon Valley• Internet startups - $500K is the new $5M
– Driven by the top of the pyramid
• Seed Funds providing entrepreneurial education– Ycombinator, TechStars, SeedCamp, LaunchBox, etc
• Customer Development/Lean Startup adoption– Methodology to test hypothesis and business model
Some Definitions
Small BusinessStartup
Small Business Startups
Small BusinessStartup
- Business Model found- Profitable business- Existing team< $10M in revenue
Small Business Startups
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
ScalableStartup
Large Company>$100M/year
- Total Available Market > $500m- Company can grow to $100m/year- Business model found- Focused on execution and process
Scalable Startup
ScalableStartup
Large Company>$100M/year
- Total Available Market > $500m- Company 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• It typically needs risk capital• These are what Silicon Valley means when they say “Startup”
Small BusinessStartup
- Business Model found- Profitable business- Existing team< $10M
ScalableStartup
Large Company
- Total Available Market > $500m- Company can grow to $100m/year- Business model found- Focused on execution and process- Typically requires “risk capital”
Very Different Startup Goals
Small BusinessStartup
ScalableStartup
Large Company
Silicon Valley Venture Firms Invest in Scalable Startups
ScalableStartup
Large CompanyTransition
What VC’s Don’t Tell You:The Transition
Search Build Grow
ScalableStartup
Large CompanyTransition
- Founders depart- Professional Mgmt- Process- Beginning of scale
What VC’s Don’t Tell You:The Transition
ScalableStartup
Large CompanyTransition
- Business Model found- 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
The Search for a Business Model
• No Business Plan survives first contact with customers
• A Business Model diagrams how a company creates, delivers and captures value
• Or in English: How a company makes money
Emphasis On Hypotheses Testing
Startups Continually Pivot (Iterate)
ScalableStartup
Large CompanyTransition
- Business Model found- Product/Market fit- 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
Large CompanyTransition
Product Management- Delivers MRD’s- Feature Spec’s- Competitive Analysis
The Execution of the Business Model
Customer Development Versus Product Management
ScalableStartup
Large CompanyTransition
Customer Development- Hypothesis Testing- Minimum Feature Set- Pivots
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 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
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
How Do Startups Search For A Business Model?
• The Search is called Customer Development• The Implementation is called Agile Development
The Lean Startup
• The Search is called Customer Development• The Implementation is called Agile Development
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!
Why Startups Aren’t Run By Accountants
ScalableStartup
Large CompanyTransition
Leadership Versus Management
ScalableStartup
Large CompanyTransition
Leadership Versus Management
ScalableStartup
Large CompanyTransition
Leadership Versus Management
Search
ScalableStartup
LargeCompanyTransition
Leadership Versus Management
BuildSearch
ScalableStartup
LargeCompanyTransition
Leadership Versus Management
Build GrowSearch
E-School instead of B-School
ScalableStartup
Large CompanyTransition
Durant Versus Sloan
ScalableStartup
Large CompanyTransition
- Execution- Accounting- Products- Engineering- Management- Administrative
Business School
Business School Versus Entrepreneurship School
ScalableStartup
Large CompanyTransition
Entrepreneurship School
Entrepreneurship School
- Hypothesis testing- Business Model testing- Customer Development- Agile Development- Metrics- Venture Finance- Hands-on
- Execution- Accounting- Products- Engineering- Management- Administrative
Business School
ScalableStartup
Large CompanyTransition
Business School
Business School Versus Entrepreneurship School
Courses- Managerial Finance/Accounting- Managing Groups and Teams- Financial Accounting- Operations- Modeling for Optimization- Global Value Chain Strategies
ScalableStartup
Large CompanyTransition
Courses- Entrepreneurial Management- Creativity and Innovation- Technology Entrepreneurship- Patent Law for Entrepreneurs- Global Entrepreneurial Marketing- Entrepreneurial Finance
Business School
Business School Versus Entrepreneurship School
Entrepreneurship School
Courses- Managerial Finance/Accounting- Managing Groups and Teams- Financial Accounting- Operations- Modeling for Optimization- Global Value Chain Strategies
Thanks
www.steveblank.com