Download - Watermark 040511 387 million ways to fail
387 Million Ways
For a Startup to Fail…
and How to Avoid Them
Steve Blank
www.steveblank.comTwitter: sgblank
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
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
CUSTOMER SEGMENTS
which customers and users are you serving?
which jobs do they really want to get done?
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?
30
KEY ACTIVITIES
which activities do you need to perform well in your
business model? what is crucial?
33images by JAM
customer
segments
key
partners
cost
structure
revenue
streams
channels
customer
relationships
key activities
key
resources
value
proposition
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 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:
•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
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
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
ScalableStartup
Large Company
Transition
Alfred P. Sloan
General Motors, President/Chairman
- Cost Accounting
- MIT Sloan School
- Sloan Foundation
- etc.
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