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]
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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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E 140A Management of Technology Ventures Spring 2007 4
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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E 140A Management of Technology Ventures Spring 2007 5
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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E 140A Management of Technology Ventures Spring 2007 6
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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E 140A Management of Technology Ventures Spring 2007 7
Product Development
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
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E 140A Management of Technology Ventures Spring 2007 8
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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E 140A Management of Technology Ventures Spring 2007 9
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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E 140A Management of Technology Ventures Spring 2007 10
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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E 140A Management of Technology Ventures Spring 2007 11
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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E 140A Management of Technology Ventures Spring 2007 12
Traditional Funding Model
Source: Peter Fenton, Benchmark Capital
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E 140A Management of Technology Ventures Spring 2007 13
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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E 140A Management of Technology Ventures Spring 2007 14
An Inexpensive Fix
Focus on Customers and Markets from Day One
How?
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E 140A Management of Technology Ventures Spring 2007 15
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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E 140A Management of Technology Ventures Spring 2007 16
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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E 140A Management of Technology Ventures Spring 2007 17
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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E 140A Management of Technology Ventures Spring 2007 18
Stop selling, start listening
Test your hypothesesTwo are fundamental: problem and product concept
Customer Discovery
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
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E 140A Management of Technology Ventures Spring 2007 19
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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E 140A Management of Technology Ventures Spring 2007 20
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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E 140A Management of Technology Ventures Spring 2007 21
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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E 140A Management of Technology Ventures Spring 2007 22
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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E 140A Management of Technology Ventures Spring 2007 23
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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E 140A Management of Technology Ventures Spring 2007 24
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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E 140A Management of Technology Ventures Spring 2007 25
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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E 140A Management of Technology Ventures Spring 2007 26
Customer Development Funding Model
Source: Peter Fenton, Benchmark Capital
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E 140A Management of Technology Ventures Spring 2007 27
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