tec 050312

Business Models and Customer Development

Steve Blank

www.steveblank.com

@sgblank

How to Fail Less

http://www.steveblank.com/

As Smart As You Are Most of You Will Fail

This Talk is How to Fail Less

Agenda

1. What we used to believe / What we now know

2. Business Models and Customer Development

3. Customer Development Details

4. Examples

What We Used to Believe

Strategy

All I Need to Do is Execute the Plan

All I Need to Do is Make the Forecast

What We Now Know

Strategy

Planning comes before the plan

Business Models

Business Model Hypotheses

Search

Strategy

Execution

Operating Plan +Financial Model


Process

We Built Startups by Managing Processes

Product Management

+

Waterfall Engineering

Product Introduction Model

Concept/Seed

Round

Product Dev.

Alpha/Beta Test

Launch/1st Ship

Customer Problem: known

Product Features: known

Waterfall / Product ManagementExecution on Two “Knowns”

Requirements

Design

Implementation

Verification

Maintenance

Source: Eric Rieshttp://startuplessonslearned.blogspot.com

What We Now Know

Strategy

More startups fail from a lack of customers than from a failure of product development

Customer DevelopmentA Search Strategy


Strategy

Process Customer &Agile Development


Product Management& Agile Development

Search Execution


Organization

Hire and Build a Functional Organization

What We Now Know

Organization

Founders run a Customer Development Team

No sales, marketing and business development


OrganizationCustomer

Development Team, Founder-driven

Customer Development,Agile Development


Product ManagementAgile or Waterfall Development

Functional Organization by Department

Search Execution

Strategy

Process


Strategy

OrganizationCustomer DevelopmentTeam, Founder-driven

ProcessCustomer Development,

Agile Development

Search


StrategyOperating Plan +Financial Model

OrganizationCustomer DevelopmentTeam, Founder-driven

Process Customer Development,Agile Development

Product ManagementAgile or Waterfall Development

Functional Organization by Department

Search Execution

Part 2

Business Models and

Customer Development

What’s A Startup?

A temporary organization designed to search

for a repeatable and scalable business model

A temporary organization designed to search

for a repeatable and scalable business model

A Startup aims to become a company

What’s a Business Model?

But,Realize They’re Hypotheses

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Business Model Canvas

9 Guesses

Guess Guess

Guess

Guess

GuessGuess

Guess

GuessGuess

Turning Hypotheses Into Facts

The Four Steps – The Startup Path



Test the Problem, Then the Solution


The Minimum Viable Product


The Pivot

Customer Development is how you search for the model

Customer Discovery

Web/Mobile Versus Physical

• Web/Mobile startups run faster

• Different process steps for web vs. physical

• Customer Relationships are radically different

Customer

Discovery

Customer

Validation

Pivot

Customer Validation

Customer Validation

Step 1: Get Ready to Sell

Customer Validation

Step 2: Sell to EarlyVangelists

Customer Validation

Step 3: Develop Positioning

Customer Validation

Step 4: Pivot or Proceed

Part 3

How Does this Really Work?

Pivot ExampleRobotic Weeding

Talked 75 Customers in 8 Weeks

Our initial plan

Confidential

20 interviews, 6 site visits…We got OUR Boots dirty

WeedingVisited two farms in Salinas Valley to better understand problem

Interviewed:• Bolthouse Farms, Large Agri-Industry in Bakersfield• White Farms, Large Peanut farmer in Georgia• REFCO Farms, large grower in Salinas Valley• Rincon Farms, large grower in Salinas Valley• Small Organic Corn/Soy grower in Nebraska• Heirloom Organics, small owner/operator, Santa Cruz Mts• Two small organic farmers at farmers market• Ag Services of Salinas, Fertilizer applicator

MowingInterviewed:• Golf: Stanford Golf course • Parks: Stanford Grounds Supervisor, head of maintenance and

lead operator (has crew of 6)• Toro dealer (large mower manufacturer) • User of back-yard mowing system• Maintenance Services for City of Los Altos• Colony Landscaping (Mowing service for stadiums)

Business Plan Autonomous Vehicles for Mowing & Weeding

We reduce operating cost- Labor reduction- Better utilization of assets (eg mow or weed at nights)- Improved performance (less rework, food safety)

Mowing- Owners of public or commercially used green spaces (e.g. golf courses)- Landscaping service provider

Weeding- Farmers with manual weeding operations

Dealers sell, installs and supports customer

Co. trains dealers, supports dealers

- Mowing Dealers- Ag Dealers

- Innovation- Customer Education- Dealer training

Dealer discount COGS seek a 50-60% Gross MarginHeavy R&D investment

- Dealers (Mowing and Ag)- Vehicle OEMs (John Deere, Toro, Jacobsen, etc)

- Research labs

Asset saleOur revenue stream derives from selling the equipment

Engineers on Autonomous vehicles, GPS, path-planning

Found weeding in organic crops is HUGE problem; 50 - 75% of costs

Crews of 100s-1000

Back-breaking task

(Ilegal) labor harder to get

1-5 weedings per year/field

$250-3,500 per acre and increasing

Food contamination risk

Decision to make – mowing vs weeding

Application If ROI is < 1 yr they will

buy

Labor costs significant?

Autonomous would solve

problem?

TAM

Mowing of large fields

Yes.Professionally

run organizations

Yes Yes Adjusted up toxxx

Weeding in Agriculture

Agri Industry: YES!

Large Growers: Yes

Small Growers: No

YES! for organic crops

They are spending $500/ac!

Not necessarily

Key need is weed vs. crop differentiation

TAM increased to $2.6 B (Total

organic)

Target Market (organic

specialty) 162 M/yr

18%/yr growth

Autonomous vehicles WEEDING

We reduce operating cost- Labor reduction (100 to 1)- Reduced risk of contamination- Mitigate labor availability concerns

- Low density vegetable growers- High density vegetable growers- Thinning operations- Conventional vegetables



- Ag Dealers- Ag Service providers



- Ag Dealers- Ag Service providers

- Research labs


Engineers on Machine VisionTwo problems:- Identification- Elimination

1 Week – 1 CarrotBot

Confidential

CarrotBot

• Machine Vision data collection platform– Monochrome & Color

Cameras– Laser-line sweep (depth

measurement)– Encoders

(position/velocity)– Onboard data acquisition

& power

CarrotBot 1.0

The Business Plan Canvas Updated

•Research Labs•Equipment Manufacturers•Distribution Network•Service Providers

•Technology Design•Marketing•Demo and customer feedback

•Cost Reduction•Remove labor force pains•Eliminate bio-waste hazards•IP – Patents

•Video Classifier Files•Robust Technology

•Farming conventions.•Demo, demo, and demo!!•Proximity is paramount

•Organic Farmers•Weeding Service Providers•Conventional Farmers

•Dealers•Direct Service•Indirect Service• … then Dealers

•Asset Sale•Direct Service with equipment rental•… then Asset Sale

Value-Driven

Visit Highlights

Carrot vs. WeedsDue to small root systems, carrots have no chance against weeds

Visit Highlights

Organic Broccoli, closely cultivated. Weeds close to plants are hand-picked

Visit Highlights

State of the Art in Weeding Technology for Organic Crops

Customer Hypothesis

Hypothesis Confirmed• Growers interested in own equipment • Industrial (10,000s of acres) • Large (1,000s of acres)• Willing to pay $100k for one unit

• Smaller growers (100s of acres) usually subcontract the labor services or rent equipment

• All purchases through local dealers• Customer service is essential

Pre-Test

Post-Test

Customer Map #1 – Industrial Growers

Example: Bolthouse Farms – Large Industrial Carrot Producer – 8K acres/yr

• Equipment Operator

• Director, Ag Technology• Justin Grove, interviewed

• VP, Growing Operations

• CFO, CEO (Jeff Dunn)

• Local Farm Mgr• Cliff Kirkpatrick, visited

Equipment Operator

Cliff, Farm Mgr

Customer Map #2 – Service Providers

Example: Ag Services – Service Provider, Salinas Valley

• Equipment Operator

• Service Mgr

• ?? (service mgr’s boss)

Me (left), Marty (middle, Service Mgr), Doug (right, Grower)

• Grower


•Research Labs•Equipment Manufacturers•Distribution Network•Service Providers





•Mid/Large Organic Farmers•Agricultural corporations•Weeding Service Providers

•Mid/Large Conventional Farmers

•Direct Service•Indirect Service• … then Dealers

•Direct Service with equipment rental•($1,500/d; 120d/yr )•Low density: $1,500/d•High density: $6,000/d

Value-Driven

World Ag Expo interviews:the need is real and wide spread

• 10+ interviews at show– Everyone confirmed the need– Robocrop, UK based, crude

competitor sells for $171 K

• Revenue Stream– Mid to small growers prefer a

service– Large growers prefer to buy, but

OK with service until technology is proven

– Charging for labor cost saved is OK, as we provide other benefits (food safety, labor availability)

Confidential


•Research Labs•Equipment Manufacturer•Distribution Network•Service Providers• 2 or 3 Key Farms





•Mid/Large Organic Farmers•Agricultural corporations•Weeding Service Providers

•Mid/Large Conventional Farmers

•Direct Service•Indirect Service• … then Dealers

•Direct Service with equipment rental•Low density: $1,500/d•High density: $6,000/d

Value-Driven• R&D• Bill of Materials• Training & Service• Sales

Autonomous weeding - Final

We reduce operating cost- Labor reduction (100 to 1)- Reduced risk of contamination- Mitigate labor availability concerns

- Low density vegetable growers- High density vegetable growers- Thinning operations- Conventional vegetables

Direct- Provide high quality service at competitive price

Direct - Alliance with service providers- Eventually sell through dealers


Costs for service provisionCOGS seek a 50-60% Gross MarginHeavy R&D investment

- Ag Service providers

- Research Institutes (eg UC Davis, Laser Zentrum Hannover)

- 3-4 key farms

Service provision- Charge by the acre with modifier according to weed density - Eventually move to asset sale

Engineers on Machine VisionTwo problems:- Identification- Elimination

Business Plan Autonomous Vehicles for Mowing

We reduce operating cost- Labor reduction- Better utilization of assets (eg mow or weed at nights)- Improved performance (less rework, food safety)

Mowing- Owners of public or commercially used green spaces (e.g. golf courses)- Landscaping service provider

Weeding- Farmers with manual weeding operations



- Mowing Dealers- Ag Dealers



- Dealers (Mowing and Ag)- Vehicle OEMs (John Deere, Toro, Jacobsen, etc)

- Research labs


Engineers on Autonomous vehicles, GPS, path-planning

How Does This Really Work?

NSF Lean LaunchPad Class

10 Weeks From an Idea to a Business

Graphene Frontiers

48 COMPANIES70+ CONVERSATIONS

We are a nanotechnology materials company with a proprietary process for producing high quality, low cost, large area graphene films at commercial scale

http://www.youtube.com/watch_popup?v=dTSnnlITsVg&vq=medium%23t=76

Background: Graphene Applications“Wonder Material” Graphene

• Nano Material Subject of 2010 Nobel Prize in Physics • 2D Carbon: Strong, Flexible, Conductive, Transparent• Enables Next Generation Thin, Flexible Devices

Touch Screen, DisplaysFlexible Transparent

Electrodes

Thin, Flexible

Solar Cells

Problem: Lab Scale Not EnoughGraphene Production Must Scale Up to

Commercial Levels before Integration into Consumer Products Becomes a Reality…

Solution: Scalable Production ProcessOur Patent-Pending APCVD Graphene Production Process:•Operates at ambient pressure, reducing cost enabling flexible design•Industrial scale, continuous roll-to-roll production possible•Graphene sheet size limited only by CVD furnace dimensions•Same or better quality vis-à-vis LPCVD graphene•Graphene growth at 900-1000 °C, lower than other methods

Market: Size and GrowthNascent Graphene Market is Ready to Explode:Commercial Scale Production will be Catalyst

• Thin, Flexible Displays• Solar Thin Film• Touch Screens• Thermal Management for Electronics• Basic Materials and Research• Microscopy (TEM) Sample Supports

2012 2016

$52M

Market for GrapheneFilms/Sheets

Thermal Management$6.4B

Graphene Frontiers Process & Product Offering• GF APCVD Process will Accelerate Graphene Adoption Curve

Thin, Flexible Display$8.2B

Thin Film Solar$4.6B

Research/Mat’l/Other

$1.4B

GF TAM:$1.2B

Team: Graphene FrontiersEL: Zhengtang Luo, PhD – Chief Science Officer

10+ years experience in synthesis of carbon nanomaterials and product development for applications in the area of materials chemistry, chemical separation and electronic devices.

Mentor: Mike Patterson – CEO

Experienced entrepreneurial leader, manager, and trusted adviser to startups and Fortune 500 companies, providing expertise in growth strategy and international operations. Patterson is an Executive MBA candidate (Entrepreneurial Management, April 2012) at the Wharton School, University of Pennsylvania.

PI: A.T. Charlie Johnson, PhD – Founder, Scientific Advisory Board

Known internationally for his work in graphene electronics and carbon nanotube electronics. IP from his lab on DNA-carbon nanotube devices for use in an electronic nose system pursued by Nanosense. An author of over 130 peer-reviewed articles, Johnson holds two issued patents, with 18 other patents submitted.

Recap

• Graphene technology will change the world...

• …but not until it is available in commercial volumes

• We believe that APCVD is the best path to industrial scale

• Whoever meets this challenge will be first mover in a fast

growing market with multi-billion dollar potential

• We are the right team with the right technology to do it

What’s Next: Strategy and Roadmap

4” Scale-Up

Process Licensing

Roll-to-Roll Mfg.

Industrial Scale

TEM Grids

Materials Business

12” x 12” Sheet

Production

Intellectual PropertyThin, Flexible Displays

Application R&DTeam

Perfect

Continuous Process

“World Leader in

CVD Graphene

Innovation”Scale-Up Sheet Size

Increase Area Increase Throughput New Applications

1H 2012 2012 2013+

Commercial Roll-to-Roll Design & Prototype

ApplicationDevelopmentPhase

Product/Revenue

Milestone

Activity

What’s Next: Secure Partnerships + Investment

Active Customer Conversations

Manufacturing Partners

Distribution Partners

?Seed Investment

Needed

$1.5 MM

Here’s What We Thought:– Graphene can be used for just about anything– All of the big manufacturers are just waiting for our

product– The market for graphene will explode in 2012– We will become the world’s largest graphene

manufacturer

Enter I-Corps: Beginning Hypotheses

So Here’s What We Did…

• Research to identify target companies: Build the list

– Web, industry/research reports, personal network,

“Who else should we talk to?”

• Calls to personal/professional/alumni network: “Do you

know anyone…?”

• Intros, warm calls, cold calls, cold calls, more calls


• Google AdWords Campaign + Survey Monkey

– 3 days, 8,555 Impressions, 34 people clicking through to our site, ZERO

contacts/closes. Retrospect: What were we trying to learn???

• Serendipity: Casual conversation turns to Graphene Frontiers at alumni event:

“That’s terrific! You know, I work at DuPont. Here’s my card… send me your deck and let me know how I can help.”

–Tom Connelly, Chief Innovation Officer, DuPont


• 48 Companies Engaged, 70+ Conversations: – Lockheed Martin, GrafTech, Inventables, alphaMOS, FirstNano, Pannam Imaging,

FujiFilm, Solutia, Dontech, Tramonto Circuits, Adamant Technologies, Intel, XG Sciences, Graphene Technologies, Densitron, Hotatouch, Touch International, Magic Touch, NJY Technology, Pangea Ventures, Display Search, Dow, DuPont, 3M, Corning, BASF, WL Gore, Morgan AM&T, Plextronics, SPI Supplies, New Metals and Chemicals, G.E., Innovalight, Siemens, Nelson-Miller, Essilor USA, Nexans, E-ink, Gamma Dynamics, Plastic Logic, Cabot Corporation, Thin Diamond, Knighthawk Engineering, Kopietz Consulting, DISPLAX, NineSigma, Evaporated Coatings, LiquaVista

• 80 LLL Posts, 61 Comments/Responses– 79% comments positive or factual, 21% “Constructive”

So Here’s What We Learned…

• Atmospheric pressure production is key value-add– Not “high-quality”, not single-layer

• Many big companies are on the sidelines doing limited

product dev, waiting for a proven production method

• We need to focus on scaling up (bigger & faster)

• We need a partner to break into consumer electronics

• Cost matters, but not as much as we thought

So Here’s What We Learned…

• TEM grids are viable, near term but small market

– Will rely on distribution partner

• Displays will be next big thing

– Focus on flexible/foldable thin displays

– May require partnership with OEMs or sub-contractors

• Extensive product characterization is next step

– Transparency, haze, sheet resistance for displays (3M, Dow, DuPont)

– Minimize layers and contamination for TEM (SPI, Halcyon)

Process• Low Cost• Higher Quality• Large Area• “Industrializable”• Flexible Mfg

Material• Thermal Conduct.• Elect. Conduct• Strength• “Semiconductor”• Flexible• Transparent

• Defense• MEMS• Chem/Bio Detect.• Researchers• Optoelectronics• Transparent

Conduct. (Touch)• Solar Cell Electrodes• Thermal Mgmt• Supercapacitor• Battery• TEM support• Polymer/Composite• CVD Equip Mfg

• Distributor• Direct Sales• Online• License• Partner/JV• Bundle

• Warranty• Service/Maint.

Agree• Joint Marketing• Branding

• R & D• Scale up system design• Graphene production• IP creation/licensing• Internal application

development

• Material Sales• License/Royalty• Equipment Sales• Consulting• Maintenance• Design

• Add’l IP• Applications• SBIR• Angel• VC• Ben Franklin

• IP* (Patent/License)• Team/Expertise• Credibility/Rep• CVD Equipment• Inputs (gas/foil)• Lab space• Website• Design/Engineering

• Earlyvangelists• (Customer/Partner)• Equipment Mfg• Universities• Downstream

fabrication companies

• Suppliers

• Team• Lab space• Capital equipment

The Business Model Canvas

Process• Low Cost• Higher Quality• Large Area• “Industrializable”• Flexible Mfg

Material• Thermal Conduct.• Elect. Conduct• Strength• “Semiconductor”• Flexible• Transparent

• Defense• MEMS• Chem/Bio Sensor• Researchers• Optoelectronics• Transparent

Conduct. (Touch)• Solar Cell

Electrodes• Thermal Mgmt• Supercapacitor• Battery• TEM support• Polymer/Compos.• CVD Equip Mfg

• Distributor• Direct Sales• Online• License• Partner/JV• Bundle

• Warranty• Service/Maint.

Agree• Joint Marketing• Branding• Education

• R & D• Scale up system

design• Graphene product.• IP creation/

licensing• Internal app. dev.

• Material Sales• License/Royalty• Equipment Sales• Consulting

• Maintenance• Design• Add’l IP• Applications

• IP* (Patent/License)• Team/Expertise• Credibility/Rep• CVD Equipment• Inputs (gas/foil)• Lab space• Website• Design/Engineering

• Lead Customer• Equipment Mfg• Universities• Downstream

fabrication companies

• Suppliers

• Team• Lab space• Capital equipment• Direct Sales/Travel


Low Cost Thermal Mgmt Solutions

Direct Sales

Scale up

Material Sales

IP

Equipment Mfg

Direct Sales/Travel

Transparent Conduct. (Touch)

Chem/Bio Sensor

Education

Service/Maint.

License

Higher Quality

Large Area

“Industrializable”

License/RoyaltyCapital equipment

Lab space

Personnel

CVD Equipment

Facilities/Lab

Customization

Production

Universities

Downstream fabrication companies



Direct Sales

Scale up

Material Sales

IP

Equipment Mfg

Direct Sales/Travel


Chem/Bio Sensor

Education

Service/Maint.

License

Higher Quality

Large Area



Lab space

Personnel

CVD Equipment

Facilities/Lab

Customization

Production

Universities


Intermediate product

Graphene Frontiers Business Model Canvas – PRIOR VERSION (10.18)


Direct Sales

Scale up

Material Sales

IP

Equipment Mfg

Direct Sales/Travel


Chem/Bio Sensor

Education

Service/Maint.

License

Higher Quality

Large Area



Lab space

Personnel

CVD Equipment

Facilities/Lab

Customization

Production

Universities



Membrane switches

Replace ITO

Collaborative R & D

This Week:Split, then Pivot

Graphene Frontiers Business Model Canvas “A”

IP

Higher Quality

“Clean”

Atomically Thin and Robust

Revenue Sharingw/Distributor

“Free” (Selling Byproduct)

CVD Equipment

Facilities/Lab

Research Groups

TEM Equipment Mfg.

Trade ShowsElectron Microscopists

Academic PapersTransfer Process Optimization

Graphene Frontiers Business Model Canvas “B”

Low Cost

Scale up

IP

Equipment Mfg

Direct Sales/Travel

Flexible Transparent Conductor

Education

Service/Maint.

License

Higher Quality

Large Area


License/RoyaltyCapital Equipment

Lab space

Personnel

CVD Equipment

Facilities/Lab

Customization

Universities

Downstream Fabrication Companies


Collaborative R & D

Foldable / Bendable

How to Build A Startup

IdeaBusiness ModelSize Opportunity



Idea Business Model(s)

Size of the Opportunity

Customer Discovery

Customer Validation


Idea Size of the Opportunity

Business Model(s)

Customer Discovery

Customer Validation

Theory Practice

Business Model(s)




Business Model(s)

Customer Discovery

Customer Validation

Business Model(s)




Business Model(s)

Customer Discovery

Customer Validation

Business Model(s)


• First test the problem• Next test the solution



Business Model(s)

Customer Discovery

Customer Validation

Business Model(s)


Why Do We Do This?

Make Your Lives Extraordinary

Additional Resources

• I-Corps class summary: http://steveblank.com/2012/03/26/the-national-science-foundation-innovation-corps-what-america-does-best/• I-Corps team presentations: http://www.slideshare.net/sblank/tagged/i-corps• Resources for startups: http://steveblank.com/tools-and-blogs-for-entrepreneurs/• Books for startups: http://steveblank.com/books-for-startups/• Additional resources: http://steveblank.com/slides/

http://steveblank.com/2012/03/26/the-national-science-foundation-innovation-corps-what-america-does-best/

http://steveblank.com/2012/03/26/the-national-science-foundation-innovation-corps-what-america-does-best/

http://www.slideshare.net/sblank/tagged/i-corps

http://steveblank.com/tools-and-blogs-for-entrepreneurs/

http://steveblank.com/books-for-startups/

http://steveblank.com/slides/

tec 050312

Education

scalable business model

customer development

customer development3

department founder

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