The Democratization of Entrepreneurship: Steve Blank

The Democratization of Entrepreneurship
Steve Blank
Stanford - School of Engineering
www.steveblank.com
Twitter: @sgblank
This Presentation Combines
www.steveblank.com
www.businessmodelgeneration.com
I Write a Blog www.steveblank.com
A Few Short Stories
Startup Constraints
High Cost to First Product
Startup Constraints
Buy expensive workstations

Buy expensive development tools
Long Time to First Product

Startup Constraints
Use Waterfall Development

First Customer Ship in months/years

Long Time to First Product Startup Constraints
Slow Customer Adoption
Customers Govt/Businesses
# of customers - hundreds/thousands

Long Time to First Product Startup Constraints Slow Customer Adoption
High Startup Failure Rate
Startups are small versions of large companies Focus is on execution of business plan

Long Time to First Product Startup Constraints Slow Customer Adoption High Startup Failure Rate
Limited Number of Venture Capitalists
3000 Sand Hill Road

Long Time to First Product
Innovation Limited to a Few Regions

Limited Number of Venture Capitalists
Startup Constraints Slow Customer Adoption High Startup Failure Rate
3000 Sand Hill Road Menlo Park, California

Long Time to First Product Innovation Limited to a Few Regions Startup Constraints Slow Customer Adoption High Startup Failure Rate Limited Number of Venture Capitalists
Theres Something Happening Here, What It Is Aint Exactly Clear
Startup Constraints Entrepreneurial Explosion
Low Cost to 1st Product
Entrepreneurial Explosion
Develop on inexpensive PCs/Macs

Use Open Source Software
Low Cost to First Product
Short Time to First Product

Use Agile Development

First Customer Ship in weeks/months

Short Time to First Product Entrepreneurial Explosion
Fast Customer Adoption
Customers Consumers
# of customers - millions

Short Time to First Product Entrepreneurial Explosion Fast Customer Adoption
Lower Startup Failure Rate
Startups are not small versions of large companies Focus is on Search for a business model

Short Time to First Product Entrepreneurial Explosion Fast Customer Adoption Rate Lower Startup Failure Rate
Large Pool of Risk Capital
Sand Hill Road

Short Time to First Product Entrepreneurial Explosion Fast Customer Adoption Rate Lower Startup Failure Rate Large Pool of Risk Capital
Global Innovation
Menlo Park, San Francisco New York, Shanghai, Israel, Chile, Singapore

Short Time to First Product Global Innovation
This talk
Fast Customer Adoption Rate Large Pool of Risk Capital
Lower Startup Failure Rate
Not All Startups Are Equal
Small Business Startups
Startup
Small Business
Serve known customer with known product Feed the family
Startup
Small Business Exit Criteria - Business Model found - Profitable business - Existing team < $1M in revenue
known customer known product Feed the family
Startup
Small Business
- Business Model found
- Profitable business - Existing team < $10M in revenue
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
Large Company Sustaining Innovation

Sustaining Innovation
Scalable Startup Transition Large Company
Existing Market / Known customer Known product feature needs
Large Company Disruptive Innovation
New Division
Transition
Large Company
Disruptive Innovation
New Market New tech, customers, channels
Large Company Disruptive Innovation
New Division
Transition
Large Company
Build Acquire - Talent - Product - Customers - Business
Disruptive Innovation
Scalable Startup
Search
Scalable Startup Large Company
Goal is to solve for: unknown customer and unknown features
Scalable Startup
Search
Scalable Startup Execute Large Company
Exit Criteria - Business model found - Total Available Market > $500m -$1B - Can grow to $100m/year
Scalable Startup
Search
Scalable Startup
- Total Available Market > $500m - Company can grow to $100m/year - Business model found - Focused on execution and process - Typically requires risk capital
Execute Large Company
In contrast a scalable startup is designed to grow big Typically needs risk capital What Silicon Valley means when they say Startup
Whats A Startup?
Scalable Startup
Large Company
- Business
Model found - i.e. Product/Market fit - Repeatable sales model - Managers hired
A Startup is a temporary organization used to search for a scalable and repeatable business model
What VCs Dont Tell You: The Transition
Scalable Startup
Transition
Large Company
Search
Build
Execute
What VCs Dont Tell You: The Transition Founders Leave
Scalable Startup
Transition
Large Company
Founders depart - CEO = Operating Exec - Professional Mgmt - Process - Beginning of scale
-
Whats A Startup?
Scalable Startup
Large Company
Transition
- Business
Model found - i.e. Product/Market fit - Repeatable sales model - Managers hired
You fail if you stay a startup
Why Startups Are Not Small Versions of A Large Company
Startups Search and Pivot
The Search for the Business Model
Scalable Startup
Transition
Large Company
Business Model found by founders - customer needs/product features found i.e. Product/Market fit - Repeatable sales model - Managers hired
Startups Search, Companies Execute

The Execution of the Business Model
Scalable Startup
Transition
Large Company
- Business Model found - Product/Market fit - Repeatable sales model - Managers hired
- Cash-flow
breakeven
- Profitable - Rapid scale - New Senior Mgmt ~ 150 people
Metrics Versus Accounting
Scalable Startup
Transition
Large Company
Traditional Accounting - Balance Sheet - Cash Flow Statement - Income Statement
Metrics Versus Accounting
Scalable Startup
Transition
Large Company
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
Customer Validation Versus Sales
Scalable Startup
Transition
Large Company
Sales - Sales Organization - Scalable - Price List/Data Sheets - Revenue Plan
Customer Validation Versus Sales
Scalable Startup
Transition
Large Company
Customer Validation - Early Adopters - Pricing/Feature unstable - Not yet repeatable -One-offs
Sales - Sales Organization - Scalable - Price List/Data Sheets - Revenue Plan
Engineering Versus Agile Development
Scalable Startup
Transition
Large Company
Engineering - Requirements Docs. - Waterfall Development - QA - Tech Pubs
Engineering Versus Agile Development

Scalable Startup
Transition
Large Company
Agile Development - Continuous Deployment - Continuous Learning - Self Organizing Teams - Minimum Feature Set - Pivots
Engineering - Requirements Docs. - Waterfall Development - QA - Tech Pubs
Startups Model, Companies Plan

Scalable Startup
Transition
Large Company
Business Plan - describes knowns - features - customers/markets - business model
Startups Model, Companies Plan
Scalable Startup
Transition
Large Company
- Business
Model - describes unknowns - customer needs - feature set - business model - found by iteration
- Plan describes knowns

- Known features for line extensions - Known customers/markets - Known business model
How Do Startups Search For A Business Model?
The Search is called Customer Development The Implementation is called Agile Development
Customer Development
Why Startups Fail
More startups fail from a lack of customers than from a failure of product development
Product Introduction Model:

Two Implicit Assumptions
Customer Problem: known
Concept/ Seed Round Product Dev. Alpha/Beta Test Launch/ 1st Ship
Product Features:
known
Tradition Hire Marketing
Concept/ Seed Round
Product Dev.
- Create Marcom Materials - Create Positioning
Alpha/Beta Test
- Hire PR Agency - Early Buzz
Launch/ 1st Ship

- Create Demand - Launch Event - Branding
Marketing
Tradition Hire Sales
Concept/ Seed Round
Product Dev.
Alpha/Beta Test
Launch/ 1st Ship

- Create Demand - Launch Event - Branding Build Sales Organization
Marketing
Sales
Hire Sales VP Hire 1st Sales Staff
Tradition Hire Bus Development
Concept
Product Dev.
Alpha/Beta Test
Launch/ 1st Ship

- Create Demand - Launch Event - Branding Build Sales Channel / Distribution
Marketing
Sales Business Development
Hire Sales VP Pick distribution Channel Hire First Bus Dev
Do deals for FCS
Tradition Hire Engineering
Concept
Product Dev.
Alpha/Beta Test
Launch/ 1st Ship

- Create Demand - Launch Event - Branding Build Sales Channel / Distribution
Marketing
Sales Business Development Engineering

Write MRD
Hire Sales VP Pick distribution Channel Hire First Bus Dev Waterfall Q/A
Do deals for FCS
Tech Pubs
How Startups Succeed
The founders
^ Get
Out of the Building
Product Development
Concept/ Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship
+
Customer Discovery
Customer Validation
Customer Creation
Company Building
Pivot
Customer Discovery
Customer Discovery
Customer Validation
Customer Creation
Company Building
Test your business model hypotheses Continuous Discovery Done by founders
No Business Plan survives first contact with customers
So Search for a Business Model
The Business Model:

Any company can be described in 9 building blocks
CUSTOMER SEGMENTS
which customers and users are you serving? which jobs do they really want to get done?
VALUE PROPOSITIONS
what are you offering them? what is that getting done for them? do they care?
CHANNELS
how does each customer segment want to be reached? through which interaction points?
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?
KEY RESOURCES
which resources underpin your business model? which assets are essential?
KEY ACTIVITIES
which activities do you need to perform well in your business model? what is crucial?
82
KEY PARTNERS
which partners and suppliers leverage your model? who do you need to rely on?
COST STRUCTURE
what is the resulting cost structure? which key elements drive your costs?
key activities
value proposition
customer relationships
key partners
customer segments
cost structure
key resources
revenue streams channels

images by JAM
85
Turning Hypotheses to Facts
Test Hypotheses: Product Market Type Competition
Test Hypotheses: Problem Customer User Payer
Test Hypotheses: Channel
Test Hypotheses: Channel (Customer) (Problem)
Test Hypotheses: Product Market Type Competitive
Test Hypotheses: Demand Creation
Test Hypotheses: Size of Opportunity/Market Validate Business Model
Test Hypotheses: Pricing Model / Pricing
Agile Development
Customer Development Team
Agile Development
Customer Development Team
The Minimum Viable Product (MVP)
Smallest feature set that gets you the most

orders, learning, feedback, failure
MVP + Customer are the first two you need to nail MVP is just 1 of the 9 parts of your model
The Pivot
The heart of Customer Development
Iteration without crisis Fast, agile and opportunistic
Wrap Up
Startup are not small versions of large companies Traditional big company planning tools fail Startups are built on hypotheses
You need to test each one of them Business Models help you keep score Customer Development is how you test hypotheses
Why Startups Arent Run By Accountants
Inventor of the Modern Corporation
Scalable Startup
Transition
Large Company
Inventor of the Modern Corporation
Scalable Startup
Transition
Large Company
Alfred P. Sloan
Alfred P. Sloan
Scalable Startup
Transition
Large Company
General Motors, President/Chairman - Cost Accounting - MIT Sloan School - Sloan Foundation - etc.
Founder of General Motors
Scalable Startup
Transition
Large Company
Founder of General Motors
Scalable Startup
Transition
Large Company
Billy Durant
Billy Durant
Scalable Startup
Transition
Large Company
- Leader in horse-drawn buggys - 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
Durant Versus Sloan
Scalable Startup
Transition
Large Company
Durant Versus Sloan
Dies, rich, honored and famous
Durant Versus Sloan
Dies managing a bowling alley
Durant Versus Sloan

Accountant
Dies managing a bowling alley
You are here

Scalable Startup Transition Large Company
Thanks
www.steveblank.com

The Democratization of Entrepreneurship: Steve Blank

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

The Democratization of Entrepreneurship: Steve Blank

Uploaded by

Copyright:

Available Formats

The Democratization of Entrepreneurship

This Presentation Combines

I Write a Blog www.steveblank.com

A Few Short Stories

High Cost to First Product

Buy expensive workstations

High Cost to First Product

Long Time to First Product

Use Waterfall Development

High Cost to First Product

Slow Customer Adoption

High Cost to First Product

High Startup Failure Rate

High Cost to First Product

Limited Number of Venture Capitalists

3000 Sand Hill Road

High Cost to First Product

Innovation Limited to a Few Regions

Startup Constraints Slow Customer Adoption High Startup Failure Rate

3000 Sand Hill Road Menlo Park, California

High Cost to First Product

Theres Something Happening Here, What It Is Aint Exactly Clear

Startup Constraints Entrepreneurial Explosion

Low Cost to 1st Product

Develop on inexpensive PCs/Macs

Low Cost to First Product

Short Time to First Product

Use Agile Development

Low Cost to First Product

Fast Customer Adoption

Low Cost to First Product

Lower Startup Failure Rate

Low Cost to First Product

Large Pool of Risk Capital

Sand Hill Road

Low Cost to First Product

Low Cost to First Product

Lower Startup Failure Rate

Not All Startups Are Equal

Small Business Startups

Serve known customer with known product Feed the family

Small Business Startups

known customer known product Feed the family

Small Business Startups

- Profitable business - Existing team < $10M in revenue

Large Company Sustaining Innovation

Existing Market / Known customer Known product feature needs

Large Company Disruptive Innovation

Large Company Disruptive Innovation

Build Acquire - Talent - Product - Customers - Business

Goal is to solve for: unknown customer and unknown features

Execute Large Company

What VCs Dont Tell You: The Transition

What VCs Dont Tell You: The Transition Founders Leave

You fail if you stay a startup

Why Startups Are Not Small Versions of A Large Company

Startups Search and Pivot

The Search for the Business Model

Startups Search, Companies Execute

The Execution of the Business Model

- Profitable - Rapid scale - New Senior Mgmt ~ 150 people

Metrics Versus Accounting