Customer Development and the Business ModelJuly 16, 2011

Welcome to Customer Development

Stanford - School of Engineering

U.C. Berkeley - Haas School Of Business

www.steveblank.comTwitter: sgblank

Steve Blank

I Write a Blog www.steveblank.com

This Talk is Based On• Business Model Generation• Four Steps to the Epiphany

• Lean Startup

First -What’s A Startup?

Five Types of Startups

Small BusinessStartup

Small Business Startups

• Serve known customer with known product

• Feed the family

Small BusinessStartup

Exit Criteria- Business Model found- Profitable business- Existing team< $1M in revenue

Small Business Startups

• known customer known product

• Feed the family

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

Large Non-Profit

Social Startup

Social Entrepreneurship Startups

• Solve pressing social problems• Social Enterprise: Profitable• Social Innovation: New Stratagies

Transition Large Company

ScalableStartup

Sustaining Innovation

• Existing Market / Known

customer• Known product feature needs

Large Company Sustaining Innovation

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

Disruptive Innovation• Build• Acquire - IP - Talent - Product - Customers - Business

ScalableStartup

Large Company

Scalable Startup

Goal is to solve for: unknown customer and

unknown features

Search

ScalableStartup

Large Company

Exit Criteria- Business model found- Total Available Market > $500m -$1B- Can grow to $100m/year

Scalable Startup

Search Execute

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”

Scalable Startup

• In contrast a scalable startup is designed to grow big• Typically needs risk capital• What Silicon Valley means when they say “Startup”

Search Execute

ScalableStartup

Large Company

Exit Criteria- Business model found- Total Available Market > $500m -$1B- Can grow to $100m/year

Scalable Startup

Search Execute

• VC-backed scalable startups:• 13% of all public companies• 4% of total sales of all U.S. public companies ~$1 trillion

Source: Josh Lerner, Harvard: VC and Innovation in Energey

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

Venture Firms Invest in Scalable Startups

ScalableStartup

$5 to 50M Acquisition

Buyable Startup

Goal is to solve for: Internet and Mobile Apps

Search Sell

ScalableStartup

$5 to 50M Acquisition

Buyable Startup

Goal is to solve for: Internet and Mobile Apps

Search Sell

Sell to larger company

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 repeatable and scalable business model

Search Execute

Next,What’s A Founder?

What You and I Saw

What Michelangelo Saw

What You and I Saw

What Van Gogh Saw

Founders See Things Others Don’t

Founders See Things Others Don’t

Founders are Artists.Actually They are Composers.

They Create Something From Nothing

Founders See Things Others Don’t

They Build a Company By Convincing Others To See What They Do

Founders See Things Others Don’t

The Early Employees Who Join Them Are the Performers

I Have a Vision

I Know What Needs to Be Done

Lets Launch a New Product!

Five Ways Founders Fail

#1 I Know Who The Customer Is

#2I Know Exactly the Product They Need

#3I Know the Problem They Have

#4We Can Fix It After We Ship It All

#5All I Need to Do is Execute the Plan

Product Introduction Model

Concept/Seed

Round

Product Dev.

Alpha/Beta Test

Launch/1st Ship

Product Introduction Model

Concept/Seed

Round

Product Dev.

Alpha/Beta Test

Launch/1st Ship

The Leading Cause of Startup Death

Product Introduction Model:Two Implicit Assumptions

Customer Problem: known

Product Features: known

Concept/Seed

Round

Product Dev.

Alpha/Beta Test

Launch/1st Ship

Tradition – Hire Marketing

Concept/Seed

Round

Product Dev.

Alpha/Beta Test

Launch/1st Ship

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

Marketing

Tradition – Hire Sales

Concept/Seed

Round

Product Dev.

Alpha/Beta Test

Launch/1st Ship

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- 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 Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

• Hire Sales VP• Pick distribution

Channel

• Build Sales Channel / Distribution

Marketing

Sales

• Hire First Bus Dev

• Do deals for FCS

Business Development

Tradition – Hire Engineering

Concept Product Dev.

Alpha/Beta Test

Launch/1st Ship

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

• Hire Sales VP• Pick distribution

Channel

• Build Sales Channel / Distribution

Marketing

Sales

• Hire First Bus Dev

• Do deals for FCS

Business Development

Engineering • Write MRD

• Waterfall

• Q/A • Tech Pubs

No Business Plan survives first contact with customers

Startups Are Not Smaller Versions of Large Companies

Startups Are Not Smaller Versions of Large Companies

Large Companies Execute Known Business Models

Startups Are Not Smaller Versions of Large Companies

Startups Search for Unknown Business Models

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?

59

KEY ACTIVITIES

which activities do you need to perform well in your business model? what is crucial?

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?

62images by JAM

customer segments

key partners

cost structure

revenue streams

channels

customer relationships

key activities

key resources

value proposition

sketch out your business model

But,Realize They’re Hypotheses

9 Guesses

Guess Guess

Guess

Guess

GuessGuess

Guess

GuessGuess

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 Development

Get Out of the BuildingThe founders

^

Customer DevelopmentThe Search For the Business Model

CompanyBuilding

Customer

Discovery

Customer

Validation

Customer Creation

Pivot

• Stop selling, start listening• Test your hypotheses• Continuous Discovery• Done by founders

Customer Discovery

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

Test Hypotheses:• Product• Market Type• Competition

Turning Hypotheses to Facts

Test Hypotheses:• Problem• Customer• User• Payer

Test Hypotheses:• Channel

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

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

Testing the MVP

• Smoke testing with landing pages using AdWords

• In-product split-testing• Prototypes (particularly for hardware)• Removing features• Continued customer discovery and

validation• Surveys• Interviews

Testing the MVP (Web Example)

Can you get customers to pay for a product that doesn’t yet exist (or barely does)?

• Interview customers to make sure they have a matching core problem• Set up web site landing page to test for conversion• See what offers are required to get customers to use the product (e.g.

prizes, payment)• Use problem definition as described by customers to identify key

word list – plug into Google search traffic estimator - high traffic means there is problem awareness

• Drive traffic to site using Google search and see how deep into a registration process customers are willing to go through

Testing the MVP (Non-Web)

Can you get customers to pay for a product that doesn’t yet exist (or barely does)?

• Interview customers to make sure they have a matching core problem

• Set up web site landing page to test for conversion• Set up a Lighthouse Customer Program where

potential customers pay to get early access to product prototypes

The Pivot

• The heart of Customer Development

• Iteration without crisis

• Fast, agile and opportunistic

How Does This Really Work?

Stanford Lean LaunchPad Class

How Does This Really Work?

Stanford Lean LaunchPad Class

8 Weeks From an Idea to a Business

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)

Confidential

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

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

Dealers sell, installs and supports customer

Co. trains dealers, supports dealers

- Ag Dealers- Ag Service providers

- Innovation- Customer Education- Dealer training

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

- Ag Dealers- Ag Service providers

- Research labs

Asset saleOur revenue stream derives from selling the equipment

Engineers on Machine VisionTwo problems:- Identification- Elimination

1 Week – 1 CarrotBot

Confidential

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

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

• 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

The Business Plan Canvas Updated

• Research Labs

• Equipment Manufacturer

• Distribution Network

• Service Providers

• 2 or 3 Key Farms

• 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

• 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

- Innovation- Customer Education- Dealer training

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

Personal Libraries

Insight: No more bookshelves

Printed Books -20% YoY ‘10

eBooks+150% YoY ‘10

Version 1.0: Personal Libraries

Original Idea: Personal Digital Libraries

Import, organize and share thousands of digital papers

something-something-something.com

Original idea

SHORT TERMResearchersLawyersScientists

LONG TERMAvid book readersProfessionals

Import, organize and share thousands of papers

FB/TW posts from users you know

Company blog, FB, TW, support forums

Affiliate program

SEO/SEM/SM

IE/FF/Chrome App Stores

Targeted marketing

Product development

Constant iteration & testing

DevelopersMarketers

Libraries, Universities, Research Centers

Bloggers and media targeting customer segment

Academic Database providers

Affiliate program feesLicensingSubscription feesAd revenue

AWS InfrastructureSEMEng & Marketing OpEx

Invincible Business Model: Version 1.0

Here’s What We DidVersion 1.0: Personal Libraries

Got out of the building

Got out of the building

• 100+ Interviews

Professors, Litigators, IP lawyers, Post-docs, PhD researchers, Engineering Students, Law Students…

Got out of the building

• 100+ Interviews• Extensive Surveys

Got out of the building

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords

Got out of the building

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords• Compete Review

Got out of the building

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords• Compete Review• Market Sizing

Got out of the building

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords• Compete Review• Market Sizing• 50 bloggers

Got out of the building

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords• Compete Review• Market Sizing• 50 bloggers• 6 Social Networks

Got out of the building

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords• Compete Review• Market Sizing• 50 bloggers• 6 Social Networks• Usability Tests

Got out of the building

• 100+ Interviews• Extensive Surveys• 33,000+ Adwords• Compete Review• Market Sizing• 50 bloggers• 6 Social Networks• Usability Tests• Rapid Iteration

Here’s What We FoundVersion 1.0: Personal Libraries

Here's what we found: Version 1.0

GOOD• Subscriptions Rock

A great business if we had more users…

Here's what we found: Version 1.0

GOOD• Subscriptions Rock• Pipelines Optimize

Shorter pages raise conversions 80%

Here's what we found: Version 1.0

GOOD• Subscriptions Rock• Pipelines Optimize• The Web Listens

Sites will feature your service

Here's what we found: Version 1.0

GOOD• Subscriptions Rock• Pipelines Optimize• The Web Listens

BAD• Academics = Cheap

Teaching team saw pattern in our data

Run away from this customer as fast as possible.

Run away from this customer as fast as possible.

They don’t want to spend money and will incur infinite support and infinite cost.

Here's what we found: Version 1.0

GOOD• Subscriptions Rock• Pipelines Optimize• The Web Listens

BAD• Academics = Cheap• Negative Margins

Working for peanuts, and hitting wild product success leads to economic failure

Here's what we found: Version 1.0

GOOD• Subscriptions Rock• Pipelines Optimize• The Web Listens

BAD• Academics = Cheap• Negative Margins• ECM = Boring

No adjacent pivots worked for the team

Version 2.0: Trusted Advice

something-something-something.com

Original idea

Upwardly mobile young professionals making $2-10K of discretionary online purchases a year (excluding travel)

Discover online goods recommended by friends at the lowest possible price from trusted vendors

FB/TW posts from users you know

Company blog, FB, TW accounts

Affiliate program

SEO/SEM/SM

IE/FF/Chrome App Stores

Developing trusted advice and advisors

Web marketing

Affiliate partnerships

Constant iteration & testing

DevelopersMarketersContent LibraryInstall baseReadership base

Bloggers and Media targeting customer segment

Retail marketing partners

IE/FF/Chrome teams

Affiliate Program Providers

Affiliate program feesLicensingSubscription feesAd revenue

AWS InfrastructureSEMEng & Marketing OpEx

Invincible Business Model: Version 2.0

New Hypotheses

Here’s What We DidVersion 2.0: Trusted Advice

Got out of the building, again

• 40+ Interviews

Got out of the building, again

• 40+ Interviews• Extensive Surveys

Got out of the building, again

• 40+ Interviews• Extensive Surveys• Landing Page Tests

Landing pages tested on affluent, career aged professionals, approximately 70/30

male/female, N=800+

Got out of the building, again

• 40+ Interviews• Extensive Surveys• Landing Page Tests• Market Research

Got out of the building, again

• 40+ Interviews• Extensive Surveys• Landing Page Tests• Market Research• Compete Research

Got out of the building, again

• 40+ Interviews• Extensive Surveys• Landing Page Tests• Market Research• Compete Research• Revenue Analysis

Got out of the building, again

• 40+ Interviews• Extensive Surveys• Landing Page Tests• Market Research• Compete Research• Revenue Analysis• Two Prototypes

Insidely.com

wantio.com

Got out of the building, again

• 40+ Interviews• Extensive Surveys• Landing Page Tests• Market Research• Compete Research• Revenue Analysis• Two Prototypes• Refined Personas

Customer Segment: Professional-class consumers shopping frequently online

Pat the ProfessionalUpwardly mobile professional (some Grad Students)Salary: $40,000 – 150,000/yearFinance, Consulting, PR, MarketingFollows fashion/technology trendsSpends $1-15K on discretionary items onlinePurchased online in last 30 days

Demographics• Male/female, aged 18-35• Minimum bachelors from expensive schoolTraits:• Ideas from blogs & shopping websites • Values celebrity trends & friends’ opinions• Wants high ticket items at lowest price• Event-driven shopper—new release or sale

Motivation• Craves new products• Hates tedious work• Identifies as influencer among friends• Fears being cheated online

Behavior• Spends 5 hour+ monthly hearing about products • Shares online and in person about products he

lovesBudget• $2-10K+/year in discretionary online purchases

“The XXX is awesome, I really want one. I know I just bought the YYY, but it’s probably time to upgrade.”

Source: US Bureau of Labor Statistics

~5.9M “Pat the Professionals” in USDrawn from top 1/3 of 17.8M frequent online shoppers17.8M based on 40.2M Professionals (2008 Census) * 0.762 US Internet Penetration (Nielsen 2010Q1) * 0.58 consumers shopping online in last month (Nielsen 2010Q1)

Online Recommendation Market Opportunity (conservative strawman #s)Assuming 10% share, 5% affiliate fees

Top Shoppers (~$7B/year spend): ~ $35M/year

Professional-class frequent shoppers (~$1.8B/year): ~ $9M/year

Other Professional-class shoppers ($0.7B/year): ~3.5M/year

Version 2.0: Trusted AdviceTop ~6M US Influentials (~$9B/year)

something-something-something.com

Original idea

Upwardly mobile young professionals making $2-10K of discretionary online purchases a year (excluding travel)

Discover online goods recommended by friends at the lowest possible price from trusted vendors

FB/TW posts from users you know

Company blog, FB, TW accounts

Affiliate program

SEO/SEM/SM

IE/FF/Chrome App Stores

Developing trusted advice and advisors

Web marketing

Affiliate partnerships

Constant iteration & testing

DevelopersMarketersContent LibraryInstall baseReadership base

Bloggers and Media targeting customer segment

Retail marketing partners

IE/FF/Chrome teams

Affiliate Program Providers

Affiliate program feesLicensingSubscription feesAd revenue

AWS InfrastructureSEMEng & Marketing OpEx

Invincible Business Model: Version 2.0

Here’s What We FoundVersion 2: Trusted Advice

Findings on "Trusted Advice"

GOOD• Fast Interest

Insidely.comTrusted advice site for Silicon Valley/Stanford MBAs

Launched 2/15

425 visitors by 2/28

Findings on "Trusted Advice"

GOOD• Fast Interest

Ranked #6 by Google for “Stanford Admissions Books”

Findings on "Trusted Advice"

GOOD• Fast Interest• High Conversion

43% clickthrough on Top Admissions Books for Stanford MBAs article

Compare to 0.5% clickthrough on ads

~100x difference

Findings on "Trusted Advice"

GOOD• Fast Interest• High Conversion• Needs Addressed

Positive results on “Trusted Advice” Shopping Add-in testing

See videos at http://factnote.com/c/e245

Findings on "Trusted Advice"

GOOD• Fast Interest• High Conversion• Needs Addressed

Super easy to install and use.

I really did enjoy it!

Great idea! I will keep the extension installed because I do think this is practical!

I could see myself using this regularly

Positive results on “Trusted Advice” Shopping Add-in testing

Findings on "Trusted Advice"

GOOD• Fast Interest• High Conversion• Needs Addressed BAD• Missing Features

Some negative results on “Trusted Advice” Shopping Add-in testing

See videos at http://factnote.com/c/e245

Findings on "Trusted Advice"

GOOD• Fast Interest• High Conversion• Needs Addressed BAD• Missing Features

Some negative results on “Trusted Advice” Shopping Add-in testing

I was a little frustrated when it didn’t find the item I was looking for

I can find more thorough price comparisons elsewhere…

I usually don’t shop in Chrome, so that’s an inconvenience.

Findings on "Trusted Advice"

GOOD• Fast Interest• High Conversion• Needs Addressed BAD• Missing Features• SEO Battle

MBA Exchange spams us out of Google

Here’s Where We Ended Up Version 2.1: Trusted Advice

The adventure continues

Trusted Advice 2.0

Protection against SEO-spammers

Next Experiments: • Trusted Lead Gen • Trusted Advice

website powered by Shopping Add-in

something-something-something.com

Original idea

PAT THE PROFESSIONALUpwardly mobile young professionals making $2-10K of discretionary online purchases a year (excluding travel)

TRUSTED ADVICE Discover online goods recommended by friends at the lowest possible price from trusted vendors

Foil advertorial spammers polluting the Interweb with toxic pseudo-content

FB/TW posts from users you know

Company blog, FB, TW accounts

Affiliate program

SEO/SEM/SM

IE/FF/Chrome App Stores

Developing trusted advice and advisors

Web marketing

Affiliate partnerships

Constant iteration & testing

DevelopersMarketersContent LibraryInstall baseReadership base

Bloggers and Media targeting customer segment

Retail marketing partners

IE/FF/Chrome teams

Affiliate Program Providers

Affiliate program feesLicensingSubscription feesAd revenue

AWS InfrastructureSEMEng & Marketing OpEx

Invincible Business Model: Version 3.0

What We Learned

• Potential for disruption abounds

What We Learned

• Potential for disruption abounds

• Life is short, focus on big markets

What We Learned

• Potential for disruption abounds

• Life is short, focus on big markets

• All we need is to be relentless

Blog Your Progress

How?

• Customer Development– The Process

• Narrative– Interviews– Surveys– Videos– Prototypes

• Business Model Canvas– Scorekeeping

• Real-time Feedback• Physical Reality Checks

– Skype– Face-to-face

We Made Students Blog Their Progress

It Changed Everything

Interview

Photos Videos

Surveys

Interview& Photos

Competitive Analysis

Key Findings

A/B Test Results

Key Question

Strategy

Business Model Canvas as the Scorecard

Business Canvas Change Progress

1

Business Canvas Change Progress

2

Business Canvas Change Progress

3

Business Canvas Change Progress

4

Business Canvas Change Progress

5

Business Canvas Change Progress

6

Business Canvas Change Progress

7

Sidebar

Market Type

Product Introduction Conundrum

• Product introductions aren’t predictable– Why?– Is it the people that are different?– Is it the product that are different?

• Are there different “types” of startups?

Three Markets Types

• Market Type changes everything• Sales, marketing and business development

differ radically by market type

Existing Market Resegmented Market

New Market

Market Type Changes Everything

Market– Market Size– Cost of Entry– Launch Type– Competitive

Barriers– Positioning

Sales– Sales Model– Margins– Sales Cycle– Chasm Width

Existing Market Resegmented Market

New Market

Finance• Ongoing Capital• Time to Profitability

Customers• Needs• Adoption

Three Types of Markets

• Existing Market– Faster/Better = High end

• Resegmented Market– Niche = marketing/branding driven– Cheaper = low end

• New Market– Cheaper/good enough = creates a new class of

product/customer– Innovative/never existed before

Existing Market Resegmented Market

New Market

Carpe Diem

www.steveblank.com

REVENUE STREAMS

what are customers really willing to pay for? how? are you generating transactional or recurring

revenues?

Market Size

Market/Opportunity Analysis

How Big is It?: Market/Opportunity Analysis Identify a Customer and Market Need Size the Market Competitors Growth Potential

How Big is the Pie?Total Available Market

Total Available Market

• How many people would want/need

the product?

• How large is the market be (in $’s) if they all bought?

• How many units would that be?

How Do I Find Out?

• Industry Analysts – Gartner, Forrester

• Wall Street Analysts – Goldman, Morgan

How Big is My Slice?Served Available Market

• How many people need/can use product?

• How many people have the money to buy the product

• How large would the market be (in $’s) if they all bought?

• How many units would that be?

How Do I Find Out?• Talk to potential customers

Served Available

Market

TotalAvailableMarket

How Much Can I Eat?Target Market

• Who am I going to sell to in year 1, 2 & 3?

• How many customers is that?

• How large is the market be (in $’s) if they all bought?

• How many units would that be?

How Do I Find Out?• Talk to potential customers

• Identify and talk to channel partners

• Identify and talk to competitors

TotalAvailableMarket Target

Market

ServedAvailableMarket

TotalAvailableMarket

SegmentationIdentification of groups most likely to buy

182

ServedAvailableMarket

Target Market

• Geographic• Demographic• Psychographic variables• Behavioral variables• Channel• etc…

Market Size: Summary

Market Size Questions: How big can this market be? How much of it can we get? Market growth rate Market structure (Mature or in flux?)

Most important: Talk to Customers and Sales Channel Next important: Market size by competitive approximation

Wall Street analyst reports are great And : Market research firms Like Forester, Gartner

CUSTOMER SEGMENTS

images by JAM

which customers and users are you serving? which jobs do they really want to get done?

Customers

Corporate? Consumer?

Business to Business (B to B) Use or buy inside a company

Business to Consumer (B to C) Use or buy for themselves

Business to Business to Consumer (B to B to C) Sell a business to get to a consumer Other Multi-sided Markets with multiple

customers

Corporate Customers

Business to Business (B to B)

What do they want you to do?

Increase revenue? Decrease costs? Get them new customers? Keep up with or pass competitors? How important is it?

Market Type & Ignoring Customers

Existing Market? Resegmenting an Existing Market?

niche or low cost New Market?

When do I ignore customer feedback?

Who’s the Customer in a Company?

User? Influencer? Recommender? Decision Maker? Economic Buyer? Saboteur? Archetypes for each?

How Do They Interact to Buy?

Organization Chart Influence Map Sales Road Map

Pass/Fail Signals & Experiments

How do you test interest? Where do you test interest? What kind of experiments can you run? How many do you test?

How Do They Hear About You?

Demand Creation Network effect Sales

Consumer Customers

Business to Consumer (B to C)

What do they want you to do?

Does it entertain them? Does it connect them with others? Does it make their lives easier? Does it satisfy a basic need? How important is it? Can they afford it?

Market Type & Ignoring Customers

Existing Market? Resegmenting an Existing Market?

niche or low cost New Market?

When do I ignore customer feedback?

Consumer Customers

Do they buy it by themselves? Do they need approval of others? Do they use it alone or with others?

How Do They Decide to Buy?

Demand Creation Viral? SEO/SEM Network effect? AARRR (Dave McClure)

Pass/Fail Signals & Experiments

How do you test interest? Where do you test interest? What kind of experiments can you run? How many do you test?

The Consumer Sales Channel

A product that’s bits can use the web But getting a physical consumer product into

retail distribution is hard Is Wal-Mart a customer? More next week

Multi-Sided Markets

Business to Business to Consumer

(B to B to C)

Who’s The Customer?

Consumer End Users, Corporate Customers Pay

Multiple Consumers Etc.

Multiple Customer Segments

Each has its own Value Proposition Each has its own Revenue Stream One segment cannot exist without the other Which one do you start with?

Customer Relationships

Get – Keep - Grow

CUSTOMER RELATIONSHIPS

what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?

“Get Customers” Funnel

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Getting Customers – Virtual Channel

$

Earned and Paid Media

“Get Customers” FunnelPR

SEO

Advertising

Blogs/Website

Tradeshows

Acq

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Act

ivat

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Viral Mktg

SEM/PPC

Affiliate Mktg

Getting Customers – Virtual Channel

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“Get Customers” Funnel

Getting Customers – Physical Channel

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n

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ase

Earned and Paid Media

“Get Customers” FunnelPR

Product Reviews

Advertising

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Getting Customers – Physical Channel

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Inte

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Earned and Paid

Media Get Customers

Keep Customers

Customer check-in calls

Customer satisfaction survey

product updates

Loyalty Programs

Keeping Customers

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Earned and Paid Media

Get Customers

Keep Customers

Customer check-in calls

customer satisfaction survey

product updates Loyalty Programs

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Growing Customers