Improving Your Entrepreneurial Odds: the Customer Development Process
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Transcript of Improving Your Entrepreneurial Odds: the Customer Development Process
Improving Your Entrepreneurial Odds: the Customer Development Process
Steve Blank
Some Definitions
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- Business Model found - Profitable business - Existing team < $10M in revenue
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• 5.7 million small businesses in the U.S. <500 employees • They employ 99.5% of our workforce
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- Total Available Market > $500m - Company can grow to $100m/year - Known business model - Focused on execution and process
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• In contrast a scalable startup is designed to grow big • It typically needs risk capital • These are what Silicon Valley means when they say “Startup”
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- Business Model found - Profitable business - Existing team < $10M
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- Total Available Market > $500m - Company can grow to $100m/year - Known business model - Focused on execution and process
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- Business Model found - Profitable business - Existing team < $10M
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- Total Available Market > $500m - Company can grow to $100m/year - Known business model - Focused on execution and process
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X X X
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- Founders depart - Professional Mgmt - Process - Beginning of scale
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- Business Model found - Product/Market fit - Repeatable sales model - Managers hired
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A Startup is the organization you use to search for your scalable business model
OUR COMPANY
Resources
Product
• Device • Software • IP • Services
• Networks -
Technology - Customer - Partner • Data
• Employees
Users
Sales & Distribution
Design
Manufacturing
Components
OUR COMPANY
Resources
Product
• Device • Software • IP • Services
• Networks -
Technology - Customer - Partner • Data
• Employees • Knowledge
• EE • System • Mechanica
l • Industrial
• Standard • Tooled • Critical
Users
Customers
Sales & Distribution
Demand Creation
-'
-'
-'
Design
Components
OUR COMPANY
Resources
-'
-'
-'
Product
• Device • Software • IP • Services
• Networks -
Technology - Customer - Partner • Data
• Employees Manufacturin
g
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- Business Model found - Product/Market fit - Repeatable sales model - Managers hired
- Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people
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You fail if you remain a startup!
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- 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
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How Do Startups Search For A Business Model?
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More startups Fail from a Lack of Customers than from
a Failure of Product Development
It Started With a Question
If Startups Fail from a Lack of customers not Product Development Failure
Then why do we have: • process to manage product development?
• no process to manage customer development?
All We Had Was 30 Years of This
Concept/ Seed Round
Product Dev.
Alpha/Beta Test
Launch/ 1st Ship
Product Development Model
It Resulted in a Few Hypotheses
• Startups weren’t small versions of large companies • They were about learning and discovery, not
execution of a business model • Entrepreneurs and their VC’s were executing on
guesses • But the facts were outside the building
Which Turned Into A Model
Concept/ Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
Customer Development
Company Building
Customer Discovery
Customer Validation
Customer Creation
+
Customer Development: Key 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
• Stop selling, start listening – There are no facts inside your building, so get outside
• Test your hypotheses – Two are fundamental: problem and product concept
Customer Discovery: Step 1
Customer Discovery
Customer Validation
Company Building
Customer Creation
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 customer (archetypes) – before & after your product
• Draw the org chart of users & buyers
Customer Validation: Step 2
Customer Discovery
Customer Validation
Customer Creation
Company Building
• Develop a repeatable and scalable sales process
• Only earlyvangelists are crazy enough to buy
• Pivot back to Discovery if no customers
Pivot
Customer Validation: Exit Criteria
• Can you draw your business model? – Acquisition costs, path to profitability?
• 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?
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Customer Creation: Step 3
• Creation comes after proof of sales
• Creation is where you “cross the chasm”
• It is a strategy not a tactic
Customer Discovery
Customer Validation
Company Building
Customer Creation
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Customer Creation Big Ideas
! Big Idea 1: Grow customers from few to many
! Big Idea 2: Four Customer Creation activities: " Year One objectives " Positioning " Launch " Demand creation
! Big Idea 3: Creation is different for each of the three types of startups
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Company Building: Step 4
Customer Discovery
Customer Validation
Customer Creation
Company Building
• (Re)build your company’s organization & management
• Re look at your mission
Customer Development in the High-Tech Enterprise October 2008 35
Company Building: Big Ideas
! Big Idea 1: Management needs to change as the company grows " Founders are casualties " Development centric ! " Mission-centric ! " Process-centric
! Big Idea 2: Sales Growth needs to match market type
Iteration versus Execution
Customer Discovery
Customer Validation
Iteration
The Search for a Business
Company Building
Customer Creation
Execution
The Growth of a Business
Product/Market Fit
What They Didn’t Teach You at Haas
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- Hypothesis Testing - Minimum Feature Set - Pivots
- Delivers MRD’s - Feature Spec’s - Competitive Analysis
The Search for the Business Model The Execution of the Business Model
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Customer Development Product Management
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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
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- Hypothesis testing - Experiential - Hands-on - Chaotic - Leadership
- Execution - Accounting - Management
Business School
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Entrepreneurship School
Books Available on Amazon and Cafepress
Blog www.steveblank.com
Four Steps to the Epiphany Not All Those Who Wander Are Lost