The Lean LaunchPad

Lecture 5: Customer Relationships

Steve Blank

Jon Feiber

Jon Burke

http://i245.stanford.edu/

2Source: http://giffconstable.com/

3images by JAM

customer segments

key partners

cost structure

revenue streams

channels

customer relationships

key activities

key resources

value proposition

CUSTOMER RELATIONSHIPS

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

Retentive??

We Call Customer Relationships Demand Creation

• Get, Keep and Grow• How will customers hear about your product?• How much will it cost to acquire a customer using these

strategies?• How does market type impact my demand creation strategy?

Customer Relationship Definition

Get

Keep

Grow

7

Get Customers

Who needs to hear about you?

Suppliers

Channels

Government

Partners

End User

Influencer / Recommender

Economic Buyer

Decision Maker

Demand Creation Getting Free Users

• Search Engine Optimization (SEO)• Blogging / Sharable content• Social Media / Gaming Mechanics• Communities• Proven viral coefficient >1

Demand Creation

Demand Creation Paying For Users

Public Relations

Demand Capture SEM “Free” products (e.g. widgets) Biz Dev Affiliate Marketing

Market Education Webinars Email marketing Trade Shows Analyst Reports Direct Sales TV / Radio

Demand

Creation

Aw

aren

ess

Co

nsi

der

atio

n

Inte

rest

Pu

rch

ase

“Get Customers” Funnel

Get Customers Funnel - Physical

Demand Creation Feeds the Sales Funnel

PayingCustomers

$

Demand

Creation Acquisition

13

Keep Customers

Aw

aren

ess

Co

nsi

der

atio

n

Inte

res

t

Pu

rch

ase

Earned and Paid

Media Get Customers

Keep Customers

Customer check-in calls

Customer satisfaction survey

product updates Loyalty Programs

Keep Customers Funnel - Physical

15

Grow Customers

Aw

aren

ess

Co

nsi

der

atio

n

Inte

rest

Pu

rch

ase

Earned and Paid Media

Get Customers

Keep Customers

Customer check-in calls

customer satisfaction survey

product updates Loyalty Programs

Grow Customers

Referrals

Un

-B

un

dlin

g

Up

-Se

ll

Cro

ss-sell

Grow Customers Funnel - Physical

17

Get Customers

“Get Customers” Funnel

Acq

uir

e

Act

ivat

eViral Loop

Get Customers Funnel – Web/Mobile

Earned and Paid Media

“Get Customers” FunnelPR

SEO

Advertising

Blogs/Website

Tradeshows

Acq

uire

Act

ivat

e

Viral Mktg

SEM/PPC

Affiliate Mktg

Viral Loop

Demand Creation Feeds the Sales Funnel

20

Keep Customers

Contests,eventsBlogs,

RSS, emails

Product updates Affiliate Programs

“Get Customers”A

cqu

ire

Act

ivat

e

Viral Loop

Earned and Paid

Media

Loyalty Programs

Keep Customers

Keep Customers Funnel - Web/Mobile

22

Grow Customers

Keep Customers

Contests,events

Blogs, RSS,

emails

product updates Affiliate Programs

Grow CustomersN

ext-Sell

Referrals

Up

-Se

ll

Cro

ss-sell

Loyalty Programs

Acq

uir

e

Viral Loop

Earned and Paid

Media

Act

ivat

e

Grow Customers Funnel - Web/Mobile

• How many come through the first step?

• How much does that cost?• What is the conversion between

each level?• How much in revenues can you

get out of each acquired customer?

Demand Creation by Market Type

• Create, drive demand into your sales channelExisting

Resegmented

New

• Educate the market about what’s changed

• Drive demand into channel

• Educate the market• Identify/drive early adopters into your

sales channels

Clone • Copy a business

Market Type

Existing Resegmented New

Customers Known Possibly Known Unknown

Customer Needs Performance Better fit Transformational improvement

Competitors Many Many if wrong, few if right

None

Risk Lack of branding, sales and distribution ecosystem

Market and product re-definition

Evangelism and education cycle

Examples Google Southwest Groupon

Market Type determines: Rate of customer adoption

Sales and Marketing strategies Cash requirements

How does market type influence demand creation?

Team Deliverable by Next Week - Web

Get a working web site and analytics up and running– Track where your visitors are coming from (marketing campaign, search

engine, etc.) and how their behavior differs – What were your hypotheses about your web site results?

• Actually engage in “search engine marketing” (SEM)• Spend $20 as a team to test customer acquisition cost.

• Ask your users to take action, such as signing up for a newsletter.• Use Google Analytics to measure the success of your campaigning.• Change messaging on site during the block to get costs lower, team that

gets the lowest delta costs wins.• If you assume virality

• show viral propagation of your product and the improvement of your viral coefficient over several experiments

• What is your assumed customer lifetime value? • Are there any proxy companies that would suggest that

this is a reasonable number?

Team Deliverable by Next Week

• For non-web teams:• Get prototype demo working.• Build demand creation budget and forecast.• What is your customer acquisition cost?• Did anything change about Value Proposition or Customers/Users?• What is your customer lifetime value? Channel incentives – does your

product or proposition extend or replace existing revenue for the channel?• What is the “cost” of your channel, and it’s efficiency vs. your selling price?

• Everyone: Update you blog/wiki/journal• What kind of initial feedback did you receive from your users?• What are the entry barriers?• Present and explain your marketing campaign. What worked best and why?

29

Examples

implantable drug infusion pumpswith remote physician control

for chronic pain patients at home

“the right dose at the right time and place”

Christian Gutierrez (EL), Ellis Meng (PI), Carol Christopher (IM), Tuan Hoang (FE)

PatientsTraining

Hospitals

Unit sales

Trade shows

Clinicians

Institutions

Support Services

Pain clinics

Clinical dataKOLs Formulary Acceptance

FDA

IP

Advocacy Groups

Foundations

OEMs

Wireless Developers

Manufacturing Costs

Product Dev Costs

FDA/Clinical Trials

Chronic Pain v4 FS Team

Payors/ICA

Marketing Costs

Faster relief

Efficient patient management and Dosing flexibility

Access to high-value therapies and pharmacoeconomics

pharmacoeconomics

Support

Proprietary knowledge

Human Resources

Electronic records

Electronic health record providers

Bundled kits

CMS (Medicare)

Getting out

Dr. Stan Louie, Drug Formulation Expert (USC Pharmacy)Dr. Giovanni Cucchiaro, Anesthesiologist (CHLA)

Dr. Diana Hull, Physician (Group Health in Washington state, formerly at Kaiser California)

Thomas Hsu, Insurance Specialist (Network Medical Management; a California ICA)

Two chronic pain patients Pump user and creator of support forum User of oral narcotics and patches

Dr. Frances Richmond (Director Regulatory Science Program, USC)

Richard Hull (formerly at company selling Lapband)

Clinicians

Institutions/patients

Regulatory

Entrepreneurs/Industry

Patients

Product flow/Channel

Fluid SynchronyElectronic

Health Records

.Partners/

OEMS

Hospitals(AnesthesiologistsNeurosurgeons)

Pain Clinic(AnesthesiologistsNeurosurgeons)

Pump + Controller

Support Services

Bundled Kits

Electronic Records

Channels (Direct)

• Direct to institutions• Some formularies involved in purchase

decisions• Some doctors make purchase decision

directly• Device company/Doctor relationship is key • Heavily influenced by :

• Clinical study results • Regulatory approval• Reimbursement

Hospitals

Pain Clinics

Patient Care Flow (Now)

Fluid Synchrony

Hospitals(Anesthesiologists

Neurosurgeons)

Pain Clinic(Anesthesiologists

Neurosurgeons)Scheduled follow-up

Patient Discharged

Surgery/Rx/reprogramming

Trial period/ Home setting

Weeks/monthsKey factors: Reimbursement , state regulations

Pump + Controller

Support Services

Bundled Kits

Partners/OEMS

Patient Care Flow (Proposed)

Fluid SynchronyElectronic

Health Records

.

Hospitals(AnesthesiologistsNeurosurgeons)

Pain Clinic(AnesthesiologistsNeurosurgeons)

Pump + Controller

Support Services

Bundled Kits

Electronic Records

Scheduled follow-up

Patient Discharged

Surgery/Rx/reprogramming

Trial period/ Home setting

Partners/OEMS

Weeks/months

Actionable feedbackto doctors/institutions

E-prescription / closing loop

Key factors: Reimbursement , state regulationsDays

Regulatory considerationsPMA 510K

Trial size 100’s of patients 20-100

Costs Up to $100,000 per patient

$10-50 MM $1-10 MM

Time ~ 3-4 yrs + post approval follow-on

~ 2-3 yrs

• PMA approval with grouping of FDA approved drugs.• Clinical trials results used to obtain CMS (Medicare)

approval• 510K restricts technology to predicate devices

• Can be more difficult to market against incumbents• European CE mark is easier to attain (safety and

performance only)

Take-aways• Channel is direct in this existing market

• Channel for e-health is more complex and evolving• State-to-state regulations can impact incentives

• Can pose problems as electronic records systems vary across the country

Next Steps• Understand costs associated with reaching

doctors/institutions directly• Understand structure of e-health channel• Develop regulatory pathway (timelines and cost profile)

PatientsTraining

Hospitals

Unit sales

Trade shows

Clinicians

Institutions

Support Services

Pain clinics

Clinical dataKOLs Formulary Acceptance

FDA

IP

Advocacy Groups

Foundations

OEMs

Wireless Developers

Manufacturing Costs

Product Dev Costs

FDA/Clinical Trials

Chronic Pain v4 FS Team

Payors

Marketing Costs

Faster relief

Efficient patient management and Dosing flexibility

Access to high-value therapies and pharmacoeconomics

pharmacoeconomics

Support

Proprietary knowledge

Human Resources

Electronic records

Electronic health record providers

Bundled kits

Manufacturing platform for rapid, cost-effective, and scalable

production of therapeutics in tobacco

“insero” = to plant ”gen” = gene

Lucas Arzola (EL)Karen McDonald (PI)

Vasilis Voudouris (Mentor)

What We Know

We have a novel technology platform with numerous market opportunities

Our working hypothesis – that we can scale up and commercialize our platform for production of life-saving therapeutics

Jon Feiber – “Since you are a platform technology, it makes sense to engage in ‘market discovery’ and ‘customer discovery’ at the same time during the next weeks”

Challenging this hypothesis by speaking with as many experts and customers as we can

This week: explored decision making and distribution channels in the case of a pandemic

The Business Model Canvas

SpeedCost-EffectivenessRobustnessScalabilitySafetyEase of CustomizationU.S. Supply

R&DManufacturingRegulatory ApprovalLicensingMarketing

Tobacco SuppliersGene Synthesis CompaniesCMOs - Purification - Fill & Finish- Packaging- QA/QCCROs- Clinical TrialsFDA

IP – Patents, Trade SecretManufacturing Facility

Capital InvestmentsManufacturing CostsLicensing CostsMarketing

Contract Manufacturing Fully Integrated Manufacturing (Sales) Licensing (Royalties)

U.S. Government- CDC - HHS BARDA- DOD DARPAForeign GovernmentsNGOsVaccine Manufacturers- Established and

Emerging Biotech

Distribution through Government and Pharma Companies

Long-Term Contracts with Government and Vaccine Manufacturers

Target Product – seasonal & pandemic flu vaccines

Getting Out of the Lab!

Cast a broad net by talking to many different experts and customers:

(1) Executives from large companies

Name Title Institution

Michael Girard Sustainability Manager Aerojet

Michael Jacobson Director of Corporate Responsibility Intel

Joseph Kieren Director of Corporate Real Estate AT&T

(2) Entrepreneurs and angel investors from SacramentoName Title Institution

Andrew Hargadon Professor of Management UC Davis

Wil Agatstein Professor of Management UC Davis

Larry Palley Former General Manager Intel

John Selep Operations Manager HP

Thomas Alberts Consultant SBDC

Cary Adams Head of MedStart Program SARTA

Getting Out of the Lab!

(4) Experts in vaccine manufacturing

Name Title Institution

Ann Arvin PCAST Vaccinology Working Group (Key Opinion Leader on Vaccines)

Stanford

Misa Sugui Associate Scientist MedImmune

Floro Cataniag Laboratory Manager MedImmune

(3) Experts in the commercialization of biotech platform technologies

Name Title Institution

Greg McParland Consultant DSM Ventures

Fernando Garcia Senior Director Amyris

Channels and Distribution

Conversation with Dr. Ann Arvin – Key Opinion Leader on vaccinesIn the case of a pandemic: Vaccine manufacturers have to be producing vaccines for seasonal flu –

regulatory approval, QA, and validation need to be in place When a pandemic occurs, the government (BARDA) negotiates a manufacturing

contract with vaccine companies – number of doses, formulation, price, and time are agreed upon

CDC provides the elucidated strain to the manufacturer FDA considers the pandemic flu vaccine to be a variation of the seasonal flu

vaccine – new regulatory approval is not necessary Vaccine manufacturers work with the new strain to ramp up production as

quickly as they can – takes 4-6 months Sterility and quality testing is performed for the produced vaccines – some tests

are done in-house and some are done by outside laboratories Vaccine is released

Channels and Distribution

Getting the vaccines to the patients Vaccine manufacturers have contracts with wholesalers (i.e. McKesson Corp.)

to distribute the vaccines – distribution is not a cost for the manufacturers, they hand over the product

In the case of a pandemic, vaccines are also distributed through local contracts with the state health departments

They distribute the vaccines to hospitals and clinics, where they can be administered to the patients

Organizational Strategy

Conversation with Greg McParland – Former CEO of biotech platform company: the virtual biotechnology company model

“Starting out and for as long as you can, you should be a virtual company. You can have contracts to outsource the downstream part of the process (purification, fill and finish, packaging, etc.) ”

“Keep your core technology and focus on using your manufacturing platform for protein production”.

Common practice in biotechnology – almost every company has contracts with CROs, CMOs, marketing and distribution arrangements, etc.

More flexibility – move quickly from failed avenues of research to more promising projects

Startups partner with big pharma companies to complete clinical trials and take product to market

“If you build it, they will come” – but only build the essential core that lets you control your technology platform

More Feedback

Conversation with Dr. Ann Arvin – Key Opinion Leader on vaccines Pain point: Reliability issues with traditional egg platform - willingness to move

away to a different manufacturing platform Pain point: Current platforms are not fast enough, cannot have an impact in case

of a pandemic - sense of urgency in finding a manufacturing platform that can produce vaccines faster and at a large scale

Given this landscape, we still believe our technology can solve a significant problem in the vaccine market

Conversation with Dr. Misa Sugui & Dr. Floro Cataniag – MedImmune Pain point: attenuated virus platform is harder to work with, safety measures are

more stringent – would prefer recombinant subunit vaccines Wish: a faster process for vaccine production (our technology can help with this) Wish: a faster process for clinical trials and for approval of new drugs (this we

can’t do anything about) MedImmune is a possible partner - always looking for new vaccine production

technologies and new products to incorporate in their pipeline

More Feedback

Conversation with Fernando Garcia – Amyris Biotech platform technology company First target product: drug for malaria, partnered with Sanofi to commercialize Change in strategy: they have transitioned into making biofuels Why have they made this transition? We will follow up with one of the founders

of the company to find out

Next Steps

We believe we have a good feel for our value proposition

We need to better understand how we can sell to customers and how to establish these relationships, how partners’ decisions are made – meeting with Sanofi Head of External R&D

Keep searching for a business model that will allow us to commercialize our technology – looking for meetings with companies that distribute/sell flu vaccine antigens for research and diagnostic use, trying to determine market size

We need to talk to many more experts and customers…

Business Canvas

Interviews

Action MotionCustomer Interaction Meetings:1. Director of R&D of C/A partner2. NETL Methane Hydrate RG3. Ed Faust, Global Marketing, Siemens4. Former GE Employee5. Berkeley sensors group6. Tim Fogarty, Director of IW Energy

Planned Customer Interaction Meetings:1. Jeff Farbacher, CEO Accutran2. Ed Faust, Global Marketing,

Siemens3. Charles Noll, Marcellus Shale

Coalition

Hypothesis Testing:1. Ed Faust, Global Marketing, Siemens

Planned Hypothesis Testing:1. Dr. Gilad Kusne, NIST2. Ann Truschel, Corporate Insurance

Broker3. Tim Fogarty, Director of IW Energy

Clustered

Clus

te

red

nu

Direct Marketing

Possible

Not Possible[Too expensive]

Marketing Agency- Every significant market segment has

specific marketing agencies directed towards selling them goods

Chemical

Chemical,Physical,Thermal….

Clustered

Clus

te

red

nu

Direct Marketing

Possible

Not Possible[Too expensive]

Marketing Agency- Every significant market segment has

specific marketing agencies directed towards selling them goods

Chemical

Chemical,Physical,Thermal….

Clustered

Clus

te

red

nu

Direct Marketing

Possible

Not Possible[Too expensive]

Marketing Agency- Every significant market segment has

specific marketing agencies directed towards selling them goods

Chemical

Chemical,Physical,Thermal….

Direct sales to plants typically is a very hard way to generate scalable business in the sensors market.

Typically much better to bundle product into offerings from larger sensors businesses

Agrees with current approach to this first market!

Org. Chart – Current C/A Partner

CEO, CTO, CFO, etc. etc. etc.

Global Director of R&D

CEO, Director of R&DDirector of MarketingDirector of Product

Service

Engineers, etc. etc. etc.

Director of R&D