Why fighter pilots run startups 090511
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Transcript of Why fighter pilots run startups 090511
Why Fighter Pilots Run Startups
Steve BlankStanford - School of Engineering
U.C. Berkeley - Haas School Of Business
www.steveblank.comTwitter: sgblank
Startup
Lifestyle Startups Work to Live their Passion
• Serve known customer with known product
• Get paid for their passion
Small BusinessStartup
Small Business StartupsWork to Feed the Family
• Serve known customer with known product
• Feed the family
Small BusinessStartup
Exit Criteria- Business Model found- Profitable business- Existing team< €100K in revenue
Small Business StartupsWork to Feed the Family
• 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. workershttp://www.sba.gov/advo/stats/sbfaq.pdf
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 > €300m- Can grow to €50/year
Scalable StartupBorn to Be Big
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 StartupBorn to Be Big
• 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 CompanyTransition
Founders depart- Operating executives- Professional Mgmt- Process- Beginning of scale
The Transition – Founders Leave
BuildSearch Execute
ScalableStartup
€3 to 30M Acquisition
Buyable StartupBorn to Be Sold
Goal is to solve for: Internet, Mobile, Gaming Apps
Search Sell
ScalableStartup
€3 to e0M 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
Small BusinessStartup
ScalableStartup
Large Company
Venture Firms Invest in Scalable and Buyable Startups
Transition Large Company
ScalableStartup
Sustaining Innovation
• Existing Market / Known
customer• Known product feature needs
Large Company Sustaining InnovationInnovate or Evaporate
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• Partner• Acquire - IP - Talent - Product - Customers - Business
Large Non-Profit
Social Startup
Social Entrepreneurship Startups
• Solve pressing social problems• Social Enterprise: Profitable• Social Innovation: New Strategies
ScalableStartup
Large CompanyTransition
Searching for the Business Model- customer needs/product features i.e. Product/Market fit- Found by founders, not employees- Repeatable sales model
The Search for the Business Model
Startups Search and Pivot
ScalableStartup
Large Company
Transition
- Business Model found- Product/Market fit- Repeatable sales model- Managers hired
Executing a known Business Model- Known customers, and product- Profitable~ 150 people
The Search for the Business Model The Execution of the Business Model
Startups Search, Companies Execute
ScalableStartup
LargeCompany
Transition
Traditional Accounting- Balance Sheet- Cash Flow Statement- Income Statement
Metrics Versus Accounting
The Execution of the Business Model
ScalableStartup
LargeCompanyTransition
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 Execution of the Business Model
Metrics Versus Accounting
The Search for the Business Model
ScalableStartup
LargeCompanyTransition
Sales- Sales Organization- Scalable- Price List/Data Sheets- Revenue Plan
The Execution of the Business Model
Customer Validation Versus Sales
ScalableStartup
LargeCompanyTransition
Customer Validation- Early Adopters- Pricing/Feature unstable- Not yet repeatable- “One-off’s”
Sales- Sales Organization- Scalable- Price List/Data Sheets- Revenue Plan
The Search for the Business Model The Execution of the Business Model
Customer Validation Versus Sales
ScalableStartup
Large CompanyTransition
The Execution of the Business Model
Engineering Versus Agile Development
Engineering- Requirements Docs.- Waterfall Development- QA - Tech Pubs
ScalableStartup
Large CompanyTransition
Agile Development- Continuous Deployment- Continuous Learning- Self Organizing Teams- Minimum Feature Set- Pivots
The Search for the Business Model The Execution of the Business Model
Engineering Versus Agile Development
Engineering- Requirements Docs.- Waterfall Development- QA - Tech Pubs
ScalableStartup
Large CompanyTransition
Business Plan- Plan describes “knowns”- Known features for line extensions- Known customers/markets- Known business model
The Execution of the Business Model
Startups Model, Companies Plan
ScalableStartup
Large CompanyTransition
Business Model- Unknown customer needs- Unknown feature set- Unknown business model- Model found by iteration
The Search for the Business Model
Startups Model, Companies Plan
The Execution of the Business Model
- Plan describes “knowns”- Known features for line extensions- Known customers/markets- Known business model
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 FCSBusiness 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 FCSBusiness Development
Engineering • Write MRD
• Waterfall • Q/A • Tech Pubs
Then why do we have:
• process to manage product development?
• no process to manage customer development?
CUSTOMER SEGMENTS
which customers and users are you serving? which jobs do they really want to get done?
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?
54
KEY ACTIVITIES
which activities do you need to perform well in your business model? what is crucial?
57images by JAM
customer segments
key partners
cost structure
revenue streams
channels
customer relationships
key activities
key resources
value proposition
Customer Development
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
Customer Development
CompanyBuilding
CustomerDiscovery
CustomerValidation
Customer Creation
+
• Stop coding, stop selling, start listening
• Test your hypotheses
• Continuous Discovery
Customer Discovery
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
Customer Validation
Customer
Discovery
CustomerValidatio
n
Customer Creation
CompanyBuilding
• Repeatable and scalable business model?
• Passionate earlyvangelists?
• Pivot back to Discovery if no customers
Pivot
The Pivot
• The heart of Customer Development
• Iteration without crisis
• Fast, agile and opportunistic
Pivot Cycle Time Matters
• Speed of cycle minimizes cash needs
• Minimum feature set speeds up cycle time
• Near instantaneous customer feedback drives feature set
The Minimum Viable Product (MVP)
• Smallest feature set that gets you the most …
- orders, learning, feedback, failure…
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
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
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
Above: Organic Carrots, 7wks. Top right: Conventional carrotsBottom Right: Very weedy. Will require multiple passes of hand weeding
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
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
No Surprises in an Airline
ScalableStartup
Large CompanyTransition
Scheduled Airline
• Scheduled• Routine• Burn rate preplanned
Air-Air Combat is Constant Surprise
ScalableStartup
Large CompanyTransition
Air-Air Combat
• Uncertain environment • Rapid, unanticipated changes • Changes lead to disorientation• Burn rate (time, fuel, bullets,
$’s) limits window of opportunity
Observe, Orient, Decide and Act:OODA Loop
• Agility requires continuous interactions with the environment
• Winning requires constant assessment of change and ways to mitigate risk
• Iterating faster than competitors yields substantial advantage
= Victory
92
Boyd’s OODA Loop
FeedForward
Observations Decision(Hypothesis)
Action(Test)
CulturalTraditions
GeneticHeritage
NewInformation Previous
Experience
Analyses &Synthesis
FeedForward
FeedForward
ImplicitGuidance& Control
ImplicitGuidance& Control
InteractionWith
EnvironmentInteraction w/Environment
OutsideInformation
UnfoldingCircumstances
Observe Orient Decide Act
OODA Loop is Not an Intelligence Test
• It’s about Agility
• It’s about Resilience
• It’s not about winning arguments inside the company
• Fighters pilots vs. military intelligence
Am I an Entrepreneur?Startup Personal Checklist
• Are you comfortable with:– Chaos– Uncertainty
• Are you:– Curious– Resilient– Agile– Passionate– Driven– Articulate– Tenacious
Entrepreneurship Your Role in a Startup
• Founder• Co-founder• Early Employee• Late Employee
They don’t require the same risk/personality profile
Decreasing chaos/reward
One candidate got a C in macroeconomics. “That’s troubling to me,” Ms. Mayer says. “Good students
are good at all things.”
Marissa MayerGoogle
February 28, 2009
The “Good Student”
• Will go to work for Google, Microsoft, NokiaIBM or Apple
• Successful tech entrepreneurs and grades have at best zero correlation