Successful Strategies for
Products That Win
Steve BlankStanford - School of Engineering
U.C. Berkeley - Haas School Of Business
www.steveblank.com
Twitter: sgblank
A Few Short Stories
There’s Something Happening Here,
What It Is Ain’t Exactly Clear
Startup Constraints
High Cost to First Product
Startup Constraints
Long Time to First Product
High Cost to First Product
Startup Constraints
Long Time to First Product
High Cost to First Product
Slow Customer Adoption
Startup Constraints
Long Time to First Product
High Cost to First Product
High Startup Failure
Rate
Slow Customer Adoption
Startup Constraints
Long Time to First Product
High Cost to First Product
High Startup Failure Rate
Slow Customer Adoption
Limited Number of
Venture Capitalists
Startup Constraints
Long Time to First Product
High Cost to First Product
High Startup Failure Rate
Slow Customer Adoption
Limited Number of
Venture Capitalists
Innovation Limited to
a Few Regions
Startup Constraints
Long Time to First Product
High Cost to First Product
High Startup Failure Rate
Slow Customer Adoption
Limited Number of
Venture Capitalists
Innovation Limited to a Few Regions
Startup Constraints
There’s Something Happening Here,
What It Is Ain’t Exactly Clear
Startup ConstraintsEntrepreneurial Explosion
Low Cost to 1st Product
Entrepreneurial
Explosion
Short Time to First Product
Low Cost to First Product
Entrepreneurial
Explosion
Short Time to First Product
Low Cost to First Product
Fast Customer Adoption
Entrepreneurial
Explosion
Short Time to First Product
Low Cost to First Product
Lower Startup
Failure Rate
Fast Customer Adoption
Entrepreneurial
Explosion
Short Time to First Product
Low Cost to First Product
Lower Startup Failure Rate
Fast Customer Adoption
Rate
Large Pool of Risk Capital
Entrepreneurial
Explosion
Short Time to First Product
Low Cost to First Product
Lower Startup Failure Rate
Global Innovation
Fast Customer Adoption
Rate
Large Pool of Risk Capital
Entrepreneurial
Explosion
Short Time to First Product
Low Cost to First Product
Lower Startup
Failure Rate
Global Innovation
Fast Customer Adoption
Rate
Large Pool of Risk Capital
Entrepreneurial
ExplosionThis talk
Not All Startups Are Equal
Small Business
Startup
Small Business Startups
• Serve known customer with
known product
• Feed the family
Small Business
Startup
Exit Criteria
- Business Model found
- Profitable business
- Existing team
< $1M in revenue
Small Business Startups
• known customer
known product
• Feed the family
Small Business
Startup
- 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
TransitionLarge
CompanyScalableStartup
Sustaining Innovation
• Existing Market / Known customer
•Known product feature needs
Large Company Sustaining Innovation
Large Company Disruptive Innovation
New Division
TransitionLarge
Company
Disruptive Innovation
•New Market
•New tech, customers, channels
Large Company Disruptive Innovation
New Division TransitionLarge Company
Disruptive Innovation•Build
•Acquire
- 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
-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 scalable and repeatable business model
ScalableStartup
Large Company
Transition
What VC’s Don’t Tell You:
The Transition
Search Build Execute
ScalableStartup
Large Company
Transition
-Founders depart
- CEO = Operating Exec
- Professional Mgmt
-Process
- Beginning of scale
What VC’s Don’t Tell You:
The Transition – Founders Leave
ScalableStartup
Large Company
Transition
-Business Model found
- i.e. Product/Market fit
- Repeatable sales model
- Managers hired
What’s A Startup?
You fail if you stay a startup
Why Startups Are Not Small
Versions of A Large Company
ScalableStartup
Large Company
Transition
Business Model found by founders
- customer needs/product features found
i.e. Product/Market fit
- Repeatable sales model
- Managers hired
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
- Cash-flow breakeven
- Profitable
- Rapid scale
- New Senior Mgmt
~ 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
The Execution of the Business Model
Metrics Versus Accounting
ScalableStartup
LargeCompany
Transition
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
Metrics Versus Accounting
ScalableStartup
LargeCompany
Transition
Sales
-Sales Organization
- Scalable
- Price List/Data Sheets
- Revenue Plan
The Execution of the Business Model
Customer Validation Versus Sales
ScalableStartup
LargeCompany
Transition
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 Company
Transition
The Execution of the Business Model
Engineering Versus
Agile Development
Engineering
- Requirements Docs.
- Waterfall Development
- QA
- Tech Pubs
ScalableStartup
Large Company
Transition
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 Company
Transition
Business Plan
-describes “knowns”
- features
- customers/markets
- business model
The Execution of the Business Model
Startups Model, Companies Plan
ScalableStartup
Large Company
Transition
-Business Model
- describes “unknowns”
-customer needs
- feature set
- business 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
Why Startups Fail
More startups fail from
a lack of customers than from a
failure of product development
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 FirstBus 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 FirstBus Dev
• Do deals for FCSBusiness
Development
Engineering • Write MRD • Waterfall • Q/A •Tech Pubs
How Startups Succeed
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?
66
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?
69images by JAM
customer
segments
key
partners
cost
structure
revenue
streams
channels
customer
relationships
key activities
key
resources
value
proposition
How Do Startups Search For A
Business Model?
• The Search is called Customer Development
• The Implementation is called Agile Development
The Lean Startup
• The Search is called Customer Development
• The Implementation is called Agile Development
Customer
Development
Customer Development
Get Out of the Building
The founders
^
Customer Development
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
CustomerDevelopment
CompanyBuilding
CustomerDiscovery
CustomerValidation
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
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 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
This Presentation Combines
www.businessmodelgeneration.comwww.steveblank.com
I Write a Blog
www.steveblank.com
Thanks
www.steveblank.com
Atoms or Bits?
Speed of Experimentation
Atoms or Bits?
• Access to customers changes dramatically
• The product can be “bits” or physical
• The sales channel can be “web” or physical
• Speed of experimentation increases and cost
decreases when both are bits
Distribution Channel – Bits or Atoms?
Channel
Web Physical
The Product - Bits vs. Atoms
Channel
Web Physical
Product
Bits
Physical
Product & Channel are Bits
Channel
Web Physical
Product
Bits
• RapidAgile and Customer development
• Fastest to acquire early customers and scale
Physical
Web 2.0 - Product & Channel are Bits
Channel
Web Physical
Product
Bits
Google, Twitter,
Facebook, Zynga, Cloud
Services
Physical
Product is Bits but Channel is People
Channel
Web Physical
Product
Bits
• RapidAgile and Customer development
• Fastest to acquire early customers and scale
• RapidAgile and Customer development
•Traditional sales channel• May require installation
Physical
Traditional Enterprise Software
Channel
Web Physical
Product
Bits
Google, Twitter,
Facebook, Zynga, Cloud
Services
Microsoft, SAP, Oracle
Physical
Physical Products Sold Over the Web
Channel
Web Physical
Product
Bits
• RapidAgile and Customer development
• Fastest to acquire early customers and scale
• RapidAgile and Customer development
•Traditional sales channel• May require installation
Physical
• RapidCustomer development
• Logistics, shipping and manufacturing critical
• Customer service
Killing Traditional Storefronts
Channel
Web Physical
Product
Bits
Google, Twitter,
Facebook, Zynga, Cloud
Services
Microsoft, SAP, Oracle
Physical
Zappos, Amazon,
Cafepress, Netflix,
consumer electronics
The Factories May be in China
Channel
Web Physical
Product
Bits
• RapidAgile and Customer development
• Fastest to acquire early customers and scale
• RapidAgile and Customer development
•Traditional sales channel• May require installation
Physical
• RapidCustomer development
• Logistics, shipping and manufacturing critical
• Customer service
• Longer customer feedbackcycle
• May require large capital requirements for scale
We Still Make Things that Need
Salespeople
Channel
Web Physical
Product
Bits
Google, Twitter,
Facebook, Zynga, Cloud
Services
Microsoft, SAP, Oracle
Physical
Zappos, Amazon,
Cafepress, Netflix,
consumer electronics
Cars, Solar Panels, Wind
Turbines, bookstores,
consumer electronics
Speed of Experimentation
Channel
Web Physical
Product
Bits
Physical
Silicon Valley - A Happy Accident
• Cold war research in microwaves/electronics at Stanford
• Cold war military funding drives Stanford spinouts in
microwaves for the defense industry in the 1950’s
• Stanford Engineering Dean encourages startup culture
• A Bell Labs researcher starts his semiconductor
company next to Stanford in in 1956 which led to…
• the wave of semiconductor startups in the 1960’s/70’s
• the emergence of venture capital as an industry
• the personal computer revolution in 1980’s
• the rise of the Internet in the 1990’s and finally
• the internet commerce applications of the 21st century.
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