Why Startups Are _Not_ Small Versions of Large Companies
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- Startups differ from large companies in that they are searching for an unknown business model through customer development and iterative pivoting, rather than executing on a known model through planning. - Founders must lead the search for the business model by getting out of the building to test hypotheses about customers, problems, and solutions through customer discovery and validation. - Once a repeatable and scalable business model is proven, the startup can enter a transition phase to a more process-driven approach like product management, sales, and engineering typical of large companies.
Why Startups Are _Not_ Small Versions of Large Companies
- 1. Why Startups Are Not Small Versions of Large CompaniesSteve Blankwww.steveblank.comTwitter: sgblank
- 2. I Wrote This
- 4. Not All Startups Are Equal
- 5. Small BusinessStartupSmall Business StartupsServe known customer with known product
- 6. Feed the familySmall BusinessStartupExit Criteria Business Model found- Profitable business Existing team< $1M in revenueSmall Business Startupsknown customer known product
- 7. Feed the familySmall BusinessStartup- Business Model found- Profitable business Existing team< $10M in revenueSmall Business Startups5.7 million small businesses in the U.S. <500 employees
- 8. 99.7% of all companies
- 9. ~ 50% of total U.S. workershttp://www.sba.gov/advo/stats/sbfaq.pdf
- 10. Large Company Sustaining InnovationSustaining InnovationTransitionScalableStartupLarge CompanyExisting Market / Known customer
- 11. Known product feature needsLarge Company Disruptive InnovationNew DivisionTransitionLarge CompanyDisruptive Innovation New Market / Unknown customer needs
- 12. New tech / Unknown product features
- 13. Looks like a scalable startupScalableStartupLarge Company>$100M/yearScalable StartupGoal is to solve for: unknown customer and unknown features
- 14. ScalableStartupLarge Company>$100M/yearExit Criteria Business model found
- 15. Total Available Market > $500m -$1B
- 16. Can grow to $100m/year
- 17. Focused on execution and processScalable Startup
- 18. ScalableStartupLarge Company>$100M/yearTotal Available Market > $500m
- 19. Can grow to $100m/year
- 20. Business model found
- 21. Focused on execution and process
- 22. Typically requires “risk capital”Scalable Startup In contrast a scalable startup is designed to grow big
- 23. Typically needs risk capital
- 24. What Silicon Valley means when they say “Startup”ScalableStartupLarge CompanySearch customer needs/product features found i.e. Product/Market fit Business Model found- Repeatable sales model- Managers hiredWhat’s A Startup?A Startup is the organization used to search for a scalable business model
- 25. What VC’s Don’t Tell You:The Transition – Founders LeaveScalableStartupTransitionLarge CompanyBuildFounders depart
- 27. Process
- 28. Beginning of scaleWhy Product Managers Wear Sneakers
- 29. Startups Search and PivotThe Search for the Business ModelScalableStartupTransitionLarge CompanyBusiness Model found customer needs/product features found i.e. Product/Market fitFound by founders, not employees
- 30. Repeatable sales model- Managers hired
- 31. Startups Search, Companies ExecuteThe Execution of the Business ModelThe Search for the Business ModelScalableStartupTransitionLarge Company- Cash-flow breakeven- Profitable- Rapid scale- New Senior Mgmt~ 150 peopleBusiness Model found
- 32. Product/Market fit- Repeatable sales model- Managers hired
- 33. Metrics Versus AccountingThe Execution of the Business ModelScalableStartupTransitionLargeCompanyTraditional AccountingBalance Sheet
- 34. Cash Flow Statement
- 35. Income StatementMetrics Versus AccountingThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLargeCompanyStartup Metrics Customer Acquisition Cost
- 37. Customer Lifetime Value
- 38. Average Selling Price/Order Size
- 39. Monthly burn rate
- 40. etc. Traditional Accounting Balance Sheet
- 41. Cash Flow Statement
- 42. Income StatementCustomer Validation Versus SalesThe Execution of the Business ModelScalableStartupTransitionLargeCompanySalesSales Organization
- 43. Scalable
- 44. Price List/Data Sheets
- 45. Revenue PlanCustomer Validation Versus SalesThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLargeCompanyCustomer Validation Early Adopters
- 47. Not yet repeatable
- 48. “One-off’s”
- 49. Done by foundersSales Sales Organization
- 50. Scalable
- 51. Price List/Data Sheets
- 52. Revenue PlanCustomer Development VersusProduct ManagementThe Execution of the Business ModelScalableStartupTransitionLarge CompanyProduct Management Delivers MRD’s
- 53. Feature Spec’s
- 55. Prod Mgmt drivenCustomer Development Versus Product ManagementThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLarge CompanyProduct Management Delivers MRD’s
- 56. Feature Spec’s
- 57. Competitive AnalysisCustomer Development Hypothesis Testing
- 58. Minimum Feature Set
- 59. Pivots
- 60. Founder-drivenEngineering Versus Agile DevelopmentThe Execution of the Business ModelScalableStartupTransitionLarge CompanyEngineering Requirements Docs.
- 62. QA
- 63. Tech PubsEngineering Versus Agile DevelopmentThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLarge CompanyEngineering Requirements Docs.
- 65. QA
- 66. Tech PubsAgile Development Continuous Deployment
- 68. Self Organizing Teams
- 69. Minimum Feature Set
- 70. PivotsStartups Model, Companies PlanThe Execution of the Business ModelScalableStartupTransitionLarge Company Plan describes “knowns”
- 71. Known features for line extensions
- 73. Known business modelStartups Model, Companies PlanThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLarge CompanyUnknown customer needs
- 76. Model found by iteration
- 78. Known features for line extensions
- 80. Known business modelStartups Protect Mavericks, Companies Fire MavericksThe Execution of the Business ModelScalableStartupTransitionLarge CompanyPains in the butt
- 81. Always looking at something different
- 82. Doesn’t get with the programStartups Protect Mavericks, Companies Fire MavericksThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLarge Company CEO of your company
- 83. Finds your next market
- 84. Pains in the butt
- 85. Always looking at something different
- 86. Doesn’t get with the programStartups Don’t Last ForeverScalableStartupTransitionLarge Company- Cash-flow breakeven- Profitable- Rapid scale- New Senior Mgmt~ 150 people Business Model found
- 87. Product/Market fit- Repeatable sales model- Managers hiredYou failif you remain a startup!
- 89. Business PlanA document your investors make you write that they don’t readA useful place for you to collect your guesses about your businessSize of Opportunity
- 90. Customers
- 91. Channel
- 92. Demand Creation
- 93. Revenue/Expenses/ProfitThe template to look like everyone else when you present to VC’s/Management
- 94. No Business Plan survives first contact with customers
- 95. So Search for a Business Model
- 96. What Is a Business Model?Diagram of flows between company and customersScorecard of hypotheses testingRapid change with each iteration and pivotProduct Management-driven* Alex Osterwalder
- 97. Business Model = Keeping Score in a StartupCUSTOMERRELATIONSHIPPARTNERNETWORKINFRASTRUCTURECUSTOMEROFFERTARGETCUSTOMERCORECAPABILITIESportrays the network of cooperative agreements with other companiesexplains the relationships a company establishes with its customersVALUEPROPOSITIONdescribes the customers a company wants to offer value tooutlines the capabilities required to run a company's business modelgives an overall view of a company's bundle of products and servicesDISTRIBUTIONCHANNELVALUECONFIGURATIONdescribes the channels to communicate and get in touch with customersdescribes the arrangement of activities and resourcessums up the monetary consequences to run a business modeldescribes the revenue streams through which money is earnedCOSTSTRUCTUREREVENUESTREAMSFINANCE
- 98. Business Model Generation Book
- 99. How Do Startups Search For A Business Model? The Search is called Customer Development
- 100. The Implementation is called Agile DevelopmentThe Lean Startup
- 101. Who Does This Search?The FoundersNot EmployeesHow?
- 102. Customer Development
- 103. Solving For Customer and Product Unknowns:Customer Development
- 104. Customer DevelopmentThe foundersGet the Hell Out of the Building^
- 105. More startups fail from a lack of customers than from a failure of product development
- 106. Then why do we have:process to manage product development?
- 107. Then why do we have:Process to manage product development?None to manage customer development?
- 108. Startup - Back of the Napkin ModelConcept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1st Ship
- 109. Tradition – Hire MarketingConcept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1st Ship- Create Demand- Launch Event- “Branding”- Hire PR Agency- Early Buzz Create Marcom Materials- Create PositioningMarketing
- 110. Tradition – Hire SalesConcept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1st Ship- Create Demand- Launch Event- “Branding”- Hire PR Agency- Early Buzz Create Marcom Materials- Create PositioningMarketing Build Sales Organization
- 111. Hire Sales VP
- 112. Hire 1st Sales StaffSales
- 113. Tradition – Hire Bus DevelopmentConceptProduct Dev.Alpha/Beta TestLaunch/1st Ship- Create Demand- Launch Event- “Branding”- Hire PR Agency- Early Buzz Create Marcom Materials- Create PositioningMarketing Build Sales Channel / Distribution
- 114. Hire Sales VP
- 115. Pick distribution ChannelSalesBusiness Development Hire First Bus Dev
- 116. Do deals for FCSTradition – Hire Engineering/Product MgmtConceptProduct Dev.Alpha/Beta TestLaunch/1st Ship- Create Demand- Launch Event- “Branding”- Hire PR Agency- Early Buzz Create Marcom Materials- Create PositioningMarketing Build Sales Channel / Distribution
- 117. Hire Sales VP
- 118. Pick distribution ChannelSalesBusiness Development Hire First Bus Dev
- 119. Do deals for FCSEngineering/Product Mgmt Write MRD
- 120. Waterfall
- 121. Q/A
- 122. Tech PubsProduct DevelopmentConcept/Bus. PlanProduct Dev.Alpha/Beta TestLaunch/1st Ship+CustomerDevelopmentCompanyBuildingCustomerDiscoveryCustomerValidationCustomer CreationCustomer Development
- 123. Customer DiscoveryCustomerDiscoveryCustomerValidationCompanyBuildingCustomerCreationStop selling, start listeningTest your hypothesesContinuous DiscoveryDone by founders
- 124. Customer DiscoveryPhase 3TestProductHypothesisPhase 4Verify, Iterate & ExpandCustomerDiscoveryTo ValidationPhase 1AuthorHypothesisPhase 2TestProblemHypothesis
- 126. Customer ValidationCustomerDiscoveryCustomerValidationCustomer CreationCompanyBuildingPivotRepeatable and scalable business model?
- 128. Pivot back to Discovery if no customersCustomer ValidationPhase 4Business ModelVerifiedPhase 3PositioningCustomerValidationFrom DiscoveryTo CreationPhase 1Get Readyto SellPhase 2Sell toEarlyVangelists
- 129. The Pivot The heart of Customer Development
- 131. Fast, agile and opportunisticSpeeding Up Cycle TimeSpeed of cycle minimizes cash needs
- 132. Minimum feature set speeds up cycle time
- 133. Near instantaneous customer feedback drives feature setSo What Does Engineering Do?
- 134. Waterfall / Product ManagementExecution on Two “Knowns”RequirementsProduct Features: knownDesignImplementationVerificationCustomer Problem: knownMaintenanceSource: Eric Rieshttp://startuplessonslearned.blogspot.com
- 135. Agile - Customer Problem is KnownExisting Company/Market“Product Owner” or in-house customer Unit of progress: a line of working codeProblem: KnownSolution: UnknownSource: Eric Rieshttp://startuplessonslearned.blogspot.com
- 136. Lean StartupCustomer Problem + Product Features are UnknownProblem: UnknownSolution: UnknownSource: Eric Rieshttp://startuplessonslearned.blogspot.com
- 137. 64Customer CreationCustomerDiscoveryCustomerValidationCompanyBuildingCustomerCreationCreation comes after proof of sales
- 138. $’s for scale
- 139. Lean Startups are not cheap startupsCompany BuildingCompanyBuildingCustomer CreationCustomerValidationCustomerDiscovery(Re)build company’s organization & management
- 140. Re look at your missionI Write a Blog www.steveblank.com
- 141. SummaryFounders can’t delegate customer discoveryStartups are about speed of pivotsProductCustomerChannelThey are not about MRD’s and process Product management can be an asset or an albatross in startupsYou can make the difference…with sneakers