How to Fail Less Business Models and Customer Development Steve Blank www.steveblank.com @sgblank
Sep 05, 2014
How to Fail Less
Business Models and Customer Development
Steve Blankwww.steveblank.com
@sgblank
What We Used to Believe
Search Versus Execution
Startups are Smaller Versions of Large Companies
What We Now Know
Search Versus Execution
Startups SearchLarge Companies Execute
What We Used to Believe
Strategy
All I Need to Do is Execute the Plan
Plan MeetsFirst ContactWith Customers
All I Need is the 5- Year Forecast
Previous 5-Year Plans
All I Need to Do is Make the Forecast
What We Now Know
Strategy
Planning comes before the plan
Business Models
Business Models
Business Model Hypotheses
Search
Strategy
Execution
Operating Plan +Financial Model
What We Used to Believe
Process
We Built Startups by Managing Processes
Product Management
+
Waterfall Engineering
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
Customer Problem: known
Product Features: known
Waterfall / Product ManagementExecution on Two “Knowns”
Requirements
Design
Implementation
Verification
Maintenance
Source: Eric Rieshttp://startuplessonslearned.blogspot.com
Customer Problem: known
Product Features: known
Waterfall / Product ManagementExecution on Two “Knowns”
Requirements
Design
Implementation
Verification
Maintenance
Source: Eric Rieshttp://startuplessonslearned.blogspot.com
What We Now Know
Strategy
More startups fail from a lack of customers than from a failure of product development
Customer DevelopmentA Search Strategy
Business Model Hypotheses
Strategy
Process Customer &Agile Development
Operating Plan +Financial Model
Product Management& Agile Development
Search Execution
What We Used to Believe
Organization
Hire and Build a Functional Organization
What We Now Know
Organization
Founders run a Customer Development Team
No sales, marketing and business development
Business Model Hypotheses
OrganizationCustomer
Development Team, Founder-driven
Customer Development,Agile Development
Operating Plan +Financial Model
Product ManagementAgile or Waterfall Development
Functional Organization by Department
Search Execution
Strategy
Process
Business Model Hypotheses
Strategy
OrganizationCustomer DevelopmentTeam, Founder-driven
ProcessCustomer Development,
Agile Development
Search
Business Model Hypotheses
StrategyOperating Plan +Financial Model
OrganizationCustomer DevelopmentTeam, Founder-driven
Process Customer Development,Agile Development
Product ManagementAgile or Waterfall Development
Functional Organization by Department
Search Execution
Part 2
Business Models and
Customer Development
What’s A Startup?
A temporary organization designed to search
for a repeatable and scalable business model
A temporary organization designed to search
for a repeatable and scalable business model
A temporary organization designed to search
for a repeatable and scalable business model
A temporary organization designed to search
for a repeatable and scalable business model
A temporary organization designed to search
for a repeatable and scalable business model
A Startup aims to become a company
What’s a Business Model?
© 2012 Steve Blank
Value Proposition
What Are You Building and For Who?
© 2012 Steve Blank
Customer Segments
Who Are They?
Why Would They Buy?
© 2012 Steve Blank
Channels
How does your Product Get to Customers?
© 2012 Steve Blank
Customer Relationships
How do you Get, Keep and Grow Customers?
© 2012 Steve Blank
Revenue Streams
How do you Make Money?
© 2012 Steve Blank
Key Resources
What are your most important Assets?
© 2012 Steve Blank
Key Partners
Who are your Partners and Suppliers?
© 2012 Steve Blank
Key Activities
What’s Most Important for the Business?
© 2012 Steve Blank
Cost Structure
What are the Costs and Expenses
© 2012 Steve Blank
But,Realize They’re Hypotheses
9 Guesses
Guess Guess
Guess
Guess
GuessGuess
Guess
GuessGuess
Customer Development
Test the Problem, Then the Solution
Customer Development
The Minimum Viable Product
Customer Development
The Pivot
Customer Development is how you search for the model
How Does This Really Work?
Lean LaunchPad Class
National Science Foundation Innovation Corps Program May 23, 2012
Red Ox’s Electrochemical Desalination Cell 1. desalinates brine, a waste product from oil & gas and other
industries2. generates electricity quietly and3. produces bulk inorganics that can be sold as commodities.
André Taylor (PI) David Kohn (EL) Tom Livingston (IM)
Total Contacts: 96
82
Problem:Saline brine.
What is it?Water that is saltier than sea water.
It is produced as a waste product of many industrial processes.
Why is it a problem?
Saline brine is:1. Environmentally harmful 2. Heavily regulated3. Costly to treat and dispose of.
84
What we thought
1. Desalination
Photo 1: Kay Bailey Hutchison desalination plant in El Paso Tx.
2. Oil and gas production
Photo 2: a hydraulic fracturing site near Morgantown Pa.
85
What we did:
What we learned:
1. Desalination
Photo 1: Kay Bailey Hutchison desalination plant in El Paso Tx.
2. Oil and gas production
Photo 2: a hydraulic fracturing site near Morgantown Pa.
Key Partners Key Activities
Key Resources
Value Propositions
Customer Relationships
Customer Segments
Channels
Revenue Streams
Cost Structure
-Turns waste cost into revenue-Decreased input costs / volatility-Quiet electricity on-site
-Inland and coastal desalination plants-Industrial brine producers-Hydrofracking operations
-Inland and coastal desalination plants-Industrial brine producers-Hydrofracking operations
-B2B marketing-Service agreements-Licensing arrangements
-Service-Customization-Link to value add in industrial ecosystem-Improve public image
-R & D-Engineering customization
-People-Intellectual property
-Royalties from licenses-Service contracts-Engineering consulting fees-Strategic Partnerships
-Chemical sales-Electricity sales-REC sales-Brine treatment contracts
-People-R & D –Prototyping-Legal fees (IP, Licensing, Regulatory)
-Manufacture / Capital-Operation and maintenance-Sales and Marketing
-Manufacturers-Utilities-Regulators-Utility Commissions
-Learn regulatory landscape-Foster relationships with stakeholders-Hiring & retention
-Chemical distributors-Chemical Producers
-Chemical distributors-Chemical End Users-Chemical Producers
-Utilities-Fuel Cell Mfgs
-Decreased liability-Better public image-Decreased permitting time
-Brand-Relationships with stakeholders and partners
-CO2 sequestration-Energy efficiency-DOESN’T CAUSE EARTHQUAKES
Key Partners Key Activities
Key Resources
Value Propositions
Customer Relationships
Customer Segments
Channels
Revenue Streams
Cost Structure
-Turns waste cost into revenue-Decreased disposal costs-Decreased input costs / volatility-Quiet electricity on-site
-Water Treatment for Hydrofracking (Especially Produced Water)-Inland and coastal desalination plants-Industrial brine producers
-Inland and coastal desalination plants-Industrial brine producers-Hydrofracking operations
-B2B marketing-Possibly distributors/ conferences-Service agreements-Licensing arrangements
-Service-Customization-Link to value add in industrial ecosystem-Improve public image
-R & D-Engineering customization
-People-Intellectual property
-Royalties from licenses-Service contracts-Strategic Partnerships
-Chemical sales-Electricity sales-REC sales-Brine treatment contracts
-People-R & D & Prototyping-Legal fees (IP, Licensing, Regulatory)
-Manufacture / Capital-Operation and maintenance-Sales and Marketing
-Manufacturers -Membrane Mfgs-Utilities-Regulators-Engineering firms
-Know regulatory landscape-Foster relationships with stakeholders-Hiring & retention
-Chem. distributors-Chemical Producers
-Chemical distributors-Chemical End Users-Chemical Producers
- Electric Utilities (for energy efficiency investments)
-Decreased liability-Better public image FOR CLIENTS-Decreased permitting time ?
-Brand-Relationships with stakeholders and partners
-DOESN’T CAUSE EARTHQUAKES
-Other frac water treatment startups
Deep well injection
Photo 4: a small deep well injection rig
Evaporation Pits
Photo 5 : a typical wastewater evaporation pit
Traditional methods to dispose of saline brine include:
Thought: Problem in the Marcellus
Texas:~50,000 Class II Disposal Wells (at least 80% for enhanced recovery)
Pennsylvania: 8 Class II Disposal Wells
Price for water treatment ~60x higher than we thought!
Well OwnerService
Providers(Fracking,
Onsite recycling)
Technology Developers / Vendors
Regulators(Water Rights,
Disposal, Permitting)
Primary Treatment
Facility
Secondary Treatment Contractor
Engineering Firms
Disposal Companies
Produced Water
Reuse to Frac
Another Well
Disposal
Discharge
Primary Treatment
Tertiary Treatment
Dilution with
Freshwater
Must be drinking
water quality
How high can they
go?
Current state of the art are evaporators
and crystallizers
This is where we fit in
Flowback Water
First 30 days of production
Medium TDS
~5-20 % of injected
Produced Water
Produced over well’s
operating life (4-30 years)
Very high TDS (usually
100,000 ppm or higher)
~5-20 % of injected
Drilling Water
Water from drilling muds used to drill
well
High TSS
Small quantity, weird stuff in it
Class II Wells
Primary and
Tertiary Treatment
Cost of Disposal ($/bbl)
0.50-1.50 10.00-12.00
5.00-6.00
Transport Cost
($/bbl)
4.00-16.00 2.00-4.00 1.00-4.00
Total($/bbl)
4.50-17.50 12.00-16.00
6.00-10.00
“Moe! don’t throw out that brine!”
North American Produced Water
MarketTAM: $5 bn/yrSAM: $3 bn
Target: $0.5 bn
Our projections:~ $21 million/year revenues from one 10,000 barrel per day plant<5% of current treatment and disposal in PA
Produced Water
Reuse to Frac
Another Well
Disposal
Discharge
Primary Treatment
Tertiary Treatment
Dilution with
Freshwater
= ~$1/bbl/hr
Storage
Treatment
Salt Processin
g
Drop-Off
101
1. Market risk: increasing reuse lowers disposal rate
2. Technology risk 3. Unable to sell into chemical markets
Risks
Key Partners Key Activities
Key Resources
Value Propositions
Customer Relationships
Customer Segments
Channels
Revenue Streams
Cost Structure
-Turns waste cost into revenue-Decreased disposal costs and volume-Decreased transport costs-Decreased input costs / volatility and freshwater volume-Quiet electricity
-Water Treatment for Oil and Gas (Especially Produced Water)-Service Providers for Oil and Gas-Oil and Gas Owner/Operators
-Hydrofracking operations-Service providers for oil and gas industry-Oil and Gas Owner/Operators
-B2B marketing-Possibly distributors/ conferences-Oil &gas well service providers/ manufacturers
-R & D-Engineering customization
-People-Intellectual property
-Royalties from licenses-Service contracts-Strategic Partnerships
-Chemical sales-Electricity sales-REC sales-Brine treatment contracts
-People-R & D & Prototyping-Legal fees (IP, Licensing, Regulatory)
-Manufacture / Capital-Operation and maintenance-Sales and Marketing
-Manufacturers -Integrators-Membrane Mfgs-Engineering firms
-Know regulatory landscape-Foster relationships with stakeholders-Hiring & retention
-Chemical distributors-Chemical End Users-Chemical Producers
-Better public image for clients-Decreased permitting time
-Brand -Relationships with stakeholders and partners
-Doesn’t Cause Earthquakes
-Other frac water treatment startups
-Make it easy for them to get rid of their waste-Brand = good PR
-Environmental Groups/Regulators
103
Key Partners Key Activities
Key Resources
Value Propositions
Customer Relationships
Customer Segments
Channels
Revenue Streams
Cost Structure
-Decreased disposal costs and volume-Decreased transport costs-Valuable Coproducts-Quiet electricity
-Service Providers for Oil and GasWater Treatment for Oil and Gas (Especially Produced Water)-Oil and Gas Owner/Operators
-Service providers for oil and gas industry-Oil and Gas Owner/Operators RESEACH ARMS
-Chemical Distributors-Oil &gas well service providers and water treatment companies
-R & D-Engineering customization
-People-Intellectual property
-Royalties from licenses-Service contracts-Strategic Partnerships
-Chemical sales-Electricity sales-REC sales-Brine treatment contracts
-People-R & D & Prototyping-Legal fees (IP, Licensing, Regulatory)
-Manufacture / Capital-Operation and maintenance-Sales and Marketing
-Manufacturers -Membrane Mfgs-Engineering firms
-Know regulatory landscape-Foster relationships with stakeholders-Hiring & retention
-Chemical distributors-Chemical End Users-Chemical Producers
-Better public image for clients-Decreased permitting time
-Brand -Relationships with stakeholders and partners
-Doesn’t Cause Earthquakes
- Produced Water Treatment companies
-Make it easy for them to get rid of their waste-Brand = good PR
-Environmental Groups/Regulators
Why Do We Do This?
Additional Resources
• I-Corps class summary: http://steveblank.com/2012/03/26/the-national-science-foundation-innovation-corps-what-america-does-best/• I-Corps team presentations: http://www.slideshare.net/sblank/tagged/i-corps• Resources for startups: http://steveblank.com/tools-and-blogs-for-entrepreneurs/• Books for startups: http://steveblank.com/books-for-startups/• Additional resources: http://steveblank.com/slides/