Why Accountants Don’t Run Startups Steve Blank www.steveblank.com Twitter: sgblank
Why Accountants Don’t Run Startups
Steve Blank
www.steveblank.comTwitter: sgblank
I Write a Blog
www.steveblank.com
This Presentation Combines
www.businessmodelgeneration.comwww.steveblank.com
Five Short Stories
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
ScalableStartup
Large Company>$100M/year
Scalable Startup
Goal is to solve for:
unknown customer and
unknown features
ScalableStartup
Large Company>$100M/year
Exit Criteria
-Total Available Market > $500m
- Can grow to $100m/year
- Business model found
- Focused on execution and process
Scalable Startup
ScalableStartup
Large Company>$100M/year
-Total Available Market > $500m
- 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”
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 business model
Search
ScalableStartup
Large Company
Transition
-Founders depart
- Professional Mgmt
- Process
- Beginning of scale
What VC’s Don’t Tell You:
The Transition – Founders Leave
Build ExecuteSearch
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 / Unknown customer needs
• New tech / Unknown product features
• Looks like a scalable startup
Why Startups Are Not Small
Versions of Large Companies
ScalableStartup
Large Company
Transition
Business Model found
- customer needs/product features found
i.e. Product/Market fit
- Found by founders, not employees
- 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”
- Done by founders
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
Product Management
- Delivers MRD’s
- Feature Spec’s
- Competitive Analysis
- Prod Mgmt driven
The Execution of the Business Model
Customer Development Versus
Product Management
ScalableStartup
Large Company
Transition
Customer Development
- Hypothesis Testing
- Minimum Feature Set
-Pivots
-Founder-driven
The Search for the Business Model The Execution of the Business Model
Customer Development Versus
Product Management
Product Management
- Delivers MRD’s
- Feature Spec’s
- Competitive Analysis
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
- 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 Company
Transition
-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
ScalableStartup
Large Company
Transition
-Pains in the butt
- Always looking at something different
- Doesn’t get with the program
Startups Protect Mavericks,
Companies Fire Mavericks
The Execution of the Business Model
ScalableStartup
Large Company
Transition
-Pains in the butt
- Always looking at something different
- Doesn’t get with the program
The Search for the Business Model
Startups Protect Mavericks,
Companies Fire Mavericks
The Execution of the Business Model
- CEO of your company
-Finds your next market
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
Startups Don’t Last Forever
You failif you remain a startup!
Plan versus Model
Business Plan
• A document your investors make you write that they
don’t read
• A useful place for you to collect your guesses about
your business
- Size of Opportunity
- Customers
- Channel
- Demand Creation
- Revenue/Expenses/Profit
• The template to look like everyone else when you
present to VC’s/Management
No Business Plan survives first
contact with customers
So Search for a Business Model
What Is a Business Model?
• Diagram of flows between company and customers
• Scorecard of hypotheses testing
• Rapid change with each iteration and pivot
• Product Management-driven
* Alex Osterwalder
VALUE
PROPOSITION
COST
STRUCTURE
CUSTOMER
RELATIONSHIPTARGET
CUSTOMER
DISTRIBUTION
CHANNELVALUE
CONFIGURATION
CORE
CAPABILITIES
PARTNER
NETWORK
REVENUE
STREAMS
gives an overall view of
a company's bundle of
products and services
portrays the network of
cooperative
agreements with other
companies
describes the channels
to communicate and
get in touch with
customers
describes the
arrangement of
activities and resources
explains the
relationships a
company establishes
with its customers
sums up the monetary
consequences to run a
business model
describes the revenue
streams through which
money is earned
describes the
customers a company
wants to offer value to
outlines the capabilities
required to run a
company's business
model
INFRASTRUCTURE CUSTOMER
OFFER
FINANCE
Business Model = Keeping Score in a Startup
But,
Realize They’re Hypotheses
9 Guesses
Guess Guess
Guess
Guess
Guess
Guess
Guess
GuessGuess
How Do Startups Search For A
Business Model?
• The Search is called Customer Development
• The Implementation is called Agile Development
The Lean Startup
Customer
Development
Solving For Customer Risk:
Customer Development
Customer Development
Get the Hell Out of the Building
The founders
^
More startups fail from
a lack of customers than from a
failure of product development
Traditional Product Introduction:Two Implicit Assumptions
Concept Product Dev.
Alpha/Beta Test
Launch/1st Ship
Customer Problem: known
Product Features: known
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/
Product Mgmt
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/
Product Mgmt
• Write MRD • Waterfall • Q/A •Tech Pubs
Customer Development
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
New Product Introduction Model
CustomerDevelopment
CompanyBuilding
CustomerDiscovery
CustomerValidation
Customer Creation
• 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
Speeding Up Cycle Time
•Speed of cycle minimizes cash needs
•Minimum feature set speeds up cycle time
• Near instantaneous customer feedback
drives feature set
Sidebar
There Are Three Types Of Startups
The Role of Market Type
New Product Conundrum
• Product introductions aren’t predictable
– Why?
– Is it the people that are different?
– Is it the product that are different?
• Are there different “types” of startups?
Three Types of Markets
• Existing Market
– Faster/Better = High end
• Resegmented Market
– Niche = marketing/branding driven
– Cheaper = low end
• New Market
– Cheaper/good enough = creates a new class of product/customer
– Innovative/never existed before
Existing Market Resegmented
Market
New Market
So What Does Engineering Do?
Customer Problem: known
Product Features: known
Waterfall / Product ManagementExecution on Two “Knowns”
Requirements
Design
Implementation
Verification
Maintenance
Source: Eric Ries
http://startuplessonslearned.blogspot.com
Problem: Known Solution: Unknown
“Product Owner” or
in-house customer
Agile - Customer Problem is KnownExisting Company/Market
Source: Eric Ries
http://startuplessonslearned.blogspot.com
Unit of progress: a line of working code
Problem: Unknown Solution: Unknown
Lean StartupCustomer Problem + Product Features are Unknown
Source: Eric Ries
http://startuplessonslearned.blogspot.com
6
Customer Creation
• Creation comes after proof of sales
• $’s for scale
• Lean Startups are not cheap startups
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
Company Building
CustomerDiscovery
CustomerValidation
Customer Creation
CompanyBuilding
• (Re)build company’s organization & management
• Re look at your mission
Why Startups Aren’t Run By
Accountants
ScalableStartup
Large Company
Transition
Inventor of the Modern Corporation
ScalableStartup
Large Company
Transition
Inventor of the Modern Corporation
Alfred P. Sloan
ScalableStartup
Large Company
Transition
Alfred P. Sloan
General Motors, President/Chairman
- Cost Accounting
- MIT Sloan School
- Sloan Foundation
- etc.
ScalableStartup
Large Company
Transition
Founder of General Motors
ScalableStartup
Large Company
Transition
Founder of General Motors
Billy Durant
ScalableStartup
Large Company
Transition
Billy Durant
- Leader in horse-drawn buggy’s
-Fired by board, starts Chevrolet
- Regains control of GM
-Fired by board, GM ~$3.6 billion*
* GM Net sales in 1921 $304.5M = $3.6 Billion today
ScalableStartup
Large Company
Transition
Durant Versus Sloan
Durant Versus Sloan
•Dies, rich, honored and famous
Durant Versus Sloan
• Dies, rich, honored and famous•Dies managing a bowling alley
Durant Versus Sloan
• Dies, rich, honored and famous•Dies managing a bowling alley
Accountant
ScalableStartup
Large Company
Transition
You are here
Summary
• Companies execute business models
• Startups searchfor business models
• Business Model / Customer Development /
Agile Development is the solution stack for
startups
Thanks
www.steveblank.com
One More Thing…
• International Business Model Competition
• $50K prizes
• Jan 24th 2011
• http://www.businessmodelcompetition.com/