Improving Your Entrepreneurial Odds: the Customer Development Process

1. Improving Your Entrepreneurial Odds:
the Customer Development Process
Steve Blank

2. Some Definitions

3. !"#$$%&'()*+((%!,#-,'.(%
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- Business Model found
- Profitable business
- Existing team
< $10M in revenue
• 5.7 million small businesses in the U.S. <500 employees
• They employ 99.5% of our workforce

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- Total Available Market > $500m
- Company can grow to $100m/year
- Known business model
- Focused on execution and process
• In contrast a scalable startup is designed to grow big
• It typically needs risk capital
• These are what Silicon Valley means when they say “Startup”

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- Business Model found
- Profitable business
- Existing team
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- Total Available Market > $500m
- Company can grow to $100m/year
- Known business model
- Focused on execution and process

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- Business Model found
- Profitable business
- Existing team
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- Total Available Market > $500m
- Company can grow to $100m/year
- Known business model
- Focused on execution and process

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- Founders depart
- Professional Mgmt
- Process
- Beginning of scale

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- Business Model found
- Product/Market fit
- Repeatable sales model
- Managers hired
A Startup is the organization you use to search for
your scalable business model

9. OUR COMPANY
• Device
• Software
• IP
• Services
Product
• Networks
-
Technolog
y
- Customer
- Partner
• Data
• Employees
Resources

10. OUR COMPANY
• EE
• System
• Mechanica
l
• Device
• Software • Industrial
Design
• IP
• Services
Product
• Standard
• Tooled
• Networks • Critical
-
Technolog Sales &
y Components Distribution
- Customer
- Partner
• Data Users
• Employees
• Knowledge
Manufacturing
Resources

11. OUR COMPANY
-'
Sales &
• Device Distribution
• Software
• IP -'
• Services
Users
Product -'
Design
• Networks
- Demand
Technolog Creation
y -'
- Customer Components
- Partner
• Data
-'
• Employees
Manufacturin
Resources
g
-' Customers

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- Business Model found - Cash-flow breakeven
- Product/Market fit - Profitable
- Repeatable sales model - Rapid scale
- Managers hired - New Senior Mgmt
~ 150 people
You fail if you remain a startup!

13. !,#-,'.(%!+#->6?%12".#*)+(%@A+>',+%
The Search for the Business Model The Execution of the Business Model
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- Business Model found - Cash-flow breakeven
- Product/Market fit - Profitable
- Repeatable sales model - Rapid scale
- Managers hired - New Senior Mgmt
~ 150 people

14. How Do Startups Search For A
Business Model?

15. 1'(,2"+-%;+=+$2."+*,
%

16. More startups Fail from
a Lack of Customers than from
a Failure of Product
Development

17. It Started With a Question
If Startups Fail from a Lack of customers
not Product Development Failure
Then why do we have:
• process to manage product development?
• no process to manage customer development?

18. All We Had Was 30 Years of This
Concept/ Product Alpha/Beta Launch/
Seed Round Dev. Test 1st Ship
Product Development Model

19. It Resulted in a Few Hypotheses
• Startups weren’t small versions of large companies
• They were about learning and discovery, not
execution of a business model
• Entrepreneurs and their VC’s were executing on
guesses
• But the facts were outside the building

20. Which Turned Into A Model
Product Development
Concept/ Product Alpha/Beta Launch/1st
Bus. Plan Dev. Test Ship
+
Customer Development
Customer Customer Customer Company
Discovery Validation Creation Building

21. Customer Development: Key Ideas
• Parallel process to Product Development
• Measurable Checkpoints
• Not tied to FCS, but to customer milestones
• Notion of Market Types to represent reality
• Emphasis is on learning & discovery before
execution

22. Customer Discovery: Step 1
Customer Customer Customer Company
Discovery Validation Creation Building
• Stop selling, start listening
– There are no facts inside your building, so get outside
• Test your hypotheses
– Two are fundamental: problem and product concept

23. Customer Discovery: Exit Criteria
• What are your customers top problems?
– How much will they pay to solve them
• Does your product concept solve them?
– Do customers agree?
– How much will they pay?
• Draw a day-in-the-life of a customer (archetypes)
– before & after your product
• Draw the org chart of users & buyers

24. Customer Validation: Step 2
Customer Customer Customer Company
Discovery Validation Creation Building
Pivot
• Develop a repeatable and scalable sales process
• Only earlyvangelists are crazy enough to buy
• Pivot back to Discovery if no customers

25. Customer Validation: Exit Criteria
• Can you draw your business model?
– Acquisition costs, path to profitability?
• Do you have a proven sales roadmap?
– Org chart? Influence map?
• Do you understand the sales cycle?
– ASP, LTV, ROI, etc.
• Do you have a set of orders ($’s) validating the
roadmap?

26. Customer Creation: Step 3
Customer Customer Customer Company
Discovery Validation Creation Building
• Creation comes after proof of sales
• Creation is where you “cross the chasm”
• It is a strategy not a tactic
3
2

27. Customer Creation
Big Ideas
! Big Idea 1: Grow customers from few to many
! Big Idea 2: Four Customer Creation activities:
" Year One objectives
" Positioning
" Launch
" Demand creation
! Big Idea 3: Creation is different for each of the
three types of startups
3
3

28. Company Building: Step 4
Customer Customer Customer Company
Discovery Validation Creation Building
• (Re)build your company’s organization &
management
• Re look at your mission
3
4

29. Company Building: Big Ideas
! Big Idea 1:
Management needs to change as the company grows
" Founders are casualties
" Development centric !
" Mission-centric !
" Process-centric
! Big Idea 2:
Sales Growth needs to match market type
Customer Development in the High-Tech Enterprise October 2008
3
5

30. Iteration versus Execution
Iteration Execution
Customer Customer Customer Company
Discovery Validation Creation Building
The Search for a Business The Growth of a Business
Product/Market Fit

31. What They Didn’t Teach You
at Haas

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The Search for the Business Model The Execution of the Business Model
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- Delivers MRD’s
- Hypothesis Testing
- Feature Spec’s
- Minimum Feature Set - Competitive Analysis
- Pivots
Customer Development Product Management

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Startup Metrics Traditional Accounting
- Customer Acquisition Cost - Balance Sheet
- Viral coefficient - Cash Flow Statement
- Customer Lifetime Value - Income Statement
- Average Selling Price/Order Size
- Monthly burn rate
- etc.

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36. &'()*+((%!>622$%B+-('(%
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Entrepreneurship School Business School
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- Hypothesis testing - Execution
- Experiential - Accounting
- Hands-on - Management
- Chaotic
- Leadership

37. Books Available on Amazon and Cafepress
Four Steps to the Epiphany Not All Those Who Wander Are Lost
Blog www.steveblank.com