1. Why Fighter Pilots Run Startups Steve Blank Stanford - School of Engineering U.C. Berkeley - Haas School Of Business www.steveblank.com Twitter: sgblank

2. I Write a Blog www.steveblank.com

3. This Talk is Based On Business Model Generation Four Steps to the Epiphany The Lean Startup

4. The Life of an Entrepreneur

5. Top Gun dogfight scene

6. First -What’s A Startup? Six Types of Startups

11. 99.7% of all companies

12. ~ 50% of total U.S. workershttp://www.sba.gov/advo/stats/sbfaq.pdf

13. Scalable Startup Large Company Scalable Startup Search Goal is to solve for: unknown customer and unknown features

15. Total Available Market > €300m

16. Can grow to €50/yearScalable StartupBorn to Be Big

18. Company can grow to $100m/year

19. Business model found

20. Focused on execution and process

22. Typically needs risk capital

24. Professional Mgmt

25. Process

27. Buyable Startup Search Sell Scalable Startup €3 to e0M Acquisition Goal is to solve for: Internet and Mobile Apps Sell to larger company

29. i.e. Product/Market fit- Repeatable sales model - Managers hired What’s A Startup? Search Execute A Startup is a temporary organization used to search for a repeatable and scalable business model

30. Venture Firms Invest in Scalable and BuyableStartups Small Business Startup Scalable Startup Large Company

34. Partner

35. Acquire - IP- Talent - Product - Customers - Business

37. Social Enterprise: Profitable

42. Profitable~ 150 people

44. Cash Flow Statement

46. Viral coefficient

47. Customer Lifetime Value

48. Average Selling Price/Order Size

49. Monthly burn rate

51. Cash Flow Statement

53. Scalable

54. Price List/Data Sheets

56. Pricing/Feature unstable

57. Not yet repeatable

59. Scalable

60. Price List/Data Sheets

62. Waterfall Development

63. QA

65. Waterfall Development

66. QA

68. Continuous Learning

69. Self Organizing Teams

70. Minimum Feature Set

72. Known features for line extensions

73. Known customers/markets

75. Unknown business model

76. Model found by iteration

77. Plan describes “knowns”

78. Known features for line extensions

79. Known customers/markets

81. Product Introduction Model Concept/Seed Round Product Dev. Alpha/Beta Test Launch/ 1st Ship

82. Product Introduction Model The Leading Cause of Startup Death Concept/Seed Round Product Dev. Alpha/Beta Test Launch/ 1st Ship

83. Product Introduction Model:Two Implicit Assumptions Customer Problem: known Concept/Seed Round Product Dev. Alpha/Beta Test Launch/ 1st Ship Product Features: known

86. Hire Sales VP

87. Hire 1st Sales StaffSales

89. Hire Sales VP

92. Hire Sales VP

95. Waterfall

96. Q/A

98. Then why do we have: process to manage product development?

99. Then why do we have: process to manage product development? no process to manage customer development?

100. No Business Plan survives first contact with customers

101. So Search for a Business Model

102. The Business Model: Any company can be described in 9 building blocks

103. CUSTOMER SEGMENTS which customers and users are you serving? which jobs do they really want to get done?

104. VALUE PROPOSITIONS what are you offering them? what is that getting done for them? do they care?

105. CHANNELS how does each customer segment want to be reached? through which interaction points?

106. CUSTOMER RELATIONSHIPS what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?

107. REVENUE STREAMS what are customers really willing to pay for? how? are you generating transactional or recurring revenues?

108. KEY RESOURCES which resources underpin your business model? which assets are essential?

109. KEY ACTIVITIES which activities do you need to perform well in your business model? what is crucial? 54

110. KEY PARTNERS which partners and suppliers leverage your model? who do you need to rely on?

111. COST STRUCTURE what is the resulting cost structure? which key elements drive your costs?

112. value proposition customer relationships key activities customer segments key partners cost structure revenue streams key resources channels 57 images by JAM

113. Solving For Customer Risk:Customer Development Get the Hell Out of the Building

114. Solving For Customer Risk:Customer Development Get the Hell Out of the Building Country

115. Product Development Concept/Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship + CustomerDevelopment Company Building CustomerDiscovery CustomerValidation Customer Creation Customer Development

116. Customer Discovery CustomerDiscovery CustomerValidation Company Building CustomerCreation Stop coding, stop selling, start listening Test your hypotheses Continuous Discovery

118. Passionate earlyvangelists?

120. Iteration without crisis

122. Minimum feature set speeds up cycle time

124. Pivot ExampleRobotic Weeding Talked 75 Customers in 8 Weeks

125. Our initial plan Confidential

127. White Farms, Large Peanut farmer in Georgia

128. REFCO Farms, large grower in Salinas Valley

129. Rincon Farms, large grower in Salinas Valley

130. Small Organic Corn/Soy grower in Nebraska

131. Heirloom Organics, small owner/operator, Santa Cruz Mts

132. Two small organic farmers at farmers market

134. Parks: Stanford Grounds Supervisor, head of maintenance and lead operator (has crew of 6)

135. Toro dealer (large mower manufacturer)

136. User of back-yard mowing system

137. Maintenance Services for City of Los Altos

139. Found weeding in organic crops is HUGE problem; 50 - 75% of costs Crews of 100s-1000 Back-breaking task (Ilegal) labor harder to get 1-5 weedings per year/field $250-3,500 per acre and increasing Food contamination risk

140. Decision to make – mowing vs weeding

141. Autonomous vehiclesWEEDING Dealers sell, installs and supports customer Co. trains dealers, supports dealers - Innovation - Customer Education - Dealer training - Low density vegetable growers - High density vegetable growers - Thinning operations - Conventional vegetables We reduce operating cost - Labor reduction (100 to 1) - Reduced risk of contamination - Mitigate labor availability concerns - Ag Dealers - Ag Service providers - Research labs - Ag Dealers - Ag Service providers Engineers on Machine Vision Two problems: - Identification - Elimination Asset sale Our revenue stream derives from selling the equipment Dealer discount COGS seek a 50-60% Gross Margin Heavy R&D investment

142. 1 Week – 1 CarrotBot Confidential

143. CarrotBot Machine Vision data collection platform Monochrome & Color Cameras Laser-line sweep (depth measurement) Encoders (position/velocity) Onboard data acquisition & power CarrotBot 1.0

145. Demo, demo, and demo!!

146. Proximity is paramount

147. Technology Design

148. Marketing

149. Demo and customer feedback

150. Organic Farmers

151. Weeding Service Providers

152. Conventional Farmers

153. Cost Reduction

154. Remove labor force pains

155. Eliminate bio-waste hazards

156. Research Labs

157. Equipment Manufacturers

158. Distribution Network

159. Service Providers

160. IP – Patents

161. Video Classifier Files

162. Robust Technology

163. Dealers

164. Direct Service

165. Indirect Service

166. … then Dealers

167. Asset Sale

168. Direct Service with equipment rental

169. … then Asset SaleValue-Driven

170. Visit Highlights Above: Organic Carrots, 7wks. Top right: Conventional carrots Bottom Right: Very weedy. Will require multiple passes of hand weeding

171. Visit Highlights Carrot vs. Weeds Due to small root systems, carrots have no chance against weeds

172. Visit Highlights Organic Broccoli, closely cultivated. Weeds close to plants are hand-picked

173. Visit Highlights State of the Art in Weeding Technology for Organic Crops

175. Industrial (10,000s of acres)

176. Large (1,000s of acres)

177. Willing to pay $100k for one unit

178. Smaller growers (100s of acres) usually subcontract the labor services or rent equipment

179. All purchases through local dealers

180. Customer service is essentialPost-Test

182. Local Farm Mgr

183. Cliff Kirkpatrick, visited

184. Director, Ag Technology

186. CFO, CEO (Jeff Dunn)Cliff, Farm Mgr

188. Grower

190. Demo, demo, and demo!!

191. Proximity is paramount

192. Technology Design

193. Marketing

194. Demo and customer feedback

195. Mid/Large Organic Farmers

196. Agricultural corporations

197. Weeding Service Providers

198. Mid/Large Conventional Farmers

199. Cost Reduction

200. Remove labor force pains

201. Eliminate bio-waste hazards

202. Research Labs

203. Equipment Manufacturers

204. Distribution Network

205. Service Providers

206. IP – Patents

207. Video Classifier Files

208. Robust Technology

209. Direct Service

210. Indirect Service

211. … then Dealers

212. Direct Service with equipment rental

213. ($1,500/d; 120d/yr )

214. Low density: $1,500/d

215. High density: $6,000/dValue-Driven

216. World Ag Expo interviews:the need is real and wide spread 10+ interviews at show Everyone confirmed the need Robocrop, UK based, crude competitor sells for $171 K Revenue Stream Mid to small growers prefer a service Large growers prefer to buy, but OK with service until technology is proven Charging for labor cost saved is OK, as we provide other benefits (food safety, labor availability) Confidential

218. Demo, demo, and demo!!

219. Proximity is paramount

220. Technology Design

221. Marketing

222. Demo and customer feedback

223. Mid/Large Organic Farmers

224. Agricultural corporations

225. Weeding Service Providers

226. Mid/Large Conventional Farmers

227. Research Labs

228. Equipment Manufacturer

229. Distribution Network

230. Service Providers

231. 2 or 3 Key Farms

232. Cost Reduction

233. Remove labor force pains

234. Eliminate bio-waste hazards

235. IP – Patents

236. Video Classifier Files

237. Robust Technology

238. Direct Service

239. Indirect Service

240. … then Dealers

241. Direct Service with equipment rental

242. Low density: $1,500/d

244. Bill of Materials

245. Training & Service

247. Why Fighter Pilots Run Startups

249. Routine

251. Rapid, unanticipated changes

252. Changes lead to disorientation

255. Winning requires constant assessment of change and ways to mitigate risk

256. Iterating faster than competitors yields substantial advantage = Victory

257. 92 Boyd’s OODA Loop Observe Orient Decide Act ImplicitGuidance& Control ImplicitGuidance& Control UnfoldingCircumstances CulturalTraditions Observations GeneticHeritage Decision(Hypothesis) Analyses &Synthesis Action(Test) FeedForward FeedForward FeedForward NewInformation PreviousExperience OutsideInformation InteractionWithEnvironment Interaction w/Environment

258. Customer Development = OODA Loop Observe Orient Act Decide

260. It’s about Resilience

261. It’s not about winning arguments inside the company

263. Am I an Entrepreneur?Startup Personal Checklist Are you comfortable with: Chaos Uncertainty Are you: Curious Resilient Agile Passionate Driven Articulate Tenacious

264. EntrepreneurshipYour Role in a Startup Decreasing chaos/reward Founder Co-founder Early Employee Late Employee They don’t require the same risk/personality profile

265. February 28, 2009 One candidate got a C in macroeconomics. “That’s troubling to me,” Ms. Mayer says. “Good students are good at all things.”Marissa MayerGoogle

266. The “Good Student” Will go to work for Google, Microsoft, NokiaIBM or Apple Successful tech entrepreneurs and grades have at best zero correlation

267. The Following People Would Never Have Been Hired by Marissa Mayer and Google

269. Thanks www.steveblank.com