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Customer Development at Startup2Startup

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Stanford University
Stanford University

Steve Blank and Eric Ries at Startup2Startup Customer Development Presentation 30 April 2009, Palo Alto California

1 of 28
The Customer Development Model Steve Blank Stanford School of Engineering / UC Berkeley, Haas Business School www.steveblank.com Eric Ries The Lean Startup Startuplessonslearned.blogspot.com
More startups Fail from a Lack of Customers than from a Failure of Product Development
Conundrum • We have process to manage product development • We have no process to manage customer development
An Inexpensive Fix Focus on Customers and Markets from Day One How?
Build a Customer Development Process Concept/ Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship Product Development Customer Development ? ? ? ?
Customer Development and Product Development Concept/ Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship Product Development Customer Development Company Building Customer Discovery Customer Validation Customer Creation
Customer Development: Key Ideas • Parallel process to Product Development (agile) • Measurable Checkpoints • Not tied to FCS, but to customer milestones • Notion of Market Types to represent reality • Emphasis is on learning & discovery before execution
• Stop selling, start listening – There are no facts inside your building, so get outside • Test your hypotheses – Two are fundamental: problem and product concept Customer Discovery: Step 1 Customer Discovery Customer Validation Company Building Customer Creation
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
Customer Validation: Step 2 Customer Discovery Customer Validation Customer Creation Company Building • Develop a repeatable and scalable sales process • Only earlyvangelists are crazy enough to buy
Customer Validation: Exit Criteria • 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? • Does the financial model make sense?
Sidebar Market Type
New Product Conundrum • New Product Introductions sometimes work, yet sometimes fail – Why? – Is it the people that are different? – Is it the product that are different? • Perhaps there are different “types” of startups?
Three Types of Markets • Who Cares? • Type of Market changes EVERYTHING • Sales, marketing and business development differ radically by market type • Details next week Existing Market Resegmented Market New Market
Type of Market Changes Everything • Market – Market Size – Cost of Entry – Launch Type – Competitive Barriers – Positioning • Sales – Sales Model – Margins – Sales Cycle – Chasm Width Existing Market Resegmented Market New Market • Finance • Ongoing Capital • Time to Profitability • Customers • Needs • Adoption
Definitions: Three Types of Markets • Existing Market – Faster/Better = High end • Resegmented Market – Niche = marketing/branding driven – Cheaper = low end • New Market – Cheaper/good enough can create a new class of product/customer – Innovative/never existed before Existing Market Resegmented Market New Market
So What Does Engineering Do?
Problem: known Solution: known Waterfall Traditional Product Development Unit of progress: Advance to Next Stage Requirements Design Implementation Verification Maintenance
Problem: Known Solution: Unknown “Product Owner” or in-house customer Agile Unit of progress: a line of working code
Problem: Unknown Solution: Unknown Product Development at Lean Startup Unit of progress: validated learning about customers ($$$)
Minimize TOTAL time through the loop IDEAS CODEDATA BUILDLEARN MEASURE
So What Do I Do? Really
First Steps • Fact-based culture, built to learn • Decide on business model – What are the "fundamental drivers of growth” • Create a decision loop (build-measure-learn) • Write your hypotheses down (3 diagrams) – Business model, distribution channel, demand creation • Prove it in micro-scale
Execution • Relentless execution • Team needs to be true believers not employees • Focus on the few things that matter • Don’t confuse your hypothesis with facts • Continuous customer contact • Only you can put your company out of business
General Principles • If you think entrepreneurship is about the money become a VC • If everyone else thinks it’s a bad idea that may be a good sign • The better your reality distortion field the more you need to get outside the building • Ethics and values are about what you practice when the going gets tough
Further Reading Course Text at: www.cafepress.com/kandsranch Blogs www.steveblank.com http://startuplessonslearned.blogspot.com/
There’s much more… IDEAS CODEDATA BUILDLEARN MEASURE Code Faster Unit Tests Usability Tests Continuous Integration Incremental Deployment Free & Open-Source Components Cloud Computing Cluster Immune System Just-in-time Scalability Refactoring Developer Sandbox Measure Faster Split Tests Clear Product Owner Continuous Deployment Usability Tests Real-time Monitoring Customer Liaison Learn Faster Split Tests Customer Interviews Customer Development Five Whys Root Cause Analysis Customer Advisory Board Falsifiable Hypotheses Product Owner Accountability Customer Archetypes Cross-functional Teams Semi-autonomous Teams Smoke Tests Funnel Analysis Cohort Analysis Net Promoter Score Search Engine Marketing Real-Time Alerting Predictive Monitoring
Thanks! • Startup Lessons Learned Blog – http://startuplessonslearned.blogspot.com/ • Webcast: “How to Build a Lean Startup, step-by- step” – May 1, 2009 at 10am PST – http://www.oreillynet.com/pub/e/1294 • The Lean Startup Workshop – An all-day event for a select audience – May 29, 2009 in San Francisco – Sign up at: http://bit.ly/a5uw8

More Related Content

Customer Development at Startup2Startup

  • 1. The Customer Development Model Steve Blank Stanford School of Engineering / UC Berkeley, Haas Business School www.steveblank.com Eric Ries The Lean Startup Startuplessonslearned.blogspot.com
  • 2. More startups Fail from a Lack of Customers than from a Failure of Product Development
  • 3. Conundrum • We have process to manage product development • We have no process to manage customer development
  • 4. An Inexpensive Fix Focus on Customers and Markets from Day One How?
  • 5. Build a Customer Development Process Concept/ Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship Product Development Customer Development ? ? ? ?
  • 6. Customer Development and Product Development Concept/ Bus. Plan Product Dev. Alpha/Beta Test Launch/1st Ship Product Development Customer Development Company Building Customer Discovery Customer Validation Customer Creation
  • 7. Customer Development: Key Ideas • Parallel process to Product Development (agile) • Measurable Checkpoints • Not tied to FCS, but to customer milestones • Notion of Market Types to represent reality • Emphasis is on learning & discovery before execution
  • 8. • Stop selling, start listening – There are no facts inside your building, so get outside • Test your hypotheses – Two are fundamental: problem and product concept Customer Discovery: Step 1 Customer Discovery Customer Validation Company Building Customer Creation
  • 9. 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
  • 10. Customer Validation: Step 2 Customer Discovery Customer Validation Customer Creation Company Building • Develop a repeatable and scalable sales process • Only earlyvangelists are crazy enough to buy
  • 11. Customer Validation: Exit Criteria • 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? • Does the financial model make sense?
  • 13. New Product Conundrum • New Product Introductions sometimes work, yet sometimes fail – Why? – Is it the people that are different? – Is it the product that are different? • Perhaps there are different “types” of startups?
  • 14. Three Types of Markets • Who Cares? • Type of Market changes EVERYTHING • Sales, marketing and business development differ radically by market type • Details next week Existing Market Resegmented Market New Market
  • 15. Type of Market Changes Everything • Market – Market Size – Cost of Entry – Launch Type – Competitive Barriers – Positioning • Sales – Sales Model – Margins – Sales Cycle – Chasm Width Existing Market Resegmented Market New Market • Finance • Ongoing Capital • Time to Profitability • Customers • Needs • Adoption
  • 16. Definitions: Three Types of Markets • Existing Market – Faster/Better = High end • Resegmented Market – Niche = marketing/branding driven – Cheaper = low end • New Market – Cheaper/good enough can create a new class of product/customer – Innovative/never existed before Existing Market Resegmented Market New Market
  • 17. So What Does Engineering Do?
  • 18. Problem: known Solution: known Waterfall Traditional Product Development Unit of progress: Advance to Next Stage Requirements Design Implementation Verification Maintenance
  • 19. Problem: Known Solution: Unknown “Product Owner” or in-house customer Agile Unit of progress: a line of working code
  • 20. Problem: Unknown Solution: Unknown Product Development at Lean Startup Unit of progress: validated learning about customers ($$$)
  • 21. Minimize TOTAL time through the loop IDEAS CODEDATA BUILDLEARN MEASURE
  • 22. So What Do I Do? Really
  • 23. First Steps • Fact-based culture, built to learn • Decide on business model – What are the "fundamental drivers of growth” • Create a decision loop (build-measure-learn) • Write your hypotheses down (3 diagrams) – Business model, distribution channel, demand creation • Prove it in micro-scale
  • 24. Execution • Relentless execution • Team needs to be true believers not employees • Focus on the few things that matter • Don’t confuse your hypothesis with facts • Continuous customer contact • Only you can put your company out of business
  • 25. General Principles • If you think entrepreneurship is about the money become a VC • If everyone else thinks it’s a bad idea that may be a good sign • The better your reality distortion field the more you need to get outside the building • Ethics and values are about what you practice when the going gets tough
  • 26. Further Reading Course Text at: www.cafepress.com/kandsranch Blogs www.steveblank.com http://startuplessonslearned.blogspot.com/
  • 27. There’s much more… IDEAS CODEDATA BUILDLEARN MEASURE Code Faster Unit Tests Usability Tests Continuous Integration Incremental Deployment Free & Open-Source Components Cloud Computing Cluster Immune System Just-in-time Scalability Refactoring Developer Sandbox Measure Faster Split Tests Clear Product Owner Continuous Deployment Usability Tests Real-time Monitoring Customer Liaison Learn Faster Split Tests Customer Interviews Customer Development Five Whys Root Cause Analysis Customer Advisory Board Falsifiable Hypotheses Product Owner Accountability Customer Archetypes Cross-functional Teams Semi-autonomous Teams Smoke Tests Funnel Analysis Cohort Analysis Net Promoter Score Search Engine Marketing Real-Time Alerting Predictive Monitoring
  • 28. Thanks! • Startup Lessons Learned Blog – http://startuplessonslearned.blogspot.com/ • Webcast: “How to Build a Lean Startup, step-by- step” – May 1, 2009 at 10am PST – http://www.oreillynet.com/pub/e/1294 • The Lean Startup Workshop – An all-day event for a select audience – May 29, 2009 in San Francisco – Sign up at: http://bit.ly/a5uw8

Editor's Notes

  1. Steve Blank has an additional screen for opportunity – the “Type of Market” Three types of markets Each with a radically different set of needs Palm in 1995 created a “New Market” Handspring in 2000 with the exact same product, entered an “Existing Market Microsoft with the Pocket PC, is attempting to “Resegment” the Market Why does this matter in weighing and assessing opportunity?
  2. Each “type of market” is radically different Different ways to size the market opportunity Different sales costs Different demand creation costs Different time to liquidity Very different capital requirements And as we’ll see market type choices radically effect the Customer Development process.
  3. In looking at how companies succeed and fail, their success tends to be organized around groupings of customers and markets. More importantly it is how these groupings of customers view their needs and how your new product satisfies those needs
  4. IMVU started life as an “IM add-on” product. It sounded like a brilliant strategy – on a whiteboard.
  5. This is the core feedback loop that powers startups. Their goal is not to optimize the time it takes to do any one of these steps. There are many specific practices that can power lean startups, and we’ll cover a few in this presentation. But more important than any specific practice is this core idea: startups should be built to learn.
  6. Webcast: May 1 Workshop: May 29 Fliers up front Discussion in web2open
  7. This is the core feedback loop that powers startups. Their goal is not to optimize the time it takes to do any one of these steps. There are many specific practices that can power lean startups, and we’ll cover a few in this presentation. But more important than any specific practice is this core idea: startups should be built to learn.