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University of Michigan in Silicon Valley 030211

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Stanford University
Stanford University

This document summarizes the differences between startups and large companies. It explains that startups are focused on searching for a business model through customer development and validating hypotheses, while large companies focus on executing an established business model. Startups use agile development and metrics to guide their search, rather than traditional accounting and planning used by large companies. The transition between startup and large company occurs when a startup finds product/market fit and a repeatable sales process.

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The Entrepreneurial ExplosionSteve BlankStanford - School of Engineeringwww.steveblank.comTwitter: @sgblank
This Presentation Combineswww.businessmodelgeneration.comwww.steveblank.com
I Write a Blog www.steveblank.com
A Few Short Stories
Startup Constraints
High Cost to First ProductStartup Constraints
Buy expensive workstationsBuy expensive development tools
Low Cost to 1st ProductEntrepreneurial Explosion
Develop on inexpensive PC’s/Mac’sUse Open Source Software
High Cost to First ProductLong Time to First ProductStartup Constraints
Use Waterfall DevelopmentFirst Customer Ship in months/years
Low Cost to First ProductShort Time to First ProductEntrepreneurial Explosion
Use Agile DevelopmentFirst Customer Ship in weeks/months
High Cost to First ProductLong Time to First ProductStartup ConstraintsSlow Customer Adoption
Customers – Gov’t/Businesses# of customers - hundreds/thousands
Low Cost to First ProductShort Time to First ProductEntrepreneurial ExplosionFast Customer Adoption
Customers – Consumers# of customers - millions
High Cost to First ProductLong Time to First ProductStartup ConstraintsSlow Customer AdoptionHigh Startup Failure Rate
Startups are small versions of large companiesFocus is on execution of business plan
Low Cost to First ProductShort Time to First ProductEntrepreneurial ExplosionFast Customer AdoptionLower Startup Failure Rate
Startups are not small versions of large companiesFocus is on Search for a business model
High Cost to First ProductLong Time to First ProductStartup ConstraintsLimited Number of Venture CapitalistsSlow Customer AdoptionHigh Startup Failure Rate
3000 Sand Hill Road
Low Cost to First ProductShort Time to First ProductEntrepreneurial ExplosionLarge Pool of Risk CapitalFast Customer Adoption RateLower Startup Failure Rate
Sand Hill Road
High Cost to First ProductInnovation Limited to a Few RegionsLong Time to First ProductStartup ConstraintsLimited Number of Venture CapitalistsSlow Customer AdoptionHigh Startup Failure Rate
3000 Sand Hill RoadMenlo Park, California
Low Cost to First ProductGlobal InnovationShort Time to First ProductEntrepreneurial ExplosionLarge Pool of Risk CapitalFast Customer Adoption RateLower Startup Failure Rate
Menlo Park, San Francisco New York, Shanghai, Israel, Chile, Singapore
Low Cost to First ProductGlobal InnovationShort Time to First ProductEntrepreneurial ExplosionThis talkLarge Pool of Risk CapitalFast Customer Adoption RateLower Startup Failure Rate
Why Startups Are Not Small Versions of A Large Company
Startups Search, Companies ExecuteScalableStartupTransitionLarge CompanySearchBuildExecute
Startups Search and PivotThe Search for the Business ModelScalableStartupTransitionLarge Company Business Model found by founders customer needs/product features found i.e. Product/Market fit Repeatable sales model- Managers hired
Startups Search, Companies ExecuteThe Execution of the Business ModelThe Search for the Business ModelScalableStartupTransitionLarge Company- Cash-flow breakeven- Profitable- Rapid scale- New Senior Mgmt~ 150 peopleBusiness Model found
Product/Market fit- Repeatable sales model- Managers hired
Metrics Versus AccountingThe Execution of the Business ModelScalableStartupTransitionLargeCompanyTraditional AccountingBalance Sheet
Cash Flow Statement
Income StatementMetrics Versus AccountingThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLargeCompanyStartup 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 StatementCustomer Validation Versus SalesThe Execution of the Business ModelScalableStartupTransitionLargeCompanySalesSales Organization
Scalable
Price List/Data Sheets
Revenue PlanCustomer Validation Versus SalesThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLargeCompanyCustomer Validation Early Adopters
Pricing/Feature unstable
Not yet repeatable
“One-off’s”Sales Sales Organization
Scalable
Price List/Data Sheets
Revenue PlanEngineering Versus Agile DevelopmentThe Execution of the Business ModelScalableStartupTransitionLarge CompanyEngineering Requirements Docs.
Waterfall Development
QA
Tech PubsEngineering Versus Agile DevelopmentThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLarge CompanyEngineering Requirements Docs.
Waterfall Development
QA
Tech PubsAgile Development Continuous Deployment
Continuous Learning
Self Organizing Teams
Minimum Feature Set
PivotsStartups Model, Companies PlanThe Execution of the Business ModelScalableStartupTransitionLarge CompanyBusiness Plan describes “knowns”
features
customers/markets
business modelStartups Model, Companies PlanThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLarge CompanyBusiness Model
describes “unknowns”
customer needs
feature set
business model
found by iteration
Plan describes “knowns”
Known features for line extensions
Known customers/markets
Known business modelHow Do Startups Search For A Business Model? The Search is called Customer Development
The Implementation is called Agile DevelopmentCustomer Development
Why Startups Fail
More startups fail from a lack of customers than from a failure of product development
University of Michigan in Silicon Valley 030211
Customer Problem: known Product Features: known
No Business Plan survives first contact with customers
So Search for a Business Model
The Business Model:Any company can be described in 9 building blocks
CUSTOMER SEGMENTSwhich customers and users are you serving? which jobs do they really want to get done?
VALUE PROPOSITIONSwhat are you offering them? what is that getting done for them? do they care?
CHANNELShow does each customer segment want to be reached? through which interaction points?
CUSTOMER RELATIONSHIPSwhat relationships are you establishing with each segment? personal? automated? acquisitive? retentive?
REVENUE STREAMSwhat are customers really willing to pay for? how? are you generating transactional or recurring revenues?
KEY RESOURCESwhich resources underpin your business model? which assets are essential?
KEY ACTIVITIESwhich activities do you need to perform well in your business model? what is crucial?58
KEY PARTNERSwhich partners and suppliers leverage your model? who do you need to rely on?

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University of Michigan in Silicon Valley 030211