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New Rules for the New Bubble<br />Steve Blank<br />Stanford - School of Engineering<br />U.C. Berkeley - Haas School Of  B...
I Write a Blog  <br />www.steveblank.com<br />
I Drew This<br />CustomerDiscovery<br />Company <br /> Building<br />CustomerValidation<br />Customer Creation<br />Pivot<...
I Called It:Customer Development<br />CustomerDiscovery<br />Company <br /> Building<br />CustomerValidation<br />Customer...
I Wrote This<br />
A Few People Read It<br />
This Talk is Based On<br />Business Model Generation<br />Four Steps to the Epiphany<br />Lean Startup<br />
Premise<br />Beginning of another tech bubble<br />Rules are different in a bubble<br />What are they?<br />How do they di...
A Few Short Stories<br />
How Did We Get Here?<br />
Paths to Startup Liquidity<br />1970 – 1995 	build a business (revenue)<br />1995 – 2000	flip the business (concept IPO)<b...
1970 – 1995Building a BusinessStartups Are Small Versions of A Large Company<br />
1970 - 1995 Building a Startup the Hard Way<br />$Millions’sto start				 (Proprietary hdwr/sftwr)<br />Long product dev cy...
1970 - 1995Making Money the Hard Way<br />Goal was long term company success<br />VC’s/Founders were company builders<br /...
1970 – 1995  Playbook<br />
Product Introduction Model<br />Concept/Seed Round<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />
Product Introduction Model<br />The Leading Cause of Startup Death<br />Concept/Seed Round<br />Product Dev.<br />Alpha/Be...
Product Introduction Model:Two Implicit Assumptions<br />Customer Problem: known<br />Concept/Seed Round<br />Product Dev....
Tradition – Hire Marketing<br />Concept/Seed Round<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />...
Tradition – Hire Sales<br />Concept/Seed Round<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />- Cr...
 Hire Sales VP
 Hire 1st  Sales Staff</li></ul>Sales<br />
Tradition – Hire Bus Development<br />Concept<br />Product Dev.<br />Alpha/Beta Test<br />Launch/<br />1st Ship<br />- Cre...
 Hire Sales VP
 Pick distribution   Channel</li></ul>Sales<br />Business <br />Development<br /><ul><li> Hire First   Bus Dev
 Do deals for FCS</li></li></ul><li>Tradition – Hire Engineering<br />Concept<br />Product Dev.<br />Alpha/Beta Test<br />...
 Hire Sales VP
 Pick distribution   Channel</li></ul>Sales<br />Business <br />Development<br /><ul><li> Hire First   Bus Dev
 Do deals for FCS</li></ul>Engineering<br /><ul><li> Write MRD
 Waterfall
 Q/A
Tech Pubs</li></li></ul><li>More startups fail from a lack of customers than from a failure of product development<br />
1995 – 2000Flipping A BusinessThe Dot.comBubble <br />
1995 - 2000The Dot-com Bubble<br />10’s $millions to start			(get big fast, create a brand)<br />Long product dev cycle 	(...
1995 - 2000The Dot-com Bubble – Making Money<br />Goal = short term exit<br />VC’sengineering financial transactions<br />...
1995 – 2000 Playbook<br />Netscape<br />
2001 – 2010Why Startups Are Not Small Versions of A Large Company<br />
2001 - 2010The Lean Startup<br />≤ $½ million to start		   (open source, commodity hdwr)<br />Short product dev cycle (Agi...
Scalable<br />Startup<br />Large Company<br /><ul><li>Business Model found
 i.e. Product/Market fit</li></ul>- Repeatable sales model<br />- Managers hired<br />What’s A Startup?<br />Search <br />...
What VC’s Don’t Tell You:The Transition – Founders Leave<br />Scalable<br />Startup<br />Transition<br />Large Company<br ...
 Professional Mgmt
 Process
 Beginning of scale</li></li></ul><li>Startups Search and Pivot<br />The Search for the Business Model<br />Scalable<br />...
Startups Search, Companies Execute<br />The Execution of the Business Model<br />The Search for the Business Model<br />Sc...
 Product/Market fit</li></ul>- Repeatable sales model<br />- Managers hired<br />
Metrics Versus Accounting<br />The Execution of the Business Model<br />Scalable<br />Startup<br />Transition<br />Large<b...
 Cash Flow Statement
 Income Statement</li></li></ul><li>Metrics Versus Accounting<br />The Search for the Business Model<br />The Execution of...
 Viral coefficient
 Customer Lifetime Value
 Average Selling Price/Order Size
 Monthly burn rate
 etc.  </li></ul>Traditional Accounting<br /><ul><li> Balance Sheet
 Cash Flow Statement
 Income Statement</li></li></ul><li>Customer Validation Versus Sales<br />The Execution of the Business Model<br />Scalabl...
 Scalable
 Price List/Data Sheets
 Revenue Plan</li></li></ul><li>Customer Validation Versus Sales<br />The Search for the Business Model<br />The Execution...
 Pricing/Feature unstable
 Not yet repeatable
“One-off’s”</li></ul>Sales<br /><ul><li> Sales Organization
 Scalable
 Price List/Data Sheets
 Revenue Plan</li></li></ul><li>Engineering Versus Agile Development<br />The Execution of the Business Model<br />Scalabl...
 Waterfall Development
 QA
 Tech Pubs</li></li></ul><li>Engineering Versus Agile Development<br />The Search for the Business Model<br />The Executio...
 Waterfall Development
 QA
 Tech Pubs</li></ul>Agile Development<br /><ul><li> Continuous Deployment
 Continuous Learning
 Self Organizing Teams
 Minimum Feature Set
 Pivots</li></li></ul><li>Startups Model, Companies Plan<br />The Execution of the Business Model<br />Scalable<br />Start...
 features
 customers/markets
 business model</li></li></ul><li>Startups Model, Companies Plan<br />The Search for the Business Model<br />The Execution...
 describes “unknowns”
customer needs
 feature set
 business model
 found by iteration
Plan describes “knowns”
 Known features for line extensions
 Known customers/markets
 Known business model</li></li></ul><li>2001 - 2010The Lean Startup<br />IPO market ~closed, M&A liquidity path<br />Build...
2001 - 2010 Playbook<br />Four Steps to the Epiphany<br />Many Agile Texts<br />
But We Were Still Using This<br />
No Business Plan survives first  with customers<br />
So Search for a Business Model<br />
The Business Model:<br />Any company can be described in 9 building blocks<br />
CUSTOMER SEGMENTS<br />which customers and users are you serving? <br />which jobs do they really want to get done?<br />
VALUE PROPOSITIONS<br />what are you offering them? what is that <br />getting done for them? do they care?<br />
CHANNELS<br />how does each customer segment want to be reached? through which interaction points?<br />
CUSTOMER RELATIONSHIPS<br />what relationships are you establishing with each segment? personal? automated? acquisitive? r...
REVENUE STREAMS<br />what are customers really willing to pay for? how? <br />are you generating transactional or recurrin...
KEY RESOURCES<br />which resources underpin your business model? which assets are essential?<br />
KEY ACTIVITIES<br />which activities do you need to perform well in your business model? what is crucial?<br />54<br />
KEY PARTNERS<br />which partners and suppliers leverage your model? <br />who do you need to rely on?<br />
COST STRUCTURE<br />what is the resulting cost structure? <br />which key elements drive your costs?<br />
value proposition<br />customer relationships<br />key activities<br />customer segments<br />key partners<br />cost struc...
How Do Startups Search For A Business Model?<br /><ul><li>The Search is Customer Development
The Implementation is Agile Development
The Sum is the Lean Startup</li></li></ul><li>Customer Development<br />
Customer Development<br />The founders<br />^<br />Get Out of the Building<br />
Customer DevelopmentThe Search For the Business Model<br />Company<br />Building<br />CustomerDiscovery<br />CustomerValid...
Customer Discovery<br />CustomerDiscovery<br />CustomerValidation<br />Company<br />Building<br />CustomerCreation<br />St...
Test Hypotheses:<br /><ul><li>Product
 Market Type
 Competition</li></ul>Turning Hypotheses to Facts<br />
Test Hypotheses:<br /><ul><li>Problem
 Customer
 User
 Payer</li></li></ul><li>Test Hypotheses:<br /><ul><li>Channel</li></li></ul><li>Test Hypotheses:<br /><ul><li>Demand Crea...
 Customer
 User
 Payer</li></ul>Test Hypotheses:<br /><ul><li>Product
 Market Type
 Competitive</li></ul>Test Hypotheses:<br /><ul><li>Channel
 (Customer)
 (Problem)</li></ul>Test Hypotheses:<br /><ul><li>Channel</li></ul>Test Hypotheses:<br /><ul><li>Pricing Model / Pricing</...
 Validate Business Model</li></li></ul><li>Test Hypotheses:<br /><ul><li>Demand Creation</li></ul>Test Hypotheses:<br /><u...
 Customer
 User
 Payer</li></ul>Agile Development<br />Test Hypotheses:<br /><ul><li>Product
 Market Type
 Competitive</li></ul>Test Hypotheses:<br /><ul><li>Channel
 (Customer)
 (Problem)</li></ul>Customer Development Team<br />Test Hypotheses:<br /><ul><li>Channel</li></ul>Test Hypotheses:<br /><u...
 Validate Business Model</li></li></ul><li>Test Hypotheses:<br /><ul><li>Demand Creation</li></ul>Test Hypotheses:<br /><u...
 Customer
 User
 Payer</li></ul>Agile Development<br />Test Hypotheses:<br /><ul><li>Product
 Market Type
 Competitive</li></ul>Test Hypotheses:<br /><ul><li>Channel
 (Customer)
 (Problem)</li></ul>Customer Development Team<br />Test Hypotheses:<br /><ul><li>Channel</li></ul>Test Hypotheses:<br /><u...
 Validate Business Model</li></li></ul><li>The Minimum Viable Product (MVP)<br /><ul><li> Smallest feature set that gets y...
MVP + Customer are the first two you need to nail
 MVP is just 1 of the 9 parts of your model</li></li></ul><li>The Pivot<br /><ul><li>The heart of Customer Development
Iteration without crisis
Fast, agile and opportunistic</li></li></ul><li>How Does This Really Work?Stanford Lean LaunchPad Class<br />
Pivot ExampleOn-line Social Buying Platform<br />Talked to 250 Customers in 8 weeks<br />
OURCRAVE is an online social shopping platform where customers can make their own deals on products or services of their c...
Business Canvas #1<br />Seller: - Access to large online customer pool<br />- Bulk sales with reduced commission<br />Buye...
Seller Side Test with a fake E-MAIL<br />Give me a quote<br />for a bulk sale!<br />Electronics Sellers on Amazon/Ebay<br ...
22% paid 5~10% transaction fee
78% agreed it was too much
33% actually provided discount proportional to group size</li></li></ul><li>Seller Side<br />Interview with Industry Speci...
User Side<br />: Online User Survey<br />Power to choose products<br />Discount on products<br />Buyer community feedback<...
Business Canvas #2<br />Seller: - More customer traffic<br />- Bulk sales with reduced commission<br />Buyer: - Better dis...
 Sellers who need more traffic</li></ul>- Server providers<br />- Automated services- Communities of buyers and sellers- C...
Key Question for Business Canvas #2<br />HOW CAN WE ATTRACT BUYERS?<br />CUSTOMER ACQUISION COST?<br />
Buyer Demand Test<br />Best Marketing Channel for having buyers is Facebook Wall<br />: 144 Unique Visits, 10 e-mail subsc...
Business Canvas #3<br />Seller: - More customer traffic<br />- Bulk sales with reduced commission<br />Buyer: - Better dis...
Server providers</li></ul>Established services- Online Marketing : Google/Facebook<br />- Automated services- Communities ...
 Online social networks
 Online advertising</li></ul>- Physical resources (IT infrastructure)- Existing social networks -Buyer and seller communit...
Key Question for Business Canvass #3<br />HOW CAN WE ATTRACT SELLERS?<br />COOPERATION WITH SELLERS?<br />
Seller Contact<br />Deal with sellers failed because no group pricing or discount too low.<br />Organize Real Group Deal<b...
3 products: HD camera, protein drink, videogame
Videogame was for pre-order</li></ul>Result<br /><ul><li>Most sellers: no group discounts
Discounts offered < 10%
With shipping and tax still >= Amazon price
David vs. Goliath problem</li></li></ul><li>To Pivot or Not to Pivot?<br />Although dismayedat seller response, we did not...
Seller problem intractable?
Teaching staff: Pivot or else…</li></ul>Beaten, but not defeated<br /><ul><li>Lost one battle, but not the war!
Only ed larger sellers
Sellers need more value
Show them a real website</li></ul>Filter advice and stay determined!<br />No Pivot Yet<br />
Solution 1 : Rapid Implementation<br />Implement seller & buyer side features to give sellers  fuller experience. <br />Si...
Buyer  login
Online social networking integration
Seller login and registration
Seller bidding
Seller group deal creation page</li></li></ul><li>Solution 1 : Rapid Implementation<br />Humble beginnings <br />
Solution 1 : Rapid Implementation<br />The Real Deal <br />
Solution 1 : Rapid Implementation<br />Main page<br />Facebook connect<br />Deal creation by sellers<br />Bidding dialog<b...
Solution 2 : More seller value & spamming<br />Add value for sellers based on mentor and industry expert interviews<br />A...
Upcoming info
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