Customer Development/Lean Startup 033010 class 9

4/15/10 1

Customer Development

Customer Validation Recap Customer Creation Part 1

Steve Blank/Eric Ries sblank@kandsranch.com

Agenda

!  Customer Validation Review !  Case: Ecton !  Customer Creation, Part 1

Review: Customer Validation

Customer Discovery

Customer Validation

Customer Creation

Scale Company

•  Develop a repeatable sales process

•  Only earlyvangelists are crazy enough to buy

Pivot

Early Sales

Sell: Contact Visionaries

!  Looking for people with problems !  They are few are far between !  They need to become your cheerleaders…

while paying you to do so

Sell: Turn Visionaries into EarlyVangelists

!  Very few are early customers !  Visionaries will emerge to buy an unfinished

product if it truly solves a painful problem !  A lack of these early purchasers is a red-flag !  Market Type effects ease of execution

Build the Organization Map

Our Potential Customer

= in house competition

= issues to be addressed before a sale

Neil Garrett VP Database

Marketing

Suzanne Kellogg VP Merchandizing

Karen Rogers VP Marketing

Dave Jones CEO

One Step at A Time

Our Potential Customer

= in house competition

= issues to be addressed before a sale

Leslie Elders Financial Modeling

Joe Black Dir. Sales Operations

Ben White VP Sales

Neil Garrett VP Database

Marketing

Suzanne Kellogg VP Merchandizing

Karen Rogers VP Marketing

Dave Jones CEO

Organization Map

Geoff Smith Financial Tools Development

Phil Whitry Director IT

Roger Smith CIO

Our Potential Customer

= in house competition

= issues to be addressed before a sale

Leslie Elders Financial Modeling

Joe Black Dir. Sales Operations

Ben White VP Sales

Neil Garrett VP Database

Marketing

Suzanne Kellogg VP Merchandizing

Karen Rogers VP Marketing

Dave Jones CEO

The Influence Map

Functional Technical

High Executive 1

Low

The Influence Map

Functional Technical

High Executive 1 2 CIO or Division IT executive

Low

The Influence Map

Functional Technical

High Executive 1 2 CIO or Division IT executive

Low End Users 3

The Influence Map

Functional Technical

High Executive 1 2 CIO or Division IT executive

Low End Users 3 4 Corp. IT staff or Division IT

The Sales Roadmap: Starts with Influence Map

Execs

End Users

Operational

High

Low

Educate & Present Solution

Technical

CIO

IT Staff

The Sales RoadMap: Adds Access, Assessment & Strategy

Finance

Product Mgmt

Support

Corp. Mktg

Sales

IT

Intro Meetings

Execs

End Users

Operational

Account Strategy

High

Low

Access Assess Needs

Strategy Educate & Present Solution

Technical

CIO

IT Staff

The Sales RoadMap

Finance

Product Mgmt

Support

Corp. Mktg

Sales

IT

Intro Meetings

Execs

End Users

Operational

Implement Plan

Proposal Account Strategy

High

Low

Access Assess Needs

Strategy Educate & Present Solution

Technical

CIO

IT Staff

Sell, Sell, Sell, Sell

RoadMap becomes The Sales Pipeline

13. Close!

2. Initial Meeting • Ask tough questions • Do Buy - In Demo 3. Qualify?

4. Understand Existing Situation a) Technology b) Organization c) Competition

The im

5. Custom Pitch • Prepare! • Get NDA signed 6. Win Over IT

• Tech deep dive 7. Define Problem • Develop Action Plan

8. ROI Pitch • Prove the Value!

11. Formal Pricing Proposal

•  No surprises! 12. Negotiate

• Sales • Finance • Support

10. Solution Session

• •  Detailed Tech discovery

1. Prepare • Hoovers, One Source, Web

9. Exec Session • Set expectations for this meeting early on.

Sell: Sell/Refine Channel Roadmap

!  Early channel partners need to be “Visionaries” !  Indirect channels/integrators have $ minimum !  Indirect channels/integrators just fulfill !  Market Type affects channel adoption

19

Ecton

Today Customer Creation

Customer Discovery

Customer Validation

Customer Creation

Company Building

•  Creation comes after proof of sales

•  Creation is a strategy not a tactic

•  Creating customer value not noise

Pivot

Agenda

!  Customer Creation versus marketing communications

!  The 4 building blocks !  The role of Branding

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 activities are different for each of the three types of startups

Customer Creation Year 1 Objectives

Year 1 Objectives

Existing Market •  Market share

Resegmenting Existing Market • Market resegmenting

& new market share

New Market • Market adoption

What Am I Selling (and to Who?)

Positioning

Positioning Happens Before Demand Creation

Demand Creation

The Business Model and Sales & Marketing

“Business Model” vs. “Sales & Marketing” What’s Our Strategy?: Business Model

–  Target Customers? –  Which Sales Channel? –  Which vehicles to create Demand? –  What is our Pricing/Discounts?

How Do I Execute the Strategy?: Sales & Marketing

–  Sales Pipeline –  Marketing Metrics –  Go-to-Market Strategies (e.g., Pricing, Promotion) –  Demand Creation

Users

Customers

Purchase & Distribution

Demand Creation

$

Product

Resources

$

$

Assembly / Manufacturing

3rd Party Integration

$

$

$

Design

Manufacturing

Parts

Marketing and The Sales Pipeline

Customers, Marketing and the Sales Funnel

Paying Customers

$

Demand Creation

Acquisition

Total Available Market

Target Market

Served Available Market

Positioning matters

Demand Creation Feeds the Sales Funnel

Paying Customers

$

Demand Creation

Acquisition

Demand Creation Example – Enterprise Software

•  Print Advertising •  Direct Mail •  Viral marketing •  E-mail marketing •  Blogs •  Communities •  SEM/SEO

Demand Creation

Demand Creation Example – Enterprise Software

•  Print Advertising •  Direct Mail •  Viral marketing •  E-mail marketing •  Blogs •  Communities •  SEM/SEO

Demand Creation

Demand Creation Example– Web Virtual World

•  Search Engine Marketing (SEM) •  Search Engine Optimization

(SEO) •  Viral marketing •  E-mail marketing •  Affiliate Marketing •  Bannering •  Communities

Demand Creation

Demand Creation on the Web is Different

•  Search engine marketing (SEM) i.e. keyword advertising, paid search, etc. –  your ad in a search engine. Paid for on a per-click-basis (PPC - pay per click)

•  Search engine optimization (SEO) –  free traffic by optimizing your website for readability by the search engines

•  Viral marketing –  Spreads your message by your users/customer. i.e. Hotmail email tag line

•  Affiliate management –  Partners that promote your product or service on their web own page. They earn money by selling

your product.

•  Bannering i.e. skyscrapers, superbanners, content ads, flash layers, etc.

–  you buy media space on other websites on a PPC (pay per click) or CPM (cost per million.) Your banners displayed in predefined spaces.

Demand Creation on the Web

You Pay For These

(SEM)

These are Free (SEO)

Customer Acquisition Cost

Paying Customers

$

Demand Creation

Acquisition

To get one customer here

How much do you have to spend here

The Sales Funnel

Acquisition

Paying Customers

$

Distribution Channels How Does the Product Reach the

Customer? Acquisition

Paying Customers

$ Distrib. Channel

Distribution Channels Pick One

Your Company

Your Customers

System Integrators

Direct Sales Force

Value-Added Resellers (VARs)

Dealers

Distributors

Retail/Mass Merchants/Online

OEMs

The Sales Funnel Enterprise Software

Leads

Paying Customers

$

Qualified Lead

First Sales Call

Demonstration

Feasibility

Proposal

Purchase Order

The Sales Funnel Enterprise Software

Leads

Paying Customers

$

Qualified Lead

First Sales Call

Demonstration

Feasibility

Proposal

Purchase Order

The Sales Funnel Web Funnel

Acquisition

Paying Customers

$

Registered

Log in

First Conversation

5 Conversations

Paid Once

Subscription

Activation Retention

Revenue

AARRR: Web Marketing Metrics

Website.com

!"#$%&'$!"#$%&'("%)'*$%+,-#./01203*#$%45366'/.'%

Retention

46(07#%8%!7'/2#%

+9#2'6%4:'*2#%8%;06'<-(#'"%='(2,/'#%

>73?#$%@++$%A'B#%=''"#%

Emails & widgets

!C70(2'#$%53*2'#2#%

D0/(7%&331#%

!5EFG+G;GHA%

()*$()+$

,--.$/$0"12&3.$

,45"63&.$

)76"5$

89$ !"#$%&'$:67-6"2;.<$:=;3&.3.$

%">&?3<$@&5<$@A$

(=?"65$B&3C=>D.$

!5=2.$

%=76";.$

The Sales Funnel Web Funnel

Acquisition

Paying Customers

$

Registered

Log in

First Conversation

5 Conversations

Paid Once

Subscription

Activation Retention

Revenue

3D IM FUNNEL (30 DAY MOVING AVERAGE)

1.5% 1.2% 1.1% 1.3% 1.2% 0.9% 1.0% 1.2% 1.4% 1.0% 0.8%

20.7% 19.5% 19.1% 18.1% 18.4% 20.9%

19.3% 21.2% 19.7% 20.0% 19.7%

16.7% 16.3%

19.1% 16.9% 16.6% 16.8% 17.5%

19.3%

15.1% 13.2%

20.3% 19.5% 19.5%

17.0% 18.1%

15.4%

13.8% 14.9% 16.6% 16.4%

16.1% 16.8% 15.5% 15.7%

43.3% 48.5% 48.2% 47.3% 46.4%

42.5%

49.2% 44.7%

42.2% 43.7% 43.8%

1.0% 1.3% 0.6%

20.9%

16.3%

20.0%

15.7% 14.2%

12.6%

52.9% 52.7%

47.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07

Registered but didn't log inLogged in but didn't have convoHad one convo but not fiveHad five convos but didn't payPaid

Registered but didn't

Logged in but didn't have convo

Had one convo but not five

Had five convos but didn't pay

Analyze The Funnel Over Time Registered but didn’t login

Login but no conversation

Had 1 conversation but not 5

Had 5 conversations but didn’t pay Paid

30, 60, 90 DAY RETENTION

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

1/1/06 1/31/06 3/2/06 4/1/06 5/1/06 5/31/06 6/30/06 7/30/06 8/29/06 9/28/06 10/28/06 11/27/06 12/27/06

Retention of activeusers whoregistered 30-60days agoRetention of activeusers whoregistered 60-90days agoRetention of activeusers whoregistered 90-120days ago

This plot measures retention by calculating the fraction of 'active' users who had a conversation in the preceding 30 days. Active users are defined as having had at least 5 conversations total.

Cohort Analysis of the Funnel

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 activities are different for each of the three types of startups

Customer Creation Positioning Year 1

Objectives Positioning Existing Market • Market share • Differentiation & credibility

• Product differentiation

Resegmenting Existing Market

• Market resegmenting & new market share

• Segmentation & innovation • Redefining existing market & product differentiation

New Market

• Market adoption • Vision & innovation in new

market • Defining the new market, the need & the solution

• Early adopters

Customer Validation

Customer Creation

Customer Discovery

Customer Creation

Year One Objectives •  Type of startup

•  Distribution model

Positioning • Articulate problem &

product concept • Understand customer

view of competitors Launch •  Day in the life

•  Attend shows/conf’s •  Estimate mkt size.

Demand Creation • Press, analysts,

influencers list. • How do customers make

buying decisions?

Customer Discovery

Customer Validation

Customer Creation

Year One Objectives •  Revenue model

•  Channel model

Positioning • Initial company &

product positioning • Test w/early adopters

Launch • Company & product launch strategy

• Test with early adopters

Demand Creation •  How do customers

purchase? •  Understand analysts/ influencers view

Customer Creation

Customer Creation

Customer Validation

Year One Objectives •  Launch model

•  Sales model

Positioning • Company/Product

positioning by PR agency with audit

Launch • Launch/Introduce • Launch type depends

on type of startup

Demand Creation •  Implement demand

creation • Type depends on

type of startup

Customer Discovery

Customer Creation