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1/26/10 1
Customer Development in High Tech: Sales, Marketing & Business Development in a Startup
MBA & EMBA 295-F
Three Types of Markets
Steve Blank and Eric Ries
Small Business vs. Scalable Startup
Small business = reasonable risk and return Scalable startup = unreasonable risk and return
Vision of large market or new market Willing to make a large bet of time and money Reality Distortion field
4
Scalable Startup
Small Business
Startup
Large Company >$100M/year
Small Business vs. Scalable Startup
Scalable Startup
Small Business
Startup
Large Company >$100M/year
Small Business vs. Scalable Startup
-‐ Business Model found -‐ Profitable business -‐ ExisEng team < $10M
-‐ Total Available Market > $500m -‐ Company can grow to $100m/year -‐ Known business model -‐ Focused on execuEon and process
Scalable Startup
Company TransiEon
- Business Model found - Product/Market fit
- Repeatable sales model - Managers hired
Scalable Startup Exit Criteria
Scalable Startup
Company TransiEon
- Business Model found - Product/Market fit - Repeatable sales model - Managers hired
- Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people
TransiEon to Company Exit Criteria
What is a Startup: DefiniEon
a startup is an organiza-on formed to search for a repeatable and scalable
business model.
Scalable Startup
Company TransiEon
- Business Model found - Product/Market fit - Repeatable sales model - Managers hired
- Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people
What is the Purpose of a Startup?
The Search for the Business Model The Execution of the Business Model
What is a Scalable Startup: Definition
A startup is an organiza-on formed to search for a repeatable and scalable
business model.
So what’s a Business Model?
tomorrow’s organization. today.
VALUE PROPOSITION
COST STRUCTURE
CUSTOMER RELATIONSHIP
TARGET CUSTOMER
DISTRIBUTION CHANNEL
VALUE CONFIGURATION
CORE CAPABILITIES
PARTNER NETWORK
REVENUE STREAMS
gives an overall view of a company's bundle of products and services
portrays the network of cooperative agreements with other companies
describes the channels to communicate and get in touch with customers
describes the arrangement of
activities and resources
explains the relationships a company
establishes with its customers
sums up the monetary consequences to run a
business model
describes the revenue streams through which
money is earned
describes the customers a company wants to
offer value to
outlines the capabilities required to run a
company's business model
INFRASTRUCTURE CUSTOMER
OFFER
FINANCE
Business Model = Keeping Score in a Startup
Company TransiEon
Customer Development
Hypotheses, Experiments
, Insights
Data, Feedback,
Insights
Agile Development
Scalable Startup
Where Does this Class Fit?
Company TransiEon
Customer Development
Hypotheses, Experiments
, Insights
Data, Feedback,
Insights
Agile Development
Scalable Startup
Where Does this Class Fit?
This is what our class is about
17
In-N-Out Secret Menu
X by Y X meat patties and Y slices of cheese
(for example, a 3 by 3 or a 2 by 4) Double Meat
Two meat patties without cheese. Triple Meat
Three meat patties without cheese. Animal Style
A mustard cooked beef patty served on a bun with pickles, lettuce, tomatoes, extra spread and grilled onions. Any burger (including veggie and grilled cheeses) may be made this way.
Flying Dutchman Two meat patties, two slices of melted
cheese and nothing else. Protein Style
Instead of a bun, the burger is wrapped in lettuce. Any burger (including veggie and grilled cheeses) may be made this way.
Veggie Burger (Wish Burger) A burger without the meat and cheese.
Grilled Cheese Two slices of melted cheese, tomato,
lettuce and spread on a bun, with no meat. Extra Everything
Adds extra spread, tomato, lettuce, and onions (regular or grilled).
Fries "Light" Almost raw fries that are cooked for less
time. Fries "Well" (aka "Wellies")
Fries that are cooked longer to be extra crisp.
Cheese Fries Fries with two slices of melted cheese
placed on top. Animal Style Fries
Fries with cheese, spread, and grilled onions.
Neapolitan Shake All three shake flavors (strawberry, vanilla
and chocolate) combined in one shake.
22
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
23
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
24
Existing Market Definition
Are there current customers who would: Need the most performance possible?
Is there a scalable business model at this point? Is there a defensible business model
Are there sufficient barriers to competition from incumbents?
26
Oops, forgot about Time
Perf
orm
ance! Our Company!
Existing Company Performance Growth
Time!
Existing!Companies!
Today!
27
Existing Market Risks
“Better/Faster” is an engineering driven axiom Incumbents defend high-end, high-margin
businesses Factor in:
Network effect of incumbent Sustaining innovation of incumbent Industry (or you own) “standards”
“They’ll never catch up” is not a business strategy Established companies almost always win
28
Resegmented Market Definition (1) Low End
Are there customers at the low end of the market who would: buy less (but good enough) performance if they could get it at a lower price?
Is there a business profitable at this low-end? Are there sufficient barriers to competition from
incumbents?
29
Low-end Resegmentation “Good Enough” Performance
Perf
orm
ance!
Our Company!At the Low-end!
Time!
Existing!Companies!
Today!
Existing Company Performance Growth
30
Resegmented Market Definition (2) Niche
Are there customers in the current market who would: buy if it addressed their specific needs if it was the same price? If it cost more?
Is there a defensible business model at this point? Are there barriers to competition from incumbents?
31
Niche Resegmentation “Branding” has its place
Perf
orm
ance!
Time!
Existing Company Niche for a New Company Niche for a New Company
Existing Customers! New Niches!
32
Resegmented Market Risks
“Cheaper” is a sales-driven axiom Incumbents abandon low-end, low-margin
businesses For sometimes the right reasons
Low-end must be coupled with a profitable business model Up migration
33
New Market Definition
Is there a large customer base who couldn’t do this before? Because of cost, availability, skill…?
Did they have to go to an inconvenient, centralized location?
Are there barriers to competition from incumbents?
34
New Market Customers That Don’t Yet Exist
Perf
orm
ance!
Time!
Existing Company
Existing Customers! New Niches!
New Market
New Customers!New Markets!
35
New Market Risks
“New” is a marketing-driven axiom New has to be unique enough that:
There is a large customer base who couldn’t do this before
They want/need/can be convinced Adoption occurs in your lifetime
Company manages adoption burn rate Investors are patient and have deep pockets
36
Hybrid Markets
Some products fall into Hybrid Markets Combine characteristics of both a new
market and low-end resegmentation SouthWest Airlines Dell Computers Cell Phones Apple IPhone?
38
New Product Conundrum
New Product Introduction methodologies 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?
tomorrow’s organization. today.
VALUE PROPOSITION
COST STRUCTURE
CUSTOMER RELATIONSHIP
TARGET CUSTOMER
DISTRIBUTION CHANNEL
VALUE CONFIGURATION
CORE CAPABILITIES
PARTNER NETWORK
REVENUE STREAMS
gives an overall view of a company's bundle of products and services
portrays the network of cooperative agreements with other companies
describes the channels to communicate and get in touch with customers
describes the arrangement of
activities and resources
explains the relationships a company
establishes with its customers
sums up the monetary consequences to run a
business model
describes the revenue streams through which
money is earned
describes the customers a company wants to
offer value to
outlines the capabilities required to run a
company's business model
INFRASTRUCTURE CUSTOMER
OFFER
FINANCE
Business Model ExecuEon Differs by “Market Type”
tomorrow’s organization. today.
Lean Startup ExecuEon Differs by “Market Type”
Customer Development
Hypotheses, Experiments,
Insights
Data, Feedback,
Insights
Agile Development