387 Million Ways For a Startup to Fail… and How to Avoid Them Steve Blank Twitter: sgblank

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Startups Fail Because They Confuse Search with Execute

Scalable Startup Large Company >$100M/year Whats A Startup Goal is to search for: unknown customer and unknown features SearchExecute

Scalable Startup Large Company - Business Model found - i.e. Product/Market fit - Repeatable sales model - Managers hired Whats A Startup? A Startup is a temporary organization used to search for a scalable and repeatable business model Search

Startups Fail Because They Execute When They Should Search

Scalable Startup Large Company Transition Business Model found - customer needs/product features found i.e. Product/Market fit - Found by founders, not employees - Repeatable sales model - Managers hired The Search for the Business Model Startups Search and Pivot

Scalable Startup Large Company Transition - Business Model found - Product/Market fit - Repeatable sales model - Managers hired - Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people The Search for the Business Model The Execution of the Business Model Startups Search, Companies Execute

Scalable Startup Large Company Transition Traditional Accounting - Balance Sheet - Cash Flow Statement - Income Statement The Execution of the Business Model Metrics Versus Accounting

Scalable Startup Large Company Transition Startup 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 Statement The Search for the Business Model The Execution of the Business Model Metrics Versus Accounting

Scalable Startup Large Company Transition Sales - Sales Organization - Scalable - Price List/Data Sheets - Revenue Plan The Execution of the Business Model Customer Validation Versus Sales

Scalable Startup Large Company Transition Customer Validation - Early Adopters - Pricing/Feature unstable - Not yet repeatable -One-offs - Done by founders Sales - Sales Organization - Scalable - Price List/Data Sheets - Revenue Plan The Search for the Business Model The Execution of the Business Model Customer Validation Versus Sales

Scalable Startup Large Company Transition Product Management - Delivers MRDs - Feature Specs - Competitive Analysis - Prod Mgmt driven The Execution of the Business Model Customer Development Versus Product Management

Scalable Startup Large Company Transition Customer Development - Hypothesis Testing - Minimum Feature Set - Pivots - Founder-driven The Search for the Business Model The Execution of the Business Model Customer Development Versus Product Management Product Management - Delivers MRDs - Feature Specs - Competitive Analysis

Scalable Startup Large Company Transition The Execution of the Business Model Engineering Versus Agile Development Engineering - Requirements Docs. - Waterfall Development - QA - Tech Pubs

Scalable Startup Large Company Transition Agile Development - Continuous Deployment - Continuous - Minimum Feature Set - Pivots The Search for the Business Model The Execution of the Business Model Engineering Versus Agile Development Engineering - Requirements Docs. - Waterfall Development - QA - Tech Pubs

387 Million Ways to Fail And the 5 Key Reasons Why

Business Model Universe 387 Million Choices (9x9x9x9x9x9x9x9x9) choices

More startups fail from a lack of customers than from a failure of product development

Failure 1 No Business Plan survives first contact with customers

You Need a Scientific Method to Search this Space

So, Structure the Search with a Business Model

Any Business Model in 9 Boxes

Failure 2 Assume Your Business Model is Correct

So, Realize Theyre Hypotheses

9 Guesses Guess

Failure 3 There Are No Facts Inside Your Building

So, Formalize Testing Hypotheses Outside

Testing the Business Model = Customer Development

Test Hypotheses: Product Market Type Competition Turning Hypotheses to Facts

Test Hypotheses: Problem Customer User Payer

Test Hypotheses: Channel

Test Hypotheses: Problem Customer User Payer Test Hypotheses: Demand Creation Test Hypotheses: Channel Test Hypotheses: Product Market Type Competitive Test Hypotheses: Pricing Model / Pricing Test Hypotheses: Size of Opportunity/Market Validate Business Model Test Hypotheses: Channel (Customer) (Problem)

Test Hypotheses: Problem Customer User Payer Test Hypotheses: Demand Creation Test Hypotheses: Channel Test Hypotheses: Product Market Type Competitive Test Hypotheses: Pricing Model / Pricing Test Hypotheses: Size of Opportunity/Market Validate Business Model Test Hypotheses: Channel (Customer) (Problem) Customer Development Team Agile Development

Test Hypotheses: Problem Customer User Payer Test Hypotheses: Demand Creation Test Hypotheses: Channel Test Hypotheses: Product Market Type Competitive Test Hypotheses: Pricing Model / Pricing Test Hypotheses: Size of Opportunity/Market Validate Business Model Test Hypotheses: Channel (Customer) (Problem) Customer Development Team Agile Development

Testing the Business Model is Customer Development Customer Discovery Customer Validation Company Building Customer Creation Pivot Search Execution

Customer Development is the Search Customer Discovery Customer Validation Pivot Search

Failure 4 A Mistaken Hypothesis Creates A Crisis

So, Pivots are Business Model Changes Without Crisis

The Pivot Turns Failure Into Insight The heart of Customer Development Business Model changes without crisis Fast, agile and opportunistic

A Pivot Changes the Business Model Test Hypotheses: Problem Customer User Payer Test Hypotheses: Demand Creation Test Hypotheses: Channel Test Hypotheses: Product Market Type Competitive Test Hypotheses: Pricing Model / Pricing Test Hypotheses: Size of Opportunity/Market Validate Business Model Test Hypotheses: Channel (Customer) (Problem) Customer Developme nt Team Agile Developme nt The Business Model/Customer Development Canvas

Failure 5 We Have Plenty of Time

So, Startups Are Built for Rapid Search

Pivot Cycle Time Matters Speed of cycle minimizes cash needs Minimum feature set speeds up cycle time Near instantaneous customer feedback drives feature set

387 Million Ways to Fail No business plan survives first contact with customers Assume your business model is correct There are no facts inside your building A mistaken hypothesis creates a crisis We have plenty of time

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