Why fighter pilots run startups
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This document discusses the differences between startups and small businesses, and outlines the customer development process that startups should follow to search for a viable business model. It notes that most startups fail due to a lack of customers, not due to product failures, and that founders are often wrong in their assumptions about what customers want. It advocates getting out of the building to test hypotheses with real customers from the beginning, rather than following a traditional product development model and then hiring marketing to create demand.
Why fighter pilots run startups
- 1. Why Fighter Pilots Run StartupsSteve BlankStanford - School of EngineeringU.C. Berkeley - Haas School Of Businesswww.steveblank.comTwitter: sgblank
- 3. I Drew ThisCustomerDiscoveryCompany BuildingCustomerValidationCustomer CreationPivot
- 4. I Called It:Customer DevelopmentCustomerDiscoveryCompany BuildingCustomerValidationCustomer CreationPivot
- 5. I Wrote This
- 6. I Write a Blog www.steveblank.com
- 8. Not All Startups Are Equal
- 9. Small BusinessStartupSmall Business Startups
- 10. Small BusinessStartup- Business Model found- Profitable business Existing team< $10M in revenueSmall Business Startups
- 11. Small BusinessStartup- Business Model found- Profitable business Existing team< $10M in revenueSmall Business Startups97% of all companies in Israel are small businesseshttp://www.milkeninstitute.org/pdf/israel_small_business_0105.pdf
- 12. Small Business Startup:Internet EditionSmall BusinessStartup- Business Model found- Profitable business Existing team< $10M in revenueThe Internet allows a new class of Small Businesses
- 13. Not all businesses on the Internet are “Scalable Startups”Large Company Sustaining InnovationSustaining InnovationTransitionScalableStartupLarge Company Existing Market
- 14. Incremental improvementsLarge Company Disruptive InnovationNew DivisionTransitionLarge CompanyDisruptive Innovation New Market
- 15. New tech, customers, channelsScalableStartupLarge Company>$100M/yearScalable Startup
- 16. ScalableStartupLarge Company>$100M/yearTotal Available Market > $500m
- 17. Company can grow to $100m/year
- 18. Business model found
- 19. Focused on execution and processScalable Startup
- 20. ScalableStartupLarge Company>$100M/yearTotal Available Market > $500m
- 21. Company can grow to $100m/year
- 22. Business model found
- 23. Focused on execution and process
- 24. Typically requires “risk capital”Scalable Startup In contrast a scalable startup is designed to grow big
- 25. Typically needs venture (risk) capital
- 26. What Silicon Valley means when they say “Startup”Very Different Startup GoalsSmall BusinessStartup- Business Model found- Profitable business Existing team< $10MScalableStartupLarge Company Total Available Market > $500m
- 27. Company can grow to $100m/year
- 28. Business model found
- 29. Focused on execution and process
- 30. Typically requires “risk capital”Venture Firms Invest in Scalable StartupsSmall BusinessStartupScalableStartupLarge Company
- 32. i.e. Product/Market fit- Repeatable sales model- Managers hiredWhat’s A Startup?A Startup is the organization used to search for a scalable business model
- 33. What VC’s Don’t Tell You:The TransitionScalableStartupTransitionLarge CompanySearchBuildGrow
- 34. What VC’s Don’t Tell You:The Transition – Founders LeaveScalableStartupTransitionLarge CompanyFounders depart
- 36. Process
- 37. Beginning of scalePlan versus Model
- 38. No Business Plan survives first contact with customers
- 39. So Search for a Business Model
- 40. The Search for a Business ModelA Business Plan is static
- 41. A Business Model diagrams how a company creates, delivers and captures value – it’s dynamic
- 42. Or in English: How a company makes moneyEmphasis On Hypotheses Testing
- 43. Startups Continually Pivot (Iterate)
- 45. Startups Search and PivotThe Search for the Business ModelScalableStartupTransitionLarge CompanyBusiness Model found
- 46. i.e. Product/Market fit- Repeatable sales model- Managers hired
- 47. 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
- 48. Product/Market fit- Repeatable sales model- Managers hired
- 49. Metrics Versus AccountingThe Execution of the Business ModelScalableStartupTransitionLargeCompanyTraditional AccountingBalance Sheet
- 50. Cash Flow Statement
- 51. Income StatementMetrics Versus AccountingThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLargeCompanyStartup Metrics Customer Acquisition Cost
- 53. Customer Lifetime Value
- 54. Average Selling Price/Order Size
- 55. Monthly burn rate
- 56. etc. Traditional Accounting Balance Sheet
- 57. Cash Flow Statement
- 58. Income StatementCustomer Validation Versus SalesThe Execution of the Business ModelScalableStartupTransitionLargeCompanySalesSales Organization
- 59. Scalable
- 60. Price List/Data Sheets
- 61. Revenue PlanCustomer Validation Versus SalesThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLargeCompanyCustomer Validation Early Adopters
- 63. Not yet repeatable
- 65. Scalable
- 66. Price List/Data Sheets
- 67. Revenue PlanCustomer Development VersusProduct ManagementThe Execution of the Business ModelScalableStartupTransitionLarge CompanyProduct Management Delivers MRD’s
- 68. Feature Spec’s
- 69. Competitive AnalysisCustomer Development Versus Product ManagementThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLarge CompanyProduct Management Delivers MRD’s
- 70. Feature Spec’s
- 71. Competitive AnalysisCustomer Development Hypothesis Testing
- 72. Minimum Feature Set
- 73. PivotsEngineering Versus Agile DevelopmentThe Execution of the Business ModelScalableStartupTransitionLarge CompanyEngineering Requirements Docs.
- 75. QA
- 76. Tech PubsEngineering Versus Agile DevelopmentThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLarge CompanyEngineering Requirements Docs.
- 78. QA
- 79. Tech PubsAgile Development Continuous Deployment
- 81. Self Organizing Teams
- 82. Minimum Feature Set
- 83. PivotsStartups Model, Companies PlanThe Execution of the Business ModelScalableStartupTransitionLarge Company Plan describes “knowns”
- 84. Known features for line extensions
- 86. Known business modelStartups Model, Companies PlanThe Search for the Business ModelThe Execution of the Business ModelScalableStartupTransitionLarge CompanyUnknown customer needs
- 87. Unknown feature set
- 88. Unknown business model
- 89. Model found by iteration
- 90. Plan describes “knowns”
- 91. Known features for line extensions
- 93. Known business modelStartups Don’t Last ForeverScalableStartupTransitionLarge Company- Cash-flow breakeven- Profitable- Rapid scale- New Senior Mgmt~ 150 people Business Model found
- 94. Product/Market fit- Repeatable sales model- Managers hiredYou failif you remain a startup!
- 95. Customer Risk Versus Technology Risk
- 96. Industry Affects Type of RiskWeb 2.0
- 101. Consumer Electronics
- 102. Game Software
- 103. Semiconductors
- 105. Cleantech
- 106. Med Dev / Health Care
- 107. Life Science / Biotech
- 110. Enterprise Software
- 111. Enterprise Hardware
- 114. Consumer Electronics
- 115. Game Software
- 116. Semiconductors
- 118. Cleantech
- 119. Med Dev / Health Care
- 120. Life Science / Biotech
- 121. Personalized MedicineCustomer RiskLarge CompanyTransition
- 122. Technology Unknown, Customers KnownWeb 2.0
- 123. Enterprise Software
- 124. Enterprise Hardware
- 127. Consumer Electronics
- 128. Game Software
- 129. Semiconductors
- 131. Cleantech
- 132. Med Dev / Health Care
- 133. Life Science / Biotech
- 135. Technology and Customers UnknownWeb 2.0
- 136. Enterprise Software
- 137. Enterprise Hardware
- 140. Consumer Electronics
- 141. Game Software
- 142. Semiconductors
- 144. Cleantech
- 145. Med Dev / Health Care
- 146. Life Science / Biotech
- 147. Personalized MedicineCustomer and Technology Risk
- 148. Rewards Differ by IndustryWeb 2.0
- 149. Enterprise Software
- 150. Enterprise Hardware
- 153. Consumer Electronics
- 154. Game Software
- 155. Semiconductors
- 157. Cleantech
- 158. Med Dev / Health Care
- 159. Life Science / Biotech
- 161. Huge payoff in biotech for solving technology problem
- 162. In other industries you’re giving away your hard workTechnology Risk
- 163. Rewards Differ by IndustryWeb 2.0
- 164. Enterprise Software
- 165. Enterprise Hardware
- 168. Consumer Electronics
- 169. Game Software
- 170. Semiconductors
- 172. Cleantech
- 173. Med Dev / Health Care
- 174. Life Science / Biotech
- 175. Personalized MedicineCustomer RiskNo payoff in Web 2.0 until you solve the customer riskTechnology Risk
- 176. How Do Startups Search For A Business Model? The Search is called Customer Development
- 177. The Implementation is called Agile DevelopmentThe Lean Startup The Search is called Customer Development
- 178. The Implementation is called Agile DevelopmentCustomer Development
- 179. Solving For Customer Risk:Customer Development
- 180. Solving For Customer Risk:Customer DevelopmentGet the Hell Out of the Building
- 181. Solving For Customer Risk:Customer DevelopmentGet the Hell Out of the BuildingCountry
- 182. More startups fail from a lack of customers than from a failure of product development
- 183. Then why do we have:process to manage product development?
- 184. Then why do we have:process to manage product development?no process to manage customer development?
- 185. Because:The smarter the founders the more likely, “I know what customers want”Usually wrongUsually come from military intelligenceStartups are not an intelligence test
- 186. Product Development ModelConcept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1st Ship
- 187. Tradition – Hire MarketingConcept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1st Ship- Create Demand- Launch Event- “Branding”- Hire PR Agency- Early Buzz Create Marcom Materials- Create PositioningMarketing
- 188. Tradition – Hire SalesConcept/Seed RoundProduct Dev.Alpha/Beta TestLaunch/1st Ship- Create Demand- Launch Event- “Branding”- Hire PR Agency- Early Buzz Create Marcom Materials- Create PositioningMarketing Build Sales Organization
- 189. Hire Sales VP
- 190. Hire 1st Sales StaffSales
- 191. Tradition – Hire Bus DevelopmentConceptProduct Dev.Alpha/Beta TestLaunch/1st Ship- Create Demand- Launch Event- “Branding”- Hire PR Agency- Early Buzz Create Marcom Materials- Create PositioningMarketing Build Sales Channel / Distribution
- 192. Hire Sales VP
- 193. Pick distribution ChannelSalesBusiness Development Hire First Bus Dev
- 194. Do deals for FCSTradition – Hire EngineeringConceptProduct Dev.Alpha/Beta TestLaunch/1st Ship- Create Demand- Launch Event- “Branding”- Hire PR Agency- Early Buzz Create Marcom Materials- Create PositioningMarketing Build Sales Channel / Distribution
- 195. Hire Sales VP
- 196. Pick distribution ChannelSalesBusiness Development Hire First Bus Dev
- 197. Do deals for FCSEngineering Write MRD
- 198. Waterfall
- 199. Q/A
- 200. Tech PubsProduct DevelopmentConcept/Bus. PlanProduct Dev.Alpha/Beta TestLaunch/1st Ship+CustomerDevelopmentCompanyBuildingCustomerDiscoveryCustomerValidationCustomer CreationCustomer Development
- 201. Customer DiscoveryCustomerDiscoveryCustomerValidationCompanyBuildingCustomerCreationStop selling, start listeningTest your hypothesesContinuous Discovery
- 202. Customer ValidationCustomerDiscoveryCustomerValidationCustomer CreationCompanyBuildingPivotRepeatable and scalable business model?
- 204. Pivot back to Discovery if no customersThe Pivot The heart of Customer Development
- 206. Fast, agile and opportunisticSo What Does Engineering Do?
- 207. Traditional Product DevelopmentUnit of progress: Advance to Next StageWaterfallRequirementsDesignProblem: knownSolution: knownImplementationVerificationMaintenanceSource: Eric Rieshttp://startuplessonslearned.blogspot.com
- 208. When the Customer Problem is Known“Product Owner” or in-house customer Problem: KnownSolution: UnknownSource: Eric Rieshttp://startuplessonslearned.blogspot.com
- 209. Agile - Customer Problem is KnownUnit of progress: a line of working code“Product Owner” or in-house customer Problem: KnownSolution: UnknownSource: Eric Rieshttp://startuplessonslearned.blogspot.com
- 210. When the Customer Problem is UnknownProblem: UnknownSolution: UnknownSource: Eric Rieshttp://startuplessonslearned.blogspot.com
- 211. Customer Problem is UnknownUnit of progress: learning about customersProblem: UnknownSolution: UnknownSource: Eric Rieshttp://startuplessonslearned.blogspot.com
- 213. ScalableStartupTransitionLarge CompanyLeadership Versus Management
- 214. ScalableStartupTransitionLarge CompanyLeadership Versus Management
- 215. ScalableStartupTransitionLarge CompanyLeadership Versus ManagementSearch
- 218. Why Fighter Pilots Run Startups
- 219. No Surprises in an AirlineScalableStartupTransitionLarge CompanyScheduled Airline Scheduled
- 220. Routine
- 221. Burn rate preplannedAir-Air Combat is Constant SurpriseScalableStartupTransitionLarge CompanyAir-Air Combat Uncertain environment
- 222. Rapid, unanticipated changes
- 223. Changes lead to disorientation
- 224. Burn rate (time, fuel, bullets, $’s)limits window of opportunityObserve, Orient, Decide and Act:OODA LoopJohn Boyd
- 225. Observe, Orient, Decide and Act:OODA LoopAgility requires continuous interactions with the environment
- 226. Winning requires constant assessment of change and ways to mitigate risk
- 227. Iterating faster than competitors yields substantial advantage = Victory
- 228. 86Boyd’s OODA LoopObserveOrientDecideActImplicitGuidance& ControlImplicitGuidance& ControlUnfoldingCircumstancesCulturalTraditionsObservationsGeneticHeritageDecision(Hypothesis)Analyses &SynthesisAction(Test)FeedForwardFeedForwardFeedForwardNewInformationPreviousExperienceOutsideInformationInteractionWithEnvironmentInteraction w/Environment
- 229. Customer Development = OODA LoopObserveOrientActDecide
- 230. OODA Loop is Not an Intelligence TestIt’s about Agility
- 232. It’s not about winning arguments inside the company
- 233. Fighters pilots vs. military intelligenceWarfare (Startups) Changes Forever