Go to Udacity.com and watch How to Build a Startup for free!
Use this outline as a reference:
- Can't just write a business plan
- Start-ups are not smaller versions of large companies
- MBA toolset not enough for first couple of years in a start-up
- Strategy
- Start-ups search, large companies execute
- Most start-ups fail from a lack of customers than from failure of product Dev
- No processes for customer risk
- Process
- Agile Dev
- Iterations of the product
- Agile Dev
- Then turn to formal execution
- Org
- Need a customer Dev team
- No sales, marketing, or bus Dev
- Different jobs in a start-up than a large Corp
- Founder get out of the building
- No sales, marketing, or bus Dev
- Need a customer Dev team
- Education
- About the search for the business model
Old way
- Strategy
- Start with an OP plan and fin model - not helpful
- No plan survives first contact with customers
- We need planning before the plan
- Business model canvas
- Scorecard of plans
- Organise thinking about hypotheses
- Find the model for your business, then write a business plan and execute
- Business model canvas
- Used to manage processes - old/wrong
- Product man
- Waterfall engineering - assume you know the customer need on day one and know what features to ship on day one
- Concept
- Dev
- Testing
- Launch
- Market
- Create material/position
- Early buzz
- Launch event
- Branding
- Sales
- Hire staff and VP
- Build sales Org
- Business Dev
- Hire bus Dev people
- Do deals for first customers
- Engineering
- Write a market requirements doc
- Waterfall
- QA
- Tech pubs Dept
- Organization
- Need all of it?
- What is a company
- A business Org which sells a product/service for revenue and profit
- What's a start-up
- A temporary Org designed to search for a repeatable and scalable business model
- How are companies organized?
- Business model - how a company creates value for itself while delivering products or services for customers
- Value proposition - solving a problem or need for a customer; solving a need can be better (entertainment or comm)
- Who are the customers - you exist for them. Make customer archetypes
- Channels - how does the product get to the customer? Physical and virtual
- Customer relationships - how do I get/keep/grow customers?
- Revenue model - Hope does the company make money from each customer segment? Different from proving
- Key resources - what are the most important assets needed? Physical, intellectual, human, finance
- Key partners and suppliers - who are they, what key resources are we getting from them, what key activities do they perform?
- Key activities - what are the most important things the company must do? production, problem solving, supply chain management
- Costs - what are the costs to operate the business model? Most important costs, most expensive resources, key activities are most expensive. Fixed and variable, economies of scale
- Business model - how a company creates value for itself while delivering products or services for customers
- Business model canvas - hypothesis organization
- Design experiments, run tests, get data, refine hypothesis
- Customer Dev process:
- Done by the founder in order to listen, make pivots, first-hand feedback, change the product
- Customer discovery
- State hypothesis
- Test problem
- Test solution
- Verify or pivot
- Iterate
- Customer validation - product market fit or search
- Get ready to sell
- Get out of the building
- Develop positioning - how to promote the product
- Verify or repeat - scale marketing or review the business model canvas
- Market opportunity/analysis
- Identify customers and market need
- Size the market
- Look at competitors
- Can market grow - total available market = how many people in the market and how much money if they bought; served available market = who will actually buy
- Is this worth executing for the next couple of years
- Customer creation
- Company building - execution
- Customer discovery
- Minimum viable product
- Min features that meet the customers needs or wants
- Pivot - what you do when your hypothesis don't match reality; create a substantive changes to meet constant speed and tempo
- Minimum viable product
- What is it you're building?
- For who?
- What does it solve?
- About satisfying a customer need or want
- Works hand in hand with customer segments
- Product market fit
- Not built in isolation
- Three components of product features
- Your product features themselves
- Which are part of your value prop
- Intangibles, financial products, digital products
- Services - core services of your value prop
- Pre-/post-sales services
- Which are part of your value prop
- What are your gain creators
- Customer solution
- What makes them happy
- Save time
- Save money
- Exceed current solutions
- Create positive consequences
- Better outcomes
- Job or life easier
- Rank according to relevance and frequency to the customer
- What makes them happy
- Customer solution
- What are your pain killers
- Customer problem or need
- What are you going to solve for them?
- Produce savings
- Do customers feel better (entertainment)
- Fix bad solutions
- End challenges
- Impact social consequences
- Eliminate risks
- Rank pains according to their intensity and frequency to the customer
- What are you going to solve for them?
- Your product features themselves
- The Goal: What key features/services should you build first - minimum viable product
- Find sufficient features to start solving a problem for a known group of customers in your first instance
- Not an alpha or beta but the concept behind what features the customers will pay for now
- Not a minimal product
- Physical channel
- Something customers can touch and feel - build something
- Test understanding of problem and solution
- Does it solve the problem
- Learn the minimum features
- Digital channel
- Low fidelity app or website for customer feedback
- Test your understanding of the problem - so delay a demo until you know that
- Get customer feedback
- Later - create a high fidelity app
- Helps avoid building worthless products no one wants
- Maximizes learning time on customer needs
- Something customers can touch and feel - build something
- Common mistakes
- Could be features of someone else's product
- Must be a got to have product, not a nice to have
- Must have enough customers to make a business
- Questions:
- Competition?
- Why is this problem so hard to solve?
- Market size? How big is this problem?
- How do you do it?
- Insights
- Technology
- New scientific discoveries
- Moore's law
- Applies to hardware, clean tech, biotech
- Market
- Deregulation
- Value chain disruption
- Changes in how people live, work, etc
- Technology
- Types
- Build a persona/archetype (the goal) to focus efforts
- Jobs or Problems or needs
- Gains
- Pains
- Profile - who's the customer in context
- Position/title
- Age/sex
- Role
- Discretionary budget
- Motivations
- Role models
- Draw a day in the life
- Try for three types
- Know the user, influencer, recommender, decision maker, economic buyer, saboteur archetypes
- Start with hypotheses about your customers
- What is the customer segment trying to get done
- What emotional jobs are needed
- What basic needs are you trying to satisfy
- Rank the significance of the jobs and frequency
- Build a "day in the life"of that customer and make sure your product fits
- Understand customer gains
- What benefits or desires do the customers expect
- What would make them happy
- What do they expect and what would go beyond the expectations
- What would make their life/job easier
- What positive social consequences do they desire
- What would increase the likelihood of adopting a solution
- Understand customer pains
- Undesired costs and situations, risks and negative emotions
- What do they think is too costly
- How are current solutions underperforming
- What are the main difficulties and challenges - but is it a top three pain for them
- What's keeping the customer awake at night
- What are the barriers to adopt the product
- What makes the customers feel bad
- What risks do they fear
- Pass/Fail Signals and experiments
- Where to test
- What kind of experiment and how many
- 20, 1000s?
- Do not depend on online surveys
- Need samples in focus groups
- Multi-sided markets
- Google with users and advertisers
- Must have different value propositions, customer segments, customer relationships, channels, and revenue streams
- Google with users and advertisers
- Market types
- Existing
- Customers are known
- Needs are performance
- Competitors exist
- High risk
- Fastest to profitability
- Usually tech driven and how much value customers place on the features
- Incumbents will defend
- No chasm in this market, so linear increase in revenue
- Resegmented
- Customers possibly known
- Needs are better fit
- Competitors may or may not exist
- Risk - market and product redefinition
- Example - southwest airlines
- Chasm exists between early adopters and early majority
- Causes sales growth to be flat early, then exponential if you meet customer needs
- New
- Customers unknown
- Needs - transformational improvement
- No competitors
- Risk - evangelism and education and money
- Example - Groupon
- Slowest to profitability
- Larger chasm than any other market
- Early success then very flat, even negative sales until chasm is crossed, then exponential growth -more so than any other market
- Need guerrilla activities to kick off sales growth and customer education of the new market
- Clone
- Customers are possibly known
- Needs - local version
- No competitors
- Risk - misjudging local needs
- Example - Baidu
- Existing
- Affects
- Market
- Size
- Cost of entry
- Launch type
- Competitive barriers
- Positioning
- Sales
- Sales model
- Margins
- Sales cycle
- Chasm width**
- Finance
- Ongoing capital
- Time to profitability
- Customers
- Needs
- Adoption
- Market
- Affects
- How does the product get from our company to the customer?
- Physical
- OEM - original equipment manufacturer
- System integrator
- Value added reseller
- Direct sales force
- Web/online
- Distributors
- Dealers - extension of distribution channel
- Retailers/Mass merchants
- Web/mobile
- Pick one and expand into others - too expensive to start with many
- Dedicated e-commerce you own
- Platform app-store
- 2-step distribution - Amazon, Walmart
- Aggregator - Zappos, lending tree
- Social commerce
- Flash sales - Groupon
- How do you want to get your product to get to the customer
- Physical or virtual product?
- Direct (you own the channel) or indirect (someone else owns the channel) sales channel?
- Physical
- Channel economics
- List price - Direct Sales
- Cost of goods
- Research and development, SG&A costs
- Any discounts
- The rest is profit
- List price - indirect sales/resellers
- Less possible SG&A because of less direct sales people focus
- Resellers easy into profits for stocking and selling the product
- List price - Direct Sales
- Get-keep-grow
- Know the archetype
- What's their role
- Who are they
- How do they buy
- What matters - pain and gain
- What's their title
- Who do they influence
- Continue to define the customer
- Know the archetype
- Funnels - two sided
- Create demand - feed the funnel
- Paid demand creation activities
- Public relations
- Advertising
- Trade shows
- Webinars
- Email/direct mail
- Search Engine Model
- Earned demand creation activities
- Free
- Publications and journals
- Conferences/speeches
- Blogging/guest articles
- Social media
- Physical channel
- Get people aware of your product
- Know if the customers are interested
- People looking for price
- Get people to show up and consider your product
- Then they purchase your product
- Viral loop - customers tell friends and feed your funnel for you
- Funnels can be different - not prescriptive
- Keep customers
- Harder to do
- More expensive than getting them
- Loyalty programs
- Product updates
- Focus on customer satisfaction
- Keeping customers educated on your product
- Grow customers
- Freemium strategy
- Unbundle the product
- Up-sell the customer once they are buying the product
- Cross-sell accessories or companion products
- Use existing customers to refer other customers
- Web/mobile channel
- Acquire customers
- Advertise
- Customer acquisition cost -
- how much does it cost to acquire
- how much was the campaign
- how much was the final cost in order to get the customer's money
- Activate customers
- Get the customer to buy
- Get other companies to pay for access to the users
- Keep customers
- Customers are less expensive to keep than acquire
- Loyalty programs
- Contests/events
- Blogs/RSS/email
- Social media
- Worried about customer churn - losing customers per month
- Grow customers
- Just like physical channel
- Up-sell
- Next-sell
- Cross sell
- Referrals
- Lifetime value - LTV
- How much will they spend with your company from beginning to end
- Needs to be greater than customer acquisition cost
- What is that ratio
- Viral loops decrease cost of acquisition
- Make CAC more efficient
- Acquire customers
- Paid demand creation activities
- Create demand - feed the funnel
- How does the company make money from each customer segment
- Not pricing
- Revenue models are the strategy - direct and ancillary
- Direct sales
- Assets sales - cash for products
- Usage free - fees proportional to use
- Subscription fee - flat fee for continuous access to a service
- Renting - few for temporary access to a good or service
- Licensing - few for user of some IP (including software)
- Intermediation fee - often found in marketplaces of various types, a fee for bringing together two or more parties involved in a transition
- Advertising - fee paid by brands and companies to get in front of potential customers
- Pricing are the tactics
- Each rev stream may have different prices
- Fixed
- Cost plus fixed mark-up: minimum price in the market
- Value priced based on customer segment or features
- Volume priced - step up discount for larger volume
- Dynamic
- Negotiation
- Yield management - airline prices; time-based, perishable items
- Real-time markets - stock
- Auctions
- Common mistakes
- Revenue stream is not a price
- Don't set the price based on how much it costs to make
- Better to price on value than cost
- Based on buyer's perception of value
- Customers might not know they want to pay this way
- Price doesn't have to be less than competitors
- What are my revenue streams
- The strategy the company uses to generate cash from each customer segment
- The tactics you user to set the price in each customer segment
- Within rev streams, how do I price the product
- What value are customers willing to pay for
- Starts as a guess
- Talk to customers to get a better estimate
- How do customers pay
- How much are they paying
- Nature of existing markets affects pricing
- Pure competition
- Monopoly
- Oligopoly
- How will they react?
- Single/multi-side markets
- Single - customer is the user and payer and company cares about revenue
- Multi - company may care about users first, revenues second
- How do you get to 10M users
- How to become to 5 websites
- How much do the "payers" actually pay
- Revenue first companies
- Time to doubling for monthly revenues
- When will I get to $100k/month
- When will I get to $1M/month
- What assumptions about my business am I making when I reach these milestones
- Market type and revenue
- New market - Hockey stick
- Revenue flat early on
- Sales should go exponential at the tipping point
- Bump in year one - fallacy of new markets
- You get the innovators and early adopters
- Not past the chasm
- Existing market
- Customers and competitors
- Take more share from encumbants
- Built on stable market share growth
- Resegmented market
- Market share until differentiation is known and market resegments
- Exponential growth after resegmentation
- New market - Hockey stick
- Draw the diagram and put in numbers
- If you don't understand it, get out and speak to customers again
- Key questions - all should be
- What are my customers paying for
- What capacity do my customers have to pay
- How will you package your product
- How will you price your product
- What's the market size and estimate of market share
- How many can your channel sell
- How much will the channel cost
- How many customers activations
- How much will it cost to acquire a customer
- What's the customer lifetime value
- Other companies that provide resources
- Partners
- Suppliers
- Give you resources or activities
- What kind of relationships are needed
- What defines a partner
- Shared economics - two-way relationship
- Mutual success/failure
- Co-op Dev/invention
- Common customers
- Partnerships should be the same size/power level
- Why have partners
- Faster time to market
- Broader product offering
- More efficient use of capital
- Unique customer knowledge or expertise
- Access to new markets
- Types
- Strategic alliances
- User partners to build the whole predict
- Using third parties to provide a customer with a complete solution
- Complement your core product with other products or services
- Training, installation, service
- Not the same on day one for the startup - get through the early evangelists first and stay in contact with them to see what product they ultimately come up with. Then use the alliances to build that product
- Joint business Dev
- Joint promotion of complementary products
- One may be the dominant player
- Example - Intel
- Mistake - confusing strategic alliances and joint Partnerships for start-ups
- Coopetition
- Competitors join together in programs to grow awareness of their industry
- Trade-offs
- Industry associations
- Key suppliers
- Outsource suppliers
- Back office
- Supply chain
- Manufacturing
- Direct suppliers
- Components
- Raw materials
- Outsource suppliers
- Traffic partners - only virtual
- Long term agreements with other companies
- Deliver long term predictable levels of customers
- Partners drive traffic using text links, with on site promotions
- Paid on a per-referral basis
- Sometimes exchange email lists
- Cross-referral or swapping basis
- Strategic alliances
- Risks
- Impedance mismatch - power is not balanced
- Longest of partners schedule becomes your longest item
- No clear ownership of the customer
- Products lack vision - shared product design
- Different underlying objectives in relationship - why did the partner accept the relationship
- Churn in partners strategy or personnel
- IP issues
- Difficult to unwind or end
- Should I take investments from a large company
- Think about what's in it for me first
- Their objective is not too make you a large company
- Who's the sponsor
- Better to get a sales deal instead of investment
- Key resources
- What are the most important assets required to make the model work
- Financial -
- raising money, credit
- Friends
- Family
- Crowdfunding
- Angels
- Venture capital
- Corporate partners
- SBIR/STTR grants
- Small Business Admin grants
- Lease-lines
- Factoring - lending money on purchase orders at a discount
- Vendor-financing
- Physical -
- manufacturing, machines, vehicles
- company facilities, location
- Products/services
- Raw materials/supplies
- Warehouse space
- Many physical goods are capital intensive
- Intellectual - patents, people, customer lists
- Trademark
- Branding
- Copyright
- Creative work
- Into perpetuity
- Trade secrets
- Secrets of value
- Contract
- Don't put deep insights/algorithms in the first presentation
- Patent
- Inventions
- 15-20 year monopoly
- Trademark
- Human -
- software engineers, scientists
- Qualified employees/culture
- Difference between a good idea and a billion dollar form
- Hire people that are better than you
- Mentors, teachers, coaches
- Advance your personal career
- Learn a specific subject from a teacher
- Hone specific skills from a coach
- Get smarter or better over your career with a mentor - someone who cares about your future success
- Advisors
- People you need to help advance your company's success
- Fingers fall when they believe their visions are facts
- Listening to experienced advice can help you sort out whether your vision is a hallucination
- Getting an advisory board is an explicit step in the customer Dev process - very important
- Costs
- Could put you out of business
- Obviously, must be less than your revenue
- What are the costs to operate the business model
- Fixed
- Variable
- What are the most important costs
- What are the most expensive resources
- What key activities are the most expensive
- Find the metrics that matter
- Search metrics are not execution metrics
- Existing companies execute plans
- Start-ups search for them
- Derive the metrics that matter to your business
- Value prop
- Customer relationships
- Market type
- Operating costs - fixed and variable
- Channel costs
- Revenue streams
- Burn rate/month /week - when will you run out of money
- Metrics will change
- Entrepreneurs make their own luck
- Put in the work, met the people
- Turn guesses into facts
- Must be experienced
- Business model canvas
- Business model generation.com
- Launchpad central
- Share work and experiences
- Get feedback