Why Accountants Dont Run Startups

Steve Blank
Stanford - School of Engineering U.C. Berkeley - Haas School Of Business

www.steveblank.com
Twitter: sgblank

I Drew This

Customer Discovery

Customer Validation Pivot

Customer Creation

Company Building

I Called It: Customer Development

Customer Discovery Customer Validation Pivot Customer Creation Company Building

I Wrote This

A Few People Read It

I Write a Blog www.steveblank.com

When the Student is ready, the Master appears.

Buddhist proverb

When the Student is ready, the Master appears.

Buddhist proverb

When the Master is ready, the Student appears.

Steve Blank proverb

Five Short Stories

Tectonic Shifts in Entrepreneurship

The Silicon Valley Funding Pyramid

TechStars Floodgate SV Angel (Conway) First Round Capital
Angels & Incubators ($0-10M)

Y-Combinator SoftTech (Clavier) Felicis (Senkut) Union Square Ventures

Seed Funds ($10-50M)

Small VC Funds ($50-250M)

Sequoia

Traditional VC Funds (>$250M)

Benchmark

Source: Dave McClure 500hats.com

Innovation in Financing
Angels & Incubators ($0-10M)

Seed Funds ($10-50M)

Innovation is happening here

Small VC Funds ($50-250M)

Traditional VC Funds (>$250M)

Source: Dave McClure 500hats.com

New Trends In Silicon Valley

Internet startups - $500K is the new $5M
Driven by the top of the pyramid

Seed Funds providing entrepreneurial education*

Ycombinator, TechStars, SeedCamp, LaunchBox, etc

Customer Development/Lean Startup adoption

Methodology to test hypothesis and business model

*~100 startup accelerator programs: http://blog.shedd.us/321987608/

Not All Startups Are Equal

Small Business Startups

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Small Business Startups

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!"#$$% &'()*+((% Business Model found - Profitable business - Existing team < $10M in revenue
-

Small Business Startups

!"#$"%&'

!"#$$% &'()*+((%
- Business Model found

- Profitable business - Existing team < $10M in revenue

5.7 million small businesses in the U.S. <500 employees 99.7% of all companies ~ 50% of total U.S. workers

http://www.sba.gov/advo/stats/sbfaq.pdf

Small Business Startup: Internet Edition

!"#$$% &'()*+((%
- Business Model found

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- Profitable business - Existing team < $10M in revenue

The Internet allows a new class of Small Businesses Not all businesses on the Internet are Scalable Startups

Scalable Startup

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Scalable Startup

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Market > $500m - Company can grow to $100m/year - Business model found - Focused on execution and process

Scalable Startup

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- Total Available Market > $500m - Company can grow to $100m/year - Business model found - Focused on execution and process - Typically requires risk capital

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In contrast a scalable startup is designed to grow big Typically needs risk capital What Silicon Valley means when they say Startup

Very Different Startup Goals

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- Business Model found - Profitable business - Existing team < $10M

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- Total Available Market > $500m - Company can grow to $100m/year - Business model found - Focused on execution and process - Typically requires risk capital

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Silicon Valley Venture Firms Invest in Scalable Startups

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What VCs Dont Tell You: The Transition

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3-#*()40*%

Search

Build

Grow

What VCs Dont Tell You: The Transition Founders Leave

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3-#*()40*%

Founders depart - Professional Mgmt - Process - Beginning of scale

-

Whats A Startup?
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- Business

Model found - i.e. Product/Market fit - Repeatable sales model - Managers hired

A Startup is the organization used to search for a scalable business model

Plan versus Model

No Business Plan survives first contact with customers

So Search for a Business Model

The Search for a Business Model

A Business Plan is static A Business Model diagrams how a company creates, delivers and captures value its dynamic Or in English: How a company makes money

Emphasis On Hypotheses Testing

Startups Continually Pivot (Iterate)

Startups Search and Pivot

The Search for the Business Model

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- Business

Model found - i.e. Product/Market fit - Repeatable sales model - Managers hired

Startups Search, Companies Execute

The Search for the Business Model

The Execution of the Business Model

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- Business Model found - Product/Market fit - Repeatable sales model - Managers hired

- Cash-flow

breakeven

- Profitable - Rapid scale - New Senior Mgmt ~ 150 people

Metrics Versus Accounting

The Execution of the Business Model

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Traditional Accounting - Balance Sheet - Cash Flow Statement - Income Statement

Metrics Versus Accounting

The Search for the Business Model

The Execution of the Business Model

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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

Customer Validation Versus Sales

The Execution of the Business Model

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Sales - Sales Organization - Scalable - Price List/Data Sheets - Revenue Plan

Customer Validation Versus Sales

The Search for the Business Model

The Execution of the Business Model

!(#)#*)+' !"#$"%&' Customer Validation - Early Adopters - Pricing/Feature unstable - Not yet repeatable -One-offs

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Sales - Sales Organization - Scalable - Price List/Data Sheets - Revenue Plan

Customer Development Versus Product Management

The Execution of the Business Model

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Product Management - Delivers MRDs - Feature Specs - Competitive Analysis

Customer Development Versus Product Management

The Search for the Business Model

The Execution of the Business Model

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Customer Development - Hypothesis Testing - Minimum Feature Set - Pivots

Product Management - Delivers MRDs - Feature Specs - Competitive Analysis

Engineering Versus Agile Development

The Execution of the Business Model

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Engineering - Requirements Docs. - Waterfall Development - QA - Tech Pubs

Engineering Versus Agile Development

The Search for the Business Model
The Execution of the Business Model

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Agile Development - Continuous Deployment - Continuous Learning - Self Organizing Teams - Minimum Feature Set - Pivots

Engineering - Requirements Docs. - Waterfall Development - QA - Tech Pubs

How Do Startups Search For A Business Model?

The Search is called Customer Development The Implementation is called Agile Development

The Lean Startup

The Search is called Customer Development The Implementation is called Agile Development

Startups Dont Last Forever

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- Business Model found - Product/Market fit - Repeatable sales model - Managers hired

- Cash-flow breakeven - Profitable - Rapid scale - New Senior Mgmt ~ 150 people

You fail if you remain a startup!

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Leadership Versus Management

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Leadership Versus Management

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Leadership Versus Management

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Search

Leadership Versus Management

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Search

Build

Leadership Versus Management

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Search

Build

Grow

Inventor of the Modern Corporation

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Inventor of the Modern Corporation

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Alfred P. Sloan

Alfred P. Sloan

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General Motors, President/Chairman - Cost Accounting - MIT Sloan School - Sloan Foundation - etc.

Founder of General Motors

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Founder of General Motors

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Billy Durant

Billy Durant

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- Leader in horse-drawn buggys - Fired by board, starts Chevrolet - Regains control of GM - Fired by board, GM ~$3.6 billion*

* GM

Net sales in 1921 $304.5M = $3.6 Billion today

Durant Versus Sloan

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Durant Versus Sloan

Dies, rich, honored and famous

Durant Versus Sloan

Dies managing a bowling alley

Dies, rich, honored and famous

Durant Versus Sloan Accountant

Dies

managing a bowling alley

Dies, rich, honored and famous

You are here

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E-School instead of B-School

Business School Versus Entrepreneurship School

Business School !(#)#*)+' !"#$"%&' 9$#8:;<68' 3#$4+' 567&#82'

Execution - Strategy - Accounting - Products - Engineering - Management - Administrative

-

Business School Versus Entrepreneurship School

Entrepreneurship School !(#)#*)+' !"#$"%&'
- Hypothesis
Business School

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testing - Business Model testing - Customer Development - Agile Development - Metrics - Venture Finance - Hands-on

Execution - Accounting - Products - Engineering - Management - Administrative

-

Business School Courses Versus Entrepreneurship Courses

Business School !(#)#*)+' !"#$"%&' 9$#8:;<68' 3#$4+' 567&#82'

Courses - Managerial Finance/Accounting - Managing Groups and Teams - Financial Accounting - Operations - Modeling for Optimization - Global Value Chain Strategies

Business School Versus Entrepreneurship Courses

Entrepreneurship School !(#)#*)+' !"#$"%&' 9$#8:;<68'
Business School

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Courses Courses - Entrepreneurial Management - Managerial Finance/Accounting - Creativity and Innovation - Managing Groups and Teams - Technology Entrepreneurship - Financial Accounting - Patent Law for Entrepreneurs - Operations - Global Entrepreneurial Marketing- Modeling for Optimization - Global Value Chain Strategies - Entrepreneurial Finance

E-School Will Emerge

Entrepreneurial Education will change radically E-School Students are not B-School Students Y-Combinator/Techstars first inkling Today ~100 startup accelerator programs

*~100 startup accelerator programs: http://blog.shedd.us/321987608/

E-School Lets Help Build It

Startup Accelerators - great coaching/networking but minimal methodology Lean/Customer Development - great methodology but no education Need to be connected to Engineering School Stanford, Harvard and others get itbut

*~100 startup accelerator programs: http://blog.shedd.us/321987608/

Durant School of Entrepreneurship

The Durant School of Entrepreneurship

http://www.cafepress.com/durantschool

The Durant School of Entrepreneurship

http://www.cafepress.com/durantschool

The Durant School of Entrepreneurship

http://www.cafepress.com/durantschool

Thanks
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