1. How to Fail Less
Business Models and
Customer Development
Steve Blank
www.steveblank.com
@sgblank

2. What We Used to Believe
Search Versus Execution

3. Startups are Smaller Versions of
Large Companies

4. What We Now Know
Search Versus Execution

5. Startups Search
Large Companies Execute

6. What We Used to Believe
Strategy

7. All I Need to Do is Execute the Plan

8. Plan Meets
First Contact
With
Customers

9. All I Need is the 5- Year Forecast

10. Previous
5-Year Plans

11. All I Need to Do is Make the Forecast

12. What We Now Know
Strategy

13. Planning comes before the plan

14. Business Models

15. Business Models

16. Search Execution
Business Model Operating Plan +
Strategy
Hypotheses Financial Model

17. What We Used to Believe
Process

18. We Built Startups by
Managing Processes
Product Management
+
Waterfall Engineering

19. Product Introduction Model
Concept/ Product Alpha/Beta Launch/
Seed Round Dev. Test 1st Ship

20. Product Introduction Model
Concept/ Product Alpha/Beta Launch/
Seed Round Dev. Test 1st Ship

21. Waterfall / Product Management
Execution on Two “Knowns”
Requirements
Product Features: known
Design
Implementation
Verification
Customer Problem: known Maintenance
Source: Eric Ries
http://startuplessonslearned.blogspot.com

22. Waterfall / Product Management
Execution on Two “Knowns”
Requirements
Product Features: known
Design
Implementation
Verification
Customer Problem: known Maintenance
Source: Eric Ries
http://startuplessonslearned.blogspot.com

23. What We Now Know
Strategy

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

25. Customer Development
A Search Strategy

26. Search Execution
Strategy Business Model
Operating Plan +
Hypotheses
Financial Model
Process Customer & Product Management
& Agile Development
Agile Development

27. What We Used to Believe
Organization

28. Hire and Build a
Functional Organization

31. What We Now Know
Organization

32. Founders run a
Customer Development Team
No sales, marketing and business
development

33. Search Execution
Strategy Business Model
Operating Plan +
Hypotheses
Financial Model
Customer Development, Product Management
Process
Agile Development Agile or Waterfall Development
Customer Functional Organization
Organization
Development Team, by Department
Founder-driven

34. Search
Strategy Business Model
Hypotheses
Process
Customer Development,
Agile Development
Organization
Customer Development
Team, Founder-driven

35. Search Execution
Strategy Business Model
Operating Plan +
Hypotheses
Financial Model
Process Customer Development, Product Management
Agile Development Agile or Waterfall Development
Organization
Customer Development Functional Organization
Team, Founder-driven by Department

36. Part 2
Business Models and
Customer Development

37. What’s A Startup?

38. A temporary organization
designed to search
for a repeatable and scalable
business model

39. A temporary organization
designed to search
for a repeatable and scalable
business model

40. A temporary organization
designed to search
for a repeatable and scalable
business model

41. A temporary organization
designed to search
for a repeatable and scalable
business model

42. A temporary organization
designed to search
for a repeatable and scalable
business model
A Startup aims to become a
company

43. What’s a Business Model?

44. © 2012 Steve Blank

45. Value Proposition
What Are You Building and For Who?

46. © 2012 Steve Blank

47. Customer Segments
Who Are They?
Why Would They Buy?

48. © 2012 Steve Blank

49. Channels
How does your Product
Get to Customers?

50. © 2012 Steve Blank

51. Customer Relationships
How do you Get, Keep and Grow Customers?

52. © 2012 Steve Blank

53. Revenue Streams
How do you Make Money?

54. © 2012 Steve Blank

55. Key Resources
What are your most important Assets?

56. © 2012 Steve Blank

57. Key Partners
Who are your Partners and Suppliers?

58. © 2012 Steve Blank

59. Key Activities
What’s Most Important for the Business?

60. © 2012 Steve Blank

61. Cost Structure
What are the Costs and Expenses

62. © 2012 Steve Blank

63. But,
Realize They’re Hypotheses

64. 9 Guesses
Guess
Guess Guess
Guess
Guess
Guess Guess
Guess Guess

67. Customer Development
Test the Problem, Then the Solution

70. Customer Development
The Minimum Viable Product

72. Customer Development
The Pivot

74. Customer Development is
how you search for the model

79. How Does This Really Work?
Lean LaunchPad Class

81. Total Contacts: 96
Red Ox’s Electrochemical Desalination Cell
1. desalinates brine, a waste product from oil & gas and other industries
2. generates electricity quietly and
3. produces bulk inorganics that can be sold as commodities.
André Taylor (PI) David Kohn (EL) Tom Livingston (IM)
National Science Foundation Innovation Corps Program May 23, 2012

82. Problem:
Saline brine.
What is it?
Water that is saltier than sea water.
It is produced as a waste product of many industrial
processes.
82

83. Why is it a problem?
Saline brine is:
1. Environmentally harmful
2. Heavily regulated
3. Costly to treat and dispose of.

84. What we thought
1. Desalination 2. Oil and gas production
Photo 1: Kay Bailey Hutchison desalination plant Photo 2: a hydraulic fracturing site near
in El Paso Tx. Morgantown Pa.
84

85. What we did:
85

86. What we learned:
1. Desalination 2. Oil and gas production
Photo 1: Kay Bailey Hutchison desalination plant Photo 2: a hydraulic fracturing site near
in El Paso Tx. Morgantown Pa.

87. Key Partners Key Activities Value Customer Customer
-R & D Propositions Relationships Segments
-Manufacturers -Engineering -Turns waste cost -Service -Inland and coastal
-Utilities customization into revenue -Customization desalination plants
-Regulators -Decreased input -Link to value add -Industrial brine
-Learn regulatory
-Utility Commissions costs / volatility in industrial producers
landscape
-Quiet electricity ecosystem -Hydrofracking
-Foster relationships
-Inland and coastal on-site -Improve public operations
with stakeholders
desalination plants image
-Hiring & retention
-Industrial brine -Decreased liability -Chemical
producers Key Resources -Better public Channels distributors
-Hydrofracking image -Chemical End Users
-People
operations -Decreased -B2B marketing -Chemical Producers
-Intellectual
permitting time -Service
property
-Chemical agreements
-CO2 sequestration -Licensing
distributors -Brand -Utilities
-Energy efficiency arrangements
-Chemical Producers -Relationships with -Fuel Cell Mfgs
stakeholders and -DOESN’T CAUSE
partners EARTHQUAKES
Cost Structure Revenue Streams
-People -Manufacture / Capital -Royalties from licenses -Chemical sales
-R & D -Operation and -Service contracts -Electricity sales
–Prototyping maintenance -Engineering consulting -REC sales
-Legal fees -Sales and Marketing fees -Brine treatment
(IP, Licensing, Regulatory) -Strategic Partnerships contracts

88. Key Partners Key Activities Value Customer Customer
-R & D Propositions Relationships Segments
-Manufacturers -Engineering -Turns waste cost -Service -Water Treatment
-Membrane Mfgs customization into revenue -Customization for Hydrofracking
-Utilities -Decreased -Link to value add (Especially
-Know regulatory Produced Water)
-Regulators disposal costs in industrial
landscape -Inlandand coastal
-Engineering firms -Decreased input ecosystem
-Foster relationships desalination plants
-Inland and coastal with stakeholders costs / volatility -Improve public
-Quiet electricity image -Industrial brine
desalination plants -Hiring & retention
on-site producers
-Industrial brine
producers Key Resources -Decreased liability Channels
- Electric Utilities (for
-Hydrofracking -People -Better public
-B2B marketing energy efficiency
operations -Intellectual image FOR
-Possibly investments)
-Chem. distributors property CLIENTS
-Decreased distributors/
-Chemical Producers -Chemical
permitting time ? conferences
-Brand distributors
-Service
-Relationships with -Chemical End Users
-Other frac water -DOESN’T CAUSE agreements
stakeholders and -Chemical Producers
treatment startups partners EARTHQUAKES -Licensing
arrangements
Cost Structure Revenue Streams
-People -Manufacture / Capital -Royalties from licenses -Chemical sales
-R & D & Prototyping -Operation and -Service contracts -Electricity sales
-Legal fees maintenance -Strategic Partnerships -REC sales
(IP, Licensing, Regulatory) -Sales and Marketing -Brine treatment
contracts

89. Traditional methods to dispose of saline brine include:
Deep well injection Evaporation Pits
Photo 4: a small deep well injection rig Photo 5 : a typical wastewater evaporation pit

90. Thought: Problem in the Marcellus
Texas:~50,000 Class II Disposal Wells (at least
80% for enhanced recovery)
Pennsylvania: 8 Class II Disposal Wells

91. Price for water treatment ~60x higher than we
thought!

93. Service
Well Owner Providers
(Fracking, O
nsite
recycling) Engineering
Firms
Regulators
(Water
Rights, Dispos Primary
al, Permitting) Treatment
Facility
Technology
Developers /
Vendors Secondary
Treatment
Contractor
Disposal
Companies

94. Disposal
Produced Dilution with
Water Freshwater
Reuse to
Frac Another
Well
Primary
How high can
Treatment they go?
This is where we Tertiary
fit in Treatment
Current state of Discharge
the art are
evaporators and Must be
crystallizers drinking water
quality

95. Drilling Flowback Produced
Water Water Water
Water from drilling First 30 days of Produced over
muds used to drill production well’s operating
well life (4-30 years)
Medium TDS
High TSS Very high TDS
~5-20 % of injected (usually 100,000
Small ppm or higher)
quantity, weird
stuff in it ~5-20 % of injected

96. Class II Wells Primary and
Tertiary
Treatment
Cost of 0.50-1.50 10.00-12.00 5.00-6.00
Disposal
($/bbl)
Transport 4.00-16.00 2.00-4.00 1.00-4.00
Cost ($/bbl)
Total 4.50-17.50 12.00-16.00 6.00-10.00
($/bbl)

97. “Moe! don’t throw out that brine!”

98. North American
Produced Water Market
TAM: $5 bn/yr
SAM: $3 bn
Target: $0.5 bn
Our projections:
~ $21 million/year revenues from one
10,000 barrel per day plant
<5% of current treatment and disposal in PA

99. Disposal
Produced Dilution with
Water Freshwater
Reuse to
Frac Another
Well
Primary
Treatment
Tertiary
= ~$1/bbl/hr Treatment
Discharge

100. Salt
Processing
Treatment
Storage
Drop-Off

101. Risks
1. Market risk: increasing reuse lowers disposal rate
2. Technology risk
3. Unable to sell into chemical markets
101

102. Key Partners Key Activities Value Customer Customer
-R & D Propositions Relationships Segments
-Manufacturers -Engineering -Turns waste cost into -Water Treatment
-Integrators customization revenue -Make it easy for for Oil and Gas
-Membrane Mfgs -Decreased them to get rid of (Especially
-Know regulatory disposal costs and their waste Produced Water)
-Engineering firms
landscape volume -Brand = good PR -Service Providers
-Foster relationships -Decreased for Oil and Gas
-Hydrofracking
with stakeholders transport costs -Oil and Gas
operations
-Hiring & retention -Decreased input Owner/Operators
-Service providers
for oil and gas costs / volatility and
Key Resources Channels
industry freshwater volume
-Oil and Gas -People -Quiet electricity
Owner/Operators -Intellectual -B2B marketing -Chemical
property -Better public -Possibly distributors
-Other frac water image for clients distributors/ -Chemical End Users
treatment startups -Brand -Decreased conferences -Chemical Producers
-Relationships with permitting time -Oil &gas well
-Environmental stakeholders and service providers/
Groups/Regulators -Doesn’t Cause
partners Earthquakes manufacturers
Cost Structure Revenue Streams
-People -Manufacture / Capital -Royalties from licenses -Chemical sales
-R & D & Prototyping -Operation and -Service contracts -Electricity sales
-Legal fees maintenance -Strategic Partnerships -REC sales
(IP, Licensing, Regulatory) -Sales and Marketing -Brine treatment
contracts

103. Key Partners Key Activities Value Customer Customer
-R & D Propositions Relationships Segments
- Produced Water -Engineering -Service Providers
-Decreased
Treatment customization -Make it easy for for Oil and Gas
disposal costs and
companies them to get rid of Water Treatment
volume
-Know regulatory their waste for Oil and Gas
-Service providers -Decreased
landscape -Brand = good PR (Especially
for oil and gas transport costs
-Foster relationships Produced Water)
industry -Valuable
with stakeholders -Oil and Gas
-Oil and Gas Coproducts
-Hiring & retention Owner/Operators
Owner/Operators -Quiet electricity
RESEACH ARMS Key Resources Channels
-People
-Manufacturers -Intellectual -Better public -Chemical -Chemical
-Membrane Mfgs property image for clients Distributors distributors
-Engineering firms -Decreased -Oil &gas well -Chemical End Users
-Brand permitting time service providers -Chemical Producers
-Relationships with -Doesn’t Cause and water
-Environmental stakeholders and Earthquakes treatment
Groups/Regulators partners companies
Cost Structure Revenue Streams
-People -Manufacture / Capital -Royalties from licenses -Chemical sales
-R & D & Prototyping -Operation and -Service contracts -Electricity sales
-Legal fees maintenance -Strategic Partnerships -REC sales
(IP, Licensing, Regulatory) -Sales and Marketing -Brine treatment
103
contracts

104. Why Do We Do This?

106. Additional Resources
• I-Corps class summary:
http://steveblank.com/2012/03/26/the-national-science-
foundation-innovation-corps-what-america-does-best/
• I-Corps team presentations:
http://www.slideshare.net/sblank/tagged/i-corps
• Resources for startups: http://steveblank.com/tools-and-
blogs-for-entrepreneurs/
• Books for startups: http://steveblank.com/books-for-
startups/
• Additional resources: http://steveblank.com/slides/