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“Three Types Of Startup”

Iain Verigin
1
Agenda
• Market Type
– Definitions
– Examples
– Risks

• Customer Development
– Definitions
– Market Type effects
2
Crossing The Chasm

3
People

Underlying Drivers in Growth
Markets
“Technology Adoption Strategies”
Pragmatists:
Stick with the herd!
Visionarie...
Technology Adoption Life Cycle
! Pragmatist’s Don’t
Trust Visionaries !

Main Street

Tornado

Early
Market
Chasm
Bowling ...
Update 2011
? Instant
Success ?

In 4th year after launch.
( ie 6 years )
This is as fast as
it gets.

NB. Apple's fiscal ...
The Startup Curve

The Startup Curve <<http://www.avc.com/a_vc/2012/03/the-startup-curve.html
Market Types
Extension of New Product Adoption
Curve, and “Crossing the Chasm”

8
Existing Market “Chasm”

No Chasm

Main Street

Tornado

Early
Market

Bowling Alley
Copyright © Geoffrey A. Moore, 2005, ...
Existing Market = Linear Sales
Growth

10
Resegmented Market “Chasm”
Main Street

Tornado

Early
Market
Chasm
Bowling Alley
Copyright © Geoffrey A. Moore, 2005, fro...
Resegmented Sales

Year 7

Year 6

Year 5
Year 3

Year 4

Year 2
Year 1

12
New Market “Chasm”
Main Street

Tornado

Early
Market
Chasm
Bowling Alley
Copyright © Geoffrey A. Moore, 2005, from the bo...
New Market Hockey Stick Sales Curve

14
:aside: Another Way
The Knowledge Funnel
Crossing the chasm is very close to
moving through the knowledge funnel.
Some peo...
Market Type
Who Cares ?!
Why are those chasm’s getting bigger?
Can’t we just avoid them?
16
Type of Market
Changes Everything
Clone Market

• Market
–
–
–
–
–

Existing Market

Resegmented
Market

• Sales

Market S...
Definitions: Four Types of Markets
Clone Market

Existing Market

Resegmented
Market

New Market

• Clone Market
– Copy of...
Focus on 3 Types

19
Definitions
Existing Market Resegmented
Market

New Market

• Existing Market
– Faster/Better = High end

• Resegmented Ma...
Definition: Existing Market
• Are there customers in the current market who
would:
– Need the most performance possible?

...
Performance

Existing Market

Our
Company

Current
Companies

22
Performance

Oops, forgot about “Time”

Our
Company

Current
Companies

Time

23
Existing Market Risks
• “Better/Faster” is an engineering driven axiom
• Incumbents will defend high-end, high-margin busi...
“Existing Market”–
Knowledge Funnel
Existing markets are “Algorithmic”
and/or “Heuristic”

Existing Market

25
Definition: Resegmented Market- Low
End
• Are there customers at the low end of the market
who would:
– buy less (but good...
Performance

Low-End Resegmentation
“Good Enough” Performance
Future
Companies

Current
Companies

Our
Company

Time

27
Definition: Resegmented
Market (2)Niche
• Are there customers in the current market who would:
– buy the same product if i...
Performance

Niche Resegmentation

New Dimension

Time

29
Niche Resegmentation

30
Resegmented Market Risks
• “Cheaper” is a sales-driven axiom
• Incumbents will abandon low-end, low-margin
businesses
– Of...
“Segmented Market”–
Knowledge Funnel
Creating a new “SEGMENT”
introduces “MYSTERY”

Segmenting a
Market

32
Definition: New Market
• Is there a large customer base who couldn’t do this
before?
– Because of cost, availability, skil...
New Market

Performance

( Customers That Don’t Exist Yet)

Time

34
New Market Risks
• “New” is a marketing-driven axiom
• New has to be unique enough that:
– There is a large customer base ...
“New Market”–
Knowledge Funnel

New Market

36
Hybrid Markets
• Some products fall into Hybrid Markets
• Combine characteristics of both a new market and lowend resegmen...
Three Types of Markets
Existing Market
Customers

Existing

Customer
Needs

Performance

Performance

Better/Faster

Compe...
Three Types of Markets
Existing Market

Resegmented Market

Customers

Existing

Existing

Customer Needs

Performance

1....
Three Types of Markets
Existing Market

Resegmented Market

New Market

Customers

Existing

Existing

New & New Usage

Cu...
Why Bother With Anything But
Existing Market Model?
The others appear risky

41
Aaargh:-(
• The existing market model is a dream
– It sucks people in like a drug
– It works for market leaders like: “Win...
Market Entry: Cost Summary
Market Share

Cost of Entry
(vs Leaders Sales/Mktg
Budget)

Entry Strategy

Monopoly

> 75 %

3...
Interesting Reading
• Paul Graham – “Startup = Growth”
– http://www.paulgraham.com/growth.html

• Andrew Chen – “Is your m...
First Mover (dis?) Advantage
• GBF (Get Big Fast) Strategies
– VC Mania

• Results are in from the Trillion $ science expe...
“First Mover”–
Knowledge Funnel
The first mover is “solidly” in the
MYSTERY ZONE
There is no money in the mystery
zone.

4...
Model –
Reliability Bias
Roger Martin “Design of Business”

During Exploration
stage the ratio needs
to be skewed towards
...
Model –
Radical Change of
Meanings
Roberto Verganti’s
“Radical Change of Meanings”
! Very Useful for our class !
• Existin...
Customer Development
Market Type issues in context of
the Full Customer Development
Model
49
Interactions
• Choice of market type impacts each step of the
customer development process
–
–
–
–

Discovery
Validation
C...
Market Types Affects Customer
Discovery

Customer
Discovery

Customer
Validation

Customer
Creation

Scale
Company

51
Customer Discovery
• Goal is become a “domain expert”
• :idea: This may be hard for some/all of the team to accept
–

: th...
Market Type Affects Customer
Validation

Customer
Discovery

Customer
Validation

Customer
Creation

Scale
Company

53
Customer Validation
• Goal is to find a repeatable
and scalable sales process

• Time Varies depending on market type
– Ex...
Where Market Type
Really Matters
• After Customer Validation
• The “Rate” of Scaling that is possible

55
Market Type Affects Customer
Creation

Customer
Discovery

Customer
Validation

Customer
Creation

Scale
Company

56
Customer Creation (1)
Year 1
Objectives
Existing
Market

Market Share

Resegmenting
an Existing
Market

Market reframing &...
Customer Creation (2)
Year 1
Objectives

Positioning

Existing
Market

Market Share

•Differentiation & Credibility
•Produ...
Customer Creation (3)
Year 1
Objectives

Positioning

Demand Creation

Existing
Market

Market Share

•Differentiation &
C...
Customer Creation (4)
Year 1
Objectives

Positioning

Demand
Creation

Launch

Existing
Market

Market Share

•Differentia...
Summary: Type of Market
Changes Everything
Existing Market Resegmented
Market

New Market

• Everything =
–
–
–
–

Market
...
:Aside:

ReCap Mkt Type
Existing Market Resegmented
Market

New Market

• Don’t Get Swept Up By “The Dream”
– Quick Time-t...
:Aside:

Mkt Type: Why You Care
• Locating “Market Entry Points”
• Each Market Type has different points of entry.

• Sett...
What Are We Gonna Do?

64
Storyline “Depth” & Targets
Customer
Discovery

Customer
Validation

Customer
Creation

Year One
Objectives

•Type Of Star...
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1a three types-of_startup.2013.q2

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Part of 2013 Q2 Lean Launch Pad Presentations

0a-Introduction.2013.Q2.pptx
1a-Three_Types_Of_Startup.2013.Q2.pptx
1b-Customer Discovery (problem hypothesis).2013.Q2.pptx
2a-Customer Discovery ( canvas and story ).2013.Q2.pptx
2b-Value_Chain (team specific).2013.Q2.pptx
3a-Customer_Validation.2013.Q2.pptx
3b-GKG-CustomerRelationships.2013.Q2.pptx
4a-EndGame.2013.Q2.pptx

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1a three types-of_startup.2013.q2

  1. 1. “Three Types Of Startup” Iain Verigin 1
  2. 2. Agenda • Market Type – Definitions – Examples – Risks • Customer Development – Definitions – Market Type effects 2
  3. 3. Crossing The Chasm 3
  4. 4. People Underlying Drivers in Growth Markets “Technology Adoption Strategies” Pragmatists: Stick with the herd! Visionaries: Get ahead of the herd! Conservatives: Stick with what’s proven! Skeptics: Just say No! Techies: Just try it! 4 Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN”
  5. 5. Technology Adoption Life Cycle ! Pragmatist’s Don’t Trust Visionaries ! Main Street Tornado Early Market Chasm Bowling Alley Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN” 5
  6. 6. Update 2011 ? Instant Success ? In 4th year after launch. ( ie 6 years ) This is as fast as it gets. NB. Apple's fiscal year ends in September. This means that Q1 includes the holiday season, which accounts for jumps in the data. Fiscal Q1 is Oct - Dec of previous year. So Q1 of 2008 is Oct - Dec of 2007, Q2 of 2008 is Jan - Mar of 2008 and so on. 6
  7. 7. The Startup Curve The Startup Curve <<http://www.avc.com/a_vc/2012/03/the-startup-curve.html
  8. 8. Market Types Extension of New Product Adoption Curve, and “Crossing the Chasm” 8
  9. 9. Existing Market “Chasm” No Chasm Main Street Tornado Early Market Bowling Alley Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN” 9
  10. 10. Existing Market = Linear Sales Growth 10
  11. 11. Resegmented Market “Chasm” Main Street Tornado Early Market Chasm Bowling Alley Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN” 11
  12. 12. Resegmented Sales Year 7 Year 6 Year 5 Year 3 Year 4 Year 2 Year 1 12
  13. 13. New Market “Chasm” Main Street Tornado Early Market Chasm Bowling Alley Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN” 13
  14. 14. New Market Hockey Stick Sales Curve 14
  15. 15. :aside: Another Way The Knowledge Funnel Crossing the chasm is very close to moving through the knowledge funnel. Some people like the Mystery. Some people like the “Rule of Thumb” ( ie Heuristic) Some people like “no frills” Each of these groups are different and don’t trust each others product/service referrals. 15
  16. 16. Market Type Who Cares ?! Why are those chasm’s getting bigger? Can’t we just avoid them? 16
  17. 17. Type of Market Changes Everything Clone Market • Market – – – – – Existing Market Resegmented Market • Sales Market Size Cost of Entry Launch Type Competitive Barriers Positioning – – – – Sales Model Margins Sales Cycle Chasm Width New Market • Customers • Needs • Adoption •Finance • Ongoing Capital • Time to Profitability (landscape very different in type)
  18. 18. Definitions: Four Types of Markets Clone Market Existing Market Resegmented Market New Market • Clone Market – Copy of a U.S. business model • Existing Market – Faster/Better = High end • Resegmented Market – Niche = marketing/branding driven – Cheaper = low end • New Market – Cheaper/good enough, creates a new class of product/customer – Innovative/never existed before
  19. 19. Focus on 3 Types 19
  20. 20. Definitions Existing Market Resegmented Market New Market • Existing Market – Faster/Better = High end • Resegmented Market – Niche = marketing/branding driven – Cheaper = low end • New Market – Cheaper/good enough can create a new class of product/customer – Innovative/never existed before 20
  21. 21. Definition: Existing Market • Are there customers in the current market who would: – Need the most performance possible? • Is there a scalable business model at this point? • Is there a defensible business model? – Are there sufficient barriers to competition from incumbents? 21
  22. 22. Performance Existing Market Our Company Current Companies 22
  23. 23. Performance Oops, forgot about “Time” Our Company Current Companies Time 23
  24. 24. Existing Market Risks • “Better/Faster” is an engineering driven axiom • Incumbents will defend high-end, high-margin businesses • Factor in: – Network effect of incumbent – Sustaining innovation of incumbent – Industry (or your own) “standards” • “They’ll never catch up” is not a business strategy • Established companies almost always win 24
  25. 25. “Existing Market”– Knowledge Funnel Existing markets are “Algorithmic” and/or “Heuristic” Existing Market 25
  26. 26. Definition: Resegmented Market- Low End • Are there customers at the low end of the market who would: – buy less (but good enough) performance – if they could get it at a lower price? • Is there a profitable business model at this low-end? • Are there sufficient barriers to competition from incumbents? 26
  27. 27. Performance Low-End Resegmentation “Good Enough” Performance Future Companies Current Companies Our Company Time 27
  28. 28. Definition: Resegmented Market (2)Niche • Are there customers in the current market who would: – buy the same product if it addressed their specific needs – if they could get it at the same price? – If it cost more? • Is there a defensible business model at this point? • Are there sufficient barriers to competition from incumbents? 28
  29. 29. Performance Niche Resegmentation New Dimension Time 29
  30. 30. Niche Resegmentation 30
  31. 31. Resegmented Market Risks • “Cheaper” is a sales-driven axiom • Incumbents will abandon low-end, low-margin businesses – Often -- For the right reasons :-( • Low-end must be coupled with a profitable business model – Up migration 31
  32. 32. “Segmented Market”– Knowledge Funnel Creating a new “SEGMENT” introduces “MYSTERY” Segmenting a Market 32
  33. 33. Definition: New Market • Is there a large customer base who couldn’t do this before? – Because of cost, availability, skill...? • Did they have to go to an inconvenient, centralized location? • Are there sufficient barriers to competition from incumbents? 33
  34. 34. New Market Performance ( Customers That Don’t Exist Yet) Time 34
  35. 35. New Market Risks • “New” is a marketing-driven axiom • New has to be unique enough that: – There is a large customer base who couldn’t do this before – They want/need/can be convinced – Adoption occurs in your lifetime • Company manages adoption burn rate – Investors are patient and have deep pockets 35
  36. 36. “New Market”– Knowledge Funnel New Market 36
  37. 37. Hybrid Markets • Some products fall into Hybrid Markets • Combine characteristics of both a new market and lowend resegmentation – SouthWest Airlines – Dell Computers – Cell Phones 37
  38. 38. Three Types of Markets Existing Market Customers Existing Customer Needs Performance Performance Better/Faster Competition Existing Incumbents Risks Existing Incumbents 38
  39. 39. Three Types of Markets Existing Market Resegmented Market Customers Existing Existing Customer Needs Performance 1. Cost 2. Perceived Need Performance Better/Faster 1. Good enough at the low end 2. Good enough for new niche Competition Existing Incumbents Existing Incumbents Risks Existing Incumbents 1. Existing Incumbents 2. Niche strategy fails 39
  40. 40. Three Types of Markets Existing Market Resegmented Market New Market Customers Existing Existing New & New Usage Customer Needs Performance 1. Cost 2. Perceived Need Simplicity & Convenience Performance Better/Faster 1. Good enough at the low end 2. Good enough for new niche Low in “traditional attributes”, improved by “new” metrics Competition Existing Incumbents Existing Incumbents Non-consumption & other startups Risks Existing Incumbents 1. Existing Incumbents 2. Niche strategy fails Market Adoption 40
  41. 41. Why Bother With Anything But Existing Market Model? The others appear risky 41
  42. 42. Aaargh:-( • The existing market model is a dream – It sucks people in like a drug – It works for market leaders like: “Windows”, Intel Processors, etc • Incumbents “Will Protect an Existing Mkt”. – If you are not in the market then you have to expect that it will take “time” to get to know and win customers!!!!! – If someone tells you different, it’s time to move on. 42
  43. 43. Market Entry: Cost Summary Market Share Cost of Entry (vs Leaders Sales/Mktg Budget) Entry Strategy Monopoly > 75 % 3x Resegment Duopoly > 75 % 3x Resegment Market Leader > 41 % 3x Resegment Unstable Market > 26 % 1.7x Existing/ Resegment Open Market < 26 % 1.7x Existing/ Resegment New Lanchester Strategy Table 5.2 - page 127 “Four Steps” 43
  44. 44. Interesting Reading • Paul Graham – “Startup = Growth” – http://www.paulgraham.com/growth.html • Andrew Chen – “Is your market actually big? Or is it a fake market?” – http://andrewchen.co/2012/10/08/is-yourmarket-actually-big-or-is-it-a-fake-market/ 44
  45. 45. First Mover (dis?) Advantage • GBF (Get Big Fast) Strategies – VC Mania • Results are in from the Trillion $ science experiment Internet bubble of the 90’s. – New Market adoption can not be accelerated – Possibly useful for resegmentation – Heuristics for when to invest in GBF • Examples – Google was not first in search. 45
  46. 46. “First Mover”– Knowledge Funnel The first mover is “solidly” in the MYSTERY ZONE There is no money in the mystery zone. 46
  47. 47. Model – Reliability Bias Roger Martin “Design of Business” During Exploration stage the ratio needs to be skewed towards Intuition. “High Risk, Low Data Decisions” Page 90 “Crossing the Chasm”, G Moore You can’t analyze Low Data. You’ve got to go get some “real data yourself” 47
  48. 48. Model – Radical Change of Meanings Roberto Verganti’s “Radical Change of Meanings” ! Very Useful for our class ! • Existing Market •User Centered Market Pull • New Markets • Technology Push • Design Driven • Adoption not guaranteed • Requires Customer Insight & Training for “Meaning” to become accepted or adopted • Segmentation Opportunities are in between 48
  49. 49. Customer Development Market Type issues in context of the Full Customer Development Model 49
  50. 50. Interactions • Choice of market type impacts each step of the customer development process – – – – Discovery Validation Creation Scale Customer Discovery Customer Validation Customer Creation Scale Company 50
  51. 51. Market Types Affects Customer Discovery Customer Discovery Customer Validation Customer Creation Scale Company 51
  52. 52. Customer Discovery • Goal is become a “domain expert” • :idea: This may be hard for some/all of the team to accept – : think : “I’m already an expert” • Time Varies depending on market type – Existing market issues are known – New market is a science project – Resegmenting a niche is an art form 52
  53. 53. Market Type Affects Customer Validation Customer Discovery Customer Validation Customer Creation Scale Company 53
  54. 54. Customer Validation • Goal is to find a repeatable and scalable sales process • Time Varies depending on market type – Existing market sales issues are known – New market goal is to find a tipping point 54
  55. 55. Where Market Type Really Matters • After Customer Validation • The “Rate” of Scaling that is possible 55
  56. 56. Market Type Affects Customer Creation Customer Discovery Customer Validation Customer Creation Scale Company 56
  57. 57. Customer Creation (1) Year 1 Objectives Existing Market Market Share Resegmenting an Existing Market Market reframing & new market share New Market Market Adoption 57
  58. 58. Customer Creation (2) Year 1 Objectives Positioning Existing Market Market Share •Differentiation & Credibility •Product Differentiation Resegmenting an Existing Market Market reframing & new market share •Segmentation & Innovation •Redefining existing market & product differentiation New Market Market Adoption •Vision & innovation in new market • Defining the new market, the need & the solution • Early adopters 58
  59. 59. Customer Creation (3) Year 1 Objectives Positioning Demand Creation Existing Market Market Share •Differentiation & Credibility •Product Differentiation * Create/drive demand into the sales channel Resegmenting an Existing Market Market reframing & new market share •Segmentation & Innovation •Redefining existing market & product differentiation •Educate market on the change •Drive demand into channel New Market Market Adoption •Vision & innovation in new market • Defining the new market, the need & the solution • Early adopters •Customer Education •Drive early adopters into sales channel •Tipping Point (diffusion of innovation ) 59
  60. 60. Customer Creation (4) Year 1 Objectives Positioning Demand Creation Launch Existing Market Market Share •Differentiation & Credibility •Product Differentiation * Create/drive demand into the sales channel •Credibility / delivery •Existing basis of competition Resegmenting an Existing Market Market reframing & new market share •Segmentation & Innovation •Redefining existing market & product differentiation •Educate market on the change •Drive demand into channel *Segmentation, delivery and innovation * New basis of competition New Market Market Adoption •Vision & innovation in new market • Defining the new market, the need & the solution • Early adopters •Customer Education •Drive early adopters into sales channel •Tipping Point (diffusion of innovation ) *Credibility & Innovation * Market education, standards setting, 60 early adopters
  61. 61. Summary: Type of Market Changes Everything Existing Market Resegmented Market New Market • Everything = – – – – Market Sales Customers Finance • Customer Development Process 61
  62. 62. :Aside: ReCap Mkt Type Existing Market Resegmented Market New Market • Don’t Get Swept Up By “The Dream” – Quick Time-to-Revenue of Existing Market – With “Open Fields” Opportunity of New Market – !!! These are mutually exclusive !!! • ! Stop Dreaming! Get Real! 62
  63. 63. :Aside: Mkt Type: Why You Care • Locating “Market Entry Points” • Each Market Type has different points of entry. • Setting investor expectation – Each Mkt Type has different trajectories for time & money – Investors are: sweat equity (you & the team), your customers, and your funders • Success Points… –Setting Expectations & Delivering on time –! This is “Old School” and will always be relevant ! •Mkt Type provides a means of setting “realistic” expectations. –For market entry and delivery. •Work to “Know” your Mkt Type and act accordingly. 63
  64. 64. What Are We Gonna Do? 64
  65. 65. Storyline “Depth” & Targets Customer Discovery Customer Validation Customer Creation Year One Objectives •Type Of Startup Distribution Model •Revenue Model •Channel Model •Launch Model •Sales Model Positioning •Articulate Problem & Product concept •Understand customers view of the competitors •Initial company & Product Positioning •Test w/ Early Adopters •Company/Product Positioning by PR Agency with audit Launch •Day in the life •Attend Shows/Confs •Estimate Mkt Size •Company & product launch strategy •Test w/ early adopters •Launch/Introduce •Launch type depends on “mkt type” of startup Demand Creation •Press, Analysts, Influencers List •How do customers make buying decisions? • How do customers purchase? •Understand analysts/influencers view •Implement demand creation •Type depends on “mkt type” 65

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