Startup camp chalmers innovation 19 september 2014

1. Henrik Berglund Chalmers University of Technology Center for Business Innova8on henber@chalmers.se www.henrikberglund.com @khberglund Business Models/Customer Development 2013-‐09-‐19 1

2. Agenda 1.  Startups vs Companies 2.  Business Models 3.  Customer Development

3. 1.  Startups vs Companies

4. What’s a Company?

5. What’s a Company? A business organiza5on, that sells a product or service in exchange for revenue and proﬁt

6. How are Companies organized?

7. How are Companies organized? Companies are organized around Business Models

8. Key activities Value proposition Customer relationships Customer segments Cost structure Key resources Revenue streams Channels Key partners Business Model hPp://www.businessmodelalchemist.com/

9. 9 Nespresso machines" retail" mail" order" Nespresso" .com" call" center" Nespresso stores" households" business" 1 x machine" sales" repetitive pod sales" distribution channels" coffee" production facilites" production" B2C distribution" brand" marketing" brand"patents" machine manufacturer" production" B2C distribution" brand" marketing" Nespresso club" brand" brand" Nespresso pods" Example: Nespresso

10. What’s a Startup?

11. What’s a Startup? A temporary organiza8on designed to search for a repeatable and scalable business model

14. Business Models Visualiza5on of the business model framwork Key activities ?? Value proposition ?? Customer relationships ?? Customer segments ?? Cost structure ?? Key resources ?? Revenue streams ?? Channels ?? Key partners ??

15. Startups Search Companies Execute

16. Startups ≠ Small companies

17. But s8ll…

18. What We Used to Believe Strategy

19. Start by developing a Business Plan…

20. …make the financial forecasts…

21. …then Execute

22. What We Now Know Strategy

23. 5-‐Year Plans

24. Develop and Execute the Business Plan

25. Why?

26. No Business Plan survives first contact with customers

27. “Everybody has a plan un5l they get punched in the face” Mike Tyson

28. Searching for a Business Model comes before Executing a business plan

29. Key activities Value proposition Customer relationships Customer segments Cost structure Key resources Revenue streams Channels Key partners Business Models hPp://www.businessmodelalchemist.com/

30. Solu8on Unfair Advantage Customer Segments Key Metrics Channels Cost Structure Revenue Streams Type: Asset sales Usage fee Subscrip8on fees Lending/Ren8ng/Leasing Licensing Brokerage fees Adver8sing Fixed Pricing: List price Product feature Customer segment Volume Dynamic Pricing Nego8a8on Yield management Real-‐8me market Interview 30-‐50 customers Build MVP Ongoing burn (fixed and variable costs) Direct Distributor OEM Retail VAR Web Unique Value Proposi8on Alterna8ves Customers; Users Early Adopters Why you are different and worth geeng aPen8on Result customers want + specific period of 8me + address objec8ons Acquisi8on Ac8va8on Reten8on Revenue Referral Not easily copied or bought Problem Alterna8ves

31. Business Model Hypotheses Search Strategy Execu5on Opera5ng Plan + Financial Model

32. What We Used to Believe Process

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

34. Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship Tradi8onal Development Process

35. Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship Tradi8onal Development Process Has Two Implicit Assump8ons

36. Tradi8onal Development Process Has Two Implicit Assump8ons Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship Customer Problem: known Product Features: known Works well for incremental development projects targe5ng exis5ng customers.

37. Tradi8on – Hire Marke8ng -‐  Create Marcom Materials -‐ Create Posi5oning -‐ Hire PR Agency -‐ Early Buzz -‐ Create Demand -‐ Launch Event -‐ “Branding” Marke5ng Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship

38. Tradi8on – Hire Sales -‐  Create Marcom Materials -‐ Create Posi5oning -‐ Hire PR Agency -‐ Early Buzz -‐ Create Demand -‐ Launch Event -‐ “Branding” -‐ Build Sales Organiza5on Marke5ng Sales -‐ Hire Sales VP -‐ Hire 1st Sales Staﬀ Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship

39. Tradi8on – Hire Business Development -‐  Create Marcom Materials -‐ Create Posi5oning -‐ Hire PR Agency -‐ Early Buzz -‐ Create Demand -‐ Launch Event -‐ “Branding” -‐ Build Sales Organiza5on Marke5ng Sales -‐ Hire Sales VP -‐ Hire 1st Sales Staﬀ Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship -‐ Hire First Bus Dev -‐ Do deals for FCS Business Development

40. Example -‐ Recognize these? Online clothes retailer specialized in fashion and sports (e.g. Adidas, Fila, Vans, Converse, DKNY and Fred Perry). Raised $160 million (JP Morgan, Goldman Sachs, Bernard Arnault, BenePon + six). Developed an innova8ve site with 3D, zoom, 360⁰ rota8on and virtual mannequins, powered by lots of JavaScript and Flash Anima8ons. Rapidly grew to 420 people and spent heavily on PR pre launch. Delayed launch repeatedly due to technological problems. Finally launched in 18 countries simultaneously 8:59 November 3 1999 EST.

41. What happened? 40 % of visitors could not access the site. Mac users could not operate the site at all. The site was very diﬃcult to use and full of errors, oten causing computers to freeze. Extremely slow to load without broadband. Only one in four aPempts to make a purchase worked. Low conversion rates (0.25%). Conversion rates did double by Christmas. 30% returns, not 10% as projected. A “low-‐bandwidth version” was relaunched within months. But low sales + high costs “Eighty-‐one minutes to pay too much money for a pair of shoes that I am s8ll going to have to wait a week to get?” => Bankruptcy.

42. "Our strong investor base oﬀers a solid founda5on for boo.com. The fact that such interna5onal investors have invested in boo.com reﬂects the power of our business model and the boo.com brand." Patrik Hedelin, Execu2ve Chairman. (Press Release, Nov 3 1999) Validated Business Model?

43. The problem – untested assump8ons! Visualiza5on of the business model framwork Key ac5vi5es Partnering, E-‐commerce, Global taxes & payments, Marke5ng Value proposi5on Fashion and sports online, Realis5c shopping experience, “Life-‐s5le choice” . Customer rela5onships Paid & Earned Media Visitor numbers, Conversion rates Customer segments “young, well-‐oﬀ, fashion-‐ conscious 18 to 24 year olds” Cost structure Call centres, Return rates, Inventory Key resources Developers, Risk capital Revenue Streams Online sales/ full retail price, CAC & Life5me Value Channels Buying online, Channel conﬂicts, Zone pricing Key partners Brands, Warehouses, Logis5cs

44. What’s wrong with this picture? •  Both Customer Problems and Product Features are hypotheses •  Emphasis on execu8on rather than learning and discovery •  No relevant milestones for marke8ng and sales •  Oten leads to premature scaling and a heavy spending hit if product launch fails You do not know if you are wrong un5l you are out of money/business Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship

45. -‐  Create Marcom Materials -‐ Create Posi5oning -‐ Hire PR Agency -‐ Early Buzz -‐ Create Demand -‐ Launch Event -‐ “Branding” -‐ Build Sales Organiza5on Marke5ng Sales -‐ Hire Sales VP -‐ Hire 1st Sales Staﬀ Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship -‐ Hire First Bus Dev -‐ Do deals for FCS Business Development

46. What We Now Know Process

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

48. Because •  We have processes to manage product development •  We have no process to manage ”customer development”

49. An Inexpensive Fix

50. Focus on understanding Customers and Markets from Day One! Visualiza5on of the business model framwork Key activities Value proposition Customer relationships Customer segments Cost structure Key resources Revenue streams Channels Key partners

51. Solu8on Unfair Advantage Customer Segments Key Metrics Channels Cost Structure Revenue Streams Unique Value Proposi8on Problem

52. Business Model Hypotheses Strategy Process “Customer” & Agile Development Opera8ng Plan + Financial Model Product Management & Waterfall Development Search Execu5on

53. What We Used to Believe Organiza5on

54. Hire and Build a Functional Organization

55. What We Now Know Organiza5on

56. Founders run an agile “Customer Development” Team No sales, marketing and business development

57. Business Model Hypotheses Organiza5on Customer Development Team, Founder-‐driven Customer Development, Agile Development Opera8ng Plan + Financial Model Product Management Agile or Waterfall Development Func5onal Organiza5on by Department Search Execu5on Strategy Process

58. Business Model Hypotheses Organiza5on Customer Development Team, Founder-‐driven Customer Development, Agile Development Opera8ng Plan + Financial Model Product Management Agile or Waterfall Development Func8onal Organiza8on by Department Search Execu5on Strategy Process

59. 2.  Business Models

62. Solu8on Unfair Advantage Customer Segments Key Metrics Channels Cost Structure Revenue Streams Unique Value Proposi8on Who are your customers? Who are earlyvangelists? Problem Single, clear, compelling message that states why you are diﬀerent and worth buying from That can’t be easily bought, or imitated? How do you reach customers? Key features MVP What are you customers’ key jobs/pains/gains? What metrics are most cri8cal to track? Customer Acquisi8on Costs Distribu8on Costs Hos8ng People etc. Fixed/variable Revenue Model Life Time Value Revenue/pricing etc.

63. •  A diagram of components and rela8onships •  A scorecard for hypothesis tes8ng

65. Customers and problems Who is the customer? Mul8-‐sided market? Diﬀerent from user? hPp://www.businessmodelalchemist.com/2012/08/achieve-‐product-‐market-‐ﬁt-‐with-‐our-‐brand-‐ new-‐value-‐proposi8on-‐designer.html

66. Customers and problems -‐ jobs to be done What func8onal jobs is your customer trying get done? (e.g. perform or complete a speciﬁc task, solve a speciﬁc problem…) What social jobs is your customer trying to get done? (e.g. trying to look good, gain power or status…) What emo8onal jobs is your customer trying get done? (e.g. esthe8cs, feel good, security…) “What jobs are the customers you are targe2ng trying to get done”

67. Customers and problems -‐ customer pains What does your customer ﬁnd too costly? (e.g. takes a lot of 8me, costs, eﬀort) What makes your customer feel bad? (e.g. frustra8ons, annoyances) How are current solu8ons under-‐ performing for your customer? (e.g. lack of features, performance, malfunc8on) What nega8ve social consequences does your customer encounter or fear? (e.g. loss of face, power, trust, or status) “What are the costs, nega2ve emo2ons, bad situa2ons etc. that your customer risks experiencing before, during, and a>er ge?ng the job done.”

68. Customers and problems -‐ customer gains Which savings would make your customer happy? (e.g. in terms of 8me, money and effort) What would make your customer’s job or life easier? (e.g. flaPer learning curve, more services, lower cost of ownership) What posi8ve social consequences does your customer desire? (e.g. makes them look good, increase in power, status) What are customers looking for? (e.g. good design, guarantees, features) What do customers dream about? (e.g. big achievements, big reliefs) “What are the benefits your customer expects, desires or would be surprised by.”

70. Unique Value Proposi5ons/Solu5on What are your products and services? How do they create value for the customer segments?

71. Can your product/service: •  Produce savings? •  Make your customers feel bePer? •  Put an end to diﬃcul8es? •  Wipe out nega8ve social consequences? Unique Value Proposi5ons/Solu5on

72. Can your product/service: •  Outperform current solu8ons? •  Produce outcomes that go beyond their expecta8ons? •  Make your customer’s job or life easier? •  Create posi8ve social consequences? Unique Value Proposi5ons/Solu5on

73. Product Market Fit Geeng this right is essen8al!

74. Product Market Fit Geeng this right is essen8al!

76. How Do You Want Your Product to Get to Your Customer? 79 Yourself Through someone else Retail Wholesale Bundled with other goods or services " " " " "

77. Web Channels 80

78. Physical Channels 81

79. How Does Your Customer Want to Buy Your Product from your Channel? 82 •  Same day •  Delivered and installed •  Downloaded •  Bundled with other products •  As a service •  … " " " " " "

81. Customer Rela5onships

82. Customer Rela5onships

84. WS

85. Map out your Business Model 45 minutes

86. Be clear about Product Market Fit!

87. Tips Specific >> General “I believe [type of person] experiences [problem] while performing [task]”.

88. 3.  Customer Development

89. To repeat

90. More startups fail from a lack of customers than from a failure of product development… To repeat

91. … because they think startups = small companies…

92. …they focus on execu8ng the plan… •  Both Customer Problems and Product Features are hypotheses •  Emphasis on execu8on rather than learning and discovery •  No relevant milestones for marke8ng and sales •  Oten leads to premature scaling and a heavy spending hit if product launch fails You do not know if you are wrong un5l you are out of money/business Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship

93. … so they scale on untested assump8ons…

94. … and end up going bust. “We have been too visionary. We wanted everything to be perfect, and we have not had control of costs" Ernst Malmsten (BBC News, May 18 2000)

95. So what to do?

96. Focus on Customers and Markets from Day One! Visualiza5on of the business model framwork Key activities Value proposition Customer relationships Customer segments Cost structure Key resources Revenue streams Channels Key partners

97. Product and Customer Development Product Development Customer Development Company Building Customer Discovery Customer Validation Customer Creation + Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship

98. Problem: unknown Solu8on: unknown Product and Customer Development

99. Customer Development: Key Ideas •  Parallel process to Product Development (agile) •  Measurable checkpoints not 5ed to FCS but to customer insights •  Emphasis on itera5ve learning and discovery before execu5on •  Must be done by small team including CEO/project leader

100. Customer Development Heuris8cs •  There are no facts inside, so get out of the building! •  Develop for the few, not for the many •  Earlyvangelists make your company, and are smarter than you! •  Develop a minimum viable product to maximize fast learning. •  Nail it before you scale it – low burn by design!

101. •  Customer Discovery Ar8culate and Test your Business Model Hypotheses •  Customer Valida5on Sell your MVP and Validate your MB & Sales Roadmap •  Customer Crea5on Scale via relentless execu8on and ﬁll the sales pipeline •  Company Building (Re)build company’s organiza8on & management Customer Development: Four Stages search execu8on

102. Customer Discovery •  Articulate and test your BM hypotheses •  No selling, just listening •  Must be done by CEO/ project manager

103. building block building block building block building block building block building block building block building block building block building block building block building block

104. But, Realize it’s just Hypotheses!

105. Guess Guess Guess Guess Guess Guess Guess GuessGuess

106. ”Do you have this problem?” 1. 2. 3. Test Customer Problem Hypotheses

107. ”Do you have this ”Tell me about it, how problem?” do you solve it today?” 1. 1. 2. 2. 3. 3. Test Customer Problem Hypotheses

108. ”Do you have this ”Tell me about it, how ”Does something like this problem?” do you solve it today?” solve your problem?” 1. 1. 1. 2. 2. 2. 3. 3. 3. Listen carefully to what they say at each step! Focus on learning -‐ Don’t try to sell them on your idea! In the process you find out about other BM parts as well: workflow, benefits (to users & others), preferred channels, cri5cal influencers, respected peers etc… You want to become a domain expert! Test Customer Problem Hypotheses

109. Tips and examples

110. Be prepared to go oﬀ script If users get worked up – don’t stay on script, but follow their lead and drill down!

111. Don’t talk You should be talking as 8Ple as possible! Don’t fear ”uncomfortable silence” (let them break it). 80/20 is a good ra8o to aim for.

112. Ask brief follow-‐ups That sounds expensive/ineﬃcient/painful… Tell me more! When was the last 2me that happened? Can you give an example? What do you mean by that? Can you explain that a liMle more? What else do you do? How do you feel about that? What are you thinking?

113. Get psyched to hear things you don’t want to hear

114. Don’t assume things Bad: You love walking your dog! Good: How do you feel about walking your dog? Even Bener: What was it like the last 8me you walked your dog?

115. If you could wave a magic wand and be able to do anything that you can’t do today, what would it be? (Don’t worry about if it’s possible)

116. Write up results a.s.a.p. Take notes. Write upp results insights immediately ater the interview!

117. More interview 8ps hPp://www.cindyalvarez.com/communica8on/customer-‐ development-‐interviews-‐how-‐to-‐what-‐you-‐should-‐be-‐learning hPp://giﬀconstable.com/2012/12/12-‐8ps-‐for-‐early-‐customer-‐ development-‐interviews-‐revision-‐3/ hPp://jasonevanish.com/2012/01/18/how-‐to-‐structure-‐and-‐ get-‐the-‐most-‐out-‐of-‐customer-‐development-‐interviews/

118. “nice to have” Jackpot! 1. Has a problem 2. Understands he or she has a problem 3. Ac8vely searching for a solu8on 4. Cobbled together an interim solu8on 5. CommiPed funds for a solu8on Useful people to talk to

119. Much faster to build => get quan8ta8ve feedback sooner. Use a low-‐ﬁ landing page as subs8tute for (and introduc8on to) conversa8ons. Key to drive traﬃc through AdWords/ Facebook Ads/Promoted Tweets etc. Build (design test), measure (run test) and analyze (evaluate test)! Web

120. hPp://blog.kissmetrics.com/landing-‐page-‐blueprint/ Landing page design

121. Test Solu8on Hypothesis 1) ”We believe you have this important problem” – listen (check). 2) Demo how your product solves the problem. Focusing on a few key features. Include workﬂow story: ”life before our product” and ”life ater our product” – listen! 3) ”What would this solu8on need to have for you to purchase it?” Listen, ask follow up ques8ons.

122. Dropbox •  1st solu8on test: a three minute video made in the founder’s apartment before a complete code was wriPen. –  Generated valuable feedback from visionary customers. •  2nd solu8on test: another video of the product that was posted on a social network. –  Wai8ng list jumped from 5 000 to 75 000. •  Dropbox’s original intent was to build and ship their product in eight weeks. •  Instead, they gathered feedback and launched a public version 18 months later.

123. Test Product Hypotheses Ater demoing, ask about other things: Posi8oning – how do they describe the product? Product category (new, exis8ng, resegmented) Compe8tors Features needed for ﬁrst version Preferred revenue model Pricing Addi8onal service needs Marke8ng – how do they ﬁnd this type of product? Purchasing process Who has a budget? etc.

124. Build out a high-‐ﬁdelity web page with “func8oning” back-‐end, based on lessons learned. “Mechanical Turk”-‐solu8on. Ask for money: ﬁrst “pre-‐order” then charging. Con8nue to test, measure and analyze! Web

125. Consistent answers from “enough” people? What are your customers top problems? How much will they pay to solve them? Does your product concept solve them? Do customers agree? How much will they pay for it? When? Can you draw a day-‐in-‐the-‐life of a customer? Before & ater your product Can you draw the org charts of users, buyers and channels? Customer Discovery: Exit Criteria

126. Customer Validation •  Develop and sell MVP to passionate earlyvangelists •  Validate a repeatable sales roadmap •  Verify the business model

127. Based on your insights from Customer Discovery, sell the smallest feature set customers are willing to pay for! •  Purpose 1: Reduce wasted engineering hours (and wasted code) •  Purpose 2: Get something into the hands of earlyvangelists as soon as possible => maximize learning! (cf. landing page) Minimal Viable Product

128. The Apple I, Apple’s ﬁrst product, was sold as an assembled circuit board and lacked basic features such as a keyboard, monitor, and case.

129. The owner of this unit added a keyboard and a wooden case. hPp://en.wikipedia.org/wiki/Apple_Inc.

130. Minimal Viable Product hPp://37signals.com/svn/posts/2963-‐what-‐happens-‐to-‐user-‐experience-‐in-‐a-‐minimum-‐viable-‐

131. The MVP is not the goal = Requires commitment to itera8on! •  “A complex system that works is invariably found to have evolved from a simple system that worked.” •  “A complex system designed from scratch never works and cannot be made to work. You have to start over, beginning with a working simple system.” Minimal Viable Product John Gall System-‐an8cs: How Systems Really Work and Especially How They Fail

132. Do you have a proven sales roadmap? Organiza8on chart? Inﬂuence map? No staﬃng un8l roadmap is proven! Do you have a set of orders ($’s) of the product valida8ng the roadmap? Is the business model scalable? LTV > CAC Customer Valida8on: Exit Criteria

133. If yes – Start execu8ng

134. If no – Pivot! •  The heart of Customer Development •  Change without crisis (and without ﬁring execu8ves) “The idea that successful startups change direc2ons but stay grounded in what they've learned”

135. YouTube - Customer Need Pivot

136. Pivot Adapt the Business Model un8l you can prove it works

137. search execu8on

138. •  Grow customers from few to many •  Comes ater proof of sales •  Inject $’s for scale •  This is where you “cross the chasm” Customer Crea8on

139. •  (Re)build company’s organiza8on & management •  Dev.-‐centric ⇒ Mission-‐centric ⇒ Process-‐centric Company Building

140. •  Customer Discovery Ar8culate and Test your Business Model Hypotheses •  Customer Valida5on Sell your MVP and Validate your BM & Sales Roadmap •  Customer Crea5on Scale via relentless execu8on and ﬁll the sales pipeline •  Company Building (Re)build company’s organiza8on & management Summary – Customer Development

141. Don’t do a Boo! Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship “We have been too visionary. We wanted everything to be perfect, and we have not had control of costs" Ernst Malmsten (BBC News, May 18 2000)

142. by Steve Blank and Bob Dorf More info: www.steveblank.com Buy the book: hPp://www.amazon.com/gp/product/0984999302/ Presenta8on based on

143. developed by Steve Blank and Bob Dorf hPp://www.slideshare.net/sblank/ Using slides from

144. Chalmers University of Technology Center for Business Innova8on www.henrikberglund.com Follow me on twiner: @khberglund Henrik Berglund 2013-‐09-‐19 161

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