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Why accountants don’t run startups sllc
1. Why Accountants Don’t Run Startups
Steve Blank
Stanford - School of Engineering
U.C. Berkeley - Haas School Of Business
www.steveblank.com
Twitter: sgblank
2. I Drew This
Customer Customer Customer Company
Discovery Validation Creation Building
Pivot
3. I Called It:
Customer Development
Customer Customer Customer Company
Discovery Validation Creation Building
Pivot
11. The Silicon Valley
Funding Pyramid
Angels &
TechStars Incubators Y-Combinator
($0-10M)
Floodgate Seed Funds SoftTech (Clavier)
($10-50M)
SV Angel (Conway) Felicis (Senkut)
First Round Capital Small VC Funds Union Square Ventures
($50-250M)
Sequoia Benchmark
Traditional VC Funds
(>$250M)
Source: Dave McClure 500hats.com
12. Innovation in Financing
Angels &
Incubators
($0-10M)
Innovation is
Seed Funds happening here
($10-50M)
Small VC Funds
($50-250M)
Traditional VC Funds
(>$250M)
Source: Dave McClure 500hats.com
13. 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/
16. Small Business Startups
!"#$$%
!"#$"%&'
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- Business Model found
- Profitable business
- Existing team
< $10M in revenue
17. Small Business Startups
!"#$$%
!"#$"%&'
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- 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
18. Small Business Startup:
Internet Edition
!"#$$%
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- Business Model found
- 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”
20. Scalable Startup
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- Total Available Market > $500m
- Company can grow to $100m/year
- Business model found
- Focused on execution and process
21. 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”
• In contrast a scalable startup is designed to grow big
• Typically needs risk capital
• What Silicon Valley means when they say “Startup”
22. 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”
23. Silicon Valley Venture Firms Invest
in Scalable Startups
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24. What VC’s Don’t Tell You:
The Transition
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Search Build Grow
25. What VC’s Don’t Tell You:
The Transition – Founders Leave
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- Founders depart
- Professional Mgmt
- Process
- Beginning of scale
26. What’s 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
30. The Search for a Business Model
• A Business Plan is static
• A Business Model diagrams how a company
creates, delivers and captures value – it’s
dynamic
• Or in English: How a company makes money
33. 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
34. Startups Search, Companies Execute
The Search for the Business Model The Execution of the Business Model
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- Business Model found - Cash-flow breakeven
- Product/Market fit
- Repeatable sales model - Profitable
- Managers hired - Rapid scale
- New Senior Mgmt
~ 150 people
35. Metrics Versus Accounting
The Execution of the Business Model
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Traditional Accounting
- Balance Sheet
- Cash Flow Statement
- Income Statement
36. Metrics Versus Accounting
The Search for the Business Model The Execution of the Business Model
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Startup Metrics
- Customer Acquisition Cost Traditional Accounting
- Balance Sheet
- Viral coefficient - Cash Flow Statement
- Customer Lifetime Value - Income Statement
- Average Selling Price/Order Size
- Monthly burn rate
- etc.
37. Customer Validation Versus Sales
The Execution of the Business Model
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Sales
- Sales Organization
- Scalable
- Price List/Data Sheets
- Revenue Plan
38. Customer Validation Versus Sales
The Search for the Business Model The Execution of the Business Model
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Customer Validation
- Early Adopters Sales
- Sales Organization
- Pricing/Feature unstable - Scalable
- Not yet repeatable - Price List/Data Sheets
- “One-off’s” - Revenue Plan
39. Customer Development Versus
Product Management
The Execution of the Business Model
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Product Management
- Delivers MRD’s
- Feature Spec’s
- Competitive Analysis
40. Customer Development Versus
Product Management
The Search for the Business Model The Execution of the Business Model
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Product Management
Customer Development - Delivers MRD’s
- Hypothesis Testing - Feature Spec’s
- Minimum Feature Set - Competitive Analysis
- Pivots
41. Engineering Versus
Agile Development
The Execution of the Business Model
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Engineering
- Requirements Docs.
- Waterfall Development
- QA
- Tech Pubs
42. Engineering Versus
Agile Development
The Search for the Business Model The Execution of the Business Model
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Engineering
Agile Development - Requirements Docs.
- Continuous Deployment - Waterfall Development
- Continuous Learning - QA
- Tech Pubs
- Self Organizing Teams
- Minimum Feature Set
- Pivots
43. How Do Startups Search For A
Business Model?
• The Search is called Customer Development
• The Implementation is called Agile Development
44. The Lean Startup
• The Search is called Customer Development
• The Implementation is called Agile Development
45. Startups Don’t Last Forever
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- Business Model found - Cash-flow breakeven
- Product/Market fit - Profitable
- Repeatable sales model - Rapid scale
- Managers hired - New Senior Mgmt
~ 150 people
You fail if you remain a startup!
52. Inventor of the Modern Corporation
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53. Inventor of the Modern Corporation
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Alfred P. Sloan
54. Alfred P. Sloan
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General Motors, President/Chairman
- Cost Accounting
- MIT Sloan School
- Sloan Foundation
- etc.
56. Founder of General Motors
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Billy Durant
57. Billy Durant
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- Leader in horse-drawn buggy’s
- 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
64. Business School Versus
Entrepreneurship School
Business School
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- Execution
- Strategy
- Accounting
- Products
- Engineering
- Management
- Administrative
65. Business School Versus
Entrepreneurship School
Business School
Entrepreneurship School
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- Hypothesis testing
- Execution
- Business Model testing - Accounting
- Customer Development - Products
- Agile Development - Engineering
- Metrics - Management
- Administrative
- Venture Finance
- Hands-on
66. Business School Courses Versus
Entrepreneurship Courses
Business School
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Courses
- Managerial Finance/Accounting
- Managing Groups and Teams
- Financial Accounting
- Operations
- Modeling for Optimization
- Global Value Chain Strategies
67. Business School Versus
Entrepreneurship Courses
Business School
Entrepreneurship School
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Courses
- Entrepreneurial Management Courses
- Creativity and Innovation - Managerial Finance/Accounting
- Managing Groups and Teams
- Technology Entrepreneurship - Financial Accounting
- Patent Law for Entrepreneurs - Operations
- Global Entrepreneurial Marketing- Modeling for Optimization
- Entrepreneurial Finance - Global Value Chain Strategies
68. 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/
69. E-School – Let’s 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 it…but…
*~100 startup accelerator programs: http://blog.shedd.us/321987608/