BOB DORFallegedly retired serial entrepreneur

bob@kandsranch.com

www.steveblank.com

An Introduction to Customer Developmentand the Business Model Canvas

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Our Agenda

•What’s a business model? • How do I use the business model?• How do I know if it’s any good?????

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Why 95+% of startups die?

• All product, no customers• No problem• The “lock step”• Premature scaling• No product/market fit• No more dough• …some of us will fail. Certainly it’s not YOU!

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Why 95% of Startups Fail…Product Introduction Model:

Two Implicit Assumptions

Customer Problem: known

Product Features: known

Concept/Seed

Round

Product Dev.

Alpha/Beta Test

Launch/1st Ship

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No Business Plan survives first contact with customers

…get customer feedback as early as possible…it starts at the “idea” phase, not much later…and customers help you develop the product

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So Search for a Business Model

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The Business Model:

Any company can be described in 9 building blocks

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8images by JAM

customer segments

key partners

cost structure

revenue streams

channels

customer relationships

key activities

key resources

value proposition

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CUSTOMER SEGMENTS

which customers and users are you serving? which jobs do they really want to get done?

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VALUE PROPOSITIONS

what are you offering them? what is that getting done for them? do they care?

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CHANNELS

how does each customer segment want to be reached? through which interaction points?

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CUSTOMER RELATIONSHIPS

what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?

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REVENUE STREAMS

what are customers really willing to pay for? how? are you generating transactional or recurring

revenues?13

14images by JAM

customer segments

key partners

cost structure

revenue streams

channels

customer relationships

key activities

key resources

value proposition

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But,Realize They’re Hypotheses

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9 Guesses

Guess

Guess

Guess

Guess

Guess Gues

s

Guess

Guess

Guess

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Our Guesses DON’T Matter

• Anybody can build almost anything today(just a few exceptions: anti-gravity, transporters)

• What we need are CUSTOMERS!!• Build the customers while building product• …and let customer feedback and your coach guide

you all the way through the process!• note: Clones may be different!

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How Do You Search For A Business Model?

• The Canvas drives the planning process• The Search is Customer Development• Manufacturing iterates based on solid feedback

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Customer Development

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Customer Development

Get Out of the BuildingThe founders

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Customer DevelopmentThe Search For the Business Model

CompanyBuilding

CustomerDiscovery

CustomerValidation

Customer Creation

Pivot

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• Stop selling, start listening• Test your hypotheses• Continuous Discovery• Done by founders

Customer Discovery

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

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TWO key Discovery phases

• FIRST: Does anybody care?…are we solving a serious problem?…are we filling a “big” need?

• THEN: Does our product do the job?…do they grab it out of your hands?…are they eager to tell their friends?

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Where it begins: Minimum Viable Product (MVP)

• Smallest feature set that gets you the most …orders, learning, feedback, failure…

• MVP + Customer are the first two you need to nail

• MVP is just 1 of the 9 parts of your model

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What’s a Minimum Viable Product?

• Google without ads• Zappos without inventory• Diapers.com without diapers

…Fewest possible features to make the point!…Why? It’s hard to truly react to a powerpoint

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Discovery: Not just “do you like it?”

• How big is the market? Not today…eventually!• Who’s the customer?– What’s their problem/need

• What’s the product/service/need?– Does it solve the customer’s problem?

• How do you create demand?• How do you deliver the product?• How do you make money?

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Hypotheses Testing and Insight

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Test Hypotheses:• Product• Market

Type•

Competition

Turning Hypotheses to Facts

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Test Hypotheses:• Problem•

Customer• User• Payer

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The Pivot

• The heart of Customer Development• Iteration without crisis• Fast, agile and opportunistic

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Three Great Pivots

• Steve Blank: “Page 6”• Perimeter: “there are 9000 of us”• Groupon: the $12billion pivot• …and hundreds more!

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Pivot Cycle Time Matters

• Speed of cycle minimizes cash needs

• Minimum feature set speeds up cycle time

• Near instantaneous customer feedback drives feature set

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

ExecutionSearch

Pivot

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Web/Mobile Versus Physical

• Web/Mobile startups run faster

• Different process steps for web vs. physical

• Customer Relationships are radically different

Customer

Discovery

Customer

Validation

Pivot

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Putting Discovery to Work

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Customer Discovery

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Who Do I Call On?

• Read the Startup Owner’s Manual• Network like heck• Cold calls are a badge of honor• Don’t worry about titles or the right person• …and DO NOT TALK…listen!

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What Do I Say?

• Remember you are 1st testing the problem• “Hi, I’ve been told you’re the smartest person

in this industry. We’re building x and I want to see if I understand the problem. I’d like 10 minutes of your time.”

• …give them choices that make them talk• …resist the strong temptation to sell

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I Have a Meeting – Now What?

• The goal is to test all hypotheses, but first: have you found “product/market fit”

• Does the customer care?• How do they solve this problem TODAY?• What channel do they use to buy?• Where will they go to find you?• How will you create demand?• How much will they pay? Do they pay today?

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Then what?

• Assemble all the data, organize/rank responses• Slam it against industry, third party resources• Get a tighter, more concise view of the market• …and adjust your Business Model as you go!

Next:• Test the “solution” in a very similar way• …and determine if you “pivot or proceed”

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But wait…there’s MORE!

When Discovery is DONE

Yeah who says…

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Business Model Canvas Score CardKey PartnersWho are our key partners/ suppliers

Key ActivitiesWhich key activities does the biz model require

Value PropositionWhat value do we deliver to the customer

Customer RelationshipsWhat type of relationship does each segment require of us

Customer SegmentsFor whom are we creating value

ChannelsThrough which channel does each segment want to be reached

Revenue StreamsHow much is each segment willing to pay and how would they like to pay us this amount

Cost StructureWhat are our cost drivers

Key ResourcesWhich key resources does the biz model require

identify key market segments (geography/application) and customer segments (e.g. operator versus owner)

how many customers in each segment and estimated potential volume for each customer

how do customers make money … key customer pain/gain points in each segment

how are buying decisions made in each segment - id process, hurdles, decision makers

what does an Earlyvangelist look like in each segment

who influences purchases in each segment (trade groups, key resellers, trend watchers)

key distinctive product features & benefits for the target customer segment

total cost of ownership for segment versus alternatives

why will segment buy Durathon versus alternatives (i.e. value proposition)

minimum feature set (i.e. our launch configuration) and ultimate feature set

opportunities to claim IP or trademark / is there freedom to practice

what regulatory/ certification/ transportation/ customs requirements should be met or could be differentiator

which segments can only or best be reached through a channel partner

which channel partners are important to optimize sales in each segment

what are channel partners' requirements and cost to become a proactive sales channel

initial channel partner response to value proposition & customer segments

What are price /performance characteristics of competing technology What is the 2013 price target for 1 MM cells What is the 2015 price target for 10 MM cells what is optimum sales method for each segment (asset sale, lease, pay for performance, etc.)

product positioning/elevator pitch for each segment

Prospect roadmap: how to get face-to-face with right person at prospects in each segment

key competitors in each segment and their market share

key competitors' characteristics & dynamics

What outbound marketing/ advertising/ promotion activities are needed

support tools required by segment (white papers, TCO calc., tradeshow)

pipeline of leads

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x

x

x

X = number of in depth customer data points / data sources used to validate hypothesis

red = low hypothesis confidence yellow = medium hypothesis confidence green = high hypothesis confidence

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4 50

3

Complete regional overview

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Populate life cycle data for performance guarantees

Educate market on metric: $/kWh-day delivered over life of asset

Establish strong partnerships with channel partners

Integrated power system engineering – compatibility for retrofit and optimized system solutions

Financing options for Power services operators

Launch reliability

0

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When Customer Discovery is Done:Time to Ask for Money!

HINT: YOUR VC PITCH WAS HIDING IN THE LAST 12 SLIDES…DISCOVERY

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Who has completed serious Customer Discovery?

…an example from the USA

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Examples: Discovery Learning

• Too much process• Benefits too “soft” • The Philadelphia Architect• A day in the freezer

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Pivot ExampleRobotic Weeding

Talked to 75 Customers in 8 Weeks

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Our initial plan

Confidential

20 interviews, 6 site visits…We got OUR Boots dirty

WeedingVisited two farms in Salinas Valley to better understand problem

Interviewed:• Bolthouse Farms, Large Agri-Industry in

Bakersfield• White Farms, Large Peanut farmer in Georgia• REFCO Farms, large grower in Salinas Valley• Rincon Farms, large grower in Salinas Valley• Small Organic Corn/Soy grower in Nebraska• Heirloom Organics, small owner/operator, Santa

Cruz Mts• Two small organic farmers at farmers market• Ag Services of Salinas, Fertilizer applicator

MowingInterviewed:• Golf: Stanford Golf course • Parks: Stanford Grounds Supervisor, head of

maintenance and lead operator (has crew of 6)• Toro dealer (large mower manufacturer) • User of back-yard mowing system• Maintenance Services for City of Los Altos• Colony Landscaping (Mowing service for stadiums)

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Business Plan Autonomous Vehicles for Mowing & Weeding

We reduce operating cost- Labor reduction- Better utilization of assets (eg mow or weed at nights)- Improved performance (less rework, food safety)

Mowing- Owners of public or commercially used green spaces (e.g. golf courses)- Landscaping service provider

Weeding- Farmers with manual weeding operations

Dealers sell, installs and supports customer

Co. trains dealers, supports dealers- Mowing Dealers- Ag Dealers

- Innovation- Customer Education- Dealer training

Dealer discount COGS seek a 50-60% Gross MarginHeavy R&D investment

- Dealers (Mowing and Ag)- Vehicle OEMs (John Deere, Toro, Jacobsen, etc)

- Research labs

Asset saleOur revenue stream derives from selling the equipment

Engineers on Autonomous vehicles, GPS, path-planning

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Found weeding in organic crops is HUGE problem; 50 - 75% of costs

Crews of 100s-1000

Back-breaking task

(Illegal) labor harder to get

1-5 weedings per year/field

$250-3,500 per acre and increasing

Food contamination risk

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Decision to make – mowing vs. weeding

Application

If ROI is < 1 yr they will buy

Labor costs significant?

Autonomous would solve problem?

TAM

Mowing of large fields

Yes.Professional

ly run organizatio

ns

Yes Yes Adjusted up toxxx

Weeding in

Agriculture

Agri Industry:

YES!

Large Growers:

Yes

Small Growers:

No

YES! for organic crops

They are spending $500/ac!

Not necessarily

Key need is weed vs. crop differentiation

TAM increased to $2.6 B (Total

organic)

Target Market (organic

specialty) 162 M/yr18%/yr growth

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Autonomous vehicles WEEDING

We reduce operating cost- Labor reduction (100 to 1)- Reduced risk of contamination- Mitigate labor availability concerns

- Low density vegetable growers- High density vegetable growers- Thinning operations- Conventional vegetables

Dealers sell, installs and supports customer

Co. trains dealers, supports dealers

- Ag Dealers- Ag Service providers

- Innovation- Customer Education- Dealer training

Dealer discount COGS seek a 50-60% Gross MarginHeavy R&D investment

- Ag Dealers- Ag Service providers

- Research labs

Asset saleOur revenue stream derives from selling the equipment

Engineers on Machine VisionTwo problems:- Identification- Elimination

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World Ag Expo interviews:the need is real and wide spread

• 10+ interviews at show– Everyone confirmed the need– Robocrop, UK based, crude competitor

sells for $171 K

• Revenue Stream– Mid to small growers prefer a service– Large growers prefer to buy, but OK

with service until technology is proven– Charging for labor cost saved is OK, as

we provide other benefits (food safety, labor availability)

Confidential52

Autonomous weeding - Final

We reduce operating cost- Labor reduction (100 to 1)- Reduced risk of contamination- Mitigate labor availability concerns

- Low density vegetable growers- High density vegetable growers- Thinning operations- Conventional vegetables

Direct- Provide high quality service at competitive price

Direct - Alliance with service providers- Eventually sell through dealers

- Innovation- Customer Education- Dealer training

Costs for service provisionCOGS seek a 50-60% Gross MarginHeavy R&D investment

- Ag Service providers

- Research Institutes (eg UC Davis, Laser Zentrum Hannover)

- 3-4 key farms

Service provision- Charge by the acre with modifier according to weed density - Eventually move to asset sale

Engineers on Machine VisionTwo problems:- Identification- Elimination

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Customer Validation

Customer

Discovery

CustomerValidatio

n

Customer

Creation

CompanyBuilding

• Repeatable and scalable business model?

• Passionate earlyvangelists?

• Pivot back to Discovery if no customers

Pivot

Execution

Search

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Customer Validation

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Questions?

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