Greycroft - Why Accountants Don’t Run Startups

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Why Accountants Don’t Run Startups Steve Blank Stanford - School of Engineering U.C. Berkeley - Haas School Of Business www.steveblank.com Twitter: sgblank

Transcript of Greycroft - Why Accountants Don’t Run Startups

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Why Accountants Don’t Run Startups

Steve BlankStanford - School of Engineering

U.C. Berkeley - Haas School Of Business

www.steveblank.comTwitter: sgblank

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Early-Stage Ventures

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I Drew This

CustomerDiscovery

CustomerValidation

Company Building

Customer Creation

Pivot

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I Called It:

Customer Development

CustomerDiscovery

CustomerValidation

Company Building

Customer Creation

Pivot

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I Wrote This

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A Few People Read It

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I Write a Blog www.steveblank.com

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Five Short Stories

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Not All Startups Are Equal

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Small BusinessStartup

Small Business Startups

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Small BusinessStartup

- Business Model found- Profitable business- Existing team< $10M in revenue

Small Business Startups

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Small BusinessStartup

- Business Model found- Profitable business- Existing team< $10M in revenue

Small Business Startups

• 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

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Small BusinessStartup

- Business Model found- Profitable business- Existing team< $10M in revenue

Small Business Startup: Internet Edition

• The Internet allows a new class of Small Businesses• Not all businesses on the Internet are “Scalable Startups”

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Transition Large Company

ScalableStartup

Sustaining Innovation

• Existing Market• Incremental improvements

Large Company Sustaining Innovation

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Large Company Disruptive Innovation

New Division Transition Large Company

Disruptive Innovation• New Market• New tech, customers, channels

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ScalableStartup

Large Company>$100M/year

Scalable Startup

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ScalableStartup

Large Company>$100M/year

- Total Available Market > $500m- Company can grow to $100m/year- Business model found- Focused on execution and process

Scalable Startup

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ScalableStartup

Large Company>$100M/year

- Total Available Market > $500m- Company can grow to $100m/year- Business model found- Focused on execution and process- Typically requires “risk capital”

Scalable Startup

• In contrast a scalable startup is designed to grow big• Typically needs risk capital• What Silicon Valley means when they say “Startup”

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Small BusinessStartup

- Business Model found- Profitable business- Existing team< $10M

ScalableStartup

Large Company

- Total Available Market > $500m- Company can grow to $100m/year- Business model found- Focused on execution and process- Typically requires “risk capital”

Very Different Startup Goals

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Small BusinessStartup

ScalableStartup

Large Company

Venture Firms Invest in Scalable Startups

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ScalableStartup

Large CompanyTransition

What VC’s Don’t Tell You:The Transition

Search Build Grow

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ScalableStartup

Large CompanyTransition

- Founders depart- Professional Mgmt- Process- Beginning of scale

What VC’s Don’t Tell You:The Transition – Founders Leave

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ScalableStartup

Large CompanyTransition

- Business Model found- i.e. Product/Market fit- Repeatable sales model- Managers hired

What’s A Startup?

A Startup is the organization used to search for a scalable business model

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Plan versus Model

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No Business Plan survives first contact with customers

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So Search for a Business Model

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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

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Emphasis On Hypotheses Testing

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Startups Continually Pivot (Iterate)

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ScalableStartup

Large CompanyTransition

- Business Model found- i.e. Product/Market fit- Repeatable sales model- Managers hired

The Search for the Business Model

Startups Search and Pivot

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ScalableStartup

Large CompanyTransition

- Business Model found- Product/Market fit- Repeatable sales model- Managers hired

- Cash-flow breakeven- Profitable- Rapid scale- New Senior Mgmt~ 150 people

The Search for the Business Model The Execution of the Business Model

Startups Search, Companies Execute

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ScalableStartup

LargeCompanyTransition

Traditional Accounting- Balance Sheet- Cash Flow Statement- Income Statement

The Execution of the Business Model

Metrics Versus Accounting

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ScalableStartup

LargeCompanyTransition

Startup Metrics- Customer Acquisition Cost- Viral coefficient- Customer Lifetime Value- Average Selling Price/Order Size- Monthly burn rate- etc.

Traditional Accounting- Balance Sheet- Cash Flow Statement- Income Statement

The Search for the Business Model The Execution of the Business Model

Metrics Versus Accounting

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ScalableStartup

LargeCompanyTransition

Sales- Sales Organization- Scalable- Price List/Data Sheets- Revenue Plan

The Execution of the Business Model

Customer Validation Versus Sales

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ScalableStartup

LargeCompanyTransition

Customer Validation- Early Adopters- Pricing/Feature unstable- Not yet repeatable- “One-off’s”

Sales- Sales Organization- Scalable- Price List/Data Sheets- Revenue Plan

The Search for the Business Model The Execution of the Business Model

Customer Validation Versus Sales

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ScalableStartup

Large CompanyTransition

Product Management- Delivers MRD’s- Feature Spec’s- Competitive Analysis

The Execution of the Business Model

Customer Development VersusProduct Management

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ScalableStartup

Large CompanyTransition

Customer Development- Hypothesis Testing- Minimum Feature Set- Pivots

The Search for the Business Model The Execution of the Business Model

Customer Development Versus Product Management

Product Management- Delivers MRD’s- Feature Spec’s- Competitive Analysis

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ScalableStartup

Large CompanyTransition

The Execution of the Business Model

Engineering Versus Agile Development

Engineering- Requirements Docs.- Waterfall Development- QA - Tech Pubs

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ScalableStartup

Large CompanyTransition

Agile Development- Continuous Deployment- Continuous Learning- Self Organizing Teams- Minimum Feature Set- Pivots

The Search for the Business Model The Execution of the Business Model

Engineering Versus Agile Development

Engineering- Requirements Docs.- Waterfall Development- QA - Tech Pubs

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ScalableStartup

Large CompanyTransition

- Plan describes “knowns”- Known features for line extensions- Known customers/markets- Known business model

The Execution of the Business Model

Startups Model, Companies Plan

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ScalableStartup

Large CompanyTransition

- Unknown customer needs- Unknown feature set- Unknown business model- Model found by iteration

The Search for the Business Model

Startups Model, Companies Plan

The Execution of the Business Model

- Plan describes “knowns”- Known features for line extensions- Known customers/markets- Known business model

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ScalableStartup

Large CompanyTransition

- Business Model found- Product/Market fit- Repeatable sales model- Managers hired

- Cash-flow breakeven- Profitable- Rapid scale- New Senior Mgmt~ 150 people

Startups Don’t Last Forever

You fail if you remain a startup!

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How Do Startups Search For A Business Model?

• The Search is called Customer Development• The Implementation is called Agile

Development

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The Lean Startup

• The Search is called Customer Development• The Implementation is called Agile

Development

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Customer Development

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Customer Development

Get the Hell Out of the Building

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

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Then why do we have:

• process to manage product development?

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Then why do we have:

• process to manage product development?

• no process to manage customer development?

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Product Development Model

Concept/Seed

Round

Product Dev.

Alpha/Beta Test

Launch/1st Ship

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Tradition – Hire Marketing

Concept/Seed

Round

Product Dev.

Alpha/Beta Test

Launch/1st Ship

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

Marketing

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Tradition – Hire Sales

Concept/Seed

Round

Product Dev.

Alpha/Beta Test

Launch/1st Ship

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

• Build Sales Organization

Marketing

Sales• Hire Sales VP• Hire 1st Sales

Staff

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Tradition – Hire Bus Development

Concept Product Dev.

Alpha/Beta Test

Launch/1st Ship

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

• Hire Sales VP• Pick distribution

Channel

• Build Sales Channel / Distribution

Marketing

Sales

• Hire First Bus Dev

• Do deals for FCS

Business Development

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Tradition – Hire Engineering

Concept Product Dev.

Alpha/Beta Test

Launch/1st Ship

- Create Marcom Materials- Create Positioning

- Hire PR Agency- Early Buzz

- Create Demand- Launch Event- “Branding”

• Hire Sales VP• Pick distribution

Channel

• Build Sales Channel / Distribution

Marketing

Sales

• Hire First Bus Dev

• Do deals for FCS

Business Development

Engineering • Write MRD

• Waterfall

• Q/A • Tech Pubs

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Customer Development

Concept/Bus. Plan

Product Dev.

Alpha/Beta Test

Launch/1st Ship

Product Development

Customer Development

CompanyBuilding

CustomerDiscovery

CustomerValidation

Customer Creation

+

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• Stop selling, start listening

• Test your hypotheses

• Continuous Discovery

Customer Discovery

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

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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

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The Pivot

• The heart of Customer Development

• Iteration without crisis

• Fast, agile and opportunistic

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So What Does Engineering Do?

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Problem: known Solution: known

Waterfall

Traditional Product DevelopmentUnit of progress: Advance to Next Stage

Requirements

Design

Implementation

Verification

Maintenance

Source: Eric Rieshttp://startuplessonslearned.blogspot.com

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Problem: Known Solution: Unknown

“Product Owner” or in-house customer

When the Customer Problem is Known

Source: Eric Rieshttp://startuplessonslearned.blogspot.com

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Problem: Known Solution: Unknown

“Product Owner” or in-house customer

Agile - Customer Problem is KnownUnit of progress: a line of working code

Source: Eric Rieshttp://startuplessonslearned.blogspot.com

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Problem: Unknown Solution: Unknown

When the Customer Problem is Unknown

Source: Eric Rieshttp://startuplessonslearned.blogspot.com

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Problem: Unknown Solution: Unknown

Lean Startup- Customer Problem is Unknown

Unit of progress: learning about customers

Source: Eric Rieshttp://startuplessonslearned.blogspot.com

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Leadership Versus Management

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ScalableStartup

Large CompanyTransition

Leadership Versus Management

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ScalableStartup

Large CompanyTransition

Leadership Versus Management

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ScalableStartup

Large CompanyTransition

Leadership Versus Management

Search

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ScalableStartup

LargeCompanyTransition

Leadership Versus Management

BuildSearch

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ScalableStartup

LargeCompanyTransition

Leadership Versus Management

Build GrowSearch

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Why Startups Aren’t Run By Accountants

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ScalableStartup

Large CompanyTransition

Inventor of the Modern Corporation

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ScalableStartup

Large CompanyTransition

Inventor of the Modern Corporation

Alfred P. Sloan

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ScalableStartup

Large CompanyTransition

Alfred P. Sloan

General Motors, President/Chairman- Cost Accounting- MIT Sloan School- Sloan Foundation- etc.

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ScalableStartup

Large CompanyTransition

Founder of General Motors

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ScalableStartup

Large CompanyTransition

Founder of General Motors

Billy Durant

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ScalableStartup

Large CompanyTransition

Billy Durant

- 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

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ScalableStartup

Large CompanyTransition

Durant Versus Sloan

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Durant Versus Sloan

• Dies, rich, honored and famous

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Durant Versus Sloan

• Dies, rich, honored and famous• Dies managing a bowling alley

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Durant Versus Sloan

• Dies, rich, honored and famous• Dies managing a bowling alley

Accountant

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ScalableStartup

Large CompanyTransition

You are here

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Thanks

www.steveblank.com