This document discusses the evolution of customer development and lean startup methodologies over the past few decades. It outlines key insights and developments, including Steve Blank formalizing the customer development process, Eric Ries extending it by pairing customer development with agile development, and other contributors proposing frameworks like Dave McClure's startup metrics and Alex Osterwalder's business model canvas. The document argues that customer and agile development principles will continue spreading to change best practices across industries, completing a full circle evolution since Toyota pioneered lean manufacturing 50 years ago.

2. Customer Development: The Second Decade(aka Why Accountants Don’t Run Startups) Bob Dorf serial entrepreneur, startup advisor, partner, “supporting author” www.steveblank.com ©2010 K+S Ranch Consulting Inc.

3. …Is there a roadmap?

5. i.e. Product/Market fit- Repeatable sales model - Managers hired What’s A Startup? A Startup is the temporary organization used to search for a scalable business model (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 4

7. Company can grow to $100m/year

8. Business model found

9. Focused on execution and process

11. Typically needs risk capital

12. How this room defines “Startup”(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 5

13. Venture Firms Invest in Scalable Startups Small Business Startup Scalable Startup Large Company (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 6

15. Professional Mgmt

16. Process

17. Beginning of scale(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 7

18. not quite the beginning of startups, but…100 Years Ago in Detroit

19. Inventorof the Modern Corporation Scalable Startup Transition Large Company Alfred P. Sloan (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 9

21. MIT’s Sloan School

22. Sloan Kettering

23. Kettering Institute(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 10

24. Founder of General Motors Scalable Startup Transition Large Company Billy Durant (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 11

26. Fired by board, starts Chevrolet

27. Regains control of GM

28. Fired again, GM ~$3.6 billion** GM Net sales in 1921 $304.5M = $3.6 Billion today (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 12

29. Durant vs Sloan Scalable Startup Transition Large Company (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 13

32. Dies penniless……managing a bowling alley (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 15

34. Dies, rich, honored and famous(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 16

35. You are here Scalable Startup Transition Large Company (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 17

36. 50 Years Ago in Detroit…

37. GM Owns the U.S. Car Market Scalable Startup Transition Large Company Roger B. Smith (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 19

39. Knew what the customer wanted

40. 5 years to bring a car to market

41. Huge inventories eliminate stoppages(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 20

42. Founderof Toyota and Lean Production Scalable Startup Transition Large Company Kiichiro Toyoda TaiichiOhno (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 21

44. Couldn’t afford inventory like US auto companies

45. Toured GM plants and…

46. Built Kaizen/lean manufacturing

47. Toyota Lean Production System(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 22

49. Agile Product Development

50. Lean Manufacturing

51. Continuous Improvement

52. Customer Development… talk about ”a day in the life” (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 23

54. Agile Development plus Lean Manufacturing

55. U.S. Market share goes from 0 to 20%(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 24

57. Market share drops 50% to <25%(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 25

58. Toyoda/Ohno vs. Smith Accountant (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 26

59. Toyoda/Ohnovs. Smith You are here (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 27

60. 10 Years Ago in Silicon Valley…

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

62. Yet All We Had WasThis… Concept/Seed Round Product Dev. Alpha/Beta Test Launch/ 1st Ship New Product Introduction Model (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 30

63. Traditional Product Introduction:Two Implicit Assumptions Customer Problem: known Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship Product Features: known (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 31

64. This Was A Plan For Failure Long-term “lockdown” of Product Development/Engineering Assumed we understood customer problem/product solution But they are hypotheses the facts were outside the building Sales & Marketing focused on execution to First Customer Ship Costs and burn rate became front loaded Execution & hiring predicated on business plan hypothesis Financial projections assume success Heavy spending hit if product launch is wrong Failure always a bad reflection on Management, Board, Investors You don’t know if you’re wrong until you’re out of business, out of money, or (usually) both! 32

65. 8 Startups later,Steve Blank Drew This… CustomerDiscovery Company Building CustomerValidation Customer Creation “Do-Over” 33

66. Customer Development Company Building CustomerDiscovery CustomerValidation Customer Creation Which Turned Into A Model Product Introduction Model Concept Product Dev. Alpha/Beta Test Launch/ 1st Ship became (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 34

67. Customer Development:“one (great) entrepreneur’s theory,” 2001-2003 CustomerDiscovery Company Building CustomerValidation Customer Creation Pivot 35

68. Customer Development: happy 10th birthday…extensive “real world” deployment…morphed, tested, debated: CE0s, CM0s, VCs, MBAs…and a “slight” investment cycle change since ‘01-3! CustomerDiscovery Company Building CustomerValidation Customer Creation Pivot …a very short Customer Development overview 36

69. Customer Discovery CustomerDiscovery CustomerValidation Company Building CustomerCreation Stop selling, start listening Test your hypotheses Continuous Discovery and Feedback Done by founders…OUTSIDE the building! (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 37

71. Passionate Earlyvangelists?

72. Return to Discovery absent passionate customers(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 38

74. Fast, agile and opportunistic

75. (Almost) celebrate failure…whenever it’s instructive

76. But it didn’t have a name “Do over” is just so juvenile39

78. Spend to scale based on FACTS, not Hypotheses

79. Begins only with repeatable, scalable processesfor sales, marketing, demand creation(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 40

81. (Re)visit the mission

82. Go Global

83. Get a Porsche (or a Towncar)rganization& management

84. Re look at your mission(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 41

85. So what’s new since 2003?? Customer Development startups have surged Customer Development “Rules” emerged Key Customer Development approaches have converged Product Development cycle times submerged …and easy money has been purged 42

86. 5 Years Ago… (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 43

87. Eric Ries Extends the Model Took Steve’s class at U.C. Berkeley Co-founded IMVU Ditched Waterfall and paired Customer Development with an Agile Development Model Used off-the-shelf commodity software stack

90. Orient Decide Act Observe ImplicitGuidance& Control ImplicitGuidance& Control UnfoldingCircumstances CulturalTraditions Observations GeneticHeritage Decision(Hypothesis) Analyses &Synthesis Action(Test) FeedForward FeedForward FeedForward NewInformation PreviousExperience OutsideInformation UnfoldingInteractionWithEnvironment UnfoldingInteractionWithEnvironment Feedback Feedback Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedback and other phenomena coming into our observing window. New #2: Reduced Cycle TimesJohn Boyd Insight: The OODA “Loop”

92. Minimum feature set speeds up cycle time

93. Near instantaneous feedback drives feature set(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 49

94. New #3: Jon Feiber@MDVNot all Startups Need Customer Development Market Risk vs. Technical Risk? Web is about customers & markets Biotech is about science & invention

95. SEO Campaigns, Contests SEM PR Biz Dev Social Networks Affiliates Blogs ACQUISITION Apps & Widgets Direct, Tel, TV REFERRAL Email Viral Loops Domains Retention Emails & widgets Emails & Alerts Website.com Affiliates, Contests Blogs, RSS, News Feeds System Events & Time-based Features Biz Dev Revenue $$$ Ads, Lead Gen, Subscriptions, ECommerce New #4: Dave McClureDifferent Metricsfor (Web) Startups From Dave McClure http://500hats.typepad.com/ (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 51

97. Viral/Unique/Session Growth

98. Customer LTV change

99. Average Selling Price/Order Size

101. Cash Flow Statement

102. Income Statement(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 52

103. New #5: Business Model, Not PlanFront-end to Customer Development Business Plans are Rigid, Static “No Business Plan Survives First Contact with Customers” who don’t read them --Steve Blank The Four Steps had: Business model flow for Enterprise Software Business model summary for each step Checklist for Enterprise Software It said, “modify it to fit your business” Now we can (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 53

104. Osterwalder’s Business Model - Insight value proposition customer relationships key activities customer segments key partners cost structure revenue streams key resources channels images by JAM (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 54

105. KEY PARTNERS OFFER CUSTOMER RELATIONSHIPS CUSTOMER SEGMENTS KEY ACTIVITIES building block building block building block building block building block building block building block building block building block building block building block building block CHANNELS KEY RESOURCES REVENUE STREAMS COST STRUCTURE Business Model Canvas – Any Business 55 (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 55

107. Head by Founders, Not Consultants

108. The heart of Customer Development

109. Iteratiowithout crisis

110. Fast, agile and opportunistic

111. Fueled by Customer Feedback

112. Heard by Founders, Not Consultants

113. The heart of Customer Development

114. Iteration without crisis

115. Fast, agile and opportunistic(c)2010 K+S Ranch Consulting Inc. www.steveblank.com 56

116. A few rules from the “Blank Manifesto” Align all parties upfront…prepare to lose termsheets No VPs, no factories…MVP to the “champagne cork” No more business plans! Commit to Iterate and Pivot, “celebrate,” tolerate failure when it propels you forward Integrate Customer Development with Agile Manufacturing Agree to very different benchmarks and metrics Faster Cycle Times say Run like hell* 57

117. When Doesn’t Customer Development work? Lack of “honest” commitment to Customer Development Progress over Passion Oops…we promised to ship on… Oops…the factory is about to open Founders delegate Discovery and Validation Too many times ‘round the barn Pharmaceuticals, regulation, innovation risk Too many MBA’s, not enough failure celebration 58

118. So What Happens Next? 50 Years After Toyota Invents Lean: …The Next Big Lean Revolution

119. 50 Years Later Customer & Agile Development change the rules for Consumer Internet startups Economics Development Cycle Time Easy, Overnight MVPs, Iterations, even Pivots Oceans of Fast, Cheap Feedback Time to market “No Money Down” (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 60

120. 50 Years Later – Full Circle Customer & Agile Development will change the rules in all industries Enterprise Software Consumer Hardware Everything else (c)2010 K+S Ranch Consulting Inc. www.steveblank.com 61

121. Where to learn more: www.steveblank.com

122. Thanks…Now Go PIVOT! bob@kandsranch.com www.steveblank.com