1.
Allan Chao
Startup Consultant
Startup V8
allan@startupv8.com
UC Berkeley Extension, Summer 2012

2.
Humor of the day:
Question of the day:
What makes a great entrepreneur?

3.
The Agenda If you have business ideas
during this class, write
 Intro to the class
 Syllabus
them down. We will do
 Policies, outline practice pitches at the end
of class.
 Context of Web Startups
 Startup Culture (risk vs reward)
 History of Startups and “disruptive innovation”
 idea vs execution
 Startup stories
 Entrepreneurs (Personality test)
 The Lean Startup
 Lean Startup Methodology
 Customer development model
 Practice Pitches
 Next week… real pitches and form teams

4.
What is this class?
 Fast paced… lots to cover
 Hands on… all about tools and using them
 A real trial… build your own mini-startup
Who is it for?
 Entrepreneurs… serious about starting startups
 The curious… have an idea but not sure what it takes

5.
Syllabus Important Points
 Grading
 60% = daily quizzes over reading material (8 of them)
 40% = Final project and presentation
 Mondays and Wednesdays 6-9 pm. Last day is July 9th
 No class July 4th
 If you miss a session, you will fall behind. We move fast.
 Other notes
 Textbook (“The Lean Startup”) is great, but not required
 Weekly reading is for the quizzes
 Best time to talk to me is before/after class, or by email

6.
Course Outline
 1: Today… context of web startups and the Lean Startup
 2: Next session, immediately start building a startup
 Pitches and teams
 Business planning
 Intro to Websites
 3: Market research and web tools
 4-7: Four sessions on web product development
 8: Marketing your product
 9: Finance and Legal
 10: Final project presentations

7.
The Context of Web Startups

8.
Web Startups… What are they?
 Web
 Websites, Mobile apps, Tablets
 Infrastructure
 Software as a Service
 Startups
 New and unproven business model
 = New way of solving an existing problem
 Disruptive innovation = disrupts the existing market

9.
A quick history of web startups
Those who cannot remember the past are condemned to repeat it.
- George Santayana
1991 - World Wide Web becomes available for the public. Internet users multiply at a rate of
3500 times a year, reaching the number of 295 million users by the year 2000.
1992 - launch of Windows 3.1
1993 - price of a PC 486/33 with 250 MB HDD, 1MB memory and floppy disk: $1,260.00
1994 – Amazon.com founded by Tim Bezos as an online bookstore
1995 - launch of Windows 95
1997 – Amazon.com IPO, made $70.5 million in one day, valuing the company at $438 M
1995-1999 – Grow grow grow!
1999 – Time names Tim Bezos person of the year.

10.
Times were great!
 NASDAQ composite

11.
Who said “Bubble”?
 NASDAQ composite

12.
Amazon.com stock chart
1997
open at
$18/share
1999
Peak
$199/share,
Closed at
$107/share
2001
$5.67/share
2012
$208/share
What happened during the bubble?
“Growth over profits” = bad business models

13.
Web Failures of the dotcom bubble
 Pets.com
 sold pet supplies to retail customers.
 Founded in 1998, bankrupt by 2000.
 In 2 years, lost $300 M.
 Boo.com
 online consumer fashion Web store
 Founded , bankrupt in 2000
 Spent about $188 M in 6 months
 WebVan
 an online grocery store
 Founded in 1999, bankrupt by 2001.
 In 18 months, spent roughly $1.2 Billion
 Many, many more…

14.
Venture Capital history
http://techowtest.files.wordpress.com/2012/03/historyofstartupsandbubbles1.png

15.
Silicon Valley history
 “South Bay”, Especially Palo Alto, Santa Clara, San Jose
 Named for the number of silicon chip (semiconductor)
manufacturers, back in 1971
 A very special place in the world
 Today, SV accounts for 1/3 of all venture capital in the USA
 A 2006 The Wall Street Journal story found that 12 of the 20
most inventive towns in America were in California, and 10 of
those were in Silicon Valley
 Culture of risk tolerance, of trying high risk ventures
 The “entrepreneurial spirit”

16.
That’s all for history and context,
back to startups

17.
Web Startups… What are they?
 Web
 Websites, Mobile apps, Tablets
 Infrastructure
 Software as a Service
 Startups
 New and unproven business model
 = New way of solving an existing problem
 Disruptive innovation = disrupts the existing market

18.
What is “disruptive innovation”?
 Let’s use the law firms industry as an example
 “Standard Process”
 College student with good grades goes to law school
 Studies for 3 years, graduates with law degree
 Joins or starts a law firm
 You need legal forms, so you go to this person.
 The result of this “standard process”?
 Costs $$$ hourly
 Requires in-person meetings
 Non-standardized

19.
Disrupt it!
 Enter LegalZoom.com
 An online website with pre-made forms that consumers fill
out via questionnaires
 New Process
 You need legal forms, but don’t have the $$$ for an attorney
 Go to the website, fill out questionnaire, pay $ fee, done!
 The result?
 Mostly automated = minimal human interaction = low cost
 Online = flexible hours and geographic location
 Standardized forms = consistency
 Is it better?

20.
Big and Famous Web Startups
 Amazon.c (1994)  Groupon (2008)
 Ebay (1995)  (2008)
 Googl (1998)  (2009)
 Paypal (1998)
 Wikipedia (2001)  (2010)
 LinkedIn ( (2003)
 Facebook (2004)
 YouTube (2005) (founding date)
 Twitter (2006)

21.
Literally Thousands More

22.
High Risk
 Literally thousands of web startups…
 Lots of direct competitors…
 Very few startups break even…
 Even fewer become profitable…
 The default future for any new startup is to die
 What’s the statistic? Depends on how you count…
http://www.quora.com/What-is-the-truth-behind-9-out-of-10-startups-fail

23.
Great Reward
 But those that do succeed are extremely successful…
(over 1,000:1)
 change the world (or at least their industry)
 can make MEGA $$$$$$$$$$$$ (via IPO or Acquisition)

24.
Back up… what about a small reward?
 That’s fine. Actually there’s 3 ways to exit a company.
 Option 1: IPO = Initial public offering
 Makes the most money ($1 billion +)
 Hardest to do (very few companies make it this far)
 Notables: Facebook, Groupon, LinkedIN
 Option 2: Acquisition
 Usually makes less money ($10 million - $1 billion)
 “Easier” to do
 Notables: YouTube (Google), Skype (Microsoft), Instagram (FB)
 Option 3: “Lifestyle business”
 Makes the least money (recurring “passive” income of <$1 M)
 “Easiest” to do
 No angel or VC investor will invest in a lifestyle business. 
 Notables: 4-hour workweek

25.
Make a decision, plan ahead
 How high do you want to aim?
 Higher aim = more risk, greater potential
reward
 Lower aim = lower risk, less potential reward
 You can’t really get the best of both worlds…
it costs more to aim higher
 Pretend you’re starting a lemonade
stand
 What if your goal is to make $100?
 What if your goal is to make $100 million?
 The strategies differ a lot
 “Standard” web startups = aiming high

26.
High Risk, Great Reward
 It’s playing the “Startup lottery”
 Assume financial loss, with the small possibility of
great reward
 It’s done for the experience and the potential
 It’s NOT random.
 You have control over many of the factors for success.
 Skill
 Hard Work
 Luck

27.
So then, how to Be Successful?
 The idea is worth $0.00 = nothing

28.
If you leave with nothing else from this class,
leave with this:
The idea has virtually no value.
(it’s entirely in execution)

29.
The fallacy of the idea
 The idea is only a seed.
 Bags of seeds are cheap. Growing actual plants takes work
 We will prove this later, with practice pitches
 Investors who bet on “ideas” are not betting on “ideas”
 They are betting on the team behind the idea
 No one buys an “idea”
 The closest you get to an idea being valuable is a patent,
trademark, or copyright which is a lot more involved

30.
How to Be Successful?
 The idea is worth $0.00 = nothing
 Execution is everything!!
 What does that mean? What is “Execution”?
 Planning
 Marketing Here's the truth of the matter: ideas are
pretty much worth zilch. What IS
 Design
valuable is the ability to implement an
 Development idea, turn it into a product, and then sell
 Sales that product in the marketplace and
 Fundraising make money. That's the real work, and
 Legal the real reward should go to the people
who do that, not the fools who pretend
 Accounting that they should be rewarded for the
 Partnerships product of their divine creativity.

31.
Better Execution
 Business Plans vs. The Lean Startup
 Business Plans = Plan and Pray
 Like planning a rocket ship. Every little detail planned ahead.
 Lean Startup = Release and React
 Like driving a car. Just go, and make adjustments on the way
 Lean Startup
 Low overhead, low costs
 Agile Software Development
 Rapid customer-centric development

32.
Break time before section 2
…
A fun activity while we’re on break:
Entrepreneur personality quiz
http://www.forbes.com/2010/08/02/entrepreneur-personality-quiz-thomas-
harrison-entrepreneurs-management-serial-startups-10-quiz.html
…
Section 2: The Lean Startup

33.
The Goal = Hockey Stick!
http://smartfaststartup.com/2011/06/08/real-secret-to-startup-success/

34.
The Reality… assuming success
http://www.avc.com/a_vc/2012/03/the-startup-curve.html

35.
The Startup Lifecycle
 http://www.netvalley.com/silicon_valley/Legal_Bridge_From_El_Dorado_to_Silicon_Valley.html

36.
Top 20 Reasons Startups Fail

37.
The Lean Startup (Eric Ries)
 A methodology/philosophy of building
startups
 1. Use of free and open source software
 Groupon was started as a wordpress blog
 2. Agile Software Development
 Release as frequently as possible
 Iterate development as quickly as possible
 3. Ferocious customer-centric rapid
iteration
 Customer Development Process
 Build a minimum viable product – launch fast!
 Learn from your users/customers

38.
Software Product Development
 Creating the Minimum Viable Product (MVP)
 Functional Requirements
 Wireframes
 Graphic Design
 Code
 Content (Copywriting, Social Media accounts, analytics, etc.)
 Deploy (aka Release)

39.
Traditional Software Development

40.
Agile Software Development
 Start Small
 Minimum Viable
Product
 Iterate quickly
 Track user data
 Flexible software
 Release frequently
 Cycle weekly or every
two weeks

41.
Customer Development Process
 Customer Discovery = Understanding your customers
 Customer Validation = Develop a Repeatable Sales Process with
early evangelist buyers
 Customer Creation = Scaling your customers from few to many
 Company Building = Rebuild your company’s organization and
management. Re-look at your mission

42.
Customer Discovery

43.
Customer Validation

44.
Customer Creation

45.
Company Building

46.
That’s it for customer development
now… practice pitches!

47.
Homework
 Think about what project you actually want to work on
 Pitches next week to form teams
 Reading material
 Fantasies vs Realities of a Startup infocomic
 http://grasshopper.com/assets/blog/2011/03/fantasy-vs-
reality-infocomic-v2.jpg
 Steve Blank’s slides on customer development
 http://www.slideshare.net/venturehacks/customer-
development-methodology-presentation