Business plans versus business models - 2010

transcript

Business ModelsSteve Blank

www.steveblank.comClean Tech Open Accelerator 2010

I Wrote This

I Write a Blog www.steveblank.com

It Starts With the “Idea”

Where are CleanTech Ideas Born?

Technology shifts Market changes Societal changes Dinosaur factor Irrational exuberance

Technology Driven Ideas

Is it buildable now? How much R, how much D? Does it depend on anything else? Are there IP issues? Does it solve an existing customer problem? Create a new market? How big a market and when? What do you need to turn the idea into a company? How do you test customer acceptance early?

Customer Driven Ideas

Is there an articulated customer need? How do you know? How big a market and when? Are others trying to solve it? If so, why you? What do you need to turn the idea into a company? How do you test your idea early?

Opportunity Driven Ideas

Is there an opportunity no one sees but you do? How do you know it’s a vision not a hallucination? How do you test your idea early? How big a market and when? Are others trying to solve it? If so, why you? What do you need to turn the idea into a company?

But an Idea By Itselfis Not a Company

Idea/Product – Only a Start

Your Idea itself does not have value Its fit with customer needs/demand is crucial The other parts of the company make it a business First-Mover Advantage is usually wrong

Technology Risk, Market Risk or Both?

Clean Tech Markets

Air, Water & Waste

Energy Efficiency

Green Building

Renewables Smart Power

Transport

Clean Tech Markets - Risk

Air, Water & Waste

Energy Efficiency

Green Building

Transport

• Which markets have technology risk?• Which markets have customer risk?• Which have both?

Clean Tech Markets - Risk Definitions

Air, Water & Waste

Energy Efficiency

Green Building

Transport

• Technology Risk

– risk is in development of the product (i.e. fuel cells, thin-film arrays, etc.) then customers automatically adopt

• Customer risk– risk is in customer and market adoption

• Which have both?

• You spend your time differently depending on risk

Next…

CleanTech Business Plan Hypothesis

Size of Opportunity

Customer

Competition

Marketing

Biz Dev

Customer Dev

Bus/Rev Model

IP/Patents

Regulatory

Time to Market

Prod Dev Model

Manufacturing

Seed Financing

Follow-on

Liquidity

Clean Tech Markets - Hypotheses

• Your business plan is a set of untested hypothesis

• What are they?

• Size of Opportunity– TAM, SAM

• Customer– Who’s the end user? Economic buyer? Reimburser?

• Sales – What’s the distribution channel?

• Marketing– How do you create end-user demand

• Customer Development– How do you test your hypothesis

• Business Model– How do all the parts work to create profits?

• Financing– What is the path to cash flow positive

Size of Opportunity

Customer

Competition

Marketing

Biz Dev

Customer Dev

Bus/Rev Model

IP/Patents

Regulatory

Time to Market

Prod Dev Model

Manufacturing

Seed Financing

Follow-on

Liquidity

Size of Opportunity

Customer

Competition

Marketing

Biz Dev

Customer Dev

Bus/Rev Model

IP/Patents

Regulatory

Time to Market

Prod Dev Model

Manufacturing

Seed Financing

Follow-on

Liquidity

• How do you test these hypotheses?• How do you execute them?

How Big is It??

So if You Succeed Do I Care?

“Venture-Scale” Businesses

Solve a significant problem/want or need, for which someone is willing to pay a premium

A good fit with the founder(s) and team Can grow large (≥$100 million) for traditional

VC’s Attractive returns for type of investor

TotalAvailableMarket

Total Available Market, Served Available Market, Target Market

ServedAvailableMarket

Target MarketSAM = how many can I reach

with my sales channelSAM = how many can I reach with my sales channel

TAM = how big is the universeTAM = how big is the universe

Target Market (for a startup) = who will be the most likely buyersTarget Market (for a startup) = who will be the most likely buyers

Market Size: Summary

Market Size How big can this market be? How much of it can we get? Market growth rate Market structure (Mature or in flux?)

Most important: Talk to Customers and Channel Next important: Market size by competitive

approximation Wall Street analyst reports are great Market research firms

$4 Billion 18,500 MW

(Worldwide Grid Tied)

• Based on lifetime value of all customers (20 yrs)

Source: Amonix

18,500 MW Source: NREL

X 5.5 hours a day

X 365 days a year

X $150 dollars a MWh

X .07 efficiency savings

X 20 year lifetime

X 40% cut for us

= $4 Billion

$220 Million

1,000 MW (US Grid

Source: Amonix

$182 Million830 MW

(US Commercial Grid Tied)

$220 Million1,000 MW

(US Grid Tied)

Source: Amonix

• 33-500 Customers (25MW in sales = 1-15 customers)

Source: Heliotex

Plan versus Model

I’m ConfusedI’m Confused

• What is a Business Model?• How does it differ from a Business Plan?

Business Business PlanPlan

1. A document your investors make you write that they don’t read

2. A useful place for you to collect your guesses about your business• Size of Opportunity

• Customers

• Channel

• Demand Creation

• Revenue/Expenses/Profit

3. The template to look like everyone else when you do present to VC’s

Business Plan - Sum of Hypotheses

• Business plan collects your hypothesis• Adds facts as you know them today• A plan of how to turn hypothesis into facts• Extrapolates results if hypothesis turn into facts

No Business Plan survives first contact with customers

So Search for a Business Model

Business Model…

Start with the Pieces

What Is a Business Model?

A diagram that shows all the flows between your company and its customers

It describes the rationale of how an organization creates, delivers and captures value

All on a single sheet of paper

* Alex Osterwalder

What Makes up a Business Model?

A series of building blocks which describe: The product Customers/Users Demand Creation Motivations / problems Budget / Resources Flows of value Supply chain

Customers

Purchase Distributio

Demand Creation

Product

Resources

Assembly / Manufacturing

3rd Party Integration

Customers

Demand Creation

Product

Resources

Customers

Demand Creation

Product

Resources

Customers

Purchase Distribution

Demand Creation

Product

Resources

Customers

Distribution Channel

Demand Creation

Product

Resources

Customers

Demand Creation

Product

Resources

Customers

DistributionChannel

Demand Creation

Product

Resources

Customers

Demand Creation

Product

Resources

Customers

Demand Creation

Product

Resources

Emphasis On Hypotheses Testing

Startups Continually Iterate & Pivot

VALUEPROPOSITION

COSTSTRUCTURE

CUSTOMERRELATIONSHIP

TARGETCUSTOMER

DISTRIBUTIONCHANNEL

VALUECONFIGURATION

CORECAPABILITIES

PARTNERNETWORK

REVENUESTREAMS

gives an overall view of a

company's bundle of products and

services

portrays the network of cooperative

agreements with other companies

describes the channels to

communicate and get in touch with

customers

describes the arrangement of activities and

resources

explains the relationships a

company establishes with

its customers

sums up the monetary

consequences to run a business

describes the revenue streams through which

money is earned

describes the customers a

company wants to offer value to

outlines the capabilities

required to run a company's

business model

INFRASTRUCTURE CUSTOMER

FINANCE

Business Model = Keeping Score in a Startup

Business Model Generation Book

Business Model on Day One of Your Startup

Customers

Demand Creation

Product

Resources

Hypothesis Testing Process

Customer Development

Customer

Discovery

CustomerValidatio

Company

Building

Customer

Creation

• Stop selling, start listening

• Test your hypotheses

• Continuous Discovery

Customer Discovery

CustomerDiscovery

CustomerValidation

CompanyBuilding

CustomerCreation

Customer Validation

CustomerDiscover

CustomerValidatio

Customer

Creation

Company

Building

• Repeatable and scalable business model?

• Passionate earlyvangelists?

• Pivot back to Discovery if no customers

The Pivot

• The heart of Customer Development

• Iteration without crisis

• Fast, agile and opportunistic

Customer Development Book

Putting It Together in A VC Pitch

What are VC’s Really Asking?

• Are you going to:– Blow my initial investment? – Or are you going to make me a ton of money?

• Are there customers for what you are building?– How many are there? Now? Later?

• Is there a profitable business model?

• Can it scale?

The Traditional VC Pitch

• Technology• Team• Product• Opportunity• Customer Problem• Business Model• CustomersBetter

Since You Can’t Answer my real questions here’s the checklist

Facts Reduce VC Risk

• Business Model + Customer Development

– Extract the hypotheses

– Leave the building to test the hypothesis

– Present the results as: “Lessons Learned from our customers”

– Iterate Business Model

Tell The Story of What You Learned

• Start with your original business model• Tell them why it was wrong

– Extra credit for getting thrown out of a customer

• Tell them what you learned– Extra credit for customers saying “now we’ll buy”– Use data if you have it

Thanks

www.steveblank.com

Business plans versus business models - 2010

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