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Customer Development in the High-Tech Enterprise Fall 2009
Agenda
! Logistics/Questions! Market vs. Technology Risk! Boyd & the OODA Loop! Customer Development! CASE: IMVU! CASE: WebVan
Market VersusTechnology Risk
Customer Development in the High-Tech Enterprise Fall 2009
Startup Checklist – 1What Vertical Market am I In?
! Web 2.0! Enterprise Software! Enterprise Hardware! Communciaton Hdw! Communication Sftw! Consumer Electronics! Game Software
! Semicondutors! Electronic Design
Automation! Cleantech! Med Dev / Health Care! Life Science / Biotech! Personalized Medicine
Customer Development in the High-Tech Enterprise Fall 2009
A Plethora of Opportunities
Customer Development in the High-Tech Enterprise Fall 2009
Startup Checklist - 2
! Market Risk?! Technical Risk?! Both?
Customer Development in the High-Tech Enterprise Fall 2009
Market Risk vs. Invention Risk
Customer Development in the High-Tech Enterprise Fall 2009
Startup Checklist - 3
! Opportunity Where does the idea come from?! Innovation Where is the innovation?! Customer Who is the User/Payer?! Competition Who is the competitor/complementor?! Sales What is the Channel to reach the customer?! Marketing: How do you create end user demand?! What does Biz Dev do? Deals? Partnerships? Sales?! Business/Revenue Model(s) How do we organize to make money?! IP/PatentsRegulatory Issues? How and how long?! Time to Market How long does it take to get to market?! Product Development Model How to you engineer it?! Manufacturing What does it take to build it?! Seed Financing How much? When?! Follow-on Financing How much? When?! Liquidity How much? When?
Customer Development in the High-Tech Enterprise Fall 2009
Execution: Lots to Worry About
Customer Development in the High-Tech Enterprise Fall 2009
Execution: Very Different by Vertical
Customer Development in the High-Tech Enterprise Fall 2009
Market Risk Reduction Strategy
John Boyd & theOODA Loop
Customer Development in the High-Tech Enterprise Fall 2009
Customer Development in the High-Tech Enterprise Fall 2009
Boyd’s OODA “Loop”
Orientation shapes observation, shapes decision, shapes action, and in turn is shaped by the feedbackand other phenomena coming into our observing window.
FeedForward
CulturalTraditions
GeneticHeritage
NewInformation Previous
Experience
Analyses &Synthesis
Feedback
Feedback
Orient
Decision(Hypothesis)
FeedForward
ImplicitGuidance& Control
Decide
Action(Test)
UnfoldingInteraction
WithEnvironment
Act
Competitive advantage comes from quickness over the entire “loop,” not justfrom the O-to-O-to-D-to-A sequence.
FeedForwardObservations
ImplicitGuidance& Control
UnfoldingInteraction
WithEnvironment
OutsideInformation
UnfoldingCircumstances
Observe
CustomerDevelopment
Customer Development in the High-Tech Enterprise Fall 2009
IfStartups Fail from a Lack of customers
not Product Development Failure
Then Why Do we have:! process to manage product development
! no process to manage customer development
Customer Development in the High-Tech Enterprise Fall 2009
Product Development Model
Concept/Seed Round
ProductDev.
Alpha/BetaTest
Launch/1st Ship
Customer Development in the High-Tech Enterprise Fall 2009
What’s Wrong With This?
Concept/Seed Round
ProductDev.
Alpha/BetaTest
Launch/1st Ship
Product Development
- Create Marcom Materials- Create Positioning
- Hire PR Agency- Early Buzz
- Create Demand- Launch Event- “Branding”
Marketing
Customer Development in the High-Tech Enterprise Fall 2009
What’s Wrong With This?
Concept/Seed Round
ProductDev.
Alpha/BetaTest
Launch/1st Ship
Product Development
- 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
Customer Development in the High-Tech Enterprise Fall 2009
What’s Wrong With This?
Concept/Seed Round
ProductDev.
Alpha/BetaTest
Launch/1st Ship
Product Development
- Create Marcom Materials- Create Positioning
- Hire PR Agency- Early Buzz
- Create Demand- Launch Event- “Branding”
• Hire Sales VP• Hire 1st Sales Staff
• Build Sales Organization
Marketing
Sales
• Hire First Bus Dev
• Do deals for FCSBusiness
Development
Customer Development in the High-Tech Enterprise Fall 2009
Chasing The FCS Date! Sales & Marketing costs are front loaded
" focused on execution vs. learning & discovery
! First Customer Ship becomes the goal
! Execution & hiring predicated on business plan hypothesis
! Heavy spending hit if product launch is wrong
! Financial projections, assumes all startups are the same
=You don’t know if you’re wrong until you’re out of
business/money
Customer Development in the High-Tech Enterprise Fall 2009
An Inexpensive Fix
Focus on Customers and Marketsfrom Day One
How?
Customer Development in the High-Tech Enterprise Fall 2009
Build a Customer Development Process
Customer Development
? ? ? ?
Concept/Seed Round
ProductDev.
Alpha/BetaTest
Launch/1st Ship
Product Development
Customer Development in the High-Tech Enterprise Fall 2009
CompanyBuilding
Customer Development
CustomerDiscovery
Customer Development is as importantas Product Development
Concept/Bus. Plan
ProductDev.
Alpha/BetaTest
Launch/1st Ship
Product Development
CustomerValidation
CustomerCreation
Customer Development in the High-Tech Enterprise Fall 2009
CompanyBuilding
Customer Development
CustomerDiscovery
Customer Development is as importantas Product Development
Concept/Bus. Plan
ProductDev.
Alpha/BetaTest
Launch/1st Ship
Product Development
CustomerValidation
CustomerCreation
Customer Development in the High-Tech Enterprise Fall 2009
Customer & Product DevelopmentSynchronization
Concept/Bus. Plan
ProductDev.
Alpha/BetaTest
Launch/1st Ship
Product Development
ScaleCompany
Customer Development
CustomerDiscovery
CustomerValidation
CustomerCreation
Customer Development in the High-Tech Enterprise Fall 2009
Customer Development Heuristics
! There are no facts inside your building, so getoutside
! Develop for the Few, not the Many! Earlyvangelists make your company
" And are smarter than you! Focus Groups are for big companies, not startups! The goal for release 1 is the minimum feature set
for earlyvangelists
Customer Development in the High-Tech Enterprise Fall 2009
Customer DevelopmentBig Ideas
! Parallel process to Product Development
! Measurable Checkpoints for the CEO
! Not tied to FCS, but to customer milestones
! Iterative to represent reality
! Executed by a small team including CEO
Customer Development in the High-Tech Enterprise Fall 2009
Customer Development is aboutAction
! Never, ever confuse it with a “planning process”! Never, ever confuse it with “focus groups”
Customer Development is about putting theFounders in Continuous Contact and
Engagement with the customer
Customer Development in the High-Tech Enterprise Fall 2009
Customer Discovery: Step 1
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
Existing Market: 1 Month – 1 Year
Resegmenting a Market: 6 Months – 3 Years
New Market: 1 Year – 3 Years
Customer Development in the High-Tech Enterprise Fall 2009
Customer Discovery: Step 1
Existing : 1-6 Months
Resegmenting: 3-12 Months
New: 1-2 Years
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
Customer Development in the High-Tech Enterprise Fall 2009
Methodology
! Customer Development can take months or years! Each Step has a set of phases! Plan what you need to learn in writing so everyone knows:
" what they should be doing" when they should do it" If they succeeded" If they need to do more
! These are checklists, not the inviolable commandments
Customer Development in the High-Tech Enterprise Fall 2009
Before You Start
! Board and Management Buy-In" Learning and discovery not execution
! Customer Development Team" Not traditional hires
! Sufficient funding for 2-3 passes
Customer Development in the High-Tech Enterprise Fall 2009
Modify the Process forYour Company
! Text Example = Enterprise Software Co.! You need to develop your ownyour own
" Specifically for your company/market! Don’t quibble about details but understand there is a process
Customer Development in the High-Tech Enterprise Fall 2009
Discovery = Hypothesis Testing
! What are Hypothesis?! Where do Hypothesis come from?! Why Test them?! How do you test them?
Customer Development in the High-Tech Enterprise Fall 2009
! Stop selling, start listening
! Test your hypotheses" Two are fundamental: problem and product concept
Customer Discovery: Step 1
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
Customer Development in the High-Tech Enterprise Fall 2009
Customer Discovery
CustomerDiscovery
Phase 1Author
HypothesisPhase 2
TestProblem
Hypothesis
Phase 4Verify, Iterate &
Expand
Phase 3Test
ProductHypothesis
To Validation
Customer Development in the High-Tech Enterprise Fall 2009
Test “Problem” Hypothesis
Customer Discovery
Demand Creation
Hypothesis
Market TypeHypothesis
Product Hypothesis
Customer& ProblemHypothesis
Distribution & Pricing
Hypothesis
CompetitiveHypothesis
Hypotheses
MarketKnowledge
FriendlyFirst Contacts
“Problem”Presentation
CustomerUnderstanding
SecondReality Check
First RealityCheck
“Product”Presentation
Yet MoreCustomer
Visits
Test “Product” Hypothesis
Iterate orExit
Verify the Product
Verify theProblem
Verify theBusiness
Model
Verify
Customer Development in the High-Tech Enterprise Fall 2009
Test “Problem”Hypothesis
Customer Discovery
Demand Creation
Hypothesis
Market TypeHypothesis
Product Hypothesis
Customer& ProblemHypothesis
Distribution & Pricing
Hypothesis
CompetitiveHypothesis
Hypotheses
MarketKnowledge
FriendlyFirst Contacts
“Problem”Presentation
CustomerUnderstanding
SecondReality Check
First RealityCheck
“Product”Presentation
Yet MoreCustomer
Visits
Test “Product” Hypothesis
Iterate orExit
Verify the Product
Verify theProblem
Verify theBusiness
Model
Verify
Inside the Building
Outside the Building
Customer Development in the High-Tech Enterprise Fall 2009
Phase 1: Author Hypothesis
! One-time writing exercise! All other time spent in
front of customers! Assumes you’re smart but
guessingPhase 1Author
Hypothesis
Phase 2Test
ProblemHypothesis
Phase 4Iterate &
Expand
Phase 3ProductConceptTesting
Customer Development in the High-Tech Enterprise Fall 2009
Hypothesis
! Product! Customer/Problem! Distribution/Pricing! Demand Creation! Market Type! Competition
Demand Creation
Hypothesis
Market TypeHypothesis
Product Hypothesis
Customer& ProblemHypothesis
Distribution & Pricing
Hypothesis
CompetitiveHypothesis
Customer Development in the High-Tech Enterprise Fall 2009
Product Hypotheses
! Features! Benefits! Product Delivery Schedule! Intellectual Property! Total Cost of Ownership! Dependency Analysis
Customer Development in the High-Tech Enterprise Fall 2009
Customer/Problem Hypotheses
! Types of Customers! Magnitude of the problem! Visionaries! A Day in the Life of a customer! Organizational impact! ROI Justification! Problem Recognition! Minimum Feature Set
Customer Development in the High-Tech Enterprise Fall 2009
Distribution/ Pricing Hypotheses
! Distribution Model! Distribution Diagram! Sales Cycle/Ramp! Channel strategy! Pricing (ASP, LTV)! Customer Organization Map! Demand Creation
Customer Development in the High-Tech Enterprise Fall 2009
Demand Creation Hypotheses
! How do competitors create demand?! How will you?
" Viral" Advertising" PR" Trade shows
! Who are influencers/recommendors?! Key trade shows?! Key trends?! Start assembling advisory board
Customer Development in the High-Tech Enterprise Fall 2009
Type of Market Hypotheses
! Positioning and Differentiation" Existing Market
# The product is the basis of competition" New Market
# Creating the market is the basis of competition" Redefine Existing Market
# Resegment the existing market is the basis ofcompetition
Customer Development in the High-Tech Enterprise Fall 2009
Competition Hypotheses
! Who is out there?! Why are they important?! How do customers use them today?! What don’t customers like about them?
IMVU Case
Intermission
The Customer Development Team
Customer Development in the High-Tech Enterprise Fall 2009
Traditional organizationsand titles Fail
CEO
VP Engineering VP Marketing VP Sales VP Business Dev
Typical Startup
! People equate their titles with their functions" But standard titles describe execution functions" We need new titles = learning & discovery functions
Customer Development in the High-Tech Enterprise Fall 2009
Customer Development TeamTasks Not Titles
CEO
VP Product Dev Technical Visionary Business Visionary Business Execution
Customer DevelopmentDriven Startup
In Front of Customers
Webvan Case