Business Models Steve Blank www steveblank com Clean

Business Models Steve Blank www. steveblank. com Clean Tech Open Accelerator 2010

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It Starts With the “Idea”

Where are Clean. Tech 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 Itself is 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 Renewables Smart Power • Which markets have technology risk? • Which markets have customer risk? • Which have both? Transport

Clean Tech Markets - Risk Definitions Air, Water & Waste Energy Efficiency Green Building Renewables Smart Power Transport • Technology Risk – risk is in development of the product (i. e. fuel cells, thinfilm 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… Clean. Tech Business Plan Hypothesis

Clean Tech Markets - Hypotheses Size of Opportunity Customer Competition Sales Marketing Biz Dev Customer Dev Bus/Rev Model IP/Patents Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity • Your business plan is a set of untested hypothesis • What are they?

Clean Tech Markets - Hypotheses Size of Opportunity Customer Competition Sales Marketing Biz Dev Customer Dev Bus/Rev Model IP/Patents Regulatory Time to Market Prod Dev Model Manufacturing Team Seed Financing Follow-on Liquidity • 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

Clean Tech Markets - Hypotheses Size of Opportunity Customer Competition Sales Marketing Biz Dev Customer Dev Bus/Rev Model IP/Patents Regulatory Time to Market Prod Dev Model Manufacturing Team 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

Total Available Market, Served Available Market, Target Market TAM = how big is the universe SAM = how many can I reach with my sales channel Target Market (for a startup) = who will be the most likely buyers 21

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

• Based on lifetime value of all customers (20 yrs) Source: Amonix $4 Billion 18, 500 MW (Worldwide Grid Tied) 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

• Based on lifetime value of all customers (20 yrs) Source: Amonix $4 Billion 18, 500 MW (Worldwide Grid Tied) $220 Million 1, 000 MW (US Grid Tied)

• Based on lifetime value of all customers (20 yrs) Source: Amonix • 33 -500 Customers (25 MW in sales = 1 -15 customers) Source: Heliotex

Plan versus Model

I’m Confused • • What is a Business Model? How does it differ from a Business Plan?

Business Plan 1. 2. A document your investors make you write that they don’t read A useful place for you to collect your guesses about your business • • • 3. Size of Opportunity Customers Channel Demand Creation Revenue/Expenses/Profit 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

$ Purchase Distributio n $ Product Assembly / Manufacturing Users $ Demand Creation $ 3 rd Party Integration Customers Resources

$ Purchase Distribution $ Product Assembly / Manufacturing Users $ Demand Creation $ 3 rd Party Integration Customers Resources

$ Distribution Channel $ Product Assembly / Manufacturing Users $ Demand Creation $ 3 rd Party Integration Customers Resources

Emphasis On Hypotheses Testing

Startups Continually Iterate & Pivot

Business Model = Keeping Score in a Startup INFRASTRUCTURE CORE CAPABILITIES outlines the capabilities required to run a company's business model PARTNER NETWORK CUSTOMER RELATIONSHIP OFFER portrays the network of cooperative agreements with other companies VALUE CONFIGURATION VALUE PROPOSITION gives an overall view of a company's bundle of products and services COST STRUCTURE DISTRIBUTION CHANNEL TARGET CUSTOMER describes the customers a company wants to offer value to describes the channels to communicate and get in touch with customers describes the arrangement of activities and resources sums up the monetary consequences to run a business model explains the relationships a company establishes with its customers CUSTOMER FINANCE REVENUE STREAMS describes the revenue streams through which money is earned

Business Model Generation Book

Business Model on Day One of Your Startup

? ? $ Product $ ? 3 rd Party Integration ? Distribution Channel $ Assembly / Manufacturing ? ? Demand Creation $ ? Users ? Customers Resources

Hypothesis Testing Process Customer Development Customer Discovery Customer Validation Pivot Customer Creation Company Building

Customer Discovery Customer Validation Customer Creation • Stop selling, start listening • Test your hypotheses • Continuous Discovery Company Building

Customer Validation Customer Discovery Customer Validation Customer Creation Company Building Pivot • 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 Since You Can’t Answer my real questions here’s the checklis Better • • Technology Team Product Opportunity Customer Problem Business Model Customers

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 58

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