why everything you know about entrepreneurship may be wrong
DESCRIPTION
Presentation to Angel Summit 2011TRANSCRIPT
Why Everything You Know About Entrepreneurship May Be Wrong
Nathan [email protected]
IntroductionNathan Furr
PhD, Stanford Technology Ventures ProgramEntrepreneurship Professor, BYU
Activities Related to TodayNail It then Scale ItInternational Business Model CompetitionForbes Expert Contributor
A Test ???When was the first large corporation formed?
When was the first business school formed?
When was the first MBA granted?
Why should I care?
Motivating Story
Entrepreneurship Practice and Theory:Where Does It Come From?
Practice Theory & Practice
Economics
Sociology / Psych
Entr
epre
neur
ship
Practice
Theory
=
What That Means for Entrepreneurship
Entrepreneurship 101 = Business Planning
Entrepreneurship Process = Product Development Model
Entrepreneurship Focus = Gather Resources (Raise $)
Entrepreneurship Team = Divisionalized Roles
Results of Current Effort
New Business Success
Business Planning
Entrepreneurship Training
<90% Failure
No Effect
No Effect*
*No Effect in GATE Study
… It’s All the Entrepreneur ???
Entrepreneurs are born …
It’s all about passion …
They walk through brick walls…
The jockey, not the horse
It’s all about the team
The Wrong Process & Theory
Known Versus Unknown Problems
Known Problem Mgmt Unknown Problem Mgmt
PlanningExecutionOptimizationCoordinationError Avoidance
Radical ExperimentationAssumption TestsRapid CyclesMinimizationSatisficingChange
The Marshmallow Challenge Illustration
Best? Worst?
Known versus Unknown Problems
SolutionKnown Unknown
Problem
Unknown
Entrepreneurial & Traditional Management
Examples: Technology transfer, new market entry with existing products
Entrepreneurial Management
Examples (at launch): PayPal, Microsoft, Facebook, Omniture, Segway
KnownTraditional Management
Example: Cars, phones, breakfast cereal, PCs, etc.
Entrepreneurial & Traditional Management
Examples (at launch): Google, Quora, Product line extensions
The Entrepreneurship Paradigm Shift
Evidence of the Shift
Customer DevelopmentSteve Blank
Lean StartupEric Ries
Nail It then Scale ItNathan Furr and Paul Ahlstrom
Emerging ideas in actionY Combinator, TechStars, Dream It Ventures, BoomStartup
Other related ideasBusiness Model Generation (Alex Osterwalder); Getting to Plan B (John Mullins); BoomStart (Rhoads et al.)
Nail It then Scale It
One Approachwww.cafepress.com/nailitthenscaleit
The Innovation ChallengeMost startups will fail
60-70% of new businesses fail within 4 years60-70% venture funded startups will failIn some sectors up to 90% of startups fail
Are we doing something wrong?
Is There a Process?
“Most successful entrepreneurs I’ve met have no idea about the reasons for their success. My success was a mystery to me then, and only a little less so now.”
- Bob Metcalfe, Inventor of Ethernet
What Is the Canonical ProcessHow to build a business 1.0Reinforced in most universities by the business plan class
Entrepreneur has a idea
Discuss with / raise money from friends, family and
fools
Find a location,
develop the product
Perfect the product and add features
for broad appeal
Sell the product
The Roots of the Canonical Model
Identify product
opportunity
Create product specs
Build alpha product
Test product,
build beta product
Sell product to
customers
The Product Development Model
Broken ModelPD Model Based on Execution Not Search
Entrepreneur has a vision
Discuss with trusted
friends and family
Raise money from triple F
Find an office, build a
Product
Start selling the product
“Build It and They Will Come”
Myth
“American Idol” Problem
“” Problem“Blind Leading
the Blind” Problem
2 Year / $2M
Russian Roulette
The Broken ModelProduct Development Model Based on
Execution Not Search
Entrepreneur has a idea
Discuss with / raise money from friends, family and
fools
Find a location,
develop the product
Perfect the product and add features for broad
appeal
Sell the product
“Escalation of Commitment”
Stage
“American Idol” Stage
“Midnight Genius” Stage
“Feature Lock-in” Stage
Russian Roulette
“Sales Pipeline Problem” Stage
#1 Cause of Startup Death?
Building products before you nail the pain
Writing marketing materials before you nail the solution
Hires sales teams before you know how to sell
Spending money before you understand the business model
Premature Scaling
How to Fix a Broken Model
Entrepreneur has a idea
Discuss with / raise money from friends, family and
fools
Find a location,
develop the product
Perfect the product and add features for broad
appeal
SalesCustomers
Nail It then Scale ItThe Fundamentals
Fundamental #1: Get Into the Field
“Get the heck outside the building!” –Steve Blank
Fundamental #2: Fail FastThe goal is to fail fast and inexpensively
Redefine failureThe only failure is wasting your time and money when you could avoid it
1000 Markets Example
Fundamental #3: Intellectually Honest Learning
Common Learning TrapsConfirmation biasMotivation biasFamiliarity biasSuperstitious learning
Goal: Listen to understand the world as it really isAttitude of wisdomWillingness to be wrong and to failExample: Mike Cassidy, Xfire
Fundamental #4: Inexpensive, Rapid Experiments
Experiment with virtual prototypes
Identify your assumptions and turn them into facts
Power in low cost, simple, rapidExample: Jam experimentExample: Classtop and the $300 software package
Nail It then Scale It:The Five Phases
Phase 1: Nail the Market Pain
Objective: Discover the Monetizable Market Pain
Discover the “job” your customer is trying to get down without being biased by the solution
Develop the Big Idea Prototype
Steps:Step 1: Don’t build anythingStep 2: Write down Monetizable Pain hypothesisStep 3: Write down Big Idea PrototypeStep 5: Quick test with customersStep 5: Quick exploration of markets
Test:Customers return your cold call
Examples:Convergent Technologies vs. Ardent, Fast Office, RecycleBank, Lunarr, Classtop
Phase 2: Nail the Market Solution
Objective: Discover the Minimum Feature Set that drives purchase
Steps:Test 1: Virtual Prototype TestTest 2: Prototype TestTest 3: Solution test
Test: Customers purchase
Examples:Intuit (Quickbooks: Simple Start), Motive Communications, Classtop, CrimeReports, IMVU, Craigslist, Ford, Google …
Phase 3: Nail the Go-to-Market Strategy
Objective: Discover customer buying process and unique sales process for your customers
Steps:Test 1: Buying process discoveryTest 2: Market infrastructure discoveryTest 3: Pilot customer validation
Examples:Intuit (Quicken)SupermacMotive CommunicationsKnowlix, Aeroprise, Design within Reach, …
Phase 4: Nail the Business Model
Objective: Validate financial model & ignite business model
StepsLeverage customer conversations to predict business modelValidate the financial modelIteratively launch product and go-to-market strategyBusiness dashboard with continuous information flowAdjust speed depending on market type
Examples:WebvanWebmetrics, Knowlix, Yahoo
Phase 5: Scale It
Objective: Scale discovered model until it breaks
Phase change recognition & managementRecognize changesShift process, structure and employeesEmphasize with visual management
Consciously define cultureSuccession and transitionLeaping between markets
Examples:Intuit, Fusionsoft, Craigslist, SodaStart, IMVU
Summary of Five Stages
Product developmentBefore you build anything:
Identify hypotheses about customersTest those hypotheses as cheaply as possibleIdentify exactly customer pain and your solution with customerUse a virtual prototype
Sales developmentDiscover exactly how customers buyDevelop a replicable sales model
What’s Different from Lean Startup / Customer Development
Entry-level / How-to
Monetizable Pain Hypothesis
Virtual Prototype
Minimum Feature Set vs. MVP
How Put Into Practice / Scale
Thank You
Nathan Furr
www.blogs.forbes.com/nathanfurr
www.businessmodelcompetition.com
www.cafepress.com/nailitthenscaleit