1a three types-of_startup.2013.q2
DESCRIPTION
Part of 2013 Q2 Lean Launch Pad Presentations 0a-Introduction.2013.Q2.pptx 1a-Three_Types_Of_Startup.2013.Q2.pptx 1b-Customer Discovery (problem hypothesis).2013.Q2.pptx 2a-Customer Discovery ( canvas and story ).2013.Q2.pptx 2b-Value_Chain (team specific).2013.Q2.pptx 3a-Customer_Validation.2013.Q2.pptx 3b-GKG-CustomerRelationships.2013.Q2.pptx 4a-EndGame.2013.Q2.pptxTRANSCRIPT
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“Three Types Of Startup”
Iain Verigin
2
Agenda• Market Type
– Definitions – Examples – Risks
• Customer Development – Definitions – Market Type effects
3
Crossing The Chasm
4
Underlying Drivers in Growth Markets
Techies:Just try it!
Pragmatists:Stick with the herd!
Conservatives:Stick with what’s proven!
Skeptics:Just say No!
Visionaries:Get ahead of the herd!
Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN”
“Technology Adoption Strategies”
People
5
Technology Adoption Life Cycle
Chasm
EarlyMarket
Bowling Alley
Tornado
Main Street
Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN”
! Pragmatist’s Don’t Trust Visionaries !
6
? Instant Success ?
In 4th year after launch.( ie 6 years )
This is as fast as it gets.
NB. Apple's fiscal year ends in September. This means that Q1 includes the holiday season, which accounts for jumps in the data. Fiscal Q1 is Oct - Dec of previous year. So Q1 of 2008 is Oct - Dec of 2007, Q2 of 2008 is Jan - Mar of 2008 and so on.
Update 2011
The Startup Curve
The Startup Curve << http://www.avc.com/a_vc/2012/03/the-startup-curve.html
8
Market Types
Extension of New Product Adoption Curve, and
“Crossing the Chasm”
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Existing Market “Chasm”
No Chasm
EarlyMarket
Bowling Alley
Tornado
Main Street
Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN”
10
Existing Market = Linear Sales Growth
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Resegmented Market “Chasm”
Chasm
EarlyMarket
Bowling Alley
Tornado
Main Street
Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN”
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Resegmented Sales
Year 1Year 2
Year 3 Year 4
Year 5
Year 6
Year 7
13
New Market “Chasm”
Chasm
EarlyMarket
Bowling Alley
Tornado
Main Street
Copyright © Geoffrey A. Moore, 2005, from the book “DEALING WITH DARWIN”
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New Market Hockey Stick Sales Curve
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:aside: Another WayThe Knowledge Funnel Crossing the chasm is very close to moving through the knowledge funnel.
Some people like the Mystery.
Some people like the “Rule of Thumb” ( ie Heuristic)
Some people like “no frills”
Each of these groups are different and don’t trust each others product/service referrals.
16
Market Type
Who Cares ?!Why are those chasm’s getting
bigger?Can’t we just avoid them?
Type of MarketChanges Everything
• Market– Market Size– Cost of Entry– Launch Type– Competitive
Barriers– Positioning
• Sales– Sales Model– Margins– Sales Cycle– Chasm Width
Clone Market
Existing Market Resegmented Market
New Market
• Finance• Ongoing Capital• Time to
Profitability
• Customers• Needs• Adoption
(landscape very different in type)
Definitions: Four Types of Markets
• Clone Market– Copy of a U.S. business model
• Existing Market– Faster/Better = High end
• Resegmented Market– Niche = marketing/branding driven– Cheaper = low end
• New Market– Cheaper/good enough, creates a new class of
product/customer– Innovative/never existed before
Clone Market
Existing Market Resegmented Market
New Market
19
Focus on 3 Types
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Definitions
• Existing Market – Faster/Better = High end
• Resegmented Market – Niche = marketing/branding driven – Cheaper = low end
• New Market – Cheaper/good enough can create a new
class of product/customer – Innovative/never existed before
Existing Market Resegmented Market
New Market
21
Definition: Existing Market• Are there customers in the current
market who would: – Need the most performance possible?
• Is there a scalable business model at this point?
• Is there a defensible business model?– Are there sufficient barriers to competition
from incumbents?
22
Existing Market
CurrentCompanies
OurCompany
Per
form
ance
23
Oops, forgot about “Time”P
erfo
rman
ce
Time
CurrentCompanies
OurCompany
Existing Companies Performance
24
Existing Market Risks• “Better/Faster” is an engineering driven
axiom • Incumbents will defend high-end, high-margin
businesses • Factor in:
– Network effect of incumbent – Sustaining innovation of incumbent – Industry (or your own) “standards”
• “They’ll never catch up” is not a business strategy
• Established companies almost always win
25
“Existing Market”– Knowledge Funnel
Existing markets are “Algorithmic” and/or “Heuristic”
Existing Market
26
Definition: Resegmented Market- Low End
• Are there customers at the low end of the market who would: – buy less (but good enough) performance – if they could get it at a lower price?
• Is there a profitable business model at this low-end?
• Are there sufficient barriers to competition from incumbents?
27
Low-End Resegmentation“Good Enough”
PerformanceP
erfo
rman
ce
Time
CurrentCompanies
OurCompany
Existing Companies Performance
FutureCompanies
28
Definition: Resegmented Market
(2)Niche• Are there customers in the current market who would: – buy the same product if it addressed their
specific needs – if they could get it at the same price?– If it cost more?
• Is there a defensible business model at this point?
• Are there sufficient barriers to competition from incumbents?
29
Niche ResegmentationP
erfo
rman
ce
Time
Existing
Niche 1 for NewNiche 2 for New
New Dimension
30
Niche Resegmentation
31
Resegmented Market Risks
• “Cheaper” is a sales-driven axiom
• Incumbents will abandon low-end, low-margin businesses – Often -- For the right reasons :-(
• Low-end must be coupled with a profitable business model – Up migration
32
“Segmented Market”– Knowledge Funnel Creating a new “SEGMENT” introduces “MYSTERY”
Segmenting aMarket
33
Definition: New Market• Is there a large customer base who
couldn’t do this before? – Because of cost, availability, skill...?
• Did they have to go to an inconvenient, centralized location?
• Are there sufficient barriers to competition from incumbents?
34
New Market( Customers That Don’t Exist
Yet)P
erfo
rman
ce
Time
Existing
New MarketNew
Cus
tomer
New
Mark
ets
35
New Market Risks• “New” is a marketing-driven axiom
• New has to be unique enough that: – There is a large customer base who couldn’t do this
before – They want/need/can be convinced– Adoption occurs in your lifetime
• Company manages adoption burn rate – Investors are patient and have deep pockets
36
“New Market”– Knowledge Funnel
New Market
37
Hybrid Markets• Some products fall into Hybrid Markets • Combine characteristics of both a new
market and low-end resegmentation – SouthWest Airlines – Dell Computers – Cell Phones
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Three Types of MarketsExisting Market
Customers Existing
Customer Needs
Performance
Performance Better/Faster
Competition Existing Incumbents
Risks Existing Incumbents
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Three Types of MarketsExisting Market Resegmented Market
Customers Existing Existing
Customer Needs Performance 1. Cost2. Perceived Need
Performance Better/Faster 1. Good enough at the low end
2. Good enough for new niche
Competition Existing Incumbents Existing Incumbents
Risks Existing Incumbents 1. Existing Incumbents2. Niche strategy fails
40
Three Types of MarketsExisting Market Resegmented Market New Market
Customers Existing Existing New & New Usage
Customer Needs Performance 1. Cost2. Perceived Need
Simplicity & Convenience
Performance Better/Faster 1. Good enough at the low end
2. Good enough for new niche
Low in “traditional attributes”, improved by “new” metrics
Competition Existing Incumbents Existing Incumbents Non-consumption & other startups
Risks Existing Incumbents 1. Existing Incumbents2. Niche strategy fails
Market Adoption
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Why Bother With Anything But Existing Market
Model?The others appear risky
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Aaargh :-(• The existing market model is a
dream– It sucks people in like a drug– It works for market leaders like:
“Windows”, Intel Processors, etc• Incumbents “Will Protect an Existing
Mkt”.– If you are not in the market then you have
to expect that it will take “time” to get to know and win customers!!!!!
– If someone tells you different, it’s time to move on.
43
Market Entry: Cost SummaryMarket Share Cost of Entry
(vs Leaders Sales/Mktg Budget)
Entry Strategy
Monopoly > 75 % 3x Resegment
Duopoly > 75 % 3x Resegment
Market Leader
> 41 % 3x Resegment
Unstable Market
> 26 % 1.7x Existing/Resegment
Open Market
< 26 % 1.7x Existing/Resegment
New Lanchester Strategy Table 5.2 - page 127 “Four Steps”
44
Interesting Reading• Paul Graham – “Startup =
Growth”– http://www.paulgraham.com/
growth.html• Andrew Chen – “Is your market
actually big? Or is it a fake market?”– http://andrewchen.co/2012/10/08/is-
your-market-actually-big-or-is-it-a-fake-market/
45
First Mover (dis?) Advantage• GBF (Get Big Fast) Strategies
– VC Mania • Results are in from the Trillion $ science
experiment - Internet bubble of the 90’s. – New Market adoption can not be accelerated – Possibly useful for resegmentation – Heuristics for when to invest in GBF
• Examples– Google was not first in search.
46
“First Mover”– Knowledge Funnel
The first mover is “solidly” in the MYSTERY ZONE
There is no money in the mystery zone.
47
Model – Reliability Bias
Roger Martin “Design of Business”
During Exploration stage the ratio needs to be skewed towards Intuition.“High Risk, Low Data Decisions”Page 90 “Crossing the Chasm”, G Moore
You can’t analyze Low Data. You’ve got to go get some “real data yourself”
48
Model – Radical Change of MeaningsRoberto Verganti’s “Radical Change of Meanings”
! Very Useful for our class !
• Existing Market•User Centered Market Pull
• New Markets• Technology Push• Design Driven
• Adoption not guaranteed• Requires Customer Insight & Training for “Meaning” to become accepted or adopted
• Segmentation Opportunities are in between
49
Customer Development
Market Type issues in context of the Full Customer Development Model
50
Interactions• Choice of market type impacts each step
of the customer development process – Discovery – Validation – Creation – Scale
CustomerDiscovery
CustomerValidation
CustomerCreation
ScaleCompany
51
Market Types Affects Customer Discovery
CustomerDiscovery
CustomerValidation
CustomerCreation
ScaleCompany
52
Customer Discovery• Goal is become a “domain expert”
• :idea: This may be hard for some/all of the team to accept
– : think : “I’m already an expert”
• Time Varies depending on market type – Existing market issues are known – New market is a science project – Resegmenting a niche is an art form
53
Market Type Affects Customer Validation
CustomerDiscovery
CustomerValidation
CustomerCreation
ScaleCompany
54
Customer Validation• Goal is to find a repeatable
and scalable sales process
• Time Varies depending on market type – Existing market sales issues are known – New market goal is to find a tipping point
55
Where Market Type Really Matters
• After Customer Validation
• The “Rate” of Scaling that is possible
56
Market Type Affects Customer Creation
CustomerDiscovery
CustomerValidation
CustomerCreation
ScaleCompany
57
Customer Creation (1)Year 1Objectives
Existing Market
Market Share
Resegmenting an Existing Market
Market reframing & new market share
New Market Market Adoption
58
Customer Creation (2)Year 1Objectives Positioning
Existing Market
Market Share •Differentiation & Credibility•Product Differentiation
Resegmenting an Existing Market
Market reframing & new market share •Segmentation & Innovation
•Redefining existing market & product differentiation
New Market Market Adoption •Vision & innovation in new market• Defining the new market, the need & the solution• Early adopters
59
Customer Creation (3)Year 1Objectives
Positioning Demand Creation
Existing Market
Market Share •Differentiation & Credibility•Product Differentiation
* Create/drive demand into the sales channel
Resegmenting an Existing Market
Market reframing & new market share
•Segmentation & Innovation•Redefining existing market & product differentiation
•Educate market on the change•Drive demand into channel
New Market Market Adoption •Vision & innovation in new market• Defining the new market, the need & the solution• Early adopters
•Customer Education•Drive early adopters into sales channel•Tipping Point (diffusion of innovation )
60
Customer Creation (4)Year 1Objectives
Positioning Demand Creation Launch
Existing Market
Market Share •Differentiation & Credibility•Product Differentiation
* Create/drive demand into the sales channel
•Credibility / delivery•Existing basis of competition
Resegmenting an Existing Market
Market reframing & new market share
•Segmentation & Innovation•Redefining existing market & product differentiation
•Educate market on the change•Drive demand into channel
*Segmentation, delivery and innovation* New basis of competition
New Market Market Adoption •Vision & innovation in new market• Defining the new market, the need & the solution• Early adopters
•Customer Education•Drive early adopters into sales channel•Tipping Point (diffusion of innovation )
*Credibility & Innovation* Market education, standards setting, early adopters
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Summary: Type of Market Changes Everything
• Everything = – Market – Sales – Customers – Finance
• Customer Development Process
Existing Market Resegmented Market
New Market
62
ReCap Mkt Type
• Don’t Get Swept Up By “The Dream” – Quick Time-to-Revenue of Existing Market– With “Open Fields” Opportunity of New
Market
– !!! These are mutually exclusive !!!• ! Stop Dreaming! Get Real!
Existing Market Resegmented Market
New Market
:Aside:
63
Mkt Type: Why You Care• Locating “Market Entry Points”
• Each Market Type has different points of entry. • Setting investor expectation
– Each Mkt Type has different trajectories for time & money
– Investors are: sweat equity (you & the team), your customers, and your funders
• Success Points…– Setting Expectations & Delivering on time– ! This is “Old School” and will always be relevant !
• Mkt Type provides a means of setting “realistic” expectations.– For market entry and delivery.
• Work to “Know” your Mkt Type and act accordingly.
:Aside:
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What Are We Gonna Do?
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CustomerDiscovery
CustomerValidation
Customer Creation
Year OneObjectives
•Type Of StartupDistribution Model
•Revenue Model•Channel Model
•Launch Model•Sales Model
Positioning •Articulate Problem & Product concept•Understand customers view of the competitors
•Initial company & Product Positioning•Test w/ Early Adopters
•Company/Product Positioning by PR Agency with audit
Launch •Day in the life•Attend Shows/Confs•Estimate Mkt Size
•Company & product launch strategy•Test w/ early adopters
•Launch/Introduce•Launch type depends on “mkt type” of startup
DemandCreation
•Press, Analysts, Influencers List•How do customers make buying decisions?
• How do customers purchase?•Understand analysts/influencers view
•Implement demand creation•Type depends on “mkt type”
Storyline “Depth” & Targets