why accountants don't run startups

Why Accountants Don’t Run Startups

Steve BlankStanford - School of Engineering

U.C. Berkeley - Haas School Of Businesswww.steveblank.com

Twitter: sgblank

News From Silicon Valley

Small VC Funds ($50-250M)

Union Square VenturesFirst Round Capital

Traditional VC Funds (>$250M)

BenchmarkSequoia

Angels & Incubators($0-10M)

Y-CombinatorTechStars

Seed Funds ($10-50M)

SoftTech (Clavier)Maples Investments

Felicis (Senkut)SV Angel (Conway)

Source: Dave McClure 500hats.com

News From Silicon Valley

Small VC Funds ($50-250M)

Traditional VC Funds (>$250M)

Angels & Incubators($0-10M)

Seed Funds ($10-50M)

Source: Dave McClure 500hats.com

Innovation is happening here

News From Silicon Valley

• Internet startups - $500K is the new $5M– Driven by the top of the pyramid

• Seed Funds providing entrepreneurial education– Ycombinator, TechStars, SeedCamp, LaunchBox, etc

• Customer Development/Lean Startup adoption– Methodology to test hypothesis and business model

Some Definitions

Small Business

Startup

Small Business Startups

Small Business

Startup

- Business Model found- Profitable business- Existing team< $10M in revenue

Small Business Startups

Small Business

Startup

- Business Model found- Profitable business- Existing team< $10M in revenue

Small Business Startups

• 5.7 million small businesses in the U.S. <500 employees• 99.7% of all companies• ~ 50% of total U.S. workers

http://www.sba.gov/advo/stats/sbfaq.pdf

Small Business

Startup

- Business Model found- Profitable business- Existing team< $10M in revenue

Small Business Startup: Internet Edition

• The Internet allows a new class of Small Businesses• Not all businesses on the Internet are “Scalable Startups”

ScalableStartup

Large Company>$100M/year

Scalable Startup

ScalableStartup

Large Company>$100M/year

- Total Available Market > $500m- Company can grow to $100m/year- Business model found- Focused on execution and process

Scalable Startup

ScalableStartup

Large Company>$100M/year

- Total Available Market > $500m- Company can grow to $100m/year- Business model found- Focused on execution and process- Typically requires “risk capital”

Scalable Startup

• In contrast a scalable startup is designed to grow big• It typically needs risk capital• These are what Silicon Valley means when they say “Startup”

Small Business

Startup

- Business Model found- Profitable business- Existing team< $10M

ScalableStartup

Large Company

- Total Available Market > $500m- Company can grow to $100m/year- Business model found- Focused on execution and process- Typically requires “risk capital”

Very Different Startup Goals

Small BusinessStartup

ScalableStartup

Large Company

Silicon Valley Venture Firms Invest in Scalable Startups

ScalableStartup

Large Company

Transition

What VC’s Don’t Tell You:The Transition

Start Build Grow

ScalableStartup

Large Company

Transition

- Founders depart- Professional Mgmt- Process- Beginning of scale

What VC’s Don’t Tell You:The Transition

ScalableStartup

Large Company

Transition

- Business Model found- Product/Market fit- Repeatable sales model- Managers hired

What’s A Startup?

A Startup is the organization used to search for a scalable business model

The Search for a Business Model

• No Business Plan survives first contact with customers

• A Business Model diagrams how a company creates, delivers and captures value

• Or in English: How a company makes money

Emphasis On Hypotheses Testing

Startups Continually Pivot (Iterate)

ScalableStartup

Large Company

Transition

- Business Model found- Product/Market fit- Repeatable sales model- Managers hired

The Search for the Business Model

Startups Search and Pivot

ScalableStartup

Large Company

Transition

- Business Model found- Product/Market fit- Repeatable sales model- Managers hired

- Cash-flow breakeven- Profitable- Rapid scale- New Senior Mgmt~ 150 people

The Search for the Business Model The Execution of the Business Model

Startups Search, Companies Execute

ScalableStartup

LargeCompany

Transition

Traditional Accounting- Balance Sheet- Cash Flow Statement- Income Statement

The Execution of the Business Model

Metrics Versus Accounting

ScalableStartup

LargeCompany

Transition

Startup Metrics- Customer Acquisition Cost- Viral coefficient- Customer Lifetime Value- Average Selling Price/Order Size- Monthly burn rate- etc.

Traditional Accounting- Balance Sheet- Cash Flow Statement- Income Statement

The Search for the Business Model The Execution of the Business Model

Metrics Versus Accounting

ScalableStartup

Large Company

Transition

Product Management- Delivers MRD’s- Feature Spec’s- Competitive Analysis

The Execution of the Business Model

Customer Development Versus Product Management

ScalableStartup

Large Company

Transition

Customer Development- Hypothesis Testing- Minimum Feature Set- Pivots

The Search for the Business Model The Execution of the Business Model

Customer Development Versus Product Management

Product Management- Delivers MRD’s- Feature Spec’s- Competitive Analysis

How Do Startups Search For A Business Model?

• The Search is called Customer Development• The Implementation is called Agile Development

The Lean Startup

• The Search is called Customer Development• The Implementation is called Agile Development

ScalableStartup

Large Company

Transition

- Business Model found- Product/Market fit- Repeatable sales model- Managers hired

- Cash-flow breakeven- Profitable- Rapid scale- New Senior Mgmt~ 150 people

Startups Don’t Last Forever

You fail if you remain a startup!

Why Startups Aren’t Run By Accountants

ScalableStartup

CompanyTransition

Leadership Versus Management

ScalableStartup

CompanyTransition

Leadership Versus Management

ScalableStartup

CompanyTransition

Leadership Versus Management

Search

ScalableStartup

CompanyTransition

Leadership Versus Management

BuildSearch

ScalableStartup

CompanyTransition

Leadership Versus Management

Build GrowSearch

E-School instead of B-School

ScalableStartup

Large Company

Transition

Durant Versus Sloan

ScalableStartup

Large Company

Transition

- Execution- Accounting- Products- Engineering- Management- Administrative

Business School

Business School Versus Entrepreneurship School

ScalableStartup

Large Company

Transition

Entrepreneurship School

Entrepreneurship School

- Hypothesis testing- Business Model testing- Customer Development- Agile Development- Metrics- Venture Finance- Hands-on

- Execution- Accounting- Products- Engineering- Management- Administrative

Business School

ScalableStartup

Large Company

Transition

Business School

Business School Versus Entrepreneurship School

Courses- Managerial Finance/Accounting- Managing Groups and Teams- Financial Accounting- Operations- Modeling for Optimization- Global Value Chain Strategies

ScalableStartup

Large Company

Transition

Courses- Entrepreneurial Management- Creativity and Innovation- Technology Entrepreneurship- Patent Law for Entrepreneurs- Global Entrepreneurial Marketing- Entrepreneurial Finance

Business School

Business School Versus Entrepreneurship School

Entrepreneurship School

Courses- Managerial Finance/Accounting- Managing Groups and Teams- Financial Accounting- Operations- Modeling for Optimization- Global Value Chain Strategies

Thanks

www.steveblank.com