Download - Columbia lecture 111210 customer development
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Why Accountants Don’t Run Startups
Steve Blankwww.steveblank.com
Twitter: sgblank
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I Write a Blog www.steveblank.com
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This Presentation Combines
www.businessmodelgeneration.comwww.steveblank.com
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Five Short Stories
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Not All Startups Are Equal
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Small BusinessStartup
Small Business Startups
• Serve known customer with known product
• Feed the family
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Small BusinessStartup
Exit Criteria- Business Model found- Profitable business- Existing team< $1M in revenue
Small Business Startups
• known customer known product
• Feed the family
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Small BusinessStartup
- 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
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Small BusinessStartup
- 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”
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ScalableStartup
Large Company>$100M/year
Scalable Startup
Goal is to solve for: unknown customer and
unknown features
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ScalableStartup
Large Company>$100M/year
Exit Criteria- Total Available Market > $500m- Can grow to $100m/year- Business model found- Focused on execution and process
Scalable Startup
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ScalableStartup
Large Company>$100M/year
- Total Available Market > $500m- 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• Typically needs risk capital• What Silicon Valley means when they say “Startup”
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ScalableStartup
Large Company
- Business Model found- i.e. Product/Market fit- Repeatable sales model- Managers hired
What’s A Startup?
A Startup is a temporary organization used to search for a scalable business model
Search
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ScalableStartup
Large CompanyTransition
- Founders depart- Professional Mgmt- Process- Beginning of scale
What VC’s Don’t Tell You:The Transition – Founders Leave
Build ExecuteSearch
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Transition Large Company
ScalableStartup
Sustaining Innovation
• Existing Market / Known customer• Known product feature needs
Large Company Sustaining Innovation
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Large Company Disruptive Innovation
New Division Transition Large Company
Disruptive Innovation
• New Market / Unknown customer needs• New tech / Unknown product features• Looks like a scalable startup
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Why Startups Are Not Small Versions of Large Companies
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ScalableStartup
Large CompanyTransition
Business Model found- customer needs/product features found i.e. Product/Market fit- Found by founders, not employees- Repeatable sales model- Managers hired
The Search for the Business Model
Startups Search and Pivot
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ScalableStartup
Large CompanyTransition
- 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
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ScalableStartup
LargeCompanyTransition
Traditional Accounting- Balance Sheet- Cash Flow Statement- Income Statement
The Execution of the Business Model
Metrics Versus Accounting
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ScalableStartup
LargeCompanyTransition
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
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ScalableStartup
LargeCompanyTransition
Sales- Sales Organization- Scalable- Price List/Data Sheets- Revenue Plan
The Execution of the Business Model
Customer Validation Versus Sales
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ScalableStartup
LargeCompanyTransition
Customer Validation- Early Adopters- Pricing/Feature unstable- Not yet repeatable- “One-off’s”- Done by founders
Sales- Sales Organization- Scalable- Price List/Data Sheets- Revenue Plan
The Search for the Business Model The Execution of the Business Model
Customer Validation Versus Sales
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ScalableStartup
Large CompanyTransition
Product Management- Delivers MRD’s- Feature Spec’s- Competitive Analysis- Prod Mgmt driven
The Execution of the Business Model
Customer Development VersusProduct Management
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ScalableStartup
Large CompanyTransition
Customer Development- Hypothesis Testing- Minimum Feature Set- Pivots - Founder-driven
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
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ScalableStartup
Large CompanyTransition
The Execution of the Business Model
Engineering Versus Agile Development
Engineering- Requirements Docs.- Waterfall Development- QA - Tech Pubs
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ScalableStartup
Large CompanyTransition
Agile Development- Continuous Deployment- Continuous Learning- Self Organizing Teams- Minimum Feature Set- Pivots
The Search for the Business Model The Execution of the Business Model
Engineering Versus Agile Development
Engineering- Requirements Docs.- Waterfall Development- QA - Tech Pubs
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ScalableStartup
Large CompanyTransition
- Plan describes “knowns”- Known features for line extensions- Known customers/markets- Known business model
The Execution of the Business Model
Startups Model, Companies Plan
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ScalableStartup
Large CompanyTransition
- Unknown customer needs- Unknown feature set- Unknown business model- Model found by iteration
The Search for the Business Model
Startups Model, Companies Plan
The Execution of the Business Model
- Plan describes “knowns”- Known features for line extensions- Known customers/markets- Known business model
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ScalableStartup
Large CompanyTransition
- Pains in the butt- Always looking at something different- Doesn’t get with the program
Startups Protect Mavericks, Companies Fire Mavericks
The Execution of the Business Model
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ScalableStartup
Large CompanyTransition
- Pains in the butt- Always looking at something different- Doesn’t get with the program
The Search for the Business Model
Startups Protect Mavericks, Companies Fire Mavericks
The Execution of the Business Model
- CEO of your company- Finds your next market
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ScalableStartup
Large CompanyTransition
- 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!
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Plan versus Model
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Business Plan
• A document your investors make you write that they don’t read
• A useful place for you to collect your guesses about your business- Size of Opportunity- Customers- Channel- Demand Creation- Revenue/Expenses/Profit
• The template to look like everyone else when you present to VC’s/Management
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No Business Plan survives first contact with customers
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So Search for a Business Model
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What Is a Business Model?
• Diagram of flows between company and customers• Scorecard of hypotheses testing• Rapid change with each iteration and pivot• Product Management-driven
* Alex Osterwalder
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9 building blocks of a business model:
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39
CUSTOMER SEGMENTS
images by JAM
which customers and users are you serving? which jobs do they really want to get done?
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40
VALUE PROPOSITIONS
images by JAM
what are you offering them? what is that getting done for them? do they care?
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41
CHANNELS
images by JAM
how does each customer segment want to be reached? through which interaction points?
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42
CUSTOMER RELATIONSHIPS
images by JAM
what relationships are you establishing with each segment? personal? automated? acquisitive? retentive?
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43
REVENUE STREAMS
images by JAM
what are customers really willing to pay for? how? are you generating transactional or recurring
revenues?
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44
KEY RESOURCES
images by JAM
which resources underpin your business model? which assets are essential?
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45
KEY ACTIVITIES
images by JAM
which activities do you need to perform well in your business model? what is crucial?
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46
KEY PARTNERS
images by JAM
which partners and suppliers leverage your model?
who do you need to rely on?
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47
COST STRUCTURE
images by JAM
what is the resulting cost structure? which key elements drive your costs?
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48images by JAM
customer segments
key partners
cost structure
revenue streams
channels
customer relationships
key activities
key resources
value proposition
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sketch out your business model
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building
block
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building
block
buildingblock
buildingblock building
block
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building
blockbuildingblock
buildingblock
buildingblock
buildingblock
building
block
buildingblock
buildingblock
building
block
buildingblock
buildingblock
buildingblock
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But,Realize They’re Hypotheses
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9 Guesses
Guess Guess
Guess
Guess
GuessGuess
Guess
GuessGuess
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How Do Startups Search For A Business Model?
• The Search is called Customer Development• The Implementation is called Agile
Development
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The Lean Startup
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Customer Development
Solving For Customer Risk
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The Two Reasons Startups Fail
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Yet All We Had WasThis…
Concept/Seed
Round
Product Dev.
Alpha/Beta Test
Launch/1st Ship
New Product Introduction Model
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Traditional Product Introduction Model:Two Implicit Assumptions
Concept Product Dev.
Alpha/Beta Test
Launch/1st Ship
Customer Problem: known
Product Features: known
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Tradition – Hire Marketing
Concept/Seed
Round
Product Dev.
Alpha/Beta Test
Launch/1st Ship
- Create Marcom Materials- Create Positioning
- Hire PR Agency- Early Buzz
- Create Demand- Launch Event- “Branding”
Marketing
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Tradition – Hire Sales
Concept/Seed
Round
Product Dev.
Alpha/Beta Test
Launch/1st Ship
- 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
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Tradition – Hire Bus Development
Concept Product Dev.
Alpha/Beta Test
Launch/1st Ship
- Create Marcom Materials- Create Positioning
- Hire PR Agency- Early Buzz
- Create Demand- Launch Event- “Branding”
• Hire Sales VP• Pick distribution
Channel
• Build Sales Channel / Distribution
Marketing
Sales
• Hire First Bus Dev
• Do deals for FCS
Business Development
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Tradition – Hire Engineering/Product Mgmt
Concept Product Dev.
Alpha/Beta Test
Launch/1st Ship
- Create Marcom Materials- Create Positioning
- Hire PR Agency- Early Buzz
- Create Demand- Launch Event- “Branding”
• Hire Sales VP• Pick distribution
Channel
• Build Sales Channel / Distribution
Marketing
Sales
• Hire First Bus Dev
• Do deals for FCS
Business Development
Engineering/Product Mgmt
• Write MRD
• Waterfall
• Q/A • Tech Pubs
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More startups fail from a lack of customers than from a failure of product development
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Customer Development
Get the Hell Out of the BuildingThe founders
^
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Customer Development
Concept/Bus. Plan
Product Dev.
Alpha/Beta Test
Launch/1st Ship
Product Development
Customer Development
CompanyBuilding
CustomerDiscovery
CustomerValidation
Customer Creation
+
Pivot
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• Stop selling, start listening• Test your hypotheses• Continuous Discovery• Done by founders
Customer Discovery
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
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Test Hypotheses:• Product• Market Type• Competition
Turning Hypotheses to Facts
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Test Hypotheses:• Problem• Customer• User• Payer
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Test Hypotheses:• Channel
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Test Hypotheses:• Problem• Customer• User• Payer
Test Hypotheses:• Demand
Creation
Test Hypotheses:• Channel
Test Hypotheses:• Product• Market Type• Competitive
Test Hypotheses:• Pricing Model / Pricing
Test Hypotheses:• Size of Opportunity/Market• Validate Business Model
Test Hypotheses:• Channel• (Customer)• (Problem)
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Test Hypotheses:• Problem• Customer• User• Payer
Test Hypotheses:• Demand
Creation
Test Hypotheses:• Channel
Test Hypotheses:• Product• Market Type• Competitive
Test Hypotheses:• Pricing Model / Pricing
Test Hypotheses:• Size of Opportunity/Market• Validate Business Model
Test Hypotheses:• Channel• (Customer)• (Problem) Customer
Development Team
Agile Development
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Test Hypotheses:• Problem• Customer• User• Payer
Test Hypotheses:• Demand
Creation
Test Hypotheses:• Channel
Test Hypotheses:• Product• Market Type• Competitive
Test Hypotheses:• Pricing Model / Pricing
Test Hypotheses:• Size of Opportunity/Market• Validate Business Model
Test Hypotheses:• Channel• (Customer)• (Problem) Customer
Development Team
Agile Development
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The Pivot
• The heart of Customer Development
• Iteration without crisis
• Fast, agile and opportunistic
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Speeding Up Cycle Time
• Speed of cycle minimizes cash needs
• Minimum feature set speeds up cycle time
• Near instantaneous customer feedback drives feature set
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Sidebar
There Are Three Types Of Startups The Role of Market Type
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New Product Conundrum
• Product introductions aren’t predictable– Why?– Is it the people that are different?– Is it the product that are different?
• Are there different “types” of startups?
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Three Types of Markets
• 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
Existing Market Resegmented Market
New Market
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So What Does Engineering Do?
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Customer Problem: known
Product Features: known
Waterfall / Product ManagementExecution on Two “Knowns”
Requirements
Design
Implementation
Verification
Maintenance
Source: Eric Rieshttp://startuplessonslearned.blogspot.com
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Problem: Known Solution: Unknown
“Product Owner” or in-house customer
Agile - Customer Problem is KnownExisting Company/Market
Source: Eric Rieshttp://startuplessonslearned.blogspot.com
Unit of progress: a line of working code
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Problem: Unknown Solution: Unknown
Lean StartupCustomer Problem + Product Features are Unknown
Source: Eric Rieshttp://startuplessonslearned.blogspot.com
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84
Customer Creation
• Creation comes after proof of sales
• $’s for scale
• Lean Startups are not cheap startups
CustomerDiscovery
CustomerValidation
CompanyBuilding
CustomerCreation
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Company Building
CustomerDiscovery
CustomerValidation
Customer Creation
Company
Building
• (Re)build company’s organization & management
• Re look at your mission
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Why Startups Aren’t Run By Accountants
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ScalableStartup
Large CompanyTransition
Inventor of the Modern Corporation
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ScalableStartup
Large CompanyTransition
Inventor of the Modern Corporation
Alfred P. Sloan
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ScalableStartup
Large CompanyTransition
Alfred P. Sloan
General Motors, President/Chairman- Cost Accounting- MIT Sloan School- Sloan Foundation- etc.
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ScalableStartup
Large CompanyTransition
Founder of General Motors
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ScalableStartup
Large CompanyTransition
Founder of General Motors
Billy Durant
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ScalableStartup
Large CompanyTransition
Billy Durant
- Leader in horse-drawn buggy’s- Fired by board, starts Chevrolet- Regains control of GM - Fired by board, GM ~$3.6 billion*
* GM Net sales in 1921 $304.5M = $3.6 Billion today
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ScalableStartup
Large CompanyTransition
Durant Versus Sloan
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Durant Versus Sloan
• Dies, rich, honored and famous
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Durant Versus Sloan
• Dies, rich, honored and famous• Dies managing a bowling alley
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Durant Versus Sloan
• Dies, rich, honored and famous• Dies managing a bowling alley
Accountant
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ScalableStartup
Large CompanyTransition
You are here
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Summary
• Companies execute business models• Startups search for business models• Business Model / Customer Development /
Agile Development is the solution stack for startups
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Thanks
www.steveblank.com
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One More Thing…
• International Business Model Competition• $50K prizes• Jan 24th 2011• http://www.businessmodelcompetition.com/