why accountants don't run startups
TRANSCRIPT
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Why Accountants Don’t Run Startups
Steve BlankStanford - School of Engineering
U.C. Berkeley - Haas School Of Businesswww.steveblank.com
Twitter: sgblank
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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 InvestmentsFelicis (Senkut)SV Angel (Conway)
Source: Dave McClure 500hats.com
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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
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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
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Some Definitions
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Small BusinessStartup
Small Business Startups
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Small BusinessStartup
- Business Model found- Profitable business- Existing team< $10M in revenue
Small Business Startups
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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
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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
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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”
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Small BusinessStartup
- 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
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Small BusinessStartup
ScalableStartup
Large Company
Silicon Valley Venture Firms Invest in Scalable Startups
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ScalableStartup
Large CompanyTransition
What VC’s Don’t Tell You:The Transition
Search Build Grow
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ScalableStartup
Large CompanyTransition
- Founders depart- Professional Mgmt- Process- Beginning of scale
What VC’s Don’t Tell You:The Transition
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ScalableStartup
Large CompanyTransition
- 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
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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
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Emphasis On Hypotheses Testing
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Startups Continually Pivot (Iterate)
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ScalableStartup
Large CompanyTransition
- Business Model found- Product/Market fit- 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
Large CompanyTransition
Product Management- Delivers MRD’s- Feature Spec’s- Competitive Analysis
The Execution of the Business Model
Customer Development Versus Product Management
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ScalableStartup
Large CompanyTransition
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
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ScalableStartup
Large CompanyTransition
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
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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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
• The Search is called Customer Development• The Implementation is called Agile Development
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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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Why Startups Aren’t Run By Accountants
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ScalableStartup
Large CompanyTransition
Leadership Versus Management
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ScalableStartup
Large CompanyTransition
Leadership Versus Management
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ScalableStartup
Large CompanyTransition
Leadership Versus Management
Search
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ScalableStartup
LargeCompanyTransition
Leadership Versus Management
BuildSearch
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ScalableStartup
LargeCompanyTransition
Leadership Versus Management
Build GrowSearch
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E-School instead of B-School
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ScalableStartup
Large CompanyTransition
Durant Versus Sloan
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ScalableStartup
Large CompanyTransition
- Execution- Accounting- Products- Engineering- Management- Administrative
Business School
Business School Versus Entrepreneurship School
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ScalableStartup
Large CompanyTransition
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
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ScalableStartup
Large CompanyTransition
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
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ScalableStartup
Large CompanyTransition
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
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Thanks
www.steveblank.com