why everything you know about entrepreneurship may be wrong

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Why Everything You Know About Entrepreneurship May Be Wrong Nathan Furr [email protected]

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Presentation to Angel Summit 2011

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Page 1: Why Everything You Know About Entrepreneurship May Be Wrong

Why Everything You Know About Entrepreneurship May Be Wrong

Nathan [email protected]

Page 2: Why Everything You Know About Entrepreneurship May Be Wrong

IntroductionNathan Furr

PhD, Stanford Technology Ventures ProgramEntrepreneurship Professor, BYU

Activities Related to TodayNail It then Scale ItInternational Business Model CompetitionForbes Expert Contributor

Page 3: Why Everything You Know About Entrepreneurship May Be Wrong

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?

Page 4: Why Everything You Know About Entrepreneurship May Be Wrong

Motivating Story

Page 5: Why Everything You Know About Entrepreneurship May Be Wrong

Entrepreneurship Practice and Theory:Where Does It Come From?

Practice Theory & Practice

Economics

Sociology / Psych

Entr

epre

neur

ship

Practice

Theory

=

Page 6: Why Everything You Know About Entrepreneurship May Be Wrong

What That Means for Entrepreneurship

Entrepreneurship 101 = Business Planning

Entrepreneurship Process = Product Development Model

Entrepreneurship Focus = Gather Resources (Raise $)

Entrepreneurship Team = Divisionalized Roles

Page 7: Why Everything You Know About Entrepreneurship May Be Wrong

Results of Current Effort

New Business Success

Business Planning

Entrepreneurship Training

<90% Failure

No Effect

No Effect*

*No Effect in GATE Study

Page 8: Why Everything You Know About Entrepreneurship May Be Wrong

… 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

Page 9: Why Everything You Know About Entrepreneurship May Be Wrong

The Wrong Process & Theory

Page 10: Why Everything You Know About Entrepreneurship May Be Wrong

Known Versus Unknown Problems

Known Problem Mgmt Unknown Problem Mgmt

PlanningExecutionOptimizationCoordinationError Avoidance

Radical ExperimentationAssumption TestsRapid CyclesMinimizationSatisficingChange

Page 11: Why Everything You Know About Entrepreneurship May Be Wrong

The Marshmallow Challenge Illustration

Best? Worst?

Page 12: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 13: Why Everything You Know About Entrepreneurship May Be Wrong

The Entrepreneurship Paradigm Shift

Page 14: Why Everything You Know About Entrepreneurship May Be Wrong

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.)

Page 15: Why Everything You Know About Entrepreneurship May Be Wrong

Nail It then Scale It

Page 16: Why Everything You Know About Entrepreneurship May Be Wrong

One Approachwww.cafepress.com/nailitthenscaleit

Page 17: Why Everything You Know About Entrepreneurship May Be Wrong

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?

Page 18: Why Everything You Know About Entrepreneurship May Be 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

Page 19: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 20: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 21: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 22: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 23: Why Everything You Know About Entrepreneurship May Be Wrong

#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

Page 24: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 25: Why Everything You Know About Entrepreneurship May Be Wrong

Nail It then Scale ItThe Fundamentals

Page 26: Why Everything You Know About Entrepreneurship May Be Wrong

Fundamental #1: Get Into the Field

“Get the heck outside the building!” –Steve Blank

Page 27: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 28: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 29: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 30: Why Everything You Know About Entrepreneurship May Be Wrong

Nail It then Scale It:The Five Phases

Page 31: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 32: Why Everything You Know About Entrepreneurship May Be Wrong

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 …

Page 33: Why Everything You Know About Entrepreneurship May Be Wrong

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, …

Page 34: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 35: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 36: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 37: Why Everything You Know About Entrepreneurship May Be Wrong

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

Page 38: Why Everything You Know About Entrepreneurship May Be Wrong

Thank You

Nathan Furr

[email protected]

www.blogs.forbes.com/nathanfurr

www.businessmodelcompetition.com

www.cafepress.com/nailitthenscaleit