What’s A Startup? First Principles.

Success consists of going from failure to failure without loss of enthusiasm.
Winston Churchill

Everyone knows what a startup is for – don’t they?

In this post we’re going to offer a new definition of why startups exist: a startup is an organization formed to search for a repeatable and scalable business model.

A Business Model
Ok, but what is a business model?

A business model describes how your company creates, delivers and captures value.

Or in English: A business model describes how your company makes money.
(Or depending on your metrics for success, get users, grow traffic, etc.)

Think of a business model as a drawing that shows all the flows between the different parts of your company.  A business model diagram also shows how the product gets distributed to your customers and how money flows back into your company.  And it shows your company’s cost structures, how each department interacts with the others and where your company fits with other companies or partners to implement your business.

While this is a mouthful, it’s a lot easier to draw.

Drawing A Business Model
Lots of people have been working on how to diagram and draw a business. I had my students drawing theirs for years, but Alexander Osterwalder’s work on business models is the clearest description I’ve read in the last decade. The diagram below is his Business Model template. In your startup’s business model, the boxes will have specific details of your company’s strategy.

Alexander Osterwalder's Business Model Template

(At Stanford, Ann Miura-Ko and I have been working on a simplified Silicon Valley version of this model. Ann will be guest posting more on business models soon.)

But What Does a Business Model Have to Do With My Startup?
Your startup is essentially an organization built to search for a repeatable and scalable business model.  As a founder you start out with:

1) a vision of a product with a set of features,

2) a series of hypotheses about all the pieces of the business model: Who are the customers/users? What’s the distribution channel. How do we price and position the product? How do we create end user demand? Who are our partners? Where/how do we build the product? How do we finance the company, etc.

Your job as a founder is to quickly validate whether the model is correct by seeing if customers behave as your model predicts. Most of the time the darn customers don’t behave as you predicted.

How Does Customer Development, Agile Development and Lean Startups Fit?
The Customer Development process is the way startups quickly iterate and test each element of their business model. Agile Development is the way startups quickly iterate their product as they learn. A Lean Startup is Eric Ries’s description of the intersection of Customer DevelopmentAgile Development and if available, open platforms and open source. (This methodology does for startups what the Toyota Lean Production System did for cars.)

Business Plan Versus Business Model
Wait a minute, isn’t the Business Model the same thing as my Business Plan?  Sort of…but better.  A business plan is useful place for you to collect your hypotheses about your business, sales, marketing, customers, market size, etc. (Your investors make you write one, but they never read it.)  A Business Model is how all the pieces in your business plan interconnect.

The Pivot
How do you know your business model is the right one? When revenue, users, traffic, etc., start increasing in a repeatable way you predicted and make your investors happy. The irony is the first time this happens, you may not have found your company’s optimal model.  Most startups change their business model at least once if not several times.  How do you know when reached the one to scale?

Stay tuned. More in future posts.

Lessons Learned

  • A startup is an organization formed to search for a repeatable and scalable business model.
  • The goal of your early business model can be revenue, or profits, or users, or click-throughs – whatever you and your investors have agreed upon.
  • Customer and Agile Development is the way for startups to quickly iterate and test their hypotheses about their business model
  • Most startups change their business model multiple times.

Add to FacebookAdd to DiggAdd to Del.icio.usAdd to StumbleuponAdd to RedditAdd to BlinklistAdd to TwitterAdd to TechnoratiAdd to Yahoo BuzzAdd to Newsvine

98 Responses

  1. I love the succinctness with which you explained it.

  2. Great stuff. I love that business model generation, slap canvas on wall and ideate idea. As a constant idea bootstrapper this idea works perfectly in my teams current, smother the wall with idea postits sessions already. Keep them coming.

  3. Hi Steve, I consider myself to be a disciple of your teaching :). I recently got my copy of Four Steps to the Epiphany. It is Twice as expensive in the UK than the US.

    I have a question about your definition of a startup. is there a difference between a company and a startup? Is it only the goal that determines it? Does size matter? e.g. funding, personnel, years of existence? Would you classify Facebook and a recent graduate of Ycombinator both startups? I wrote a bit on it here (http://oonwoye.com/blog/2010/01/10/what-is-a-start-up/) and I would like to know your thoughts on the questions raised.

  4. This compliments Fred’s (avc) personal non-tech investment post today. The model is search, the costs are based on staffing needed to execute that search efficiently. The returns are estimates of any revenue generated while exploring functional models.

    Weaving these thoughts together into a practical tool for my startup should be a fun challenge. Thanks Steve.

  5. Excellent summary! I read The E-Myth last year, and this same concept is a big part of it, but your illustrations and definitive statements are crystal clear.

    Any thoughts on a business that has reached ‘transition’ without outside investment? Do you grow incrementally with the current model, or seek capital in order to explore (possibly unprofitable) extensions and permutations of the current model in order to optimize it?

    Subscribed to your RSS, BTW, looking forward to future posts.

    • Ryan,
      Congratulations on bootstrapping your company so far. Taking capital should be directly proportional on how big of a company you want to get.
      See here and here.
      Nothing wrong with growing incrementally. Just a choice you get to make.

      steve

  6. A definition I’ve been using for a while that has quite a few parallels to this is…

    “A business model is what converts the value your company creates into money.”

    My thought is that it’s one thing to create value, it’s a very different thing to figure out if it can make money. You can create something that has value but it costs more to create than it’s worth. It’s still valuable, but there just isn’t a business model to support it… or you haven’t found it yet.

  7. Alex Osterwalder’s canvas does a picture perfect job in describing the business model, and it is interesting to see your elaboration of it to startups. Especially the part that aligns customer development process with iterative business model design.
    When thinking of methodologies, I have experienced that synthesis of process such as customer development and ontology such as the business model canvas can be challenging. I look forward to reading future posts on the subject.

  8. Steve, thank you for highlighting our work. I recently wrote a post about how companies and start-ups can map their business model (in a game-like manner):

    http://www.businessmodelalchemist.com/2010/01/mapping-business-models-a-knowledge-game.html

    By the way, the Business Model Canvas is freely available under a Creative Commons license:

    Business Model Canvas Poster V.1.0View more documents from Alexander Osterwalder.

  9. Hi Steve, great post. Nice and simple.

    A big challenge we see with the startups that we work with is that they take a while for the vision to get clear enough that it gets exciting enough to do anything about – then it’s too precious to change and iterate which is crucial as you point out.

    Our answer is to have a strong general vision about the customer you want to serve, what problem your solving and how that leads to something good for you (income, profit, buy out) and the rest is test test test.

    I think once you embrace the fact that your first thoughts on how it might work will definitely be wrong, then you’re more inclined to do something a lot more tight, focused and simple because you don’t want to waste resources building supporting stuff for something probably going to be wrong. And that’s a good thing.

    Most of the time a new tech based startup can actually have a lot of the first layers of testing doing without even writing a line of code. You can do it manually, do it by email/cold calls, do it with a free blog. It’s very rare that you need the full service up and running before you can create value.

    One quick point, the two images you use are a little hard to read. The Osterwalder one could use with darker text than the white on brown and other one is a little small. Both awesome, but thought you’d like the feedback.

  10. [...] book. You also might want to check out the lean startup version of the business model canvas and Steven Blank’s post on how to process [...]

  11. [...] Computing, covers the core concepts even if they don’t acknowledge them as Lean specifically. Steve Blank and Eric Ries recognize something they call a “lean [...]

  12. [...] eficiente para desenhar Modelos de Negócio. Coincidentemente, alguns dias depois o Steve Blank escreveu um post mencionando a mesma metodologia, que está condensada neste livro. Vou fazer um resumo neste post [...]

  13. [...] Development process is the way startups quickly iterate and test each element of their business model, reducing customer and market risk. The first step of Customer Development is called Customer [...]

  14. [...] What’s A Startup? First Principles. AKPC_IDS += "1889,"; [...]

  15. [...] The Search for the Business Model A startup is an organization formed to search for a repeatable and scalable business model. [...]

  16. [...] A startup is an organization formed to search for a repeatable and scalable business model. [...]

  17. [...] you can build the MVP and prove out a profitable business you are well on your way to entering the Transition phase of your [...]

  18. [...] http://steveblank.com/2010/01/25/whats-a-startup-first-principles/ This entry was posted in Tips. Bookmark the permalink. Post a comment or leave a trackback: Trackback URL. « Startup Camp Montreal 6 [...]

  19. [...] this stage in the search for the repeatable scalable business model, companies have no f’ing clue what the return on your $50k is going to be. And it’s a [...]

  20. Hi, you’ve mentioned a simplified Silicon Valley version of the business model template. Is this (
    http://www.slideshare.net/sblank/business-models-template-e145 ) it? Thanks

  21. [...] Blank and one of his students is working a new iteration on Osterwalder’s model in an effort to simplify (and perhaps integrate customer development with the business model template) You can find a copy of the business model template in this post “Whats a start ups first principles“ [...]

  22. [...] CEO Mark Babbitt writes in the post, it seemed to make sense to start with Steve Blank‘s definition: “A startup is an organization formed to search for a repeatable and [...]

  23. [...] CEO Mark Babbitt writes in the post, it seemed to make sense to start with Steve Blank‘s definition: “A startup is an organization formed to search for a repeatable and [...]

  24. [...] typically has 1 product & business focused founder and one technical founder. Following the lean startup concepts, they build, test, and iterate on their product. Since it's just the two of them, it can take [...]

  25. [...] What’s a Startup? First Principles. by Steve Blank [...]

  26. [...] a problem they care about. You’re not building a business (yet). You’re searching for a repeatable and scalable business model. We’ll do whatever it takes to get you there including getting you in front of the right [...]

  27. [...] definir o que constitui uma startup. Existem várias definições aqui, porém ainda prefiro a de Steve Blank: “Uma startup é uma organização formada para a busca de um modelo de negócios escalável [...]

  28. [...] months of runway they’re losing just to arbitrate. Less runway equals less time to find a repeatable and scalable business model. Not a good [...]

  29. [...] Customer discovery begins with a comprehensive statement of your business hypotheses.  Steve Blank instructs us to document a series of hypotheses about all the pieces of the business model: Who are the customers/users? What’s the distribution channel. How do we price and position the product? How do we create end user demand? Who are our partners? Where/how do we build the product? How do we finance the company, etc. (source) [...]

  30. [...] such inflexibility is no longer wise, a point author Steve Blank argues in his post ‘But what does a Business Model have to do with my startup’ . In this article he states that the primary role of an entrepreneur is to iterate and test [...]

  31. [...] eficiente. Si metes la pata, hay una suposición tácita de que te has equivocado en un proceso conocido – algo que era repetible y predecible. Es por ello que se encubren los errores, no [...]

  32. [...] Steve Blank, “What’s a Startup? First Principles,” http://steveblank.com/2010/01/25/whats-a-startup-first-principles/- Steve Blank, “Make No Little Plans – Defining the Scalable Startup,” [...]

  33. [...] is an organization formed to search for a repeatable and scalable business model.(emphasis mine)http://steveblank.com/2010/01/25…Insert a dynamic date hereView All 0 CommentsCannot add comment at this [...]

  34. Which is the best definition for “startup”?…

    Steve Blank defines it as follows : a startup is an organization formed to search for a repeatable and scalable business model. http://steveblank.com/2010/01/25/whats-a-startup-first-principles/…

  35. [...] when things aren’t exactly working out according to the business plan. The goal, is to find a scalable and repeatable business model (in other words, a way to consistently make money over the course of time). Rather than jumping to [...]

  36. [...] beyond product development. It applies to many facets of a company, including idea discovery, business model search, the team, customer development and even to the personal exploration of becoming a founder. Finding [...]

  37. [...] from one of Steve Blank’s blog posts called What’s a Startup? First Principles. Steve defines a startup as “an organization formed to search for a repeatable and scalable business model.” Substitute [...]

  38. [...] “lean startup” developed by HBS Entrepreneur-in-Residence Eric Ries and entrepreneur Steve Blank. In this case lean does not mean a shoestring budget but rather avoiding waste of resources, saving [...]

  39. [...] is gone. As great as these companies may be, they are no longer startups. (A startup is a temporary organization searching for a repeatable and scalable business [...]

  40. [...] are not about executing a plan where the product, customers, channel are known. Startups are in fact only temporary organizations, organized to search–not execute–for a scalable and repeatable business [...]

  41. [...] pricing, etc. is just another engineering process, not building a business. In the real world a startup is about the search for a business model or more accurately, startups are a temporary organization designed to search for a scalable and [...]

  42. [...] Sean Ellis:http://startup-marketing.com/the…You might also check out this post by Steve Blank:http://steveblank.com/2010/01/25…Sander's model is good–but doesn't seem to come face to face with three factors which are [...]

  43. [...] The Boardroom is Bits A revolution has taken hold as customer development and agile engineering reinvent the Startup process. It’s time to ask why startup board governance has failed to keep pace with innovation. [...]

  44. [...] The Boardroom is Bits A revolution has taken hold as customer development and agile engineering reinvent the Startup process. It’s time to ask why startup board governance has failed to keep pace with innovation. [...]

  45. [...] más charlas. Todo acción. Monta una startup en 54 horas.” Así es como arrancó uno de los eventos más reconocidos de San Francisco: [...]

  46. [...] startup definition as the search for a “repeatable and scalable business model” (“What’s a Startup?  First Principles.”  2010). Share this:TwitterFacebookLike this:LikeBe the first to like this post. from [...]

  47. [...] As highlighted by the teachings of the business generation model and Steve Blank this requires testing a series of hypothesises based around the different components of a business model e.g. whether it be to find out who your customer is? or maybe what manufacturing method to use? (Refer to here). [...]

  48. [...] the fact that any early start-up is not really about building a product or a business; it’s about finding a scalable business model.  That implies financial modelling of the core economics that turn one dollar into multiple [...]

  49. [...] are many definitions of startup. Steve Blank (one of the startup gurus in the Valley) uses: “a startup is an organization formed to search [...]

  50. [...] like Steve Blank’s take: a startup is an organization formed to search for a repeatable and scalable business [...]

  51. [...] tied to the core concept of the lean startup: that the goal of a startup is to search for a repeatable and scaleable business model.  That search is focused on maximizing learning, through a rapid progression through some sort of [...]

  52. [...] to the startup community. In a lean startup, value takes a different form. To paraphrase Steve Blank, a startup is an organization searching for a business model. Since the purpose of the organization [...]

  53. [...] attempt to ape a private-sector can-do delivery culture, it’s missed its mark. Consider how Steve Blank, the prophet of Silicon Valley start-ups, describes the job of an entrepreneur. The idea that you [...]

  54. [...] Blank describes startups as organizations designed to find a repeatable business model. When those organizations find that [...]

  55. [...] and they will come” is a request rather than a business strategy. In reality, a startup is a temporary classification designed to hunt for a repeatable and scalable business model. This means a shining thought we started with will change as we iterate and pivot your business [...]

  56. [...] it and they will come” is a prayer rather than a business strategy.  In reality, a startup is a temporaryorganization designed to search for a repeatable and scalable business model. This means the [...]

  57. What would be a better safe business partnership model? Two individual entering as partners compared to these two individual having their own LLC and these LLCs coming together in partnership?

    Any feedback is appreciated.
    Thanks

  58. [...] What’s A Startup? First Principles, ele diz que um modelo de negócio descreve como sua companhia cria, entrega e captura valor. Em [...]

  59. [...] of course, but even if they fail, these challenges will be good for the industry. As Steve Blank states, a startup is an organization where the main goal is to find a repeatable and scalable business [...]

  60. [...] like they are just smaller versions of a large company. However, we now know that a startup is a temporary organization designed to search for a repeatable and scalable business model.  Within this definition, a startup can be a new venture or it can be a new division or business [...]

  61. [...] methodology, as a means to help them validate their assumptions. We should remind them that, as Steve Blank said, “a startup is an organization formed to search for a repeatable and scalable business [...]

  62. [...] methodology, as a means to help them validate their assumptions. We should remind them that, as Steve Blank said, “a startup is an organization formed to search for a repeatable and scalable business [...]

  63. [...] may also want to read “What’s a Startup? First Principals,” a blog post by Steve Blank, a serial entrepreneur and now an author and consultant, about business [...]

  64. [...] subscribe to Steve Blank’s definition that a startup is a search for a profitable repeatable business model. Entrepreneurs usually spend a few years conducting this search before spending a few more building [...]

  65. [...] methodology, as a means to help them validate their assumptions. We should remind them that, as Steve Blank said, “a startup is an organization formed to search for a repeatable and scalable business [...]

  66. [...] leader understands the concept of the “Pivot”.  By applying the principles of the renowned Steve Blank (“a startup is an organization formed to search for a repeatable and scalable business model”), [...]

  67. [...] startup team should laser-focused on discovering the repeatable sales model. In fact, according to Steve Blank, the definition of a startup is an organization in search of a repeatable business model. What [...]

  68. [...] de “startup” proporcionada por Steve Blank es probablemente la mejor: “organización temporal creada para buscar un modelo de negocio repetible y escalable“. Aunque conceptualmente casi perfecta, en la práctica no nos es muy útil para determinar [...]

  69. [...] is by making an investment in turning this idea into reality. In line with Steve Blank’s definition of a startup, my purpose now is to find a repeatable and scalable business model. And this time, I want to do [...]

  70. Hello Mr. Blank,

    analysing your startup’s definition i perceived that the ‘scalable’ concept does’t means the same as commonsense in which ‘to scale’ means achieve an enormous customer base. However, in your definition, scalable means to have a balanced and ‘healthy’ business model enough to develop the startup and makes it growth.(regardless of whether his strategy is ‘focus’ or ‘scale’). So scale is more related to “replicating their success rather than pursuing scale as the key to success.” (as can be read here:http://www.strategy-business.com/article/11204).

  71. [...] you need to get out of the building to interview users, attributes of a scalable startup, the definition of a business model, and why startups should track progress with hypothesis validation, not traditional accounting [...]

  72. [...] You will come across a number of flavors for the answer to this question. But the most sticky and relevant one for me is from here. [...]

  73. [...] will be important some day in the future, but not when leaving the corporate career path and starting something [...]

  74. [...] Steve Blank que define una start-up como:  “a startup is an organization formed to search for a repeatable and scalable business model.” [...]

  75. [...] like they are just smaller versions of a large company. However, we now know that a startup is a temporary organization designed to search for a repeatable and scalable business model.  Within this definition, a startup can be a new venture or it can be a new division or business [...]

  76. [...] a one page version of a business plan. The Business Model Canvas fits very well with the principles of a startup, providing speed and flexibility. As defined by Steve Blank, “A startup [...]

  77. [...] CEO Mark Babbitt writes in the post, it seemed to make sense to start with Steve Blank‘s definition: “A startup is an organization formed to search for a repeatable and [...]

  78. [...] prominent startup author, Steve Blank, argues that a startup is an organization formed to search for a repeatable and scalable business model. The idea is that once the new entity figures out product/market fit and starts building a [...]

  79. [...] to Pinterest Entrepreneurs tend to focus on opportunity rather than risk, and rightly so. As Steve Blank has written, at its core, a startup is an organization formed to search for a repeatable and scalable business [...]

  80. [...] want to start with the Business Model Generation book, the lean startup business model pattern and Steve Blank’s post on how to process [...]

  81. [...] kicked off his presentation with Steve Blank‘s definition of a startup…“an organization formed to search for a repeatable and [...]

  82. [...] Steve Blank’s excellent blog post on Startup First Principles, he describes a startup as “an organization built to search for a repeatable and scalable [...]

  83. [...] out, despite the focus on them in technology news, there are lots of questions about what exactly a ‘startup‘ [...]

  84. [...] spent their time differently. Instead of writing a full-fledged business plan, they had focused on building and testing a business model with a customer development process to test each of their business model [...]

  85. I´m trying to start a biotech company based upon a research method which I developed in Heidelberg, Germany. How should I get started?

  86. [...] Steve Blank’s excellent blog post on Startup First Principles, he describes a startup as “an organization built to search for a repeatable and scalable [...]

  87. Hi Steve,

    I was hoping you could answer this question for me.

    If a startup is is an organization formed to search for a repeatable and scalable business model, what do you call new companies that are more ‘traditional’? Are the still considered startups?

    For example, if you are to set up a taxi company, or a shoe store (leaving aside the argument that with Halo / Uber and Zappos that these traditional business models may change in the future), and it’s a new company, is it still a startup? Their business models have been proven many times before.

    Thanks.

  88. [...] Steve Blank, “What’s a Startup? First Principles” [...]

  89. […] Steve Blank proposes a definition comparable with Paul Graham’s but still different from Eric Ries’ : “a startup is an organization formed to search for a repeatable and scalable business model”. A “scalable startup” takes an innovative idea and is constantly seeking a repeatable and scalable business model that will drive it to profitability and growth. This meets Graham ideas quoted above, who said that the barbershop is not scalable unlike startups. Eric Ries’ also integrates innovation in his definition, but does not evokes the notion of a scalable business model. Oussama Ammar agrees with Blank, and even states that a startup is not an enterprise. There is a fundamental difference between both, as a startup is a social entity that seeks for a business model, as an entreprise operates, exploits and optimize an existing business model. Ammar insists on the fact that a startup is not a “miniature” of an entreprise, the size does not impact the startup definition. Ammar recalls that a SME is not always a startup, and he agrees with Graham saying that a recently launched enterprise does not has to be a startup. Therefore, they disagree with Stokes and Wilson stated above. […]

  90. […] its growth as proposed by Paul Graham and Daniel Tenner or by its business model as suggested by Steve Blank. It can also be a feeling, a culture or a state of mind, or any of these definitions by various […]

  91. […] this post, I’m using the definition I use for ‘startup,’ meaning a young company testing a business model. I’m writing here about what type of person I’m finding can work best in such an […]

  92. […] to serial entrepreneur and Silicon Valley legend Steve Blank, a startup is a “temporary organization designed to search for a repeatable and scalable business model.”_kmq.push(["trackClickOnOutboundLink","link_53e103371bde0","Article link […]

  93. […] to serial entrepreneur and Silicon Valley legend Steve Blank, a startup is a “temporary organization designed to search for a repeatable and scalable business model.”_kmq.push(["trackClickOnOutboundLink","link_53e1036b38b52","Article link […]

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 160,536 other followers