Happy Holidays

On Vacation until the New Year. Have have a happy holiday.

Penguin in Patagonia

 

Hubris, Passion and Customer Development

While I was teaching at Columbia in New York in November I was interviewed for the Shoshin Project by my friend Christian Jorg.

Teaching Entrepreneurship in “Chilecon Valley”

Teaching in Chile
I’ve spent the last week in Santiago, a guest of Professor Cristóbal García at the Catholic University of Chile as part of Stanford’s Engineering Technology Venture Program.

Valaparaiso houses

Entrepreneurship and innovation in what I call “Chilecon Valley” is being talked about continually here.  In my next post I’ll share a longer description of my impressions.  But to give you a sense of how fast they are moving, it’s only been a week since I posted the syllabus for our new Stanford entrepreneurship class Engr245 (The Lean Launchpad.) This week the class has been adopted in the Computer Science department of the Catholic University of Chile. (Thanks to Professors Professor Felix Halcartegaray Vergara and Rosa Alarcon who will be teaching the class.)

Here’s the course announcement from Professor Halcartegaray (in English):

Customer Development Course in Chile – Lean Launchpad
Next semester on the Department of Computer Science of the Catholic University of Chile professor Rosa Alarcón (@ruyalarcon) and I (@felixcl) will be teaching a course based on the Customer Development Model developed by Steve Blank. The objective of this course is that groups of students finish with a completed software product that has real customers and an identified market. The idea of this course started on a trip to Stanford University during March 2010, where we realized that many of the great innovations in Silicon Valley are born from Computer Science students, so we said “We should give our computer science students an opportunity to develop a company”. Then we saw the great alignment between the Customer Development Model and the Agile software development methodologies so we decided to create the course IIC3515 “Workshop of Entrepreneurship with Software” that applies both models to develop real software products with customers from the startup ideas of the students.

A few weeks ago, it was great to see that professor Steve Blank was developing a very similar course in Stanford called ”The Lean Launchpad” (Engr245) that combines the customer development model with agile development with the business model canvas, and therefore we convinced ourserlves that we where not so crazy with this course, or at least we are as crazy as they are. The syllabus for the Stanford course can be seen here. This course brings to life in a very interesting way the idea we had with professor Rosa Alarcón, and it starts on January 2011 so when Steve Blank was visiting Chile this week, we told him about our course,  and he offered all his help and experience to help us, and so we are very grateful to him. Therefore we will leverage the experience in Stanford giving the course on January and February to have a very interesting proposal to our students on March when we start. The syllabus for our course (in Spanish) is here: Programa de curso IIC3515. In this blog post I will add more information about the development of this course when I have it. We are very excited on this project, and we think it will have an important impact on our university and our students so thank you very much Steve for making this happen.

The goal of course IIC3515 is that students get together in teams (probably of 4) and develop their business idea during the semester, developing the software that represents it. Unlike other courses on entrepreneurship, this one is NOT about developing a Business Plan (in fact, the idea is that they write little and spend the time programming and getting out of the building to talk to customers.)  The students must develop their initial hypothesis of who their customers are and what is their products (using the Business Model Canvas) , and then get out to test this Hypothesis and pivot as they start knowing their customers and “getting smarter about them”.

With this methodology, once they finish the course they will have very important tools to continue developing their startup, and they will also have a product that they will feel confident about that there are customers that want to buy it, unlike what usually happens when the development of the product is completed and then you go out to the market to see if any customer wants it. In this case,  the customer will be considered since the first moment, and this results in a much more controlled market risk for the venture. The idea is also to have investors on the final stages of the course, and have mentors for the students that have real world experience in startups to support the students with their projects.

We look forward to your comments and suggestions! Any updates on this course in english will have the tag “Lean Launchpad course” to make it easier to search.

Here’s the course announcement in Spanish
Listen to the post here: Download the Podcast here

The Lean LaunchPad – Teaching Entrepreneurship as a Management Science

I’ve introduced a new class at Stanford to teach engineers, scientists and other professionals how startups really get built.

They are going to get out of the building, build a company and get orders in ten weeks.

Jon Feiber of Mohr Davidow Ventures and Ann Miura-Ko of Floodgate are co-teaching the class with me (and Alexander Osterwalder is a guest lecturer.) We have two great teaching assistants, plus we’ve rounded up a team of 25 mentors (VC’s and entrepreneurs) to help coach the teams.

Why Teach This Class?
Business schools teach aspiring executives a variety of courses around the execution of known business models, (accounting, organizational behavior, managerial skills, marketing, operations, etc.)

In contrast, startups search for a business model. (Or more accurately, startups are a temporary organization designed to search for a scalable and repeatable businessmodel.)  There are few courses which teach aspiring entrepreneurs the skills (business models, customer and agile development, design thinking, etc.) to optimize this search.

Many entrepreneurship courses focus on teaching students “how to write a business plan.” Others emphasize how to build a product. If you’ve read any of my previous posts, you know I believe that:  1) a product is just a part of a startup, but understanding customers, channel, pricing, etc. are what make it a business,
2) business plans are fine for large companies where there is an existing market, existing product and existing customers. In a startup none of these are known.

Therefore we developed a class to teach students how to think about all the parts of building a business, not just the product.

What’s Different About the Class?
This Stanford class will introduce management tools for entrepreneurs.  We’ll build the class around the business model / customer development / agile development solution stack.

Students will start by mapping their assumptions (their business model) and then each week test these hypotheses with customers and partners outside in the field (customer development) and use an iterative and incremental development methodology (agile development) to build the product.

The goal is to get students out of the building to test each of the 9 parts of their business model, understand which of their assumptions were wrong, and figure out what they need to do fix it. Their objective is to get users, orders, customers, etc. (and if a web-based product, a minimum feature set,) all delivered in 10 weeks.  Our objective is to get them using the tools that help startups to test their hypotheses and make adjustments when they learn that their original assumptions about their business are wrong.  We want them to experience faulty assumptions not as a crisis, but as a learning event called a pivot —an opportunity to change the business model.

How’s the Class Organized?
During the first week of class, students form teams (optimally 4 people in a team but we’re flexible.) Their company can focus in any area– software, hardware, medical device or a service of any kind.

The class meets ten times, once a week for three hours. In those three hours we’ll do two things.  First, we’’ll lecture on one of the 9 building blocks of a business model (see diagram below, taken from Business Model Generation).  Secondly, each student team will present “lessons learned” from their team’s experience getting out of the building learning, testing, iterating and/or pivoting their business model.

They’ll share with the class answers to these questions:

  1. What did you initially think?
  2. So what did you do?
  3. Then what did you learn?
  4. What are you going to do next?

At the course’s end, each team will present their entire business model and highlight what they learned, their most important pivots and conclusions.

We’re going to be teaching it for the first time in January.  Below is the class syllabus.

——————–

Class 1  is here.  Follow along!

Engineering 245
This course provides real world, hands-on learning on what it’s like to actually start a high-tech company. This class is not about how to write a business plan. It’s not an exercise on how smart you are in a classroom, or how well you use the research library. The end result is not a PowerPoint slide deck for a VC presentation. Instead you will be getting your hands dirty talking to customers, partners, competitors, as you encounter the chaos and uncertainty of how a startup actually works.  You’ll work in teams learning how to turn a great idea into a great company. You’ll learn how to use a business model to brainstorm each part of a company and customer development to get out of the classroom to see whether anyone other than you would want/use your product. Finally, you’ll see how agile development can help you rapidly iterate your product to build something customers will use and buy.  Each week will be new adventure as you test each part of your business model and then share the hard earned knowledge with the rest of the class. Working with your team you will encounter issues on how to build and work with a team and we will help you understand how to build and manage the startup team.

Besides the instructors and TA’s, each team will be assigned two mentors (an experienced entrepreneur and/or VC) to provide assistance and support.

Suggested Projects: While your first instinct may be a web-based startup we suggest that you consider a subject in which you are a domain expert, such as your graduate research. In all cases, you should choose something for which you have passion, enthusiasm, and hopefully some expertise.  Teams that select a web-based product will have to build the site for the class.

——————–

Pre-reading For 1st Class:  Read pages 1-51 of Osterwalder’s Business Model Generation.

Class 1    Jan 4th Intro/Business Model/Customer Development
Class Lecture/Out of the Building Assignment:
What’s a business model? What are the 9 parts of a business model?  What are hypotheses? What is the Minimum Feature Set? What experiments are needed to run to test business model hypotheses?   What is market size? How to determine whether a business model is worth doing?

Deliverable: Set up teams by Thursday, Jan 6 (a mixer will be hosted on Wednesday to help finalize teams).  Submit your project for approval to the teaching team.

Read:

Deliverable for January 11th:

  • Write down hypotheses for each of the 9 parts of the business model.
  • Come up with ways to test:
    • is a business worth pursuing (market size)
    • each of the hypotheses
    • Come up with what constitutes a pass/fail signal for the test (e.g. at what point would you say that your hypotheses wasn’t even close to correct)?
    • Start your blog/wiki/journal

——————–
Jan 6th 5-7pm Speed Dating  (Meet in Thornton 110)

Get quick feedback on your initial team business concept from the teaching team.

——————–
Class 2            Jan 11th Testing Value Proposition
Class Lecture/Out of the Building Assignment:
What is your product or service? How does it differ from an idea? Why will people want it? Who’s the competition and how does your customer view these competitive offerings? Where’s the market? What’s the minimum feature set?  What’s the Market Type?  What was your inspiration or impetus?  What assumptions drove you to this?  What unique insight do you have into the market dynamics or into a technological shift that makes this a fresh opportunity?

Action:

  • Get out of the building and talk to 10-15 customers face-to-face
  • Follow-up with Survey Monkey (or similar service) to get more data

Read:

  • Business Model Generation, pp. 161-168 and 226-231
  • Four Steps to the Epiphany, pp. 30-42, 65-72 and 219-223
  • The Blue Ocean Strategy pages 3-22

Deliverable for Jan 18th:

  • Find a name for your team.
  • What were your value proposition hypotheses?
  • What did you discover from customers?
  • Submit interview notes, present results in class.
  • Update your blog/wiki/journal

——————–
Class 3            Jan 18th Testing Customers/users
Class Lecture/Out of the Building Assignment:
Who’s the customer? User? Payer?  How are they different? How can you reach them? How is a business customer different from a consumer?

Action:

  • Get out of the building and talk to 10-15 customers face-to-face
  • Follow-up with Survey Monkey (or similar service) to get more data

Read:

Deliverable for Jan 25th:

  • What were your hypotheses about who your users and customers were? Did you learn anything different?
  • Submit interview notes, present results in class. Did anything change about Value Proposition?
  • What are your hypotheses around customer acquisition costs?  Can you articulate the direct benefits (economic or other) that are apparent?
  • If your customer is part of a company, who is the decision maker, how large is the budget they have authority over, what are they spending it on today, and how are they individually evaluated within that organization, and how will this buying decision be made?
  • What resonates with customers?
  • For web startups, start coding the product. Setup your Google or Amazon cloud infrastructure.
  • Update your blog/wiki/journal

——————–
Class 4            Jan 25th Testing Demand Creation
Class Lecture/Out of the Building Assignment:
How do you create end user demand? How does it differ on the web versus other channels?   Evangelism vs. existing need or category? General Marketing, Sales Funnel, etc

Action:

  • If you’re building a web site:
    • Small portion of your site should be operational on the web
    • Small portion of your site should be operational on the web
  • Actually engage in “search engine marketing” (SEM)spend $20 as a team to test customer acquisition cost
    • Ask your users to take action, such as signing up for a newsletter
    • use Google Analytics to measure the success of your campaign
    • change messaging on site during the week to get costs lower, team that gets lowest delta costs wins.
    • If you’re assuming virality of your product, you will need to show viral propagation of your product and the improvement of your viral coefficient over several experiments.
  • If non-web,
    • build demand creation budget and forecast.
    • Get real costs from suppliers.

Read:

Watch: Mark Pincus, “Quick and Frequent Product Testing and Assessment”, http://ecorner.stanford.edu/authorMaterialInfo.html?mid=2313

Deliverable for Feb 1st :

  • Submit interview notes, present results in class.
  • Did anything change about Value Proposition or Customers/Users or Channel?
  • Present and explain your marketing campaign. What worked best and why?
  • Update your blog/wiki/journal

——————–
Class 5            Feb 1st Testing Channel
Class Lecture/Out of the Building Assignment:
What’s a channel?  Direct channels, indirect channels, OEM. Multi-sided markets.  B-to-B versus B-to-C channels and sales (business to business versus business to consumer)

Action: If you’re building a web site, get the site up and running, including minimal feature.

  • For non-web products, get out of the building talk to 10-15 channel partners.

Read: Four Steps to the Epiphany, pp. 50-51, 91-94, 226-227, 256, 267

Deliverable for Feb 8th:

  • For web teams:
    • Get a working web site and analytics up and running. Track where your visitors are coming from (marketing campaign, search engine, etc) and how their behavior differs. What were your hypotheses about your web site results?
    • Submit web data or customer interview notes, present results in class.
    • Did anything change about Value Proposition or Customers/Users?
    • What is your assumed customer lifetime value?  Are there any proxy companies that would suggest that this is a reasonable number?
    • For non-web teams:
      • Interview 10-15 people in your channel (salesmen, OEM’s, etc.).
      • Did anything change about Value Proposition or Customers/Users?
      • What is your customer lifetime value?  Channel incentives – does your product or proposition extend or replace existing revenue for the channel?
      • What is the “cost” of your channel, and it’s efficiency vs. your selling price.
      • Everyone: Update your blog/wiki/journal.
        • What kind of initial feedback did you receive from your users?
        • What are the entry barriers?

——————–
Class 6            Feb 8th Testing Revenue Model
Class Lecture/Out of the Building Assignment:
What’s a revenue model? What types of revenue streams are there? How does it differ on the web versus other channels?

Action: What’s your revenue model?

  • How will you package your product into various offerings if you have more than one?
  • How will you price the offerings?
  • What are the key financials metrics for your business model?
  • Test pricing in front of 100 customers on the web, 10-15 customers non-web.
  • What are the risks involved?
  • What are your competitors doing?

Read: John Mullins & Randy Komisar, Getting to Plan B (2009) pages 133-156

Deliverable for Feb 15th :

  • Assemble an income statement for the your business model. Lifetime value calculation for customers.
  • Submit interview notes, present results in class.
  • Did anything change about Value Proposition or Customers/Users, Channel, Demand Creation, Revenue Model?
  • Update your blog/wiki/journal

——————–
Class 7            Feb 15th Testing Partners
Class Lecture/Out of the Building Assignment:
Who are partners?  Strategic alliances, competition, joint ventures, buyer supplier, licensees.

Action: What partners will you need?

  • Why do you need them and what are risks?
  • Why will they partner with you?
  • What’s the cost of the partnership?
  • Talk to actual partners.
  • What are the benefits for an exclusive partnership?

Deliverable for Feb 22nd

  • Assemble an income statement for the your business model.
  • Submit interview notes, present results in class.
  • Did anything change about Value Proposition or Customers/Users, Channel, Demand Creation?
  • What are the incentives and impediments for the partners?
  • Update your blog/wiki/journal

——————–
Class 8            Feb 22nd Testing Key Resources & Cost Structure
Class Lecture/Out of the Building Assignment:
What resources do you need to build this business?  How many people? What kind? Any hardware or software you need to buy? Any IP you need to license?  How much money do you need to raise?  When?  Why? Importance of cash flows? When do you get paid vs. when do you pay others?

Action: What’s your expense model?

  • What are the key financials metrics for costs in your business model?
  • Costs vs. ramp vs. product iteration?
  • Access to resources. What is the best place for your business?
  • Where is your cash flow break-even point?

Deliverable for March 1st

  • Assemble a resources assumptions spreadsheet.  Include people, hardware, software, prototypes, financing, etc.
  • When will you need these resources?
  • Roll up all the costs from partners, resources and activities in a spreadsheet by time.
  • Submit interview notes, present results in class.
  • Did anything change about Value Proposition or Customers/Users, Channel, Demand Creation/Partners?
  • Update your blog/wiki/journal

Guest: Alexander Osterwalder

For March 1st or 8th

——————–
Class 9            March 1st Team Presentations of Lessons Learned (1st half of the class)

Deliverable: Each team will present a 30 minute “Lessons Learned” presentation about their business.

——————–
Class 10            March 8th Team Presentations of Lessons Learned (2nd half of the class)

Deliverable: Each team will present a 30 minute “Lessons Learned” presentation about their business.

——————–
March 11th 1-4pm Demo Day at VC Firm (Location TBD)

Show off your product to the public and real VC’s.  Set up a booth, put up posters, run demos, etc.  Food and refreshments provided.

Class 1  is here.  Follow along!

——————–
Mentor List (as of Dec 3rd 2010)

Class 1  is here.  Follow along!
Listen to the post here: Download the Podcast here

Follow

Get every new post delivered to your Inbox.

Join 163,694 other followers