Steve Blank on how to think about assembling a business model for a startup

1. Business Models
Steve Blank
www.steveblank.com
Clean Tech Open Accelerator 2009, San Jose, California

2. Iʼm Confused
• What is a Business Plan?
• How does it differ from a Business Model?

3. Business Plan
1. A document your investors make you
write that they don’t read
2. A useful place for you to collect your
guesses about your business
• Size of Opportunity
• Customers
• Channel
• Demand Creation
• Revenue/Expenses/Profit

4. Business Model
1. A diagram that shows all the flows
between your company and its
customers

5. But First…
Market Risk

6. Clean Tech Markets
Air, Water Energy Green Renewables Smart Transport
& Waste Efficiency Building Power

7. Clean Tech Markets - Risk
Air, Water Energy Green Renewables Smart Transport
& Waste Efficiency Building Power
• Which markets have technology risk?
• Which markets have customer risk?
• Which have both?

8. Clean Tech Markets - Risk Definitions
Air, Water Energy Green Renewables Smart Transport
& Waste Efficiency Building Power
• Technology Risk
– risk is in development of the product (i.e. fuel cells, thin-film arrays,
etc.) then customers automatically adopt
• Customer risk
– risk is in customer and market adoption
• Which have both?
• You spend your time differently depending on risk

9. Next…
Business Plan Hypothesis

10. Clean Tech Markets - Hypotheses
Size of Opportunity
Customer
Competition
Sales
• Your business plan is a set of untested
Marketing hypothesis
Biz Dev
• What are they?
Customer Dev
Bus/Rev Model • How do you test them?
IP/Patents
• How do you execute them?
Regulatory
Time to Market
Prod Dev Model
Manufacturing
Team
Seed Financing
Follow-on
Liquidity

11. Clean Tech Markets - Hypotheses
Size of Opportunity
Customer
Competition • Size of Opportunity
Sales – TAM, SAM
Marketing • Customer
Biz Dev – Who’s the end user? Economic buyer? Reimburser?
Customer Dev • Sales
Bus/Rev Model – What’s the distribution channel?
IP/Patents • Marketing
Regulatory – How do you create end-user demand
Time to Market • Customer Development
Prod Dev Model – How do you test your hypothesis
Manufacturing
• Business Model
Team – How do all the parts work to create profits?
Seed Financing
• Financing
Follow-on
– What is the path to cash flow positive
Liquidity

12. Finally…
Your Hypothesis Go Here

13. Clean Tech Markets
Air, Water Energy Green Renewables Smart Transport
Waste Efficiency Building Power
Size of Opportunity
Customer
Competition
Sales
Marketing
Biz Dev
Customer Dev
Bus/Rev Model
IP/Patents
Regulatory
Time to Market
Prod Dev Model
Manufacturing
Team
Seed Financing
Follow-on
Liquidity

14. Clean Tech Markets
Air, Water Energy Green Renewables Smart Transport
Waste Efficiency Building Power
Size of Opportunity
Customer
Competition
Sales
Marketing
Biz Dev
Customer This Is Important
Development
Bus/Rev Model
IP/Patents
Regulatory
Time to Market
Prod Dev Model
Manufacturing
Team
Seed Financing
Follow-on
Liquidity

15. Business Plan - Sum of Hypotheses
• Business plan collects your hypothesis
• Adds facts as you know them today
• Contains a plan of how to turn hypothesis into facts
• Extrapolates results if hypothesis turn into facts
• Has a business model which is clearly articulated

16. Business Model…
Start with the Pieces

17. Business Model
• Goal is to get to a single diagram of your
business
• Start by drawing pieces of your business
– Problem/Opportunity
– Market Size
– Distribution Channel
– Demand Creation
– Financial assumptions
• Then put it all together

18. Problem/Opportunity
Why Are You in Business?

19. +
Pain Points in Inter-District
Development of Curricula

20. Recognize Your Market Type
Can Save a Ton of Dollars

21. Market Type?
• Existing Market
• Resegment a Niche
• Resegment on Low Cost
• New Market

22. Definitions: Types of Markets
Existing Market Resegmented New Market
Market
• Existing Market
– Faster/Better = High end
• Resegmented Market
– Niche = marketing/branding driven
– Cheaper = low end
• New Market
– Cheaper/good enough can create a new class of product/customer
– Innovative/never existed before

23. Type of Market Changes Everything
Existing Market Resegmented New Market
Market
• Market • Sales
– Market Size – Sales Model • Customers
– Cost of Entry - Needs
– Margins
– Launch Type – Sales Cycle - Adoption
– Competitive – Chasm Width
Barriers
– Positioning
• Finance
- Ongoing Capital
- Time to Profitability

24. How Big is It?
So if You Succeed Do I Care?

25. Total Available Market, Served Available
Market, Target Market
TAM = how big is the universe Total
Available
Market Served
Available
Market
Target
SAM = how many can I reach Market
with my sales channel
Target Market (for a startup) =
who will be the most likely buyers
25

26. sizing up the market
$123 billion tourism
industry inside the U.S.
$1 billion English travel
guides sold annually
$210 million 20-35 year
old travelers
SF (Initial test market)

27. OLED’s ‐ Billion Dollar Opportunity
TAM: En@re consumer electronics market Our target market is the Flat
($790 million)
SAM: Size of TV market
Panel display market.
($500 million!)
Target products: Camcorders, DVD
Target Mkt: $155 players and recorder, digital cameras,
million! computer monitors, LCD and Plasma TV
Apex: ≥ 3.5M
OLED TV market will grow to $15.29
billion by 2015
YEAR 1 PROJECTIONS
Units sold : 1,000,000
Price per unit : $700 - $1,000
Revenue from Royalties (assuming .5-1.0% of shelf price):
Worst case = $3,500,000 Best Case = $10,000,000

28. Distribution Channel
How Does Your Product Get to Your Customer?

29. +
Sales Ecosystem
Discussion channel
Mandate channel
Sale
Superintendant
Another
District district
IT Director
Engagement
(Early Stages) School
Dept. Head Another
school
in the
district
Teacher Teacher

30. Distribution Channel
Licensed Partners:
• Sony Consumer electronics
• Samsung • Flat Screen TVs through
(Other possibilities - LG, Toshiba, Panasonic,
DuPont)
Fry’s, Best Buy, Magnolia,
etc
IP
A
P Patents Manufacturing DistribuDon Retail
E
X
2 patents owned by Apex! Partners’ distribution channels
• Technology patent - SOLED • Sony
• Long-Brite and inkjet printing process • Samsung
(Other possibilities - LG, Toshiba, Panasonic,
DuPont)
Dollar flows:
Wages: founders &
Consultants
PA
IP Costs: Lawyer A
P License fees RT
NE
& Patent costs. RS
E Royalties
Premises: Dev’t labs. X

32. Demand Creation
How Do You Drive Demand Into Your Channel?

33. +
Demand Creation
 State-by-state rollout: educational standards
 Continuous iteration of feedback
CA Pilot Broad Grow
Adoption Adoption
 Hypotheses: Will  Hypotheses: Will  Hypothesis: How
they adopt, use, they buy hands- well does it sell
and pay? off? Can it scale? itself?
 10 schools f2f:  CA telemarket  All telemarket
 Sales: $1,066  F2f elsewhere  $533/dist
 Travel: $1,000

34. distribution and demand creation
 Unique Idea: website and iPhone app form
symbiotic relationship
Travel
AdWords App
traffic
Listing
TravelSpy.com iPhone App
traffic Blogs (ex.
Magazines
Travelblog.org)

36. Financial Assumptions
What are the Ten Numbers that Matter?

37. Financial Assumptions
• Ten Numbers that matter depends on
your business
– Average selling price
– Life time value
– Material cost
– Distribution channel cost
– Customer Acquisition cost
– Time to market
– Time to cash flow positive
– Etc.
• Do this before 45 pages of financials

38. Business Model
How Do The Pieces Work Together?

39. Bird’s Eye View of our Business Model
Hardware
($155)
Online Distribution
• Own website ($208+.3x)
Customer • Amazon.com ($40+32x)
• eBay ($300+25x)
Acquisition
Target Market
Cost:
($41)
Demand Creation Viral
MyNote • SEO/SEM
($156.00) Marketing
• Blogs
• Forums
• Bookstore
promotion
• Sales force
• Viral marketing Offline Distribution
• Website $399.99
• College bookstores
($0.02)
Software (in-house)
($1.00)

40. BUSINESS MODEL
iPhone Application Subscription Based Service
$ 2.99 (x.7) $ 5/month
Year 1: $ 40K END-USERS END-USERS Year 1: $ 50K
Year 2: $1M Year 2: $1.2 M
C E
SE
VI
E
NU
R
RV
RE
SE
VE
IC
V
E
EN
RE
Third
Nightlife
UE
party
venues
affiliates
CITYBEATS.COM
Two Revenue Streams
March | 2011
Total Revenue (year 1) = $ 90 K
Critical Mass: 500,000 users
Total Revenue (year 2) = $ 2.2 M

41. IP license for WiBat
technology Manufactured
Smaller Router Product
$3.01 companies Distributors
ie Netgear, $60.19 ie Windsor
Meru
Product
Delivery
Planet Batteries $93.75
Retail Stores
i.e. Best Buy, Fry’s
End
User
$125 Sale
Corporate Investors
•Partner router companies
•Intel (they are interested in End Users
wireless technology)
i.e. college students
(See appendix E for figures)

42. Other Investors/Channels
• Mission Point Capital
JFink@missionpointcapital.com
• Westly Group
http://www.westlygroup.com/
• California Public Utilities Commission
http://www.cpuc.ca.gov/SMBUS/