Presentation 3 - Entrepreneurship Goethe

Entrepreneurship
WPMM: EPSH
Winter 2015
Sebastian Schfer
Sebastian.schaefer@wiwi.uni-frankfurt.de
Thomas Funke
funke@wiwi.uni-frankfurt.de
The Startup Process
Startup process is about dealing with uncertainty
Little systematic research on the entrepreneurship process,

i.e. on how to start and grow a startup
There are several key frameworks that trey to capture the

essence of entrepreneurship
No standard framework (yet)
Entrepreneurship - WiSe 2015/2016
Key Framework #1: Two Phases

Product
OR
Service
Market
Opportunity Recognition
Pursuit of Opportunity
People
AND
Organization
Resources
AND
Capital
Key Framework #2: Top Down
What do the founders wish to achieve with the

business?
What are shared goals? What is the story?
Vision
Do we have the right strategy?

Who is going to buy? What are we selling?
Why are we better?
Strategy
Can we do it?
What resources are needed? What is the
blueprint for growth? Can we adapt?
Execution
Key Framework #3: Effectuation
Vision
What resources do I
have now?
Strategy
What can I do with

them?
Execution
Key Framework #4: Business Model Canvas
Key Framework #5: The VC Perspective

3 questions every venture capitalist wants to know:
1. Big market?
2. Winning Strategy?
3. Excellent Team?
Source: Komisar, R. The Monk and the Riddle
Key Framework #6: Crossing the Chasm
Key Framework #7: Customer Development
Key Framework #8: Risk Reduction
10
Key Framework #9: Kaplans Startup Race
11
What BMI is all about..
The Startup Process (in detail)
12
The startup process in 24 steps
13
Six key topics
1.
2.
3.
4.
Who is your customer?

What can you do for them?
How do they acquire your product?
How do you make money off your
product?
5. How do you design and build your
product?
6. And how do you scale?
14
Step 0: Getting started
Three starting points for entrepreneurship: a

technology, idea, or passion.
If you have a passion but no specific idea or
technology, do some introspection to figure out the
best use of your knowledge, skills, connections,
financial assets, and work experience.
customer pain vs values, interests an expertise
15
16
Step 1: Market segmentation
Goal: Brainstorm a wide array of potential customers and markets

for your business (preferences, behavioral patterns, sociodemographics, industry etc.)
Narrow the list down to 6-12 markets based on whether those
customers have money and a reason to spend it, whether you can
reach them and beat the competition, what possibilities they open
up in other markets, and your interest in them.
Hint: Do research on those markets by talking to customers and
observing them, making sure to be open to new information and
not selling them on your solution.
Go after a new market, rather than trying to sell to everyone or
snag part of a huge market.
17
Step 1: Market segmentation
18
Step 2: Select a beachhead market
Goal: Analyze your top 6-12 market opportunities and

choose one to pursue. To select a beachhead market,
use the same criteria as before.
Further segment your chosen market until it meets
these conditions: customers buy similar products for
similar reasons, and they talk to each other (for word
of mouth).
Hint: Focus! Smaller markets tend to be better, and its
crucial to pick just one and ignore the others (for now).
19
Step 3: Build an end user profile
20
Step 3: Build an end user profile
Goal: Use primary market

research to flesh out a detailed
description of the typical end user not necessarily the buyer - within
the market segment (specific
demographic, including things like
age, location, income, habits,
backstory, and motivations.
Hint: Its ideal if a founder, or at
least an employee, fits into this
category.
21
Step 4: Calculate the total addressable market (TAM)

size for the beachhead market
22
Step 4: Calculate the total addressable market

(TAM) size for the beachhead market
Goal: Use the demographics from the End User Profile to

determine quantitatively how large your beachhead market is.
The TAM is the amount of annual revenue you could earn if you
achieved 100 percent market share, which equals number of
users times revenue.
Calculate number of users using bottom-up (customer lists, trade
associations) and top-down methods (market reports) to verify.
Calculate estimated revenue based on what your customers
spend already and how much value youre providing.
Hint: You should aim for a TAM of $20-100 million; if its more
than that, you need to segment further.
23
Step 5: Profile the persona for the beachhead

market
24
Step 5: Profile the persona for the beachhead

market
Goal: To better understand your Persona (on a

social and emotional level too) choose a real
person to be your Persona and develop a
description of them, including their photo,
backstory, job, salary, purchasing criteria (in
order), and many other details.
Hint: Get the whole team involved in this process.
The goal is to help you settle questions in the
future about your customer, how to sell to them,
which direction to take, etc.
25
Step 6: Full life cycle use case
26
Step 6: Full life cycle use case
Goal: Describe not just how your Persona uses your

product, but how they discover a need for it, find out
about it, analyze it, acquire it, install it, get value from it,
pay for it, get support for it, buy more of it, and tell
others about it.
Understand why this expanded use case is important to
identify and resolve problems in the most timely and
cost-effective manner.
Hint: Try to pin down and visualize how the product will
fit into the customers value chain. Helps to identify
potential barriers to adoption.
27
Step 7: High-level product specification
28
Step 7: High-level product specification
Goal: Create a visual representation of your product:

storyboards or wireframes for your website, or diagrams
for your device.
Then, create a brochure that focuses on features and,
more importantly, how they benefit the customer.
Hint: Not too many details.
29
Step 8: Quantify the value proposition
30
Step 8: Quantify the value proposition
Goal: Determine how the benefits of your product

turn into value that the customer gets out of the
product (by top priority of the Persona)
Use real numbers and quantitative metrics to show
this value to the customer.
Hint: Err on the side of underpromising and
overdelivering.
31
Step 9: Identify your next 10 customers
32
Step 9: Identify your next 10 customers
Goal: Try to identify 10 customers who are similar to

your Persona and willing to buy. You do this by actually
talking to them and trying to validate your full lifecycle
use case, product specification, and quantified value
proposition.
Hint: If theyre on board with everything, then you can
ask for a commitment to buy; if not, go back to the
drawing board and revise your assumptions. (Thats
part of the process; after all, your assumptions are only
estimates.)
If you have tried and tried and cant find 10 customers,
its possible you need to change your Persona or even
look into a new beachhead market.
33
Step 10: Define your Core
34
Step 10: Define your Core
Goal: Explain your Core your secret sauce

that competitors cant duplicate easily (this is
the internal view)
It might be the network of users youve built up,
fantastic customer service, low cost, or user
experience.
Hint: It usually isnt your intellectual property,
speed of innovation, first-mover advantage, or
exclusive contracts with suppliers.
35
Step 11: Chart your competitive position
36
Step 11: Chart your competitive position
Goal: Make a competitive positioning chart: a twodimensional graph that plots the customers top two
priorities on either axis.
Put yourself and your competition (including the status
quo) on the map you should be in the top right corner.
And make sure your competitive position makes use of
your Core if not, you may need a different market
opportunity.
Hint: Useful to communicate qualitative value
proposition.
37
The 24 steps are not linear
38
Customer Development
39
Focus on the right customer
Has a problem
Is aware of having a problem

Has been actively looking for a solution
Has put together a solution out of piece parts
Has or can acquire a budget
40
What makes an Innovator so special?
My customers are too stupid to know

what they want!
41
What makes an Innovator so special?
.or?
42
Product Development
Concept/ Bus.
Plan
Product Dev.
Alpha / Beta
Test
Launch / 1st
Ship
(Steve Blank)
43
Product Development
Concept/ Bus.
Plan
Product Dev.
Alpha / Beta
Test
Launch / 1st
Ship
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
(Steve Blank)
44
Why is knowing your customer important?
45
What can we do to avoid this?
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
46
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
Find a product the market wants
47
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
Optimize the product for the market!
Find a product the market wants
48
Customer
Discovery
People in search for a new product
Customer
Validation
Customer
Creation
Company
Building
Most clones start here
49
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
We will focus on this!
50
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
Customer Discovery:
Find a problem worth solving!
Find a potential solution!
Customer Validation:
Validate that this solution works!
Validate a business model!
(Steve Blank)
51
Customer Development: Customer Discovery
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
How can you find that information out?

Semi-structured interview/observation (exploratory approach)
Questionnaire (builds on assumptions)
What are the main challenges you are facing?

Customers often dont know by themselves about their needs.
Misleading information due to politeness or social-desirability effects
Sticky information problem: it is very difficult to express needs, e.g. what does my favorite car look like
The knowledge of customer is very often limited and is based on experiences and their power of imagination.
Try to understand to whom you should listen to and why!
52
Customer Development: Customer Validation
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
Validate the problem:
Do they care?
Do they need it?
Do they have budget for it?
Who really is they?
(Steve Blank)
53
Customer Development: Customer Validation
Customer
Discovery
Customer
Validation
Customer
Creation
Company
Building
Validate the solution:
Does our solution solve their problem?
Do they understand our solution?
Would they pay for it?
(Steve Blank)
54
Customer Development: Customer Discovery
Customer
Discovery
assumptions
Customer
Validation
Customer
Creation
Company
Building
validation/revision
of assumptions
Learn and Confirm!
55
When did I reach problem-solution fit?
56
How does this work?
How do I know what

customers want?
How can I find out?
57
The MOM Test
58
The hardest things of consumer interviews
Knowing who your customer is

Asking them the right way
Understand their feedback
Iterate or kill the idea
59
People are lying bastards!

(People tell us what we want to hear, if you ask the wrong
questions)
60
The MOM-Test by Rob Fitzpatrick
61
Example MOM-Test
You: Mom, I have an idea for a business can I run it by you?
Mom: Of course, dear.
You: You like your iPad, right? You use it a lot?

Mom: Sure, its great
62
You: Okay, so would you ever buy an app which was like a
cookbook for your iPad?
Mom: Hmmm
You: And it only costs $40 thats cheaper than those

hardcovers on your shelve
Mom: I love cookbooks, sounds nice. Does it come with vegan
recipes? Or something special for Xmas?
63
But
You: Mom, I have an idea for a business can I run it by you?
Mom: Of course, dear. Im proud of you and I dont want to hurt
your feelings
You: You like your iPad, right? You use it a lot?
Mom: Sure, its great I only use it to read emails on the sofa
and surf the internet
64
You: Okay, so would you ever buy an app which was like a cookbook
for your iPad?
Mom: Hmmm As if I need another cookbook at my age.
You: And it only costs $40 thats cheaper than those hardcovers on
your shelve
Mom: I love cookbooks, sounds nice. Does it come with vegan recipes?
Or something special for Xmas? Well, I have plenty of cookbooks. I
dont need a computer in the kitchen It might get dirty! App? I never
bought an app. Arent they supposed to be $1? Do you need your credit
card for that? Let me try to change the subject
65
Customer interviews
Interview set-up
1.
2.
3.
Find out if they are the customer

Explore their World View
Get commitment or advancement
66
Customer Interviews
67
Exercise
Design an interview guide and write down some questions in order to test whether there is
a market need for this invention.
68
Question 1:
Do you have a problem

with X?
69
Question 1:
Do you have a problem

with X?
70
Question 1:
You are young and won an oscar. Are

you not worried about your career
peaking to soon?
Uhh well. Now I am!
Jennifer Lawrence
71
Question 2:
Tell me about X!
72
Question 2:
Tell me about X!
73
Question 3:
Do you think it is a good

idea?
74
Question 3:
Do you think it is a good

idea?
75
Question 4:
Would you buy a

product which solved
the problem?
76
Question 4:
Would you buy a

product which solved
the problem?
77
Question 5:
How do you currently

deal with this problem?
78
Question 5:
How do you currently

deal with this problem?
79
Question 6:
Talk me through the last

time you had this
probem
80
Question 6:
Talk me through the last

time you had this
problem
81
Question 7:
How much would you

pay for this?
82
Question 7:
How much would you

pay for this?
83
Question 8:
How much money does

this problem cost you?
84
Question 8:
How much money does

this problem cost you?
85
Question 9:
Is there a budget for it?
86
Question 9:
Is there a budget for it?
87
Question 10:
Who else should I talk

to?
88
Question 10:
Who else should I talk

to?
89
Good Questions
Did or Do NEVER
would
Dont assume
problems
Dont ask for opinions,
rather let them speak
about
experiences/examples
90
A carrot
http://startupgeist.com/
91
Understanding Feedback
92
Feedback:
Sounds great. I love it!
93
Feedback:
Sounds great. I love it!
94
Feedback:
Brilliant let me know

when it launches!
95
Feedback:
Brilliant let me know

when it launches!
96
Feedback:
There are a couple

people that I could intro
you when you are
ready!
97
Feedback:
There are a couple

people that I could intro
you when you are
ready!
Why not now??
98
Feedback:
I would definitivly buy

that!
99
Feedback:
I would definitely buy

that!
Dangerous! People cant

predict their own behaviour!
100
Feedback:
We are spending 500 $

on this per month!
101
Feedback:
We are spending 500 $

on this per month!
Awesome Feedback! Prooves

that there is a problem, they kind
of solved it, and there is budget
available.
102
Opinions are worthless!
Facts about their life!

Commitments!
Think vs. Do!
103
The Interview Process!
Know what you want to learn!

1. Find Customers
2. Validate Problem
3. Validate Solution
4 Learn & Iterate
104
Validate the problem! The interviews

Talk to the people! Dont be awkward:
- We are looking for expert feedback or we are doing a survey
- Dont: We do Customer Development
- Ask open questions
- Let them speak
- Let them be the expert
- In Person, No Skype, no phone, no email.
Stop if the responses remain the same!
105
Never delegate interviews!!!

Interviews should be done by the founders
Especially if they hate sales (they need to learn it)
106
Validate the solution!
If you were wrong, be happy!

most start-ups started out wrong
107
Talk to the people! Be precise
- Use index cards!

- If possible take a second person
- Write down exact phrases
- Use visual indicators!
Stop if the responses remain the same!
108
Validate the solution!
Come back to the interviewees!

- Focus first on their current solution
- Discuss flaws of their current solution
- Show mockups, prototypes etc.
- Get improvement feedback
- Get them to commit
- or iterate!
109
Review in the team!

- User exact customer wording
- Understand their answers and context
- Dont try to be correct with your assumptions
- See what you learned
110
Review in the team!

- Write down what you learned
- See which old assumptions were wrong
- Adapt your solution
111
Exemplary Questions
1. Many startups fail because they dont address a market need. What can you do
to avoid this? Which concept(s) are relevant?
2. Assume you were co-founder of studentica. You are now responsible for doing
the primary market research and talk to customers. Who are your customers
and how can they be described? Which questions would you ask and why?
112
Recommended Videos
How to Run a User Interview (Emmett Shear)

Lecture 16: http://startupclass.samaltman.com/
113

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Entrepreneurship

The Startup Process

Startup process is about dealing with uncertainty

Little systematic research on the entrepreneurship process,

There are several key frameworks that trey to capture the

No standard framework (yet)

Entrepreneurship - WiSe 2015/2016

Key Framework #1: Two Phases

Key Framework #2: Top Down

What do the founders wish to achieve with the

Do we have the right strategy?

Entrepreneurship - WiSe 2015/2016

Key Framework #3: Effectuation

What can I do with

Entrepreneurship - WiSe 2015/2016

Key Framework #4: Business Model Canvas

Entrepreneurship - WiSe 2015/2016

Key Framework #5: The VC Perspective

Source: Komisar, R. The Monk and the Riddle

Entrepreneurship - WiSe 2015/2016

Key Framework #6: Crossing the Chasm

Entrepreneurship - WiSe 2015/2016

Key Framework #7: Customer Development

Entrepreneurship - WiSe 2015/2016

Key Framework #8: Risk Reduction

Entrepreneurship - WiSe 2015/2016

Key Framework #9: Kaplans Startup Race

Entrepreneurship - WiSe 2015/2016

What BMI is all about..

The Startup Process (in detail)

Entrepreneurship - WiSe 2015/2016

The startup process in 24 steps

Entrepreneurship - WiSe 2015/2016

Six key topics

Who is your customer?

Entrepreneurship - WiSe 2015/2016

Step 0: Getting started

Three starting points for entrepreneurship: a

Entrepreneurship - WiSe 2015/2016

Entrepreneurship - WiSe 2015/2016

Step 1: Market segmentation

Goal: Brainstorm a wide array of potential customers and markets

Entrepreneurship - WiSe 2015/2016

Step 1: Market segmentation

Entrepreneurship - WiSe 2015/2016

Step 2: Select a beachhead market

Goal: Analyze your top 6-12 market opportunities and

Entrepreneurship - WiSe 2015/2016

Step 3: Build an end user profile

Entrepreneurship - WiSe 2015/2016

Step 3: Build an end user profile

Goal: Use primary market

Entrepreneurship - WiSe 2015/2016

Step 4: Calculate the total addressable market (TAM)

Entrepreneurship - WiSe 2015/2016

Step 4: Calculate the total addressable market

Goal: Use the demographics from the End User Profile to

Entrepreneurship - WiSe 2015/2016

Step 5: Profile the persona for the beachhead

Entrepreneurship - WiSe 2015/2016

Step 5: Profile the persona for the beachhead

Goal: To better understand your Persona (on a

Entrepreneurship - WiSe 2015/2016

Step 6: Full life cycle use case