The Lean LaunchPad Lecture 2: Value Proposition

1. The Lean LaunchPadLecture 2: Value Proposition Steve Blank Jon Feiber Jon Burke http://i245.stanford.edu/

2. Agenda • Team Bus Model Presentations • Value Proposition • Product • Service • Ecosystem

3. VALUE PROPOSITIONS what are you offering them? what is that getting done for them? do they care? images by JAM

4. Step 1. Spec. the Value Proposition • Product(s)? • Service(s)? • Ecosystem? • Is it a company or product?

5. Value Proposition – Common Mistake • Is it just a feature of someone else’s product • Is it a “nice to have” product • Is it a “got to have” product • Can it scale to a company?

6. Value Proposition - Discovery • Product • Long term vision • features • Benefits • Minimum Viable Product spec • For a web/mobile app • Low fidelity MVP live and running • Understand Customer Problem and Solution • Test Market Type

7. Product • Problem Statement: What is the problem? • Technology / Market Insight: Why is the problem so hard to solve? • Market Size: How big is this problem? • Competition: What do customers do today? • Product: How do you do it?

8. Step 2: What’s the Minimum Viable Product – Physical • First, test your understanding of the problem • Next test your understanding of the solution • Proves that it solves a core problem for customers • The minimum set of features needed to learn from earlyvangelists • Interviews, demos, prototypes, etc • Lots of eyeball contact

9. Step 2: What’s the Minimum Viable Product – Web/Mobile • NOW “low fidelity” web/app for customer feedback • First, tests your understanding of the problem • LATER, “high fidelity” web/app tests your understanding of the solution • Proves that it solves a core problem for customers • The minimum set of features needed to learn from earlyvangelists • Avoid building products nobody wants • Maximize the learning per time spent

10. Step 2: What’s the Testing the Minimum Viable Product – Web/Mobile • Smoke testing with landing pages using AdWords • In-product split-testing • Prototypes (particularly for hardware) • Removing features • Continued customer discovery and validation • Surveys • Interviews

11. Step 2: What’s the Testing the MVP– Web/Mobile - Tactics • Interview customers • make sure they have a matching core problem • Set up web site landing page to test for conversion • What offers are required to get customers to use the product (e.g. prizes, payment) • Use problem definition as described by customers to identify key word list – plug into Google search traffic estimator - high traffic means there is problem awareness • Drive traffic to site using Google search and see how deep into a registration process customers are willing to go through

12. Pivot ExampleRobotic Weeding Talked 75 Customers in 8 Weeks

13. Our initial plan

14. 20 interviews, 6 site visits…We got OUR Boots dirty • Weeding • Visited two farms in Salinas Valley to better understand problem • Interviewed: • Bolthouse Farms, Large Agri-Industry in Bakersfield • White Farms, Large Peanut farmer in Georgia • REFCO Farms, large grower in Salinas Valley • Rincon Farms, large grower in Salinas Valley • Small Organic Corn/Soy grower in Nebraska • Heirloom Organics, small owner/operator, Santa Cruz Mts • Two small organic farmers at farmers market • Ag Services of Salinas, Fertilizer applicator • Mowing • Interviewed: • Golf: Stanford Golf course • Parks: Stanford Grounds Supervisor, head of maintenance and lead operator (has crew of 6) • Toro dealer (large mower manufacturer) • User of back-yard mowing system • Maintenance Services for City of Los Altos • Colony Landscaping (Mowing service for stadiums)

15. Autonomous Vehicles for Mowing & Weeding Dealers sell, installs and supports customer Co. trains dealers, supports dealers - Innovation - Customer Education - Dealer training • Mowing • - Owners of public or commercially used green spaces (e.g. golf courses) • - Landscaping service provider • Weeding • - Farmers with manual weeding operations We reduce operating cost - Labor reduction - Better utilization of assets (mow or weed at nights) - Improved performance (less rework, food safety) - Dealers (Mowing and Ag) - Vehicle OEMs (John Deere, Toro, Jacobsen, etc) - Research labs - Mowing Dealers - Ag Dealers Engineers on Autonomous vehicles, GPS, path-planning Asset sale Our revenue stream derives from selling the equipment Dealer discount COGS seek a 50-60% Gross Margin Heavy R&D investment

16. Found weeding in organic crops is HUGE problem; 50 - 75% of costs Crews of 100s-1000 Back-breaking task (Ilegal) labor harder to get 1-5 weedings per year/field $250-3,500 per acre and increasing Food contamination risk

17. Decision to make – mowing vs weeding

18. Autonomous vehiclesWEEDING Dealers sell, installs and supports customer Co. trains dealers, supports dealers - Innovation - Customer Education - Dealer training - Low density vegetable growers - High density vegetable growers - Thinning operations - Conventional vegetables We reduce operating cost - Labor reduction (100 to 1) - Reduced risk of contamination - Mitigate labor availability concerns - Ag Dealers - Ag Service providers - Research labs - Ag Dealers - Ag Service providers Engineers on Machine Vision Two problems: - Identification - Elimination Asset sale Our revenue stream derives from selling the equipment Dealer discount COGS seek a 50-60% Gross Margin Heavy R&D investment

19. 1 Week – 1 CarrotBot Confidential

20. CarrotBot • Machine Vision data collection platform • Monochrome & Color Cameras • Laser-line sweep (depth measurement) • Encoders (position/velocity) • Onboard data acquisition & power CarrotBot 1.0

21. The Canvas Updated • Farming conventions. • Demo, demo, and demo!! • Proximity is paramount • Technology Design • Marketing • Demo and customer feedback • Organic Farmers • Weeding Service Providers • Conventional Farmers • Cost Reduction • Remove labor force pains • Eliminate bio-waste hazards • Research Labs • Equipment Manufacturers • Distribution Network • Service Providers • IP – Patents • Video Classifier Files • Robust Technology • Dealers • Direct Service • Indirect Service • … then Dealers • Asset Sale • Direct Service with equipment rental • … then Asset Sale Value-Driven

22. Visit Highlights Above: Organic Carrots, 7wks. Top right: Conventional carrots Bottom Right: Very weedy. Will require multiple passes of hand weeding

23. Visit Highlights Carrot vs. Weeds Due to small root systems, carrots have no chance against weeds

24. Visit Highlights Organic Broccoli, closely cultivated. Weeds close to plants are hand-picked

25. Visit Highlights State of the Art in Weeding Technology for Organic Crops

26. Customer Hypothesis Pre-Test • Hypothesis Confirmed • Growers interested in own equipment • Industrial (10,000s of acres) • Large (1,000s of acres) • Willing to pay $100k for one unit • Smaller growers (100s of acres) usually subcontract the labor services or rent equipment • All purchases through local dealers • Customer service is essential Post-Test

27. Customer Map #1 – Industrial Growers Example: Bolthouse Farms – Large Industrial Carrot Producer – 8K acres/yr • Equipment Operator • Local Farm Mgr • Cliff Kirkpatrick, visited • Director, Ag Technology • Justin Grove, interviewed Equipment Operator • VP, Growing Operations • CFO, CEO (Jeff Dunn) Cliff, Farm Mgr

28. Customer Map #2 – Service Providers Example: Ag Services – Service Provider, Salinas Valley • Equipment Operator • Grower • Service Mgr Me (left), Marty (middle, Service Mgr), Doug (right, Grower) • ?? (service mgr’s boss)

29. The Business Plan Canvas Updated • Farming conventions. • Demo, demo, and demo!! • Proximity is paramount • Technology Design • Marketing • Demo and customer feedback • Mid/Large Organic Farmers • Agricultural corporations • Weeding Service Providers • Mid/Large Conventional Farmers • Cost Reduction • Remove labor force pains • Eliminate bio-waste hazards • Research Labs • Equipment Manufacturers • Distribution Network • Service Providers • IP – Patents • Video Classifier Files • Robust Technology • Direct Service • Indirect Service • … then Dealers • Direct Service with equipment rental • ($1,500/d; 120d/yr ) • Low density: $1,500/d • High density: $6,000/d Value-Driven

30. World Ag Expo interviews:the need is real and wide spread • 10+ interviews at show • Everyone confirmed the need • Robocrop, UK based, crude competitor sells for $171 K • Revenue Stream • Mid to small growers prefer a service • Large growers prefer to buy, but OK with service until technology is proven • Charging for labor cost saved is OK, as we provide other benefits (food safety, labor availability)

31. The Business Canvas Updated • Farming conventions. • Demo, demo, and demo!! • Proximity is paramount • Technology Design • Marketing • Demo and customer feedback • Mid/Large Organic Farmers • Agricultural corporations • Weeding Service Providers • Mid/Large Conventional Farmers • Research Labs • Equipment Manufacturer • Distribution Network • Service Providers • 2 or 3 Key Farms • Cost Reduction • Remove labor force pains • Eliminate bio-waste hazards • IP – Patents • Video Classifier Files • Robust Technology • Direct Service • Indirect Service • … then Dealers • Direct Service with equipment rental • Low density: $1,500/d • High density: $6,000/d • Value-Driven • R&D • Bill of Materials • Training & Service • Sales

32. Autonomous weeding - Final Direct - Provide high quality service at competitive price - Innovation - Customer Education - Dealer training - Low density vegetable growers - High density vegetable growers - Thinning operations - Conventional vegetables We reduce operating cost - Labor reduction (100 to 1) - Reduced risk of contamination - Mitigate labor availability concerns - Ag Service providers - Research Institutes (eg UC Davis, Laser Zentrum Hannover) - 3-4 key farms Direct - Alliance with service providers - Eventually sell through dealers Engineers on Machine Vision Two problems: - Identification - Elimination Service provision - Charge by the acre with modifier according to weed density - Eventually move to asset sale Costs for service provision COGS seek a 50-60% Gross Margin Heavy R&D investment

33. Market Type

34. Definitions: Four Types of Markets • Clone Market • Copy of a U.S. business model • Existing Market • Faster/Better = High end • Resegmented Market • Niche = marketing/branding driven • Cheaper = low end • New Market • Cheaper/good enough, creates a new class of product/customer • Innovative/never existed before

35. Market Type Market Type determines: • Rate of customer adoption • Sales and Marketing strategies • Cash requirements

36. Market Type - Existing • Incumbents exist, customers can name the mkt • Customers want/need better performance • Usually technology driven • Positioning driven by product and how much value customers place on its features • Risks: • Incumbents will defend their turf • Network effects of incumbent • Continuing innovation

37. Market Type – Resementing Existing • Low cost provider (Southwest) • Unique niche via positioning (Whole Foods) • What factors can: • you eliminate that your industry has long competed on? • Be reduced well below the industry’s standard? • should be raised well above the industry’s standard? • be created that the industry has never offered? (blue ocean)

38. Market Type – New • Customers don’t exist today • How will they find out about you? • How will they become aware of their need? • How do you know the market size is compelling? • Which factors should be created that the industry has never offered? (blue ocean)

39. For Tomorrow’s Presentation • What were your value proposition hypotheses? • What did potential customers think about your value proposition hypotheses? • Get out of the building and begin to talk to customers for Oct 12th • Talk to 10-15 customers more by Oct 18th • Follow-up with Survey Monkey (or similar service) to get more data • Submit interview notes, present results in class. • Update your blog/wiki/journal with progress customers and value prop

40. Examples

41. Group Privacy: Nan, Jim, Sundaresan • Protect privacy for users of location-based services (LBS)

42. The Business Model Canvas: ver 0.0 Creating awareness educational Privacy advocacy groups Increased privacy Privacy-concerned customers who use LBS trust Building trust LBS App Providers Technology Own website Bundling with LBS apps Developing costs App revenue (direct or shared) Marketing costs

43. The Business Model Canvas: ver 0.1 Creating awareness educational Privacy advocacy groups Increased privacy Privacy-concerned customers who use LBS trust Building trust No loss of service quality LBS App Providers Smart phone users uneasy about privacy Technology Own website Bundling with LBS apps Developing costs App revenue (direct or shared) Marketing costs Subscription

44. How to Test • Large number of privacy-concerned LBS users • Willing to pay for protecting locations • Directly or indirectly • Able to reach them with low cost • Able to ease their concerns through • education • endorsement by privacy watchdog groups • LBS app developers are willing to partner • Privacy groups are willing to endorse Existing market research Talk to customers Bid on Google AdWords for location privacy (now no ads) Talk to customers Talk to privacy advocacy groups (e.g., 25,000 adults stalked by GPS) Talk to LBS app developers Talk to privacy advocacy groups

45. Methodologies • User interviews at Tresidder and I-Corps (11) • LBS Domain Expert Interviews (1) • Google AdWords (up and running) • Online Survey (32 responses) • Privacy Group Interviews (pending)

46. Hypothesis 1:Large number of privacy-concerned LBS users • User Interviews - Reasons for lack of concern • Trust the provider • Don’t believe that data can be used against them • Never crossed their mind • Don’t use LBS • Don’t have smartphone • Data already available to carriers & government • Survey: 66% not concerned • User Interviews – Reasons for concern • Uncertainty how data used/misused • General unease • Survey: 34% concerned • 37% chose not to use a LBS because of privacy concerns Most had low concern about location privacy

47. Hypothesis 2:Willing to pay for protecting locations • User Interviews – Unwilling to pay • Not interested in even a free service • Not concerned enough to pay • Not enough value add • Survey: 28% would not use it even if it is free, 54% would not pay • User Interviews – Willing to pay: • $15/month for total privacy protection, only a “few bucks/month” for location privacy • $1/week • $5 one time payment • Survey: 46% willing to pay • 9%: $1 • 19%: $10 • 9%: $1/month • 9%: $5/month Even some unconcerned customers are willing to pay!

48. Hypothesis 3:Able to reach them with low cost • Yes – at least at first • Google Ad Words: • Should be cheap at first - We are the only advertiser for “location privacy” (and related) • Location privacy is a popular search term

49. Hypothesis 4:Able to raise awareness through education • Yes • User Interviews – education may prove effective to some, as many did not think about or understand that LBS providers would get their location data, and indicated more concern

50. Hypothesis 5: Able to ease concerns through endorsement • Yes • User interviews – endorsement from “famous people” and “serious organizations” would help ease concerns on the effectiveness of privacy protection.