6 Part High School Course on Software and Startups with Notes, Graphics and Videos

Here is a 6 Part High School Course on Software and Startups with Notes, Graphics and Videos of a course we taught over the 2014-2015 school year

1) The Rise of Software and Startups
2) Business Models and Product Market Fit
3) The Customer Development Model
4) Agile Development
5) Startup Marketing
6) Financial Metrics

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1) The Rise of Software and Startups

Here is the video, graphic and text for The Rise of Software and Startups section.

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Here is the graphic:
TheRiseOfSoftwareAndStartups
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Here is the text description:

The Rise of Software & Startups

Software is Eating the World
Software powered businesses, online services, and digital products are on the rise.
Software centric companies are challenging the leaders of many industries.
This trend will continue and will accelerate.

In This Overview We Will Look At:
Why software is becoming so dominant.
The Business Model Canvas which helps develop better companies.
Agile Development, which enables faster and cheaper product development.
Customer Development Model, which helps in the creation of the right product for the right market.

The Historical Rise of Software
PCs (~1990) put computing power into the hands of the many.
Internet (~2000) brought connectivity to millions.
Mobile – (~2010) brings constant connectivity to billions.

Some Factors for the Recent Software Boom
Massive connectivity creates new markets and disruptive opportunities.
Cheaper computing enables advances in data analysis and lowers product costs.
Digital formats of books, movies, music, etc. allow for easier access and delivery.

Amazon as an Example
Connectivity enabled the establishment of online catalogs and customer ratings.
Cheaper computing brought customized catalog pages and suggestions.
Digital books, movies and music enabled the building of personal digital libraries.

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Businesses are Built on Three Foundations
The company, which includes its resources, processes and business model.
The products it offers.
The market of customers to which it delivers its products.
Software and startups have changed our understanding of these foundations.
Let’s take a look at some of these changes.

Company
For the company, software has enabled business model innovations in all areas.
The Business Model Canvas provides a language to describe, visualize and assess a business model.

Product
With regard to products, cloud based services and better tools have made software development faster and cheaper.
Agile Development is a methodology to increase the reliability and speed of software development.

Market
The market for software based products has been vastly expanded by mobile connectivity.
The Customer Development Model assists in developing the right product for the right market.

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Business Model Canvas
Consists of 9 elements
4 company elements, 1 product element, 4 market elements

Company Elements
Key Activities: the things the company must do to deliver its proposition.
Key Resources: the assets the company must have to compete.
Key Partners: the relationships that allow the company to focus on Key Activities.
Cost Structure: the major costs and how they can be reduced.

Product Elements
Value Proposition: What is compelling about the product offer? Why do customers buy and use the product?

Market Elements
Customer Segments: the customers and their thinking patterns.
Channels: How the products are promoted, sold and delivered.
Customer Relationships: How the company interacts with the customer.
Revenue Streams: How the business earns revenue from the products it sells.

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Customer Development Model
The focus of the Customer Development Model is to find product-market fit, which is a product that fills a large market need.
Phase 1 is the search for product-market fit and a viable business model.
Phase 2 is executing on the model to create demand, close sales, and create a profitable business.

Search for Product Market Fit
In Customer Discovery, a business model is defined and potential customers are interacted with, in order to determine whether product-market fit can be achieved.
Customer Validation involves getting actual usage and orders to validate the product-market fit and to decide whether to pivot or proceed as planned.

Execute to Increase Sales and Profits
In Customer Creation, the product is launched into the defined target market, demand is created through marketing, and sales are made.
In Company Building, departments are established, a company culture is cultivated, and a mindset of being responsive to customers and changing circumstances is developed.

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Agile Development
Agile Development has design, develop, and deploy cycles.
Design consists of sketching out your idea and talking to potential customers.
Developing is creating working software in short release cycles.
Deploying puts the software in the hands of customers to measure, learn and improve.

Design
Get out of the building and talk to potential customers.
Sketch out scenarios of how potential customers will use the software.
Define the assumptions you are making in the design and determine how they can be tested.

Develop
Create the database which tracks the customers and their activities.
Program the interface which is how the customer interacts with the application.
Code the logic that connects the interface to the database and performs the application’s functions.

Deploy
Make the software available to your customers
Measure how the customers are using the software
Implement any quick changes and then iterate into the next design and develop cycles.

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Recap
In this overview we looked at some key components of the rise of Software and Startups.
In the future, we will go into more detail on the Business Model Canvas, Agile Development, and the Customer Development Model.
Thanks to Marc Andreessen, Steve Blank, Bob Dorf, Paul Graham, Alexander Osterwalder, Yves Pigneur, Eric Ries
and Peter Thiel for their contributions to the field.

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2) Business Models and Product Market Fit

The key for a highly successful business is to provide the right product for a large market. This is referred to as Product-Market fit. Understanding Business Models is a valuable resource to reach Product-Market Fit.

Here are three short videos and the text of the videos for the Business Models, Pipes and Platforms, the Business Model Canvas and Product-Market Fit section.

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Here’s the link for the first video of this series, The Rise of Software and Startups.

Here is the graphic of the material we are covering in the course:
TheRiseOfSoftwareAndStartups
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Business Models

What Is a Business Model
A Business Model describes how a Company profits by selling their Product into a Market of Customers.
The Business Model is part of the Business Plan, which describes why and how the model will be successful.
Business Models can be divided into 2 main groups, Pipes and Platforms.

Retail Pipes
The pipe is the oldest and most prevalent model and is often referred to as a supply chain.
In retail pipes such as stores, the company:
– Buys products from suppliers.
– Adds value to the product by stocking, shelving and giving service in their stores.
– Promotes and delivers them to a market of customers.

Service Pipes
In service pipes such as accounting, legal and business consulting, the company:
– Develops expertise.
– Packages this expertise into a service for sale.
– Promotes, sells and delivers the service to a Market of customers.

Platforms
In a platform business model, the company develops a network and
– The company creates a cloud based network of producers and consumers of goods or services.
– Both producers and consumers are offered a value proposition to use the network.
– Fees are charged to the producers, consumers or third parties like advertisers.

Since the mass adoption of cloud computing and mobile, the most successful startups use platforms.

Example Amazon
A book store is a pipe that selects books from publishers and makes them conveniently available to their customers in their stores for browsing and purchase.
The Amazon Website is a pipe that makes any in print book available to it’s customers on it’s Website and delivered via mail.
The Amazon Book Seller platform enable books sellers to offer their books to Amazon customers via Amazon’s Web Site and software platform.

Elements of a Business Model
A Value Proposition is the group of products and services a company offers to its customers.
To offer the Value Proposition, the company must have Key Resources like employees.
Key Activities like purchasing and sales describe the most important things the company does.
In many situations, Key Partners like suppliers are involved.
The Cost Structures are the costs incurred to run the business.
The Customer Segments targeted by the Value Propositions are reached through Channels.
Customer Relationships describe the ongoing services customers will receive.
The Revenue Stream is the money the company receives from its customers.
Financial viability is achieved if the Revenue Streams exceed the Cost Structures.

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Business Model Canvas
biz canvas

Business Model Elements
A Business Model describes how a Company profits by selling their Product into a Market of Customers.
A Business Model can be described using nine elements.
The Business Model Canvas is a tool that graphically depicts these nine Business Model Elements.

Business Model Canvas
The Customer Segments describes the groups of customers a company serves.
The Value Proposition is the bundle of products and services that create value for a Customer Segment.
The Channels describe how the company communicates with and reaches its Customer Segments to deliver its Value Proposition.
The Customer Relationships describe the types of relationships a company establishes with its Customer Segments.
The Revenue Stream represents the money a company generates from each Customer Segment.
The Key Resources describe the most important assets necessary to make the business model work.
The Key Activities describe the most important things a company must do to make the business model work.
The Key Partners describe the suppliers and partners that make the business model work.
The Cost Structure describes all the costs incurred to operate a business model.

Example Instacart
Let’s take Instacart as an example.
Instacart delivers groceries to consumers.
It’s a platform business with two Customer Segments, Consumers and Supermarkets.
The Value Proposition to the Consumers is grocery delivery in an hour.
These Consumers uses the Channels of Mobile and Web Apps.
Supermarkets are the Producer Customer Segment.
The Value Proposition to the Supermarkets is that Instacart will list and deliver the products in their stores at no cost to the Supermarket.
The Key Partners are the Independent Contractors making the deliveries.
The Key Activities are picking and delivering the orders on time and tracking the information in the database.
The Key Resources are their Software Platform and their employees.
The Revenues Stream comes from the Consumers ordering groceries for delivery.
The Cost Structure is paying the contractors who make the deliveries and running an enhancing their software platform.

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Product-Market Fit

Business Model Canvas Elements
Customer Segments the company serves.
Value Proposition it offers.
Channels with which it communicates.
Customer Relationships it maintains.
Revenue Streams it receives.
Key Partners of the company.
Key Activities it performs.
Key Resources it uses.
Cost Structures it Incurs.

Product Market Fit
The most critical component of a highly successful business is providing
the right product for a large market.
This is referred to as Product-Market fit.
The business model elements that address Product-Market fit are the Customer Segments and Value Propositions.

Customer Profile
Jobs are the things the customers are trying to get done in their lives.
Pains are the annoyances and risks the customers encounter.
Gains are the outcomes and benefits the customers want to achieve.

Value Map
Products & Services are what you offer to address your customer’s needs.
Pain Relievers are how your products and services alleviate specific customer pains.
Gain Creators are how your products and services create customer gains.

Achieving Product-Market Fit
You’ve achieved Product-Market Fit when your customers get excited about your Value Proposition because:
– it addresses important jobs
– alleviates extreme pain
– creates essential gains

Example: Uber’s Customer Profile
Jobs are people getting from place to place
Pains are it’s often difficult to get a taxi
Gains are getting around without driving or using public transportation

Example: Uber’s Value Map
Products and Services are getting a taxi quickly with the tap of an App
Pain Relievers are alleviating the pain of getting a taxi
Gain Creators are saves time and aggravation

Uber’s Product-Market Fit
To achieve Product-Market fit you need a Value Proposition that excites Customers in a large market.
– Customers love Uber
– They use it often and recommend it
– It’s a very large market
– Great product-market fit
– Uber has reached a $40 billion valuation faster than any company in history!

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3) The Customer Development Model

Here are three short videos and text for the Customer Development Model section.

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The Customer Development Model

Product Development
A vision or concept is translated into a set of key ideas and a business plan is produced.
A product is specified, developed and tested.
Sales and marketing infrastructure is created
The product is launched

Problems with Product Development
Problems include overestimation of the market size; buyers don’t buy for unforeseen reasons; cost of production is too high
A strictly product-centric approach is the reason that most startups fail
The product is developed, but the market is not

Customer Development Model
Specified by Steve Blank after the 2000 Dot-com crash
“Get out of the building” and speak to customers and perform product marketing tests
First determined that you are building the right product for the right market
Expensive sales, marketing and company building strategies are executed only after product-market fit is found
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The Search Phase: Customer Discovery and Customer Validation
Startup companies should go through two phases
1) Search for product-market fit
2) Execute on the results of the search
Search phase has two steps, Customer Discovery and Customer Validation

Customer Discovery
Translate the founder’s vision into a business model
Test whether there are customers who believe strongly in your value proposition
To test the assumptions, create a minimal viable version of the product that is shown to customers
Make small iterative changes to the initial product vision
Make a large pivot to a new product or market if the iterative changes don’t lead to success

Customer Validation
After customers confirm that you’re building a great product that satisfies an important need, Customer Validation step begins Try to prove that you have a scalable business model that can deliver the volume of customers to create a viable business
For business models where customers are paying for the product, validation involves making a reasonable amount of sales
For advertising supported business models, validation would consist of exponentially growing the user base to view the ads
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The Execute Phase: Customer Creation and Company Building
Money is spent on sales, marketing and company building strategies
Trying to capture the market that was identified in the search phase
Execute Phase has two steps, Customer Creation and Company Building

Customer Creation
The company spends money to create end-user demand through marketing
Demand is driven through the sales and user acquisition channels
Marketing and sales strategies depend on the market type:
1) Entering an existing market
2) Creating a new product for a new market
3) Re-segmenting an existing market with a low-cost or niche product

Company Building
A transition is made from startup mode to a mature company
Create departments, hire officers and establish the structures and processes that profitable companies need
Often there is a change at the top because a different set of skills and experience is needed to run a mature company

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4) Agile Development

Here are two short videos and the text for the Agile Development section.

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The Why of Agile Development

Four ingredients to a great startup
Idea – A mission oriented idea aimed at a significant market
Product – A great product that customers will love
Team – A smart team that gets along and gets things done
Execution – Relentless execution on the sales and marketing side.

At the center is the search for product-market fit
Design – You need to talk to potential customers in order to design a software product that they will love.
Develop – Then you need to develop the software to produce the gains and solve the pains of your market.
Deploy – Finally, you need to deploy the software to determine if your customers love it, use it, and highly recommend it.

Waterfall model consists of five discrete steps:
Analyzing the requirements
Designing the software
Coding the software
Testing the software
Deploying the software to the customers

The problem with the waterfall model
Customers often didn’t realize that the software didn’t do the job until they started using it,
This occurs a long time after it was initially spec’d out.
This resulted in a lot of lost time and money.

Response to the weaknesses of the waterfall model
In 2001, a group of super-programmers met at the Snowbird Ski Resort in Utah and formalized the Agile Manifesto.
Agile is an iterative model,
With the goal of increasing customer satisfaction
By continually delivering useful working software in weeks, rather than months
This is achieved by working closely with the users of the software early in the development cycle

The Agile Model is now the standard in the startup world
It focuses on quickly delivering software that customers love
It is in alignment with the startup’s early phase mantra of searching for product-market fit.

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The How of Agile Development

Agile Development consists of three steps: design, develop and deploy.
Design is focused on creating a great user experience.
Development is where we translate the design into working software.
That includes coding the software for the user interface, creating the database which stores information, and programming the logic which is often the secret sauce of the app.
Deployment consists of rolling out the application to the customer in a safe way so that it can be rolled back if problems are found. In the Design and Deploy steps, frequent feedback from customers is solicited and incorporated into the software.

We’re going to create an App called ImBored
When teenagers are bored they can use the app to connect with other teenagers.
The app will suggest free and paid-for activities.
Free activities include a game of basketball, a walk around the lake, or perhaps just chilling at a friend’s house.

Let’s design the app
When a teen is bored he checks the app to see if there are any interesting activities currently scheduled nearby.
If he sees one, he clicks to join and is shown the time and place.
After the activity finishes, he rates the activity.
If there are no activities, a teen can suggest an activity, including the place, start time, end time, people needed and maximum participant capacity.
If enough people sign up, the activity is scheduled.

Paid activities
The vendor must have an agreement in place with ImBored, Inc.
A bowling alley might agree to provide a discount if 10 teens participate.
The activity would be posted and the bowling alley would approve the time.

Let’s develop the App
The mobile interface has to be as simple as possible.
There should be notifications when there are pending activities that a teen might be interested in.
Signing up for an activity should take just one tap.
Suggesting a new activity should take just a few taps.

We need a database
That tracks each customer
The activities which they suggest and have participated in and their enjoyment ratings
Activities need to be tracked to determine their details and current subscription status
Vendors, like the bowling alley, need to be tracked, notified of activity requests, and monitored for their approvals.

The programming logic has to determine which activities are appropriate for each teenager
The goal is to increase participation while minimizing bad suggestions.
In the Develop phase the App is coded and tested.

To deploy the app
Database and Application space is rented from a cloud based provider
We will need to get the App approved by the Apple App Store and the Android Play Store.
Once the system is live, automated monitoring insures that everything is running smoothly.
When problems are detected in a new software release, the application will be rolled back to the previous version.

New deployments of the front end app must be considered carefully
Since that requires new App Store/Play Store approvals and requires that current users update their App.
Deployments of components, like the activity suggestion logic, can be made more frequently since they are less disruptive.

We have given you a taste of what it takes to design, develop and deploy an App using Agile development methods.

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5) Startup Marketing

Here are two short videos and the text of the Startup Marketing section.

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Customer Focused Marketing
Build a great product that customers love in the Search Phase
Communicate your product’s value to your potential customers in the Execute Phase

Marketing is the set of strategies that communicate the value of your product to your potential customers

The 4 Ps of Product Marketing
Originally, marketing was very “product focused”
The Product you’re selling
The Price for which you’re selling it
The Places where your product is available
The Promotional activities that communicate the product’s feature and benefits and persuade people to purchase

The 4 Cs of Customer Marketing
Today, marketing has become much more customer-oriented
Customer Solutions – the product is viewed as the solution to the customer’s problems
Customer Costs – the price is seen as more than just the purchase price and includes other customer costs such as the time and effort needed to learn and maintain the product
Convenience – the place aspect is focused on making it as convenient as possible for the customer to investigate and purchase the product
Communication – promotion has been transformed from a one-way sales pitch to a two-way communication with the customer

In the next video we’ll look at the methods and mechanics of marketing.

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The Mechanics of Marketing

Marketing
Marketing is communicating the value of your product to your potential customers
It’s often divided into 2 categories, direct marketing and indirect marketing

Direct Marketing
A straightforward communication to the customer of a product’s features, benefits and cost
It can take the form of sales in a store, direct mail, phone solicitations, emails, web stores, Google ads or mobile promotions. One of the biggest advantages of direct marketing is that the outcomes can be measured
For example, you can measure how many clicks your Google Ad receives and how many of those clicks convert to paying customers

Indirect Marketing
Indirect Marketing is focused on activities that create a deeper, often emotional, relationship between the customer and the company
Indirect activities include radio and television commercials, print ads, conference sponsorships and providing valuable information to the potential customer
These activities are often described as branding

Software Startups and the AARRR Framework
Primarily employ direct marketing strategies with a focus on getting, keeping and growing the customer base
Acquisition begins when a potential customer comes to your site or app via email, link, search or a promotion
Activation occurs when he signs up or installs the app and has the first user experience
Retention is when the customer keeps coming back for more
Referrals occur when the customer loves your product enough to refer it to others
Revenue is realized when a product or service is sold or a third party buys advertising on your site or App

Viral Growth
What makes a software startup successful is viral growth
To achieve that, you need high degrees of customer retention and referrals.
These come from building a product that people love with a built-in referral mechanism
In addition to these retention and referral essentials, you need to continually focus on the acquisition and activation mechanics to ensure continuous double digit growth

In this video, we’ve given you an overview of the major methods and mechanics of the marketing processing for software startups.

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6) Financial Metrics

Here is the text for the Financial Metrics section. (there was no video for this section)

Validating Your Business – Financial Metrics

Review of Startup Components
Business Model – focus on product market fit
Customer Development – get out of the building and talk to potential customers
Agile Development – move fast when building the product

Business Model Validation
Value Proposition – Do you have a product that customers love and will refer to others?
Customer Channels – Can you get, keep and grow your customer base?
Cost and Revenue – Will your projected revenues significantly exceed your projected costs?

Financial Metrics
Users – Do you have a growing active user base?
Revenues – Can you monetize your active users?
Costs – Will user activation, product development & operation costs be kept low enough for profitability?

Users
New Activated Users are new users who were acquired via marketing, advertising or referrals
No Longer Active Users – are users that are no longer using the product
Monthly Active Users (MAU) = Last Months Active Users + New Activated Users – No Longer Active Users

Revenues
Monthly Page Views = Monthly Active Users x Average Monthly Page Views Per User
Monthly Revenue = Monthly Page Views * Revenue Per Page View

Costs
User Acquisition Costs are the marketing and advertising costs to acquire new users
Product Development Costs are the salaries you pay to your developers and product managers
Operation Costs are the costs for Rent and Other Expenses

Example – ImBored Mobile App
Users

If you grow by a high growth rate of 20% a month you will grow your user base 10X in a year
Starting with 10,000 MAUs and growing 10% per month for 1 year would be 1,000,000 MAU

Revenues
The Average User views 100 pages per month, so our 1,000,000 MAUs yields 100,000,000 Views per month
We can sell advertising at $2 for 1,000 page views so we have revenues of $200,000 per month

Costs
You can expect to pay about $10,000 per developer per month
Our developer costs for 6 employees would be about $60,000 per month
Our operating costs including rent, legal, web services are about $40,000 per month

User Acquisition Costs range from $3 per user at the beginning and can go down to $0 if you’re very popular
If we add 200,000 users a month, the user acquisition cost can range from 0 to $600,000. Let’s use $1 per user.

Profit or Loss = Advertising Revenues – (Developer Costs + Operating Costs + User Acquisition Costs)
Monthly Profit or Loss = $200,000 – ($60,000 + $40,000 + $200,000) = $100,000 loss per month

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