Steve Blank is a retired serial entrepreneur who teaches, writes, and blogs on customer development for startups. He was involved with eight high-technology startups and is the author of the book Four Steps to the Ephiphany.
Steve teaches entrepreneurship at U.C. Berkeley’s Haas School of Business, Stanford University’s School of Engineering, and the Columbia /Berkeley Joint Executive MBA program. In 2009, he earned the Stanford University Undergraduate Teaching Award in Management Science and Engineering. The San Jose Mercury News listed him as one of the 10 Influencers in Silicon Valley. In 2010, he earned the Earl F. Cheit Outstanding Teaching Award at U.C. Berkeley Haas School of Business.
Steve arrived in Silicon Valley in 1978, as boom times began. His early startups included Zilog, MIPS Computers, Convergent Technologies, Ardent, SuperMac, ESL, Rocket Science Games, and E.piphany; he summarizes them as “two significant implosions, one massive ‘dot-com bubble’ home run, several ‘base hits,’ and immense learning leading to The Four Steps.”
Where does customer input fit in today’s agile atmosphere?
Customer development takes place while the business model hypotheses are being tested. There are no facts inside the buildings, so the founders need to get out and talk to customers during the product development phases. Approximately 95% of the time, the initial vision is going to change.
How does a business model differ from a business plan?
A business plan can serve as an anchor for a startup, but almost no startup is going to utilize a business plan. The better alternative to the business plan is a business model based on hypotheses.
Business plans make sense for large companies that are launching follow on products off of existing products. In those cases, you have knowns, so you can quantify. But in the case of a startup, no business plan can survive the first contact with customers. For a startup, a business plan might as well be written in a university’s creative writing department; and the most creatively written part would be the revenue plan.
On the other hand, hypotheses affirm that there is no certainty. A startup is a temporary organization designed to search for a scalable and repeatable business model. The founders are on an uncertain path, and that needs to be acknowledged. Everything should be called a hypothesis. The founders have hypotheses about their value proposition, their customers, their pricing, their market – and while they are developing the product, they will test their hypotheses. This is a radical change from the past.
What is a key benefit of going in understanding that you are “searching?”
It eliminates enormous waste. For the VC, it eliminates wasted money. For the company, it eliminates wasted hours, sweat, and tears developing code that won’t be used. It also saves time in terms of human resources. For example, say you have a great product; however, months down the road there is still no revenue. Your investors get anxious. Your VP of Sales gets fired. A new VP of Sales comes in. What happens? The first strategy gets ditched. The new VP develops a new strategy. Well how about if we skip the firing of the executive part and understand that we have to keep iterating the strategy around the search?
What does the founder do when he realizes he/she has to change course?
You change the business model based on what you find testing the hypotheses. In the past, we had no process for what to do when your first idea wasn’t right. Your VC would tell you ‘all you need to do is execute your plan.’ But a startup can’t follow a plan because it is searching for a plan.
What happens when the “search” is over, and the repeatable, scalable model is found?
This second stage in a company’s lifecycle, the building of the organization, is immensely confusing to founders. Founders are artists. Their skill is in the searching. Building a company requires very different skills. This is where VCs have failed in the past to add value. If they had been coaching the founders from the startup phase so that they would know what to expect, there would be less confusion. It is at this point when the company needs to bring in people with operational skills. They are very different skill sets. There are people who can start a business, but not run it effectively, and there are others who excel at running companies, but who could never be founders.
Any closing words for founders and leaders of young technology companies?
First, there are no facts inside the building, so get the hell outside. Next, speed matters – and so does tempo. Also, if a customer tells you something sucks, maybe they’re right or maybe they’re wrong – but you’d better be listening. Most importantly, trust your gut — but remember, a great VC might have 50 to 60 times more experience than you do, so you need to listen and try to understand what they are telling you. At the end of the day, however, it is your company and the day you starting acting like it’s not is the day it no longer is.
Like this? Check out our last Perspectives interview with PHD Virtual Technologies CEO Thomas Charlton.