Steve Blank - Interviewed by Dino Vendetti From the Bend Venture Conference 2013, produced by Economic Development for Central Oregon (EDCO) 01 What led Steve to entrepreneurship U. of Michigan - "one of the best schools that ever through me out" Important learning in the military: he was good at "pattern recognition" Picking out the signal in the noise After the military, and dropping out of college for the second time, started working as a field service engineer Was sent to a place nobody at the company had heard of: San Jose Lots of ads for engineers - so he found a job Was fortunate to have a series of mentors in his 20s and 30s
02 What was different about the way startups were built then vs now? "Most of us used coffee to communicate" So learning was somewhat slow How to run a startup was based on what MBAs were taught In early 1900s, the country was desperate for people to run corporations The MBA taught strategies and tactics to execute and administer large companies Investor's had MBAs. The assumption was: a startup is a smaller version of a large company Large companies write business plans Large companies hire sales, marketing and biz dev Large companies do big product introductions and if they screw up it's their fault, because the process works for big companies What we now know is... that was completely wrong No business plan survive first contact with customers 5 year income statements make all the sense in the world for big corporations - They have a lot of knowns Startups a dealing with series of unknowns Yet investors say - write a five year business plan "You're dealing with a series of unknowns, and yet your investors, in the past, have told you write a five year plan on a series of unknowns. And it turns out in the history of the world, only 2 groups have insisted to do that, for five year plans - one was the Soviet Union and other are Venture Capitalists. Snd we know how well that's worked out for both of those groups."
03 The epiphany - and how it evolved - the beginning of the Lean Startup "All you who are founders who think all you're doing is executing a plan, you might was well throw your money in the street, because you're not." That was the epiphany - that startups were not smaller versions of large companies. Large companies execute, but startups search for a business model. We had no tools for search At UC Berkley - created a course: Customer Development Eric Ries took the course - as a condition for Steve investing in his startup Eric's insight: couple customer development with agile development Old approach: Waterfall engineering - assumes you know everything at the beginning In startups - waste of time Agile idea: build products incrementally. Assume it is a learning process Steve was invited to teach at Stanford engineering school - created the Lean Launchpad course NSF now uses Lean Launchpad for all of their innovations
04 Can you teach entrepreneurship? Wrong question. Yes you can teach it. But.. you can only teach it to the passionate. Startups are not run by accountants Founders of startups are closer to artists than anything else You want to create something something other people don't see "It's a calling to crazy people." "It's not a job choice it's a mental illness. Like an artist.
05 Steve's Taxonomy: The 6 different types of entrepreneurs and startups 1. Lifestyle entrepreneur or startup 2. Small business entrepreneur-goal was to feed family, stay small Impedance mismatch with risk capital 3. Silicon Valley scalable startups. Risk startup - crazy people 4. A subset of (3) is: Buyable startups- capital is deferred, smaller exits OK Web startups can be started for very little capital, maybe flipped for relatively small amount, and still create attractive ROI. Will need capital eventually to scale 5. Social entrepreneur 6. Corporate entrepreneur It's important for an entrepreneur to know what type they want to be.
06 Lean startup principles 1. Customer Development 2. Combined with Agile Engineering 3. and Business Model Design (the book Business Model Generation ) In the search for a business model - "there are no facts inside your building, so get the hell outside" All you have on day 1 is a series of untested hypotheses; There's no way to get all the features correct "You actually believe, if you're a founder you're actually running a faith-based enterprise. That's some religious organization, because you believe!" The challenge: go out and talk to 10 people. Use the business model canvas to capture the assumptions. Use the customer development process to test those assumptions. While developing the product with agile engineering. The big difference: if things don't work, fire the plan instead of the people - PIVOT "I use the word "Hypotheses" because my students at Stanford pay $50,000 a year for big words. But outside of Stanford hypotheses are just called guesses." At NSF - they proved that this new process can work for 50 year-olds, not just 20 year olds. What if we changed the presentation at angel conferences?
07 Does lean startup apply to small business and larger companies? It's what great small biz owners that survive figure out Who is my customer? What will they buy and why? We apply for an SBA loan the same way we did in the 1950s - and we know there is a better way Because we now know how/why small businesses fail "Those 5 year plans for startups they still should be taught in universities for startups, but in the English department because they are the best example of creative writing." I tell my students "There's a secret Excel key code " Large corporations are being disrupted continuously by changes in globalization, China Inc., etc. In 2013, Steve wrote an HBR article on how the lean startups now is affecting big corporations Virtual all big corps now have a position with new title: VP of Innovation Every one of them are trying to figure out How to continuously innovate, while at the same time keeping the current business running There was an equally big change in the 20th century: Divisionalization
08 The Bend Entrepreneur Ecosystem Very impressed with what Bend has done - one of the most impressive small-city entrepreneur ecosystem Need to ask: What do we want to be? Southparkstory: "underwear nome" story Step 1: steal underwear Step 3: make profit but what is step 2??? (they didn't know) For the entrepreneur ecosystem: Step 1 Innovation; Step 3 Jobs Bend is innovating on "step 2" First question: What do you want? Jobs or magnet? Silicon Valley is a magnet Second question, for Investors: what kind of risks do you want to take, and what do you want? At least one pitch today (at the Bend Venture Conference) was a medical device. Maybe consciously attract those kinds of companies? Pitch Bay area companies: Lifestyle advantages Free rent for a while? In other words, engineer the cluster instead of letting it happen organically Do experiments - not a lot of money 4 year university program makes it even better Can you find 100 entrepreneurs to suck out of Silicon Valley? Or Seattle? Do cheap experiments (like a startup ) The experiment is already showing signs of success. How should Bend measure success? Building an ecosystem takes a decade or two. Experiment with metrics. What makes sense? How many new startups? How many funded? Avoid meaningless vanity measures: "how much money did we give away"? What do YOU think are interesting/worthwhile metrics?
09 Advice to angels Don't fund a startup without asking what they have learned Everybody can give a product pitch "The current state of accelerators is that the whole goal is the one and a half to 8 minute pitch, depending on the accelerator And what I just basically said is I've trained you how to do great slides, a loud voice, and a hell of a demo. But you didn't tell me the other things that as an investor I now know are critical for success." The Stealth startup: "that's a going out of business strategy" We're smarter now about what we should be asking. Entrepreneurs are coin operated. Tell them what you need to know, and they will tell you! "Tell me about testing your hypotheses" Famous quote from the movie Patent: "Most American soldiers think the best thing they can do is die for their country. And he said BS - the best thing you can do is make the other guy die for his country". Angel to entrepreneur: "No, I don't want you to spend my money to find out that you were wrong later. I want you to spend your money to find out if you're right now."
10 How we've raised the bar for entrepreneurship The way it used to be: Launch the product Big celebration Next board meeting, VP sales says: great pipeline Translation: we're not on plan Eventually: fire the VP of Sales "The stench of death is in the room." New VP of Sales: pivots You could have done that a year and a half earlier. Fire the plan before you fire the executives (before you even hire them)
11 Question on Social Entrepreneurship For profits that want to do social good, but want to be profitable - know how to help them. Non-profits: don't know how to do metrics on those
12 Scientists/Engineers- you can train Introverts to emulate empathy Introverts can learn how to run emulation mode to show empathy make eye contact, etc. Steve had to learn this himself... Early on - do not outsource selling - it's the most important part of your company
13 Question: Is there are coming-wave of practical Clean Tech in the US? First wave of clean tech was past (too big for) venture level 3rd type of financing might be possible
14 Steve Blank's free resources Check out http://www.steveblank.com - Free Startup tools - Free Slides and videos