Teaching Customer Development and the Lean Startup – Topological Homeomorphism

I’ve been teaching Customer Development at U.C. Berkeley’s Haas Business School since the fall of 2004 and in a joint MBA with Columbia since 2005. This Tuesday I finished the lectures for this semester and my students are now working hard on their final project.

A lot has happened since I first authored and taught the class.

Four Steps
Back in 2004, Jerry Engel the head of the Entreprenuership program at Haas Business School at U.C. Berkeley was brave enough to let me write and teach a class on a subject that no one had ever heard of – Customer Development. The previous two years at Haas I had guest taught and then co-taught an entreprenuership course, but this would be my first time going it alone.

The rubble was still bouncing from the dot-com collapse and my goal was to teach students that there might be another way to think about how to build a startup. Customer Development was a process to quickly search for a profitable business model when customer needs (features, pricing, channel, etc.) are unknown. My intent at the time (as it is now) was not to offer Customer Development as the way but another way.

The class essentially followed the text I wrote, The Four Steps to the Epiphany. The class met once a week for three hours. The syllabus was what you would expect; the first week of class was an introduction, and then subsequent weeks covered Market Type, Product versus Customer Development, and then two weeks on each of the four steps.

There Are No Cases
Since this was Business School part of the teaching was with the case-method (students read a story, “the case,” about a real-world business problem. The cases are designed to have insufficient or confusing information and usually end with a dilemma. Students have to analyze the case, discuss it in the class and propose possible solutions.) This is a lot more fun then just hearing me drone on for three hours.

The problem was that Harvard Business School who writes most of the cases used in Business Schools worldwide, had never heard of Customer Development. (Tom Eisenmann at HBS is now fixing that.) But at the time this meant that there were no cases written for any of the four steps in Customer Development. So I read through the HBS web site and picked 10 cases that were such egregious failures they unintentionally illustrated why a lack of Customer Discovery or Validation could sink a company.  A few cases, like Motive, IMVU (written by Stanford,) Documentum and Priceline were examples of companies done right. Each semester I rotated through the cases and taught 6 or 7 of them.

Is Mike Maples An Idiot?
To supplement the lectures and cases I brought in a series of guests that could help illustrate some of the points I was making in each of the four steps of Customer Development. My favorite case was about a company called Motive. In it the VP of Business Development is in Customer Validation and faced with the dilemma of whether he should give away his product in beta test or charge for it. The case says he decides to charge $50,000 for his beta software and is now worrying whether anyone will buy it. After discussing the case and its relevance to Customer Validation I’d ask the class, “How many of you think that Mike Maples the VP of Business Development of Motive is a genius?”  I get a show of hands “Tell me why you think he’s so smart?” I’d ask. “How many of you think he’s an idiot?” Another show of hands. (The class usually split 50/50.) “If you think he’s an idiot what would you tell him?” I innocently asked. The responses usually got explicit and colorful.

I then point to the back of the room and announce, “Mike, why don’t you come up here and tell us why you weren’t an idiot.” Mike Maples, the subject of the case, had been sitting in the back of the classroom. (Mike is now a partner in the super-angel firm Floodgate.) The class would roar. No matter how many years Mike and I did this it still surprised every class.

Exercises and Assignments
After each of the four steps students had a one-page assignment – they needed to get out of the building and analyze a company to see whether it had engaged in that step of Customer Development. How did it affect their success or failure? What were some of the key things they learned/should have learned?

For the final project, students formed 5-person teams, got out of the building and analyzed a company’s progress through all four steps of Customer Development.

It’s Getting Stale
While the Customer Development class was cutting edge theory in 2004, by 2009 the class was getting stale. Ironically it was because one of my students, Eric Ries who solved the problem of how engineering would actually build products in companies with a Customer Development process.

Customer Development was a way to quickly search outside the building for a profitable business model when customer needs are unknown. Eric observed that an Agile Development model was the right match for engineering to build a product when the initial feature set was unknown. The sum of solving for both unknown customer needs and unknown features became the Lean Startup.

Topological Homeomorphism
This year I decided the Customer Development class needed to morph into the Lean Startup class. We needed to teach both Customer Development and Agile methodologies. I drafted Eric to help teach the class and we began to transform the curriculum.

Guests Who’ve Done It
Six years ago when students would ask, “So Professor Blank which companies are actually doing Customer Development?” The best I could do was wave my hands and say it’s a good academic theory and some day lots of startups will be doing it. Fast forward to this year and Eric brought in a stream of companies doing all or part of Customer and Agile Development.

We had so many guests this semester that most of the cases I normally teach got preempted by these real-world examples.

What’s Next
This was a transition year for the curriculum. The guests were great but they were all web 2.0 examples. I need some enterprise software and hardware company cases. The lecture material is still heavily Customer Development. I’m going to have to work hard and extract the specifics of how engineering does continuous learning and deployment and teach it in sync with each step of Customer Development. The Pivot’s are the core of the iterative nature of Customer and Agile Development and we need more lecture, case and guest examples.

I love this stuff.

Lessons Learned

  • “Innovate or Die” is as applicable for teaching entrepreneurship as it is implementing entrepreneurship
  • Never look back unless you’re planning to go that way.

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20 Responses

  1. Hi Steve

    I agree. After market-fit and product development phase have been completed then it’s time to build customer base.

    What do you think, is timing a critical and being at the front of an emerging trend and expanding market.

    Technology wise a smart company should keep this in mind and reverse engineer their software to reflect emerging technological trends i.e. smart mobile technology – an enormous emerging consumer market for almost anything. What do you think?

  2. Great to learn about how this whole thing started, I’d love to hear more. Quite amazing how successful it’s become, it must be very gratifying. I am eagerly awaiting the next evolution of your work (will there be a “Lean Startup” book?).

  3. It sounds like Mike Maples is an idiot (charge $50k for beta software?) but it’s not clear from your post.

    • Mike closed 5 _paying_ Beta customers:
      Netscape, Disney, CompuCom, JD Edwards and Microsoft

      All 5 Beta customers participated in the product launch and on launch Remedy, Vantive, Scpous, Tivoli, Software Artistry announced partnerships with Motive.

      $60M in sales bookings over next 18 months

  4. This is a fantastic evolution of the course. It makes me want to take it again in it’s current form.

    I loved the Motive case and the class discussion!

  5. Awesome!

    Have tried a similar approach… and the reading got me thinking…

    “•Never look back unless you’re planning to go that way.”, do you know me?

    Thank you.

  6. Hi Steve,

    I’m a co-founder of Owlstone Nanotech Inc (www.owlstonenanotech.com) a Cambridge University spin out, developing chemical sensors. I saw in the ‘What’s Next’ section involvement with hardware companies. There is a group of us in the company that have been following your and Eric’s methodologies closely and have been thinking about applicability to capital intensive hardware businesses. If of interest we could chat further?

  7. ” I need some enterprise software and hardware company cases.”

    Scale Computing http://www.scalecomputing.com would be a great non-web 2.0 case study. Their founders turned me on to 4 Steps to the Epiphany 2 years ago. From talking with customers, they took a supercomputer built for investing and pivoted into a data storage company. Great story and great team (http://www.nytimes.com/2009/09/10/business/smallbusiness/10hunt.html?_r=4)

  8. Lessons Learned #3: Overnight successes are five years in the making.

  9. I’m learning so much. Here in North Jersey the state college is teaching an outdated curriculum of entrepreneurship, i.e., write a business plan, get a second mortgage on the home to pay for patent, get venture funds from the local real estate development company that has a partnership with the university. Forget that!

    Your work is greatly appreciated. I now understand how to pursue my goals with minimal risk. Thank you so much.

  10. If you’re referring to graph theory, I think you mean “homomorphism”.

    BTW, I like your stuff but I can’t see the difference between your approach and what used to be the typical market research approach. I’ve used the tactic of testing my initial idea by taking a survey/interviewing my potential customers to see what kind of product they’d like. Then I’d build a prototype, give them a demo, solicit feedback, etc. Isn’t that what they teach in business school (never been myself, engineer)?

    It seems to me that this sort of tried-and-true practice went out the window in the dotcom era but otherwise isn’t revolutionary. Or am I missing something?

    Thanks,
    Nate

  11. After reading the definitions again, I think your use is closest to “homeomorphism”. Forget the first part of my comment.

  12. Hi Steve,

    In the process of my 1st startup, and just starting out my career with it, I found out about Customer Development. I blindly began to follow the product development model and it just never felt right. I would look at the business plan and noticed all the assumptions and it scared me to death! No wonder >90% of startups fail!

    I read about Customer Development and it just sang wonderfully to me (for lack of a better description). As I am studying Customer Discovery over and over again, in my situation, I not only do not know who my customer is, but I have different groups/demographics to chose from. I am doing something in the education industry, so I can focus on universities, students, professors, home schooling parents, tutors, even academic researchers, because this group is always leaning, or a combination of all. My product concept is meant to address the learning experience. So, how would you suggest I go about narrowing down the choices? Do I make a separate hypothesis sheet for each demographic? I tried combining all in one, but it’s kind of messy, confusing, and overwhelming. Perhaps your book covers this but I missed it?

    Love to hear your feedback!

    Thanks,
    Ashu

  13. Steve , great to find you, from a post on Linkedin talking about your Westin-SFO Conference ( power of Web!) I think I ‘ll ask you for a meeting during my 6th Silicon Valley study tour ( August 23rd, September 3rd, 2010….interested to import your methodology!
    best rgds Paolo

  14. Hi Steve,

    I found You when I was looking for more details about “Lean Startup”. I am also interested in import your methodology; I’m a business consultant and a entrepreneur in Brazil. I think there are opportunities here, as entrepreneur, as consultant and also to teach “Customer Development”. Do You think that we can have a joint approach to our national (and even South America) market ? Best Regards

  15. […] just meant a startup without a lot of outside capital. According to thought leaders Eric Ries and Steve Blank, a lean startup is one developed along a build-test-revise-build-more-test-more strategy. It’s […]

  16. […] Digg, Twitter, Chegg, Spiceworks and a dozen others. Lately, Maples seems to be everywhere. From lean startup lectures at Cal to 4 Hour Work Week by Timothy Ferriss and here he is again below. Thanks […]

  17. […] just meant a startup without a lot of outside capital. According to thought leaders Eric Ries and Steve Blank, a lean startup is one developed along a build-test-revise-build-more-test-more […]

  18. Hi Steve,

    I am a entrepreneur and PhD student from Brazil. We gonna do a Startup challenge in my University (Unicamp). It will be a business model competition with our patents. The students will have to get a patent and development a product with this tecnology. We gonna use your methodology as a guide for it and Business Model Canvas as the strategic map. May I share your videos in our website and twitter.

    Tks a lot,

    Best Regards,

    Virgilio

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