American Entrepreneur Radio Interview

I was lucky enough to get interviewed by Ron Morris of American Entrepreneur Radio.

Ron Morris has a great “radio voice,” and actually seemed to understand what the heck I was talking about.  It made for a fun interview.

Click here to listen to the interview: Steve Blank American Entrepreneur Radio interview

The following week Ron Morris interviewed Regis McKenna, who for decades was the “gold standard” for high tech Public Relations in Silicon Valley. Click here to listen to the Regis interview.

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The National Science Foundation Innovation Corps – Class 2: The Business Model Canvas

The Lean LaunchPad class for the National Science Foundation Innovation Corps is a new model of teaching startup entrepreneurship. This post is part two. Part one is here. Syllabus here.

The 21 NSF teams had been out of the classroom for just 15 hours as they filed back in with their business model canvas presentations.  Their assignment appeared (to them) to be deceptively simple:

  • Write down their initial hypotheses for the 9 components of their company’s business model (who are the customers? what’s the product? what distribution channel? etc.)
  • Come up with ways to test each of the 9 business model canvas hypotheses
    • Decide what constitutes a pass/fail signal for the test. At what point would you say that your hypotheses wasn’t even close to correct?
  • Consider if their business worth pursuing? (Give us an estimate of market size)
  • Start their team’s blog/wiki/journal to record their progress during for the class 

Teaching logistics
Each week every team presented a 5-minute summary of what they had done and what they learned that week. As each team presented, the teaching team would ask questions and give suggestions (at times direct, blunt and pointed) for things the students missed or might want to consider next week.

While the last sentence is short, it’s one of the key elements that made the class effective. Between the three of us on the teaching team there was 75 years of entrepreneurial experience. (The 2 VC’s between them probably have seen 1000’s of presentations.) While there’s no guarantee our comments were correct or we had any unique insight, we did have enough data for pattern recognition.

The instructors sat in the back of the room and used a shared Google spreadsheet for grading. We graded the teams on a scale of 1-10 and each of us left detailed comments the other teaching team members could share and comment on. Week after week it gave us a pretty detailed record of the progress and trajectory of each team.

(As great as the presentations may be, sitting through 21 of them in a row were exhausting. After this first cohort, the NSF will be putting 25 teams at a time in a class. We intend to break the group into three parallel presentation sections.)

All teams kept a blog – almost like a diary – to record everything they did outside the building. This let the teaching team keep tabs on their progress and offer advice in-between class sessions.

Getting the teams to blog required constant “encouragement,” but it was invaluable. First, as we had a window into each teams engagement with customers, it eliminated most of the surprises when they came into class to present. Second, the blog helped us see if they were gaining insight from their customer discovery. Insight is what enables entrepreneurs to iterate and pivot their business model. The goal wasn’t just to talk to lots of people – the goal was to learn from them. Finally, their blogs gave us and them a permanent record of who they talked to. Over time this contextual contact list will be turned into a shared contact database for all future NSF teams.

The 21 Teams Present
The first team up was Arka Lighting. We liked these guys, but for a while no one on the teaching team could figure out what their core technology was. We knew they wanted to make LED lights that had better performance because they would dissipate less heat.  Finally when we understood that their core technology was heat pipes, it wasn’t clear why that made them a better LED supplier.  Were they selling to end users? OEMs? Manufacturers? We suggested that perhaps they had jumped to too many assumptions.

If you can’t see the slide deck above, click here

Next up was SenSeveresolid-state hydrogen and hydrocarbon sensors for use in severe environments.  They were going to start with the $81M Chlorine market where they already had a partner. It seemed like a tiny business. Did they just want to become a licenser of technology? Were their other severe environments that their sensors fit into? Did customers just want the sensors or a more complete sensing solution?

If you can’t see the slide deck above, click here

Graphene Frontiers was next. Graphene is incredibly cool. It’s touted as the new “wonder material” and its inventors won the 2010 Nobel Prize in Physics. The team wanted to make wafer-scale Graphene films. And do it at ambient pressure. But their proposed products seemed like research lab selling other research labs low volume products. It seemed liked technology in search of a business. Reading the Graphene Frontiers blog for the first week, we realized that in a burst of enthusiasm they set up a Google AdWords campaign to drive traffic to their site!

If you can’t see the slide deck above, click here

Ground Flour Pharma was going to take Fluorine-18 and make a new generation of fluorodeoxyglucose (FDG) radiotracers for Positron emission tomography scanners. But it wasn’t clear who benefits enough to make this a business. If they need FDA trials is it worth the money needed for approval? Is this just a technology license or is it a company?

If you can’t see the slide deck above, click here

C6 Systems had a great set of photos with things on fire in the woods. It seemed like they were going to burn downed trees to do what? Make charcoal? It looked like fun but is this a hobby or a scalable business? Is their any patentable Intellectual Property? What was their Value Chain? Their blog showed a good head-start on talking to customers.

If you can’t see the slide deck above, click here

Photocatalyst made nanogrids that became miniaturized self-supported mats, similar to fishing nets, that float on water and rapidly decompose crude oil using sunlight. The result is that pollutants are turned into water, carbon dioxide and other biodegradable organics for environmental remediation. Their slides sounded like a technical presentation of nanocatalyst features but their blog showed that they had been actively talking to customers in the last two days.

If you can’t see the slide deck above, click here

After the teams presented it was the turn of the teaching team.  We presented our second lecture, this time on “Value Proposition.”

If you can’t see the slide deck above, click here

For tomorrow, the teams had 15-hours to get out of the building and talk to 10-15 customers and test their Value Proposition.

While most of the teams got on the phone or into their cars, a couple of others complained, “You didn’t tell us we were supposed to use our spare time to talk to customers. We thought this was just spare time.”

At first, I thought they were joking. Spare time? I don’t think you understand the key principle in a startup – there is no such thing as spare time. The clock is running and you’re burning cash.

Go!
Listen to the post here: Download the Podcast here

The Government Starts an Incubator: The National Science Foundation Innovation Corps

Over the last two months the U.S. government has been running one of the most audacious experiments in entrepreneurship since World War II.

They launched an incubator for the top scientists and engineers in the U.S.

This week we saw the results.

63 scientists and engineers in 21 teams made 2,000 customer calls in 8 weeks, turning laboratory ideas into formidable startups. 19 of the 21 teams are moving forward in commercializing their technology.

It was an extraordinary effort.

Your Country Needs You
In July I got a call from Errol Arkilic, a program manager at the National Science Foundation (NSF), the $6.8-billion U.S. government agency that supports research in all the non-medical fields of science and engineering.  “We’ve been reading your blog about your Lean Launchpad class.”  Wow, that’s nice, I thought, a call from a fan. No, the conversation was about to get more interesting.

“Our country needs you.” Say what? “Part of the NSF charter is to commercialize the best of the science and engineering research we fund. We want to make a bet that your Lean Launchpad class can apply the scientific method to market-opportunity identification. We think your class can train scientists to start companies better than how we’re doing it now.”  Uh oh, where’s this heading?  “We want to select the best of our researchers, pay them $50,000 to take your class and see if we can change the outcome of their careers and their research.”

“That’s great, maybe I can set up a class for you next year,” I replied.  The answer shot back, “We want the class to start in 90 days,”

I remember thinking, “Wow, whoever’s on the other end of phone sounds just like an entrepreneur, they were asking for the impossible.”  Just as I was computing whether this was possible, he added, “And we want to bring 25 new teams every quarter.”

So of course, I said yes.

While they’ll never admit it, the National Science Foundation was starting an incubatorthe Innovation Corps – to take the most promising research projects in American university laboratories and turn them into startups.

The Innovation Corps – Using the Lean LaunchPad as an Incubator for Scientists and Engineers

The Innovation Corps Startup Team
These weren’t 22-year olds who wanted to build a social shopping web site. Each of the teams selected by the NSF had a Principal Investigator – a research scientist who was a University professor; an Entrepreneurial Lead – a graduate student working in the Investigator’s lab; and a mentor from their local area who had business and/or domain expertise. And they were hard at work at some real science.

The I-Corps Incubator Program
Unlike other incubators, our Lean LaunchPad Class had a specific curriculum. We taught them the business model / customer development / agile development solution stack. This methodology forces rapid hypothesis testing and Customer Development by getting out of the building while building the product. (The mentors in our program are there to support the methodology, but aren’t there to tell stories.)

The gamble was that we could train Professors doing hard-core science, who had never been near a startup or Silicon Valley, to get out of the building and talk to customers and Pivot as easily as someone at a web startup.

The Scientists, the NSF and the teaching team were all going to go where no one had before.

Given that Silicon Valley had started with scientists and engineers not MBA’s, I thought this was a bet worth making.

The Curriculum
Since the teams were in Universities scattered across the U.S., we couldn’t keep them in Silicon Valley for all 8 weeks, so we tried an experiment in teaching remotely.

First, we brought all 21 teams to Stanford for 3-days of 10 hour-a-day classes in business model design and customer development. After returning to their schools, they got out of their labs while they built their products. Once a week, via Webex,they presented their Customer Development progress on line to the teaching team and the other teams. Then it was our turn, and we lectured all the teams remotely. After 7 weeks they returned to Silicon Valley for their final presentations.

(The class syllabus is here. The class textbooks were “The Four Steps to the Epiphany and Business Model Generation.”)

Assembling the Teaching Team
We recruited two veteran Venture Capital partners to be part of the 10-week teaching team: Jon Feiber, at Mohr Davidow and John Burke of True Ventures. Alexander Osterwalder joined us for the opening day, and Oren Jacob, ex-CTO of Pixar joined us for a finale.

The First Class
As the first class settled into their seats at Stanford I wondered if we were going to be able to get them to act like startups. Most of the Principal Investigators were professors. Some had their own labs managing large groups of researchers. Their average age was in the mid-40’s. Their mentors were at least that old. Only the Entrepreneurial Leads (the PI’s assistants) were in their mid to late 20’s.

Looking at them  I wondered if: 1) hard-core science and engineering projects could rapidly pivot, 2) if the Principal Investigators would simply “assign” the work to their graduate students. I thought about the common wisdom that only 20-year olds doing Internet startups could be agile. Some incubators would have labeled this group too old to be entrepreneurs. I smiled as I realized that I was older than most (but not all) of them.

The Stanford Lectures
Our first lecture was about 1) how to organize their thinking of what it takes to build a startup – the business model canvas and 2) how to test their hypotheses – the Customer Development Process.

Since the first part of the lecture was about Alexander Osterwalder’s Business Model Canvas, Osterwalder flew in from Switzerland to teach slides 20-76. And since the rest of the slides were about Customer Development, I taught those.

If you can’t see the slide deck above, click here.

The homework for the 21 teams in the next 24-hours? Come up with a business model canvas for their startup. And tell us how they will test each of their business model hypotheses.

As day one ended, I wondered what those canvases would look like.

Stay tuned for Part 2.
Listen to the post here: Download the Podcast here

The Startup Team

Individuals play the game, but teams beat the odds
SEAL Team saying

Over the last 40 years Technology investors have learned that the success of startups are not just about the technology but “it’s about the team.”

We spent a year screwing it up in our Lean LaunchPad classes until we figured out it was about having the right team.

Startup Team Lessons Learned
During the last 12 months we’ve taught 42 entrepreneurial teams with 147 students at Stanford, Berkeley, Columbia and the National Science Foundation. (As many teams as most startup incubators.)

Get into the Class
When I first started teaching hands-on, project/team entrepreneurship classes we’d take anyone who would apply. After awhile it became clear that by not providing an interview process we were doing these students a disservice. A good number of them just wanted an overview of what a startup was like – an entrepreneurial appreciation class (and we offer some great ones.) But some of our students hadn’t yet developed a passion for entrepreneurship and had no burning idea that they wanted to bring to market. Yet in class they’d be thrown into a “made-up in the first week” startup team and got dragged along as a spear-carrier for someone else’s vision.

Step One – Set a Bar
So as a first step we made students formally apply and  interview for the Lean LaunchPad class. We were looking for entrepreneurs who had great ideas and interest in making those ideas really happen. We’d hold mixers before the first class and the students would form their teams during week one of the class.

But we found we were wasting a week or more as the teams formed and their ideas gelled.

Step Two – Apply As A Team
So next time we taught, we had the students apply to the class as a team. We hold information sessions a month or more before the classes. Here students with preformed teams could come and have an interview with the teaching team and get admitted. Or those looking to find other students to join their team could mix and market their ideas or join others and then interview for a spot. This process moved the team logistics out of class time and provided us with more time for teaching.

But we had been selecting teams for admission on the basis of whether they had the best ideas. We should have known better.  In the classroom, as in startups, the best ideas in the hands of a B team is worse than a B idea in the hands of a world class team.

Here’s why.

Step Three – Hacker/Hardware, Hustler, Designer, Visionary
As we taught our Lean LaunchPad classes we painfully relearned the lesson that team composition matters as much or more than the product idea. And that teams matter as much in entrepreneurial classes as they do in startups.

In a perfect world you build your vision and your customers would run to buy your first product exactly as you spec’d and built it. We now know that this ‘build it and they will come” is a prayer rather than a business strategy.  In reality, a startup is a temporary organization designed to search for a repeatable and scalable business model. This means the brilliant idea you started with will change as you iterate and pivot your business model until you find product/market fit.

The above paragraph is worth reading a few times.

It basically says that a startup team needs to be capable of making sudden and rapid shifts – because it will be wrong a lot. Startups are inherently chaos. Conditions on the ground will change so rapidly that the original well-thought-out business plan becomes irrelevant.

And finding product/market fit in that chaos requires a team with a combination of skills.

What skills? Well it depends on the industry you’re in, but generally great technology skills (hacking/hardware/science) great hustling skills (to search for the business model, customers and market,) great user facing design (if you’re a web/mobile app,) and by having long term vision and product sense. Most people are good at one or maybe two of these, but it’s extremely rare to find someone who can wear all the hats.

It’s this combination of skills is why most startups are founded by a team, not just one person.

University Silos
While building these teams are hard in the real world, imagine how hard it is in a university with classes organized as silos. Business School classes were only open to business school students, Engineering School classes were only open to engineering school students, etc. No classes could be cross-listed. This meant that you couldn’t offer students an accurate simulation of what a startup team would look like. (In our business school classes we had students with great ideas but lacking the technical skills to implement it. And some of our engineering teams could have benefited from a role-model to follow as a hustler.)

So the next time we taught, we managed to ensure that the class was cross-listed and that the student teams had to have a mix of both business and engineering backgrounds.

I think we’ve finally got the team composition right – relearning all the lessons investors already knew.

But now on to the next goal – getting our mentor program correct.

Lessons Learned

  • Finding product/market fit in startup chaos requires a team with a combination of skills
  • Hacker/Hardware, Hustler, Designer, Visionary
  • At times an A+ market (huge demand, unmet need) may trump all
  • Getting the Mentors right is the next step

Listen to the post here: Download the Podcast here

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