We’ve taught our Lean LaunchPad entrepreneurship class at Stanford, Berkeley, Columbia and the National Science Foundation in 8 week, 10 week and 12 week versions. We decided to find out what was the Minimum Viable Product for our Lean LaunchPad class.
Could students get value out of a 5-day version of the class?
63 scientists and engineers in 21 teams made ~2,000 customer calls in 10 weeks, turning laboratory ideas into formidable startups. 19 of the 21 teams are moving forward in commercializing their technology.
Watching the final presentations it was clear that the results were way past our initial expectations (comments from mentors as well as pre- and post-class survey data suggested that most of the teams learned more in two months than others had in two years.) So much so that the NSF decided to scale the Innovation Corps program.
In 2012 the NSF will put 150 teams of the best scientists in the U.S. through the Lean Launchpad class. And to help teach these many teams, the NSF will recruit other universities that have engineering entrepreneurship programs to become part of the Innovation Corps network.
Congress Gets It
In-between the 2011 pilot class and the first NSF class of 2012, I got a call from Congressman Dan Lipinski. He sits on the House committee that oversees the NSF - the Science, Space and Technology committee (a place where his engineering degree and PhD comes in handy.) He had read my blog posts about the NSF Innovation Corps and was interested in how the first class went. He wanted to fly out to Stanford and sit in the Lean LaunchPad class about to start in the engineering school.
While I’ve had visitors in my classes before, having a congressman was a first. He showed up with no press in-tow, no entourage, just a genuine search for understanding of whether this program was a waste of taxpayer money or good for the country.
He asked tough questions about why the government not private capital should be doing this. I explained that the goal of the Innovation Corps was to bridge what the NSF calls the “ditch of death” – the gap between when NSF research funding runs out and when a team is credible enough (with enough customer and market knowledge) to raise private capital or license/partner with existing companies. The goal was not to replace private capital but to help attract it. The amount of money spent on the Innovation Corps would be about 1/4 of one percent of the $7.373 billion NSF budget, but it would leverage the tens of billions basic research dollars already invested. It’s payoff would be disproportionately large for the country. It’s one of the best investments this country can make for keeping the U.S. competitive and creating jobs.
After class the Congressman joined the teaching team at our favorite pizza place for our weekly post-class debrief.
If you like science, technology or entrepreneurship, this guy is the real deal. He gets it.
“Innovation, jobs and entrepreneurship” have become popular buzzwords in an election year. But it was pretty amazing to see a congressman jump on a plane to actually find out if he can help the country do so. He issued this press release asking Congress to fully fund the Innovation Corps when he came back to Washington.
The National Science Foundation Innovation Corps combines the best of what the U.S. government, American researchers in academia and risk capital can do together. If we’re correct, we can compress the time for commercializing scientific breakthroughs and reduce the early stage risks of these new ventures. This means more jobs, new industries and a permanent edge for innovation in the United States.
The 3-person teams consisted of Principal Investigators (PI’s), mostly tenured professors (average age of 45,) whose NSF research the project was based on. The PI’s in turn selected one of their graduate students (average age of 30,) as the entrepreneurial lead. The PI and Entrepreneurial Lead were supported by a mentor (average age of 50,) with industry/startup experience.
This was most definitely not the hoodie and flip-flop crowd.
Part one of the posts on the NSF Innovation Corps is here, part two here. Syllabus for the class is here. Textbook is here.
Here are some of the final Lessons Learned presentations and team videos:
Akara Solutions: Flexible, Low Cost Cooling Technology for LED Lighting
Principal Investigator: Satish Kandlikar Rochester Institute of Technology
Today, the second half of the Stanford Engineering Lean LaunchPad Class gave their final presentations. Here are the final four (the first five are here.)
Team ParkPoint Capital This team spoke face-to-face with 326 customers. As often happens, this team came into class convinced that their market research proved that their business was providing credit to underbanked customers. 8 weeks later they ended up as a financial service provider for immigrants. Lots of learning and pivots on the way.
If you can’t see the slide presentation above, click here.
The ParkPoint Capital customer discovery narrative blog is here.
We thought the team summarized their lessons learned well:
Team DentalOptics Team DentalOptics spoke face-to-face with 72 customers. Their journey was from a lighting solution for dentists to an automated way to test for periodontal disease. How they got to their destination was truly amazing.
If you can’t see the slide presentation above, click here.
The DentalOptics customer discovery narrative blog is here.
Team MiCasa They spoke to 105 customers and surveyed 98 more.
You can watch as this team pivots through Customer Segments by clicking through their business model canvases at the end of presentation. It is the first film-strip of entrepreneurship in action.
If you can’t see the slide presentation above, click here.
The MiCasa customer discovery narrative blog is here
Team ZiiLion Interviewed 154 customers in China plus surveyed another 48.
This team was trying to do something extremely difficult. Create an app for Renren (a Chinese version of Facebook) for event planning. And do it while in school in the U.S. Lots of learning and Pivots here.
If you can’t see the slide presentation above, click here.
The Ziilion customer discovery narrative blog is here.
Congratulations to all the teams. They taught us a lot.
Stanford e245 2012 class photo
Next week the Lean LaunchPad class will be taught to 25 teams for the National Science Foundation Innovation Corps. And later in the week we’ll be sharing what we learned with other entrepreneurial educators it at the NCIIA conference. Then in April we’ll be teaching Corporate Entrepreneurship at Columbia University.
Class is a mix of engineering students and MBA’s
Students apply as preformed teams
Application to the class is the teams business model canvas
Curriculum = business model canvas + customer development
Minimal lecture, maximum experiential immersion
Relentless customer visits (10-20 a week)
On-line journal to document their customer discovery narrative
One mentor (VC or experienced entrepreneur) per team
Mandatory office hours
Weekly in-class presentations for all teams
Weekly critiques of team customer discovery progress
Workshop on how to present a story-arc and narrative
Later this month, the next 25 National Science Foundation Innovation Corps teams will show up – but this time with reinforcements. The NSF has selected the best entrepreneurship teaching teams from two major universities and they will be joining the class. The goal is for them is to observe this class, then host and teach the next round of 50 NSF Innovation Corps scientist/engineer teams in July. The process will repeat itself, quarter by quarter – new students, new University entrepreneurship teaching teams.
We’ll teach over 175 NSF Innovation Corps teams in the Lean LaunchPad course in 2012. While at the same time spreading the Lean LaunchPad entrepreneurship curriculum to campuses across the United States.
The 2012 Stanford Lean LaunchPadPresentations The class is intensely and deliberately experiential to develop the mindset, reflexes, agility and resilience an entrepreneur needs to search for certainty in a chaotic world. Students were going to get a hands-on experience in how to start a new company. The premise of the class is that startups, are not about executing a plan where the product, customers, channel are known. Startups are in fact only temporary organizations, organized tosearch–not execute–for a scalable and repeatable business model.
Yet this isn’t an incubator. We trying to teach students a methodology that combines customer development, agile development, business models and pivots. (The slides and syllabus here describe the details of the class.) Our goal is to teach them the art, science and strategy of entrepreneurship that will forever change how they view early stage ventures.
And do it in 8 weeks.
Team EngineKites A kite-boarding startup? Only in California! This team spoke face-to-face with 50+ end users, 3 manufacturers, 25 potential partners, 22 domain experts and surveyed an additional 115 customers. And they got to the beach a lot. Don’t miss their video of the product below.
If you can’t see the slide presentation above, click here.
The EngineKites customer discovery narrative blog is here.
Team Sync Team Sync spoke face-to-face with 74 customers, 10 experts and surveyed another 103 customers.
If you can’t see the slide presentation above, click here.
The Sync customer discovery narrative blog is here.
Team Nudge/Dynamo This team won the award for the most pivots in the class. They had face-to-face interviews with 252 customers + 10 partner interviews + 76 surveyed.
Loved the “evolution” slide.
If you can’t see the slide presentation above, click here.
The Nudge/Dyanmo customer discovery narrative blog is here
These guys hold the record for the number of customers touched 4,000! 147 face-to-face or phone interviews.
If you can’t see the slide presentation above, click here.
The GameSpeed customer discovery narrative blog is here.
Team ColorWheels This team was trying to solve a hard problem – getting girls engaged in science and engineering. They spoke to 294 people: 69 parents, 110 kids, 6 high school girls 32 experts, 6 manufacturers, and surveyed an addtional 68 parents.
If you can’t see the presentation above, click here.
The ColorWheels customer discovery narrative blog is here.
We Got Smarter Too One of the great things about the class is that the curriculum is evolving as fast as the teams are learning. As a teaching team we’ve learned a ton of how to best select teams, so we now insist that they come in as preformed teams. We hold mixers a month or two in advance to help facilitate the process. It has made a dramatic difference in team efficiency and cohesion.
We have the students formally apply for the class by filling out a business model canvas. And at the first class they introduce themselves and their teams by presenting the canvas. This moved the learning up by one entire class session since we can now hit the ground running.
We realized that students needed help turning all that they were learning from customers into a coherent and crisp presentation. So we offered a special evening workshop on how to present a story-arc and narrative.
We’ve been experimenting in other ways – trying to figure out how to “bubble-up” some of the customer discovery data onto the canvas with red/yellow/green dots you see on some of the business model canvas slides. We suggested that teams talk about their hypothesis tests, draw diagrams of product flows through the channel and let us know who the customer segment is with a “customer archetype” slide.
Finally, we’ve been paring the lectures back to the absolute minimum to impart the information necessary for the teams to move forward, but leaving more time for us to provide feedback and critique of their weekly presentations. We’re actively considering running an experiment of making the lectures an on-line homework requirement (with on-line quizzes to make sure they view the material.)
Don’t Throw the Tomatoes I was in Washington D.C. last week presenting at the ARPA-E conference. I spent the next day working with the National Science Foundation on the Innovation Corps, and talking to congressional staffs about how entrepreneurial educational programs can reshape our economy. (And I even found time to go to the Spy Museum.)
One of the issues that came up is whether the new lexicon of entrepreneurial ideas – Customer Development, Business Model Design, Lean, Lean LaunchPad class, etc. – replace all the tools and classes that are currently being taught in entrepreneurship curriculums and business schools. I was a bit surprised since most of what I’ve been advocating is complementary to existing courses. However, I realize I’ve primarily written about business model design and customer development. Given that I’m speaking this month in front of entrepreneurship educators at the NCIIA conference, I thought I should put it in context before they throw tomatoes at me.
Search Versus Execution One of the things startups have lacked is a definition of who they were. For years we’ve treated startups like they are just smaller versions of a large company. However, we now know that a startup is a temporary organization designed to search for a repeatable and scalable business model. Within this definition, a startup can be a new venture or it can be a new division or business unit in an existing company.
If your business model is unknown – that is just a set of untested hypotheses- you are a startup searching for a repeatable business model. Once your business model (market, customers, features, channels, pricing, Get/Keep/Grow strategy, etc.) is known, you will be executing it. Search versus execution is what differentiates a new venture from an existing business unit.
The primary objective of a startup is to validate its business model hypotheses (and iterate and pivot until it does.) Then it moves into execution mode. It’s at this point the business needs an operating plan, financial forecasts and other well-understood management tools.
The processes used to organize and implement the search for the business model are Customer Developmentand Agile Development. A search for a business model can be in any new business – in a brand new startup new or in a new division of an existing company.
In search, you want a process designed to be dynamic, so you work with a rough business model description knowing it will change. The model changes because startups use customer development to run experiments to test the hypotheses that make up the model. And most of the time these experiments fail. Search embraces failure as a natural part of the startup process. Unlike existing companies that fire executives when they fail to match a plan, we keep the founders and changethe model.
Once a company has found a business model (it knows its market, customers, product/service, channel, pricing, etc.), the organization moves from search to execution.
The product execution process – managing the lifecycle of existing products and the launch of follow-on products – is the job of the product management and engineering organizations. It results in a linear process where you make a plan and refine it into detail. The more granularity you add to a plan, the better people can execute it: a Business Requirement document (BRD) leads to a Market Requirements Document (MRD) and then gets handed off to engineering as a Functional Specifications Document (FSD) implemented via Agile or Waterfall development.
Searching for a business model requires a different organization than the one used to execute a plan. Searching requires the company to be organized around a customer development team led by the founders.In contrast, execution, (which follows search) requires the company to be organized by function (product management, sales, marketing, business development, etc.)
Companies in execution suffer from a “fear of failure culture“, (quite understandable since they were hired to execute a known job spec.) Startups with Customer Development Teams have a “learning and discovery” culture for search. The fear of making a move before the last detail is nailed down is one of the biggest problems existing companies have when they need to learn how to search.
The idea of not having a functional organization until the organization has found a proven business model is one of the hardest things for new startups to grasp. There are no sales, marketing or business development departments when you are searching for a business model. If you’ve organized your startup with those departments, you are not really doing customer development. (It’s like trying to implement a startup using Waterfall engineering.)
Education Entrepreneurship curriculums are only a few decades old. First taught as electives and now part of core business school curriculums, the field is still struggling to escape from the bounds of the business plan-centric view that startups are “smaller versions of a large company.” VC’s who’ve watched as no startup business plan survived first contact with customers continue to insist that startups write business plans as the price of entry to venture funding. Even as many of the best VCs understand that the business ‘planning’ and not the ‘plan’ itself, are what is important.
The trouble is that over time – this key message has gotten lost. As business school professors, many of whom lack venture experience, studied how VCs made decisions, they observed the apparently central role of the business plan and proceeded to make the plan [not the planning], the central framework for teaching entrepreneurship. As new generations of VCs with MBA’s came into the business, they compounded the problem (“that’s how we always done it” or “that’s what I learned (or the senior partners learned) in business school.”)
Entrepreneurship educators have realized that plan-centric curriculum may get by for teaching incremental innovation but they’re not turning out students prepared for the realities of building new ventures. Educators are now beginning to build their own E-School curriculum with a new class of management tools built around “search and discovery.” Business Model Design, Product/Service Development, Customer Development, Startup Team-Building, Entrepreneurial Finance, Marketing, Founder Transition, etc. all provide the startup equivalent of the management tools MBAs learn for execution.
Entrepreneurial education is also changing the focus of the class experience from case method to hands-on experience. Invented at Harvard, the case method approach assumes that knowledge is gained when students actively participate in a discussion of a situation that may be faced by decision makers.
The search for a repeatable business model for a new product or service is not a predictable pattern. An entrepreneur must start with the belief that all her assumptions are simply hypotheses that will undoubtedly be challenged by what she learns from customers. Analyzing a case in the classroom removed from the realities of chaos and conflicting customer responses adds little to an entrepreneur’s knowledge. Cases can’t be replicated because the world of a startup too chaotic and complicated. The case method is the antithesis of how entrepreneurs build startups – it teaches pattern recognition tools for the wrong patterns – and therefore has limited value as an entrepreneurship teaching tool.
The replacement for cases are not better cases written for startups. Instead, it would be business model design – using the business model canvas as a way to 1) capture and visualize the evolution ofbusiness learning in a company, and 2) see what patterns match real world iterations and pivots. It is a tool that better matches the real-world search for the business model.
An entrepreneurial curriculum obviously will have some core classes based on theory, lecture and mentorship. There’s embarrassing little research on entrepreneurship education and outcomes, but we do know that students learn best when they can connect with the material in a hands-on way – personally making the mistakes and learning from them directly.
As much as possible the emphasis ought to be on experiential, learner-centric and inquiry-based classes that help to develop the mindset, reflexes, agility and resilience an entrepreneur needs to search for certainty in a chaotic world.
The search for the business model is the front end of the startup process
This is true in the smallest startup or largest company
The goal is to find a repeatable/scalable model, and then execute
Execution requires operating plans and financial forecasts
Customer and Agile Development are the processes to search and build the model
Product management is the process for executing the model
Entrepreneurial education needs to develop its own management stack
Starting with how to design and search for a business model
Adding all the other skills startups needs
The case-method is the antitheses of an entrepreneurial teaching method
The idea of a Business Model competition first emerged when I realized that Business Plan writing ought to be taught in English Departments – as they’re the best example of creative writing entrepreneurs will ever do.
The Business Plan - a roadmap for execution
When venture capital teamed up with technology entrepreneurs in the 1960’s they brought with them the canonical MBA planning tool – the business plan.
The business plan is a wonderful document for organizing and planning for existing companies to launch follow-on products. In an existing corporation, the business plan is the execution document for sustaining innovation.
The problem is that once a plan is written it’s static and assumes minimal new learning. This makes sense in a company where your customers, channel and competition are known. And your revenue plan is something more than a hallucination. But for startups, business plans fail to match the chaotic reality they encounter in the real world. Yet year after year, decade after decade, VC’s would watch as no startup business plan survived first contact with customers. So what did the venture industry do? They kept insisting startups write business plans as the price of entry to venture funding.
VC’s thought of startups as smaller versions of large companies. Large companies wrote business plans, so VC’s made startups write business plans. Large companies had VP’s of Sales and Marketing, so VC’s made startups organize that way as well. Large companies executed plans well and when they didn’t work, they fired the executives who screwed up. So VC’s assumed that startups should equally unfold per the plan – firing executives when reality intruded.
The reality is that startups needed a new class of management tools. Tools to help them manage the search for a repeatable and scalable business model. Startups needed tools to help them organize their hypotheses, and then needed a process to rapidly test those hypotheses. And they needed tools that recognized that most startups go from failure to failure as they searched for, and discovered, product/market fit. And that instead of firing executives to match a plan, it was the plan itself that needed to rapidly iterate.
Business Plan vs. Business Model + Customer Development
The term business model first appeared ~50 years ago, but the concept didn’t catch on until the 1990’s. It wasn’t until 2010 when Alexander Osterwalder published his book Business Model Generation that it became clear that this was the tool to organize startup hypotheses.
It wasn’t long before Alexander and I realized that organizing hypotheses with his canvas was just the first step in building a business. The next step was getting out of the building and testing the business model in a formal process – and that process is Customer Development.
Three years ago, after watching my nth business plan competition I realized this was simply wrong. Rather than having students invest months writing a 100-page tome and polishing slides that taught them almost nothing about what it was really like to build a company, I thought there had to be a better way.
I suggested that we hold competitions that actually emulated the real world (rather than what’s easy to grade) and hold competitions that emulate what entrepreneurs actually encounter – chaos, uncertainty and unknowns. A business modelcompetition would emulate the “out of the building” experience of real entrepreneurs executing the customer development / business model / agile development stack.
You can write a business plan slide deck in your dorm or library. But you can’t fake a business model/customer development presentation. It takes a ton of face-face customer interactions.
The International Business Model Competition
From the seed of this initial idea Professor Nathan Furr at BYU did the hard work and created a global business model competition, this year receiving over 100 submissions. The finals were held in the packed 1,000 seat BYU auditorium with lines of students outside unable to get in.
(I love walking around the BYU campus. It feels like being at a giant Eagle Scout convention.)
It was an eye-opener to see each of the teams take the stage to describe their journey in trying to validate each of the 9 parts of a business model, rather than the static theory of a business plan.
All of the Business Model finalists were pretty amazing. Each one of these presentations moved the teams closer to building a real company.
This years winner were:
1. XoomPark, BYU
The XoomPark team spoke to over 300 people (customers and channel partners,) ended up with 2 partners, 30 parking lot customers, a working website and a validated revenue model.
If you can’t see the slide deck above, click here.
3. AutoBid, BYU
AutoBid’s pivots were pure artistry.
If you can’t see the slide deck above, click here.
4. FlexLeg, BYU
FlexLeg got to experience first-hand the complexity of a multi-sided market – something the Business Model Canvas illustrates with startling clarity.
If you can’t see the slide deck above, click here.
Business Plan competitions are for those want to write PowerPoint slides. Business Model competitions are for entrepreneurs who want to learn how to build companies. Harvard will be hosting the 2013 International Business Model Competition and Stanford in 2014.
Come join us.
Business Plan competitions offer VC’s a PowerPoint beauty contest.
They teach entrepreneurs little about how to build a company.
You can’t fake a Business Model/Customer Development presentation.
It tough, grueling and relentless, requiring a ton of face-face customer interactions.
While entrepreneurship is in the news fairly regularly, I seldom make news myself. Today, however there are two important updates for entrepreneurs everywhere. Let me be brief…
The “Startup Owner’s Manual” goes On Press Tuesday 2/14 Two years in the making and literally ten years in development, I’m proud to announce that my new book, The Startup Owners Manual, goes onto the printing press next Tuesday. This 608-page work is, as its subtitle says, “the step-by-step guide for building a great company.” It’s the result of a decade of me learning from 1,000′s of entrepreneurs, corporate partners, students and scientists the best practices of what wins in startups. I’ve spent the last two years cramming knowledge into this new book.
In brief, the The Startup Owners Manual is far more detailed and more readable than Four Steps to the Epiphany, (most of the sentences are even finished!). In fact, you could say that all that remains from my last book are the four steps of Customer Development. Briefly, the new book:
Integrates Alexander Osterwalders “Business Model Canvas” as the front-end and “scorecard” for the customer discovery process.
Provides separate paths and advice for web/mobile products versus physical products
Offers a ton of detail and great tips on how to get, keep, and grow customers, recognizing that this happens very differently between web and physical channels.
and finally it teaches a “new math” for startups: “metrics that matter.”
While MBA’s have had a stack of texts to help them “execute” a business model, this book joins the growing library of books for practitioners for the “search” for the business model.
The Lean LaunchPad Online Class My online Lean LaunchPad class has created a lot of buzz this week. As you may have heard, I was deep into the production of the lectures when I realized I was producing the wrong class. The online class was originally based on my book The Four Steps to the Epiphany.
Only when I held the draft of my latest book, The Startup Owners Manual, in my hands, did it dawn on me that my online students deserved all the latest best practices of entrepreneurship and Customer Development. Not the stuff I taught a decade ago, but all that I’ve learned teaching the Lean LaunchPad in front of students at Stanford, Berkeley, Columbia and the National Science Foundation in the last year. And I particularly wanted to incorporate everything I’ve spent two years integrating into The Startup Owners Manual into the class.
So apologies to all of you who were expecting the class this month. I hope to get the updated version online in the next 60 days. I’ll keep you updated on this blog as we record our lectures.
In the meantime, if you want to prepare for the class…or get a jump on your startup competition, you can start reading the “recommended text” for the online class right now by ordering my new book. It is recommended—not required—reading for the free online course, and I believe it will be immensely helpful to the startup community at large.
Startups search for business models, exisitng companies execute them
There are tons of texts about execution, but a paucity of practical ones for founders on how to search
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.
Next up was SenSevere – solid-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?
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!
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?
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.
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.
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.
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 incubator – the 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.
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.
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.
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.
Step Three – Hacker/Hardware, Hustler, Designer, Visionary As we taught our Lean LaunchPad classes we painfully relearned the lesson that team composition mattersas 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 generallygreat 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.
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
If you’re an experienced coder and user interface designer you think nothing is easier than diving into Ruby on Rails, Node.js and Balsamiq and throwing together a web site. (Heck, in Silicon Valley even the waiters can do it.)
But for the rest of us mortals whose eyes glaze over at the buzzwords, the questions are, “How do I get my great idea on the web? What are the steps in building a web site?” And the most important question is, “How do I use the business model canvas and Customer Development to test whether this is a real business?”
My first attempt at helping students answer these questions was by putting together the Startup Tools Page - a compilation of available web development tools. While it was a handy reference, it still didn’t help the novice.
So today, I offer my next attempt.
How To Build a Web Startup – The Lean LaunchPad Edition
Then use godaddy or namecheap to register the name. (RetailMeNot usually has ~ $8/year discount coupons for Godaddy You may want to register many different domains (different possible brand names, or different misspellings and variations of a brand name.)
Once you have a domain, set up Google Apps on that domain (for free!) to host your company name, email, calendar, etc
Use your network to find target customers – ask your contacts, “Do you know someone with problem X? If so, can you forward this message on to them?” and provide a 2-3 sentence description
For B2B products, Twitter, Quora, and industry mailing lists are a good place to find target customers. Don’t spam these areas, but if you’re already an active participant you can sprinkle in some references to your site or you can ask a contact who is already an active participant to do outreach for you.
Step 8: Test the “Customer Problem” by collecting Customer Data
Use Web Analytics to track hits, time on site, source. For your initial site, Google Analytics provides adequate information with the fastest setup. Once you’ve moved beyond your initial MVP, you’ll want to consider a more advanced analytic platform (Kissmetrics, Mixpanel, Kontagent, etc)
Create an account to measure user satisfaction (GetSatisfaction, UserVoice, etc.) from your product and get feedback and suggestions on new features
Specific questions, such as “Is there anything preventing you from signing up?” or “What else would you need to know to consider this solution?” tend to yield richer customer feedback than generic feedback requests.
If possible, collect email addresses so that you have a way to contact individuals for more in-depth conversations.
Step 9: Test the “Customer Solution” by building a full featured High Fidelity version of your website
Update the Website with information learned in Step 5-8
Remember that “High Fidelity” still does not mean “complete product”. You need to look professional and credible, while building the smallest possible product in order to continue to validate.
Keep collecting customer analytics
Hearing “This is great, but when are you going to add X?” is your goal!
Step 10: Ask for money
Put a “pre-order” form in place (collecting billing information) even before you’re ready to collect money or have a full product.
When you’re ready to start charging – which is probably earlier than you think – find a billing provider such as Recurly, Chargify, or PayPal to collect fees and subscriptions.
For all Steps: Monitor and record changes week by week using the Lean LaunchLab
For Class: Use the Lean LaunchLab to produce a 7-minute weekly progress presentation
Start by putting up your business model canvas
Changes from the prior week should be highlighted in red
Lessons Learned. This informs the group of what you learned and changed week by week – Slides should describe:
Here’s what we thought (going into the week)
Here’s what we found (Customer Discovery during the week)
Here’s what we’re going to do (for next week)
Emphasis should be on the discovery done for that weeks assigned canvas component (channel, customer, revenue model) but include other things you learned about the business model.
If you’re Building a Company Rather Than a Class Project
Silicon Valley was born in an era of applied experimentation driven by scientists and engineers. It wasn’t pure research, but rather a culture of taking sufficient risks to get products to market through learning, discovery, iteration and execution. This approach would shape Silicon Valley’s entrepreneurial ethos: In startups, failure was treated as experience (until you ran out of money).
The combination of Venture Capital and technology entrepreneurship is one of the great business inventions of the last 50 years. It provides private funds for untested and unproven technology and entrepreneurs. While most of these investments fail, the returns for the ones that win are so great they make up for the failures. The cultural tolerance for failure and experimentation, and a financial structure which balanced risk, return and obscene returns, allowed this system flourish in technology clusters in United States, particularly in Silicon Valley.
Yet this system isn’t perfect. From the point of view of scientists and engineers in a university lab, too often entrepreneurship in all its VC-driven glory – income statements, balance sheets, business plans, revenue models, 5-year forecasts, etc. – seems like another planet. There didn’t seem to be much in common between the Scientific Method and starting a company. And this has been a barrier to commercializing the best of our science research.
Today, 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 - is changing the startup landscape for scientists and engineers. The NSF has announced the Innovation Corps – a program to take the most promising research projects in American university laboratories and turn them into startups. It will train them with a process that embraces experimentation, learning, and discovery.
The NSF will fund 100 science and engineering research projects every year. Each team accepted into the program will receive $50,000.
To commercialize these university innovations NSF will be putting the Innovation Corps (I-Corps) teams through a class that teaches scientists and engineers to treat starting a company as another research project that can be solved by an iterative process of hypotheses testing and experimentation. The class will be a version of the Lean LaunchPad class we developed in the Stanford Technology Ventures Program, (the entrepreneurship center at Stanford’s School of Engineering).
This is a big deal. Not just for scientists and engineers, not just for every science university in the U.S., but in the way we think about bringing discoveries ripe for innovation out of the university lab. If this program works it will change how we connect basic research to the business world. And it will lead to more startups and job creation.
Introducing the Innovation-Corps The NSF Innovation-Corps program (I-Corps) is designed to help bridge the gap between the many scientists and engineers with innovative research and technologies, but little knowledge of the first steps to take in starting a company.
I-Corps will help scientists take the first steps from the research lab to commercialization.
Over a period of six months, each I-Corps team, guided by experienced mentors (entrepreneurs and VC’s) will build their product and get out of their labs (and comfort zone) to discover who are their potential customers, and how those customers might best use the new technology/invention. They’ll explore the best way to deliver the product to customers, the resources required, as well as competing technologies. They will answer the question, “What value will this innovation add to the marketplace? And they’ll do this using the business model / customer development / agile development solution stack.
At the end of the program each team will understand what it will takes to turn their research into a commercial success. They may decide to license their intellectual property based on their research. Or they may decide to cross the Rubicon and try to get funded as a startup (with strategic partners, investors, or NSF programs for small businesses). At the end of the class there will be a Demo Day when investors get to see the best this country’s researchers have to offer.
What Took You So Long A first reaction to the NSF I-Corps program might be, “You mean we haven’t already been doing this?” But on reflection it’s clear why. The common wisdom was that for scientists and engineers to succeed in the entrepreneurial world you’d have to teach them all about business. But it’s only now that we realize that’s wrong. The insight the NSF had is that we just need to teach scientists and engineers to treat business models as another research project that can be solved with learning, discovery and experimentation.
Scientists and engineers as founders and startup CEOs is one of the least celebrated contributions of Silicon Valley.
It might be its most important.
ESL, the first company I worked for in Silicon Valley, was founded by a PhD in Math and six other scientists and engineers. Since it was my first job, I just took for granted that scientists and engineers started and ran companies. It took me a long time to realize that this was one of Silicon Valley’s best contributions to innovation.
Cold War Spin Outs In the 1950’s the groundwork for a culture and environment of entrepreneurship were taking shape on the east and west coasts of the United States. Each region had two of the finest research universities in the United States, Stanford and MIT, which were building on the technology breakthroughs of World War II and graduating a generation of engineers into a consumer and cold war economy that seemed limitless. Each region already had the beginnings of a high-tech culture, Boston with Raytheon, Silicon Valley with Hewlett Packard.
However, the majority of engineers graduating from these schools went to work in existing companies. But in the mid 1950’s the culture around these two universities began to change.
Why It’s “Silicon” Valley In 1956 entrepreneurship as we know it would change forever. At the time it didn’t appear earthshaking or momentous. Shockley Semiconductor Laboratory, the first semiconductor company in the valley, set up shop in Mountain View. Fifteen months later eight of Shockley’s employees (three physicists, an electrical engineer, an industrial engineer, a mechanical engineer, a metallurgist and a physical chemist) founded Fairchild Semiconductor. (Every chip company in Silicon Valley can trace their lineage from Fairchild.)
The history of Fairchild was one of applied experimentation. It wasn’t pure research, but rather a culture of taking sufficient risks to get to market. It was learning, discovery, iteration and execution. The goal was commercial products, but as scientists and engineers the company’s founders realized that at times the cost ofexperimentationwas failure. And just as they don’t punish failure in a research lab, they didn’t fire scientists whose experiments didn’t work. Instead the company built a culture where when you hit a wall, you backed up and tried a different path. (In 21st century parlance we say that innovation in the early semiconductor business was all about “pivoting” while aiming for salable products.)
The Fairchild approach would shape Silicon Valley’s entrepreneurial ethos: In startups, failure was treated as experience (until you ran out of money.)
Scientists and Engineers as Founders In the late 1950’s Silicon Valley’s first three IPO’s were companies that were founded and run by scientists and engineers: Varian (founded by Stanford engineering professors and graduate students,) Hewlett Packard (founded by two Stanford engineering graduate students) and Ampex (founded by a mechanical/electrical engineer.) While this signaled that investments in technology companies could be very lucrative, both Shockley and Fairchild could only be funded through corporate partners – there was no venture capital industry. But by the early 1960′s the tidal wave of semiconductor startup spinouts from Fairchild would find a valley with a growing number of U.S. government backed venture firms and limited partnerships.
A wave of innovation was about to meet a pile of risk capital.
For the next two decades venture capital invested in things that ran on electrons: hardware, software and silicon.Yet the companies were anomalies in the big picture in the U.S. – there were almost no MBA’s. In 1960’s and ‘70’s few MBA’s would give up a lucrative career in management, finance or Wall Street to join a bunch of technical lunatics. So the engineers taught themselves how to become marketers, sales people and CEO’s. And the venture capital community became comfortable in funding them.
Medical Researchers Get Entrepreneurial In the 60’s and 70’s, while engineers were founding companies, medical researchers and academics were skeptical about the blurring of the lines between academia and commerce. This all changed in 1980 with the Genentech IPO.
In 1973, two scientists, Stanley Cohen at Stanford and Herbert Boyer at UCSF, discovered recombinant DNA, and Boyer went on to found Genentech. In 1980 Genentech became the first IPO of a venture funded biotech company. The fact that serious money could be made in companies investing in life sciences wasn’t lost on other researchers and the venture capital community.
Over the next decade, medical graduate students saw their professors start companies, other professors saw their peers and entrepreneurial colleagues start companies, and VC’s started calling on academics and researchers and speaking their language.
Scientists and Engineers = Innovation and Entrepreneurship Yet when venture capital got involved they brought all the processes to administer existing companies they learned in business school – how to write a business plan, accounting, organizational behavior, managerial skills, marketing, operations, etc. This set up a conflict with the learning, discovery and experimentation style of the original valley founders.
Yet because of the Golden Rule, the VC’s got to set how startups were built and managed (those who have the gold set the rules.)
Fifty years later we now know the engineers were right. Business plans are fine for large companies where there is an existing market, product and customers, but in a startup all of these elements are unknown and the process of discovering them is filled with rapidly changing assumptions.
Startups are not smaller versions of large companies. Large companies execute known business models. In the real world a startup is about the search for a business model or more accurately, startups are a temporary organization designed to search for a scalable and repeatable business model.
Yet for the last 40 years, while technical founders knew that no business plan survived first contact with customers, they lacked a management tool set for learning, discovery and experimentation.
There is nothing more powerful than an idea whose time has come Victor Hugo
When The Boardroom is Bits A revolution has taken hold as customer development and agile engineering reinvent the Startup process. It’s time to ask why startup board governance has failed to keep pace with innovation. Board meetings that guide startups haven’t changed since the early 1900’s.
It’s time for a change.
Reinventing the board meeting may allow venture-backed startups a more efficient, productive way to direct and measure their search for a profitable business model.
Reinventing the board meeting may offer angel-funded startups that don’t have formal boards or directors (because of geography or size of investment) to attract experienced advice and investment outside of technology clusters (i.e. Silicon Valley, New York).
A Hypothesis – The Boardroom As Bits Startups now understand what they should be doing in their early formative days is search for a business model. The process they use to guide their search is customer development. And to track their progress startups now have a scorecard to document their week-by-week changes – the business model canvas.
Yet even with all these tools, early stage startups still need to physically meet with advisors and investors. That’s great if you can get it. But what if you can’t?
What’s missing is a way to communicate all this complex information and get feedback and guidance for startups who cannot get advice in a formal board meeting.
We propose that early stage startups communicate in a way that didn’t exist in the 20th century – online – collaboratively through blogs.
We suggest that the founders/CEO invest 1 hour a week providing advisors and investors with “Continuous Information Access” by blogging and discussing their progress online in their startup’s search for a business model. They would:
Comment/Dialog with advisors and investors on a near-realtime basis
What Does this Change?
1) Structure. Founders operate in a chaotic regime. So it’s helpful to have a structure that helps “search” for a business model. The “boardroom as bits” uses Customer Development as the process for the search, and the business model canvas as the scorecard to keep track of the progress, while providing a common language for the discussion.
This approach offers VC’s and Angels a semi-formal framework for measuring progress and offering their guidance in the “search” for a business model. It turns ad hoc startups into strategy-driven startups.
2) Asynchronous Updates. Interaction with advisors and board members can now be decoupled from the – once every six weeks, “big event” – board meeting. Now, as soon as the founders post an update, everyone is notified. Comments, help, suggestions and conversation can happen 24/7. For startups with formal boards, it makes it easy to implement, track, and follow-up board meeting outcomes.
Monitoring and guiding a small angel investment no longer requires the calculus to decide whether the investment is worth a board commitment. It potentially encourages investors who would invest only if they had more visibility but where the small number of dollars doesn’t justify the time commitment.
A board as bits ends the repetition of multiple investor coffees. It’s highly time-efficient for investor and founder alike.
3) Coaching. This approach allows real-time monitoring of a startup’s progress and zero-lag for coaching and course-correction. It’s not just a way to see how they’re doing. It also provides visibility for a deep look at their data over time and facilitates delivery of feedback and advice.
4) Geography. When the boardroom is bits, angel-funded startups can get experienced advice – independent of geography. An angel investor or VC can multiply their reach and/or depth. In the process it reduces some of the constraints of distance as a barrier to investment.
Imagine if a VC took $4 million (an average Series A investment) and instead spread it across 40 deals at $100K each in a city with a great outward-facing technology university outside of Silicon Valley. In the past they had no way to monitor and manage these investments. Now they can. The result – an instant technology cluster – with equity at a fraction of Silicon Valley prices. It might be possible to create Virtual Valley Ventures.
We Ran the Experiment At Stanford our Lean Launchpad class ran an experiment that showed when “the boardroom is bits” can make a radical difference in the outcome of an early stage startup.
Our students used Customer Development as the process to search for a business model. The used a blog to record their customer learning, and their progress and issues. The blog became a narrative of the search by posting customer interviews, surveys, videos, and prototypes. They used the Business Model Canvas as a scorekeeping device to chart their progress. The result invited comment from their “board” of the teaching team.
Here are some examples of how rich the interaction can become when a management team embraces the approach.
We were able to give them near real-time feedback as they posted their results. If we had been a board rather than a teaching team we would have added physical reality checks with Skype and/or face-to-face meetings.
Show Me the Money While this worked in the classroom, would it work in the real world? I thought this idea was crazy enough to bounce off a five experienced Silicon Valley VC’s. I was surprised at the reaction – all of them want to experiment with it. Jon Feiber at MDV is going to try investing in startups emerging from Universities with great engineering schools outside of Silicon Valley that have entrepreneurship programs, but minimal venture capital infrastructure. (The University of Michigan is a possible first test.) Kathryn Gould of Foundation Capital and Ann Miura-Ko of Floodgate also want to try it.
Summary For startups with traditional boards, I am not suggesting replacing the board meeting – just augmenting it with a more formal, interactive and responsive structure to help guide the search for the business model. There’s immense value in face-to-face interaction. You can’t replace body language.
But for Angel-funded companies I am proposing that a “board meeting in bits” can dramatically change the odds of success. Not only does this approach provide a way for founders to “show your work” to potential and current investors and advisors, but also it helps expand opportunities to attract investors from outside the local area.
Startups are a search for a business model
Startups can share their progress/get feedback in the search
Weekly blog of the customer development narrative
Weekly summary of the business model canvas
Interactive comments and questions
Skype and face-to-face when needed
This may be a way to augment traditional board meetings
This might be a way to rethink our notion of geography as a barrier to investments
There are none so blind as those who will not see. Jonathan Swift
What’s Wrong With Today’s Board Meetings As customer and agile development reinvent the Startup, it’s time to ask why startup board governance has not kept up with the pace of innovation. Board meetings that guide startups haven’t changed since the early 1900’s.
Reinventing the board meeting may offer venture-backed startups a more efficient, productive way to direct and measure their search for a profitable business model.
Reinventing the board meeting may offer angel-funded startups – which because of geography or size of investment typically don’t have formal boards or directors – to attract experienced advice and investment outside of technology clusters (i.e. Silicon Valley, New York).
Because We’ve Always Done It This Way The combination of Venture Capital and technology startups is only about 50 years old. Rather than invent a new form of corporate governance, venture investors adopted the traditional board meeting structure from large corporations. Yet boards of large companies exist to monitor efficient strategy and execution of a known business model. While startups eventually get into execution mode, their initial stages are devoted to a non-linear, chaotic search for a business model: finding product/market fit to identify a product or service people will buy in droves at a sustainable, profitable pace.
In the last few years, our understanding that startups are not smaller versions of large companies, made us recognize that startups need their own tools, different from those used in existing companies: Customer Development – the process to search for a Business Model, the Business Model Canvas – the scorecard to measure progress in the search, and Agile Engineering – the tools to physically construct the product.
Why Have a Board Meeting? From a VC’s point of view there are two reasons for board meetings.
1) It’s their fiduciary responsibility. Once a startup gets going, it has asymmetric information. Investors get board seats to assure themselves and their limited partners that they are duly informed about their investment.
2) Investors believe that their experience and guidance can maximize their return. Here it’s the board that has asymmetric knowledge. A veteran board can bring 50-100x more experience into a board meeting than a first time founder. (VC’s sit on 6 – 12 boards at a time. Assume an average tenure of 4 years per board. Assume two veteran VC’s per board. = 50-100x more experience.)
From a founder’s point of view there are three reasons for board meetings.
1) It’s an obligation that came with the check.
2) Founders who have a great board do recognize the uncanny pattern recognition skills that good VC’s bring.
3) An experienced board brings an extensive network of customers, partners, help in recruiting, follow-on financing, etc.
What’s Wrong With a Board Meeting? The Wrong Metrics. Traditional startup board meetings spend an insane amount of wasted time using Fortune 100 company metrics like income statements, cash flow, balance sheet, waterfall charts. The only numbers in those documents that are important in the first year of a startup’s life are burn rate and cash balance. Most board meetings never get past big company metrics to focus on the crucial startup numbers. That’s simply a failure of a startup board’s fiduciary responsibility.
The Wrong Discussions. The most important advice/guidance that should come from investors in a board meeting is about a startup’s search for a business model: What are the business model hypotheses? What are the most important hypotheses to test now? How are we progressing validating each hypothesis? What do those numbers/metrics look like? What are the iterations and Pivots – and why?
Not Real-time. Startup board meetings occur every 4-6 weeks. While that’s great when you showed up in your horse and buggy, the strategy-to-tactic-to implementation lag is painful at Internet speeds. And unless there’s rigor in the process, because there is no formal structure for follow up, tracking what happened as a result of meeting recommendations and action items gets lost in the daily demands of everyone’s work. (Of course great VC’s mix in coffees, phone calls, coaching and other non-board meeting interactions but it’s ad hoc and not always done.)
Wastes Founders Time. For the founders, “the get ready for the board meeting” drill is often a performance rather than a snapshot. Powerpoints, spreadsheets and rehearsals consume time for materials that are used once and discarded. There are no standards for what each side (board versus management) does. What is the entrepreneur supposed to be doing? What are the board members supposed to be contributing?
The Wrong Structure. If you read advice on how to run a board meeting you’ll get advice that would have felt comfortable to Andrew Carnegie or John D. Rockefeller.
In the age of the Internet why do we need to get together in one room on a fixed schedule? Why do we need to wait a month to six weeks to see progress? Why don’t we have standards for what metrics VC’s want to see from their early stage startup teams?
Angels In America For angel-funded startups, life is even tougher. Data from the Startup Genome project shows that startups that have helpful mentors, listen to customers, and learn from startup thought leaders raise 7x more money and have 3.5x better user growth. If you’re in a technology cluster like Silicon Valley you may be able to attract ad hoc advice from experienced investors. But very little of it is formal, and almost none of it approaches the 50-100x experience level of professional investors.
As there’s no formal board, most of these angel/investors meetings are over coffees. And lacking a board meeting there’s no formal mechanism to get investor advice. Angel investments in mobile and web apps today are approaching the “throw it against the wall and see if it sticks” strategy.
And for startups outside of technology clusters, there’s almost no chance of attracting Silicon Valley VC’s or angels. Geography is a barrier to investment.
So given all this, the million dollar question is: Why in the age of the Internet haven’t we adopted the tools we build/sell to solve these problems?
In the next post – Reinventing the Board Meeting.
Early stage board meetings are often clones of large company board meetings
That’s very, very wrong
Angel-funded startups have no formal mechanism for experienced advice