Teaching Customer Development and the Lean Startup – Topological Homeomorphism

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

I love this stuff.

Lessons Learned

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