Steve Blank Innovation and Entrepreneurship July 2010

Keeping Score

Posted on July 29, 2010 by steve blank

One of the toughest problems for entrepreneurs is to keep score as they search for their business model.

Keeping Score
One of the key concepts of Customer Development is writing down your initial hypotheses (guesses) of all the parts of your business model, then updating them with the facts you find outside the building.

Since I first wrote the book Four Steps to the Epiphany I’ve realized that an even better way to keep score is by diagramming each of your business model hypotheses on a whiteboard and updating them as your iterate and pivot. I’ve been experimenting with how to best teach this idea to students in classroom and with startups. My favorite book of how to diagram your business is Business Model Generation written by Alexander Osterwalder. It has the notion that any business model can be drawn with just 9 separate boxes. It’s a great idea.

The Real World
My teaching partner Ann Miura-Ko and I both love the concept of Business Model Generation. However we find using the book to teach and in early stage venture problematic. It makes assumptions about the depth of knowledge about business models that we find that students and startups lack. For example, we find that the distinction between who’s a user and who’s a customer may be obvious to sophisticated strategists in large companies but is often overlooked in a startup. The same issues arise between understanding the difference between a distribution channel and the specific demand creation activities needed to drive customers into that channel. Being able to get these concepts is the difference between startup success and failure. So while we love the book, Ann has been drawing her own business model diagrams you’ll see in the presentation below.

Given Ann and I are such big fans of the Business Model Generation book we were happy to have coffee with Alexander Osterwalder and share our thoughts about what we thought was missing. In hindsight I think we were asking for the business model generation book for dummies (kind of like someone asking me for six steps to Customer Development rather than four,) but Alexander was not only was generous with his time but posted a thoughtful response to our comments.

Business Plans Versus Business Models
Given what I think of Business Plan competitions, it was ironic that I spoke last week at the Clean Tech Open business plan competition conference. I did appreciate the venue and shared my thoughts of how a startup goes from an idea to a business plan to business model to customer development and finally to a venture pitch, all in the presentation below.

Lessons Learned

Gather all your hypotheses in Customer Discovery

Diagram all your hypotheses of your business model

Update the diagram as you gather facts outside the building

Minor iterations will make minor changes to the diagram

Pivots will have you changing major pieces

Filed under: Customer Development | 8 Comments »

You Can’t Take It With You

Posted on July 26, 2010 by steve blank

If you’ve had a great career what happens to all your knowledge and experience when you retire?

Great Suit
My wife and I had dinner last night with a friend of hers from high school. Tom, her husband whom I had never met before joined us as well. I took one look at his suit and guessed “high-powered lawyer. “ (I was right, the suit probably added another $250 per billable hour.)

Over dinner we got chatting, and I found out that besides the great suit, Tom was actually a pretty remarkable guy. He was a trial litigator, one of the guys that slug it out in court in front of a judge and jury. And Tom wasn’t just any trial lawyer. He was the hired gun that Fortune 100 companies and hedge funds bring in when billions are at stake. Listening to some of his stories over dinner was entertaining enough, but after awhile I realized I was hearing something else – this guy played strategy while his opponents were using tactics.

Chess and Military History
It turns out that Tom was a student of military history and a chess player. He described preparing for cases like war. “Most trial lawyers play defense. I’m on the offense from day one. In depositions and filing motions I’ll use misdirection to get the opposing counsel thinking I’m heading in one direction, and I’m heading in the other. When I file for a Summary Judgment, it’s usually from a direction my opponents never expected.” He then went on to give me a tour of 30 years of trial lawyer experience.

So I asked, “Did you learn any of this in law school?” He laughed. “I went to Harvard. They didn’t teach war there.” “Do any of your junior partners in your firm know how to do what you do?” “Well they watch me, and I guess they learn by osmosis.”

Then I asked my favorite question.

“When you retire, what happens to all the knowledge and experience you’ve acquired?”

You Can’t Take It With You
I think the question caught him a bit by surprise. I explained, “You have a record in winning trials that’s based on a strategy and methodology you developed and you’ve likely have moved the state of the art in your profession – and it’s all going into the trash bin of history – unless you pass it on.

Teach It or Lose It
I asked Tom to think about writing down a longer version of the stories he told me over dinner, almost like an autobiography but focused on his career. And for each big trial or milestone summarize it with a “Lessons Learned” section. I observed that at the end of this exercise, he’ll come to one of three conclusions: 1) he has a great collection of war stories to tell while he’s skiing or playing golf or 2) he can make a book out of those stories or 3) buried in the stories and lessons learned was a strategy that was new, unique and worth teaching to future generations of lawyers.

I suggested that he volunteer to guest teach in someone else’ class at a local law school (and where he lived there were plenty) to see if he enjoyed it. His war stories would certainly keep students on the edge of their seats. (If you were a law school student having him come in to your class and say, “The first time you run into me, I’d make you wet your pants” might get your attention.)

But more importantly this would help him decide if he wanted to teach as an Adjunct Professor after he retired. If as I surmised, he actually did push the state of the art in his field forward and his teaching went beyond war stories to a theoretical framework, most schools would be happy for him to develop and teach a class.

Why Do It?
I suggested that there were four reasons he ought to take teaching seriously. First, his accumulated knowledge will disappear when he does. Second, it’s incumbent on all of us to make those who come after us smarter than we were. Third, having students question your assumptions makes you smarter (and at our age growing new neurons are helpful,) and finally fourth, for those of us whose career was on a stage, teaching is just another stage with an appreciative audience.

Not Just For Lawyers
Driving home for dinner, I realized that the same advice for Tom and lawyers would work for professionals in any domain; doctors, engineers, venture capitalists, CEO’s or even entrepreneurs. Don’t let your knowledge and experience die with you.

Lessons Learned

If you don’t teach it or write it down, the accumulated knowledge of your career is gone.

War stories about your career can be entertainment, or even better if you want to teach, make them the basis of a strategy and methodology worth passing on.

Retirement doesn’t have to be only about golf and skiing.

Filed under: Teaching | 35 Comments »

The Phantom Sales Forecast – Failing at Customer Validation

Posted on July 22, 2010 by steve blank

Startup CEO’s can’t delegate sales and expect it to happen. Customer Validation needs to have the CEO actively involved.

Here’s an example in a direct sales channel.

Customer Development Diagnostics over Lunch
A VC asked me to have lunch with the CEO of a startup building cloud-based enterprise software. (Boy did I feel like Rip Van Winkle.) The board was getting nervous as the company was missing its revenue plan.

These lunches always start with the CEO looking like they had much better things to do. Before lunch even came the CEO ticked off the names of forty or so customers he talked to during the company’s first nine months and gave me a great dissertation on the day-in-the-life of his target customers and what their problems were. He went through his product feature by feature and matched them to the customer problems. He talked about how his business model would make money and how the prospects he talked to seem to agree with his assumptions.

It certainly sounded like he had done a great job of Customer Discovery.

Sales Process
Next, he took me through his sales process. They had five salespeople supported by two in marketing. (They had beta customers, using but not paying for the product.)

Over lunch the CEO told me he had stopped talking to customers since he had been tied up helping get the product out the door and his VP of Sales (a successful sales executive from a large company) had managed the sales process for the last six months. In fact, the few times he had asked to go out in the field the VP of Sales said, “Not yet, I don’t want to waste your time.”

Too Good to Be True
For the first time I started squirming in my seat. He said, “I insist on getting weekly status reports with forecasted deal size and probability of close. We have a great sales pipeline.” When I asked how close any of the deals on the forecast were to getting closed, he assured me the company’s two beta customers—well-known companies that would be marquee accounts if they closed—were imminent orders.

“How do you know this?” I asked. “Have you heard it personally from the customers?”

Now it was his turn to squirm a bit. “No, not exactly,” he replied, “but our VP of Sales assures me we will have a purchase order in the next few weeks or so.”

I put my fork down. Very few large companies write big checks to unknown startups without at least meeting the CEO. When I asked if he could draw the sales road map for these two accounts that were about to close, he admitted he didn’t know any of the details, given it was all in the VP of Sales’ head. Since we were running out of time, I said, “Your sales pipeline sounds great. In fact, it sounds too good to be true. If you really do close any of these accounts, my hat is off to you and your sales team. If, as I suspect they don’t close, do me a favor.”

“What’s that?” He asked, looking irritated.

“You need to pick up the phone and call the top five accounts on your sales pipeline. Ask them this question: if you gave them your product today for free, are they prepared to install and use it across their department and company? If the answer is no, you have absolutely no customers on your forecast who will be prepared to buy from you in the next six months.”

He smiled and stuck me with the tab for lunch. I didn’t expect to hear from him ever again.

What If the Price Were Zero?
Less than two weeks later, I got a call and was surprised to hear the agitated voice of the CEO. “Steve, our brand-name account, the one we have been working on for the last eight months, told us they weren’t going to buy the product this year. They just didn’t see the urgency.” Listening, I got the rest of the story.

“When my VP of Sales told me that,” he said, “I got on the phone and spoke to the account personally. I asked them your question—would they deploy the product in their department or company if the price were zero? I’m still stunned by the answer. They said the product wasn’t mission critical enough for their company to justify the disruption.”

“Wow, that’s not good,” I said, trying to sound sympathetic.

“It only gets worse,” he said. “Since I was hearing this from one of the accounts my VP of Sales thought was going to close, I insisted we jointly call our other ‘imminent’ account. It’s the same story as the first. Then I called the next three down the list and got essentially the same story. They all think our product is ‘interesting,’ but no one is ready to put serious money down now. I’m beginning to suspect our entire forecast is not real. What am I going to tell my board?”

My not-so-difficult advice was that he was going to have to tell his board exactly what was going on. But before he did, he needed to understand the sales situation in its entirety, and then come up with a plan for fixing it. Then he was going to present both the problem and suggested fix to his board. (You never want a board to have to tell you how to run your company. When that happens, it’s time to update your resume.)

The Phantom Sales Forecast
The implications of a phantom sales forecast meant something fundamental was broken. In talking to each of his salespeople, he discovered the sales team had no standardized sales process. Each was calling on different levels of an account and trying whatever seemed to work best. This was just a symptom of something deeper – while they thought they understood the target customer their initial hypotheses from Customer Discovery were wrong. But no one had told the CEO.

He realized the company was going to have to start from scratch, Pivot back to Customer Discovery and find out how to develop a sales road map. He presented his plan to the board, fired the VP of Sales and kept his best salesperson and the marketing VP. Then he went home, kissed his family goodbye, and went out to the field to discover what would make a customer buy. His board wished him luck and started the clock ticking on his remaining tenure. He had six months to get and close customers.

Customer Validation
The CEO had discovered what happens when you do a good job on Customer Discovery but get too “busy” for to personally get involved in Customer Validation. It wasn’t that he didn’t need a VP of Sales, but he had entirely outsourced the Validation step to him. Until a scalable and repeatable business model is found the CEO needs to be intimately involved in the sales process.

Lessons Learned

Ownership of Customer Validation belongs to the CEO.

A VP of Sales can assist but the CEO needs to answer:

Do I understand the sales process in detail?

Is the sales process repeatable?

Can I prove it’s repeatable? (Proof are multiple full-price orders in sufficient quantity.)

Can we get these orders with the current product and release spec?

Do we have a workable sales and distribution channel?

Am I confident we can scale a profitable business?

Filed under: Customer Development, Customer Development Manifesto | 16 Comments »

The New Deal – A Founding CEOs Value is Non Linear

Posted on July 19, 2010 by steve blank

As a founder I fought with VC’s over vesting as they brought in a new CEO and walked me out the door. As a board member I negotiated with founding CEO’s over vesting when I thought it was their time to go. At best this is an argument where no one wins, at worst it’s like a nasty divorce.

I’ll offer that both entrepreneurs and VC’s have the wrong model for founding CEO equity compensation. The customary vesting model has founders vest their stock over 4-years, and when the founding CEO gets in over their head the VC’s bring in professional management. More often than not the founding CEO leaves the company. The fallacy is believing that a founders value is evenly distributed over four years. We now have three decades of experience that says otherwise.

Preparing For Chaos
Every VC knows that the founding CEO is the individual you throw into the chaotic battle of a startup. Investors are praying they’ve backed a founder who can think creatively and independently, because more often than not, conditions on the ground change so rapidly that the original well-thought-out business plan becomes irrelevant. They’re hoping they funded a CEO who can manage chaos and uncertainty, is biased for action and isn’t waiting around for someone else to tell them what to do. They’re betting that the founding CEO can quickly separate the crucial from the irrelevant, synthesize the output, and use this intelligence to create islands of order in the all-out chaos of a startup. And that they’ll emerge from this fog of war with a scalable business model.

They also know that most founding CEO’s don’t scale past the early stage.

That’s the source of the trouble. Most founding CEO’s don’t know that they’re cannon fodder in the search for a business model.

It’s My Idea and Hard Work
Some founding CEOs believe the value they bring to their startup is their idea and the time and energy they put into their company. In their mind, since they thought of the idea of the company, spec’d the product, found the first customers and worked their tails off, they are entitled to vest all their stock over time and run their company.

Where’s My Liquidity Event
Some VC’s feel that if a startup has grown past the founder’s ability to manage and scale (and hasn’t had a liquidity event,) they should be able to remove the founding CEO and (at best) walk them out the door with only the stock they vested to that day.

It’s About Finding the Business Model
I’ll posit that both views are wrong. Lets start with what the real job of the founding CEO’s job is: to find a repeatable and scalable business model. The goal of your business model can be revenue, or profits, or users, or click-throughs (or even just to get the technology into production) – whatever the founders and their investors have agreed upon.

If you don’t find this business model there is no company.

The odds are if the founder is going to find the first business model it’s going to be in the first few years. Yet the traditional vesting model ignores this. It assumes that founders contributions are linear over 4-years. Not only is this unfair it has the founding CEO focussed on the wrong goal – hanging on as long as they can to vest their stock. Why on earth would investors want to have the incentives set up this way? 30 years of accumulated experience says these perverse incentives actually diminishes the value of their investment.

It’s time to rethink how we vest stock for founding CEOs.

The New Deal
The founding CEO vesting model should start with a new deal between VC’s and founders. Recognize that a founders value is non-linear over 4 years and heavily weighted towards the chaotic first few years. Agree that the founder is being rewarded not just for the idea or technology of the company but rather for finding a way to make money.

Founding CEO’s need to agree that it’s rare that founders are the right people to take a startup through the transition to build and scale it into a company. Instead, it’s likely that after they do the hard work of finding the business model, the company will need to hire their replacement to grow the company to the next level.

The New Founding CEO Vesting Model
Therefore, if the founding CEO gets the company to a repeatable business model they deserve to vest all their stock if they are removed. If they fail to find a business model, by taking investors money they’ve implicitly agreed they can be walked out the door. (But can keep the stock they’ve vested to date.) Specifying what the metrics are for a repeatable business model is what the board and founders should be doing in the first place. This new deal would keep everyone focused on the search for the model.

I’ll suggest that this new deal more accurately reflects the time-weighted contributions that founding CEO’s make and more accurately aligns founders and investors interests.

Lessons Learned

The job of the startup CEO is to find a repeatable/scalable business model.

The contribution of the founding CEO is not linear over 4-years.

If the founding CEO gets the company to a repeatable business model they deserve to vest all their stock if they are removed.

Accountants shouldn’t be putting together the vesting schedule.

Filed under: Venture Capital | 19 Comments »

Welcome to the Lost Decade (for Entrepreneurs, IPO’s and VC’s)

Posted on July 15, 2010 by steve blank

If you take funding from a venture capital firm or angel investor and want to build a large, enduring company (rather than sell it to the highest bidder), this isn’t the decade to do it. The collapse of the IPO market and dysfunctional math in the venture capital community has stacked the odds against you.

Here’s why.

The Golden Age for Entrepreneurs and VC’s
The two decades from 1979 when pension funds fueled the expansion of venture capital to 2000 when the dot-com bubble burst were the Golden Age for entrepreneurs and venture capital firms. VC’s were making investments every other financially prudent institution wouldn’t touch – and they were printing money.

The system worked in predictable and profitable ways. VC’s invested their limited partners’ “risk capital” in a portfolio of startups in exchange for illiquid stock. Most of the startups they invested in either died by running out of money before they found a scalable business model or ended up in the “land of the living dead” by never growing (failing to Pivot.)

Startup lifecycle in an IPO Market

But a few startups succeeded and grew into profitable companies. Their venture investors made money by selling their share of these successful companies at a large multiple over what they originally paid for it. One of the ways most predictable ways for an investor to sell these shares was to take a company “public.” (Until 1995 startups going public typically had a track record of revenue and profits. Netscape’s 1995 IPO changed the rules. Suddenly there was a public market for companies with limited revenue and no profit. This was the beginning of the 5-year dot-com bubble.)

During the decade between 1991 and 2000, nearly 2000 venture backed companies went public. Take a look at the chart below. (It includes venture funded startups in all industries, from software to biotech. Source: NVCA.)

Number of Venture Backed Liquidity Events 1991-2000

The size of the red bars (IPO’s) versus blue (mergers and acquisitions) illustrates that while venture-backed startups did get acquired, the IPO market was booming.

Free At Last
Going public did two things for your company. Your company had money in the bank to expand your business, scaling the company from the “build” stage into the “grow” stage. But even more important, your VC’s could sell off their ownership of your company. This changed their interest from managing your board for their liquidity to managing the board for all shareholders. Most VC’s would get off of boards of companies that went public.

Success Means That You’re Acquired
The public markets for venture-backed technology stocks never really recovered after the collapse of the dot-com boom. Fast forward to today and take a look at the last ten years of IPO’s and M&A’s in the chart below, and you’ll see why life is different for entrepreneurs.

Number of Venture Backed Liquidity Events 2000-2010

Depending on your industry, in this decade it’s 5 to 10x less likely that your company will have an IPO as an exit. And what the chart doesn’t show is that the dollar amount of the deals are significantly smaller than the last decade.

Since there’s no public market for the shares your venture investor has bought in your startup, the most reasonable way for a venture firm to make money is to have you sell your company to another company. But unlike an IPO where you sold stock to the public and got to run your company, in an acquisition your company is gone, and the odds are in a year or so you will be too.

Startup Lifecycle Today

VC “Plan B”
None of this has gone unnoticed by the venture community. Some of the old-line venture firms have changed their strategy, but some are still locked into last decade’s model while the partners are living off of their management fees and go through cargo cult like rituals. You can tell who they are by how often they remind you “this is the year the IPO market will come back.” (If the limited partners of these VC’s acted like real fiduciaries rather than waiting for the end of life of the fund, more than half of old-line venture firms would have shut themselves down today.)

New, agile and adroit venture firms with new business models have emerged to deal with the reality that 1) web 2.0 startups require significantly less capital to start, 2) exits for venture firms are predominately acquisitions, and 3) a venture firm with a smaller fund <$150M matches these exits. Floodgate, Greycroft, Union Square Ventures, True Ventures, etc. are example of this class of firm. (Raising a VC fund in this environment had it’s own perils.) And the explosion of private Angel firms continues to fuel this new ecosystem.

Other VC’s who invest in Information Technology have taken a different approach. They’ve created virtual IPO’s for founders and employees via late-stage private financing. It has put a per user dollar value on these sites and these few startups will be the next likely IPO candidates. In their short time as a fund, Andreessen Horowitz seems to be on top of this game with their investments in Facebook, Skype and Zynga.

What About Us?
But not all industries are as capital efficient as the Web or Information Technology. Biotech, medical devices, semiconductors, communications and CleanTech require significantly more capital to build and scale before they can generate profits. It’s in these industries that the lack of a public market has taken the heaviest toll on entrepreneurs and their startups. Great companies with innovative ideas have simply died not having the cash to scale. VC’s who would have normally kept writing checks were faced with no public exits and cut them off.

Some of these industries have turned to the U.S government for funding. Elon Musk has not only tapped the feds for his electric car startup Tesla, but also received hundreds of millions for his space launch company – SpaceX. Other Clean Tech companies have tried this approach as well. Yet while the U.S. government doles out funds to connected entrepreneurs, it lacks an integrated strategy to deal with the lack of public market financing for critical growth industries.

It may be that these entrepreneurial industries suffer the same fate as manufacturing in the U.S.- they die out of benign neglect and a lack of a coherent understanding of the role of risk capital in our national interest.

What Does it Mean to an Entrepreneur?
If you’re starting a software company, your exit is most likely a sale to a larger company. This decade has been a Darwinian filter – only the very best companies will survive as standalone companies.

If you’re starting a company in other, capital intensive industries, it’s no longer just about having great technology. You need a plan for partnership and long term funding from day one.

In either case Customer Development provides entrepreneurs with a methodology for being capital efficient.

We live in interesting times.

Lessons Learned

Advice that’s more than 5 years old is obsolete.

Software startups are most likely to exit as an acquisition.

Being acquired has lots of math challenges about your valuation, amount of money raised, percent of founder ownership, type of investor, etc.

Non-software companies need to be thinking much deeper and further than ever before about search, build, grow funding strategies. It’s no longer just about building great technology.

Customer Development provides entrepreneurs with a methodology for being capital efficient to scale when the funding environment demands it.

You will probably not survive the acquisition.

Filed under: Corporate/Gov't Innovation, Technology, Venture Capital | 27 Comments »

Nuke’em ‘Till They Glow – Quitting My First Job

Posted on July 12, 2010 by steve blank

I started working when I was 14 (I lied about my age) and counting four years in the Air Force I’ve worked in 12 jobs. I left each one of them when I was bored, ready to move on, got fired, or learned as much as I can.

There was only one job that I quit when I feared for my life.

Life Is Good
The Vietnam War had just ended and I was out of the Air Force back in college living in Ann Arbor Michigan. Colors other than olive green or camouflage slowly seeped back in my life as “Yes sir, and no sir” faded away. Unlike my previous attempt at college as a pre-med, four years working with electronics convinced me that perhaps I ought to study engineering.

Civilian life was good, the government was paying my tuition and I got a college work/study job in the University of Michigan physics department. After a few weeks, the Physics lab staff realized I knew something about repairing electronics (you try fixing a sodium-iodide scintillation detector without a manual.) I got asked, “Would you like to work at the nuclear reactor?” I thought they were joking. “The university has its own nuclear reactor?”

Oh man, something really new to learn. “Heck yes, sign me up.”

Nuclear Reactors on Campus
Starting in 1953 the U.S. built over a 150 research reactors. Much smaller than the ~500-1,500 megawatt nuclear reactors that generate electricity, by the late 1960s these 1 to 10 megawatt reactors were in 58 U.S. universities. In addition, 40 foreign countries got research reactors in exchange for a commitment to not develop nuclear weapons. (But these reactors used ~~weapons grade~~ highly enriched Uranium-235 for their cores, and by the late 1970’s we realized it wasn’t a good idea to be shipping highly enriched uranium overseas.)

My first day in the reactor electronics lab I got a lecture from the health physics department. I was given a film-badge (a dosimeter to measure whole body radiation) and taught how to use the hand and foot monitors (to prevent radioactive contamination from spreading outside the containment dome.)

Scram
Lots of things could go wrong in a nuclear reactor – loss of cooling, power failure, jammed control rods, reactor power excursions, etc. While a reactor failure can’t create a nuclear explosion, if its core is uncovered long enough it can generate enough heat to melt itself, with all kind of nasty consequences (see Three Mile Island and Chernobyl.) To “scram” a reactor means an emergency shutdown by inserting neutron-absorbing control rods into the core. This stops the nuclear chain reaction. My job in the reactor electronics lab was to rebuild the reactor “scram system.”

Ford Nuclear Reactor at the Phoenix Lab

The scram system had three parts: the mechanical part (the control rod drives and electromagnetic latches), the electronic part (comparators circuits and trip logic), and the sensors (to measure neutron flux, core temperature, pool water level, etc.)

The 20-year old electronics in our existing scram system were based on vacuum tubes and had the annoying habit of scramming the reactor every time a thunderstorm was nearby. And summertime in the Midwest has lots of thunderstorms. The Nuclear Regulatory Commission had approved a transistorized version of the electronics. My job was to build the approved design, retrofit it into the existing power supplies and integrate it with the existing mechanical systems and sensors.

But first I was going to see the reactor.

Cerenkov radiation
Over time I would get used to visiting the reactor, but the first visit was awe-inspiring. Entering the containment building through the air lock, my eyes took a few seconds to adjust to the dim light. The first thing I saw was a gigantic mural of the earth rising over the moon painted on the side of the dome. After another few seconds I realized that the mural was illuminated by an unearthly blue glow coming from what looked like a swimming pool below it. My eyes followed the source of the light down to to the pool and there I first saw the 2 MW nuclear reactor in the bottom of the swimming pool – and it was generating its own light. When I could tear my eyes from the pool I noticed that in the far end of the building was a glass wall separating a room bathed in red light, where the reactor operators sat at their console. The lab manager let me stand there for a while as I caught my breath. Hollywood couldn’t have set the scene better.

As we walked towards the pool I learned that the bright blue light was Cerenkov radiation from the reactor core (electrons moving faster than the speed of light in water polarizing the water molecules, which when they turned back to their ground state, emitted photons.) We briefly walked across a bridge that spanned the pool and stood directly over the core of the reactor. Wow. They were going to pay me for this?

Dose Roulette
Over the next few weeks, as I began work on the scram system, I got to know the control room operators and others on the staff. Most of them were ex-Navy reactor technicians or officers. They had been around nukes for years and were bemused to find an ex Air Force guy among them.

One of their weekly rituals was to read the bulletin board for the results of the dosimeter readings. Since most of my time was spent outside the containment dome my radiation exposure numbers were always zero. But there was a bizarre culture of “you’re not a real man until you glow in the dark” among the ex-Navy crew. They would celebrate whoever got the highest dose of the week by making them buy the beer for the rest.

After spending the last four years around microwaves I had become attuned to things that you couldn’t see but could hurt you. In the Air Force I had watched my shop mates not quite understand that principle. On the flightline they would test whether a jamming pod was working by putting their hand on the antenna. If their hand felt warm they declared it was. When I tried to explain that the antenna wasn’t warm, but it was the microwaves cooking their hand, they didn’t believe me. There were no standards for microwave protection. (I always wondered if the Air Force would ever do a study of the incidence of cataracts among radar technicians.)

You Buy The Beer
In a few months I had the new scram system ready for debugging. This required connecting the new electronics to the neutron detectors in the pool that monitored the core. We timed this for the regular downtime when used fuel elements were swapped out and they had lowered the pool water level for easier installation. I remember standing on the bridge right over the reactor core watching as the reactor techs remotely connected up the cables to my electronics. I leaned over the bridge to get a better look. By now the reactor was so familiar that I didn’t think twice of where I was standing.

A week later as I was about to enter the dome, I heard someone congratulate me and ask when I was going to buy the beer. They were pointing to the Health/Safety printout on the wall. In one week I had managed to get close to my annual allowable radiation dose (~5 rems?).

In my mandatory talk with the the safety officer to figure out where I got exposed, I remembered hanging out over the core on the bridge. The ~~heavy~~ water in the pool was both a moderator and a radiation shield. With the pool level lowered I shouldn’t have been on the bridge. I had been in the wrong place at the wrong time.

“Don’t do it again” was his advice.

Career Choices
That week I finished up the installation and resigned from the lab. While the radiation dose I received was unlikely to effect my health, the cumulative effect of four years of microwaves and the potential for more unexpected “winning the dosimetery lottery” convinced me to consider alternate jobs in electronics.

In some sense my career in startups was steered by deciding to avoid future jobs with gamma rays or high-power microwaves.

But I sure learned a lot about nuclear reactors.

—————–

Postscript: a year and a half after I left, the power reactor at Three Mile Island had a core meltdown. For years I would worry and wonder if I had wired my scram system correctly.

Lessons Learned

Things you can’t see can hurt you (microwaves, gamma rays, toxic bosses.)

No job is worth your health.

If it seems dangerous or stupid it probably is.

Rules and regulations won’t stop all possible mistakes.

No one but you will tell you it’s time to quit.

Filed under: Air Force, Technology | 16 Comments »

Nature versus Nurture in Entrepreneurs

Posted on July 8, 2010 by steve blank

Taking Sides
Are you are born with innate entrepreneurial talent or can you can be taught to operate like an entrepreneur?

Fred Wilson of Union Square Ventures, Jason Calacanis, founder of Mahalo.com, and Mark Suster of GRP Partners, have all weighed in on the nature side – you’re born being an entrepreneur or you’re not.

Vivek Wadhwa, Director of Research, Center for Entrepreneurship at Duke, the Kauffmann Foundation for Entreprenuership and others have the opposing view – you can teach people to be entrepreneurial.

I weighed in on the subject in a previous post.

Mark Suster, Vivek Wadhwa and Patrick Chung, Partner of New Enterprises Associates debated the subject on April 21st at Stanford. I’ll was the moderator (referee).

Take a look at the video below.

[vodpod id=Video.3671058&w=425&h=350&fv=config%3Dhttp%3A%2F%2Fecorner.stanford.edu%2Fembeded_config.xml%253Fmid%253D2434]

I thought it was a pretty good talk and worth listening to.

Filed under: Customer Development, Venture Capital | 14 Comments »

How I Spent My Summer Vacation

Posted on July 6, 2010 by steve blank

My summer has circled around serendipity and three presentations I’ve given.

Full Circle from Yosemite
Nine years ago I took my young daughters on a 7-day pack trip riding mules at 10,000 feet to the Yosemite High-Sierra camps. Granite mountains and alpine green meadows during the day, unblinking stars in the frigid August nights. At a campsite almost two miles high our daughters adopted a young couple, and over the campfire I found out they were Stanford MBA’s and entrepreneurs. Instead of ghost stories they were the first to hear the ideas of what would become Customer Development.

Fast forward to today. One of those students, Shawn Carolan, is now a partner at Menlo Ventures. When we were looking for funding for IMVU (the company where Eric Ries first implemented Customer and Agile Development and where the Lean Startup was born,) I thought of Shawn. He became the first venture investor and “present at the creation.” If you’re doing Customer Development/Lean Startup, Shawn is a great guy to have as an investor. He’s lived it and gets it.

Recently, Shawn invited me to share the Customer Development story at Menlo Ventures annual CEO conference.

(I’ll show you the slides a bit later in this post.)

Let’s Get Together Every 15 Years
About a month ago I got a phone call from Alan Patricof of Greycroft Partners who saw the article about Lean Startups in the NY Times and invited me to talk at their CEO conference. After a few minutes on the phone, Alan and I realized that we had met 15 years ago when his firm looked at investing in my last startup, E.piphany.

It’s kind of hard not to know who Alan Patricof is. He built APAX Partners into one of the largest VC firms on the East Coast and in Europe. He started a new venture firm when he realized that that the rules had changed for the venture business – VC’s could no longer expect the same kind of returns they got in the past through an IPO. Instead, he realized that most VC-backed startups would exit through a merger or acquisition- at a sale price of $20 to $100 million.

One of the benefits of speaking at this conference was getting to know VC’s on the east coast and LA. The Greycroft team and Mark Suster of GRP Partners provided lots of local color. (Mark had an amusing summary of the conference here. Mark is the guy I would call if I was doing a deal in LA and his blog should be on your reading list.)

You are Here
When I was in a startup, I remember being so focused on my daily tasks of getting customers and running the business that I had no time to consider “why” I was doing what I was doing. I had even less time to consider how to differentiate what were the right things to do in startup versus a larger company. The talk I gave to the startup CEO’s at both Menlo Ventures and Greycroft Partners was a big picture perspective about how startups differ from large companies and where customer and agile development fit. The talk integrated a series of posts I’ve written since the beginning of 2010: “What is entrepreneurship? The Four types of entrepreneurial organizations, Innovation and entrepreneurship in large companies and The role Pivots play in Customer Development.

18-Hour Flight for a 45 Minute Talk
Truth be told, I went to NY for the Greycroft conference because I was already heading east to Tel Aviv for a 45 minute talk. While flying 18 hours to give a 45-minute talk might not seem rational, in fact it provided the rationale to visit a part of the world my wife and I had never seen. I turned the 45-minute invitation into a three week trip. New York to Cairo, Aswan, Abu Simbel, Luxor, Tel Aviv, Haifa, Tiberias and Jerusalem.

As a country, Israel has the highest ratio of scalable startups per capita. A high percentage of Israeli startups are founded by entrepreneurs who served in Unit 8200 and military intelligence. They are agile, resourceful and aggressive. In the dot-com bubble Israel had more technology companies listed on the NASDQ exchange than all of Europe. Today Israeli companies solve technology problems then typically sell out to a larger U.S. firm.

While this is an enviable track record, my talk observed that solving just the technology problems and selling out meant that Israeli companies did not become adept at understanding customer needs. (And in Israel you can’t just get out of the building to understand customers, you need to get out of the country.) Given the current Israeli economic and venture climate having great technology is no longer enough. I observed that this may be the time for Israel to take entrepreneurship to the next step and teach their startups the skills needed to grow from flipping technology startups to building enduring companies.

I used the metaphor of fighter pilots (who have to constantly adapt in real-time) versus military intelligence (who have time to analyze and debate the right answer.) John Boyd of OODA Loop fame got a starring role in the talk.

It went over like a lead balloon.

(Slides 43-49 and 81-89 are the ones that differ from the Greycroft presentation.)

BTW, the schedule of my future talks are now on Plancast.