When Bob Dorf and I wrote the Startup Owners Manual we listed a series of Customer Development principles. I thought they might be worth enumerating here:
A Startup Is a Temporary Organization Designed to Search
for A Repeatable and Scalable Business Model
There Are No Facts Inside Your Building, So Get Outside
Pair Customer Development with Agile Development
Failure is an Integral Part of the Search for the Business Model
If You’re Afraid to Fail You’re Destined to Do So
Iterations and Pivots are Driven by Insight
Validate Your Hypotheses with Experiments
Success Begins with Buy-In from Investors and Co-Founders
No Business Plan Survives First Contact with Customers
Not All Startups Are Alike
Startup Metrics are Different from Existing Companies
Agree on Market Type – It Changes Everything
Fast, Fearless Decision-Making, Cycle Time, Speed and Tempo
If it’s not About Passion, You’re Dead the Day You Opened your Doors
Startup Titles and Functions Are Very Different from a Company’s
Preserve Cash While Searching. After It’s Found, Spend
Communicate and Share Learning
Startups Demand Comfort with Chaos and Uncertainty
Quite a few people have asked for a way to remember these without having to dig through the book. So by popular demand, here’s a poster of the Customer Development Manifesto. You can order a copy here.
Nail it to your wall.
Nail the Manifesto to your Wall
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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
If you can’t see the presentation above, click here.
Commercialization of an Engineered Pyrolysis Blanket for the Conversion of Forestry Residues to Soil Amendments and Energy Products
Principal Investigator: Daniel Schwartz University of Washington
If you can’t see the presentation above, click here.
The other teams were equally interesting. Here are links to their Lessons Learned presentations.
IDecideFast – A web-based application for effective decision making for the layperson
Principal Investigator: Ali Abbas University of Illinois at Urbana-Champaign
Standoff detection of explosives using novel signal-amplifying nanocomposite and hand-held UV light
Principal Investigator: Yu Lei University of Connecticut
TexCone – Laser-Generated Surface Textures for Anti-Icing and Sun-Light-Trapping Applications
Principal Investigator: Mool Gupta University of Virginia
Concentric Technology
Principal Investigator: Walter Besio University of Rhode Island
Hand-Held Tonometer for Transpalpebral Intraocular Pressure Measurement
Principal Investigator: Eniko Enikov University of Arizona
Sweet Sensors – Portable sensors using widely available personal glucose monitor
Principal Investigator: Yi Lu University of Illinois at Urbana-Champaign
SwiftVax – A Green Manufacturing Platform for Faster, Cheaper, and Scalable Vaccine Manufacturing
Principal Investigator: Karen McDonald University of California-Davis
Lessons Learned
Yes, entrepreneurship can be taught
No, there’s no age limit
We now know how to reduce customer and market risk for new ventures
The combination of government, researchers in academia and risk capital make a powerful accelerator for technology commercialization
There’s at least one congressman who understands it
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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.
Lessons Learned
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
Team GameSpeed
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.
Given how important the students work in customer discovery outside the building was, we made each team keep an online journal on each step of their progress. Since the teaching team read each of their narrative before class and office hours, it made their in-class presentations short and efficient.
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.)
And we had the help of Lisa Forssell, director of technical artists from Pixar, who taught the “how to present class” and Thomas Haymore our indefatigable Teaching Assistant and our team of mentors.
One of the confusing things to entrepreneurs, investors and educators is the relationship between customer development and business model design and business planning and execution.
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.
Strategy
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.
Process
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.
Organization
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.
Instructional Strategy
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.
Lessons Learned
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
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