How to Raise Money – It’s a Journey Not An Event

Posted on February 26, 2020 by steve blank

Every year I teach classrooms full of students who leave class understanding the basics of how to search for product/market fit—and thinking their next goal is to “get funded.”

That’s a mistake.

There are two reasons to raise money:

  1. You have a killer idea that is only partially validated, that you think can get to $50M+ of revenue in 5 years with 80%+ gross margins (if margins are lower, you need a lot more revenue)and you need money to get to product-market fit, or
  2. You (think) you have product-market fit with real customers and real revenue and need money to grow and expand.

Not all startups need outside investment to grow.

What most founders don’t realize is:

  • Every stage of a startup requires a different set of metrics and milestones and founder skills. Knowing these will help a founder position her pitch to get investors’ attention.
  • Founders need to keep their eye on the prize — not just the next funding round

Luckily, I teach with two great VCs, Mar Hershenson of Pear Ventures and Jeff Epstein of Bessemer Venture Partners who both put together presentations unraveling the mysteries of how and why startups raise money. Jeff’s presentation is from the point of a view of “What Investors Want” (see resources here) while Mar’s takes it from a founder trying to figure out the funding landscape. And thanks to Ann Miura-Ko of Floodgate (my first Lean LaunchPad co-instructor) for her suggestions.

Keep in mind that there is no “one way” to raise money Different investors will almost certainly have different models, and different regions may have different math. Still, there are some benchmarks to keep in mind.

Here’s the first 2½ years of a startup journey.

The Startup Investment Landscape

For startups the early stage funding landscape looks like this:

  • Step 1: The Pre-seed round – you raise $500K-$2.5M
  • Step 2: The Seed round – you raise $2.5-$7.5M
  • Step 3: The Series A – you raise $7.5-$25M
  • Step 4: Series B – you raise $15-$65M
  • Step 5: Series, C, D….

(Btw, the definition of each startup financing stage has changed in the last decade.  What was a Series A round in 2005 is now a pre-seed or seed round. And what used to be a seed round a decade ago is now a pre-seed round. Lots of reasons for this shift, but it basically boils down to there’s a lot more money that wants to invest in startups, and all of it is racing to get in early.)

This is a journey that can be planned and measured. In a pre-seed round you are focused on building minimal viable products, testing your insights and searching for product/market fit.  In the seed round you have an early product and by the end you’ve found product/market fit and understand the scale of what you’re building and the levers that you can pull to accelerate growth. For a Series A round you want to prove you have built a repeatable and scalable sales/revenue model and understand all parts of the business model. Series B is about proving your net revenue model (can you be profitable?). Series C onwards funds growing your company to $100M in gross profit.

(At the end of this post, we’ll discuss the valuation at each step (how much the investors value your company and therefore how much of it you need to give up to get this money) and how much revenue you should generate at each step.)

Pitch
By the way, If your pitch is not going to knock investors’ socks off, if you cannot communicate a big vision and a unique insight about the 10x advantages which customers and users will care deeply about, then even if you build out the smartest, most thoughtful process of chasing fundraising, you will fail.

Team, Product, Traction, Business Model and Market
In each step of funding there are five questions you (and potential investors) will be asking: Tell me about your team, your product, your traction, your business model and the market.

Team is just what it sounds like. Tell me why you’re the right person to lead this company (bad answer “Because it’s my idea.” Better answer, “Because I’m the customer.”) Tell me about the group of people you’ve surrounded yourself with – your cofounders and then your key executives. Each stage of funding and company growth requires additional expertise and new skills, and you’ll want to demonstrate that you have these with potential investors.

Product (sometimes called the “value proposition”) is the product or service you’re building. One of the tough things for a startup is to figure out how much of the “product” has to be real and working at each stage of funding.

Traction is a fancy investor word for “Show me you’re making progress.” It’s sometimes called “product/market fit.” In a startup’s early days – pre-seed and seed – this is not about how much revenue you’ve made but more about how much customer passion your product is creating and how many more are loving it each week/month.  (Read Ann Miura-Ko’s article on product/market fit here.)

Business Model
Founders tend to fixate on the product. Now that product/market fit is part of the lexicon most understand that the product also needs passionate customers. But great product and eager customers are just part of what makes a great business. The rest that makes up a company is called its business model. These elements of the business model– revenue (pricing, pricing strategy), distribution channel, How to Get/Keep/Grow customers, Key Activities, Resources and Costs – are other, critical parts your start up needs to understand and have in place.

Market is a euphemism for “How big can your company grow?” Investors want to put their money to work in a startup that can be worth billions or tens of billions of dollars. What are your unique insights about technology, economics, change in market, etc. What evidence do you have that you can grow this big? How will you do it?

The big idea about all of this is that at each step of funding, the order and priority of team, product, traction and market changes.

Pre-seed Round of Funding
In the pre-seed stage, a startup is searching for product/market fit. There are no customers and no product, just a series of minimal viable products.

Funding:  Startups typically raise anywhere from $500K to $2,500,000 in pre-seed. At the low-end this might come from friends, family or angel investors. At the high-end pre-seed angel funds might invest. (Yes, there are venture funds that look for and invest in startups this early.)

  • Team: As you’re raising money from friends, family or angels, investors in this round are betting mostly about you and your team. Have you or your team members achieved anything important in the past? Any wins to date in your startup? Do you have co-founders who complement your skills? (Warning signs are “We were in the dorm together” or “It’s my team from the class I took.”)
  • Traction: Tell investors about your search for product/market fit and what you’ve learned from potential customers to date. Show them the evolution of your minimal viable product and its current state. You need to begin to “instrument” your customer acquisition process with analytics.

(Product/market fit means that you’ve found the match between your potential customers’ pains, gains and jobs to be done and the features of your minimal viable product. I.e. your product fits the needs of your target customers.)

  • Product: At this stage you are building a series of low-fidelity products (sometimes called a minimal viable product or MVP.) It might be a wire-frame, PowerPoint demo or prototype. The goal of the product at this stage is not a sale, but to test hypotheses about customer product/market fit. (Along with the MVP you share your three-year product vision to see if your product vision engages a passionate customer response.
  • Market: Tell us why this is going to be a huge market. Even better, start with a unique insight – what have people missed, what’s changed, what’s now possible? (Warning signs are, “No one has thought of this/is doing this/we have the exclusive patents.”)
  • Business Model: List all the parts of your business model. What are your assumptions about each part? What is some of the critical metrics that matter? Number of customers? Revenue per customer? Number of employees? Revenue, Gross Margin? Expenses? How do you plan to test them.

Goal/Time: By the end of the pre-seed stage the company ought to have evidence that it has found product/market fit. You should be thinking about an end-to-end pipeline of how to Get/Keep/Grow customers. This pre-seed stage typically takes 6-12 months.

Pre-Seed Round Paperwork: Smart investors will typically give you minimal paperwork – either a convertible note or a SAFE (Simple Agreement for Future Equity) or a KISS (Keep It Simple Securities).

Seed Round of Funding
By the end of the pre-seed stage (about a year into your startup), your startup has evidence that they’ve found product/market fit. (One sign is that you are no longer changing your website/sales PowerPoint/product/app every time you need to acquire a customer.) Now it’s time to raise money to acquire paying customers.

Funding:  Startups typically raise anywhere from $1.5 million– $7.5 million in a seed round. At the low-end this might come from angel investors and pre-seed funds. At the high-end, funds specializing in Seed rounds and Series A funds might invest.

  • Traction: For a seed round investors want to focus on traction. You need to provide proof that customers love and can’t live without your product. This means you have evidence that you’ve found product/market fit and have fanatic customers who are reference accounts. You’ve built detailed analytics tracking into your product and you should be seeing organic and viral growth; and can provide Daily/Weekly/Monthly Active Users, 30d/90d/120d retention. Retention and low attrition are good signs of customer validation.

(Note that each market – web/SAAS/physical products – and channel – online/direct sales –  has different metrics and a different funnel steps.)For example, this should translate to revenue ~$0-200K/Annual Recurring Revenue with a clear plan to reach $1.5M-2M in 18 months. The goal is to iterate on building a repeatable engine for growth that makes the economics work. This is different than focusing solely on the gross revenue number.

(Your ARR and revenue milestones will depend on what business you’re in.  For example, not all revenue is recurring and even in a subscription model for a consumer goods company, your recurring revenue will not be valued the same as if you’re selling enterprise software and operating costs are so vastly different.  As an example, $1 of revenue for a direct to consumer company is worth ~$1 in valuation at scale (Zappos was sold for $1B when they had $1B in sales).  On the other hand, in a SaaS business $1 in recurring annual revenue equals ~10x in valuation.)

  • Product: At this stage you have a high-fidelity product, one that earlyvangelists (early passionate customers) can use and pay for. Enough of the product is demonstrable enough that you can gauge customers’ price sensitivity, depth of engagement, etc. The three-year product roadmap gets earlyvangelists engaged.
  • Team: Do you have a core team that can build the first product and get early sales? The culture needs to be hypothesis > experiment > data > insight > validate/invalidate/modify hypotheses.
  • Business Model: In seed you often discover that your business has more moving parts than you originally thought. You may be in a multi-sided market with other customer segments/partners that are critical to your business. You should be testing all parts of your business model; revenue models/pricing, resources, activities and partners.
  • Market: Tell us why the data validates that this is going to be a huge market. At first the founders do the first sale, then they prove your first salespeople can repeat that sale.

Goal/Time: By the end of the seed stage, the company ought to have evidence that repeatable sales can be made by the founding team.  This typically takes 12-18 months.

Seed Round Paperwork: While founders will still want minimal paperwork – either a convertible note or a SAFE or a KISS– professional investors at this round often want an equity round with a more formal set of documents for their investments. You’ll see a Term Sheet, Stock Purchase Agreement, Amended and Restated Certificate of Incorporation, Investors’ Rights Agreement, Right of First Refusal and Co-Sale Agreement and a Voting Agreement.

Series A Round of Funding
By the end of the seed stage–about 2½ years into your startup– your startup has a repeatable and scalable sales model and a provable case that there can be a multi-billion dollar valuation.

Funding:  Startups typically raise anywhere from $7.5 million – $25 million in a Series A round. This size round typically comes from a venture fund or a corporate VC.

  • Market: You need to convince investors that this is at least a $1B+ company.
  • Product: At this stage you have a fully-featured first version of the product needed to scale sales. And you are working to the three-year product vision, iterating and course correcting based on customer feedback.
  • Traction: For a Series A round investors want to focus on a repeatable and scalable sales model with efficient growth. That means you need metrics that prove you have it. Repeatable sales means if you hire an account exec, you know that they will close $1M Annual Recurring Revenue in a year. Or if you spend $100K in ad spend, you can get 100,000 new users.Startups raising an A round typically have $ ½M-$4M Annual Recurring Revenue. Note that the focus should not just be on growth month-to-month but also on efficient growth.

For example, other metrics include achieving net retention of 80-150%, getting a Lifetime Value/Customer Acquisition Cost ratio greater than 3, getting to two times Customer Acquisition Cost Payback Period in less than 18 Months. You should have a realistic plan to grow revenue 3-5x in 12 to 18 months.

These numbers differ dramatically for e-commerce versus consumer, versus SAAS, etc. You should know what the right success metrics are for your industry. (The best VC’s will actually tell you what metrics they are looking for.)

  • Team: The core product team is working efficiently and the sales team for scale is in place and 75% are meeting quota.
  • Business Model: By the end of Series A, all parts of the business model have been tested and they add up to a scalable, repeatable and profitable business.

Goal: By the end of the Series A, the company ought to prove that you’re a business not a hobby. You need to show > $5M in gross profit.  Just to put your journey in perspective, if you want to achieve Unicorn status or go public, you ultimately need to deliver $100 million annual gross profit in Years 6 – 8.

Series A Paperwork: You’ll be seeing a Term Sheet, Stock Purchase Agreement, Amended and Restated Certificate of Incorporation, Investors’ Rights Agreement, Right of First Refusal and Co-Sale Agreement and a Voting Agreement.

Revenue Growth
Some investors think of the ideal startup revenue growth with a shorthand of “triple, triple, double, double, double.”

Years 1-3: $0-$2M in revenue
Year 4: Triple the revenue to $2-$6M
Year 5: Triple the revenue again to $6-$18M
Year 6: Double the revenue to $12-$36M
Year 7: Double the revenue again to: $24-$72M
Year 8: Double the revenue again to: $48-$144M

Valuations
Fair or not, not all startups are equal in the eye of their potential investors. Some startups may be considered “hotter” than others and get much higher valuations. A hot startup may be even able to skip the pre-seed round and go directly to a seed round – meaning more money raised at a higher valuation. The criteria for a “hot” startup include:

  • The background of the founders
    • attended a top university i.e. Stanford, MIT, Harvard
    • had previous experience at a high-growth company, ie Facebook, Google, etc.
    • serial entrepreneur
  • A “hot” market
    • It depends on the month or year – is it AI? Big Data? AR/VR, Cyber, Robotics
  • Hype
    • Do you have a big investor leading the round?
    • Have you gone through Y-Combinator?
    • Are you famous?
  • Location
    • Silicon Valley
    • Other innovation clusters
  • FOMO
    • A startup with a huge vision and story can create FOMO (fear of missing out) in investors – one of the strongest forces for accelerating your fundraising process.
    • At the same time VCs worry about FOLS: Fear of looking stupid
    • FOMO> FOLS

Lessons Learned

  • Every stage of a startup requires a different set of metrics and milestones and founder skills.
  • Knowing what investors want at each stage provides founders with guideposts
  • Founders need to keep their eye on the prize not just the next funding round

Filed under: Venture Capital | 11 Comments »

Clayton Christensen

Posted on January 28, 2020 by steve blank

Say not in grief he is no more – but live in thankfulness that he was

If you’re reading my blog, odds are you know who Clayton Christensen was. He passed away this week and it was a loss to us all.

Everyone who writes about innovation stood on his shoulders.

His insights transformed the language and the practice of innovation.

Christensen changed the trajectory of my career and was the guide star for my work on innovation. I never got to say thank you.

Eye Opening
I remember the first time I read the Innovator’s Dilemma in 1997. Christensen, writing for a corporate audience, explained that there were two classes of products – sustaining and disruptive. His message was that existing companies are great at sustaining technologies and products but were ignoring the threat of disruption.

He explained that companies have a penchant for continually improving sustaining products by adding more features to solve existing customer problems, and while this maximized profit, it was a trap. Often, the sustaining product features exceed the needs of some segments and ignore the needs of others. The focus on sustaining products leaves an opening for new startups with “good enough” products (and willing to initially take lower profits) to enter underserved or unserved markets. These new entrants were the disruptors.

By targeting these overlooked segments, the new entrants could attract a broader base of customers, iterate rapidly, and adopt new improvements faster (because they have less invested infrastructure at risk). They eventually crossed a threshold where they were not only cheaper but also better or faster than the incumbent. And then they’d move upmarket into the incumbents’ markets. At that tipping point the legacy industry collapses. (See Kodak, Blockbuster, Nokia, etc.)

Christensen explained it wasn’t that existing companies didn’t see the new technologies/ products/ markets. They operated this way because their existing business models didn’t allow them to initially profit from those opportunities – so they ignored them – and continued to chase higher profitability in more-demanding segments.

Reading The Innovator’s Dilemma was a revelation. In essence, Christensen was explaining how disruptors with few resources could eat the lunch of incumbents. When I finished, I must have had 25 pages of notes. I had never read something so clear, and more importantly, so immediately applicable to what we were about to undertake.

We had just started an enterprise software company, Epiphany, and we were one of those disruptors. I remember looking at my notes and I realized I held a step-by-step playbook to run rings around incumbents. All I had to do is to exploit all the gaps and weaknesses that were inherent in incumbent companies.

We did.

Thank you, Clay for opening my eyes.

Inspiration
Christensen’s impact didn’t end there. For the last 20 years he inspired me to think differently about innovation and teaching.

Building better startups
After retiring I began to think about the nature of startup innovation and entrepreneurship. It dawned on me that the implicit assumption startups had operated under was that startups were simply smaller versions of large companies.  Over time, I realized that was wrong – large companies executed known business models, while startups searched for them.

I went back and reread the Innovator’s Dilemma and then a ton of the literature on corporate innovation. My goal was to figure out how to crack the code for startups like Christensen did for corporations. My first book The Four Steps to Epiphany was a pale shadow of his work, but it did the job. Customer Development became one of the three parts of the Lean Startup as Eric Ries and Alexander Osterwalder provided the other two components (Agile Engineering and the business model canvas.) Today, the pile of books on startup innovation and entrepreneurship likely equals the literature on corporate innovation.

Teaching a different kind of innovator
Unlike corporate executives, founders are closer to artists than executives – they see things others don’t, and they spend their careers passionately trying to bring that vision to life. That passion powers them through the inevitable ups and downs of success and failures. Therefore, for founders, entrepreneurship wasn’t a job, but a calling.

Understanding the students Clay was teaching gave me the confidence that we needed to do something different. The result was the Lean LaunchPad, I-Corps and Hacking for Defense — classes for a different type of student that emulated the startup experience.

Dropping the curtain on Innovation Theater
The next phase of my career was trying to understand why the tools we built for startups ended up as failing (i.e. Innovation Theater) in companies and government organizations, rather than creating actual innovation.

Here again I referred to Christensen’s work not only in the Innovators Dilemma, but the Innovators Solution. He had introduced the idea that customers don’t buy a product, rather than they hire it for a “job to be done.” And offered a set of heuristics for launching disruptive businesses.

I realized what he and other management thinkers had long figured out. That if you don’t engage the other parts of the organization in allowing innovation to occur, existing processes and procedures will strangle innovation in its crib. In the end companies and government agencies need an innovation doctrine – a shared body of beliefs of how innovation is practiced – and an innovation pipeline – an end to end process for delivery and deployment of innovation.

Thank you, Clay for all the inspiration to see further as an educator.

How to Measure your Life
For me, Clay’s most important lesson, one that put his life’s work in context, was his book How to Measure Your Life.

In it, Christensen reminded all of us to put the purpose of our lives front and center as we decide how to spend our time, talents, and energy. And in the end the measure of a life is not time. It’s the impact you make serving God, your family, community, and country. Your report-card is whether the world is a better place.

He touched all of us and made us better.

Thank you, Clay for reminding us what is important.

You left us way too early.

Filed under: Teaching | 14 Comments »

Getting Schooled – Lessons from an Adjunct

Posted on December 3, 2019 by steve blank

This post previously appeared in Poets and Quants

I’ve been an adjunct professor for nearly two decades. Here’s what I’ve learned.

Colleges and universities that offer entrepreneurs the opportunity to teach innovation and entrepreneurship classes may benefit from a more formal onboarding process.

The goal would be six-fold:

  1. Integrate adjuncts as partners with their entrepreneurship centers 
  2. Create repeatable and scalable processes for onboarding adjuncts
  3. Expose adjuncts to the breadth and depth of academic research in the field
  4. Expose faculty to current industry practices
  5. Create a stream of translational entrepreneurship literature for practitioners (founders and VC’s.) 
  6. Create fruitful and mutually beneficial relationships between traditional research faculty and adjunct faculty.

In my experience as both an adjunct and a guest speaker at a number of universities, I’ve observed the often-missed opportunity to build links between faculty research and practitioner experience. Entrepreneurial centers have recognized the benefits of both, but a more thoughtful effort to build stronger relationships between research and practice—and the faculty and adjuncts who are teaching – can result in better classes, strengthen connections between research and practice, build the Center’s knowledge base and enhance the reputation of the Center and its program.  (See here for what that would look like.)

An adjunct is a non-tenure track, part-time employee. Innovation and entrepreneurship programs in most schools use experienced business practitioners as lecturers or adjunct faculty to teach some or all of their classes. In research universities with entrepreneurship programs adjuncts are typically founders, VC’s or business executives. Tenure track faculty focus on research in innovation and entrepreneurship while the adjuncts teach the “practice” of entrepreneurship.

It’s Been A Trip
I’ve been an adjunct for almost 18 years, and I still remember the onboarding process at the Haas School of Business at the University of California, Berkeley. I started as a guest lecturer, essentially walk-on entertainment, where the minimal entry was proving that I could form complete sentences and tell engaging stories from my eight startups that illustrated key lessons in entrepreneurship.

Feeling like I had passed some test (which I later learned really was a test), I then graduated to co-teaching a class with Jerry Engel, the Founding Executive Director of the Lester Center for Entrepreneurship at Haas. Here I had to master someone else’s curriculum, hold the attention of the class and impart maximum knowledge with minimum damage to the students. While I didn’t realize it, I was passing another test.  

I knew I wanted to write a book about a (then) radically new entrepreneurship idea called Customer Development (later the foundation of the Lean Startup movement). Concurrently, Jerry needed an entrepreneurial marketing course, and suggested that if I first created my class, a book would emerge from it. He was right. The Four Steps to the Epiphany, the book that launched the Lean Startup movement, was based on the course material from my first class. I don’t know who was more surprised – Jerry hearing that an adjunct wanted to create a course or me hearing Jerry say, “Sure, go ahead. We’ll get it approved.”  

And here’s where the story gets interesting. John Freeman, the Faculty Director of the Lester Center for Entrepreneurship at Haas, began to mentor me as I started teaching my class. While I expected John to drop in to monitor how and what I was teaching, I was pleasantly surprised when he suggested we grab coffee once a week. Each week, over the course of the semester, John gently pointed (prodded) me to read specific papers from the academic literature that existed on customer discovery in the enterprise and adjacent topics. In exchange, I shared with him my feedback on whether the theory matched the practice and what theory was missing. And herein lies the tale.

I got a lot smarter discovering an entire universe of papers and people who had researched and thought long and hard about innovation and entrepreneurship. While no one had the exact insights about startups I was exploring, the breadth and depth of what I didn’t know was staggering. More importantly, my book, customer development, and the Lean methodology were greatly influenced by all the research that had preceded me. In hindsight, I consider it a work of translational entrepreneurship. 18 years later I’m still reading new papers and drawing new insights that allow me to further refine ideas in the classroom and outside it.

The Relationship of Faculty, Staff and Adjuncts
What I had accidentally stumbled into at U.C. Berkeley was a rare event. The director of the entrepreneurship center and the faculty research director were working as a team to build a department which explored both research and practice in depth. Together, in just a few years, they used the guest speaker > to co-teacher > to teacher methodology to build a professional faculty of over a dozen instructors.

A few lessons from that experience:
A successful adjunct program starts with the mindset of the faculty research director and the team building skills of the center director. If they recognize that the role of adjuncts is to both teach students practical lessons and to keep faculty abreast of real-world best practices, the relationship will flourish. 

However, in some schools, this faculty-adjunct relationship may become problematic. Faculty may see the role of adjuncts in their department as removing the drudgework of “teaching” from the research faculty so the faculty can pursue the higher calling of entrepreneurial research, publishing and advising PhD students. In this case, adjuncts at the entrepreneurial center are treated as a source of replaceable low-cost teaching assets (somewhere above TA’s and below PhD students.) The result is a huge missed opportunity for a collaborative relationship, one that can enhance the stature and ranking of the department.

When there is support from the faculty research director, the director of the entrepreneurship center can build a stronger program that enhances the reputation of the faculty, program and school.

At U.C. Berkeley this support eventually led the entire school to change its policy toward adjuncts, giving them formal recognition – designating them ‘professional faculty,’ creating a shared office space suite, inviting adjuncts to participate in some faculty meetings, etc.

A side effect of this type of collaboration is that the faculty-adjunct relationship offers the school an opportunity to co-create translational entrepreneurship.

Translational entrepreneurship is fancy term for linking entrepreneurial research with the work of entrepreneurs. As a process, adjuncts would read an academic paper, understand it, see if and how it can be relevant to practitioners (founders, VC’s, corporate exec or employees) and then sharing it with a wide audience.

While Jerry and John built a great process, they didn’t document it. When John Freeman passed away and Jerry Engel retired, the onboarding process went with them. Linked here is my attempt to capture some of these best practices in an “Onboarding Adjuncts Handbook” for directors of entrepreneurship centers and adjuncts.

It’s worth a look.

Lessons Learned

A small investment in building repeatable and scalable processes for onboarding adjuncts would:

  • Allow entrepreneurship centers to integrate adjuncts as partners 
  • Expose adjuncts to the breadth and depth of academic research in the field
  • Potentially create a stream of translational entrepreneurship literature for practitioners (founders and VC’s.) 
  • The result would be:
    • Better adjunct-led classes
    • Deeper connections between research and practice
    • Better and more relevant academic research
    • Enhanced reputation of the center and its program
  • See here for a suggested onboarding handbook
    • Comments, suggestions and additions welcomed

Filed under: Teaching | 3 Comments »

We Needed a Bigger Room – The Lean Educators Summit

Posted on November 19, 2019 by steve blank

It’s a bit bittersweet. We used to be able to fit all the Lean Educators in my living room and have space left over. No longer.

Turns out we needed a bigger room for the Dec 4th-5th Lean Educators Summit.

The good news is that if we’ve turned you away or you were on the waiting list we moved to a bigger venue.

It’s been almost a decade since we first started teaching the Lean Methodology. It’s remade entrepreneurship education, startup practice and innovation in companies and the government. But in all that time, we haven’t gotten a large group of educators together to talk about what it’s been like to teach Lean or the impact it’s had in their classrooms and beyond. It dawned on us that with 10 years of Lessons Learned to explore, now would be a good time.

This one class launched the National Science Foundation I-Corps program, (designed to help turn our country’s best academic research into companies), the I-Corps @ the National Institute of Health, I-Corps @ the Department of Energy, I-Corps @ NSA, Hacking for Defense and Hacking for Diplomacy, Hacking for Cities and Hacking for Non-profits. Hacking for Oceans is coming next.

Educators Sharing Best Practices
So, for the first time ever, Jerry Engel, Pete Newell and Steve Weinstein and I are getting all educators from all these groups together for a “share best practices” summit – December 4th – 5th.

We’re going to cover:

  • The effectiveness of our programs [including I-Corps and Hacking for Defense]: What we have learned so far and how to make it better
  • Customer Discovery and Lean Innovation in Academic Settings vs Non-Academic Settings such as incubators and accelerators
  • Tech Commercialization: innovators vs. entrepreneurs –  motivating scientists and engineers
  • Lean Innovation in the Enterprise, Not-for-Profit and Government – what’s different
  • International: Success and Challenges of Lean Innovation and Customer Discovery in  Europe and Asia [and South America? Australia?]
  • What’s next for Lean and entrepreneurial education
  • and much more…

Agenda is below.

Register here

See you there!

Filed under: Educators Summit, Teaching | 2 Comments »

Why The Government is Isn’t a Bigger Version of a Startup

Posted on November 12, 2019 by steve blank

This article previously appeared in War On The Rocks

There was a time when much of U.S. academia was engaged in weapon systems research for the Defense Department and intelligence community. Some of the best and brightest wanted to work for defense contractors or corporate research and development labs. And the best startups spun out of Stanford were building components for weapon systems.

Indeed, Silicon Valley was born as a center for weapon systems development and its software and silicon helped end the Cold War.

During World War II the United States did something its adversaries did not; it enlisted professors and graduate students as civilians in 105 colleges and universities to build advanced weapon systems — nuclear weapons, radar, etc. After World War II, the military-academic relationship that was so effective against Germany and Japan mobilized to face the Soviet threat and almost every research university (Massachusetts Institute of Technology, Stanford, Caltech, Harvard, Columbia, Johns Hopkins, University of Michigan, University of Wisconsin, Cornell, University of Chicago, and many others) continued to engage in weapon systems research during the Cold War.

Unique among them was Stanford, which provost Fred Terman (the father of American electronic warfare and electronic intelligence in World War II)) built as a center of excellence in microwaves and electronics. Rather than focus the university inward on research, Terman took the radical step of encouraging Stanford professors and graduate students to start companies applying engineering to pressing military problems. The companies they started in the 1950s and 60s were based on Stanford’s defense contacts and contracts — microwave components, electronic warfare, and intelligence systems, and then the first wave of semiconductor companies. As there was no venture capital, these early startups were funded by early sales to weapon systems prime contractors and subcontractors.

But this quarter-century relationship between the military and universities ended with a bang in 1969. In the middle of the Vietnam War, student riots protesting military research forced the end of classified work on most college campuses. One of the unintended consequences was that many of the academics went off to found a wave of startups selling their technology to the military. For example, at Stanford after student riots in April 1969 shut down the Applied Electronics Laboratory, James de Broekert ,who was building electronic intelligence satellites, left the university and co-founded three Silicon Valley military intelligence companies: Argo Systems, Signal Science, and Advent Systems.

Within a decade, the rise of venture capital in Silicon Valley enabled startups to find commercial customers rather than military ones. And from then on, innovation in semiconductors, supercomputers, and software would be driven by startups, not the government.

After 9/11, with the memories of the fall of the twin towers, this ecosystem of military, academic, corporate, and startup actors coalesced for the decade as U.S. companies felt a patriotic duty to help their country defeat a common enemy.

But the 2013 Snowden revelations damaged that tenuous relationship yet again. In hindsight the damage wasn’t the result of what the United States was doing, but over the Pentagon’s inability and unwillingness to own up to why it was doing it: After the intelligence failure of 9/11, security agencies overcompensated by widespread, warrantless datamining as well as electronic and telephonic surveillance, including on U.S. persons.

Without a clear explanation of why this had been done, startups, which were already being funded by ever-increasing pools of venture capital, abandoned cooperation with the Defense Department and focused on high returns on social media and commercial applications. The commercial applications of big data, machine learning, artificial intelligence, drones, robotics, cyber, quantum computing, and biotechnology are the core foundations on which the Pentagon needs to build the weapons of the 21st century. Yet the development of these advanced technologies is now being driven by commercial interests, not the Defense Department.

America’s adversaries understand this. China is tightly integrating its defense establishment with startups, companies, and academia in “military-civilian fusion.” Russia, Iran, and North Korea have also fused those activities.

Reconstituting the tightly connected military-academic-commercial ecosystem that the Defense Department once had requires the Pentagon to relearn skills it once had, overcoming decades of avoiding the political and social issues of what it takes to rally the nation against a common threat. Today, every government agency, service branch, and combatant command is adopting innovation activities (hackathons, design thinking classes, innovation workshops, et al.) to tap into the creativity of a new generation of soldier — born into a digital world, comfortable with technology, and willing to improve and enhance America’s ability to fight and win.

The Government Can’t Act Like a Startup
However, those activities are not enough. The government isn’t a bigger version of a startup and can’t act like a startup does. Innovation activities in government agencies most often result in innovation theater. While these activities shape and build culture, they don’t win wars, and rarely deliver shippable or deployable products.

Startups dream in years, plan in months, evaluate in weeks, and ship in days. At times this means startups operate at speeds so fast they appear to be a blur to government agencies. It’s not that these companies are smarter than Defense Department employees, but they operate with different philosophies, different product development methodologies, and with different constraints.

The table below summarizes a few of the salient differences. Some of the most important are the least obvious. Startups can do anything. They can break the law and apologize later (as Uber, Airbnb, and Tesla did), but a government official taking the same type of risks can go to jail.

Urgency and risk-taking in a startup are integral parts of the culture, felt by 100 percent of early-stage employees. The urgency servicemembers feel on the battlefield is felt by few in government agencies, and most often there are negative incentives for risk-taking. In a startup cluster (Silicon Valley, Beijing, Tel Aviv) a failed entrepreneur is known as “experienced.” In a government agency, they’re likely known as being out of a job.

Innovation at speed is a given at a startup but the exception in a government agency. Advances in commercial technologies are occurring at no less than two, and up to ten, times the speed of comparable Pentagon-developed or acquired systems. Some of the speed is simply due to development methodologies. Waterfall development is still used by most defense contractors, resulting in updates of systems measured in years. With Agile development, used by all startups, updates can occur in weeks or sometimes days, or even hours. Some of the speed differences are because commercial companies and academics face Darwinian competitive pressures for revenue or recognition. These force rapid technical advances in fields such as machine learning, artificial intelligence, robotics, big data, and analytics.

The very definition of a contractor implies a contract. And a government contract starts with fixed requirements that only change with contract modifications. That makes sense when the problem and solution are known. But when they are unknown the traditional methods of contracting fail. Startups recognize that when new circumstances arise, they can pivot — make substantive changes to their products without any new contracts.Existing contractors have learned how to master the arcane defense acquisition system and live with the slow decision-making and payment processes. In some agencies, large contractors seem to “own” sections, offices, organizations, or programs. Often former government employees, at the level of GS-15 and below, will leave as staffers and return the next day working for large Beltway contractors, working or managing the same programs they previously worked. This relationship between government agency and contractor further impedes and often rejects innovation or disruption. Officers know they will likely lose their post-retirement future if they seek radical change.

This symbiotic relationship between government agencies and incumbent contractors is also a barrier to new entrants, in particular to startups with the very technologies the Department of Defense now needs. While the Pentagon has made efforts to reform the process (Other Transaction Authorities, TechFAR, mid-tier contracting, accelerators…) there is still a fundamental misunderstanding of what financial incentives would attract the best and brightest investors to guide their companies to work with the Defense Department. There are no incentives for prime contractors to invest in new ventures and none to acquire new ventures. And there is no plan for how to rapidly insert and deploy startup technologies into weapon systems.

So, the question is: What’s next? How do leaders in government think about and organize innovation in a way that makes a difference?

The answer is that, yes, government agencies need to be more agile. And yes, they need to fix the systemic internal issues that hinder their own innovators’ contributions. But, in addition, what they are missing is a comprehensive plan to build a 21st-century defense innovation ecosystem — reintegrating the military, academia, and private enterprise. To harness both their own internal innovators and this new external ecosystem the Defense Department needs what I call an innovation doctrine to organize their efforts to rapidly access and mobilize talent and technology. The Pentagon can build a mindset, culture, and process to fix this. This doctrine would let the country again capture the untapped power and passion of the best and brightest to leapfrog adversaries and win wars.

Filed under: Corporate/Gov't Innovation, Innovation Doctrine | 10 Comments »

How to Convince Investors You’re the Future not the Past

Posted on October 29, 2019 by steve blank

This article previously appeared in VentureBeat.

I just had a coffee with Mei and Bill, two passionate students who are on fire about their new startup idea. It’s past the “napkin-sketch” stage with a rough minimum viable product and about 100 users.

I thought they had a great insight about an application space others had previously tried to crack.

But they needed to convince investors that they are Facebook not Friendster.

Here’s what I suggested they do:

Mei and Bill are building a better version of an on-demand help service like TaskRabbit. And “better” didn’t do it justice. They have a unique insight about the nature of interactions between customers and service providers I’ve never heard before. If they are correct, they’ve found a unique combination of customers and value proposition that made these customers want to immediately pay and repeatably engage. The early indication from their minimum viable product is that they found early signs of product/market fit. Even more interesting, their product might have a much higher initial order size and much greater lifetime value than existing on-demand help services.

All good. So what was the problem?

Their immediate problem was that investors, even seed investors, were convinced that the market segment Mei and Bill wanted to enter was littered by failures. And as soon as they described the space, investors rolled their eyes and passed.

Creative Destruction Meets Risk Capital
Like all entrepreneurs with an idea burning bright, Mei and Bill thought they were the first to invent water, air and fire.

When you’re young you believe that the world sprang into existence yesterday (or at least when you started college) and anything older than three years ago is ancient history. Ignorance of the past and disdain of the status quo are part of how innovation happens. As companies get larger and individuals get older, most get trapped in dogma and aversion to risk. Meanwhile cultural taste, technology and platforms evolve, and new things are possible that might not have been just years ago. The cycle of creative destruction of the old being replaced by the new continues, fueled by angel and venture capital.

And therein lies the catch – investors have longer memories of failures than new entrepreneurs. When you’re describing the future, most of them are remembering the past.

To See the Future Understand the Past
So Mei and Bill were facing two problems. The first was obvious; they needed to know how investors viewed their space. Second, they needed to know how to make it clear that the world had changed and that they had figured out how to solve the problems that cratered previous entrants. To do so they needed to learn six things:

  1. What companies in their space came before them?
  2. Why did those fail?
  3. Which investors got burned?
  4. How has the market/technology/customers evolved since then?
  5. What’s Mei and Bill’s unique insight that makes their startup different?
  6. Who else is playing in their space or adjacent markets? And how could they make that a strength, not a weakness?

What companies in their market came before them? And why did those fail? Which investors got burned?
Mei and Bill needed to understand the past so they could fund the future. I suggested they do some research by reading founders’ and investors’ public post-mortems of what went wrong. CBInsights has a collection of 300+ startup failure post-mortems, and Crunchbase has a startup failure database. Both of these are required reading. And others exist.

Finding these lists is just the beginning. Since Mei and Bill were networking, there would be a lot to learn if they talked to the founders of startups that built products similar to theirs, but didn’t make it. I pointed out you can get these meetings if you tell them what you’re trying to build and let them know you’d like to get smarter from them. You’d be surprised how many founders will agree to chat. (At least those who’ve recovered.) Ask them, “What did they wish they knew when they started? What did they learn? What would they do differently?” And most importantly, “Did your investors understand the space? Did they help trying to find scale? Would you take money from them again?”

Out of those same lists (CBInsights, Crunchbase, etc.) keep a list of the investors who lost money on those deals. Not to avoid them, but to call on them when you’ve learned why you won’t make the same mistakes or have a better insight. Getting introduced as a team who solved a problem that they’re familiar with may not get you funded, but if you pique their interest you will get a post-doc of the market and space as it existed. Your job is to process that information and understand what’s changed/what you will do differently to not fall victim to the same fate.

How has the market/technology/customers evolved? What’s your unique insight? Who else is playing in their space or adjacent markets?
Once you have a grasp of the past you can realize it’s just a preamble to the present.

Put together a single slide that graphically shows the evolution of the space you’re in. You’re trying to show what’s changed to make your startup economically viable today. What’s changed? Platform changes (web to mobile), faster technology (3G to 4G to 5G), commoditization of tech (Cloud). Has consumer behavior changed? Emergence of the sharing economy (Uber, Airbnb), brands no longer important (Dollar Shave Club)?  All these examples ought to point out that the world (technology and market) is a different place now – and the opportunity is even bigger.

Finally, given what you’ve learned about the past, what’s your insight about the future? What do all these changes mean? What are the core hypotheses of why this is a potentially huge business going forward?

Understanding how the space has evolved, gets you from past to present. Understanding competitors and adjacent players allows you to map today to tomorrow.

When I asked Mei and Bill if they could draw the direct competitors and adjacent players, they pulled out a trusty X-Y competitive analysis chart which made me want to shoot every management consulting firm that ever existed. The chart not only didn’t say anything useful, it gave Mei and Bill false comfort that they actually understood anything about the space around them.

Instead I suggested they start with a Petal Diagram. Rather than focus on just two dimensions of competition, this allows you to show all the adjacent market segments like leaves in a petal.

You label each leaf with the names of the market spaces and the names of the companies that are representative players in these adjacent markets. You use this chart to articulate your first hypotheses of what customers segments you’re targeting.

Then follow up the Petal Diagram with another slide that says, here’s our unique insight that’s been validated by customer discovery. And why now is the time to seize the opportunity.

If you’re talking to the right investors, this approach can generate a high-bandwidth conversation because you’ve given them an opportunity to critique your analysis of failure, risk, insight and opportunity.

It was a lot of information for a coffee and I thought I may have overwhelmed Mei and Bill with a fire hose of opinions. But the next day I got an email that said, “We’re on it. We have the first two interviews with ex-founders in our space scheduled.”

Lessons Learned

  • If you’re in a market that previously ate up lots of investor dollars, remember:
    • Investors have longer memories of failures than new entrepreneurs
    • When you’re describing the future, most of them are remembering the past
  • Remove those obstacles by educating yourself and investors about why the time is now
  • Carpe diem – Seize the day

Filed under: Customer Development | 4 Comments »

Why Companies and Government Do “Innovation Theater” Instead of Actual Innovation

Posted on October 15, 2019 by steve blank

This article previously appeared in the Harvard Business Review.

The type of disruption most companies and government agencies are facing is a once-in-every-few-centuries event. Disruption today is more than just changes in technology, or channel, or competitors – it’s all of them, all at once. And these forces are completely reshaping both commerce and defense.

Today, as large organizations are facing continuous disruption, they’ve recognized that their existing strategy and organizational structures aren’t nimble enough to access and mobilize the innovative talent and technology they need to meet these challenges. These organizations know they need to change but often the result has been a form of organizational Whack-A-Mole– a futile attempt at trying to swat every problem as they pop-up without understanding their root cause.

Ultimately, companies and government agencies need to stop doing this or they will fail.

We can build a mindset, culture and process to fix this – what I call an Innovation Doctrine. But first we need to step back and recognize one of the problems.

I just spent a few days with a large organization with a great history, who like most of their peers is dealing with new and rapidly evolving external threats. However, their biggest obstacle is internal. What had previously been a strength – their great management processes – now holds back their ability to respond to new challenges.

Companies Run on Process
Once upon a time every great organization was a scrappy startup willing to take risks – new ideas, new methods, new customers, targets, and mission. If they were a commercial company, they figured out product/market fit; or if a government organization, it focused on solution/mission fit. Over time as these organizations got large, they built process. By process I mean all the tools that allow companies and government to scale repeatable execution. HR processes, legal processes, financial processes, acquisition and contracting processes, security processes, product development and management processes, and types of organizational forms etc. All of these are great strategies and tools that business schools build, and consulting firms help implement.

Process is great when you live in a world where both the problem and solution are known. Process helps ensure that you can deliver solutions that scale without breaking other parts of the organization.

These processes reduce risk to an overall organization, but each layer of process reduces the ability to be agile and lean and – most importantly – responsive to new opportunities and threats.

Process Versus Product
As companies and government agencies get larger, they start to value the importance of “process” over the “product.” And by product, I mean the creation of new hardware, services, software, tools, operations, tradecraft, etc.  People who manage processes are not the same people as those who create product. Product people are often messy, hate paperwork and prefer to spend their time creating stuff rather than documenting it. Over time as organizations grow, they become risk averse. The process people dominate management, and the product people end up reporting to them.

If the company is large enough it will become a “rent-seeker” and look to the government and regulators as their first line of defense against innovative competition. They’ll use government regulation and lawsuits to keep out new entrants with more innovative business models.

The result of monopolist behavior is that innovation in that sector dies – until technology/consumer behavior passes them by.    By then the company has lost the ability to compete as an innovator.

In government agencies process versus product has gone further. Many agencies outsource product development to private contractors, leaving the government with mostly process people – who write requirements, and oversee acquisition, program management, and contracts.

However, when the government is faced with new adversaries, new threats, or new problems, both the internal process people as well as the external contractors are loath to obsolete their own systems and develop radically new solutions. For the contractors, anything new offers the real risk of losing a lucrative existing stream of revenue. For the process people, the status quo is a known and comfortable space and failure and risk-taking is considered career retarding. Metrics are used to manage process rather than creation of new capabilities, outcomes and speed to deployment. And if the contract and contractor are large enough, they put their thumb on the scale and use the political process and lobbying to maintain the status quo.

The result is that legacy systems live on as an albatross and an impediment to making the country safer and more secure.

Organizational and Innovation Theater
A competitive environment should drive a company/government agency into new forms of organization that can rapidly respond to these new threats. Instead, most organizations look to create even more process. This typically plays out in three ways:

  1. Often the first plan from leadership for innovation is hiring management consultants who bring out their 20th-century playbook. The consultants reorganize the company (surprise!), often from a functional organization into a matrixed organization. The result is organizational theater. The reorg keeps everyone busy for a year, perhaps provides new focus on new regions or targets, but in the end is an inadequate response to the need for rapid innovation for product.
  2. At the same time, companies and government agencies typically adopt innovation activities (hackathons, design thinking classes, innovation workshops, et al.) that result in innovation theater. While these activities shape, and build culture, but they don’t win wars, and they rarely deliver shippable/deployable product.
  3. Finally, companies and government agencies have realized that the processes and metrics they put in place to optimize execution (Procurement, Personnel, Security, Legal, etc.) are obstacles for innovation. Efforts to reform and recast these are well meaning, but without an overall innovation strategy it’s like building sandcastles on the beach. The result is process theater.

For most large organizations these reorgs, activities and reforms don’t increase revenue, profit or market share for companies, nor does it keep our government agencies ahead of our adversaries. One can generously describe them as innovation dead ends.

Between a Rock and A Hard Place
Today, companies and government agencies are not able to access and mobilize the innovative talent and technology they need to meet these challenges. The very processes that made them successful impede them.

Organizational redesign, innovation activities, and process reform need to be part of an overall plan.

In sum, large organizations lack shared beliefs, validated principles, tactics, techniques, procedures, organization, budget, etc. to explain how and where innovation will be applied and its relationship to the rapid delivery of new product.

We can build a mindset, culture and process to fix this.

More in future posts about Innovation Doctrine.

Lessons Learned

  • As companies and agencies get larger, they start to value the importance of process over the “content.”
  • When disruption happens, no process or process manager in the world is going to save your company/or government agency
    • It’s going to take those “product” creators
    • But they have no organization, authority, budget or resources
  • We can build a mindset, culture and process to fix this.
    • A shared set of beliefs and principles of how and where innovation will be used and rapidly delivered
  • Innovation Doctrine

Filed under: Corporate/Gov't Innovation, Customer Development, Harvard Business Review, Innovation Doctrine | 6 Comments »

Who Ever Thought? The Lean Educators Summit

Posted on October 7, 2019 by steve blank

It’s been almost a decade since we first started teaching the Lean Methodology. It’s remade entrepreneurship education, startup practice and innovation in companies and the government. But in all that time, we haven’t gotten a large group of educators together to talk about what it’s been like to teach Lean or the impact it’s had in their classrooms and beyond. It dawned on us that with 10 years of Lessons Learned to explore, now would be a good time.

So, for the first time ever, we’re getting all educators from all these groups together for a “share best practices” summit at my ranch – December 4th – 5th.

100,000 students, one class at a time
A few months ago with the folks at VentureWell, the non-profit that puts on the Lean LaunchPad Educator classes  mentioned, “You know we’ve trained over 800 educators at hundreds of colleges and universities around the world to teach your class…” Say what???

It still seems like yesterday that Ann Miura-Ko and I were creating a new class – the Lean LaunchPad at Stanford to teach students an alternative to how to write a business plan.

If you can’t see the video click here

I quickly did the math. 800 educators – times 15 or so students per year – times almost ten years. Wow. It’s possible that 100,000 students have gone through some form of the class.

Add that to the 5,000 or more of our nation’s best science researchers who’ve gotten out the building (in this case their labs) who’ve gone through the National Science Foundation I-Corps program, (designed to help turn our country’s best academic research into companies), or the I-Corps @ the National Institute of Health or I-Corps @ the Department of Energy. And then add another 5,000 more who’ve gone through a version of I-Corps inside the Department of Defense.

It made me think about the variants of the class we’ve created. We started Hacking for Defense and Diplomacy almost four years ago. Hacking for Defense is now supported by the National Security Innovation Network and has put hundreds of students in 24 universities through the program. Hacking for Cities and Hacking for Non-profits have followed at U.C. Berkeley. Hacking for Oceans is coming next.

Yet none of these instructors across these disciplines have met. Or shared what they’ve learned.

So lets’ do it.

Educators Sharing Best Practices
On December 4th-5th, Jerry Engel, Pete Newell and I are hosting an event at the ranch for a select group of educators that have lead the Lean Innovation movement.

We’re going to cover:

  • The effectiveness of our programs [including I-Corps and Hacking for Defense]: What we have learned so far from the data and how to make it better
  • Customer Discovery and Lean Innovation in Academic Settings vs Non-Academic Settings such as incubators and accelerators
  • Tech Commercialization: innovators vs. entrepreneurs –  motivating scientists and engineers
  • Lean Innovation in the Enterprise, Not-for-Profit and Government – what’s different
  • International: Success and Challenges of Lean Innovation and Customer Discovery in  Europe and Asia [and South America? Australia?]
  • What’s next for Lean and entrepreneurial education
  • and much more…

Lessons Learned:

  • I’m hosting the Summit of Lean Innovation Educators at my ranch in December.
  • We’re bringing together a group to capture best practices and define a vision for what lies ahead.
  • Stay tuned for what we learn
  • And if you think you should be here, click here and let us know why

Filed under: Educators Summit, Lean LaunchPad, Teaching | 2 Comments »

Mission Model Canvas – the Videos

Posted on September 24, 2019 by steve blank

In 2016 Pete Newell, Alexander Osterwalder and I developed the Mission Model Canvas for our Hacking for Defense Class.  We’ve now created a series of videos that explain how this variant of the Business Model Canvas works – 11 videos totaling 17 minutes.

Thanks to BMNT and the National Security Innovation Network for support of this project.

—

When Pete Newell, Joe Felter and I built the Hacking for Defense class we modeled the syllabus after my earlier Lean LaunchPad and NSF I-Corps classes. Both classes used Alexander Osterwalder’s Business Model Canvas to frame the hypotheses to be tested.

If you can’t see the business model canvas video click here

However, using the business model canvas inside the Dept of Defense was problematical. Teams there pointed out that the standard business model canvas didn’t fit their problem sets. For example, in the Dept of Defense you don’t measure progress by measuring revenue. Instead you mobilize resources and a budget to solve a particular problem and create value for a set of beneficiaries (customers, support organizations, warfighters, Congress, the country, etc.)

Therefore, the business model canvas box labeled Revenue Streams doesn’t make sense. The defense and intelligence community are mission-driven organizations so there is no revenue to measure. The first step in building a canvas that worked for these organizations was to change the Revenue Stream box to one that would provide a way to measure success.

We called this alternative- Mission Achievement/Success.

Now the Mission Model Canvas just needed four more tweaks.

  • Customer Segments was changed to Beneficiaries
  • Cost Structure was changed to Mission Cost/Budget
  • Channel was changed to Deployment
  • Customer Relationships was changed to Buy-in/Support

Read the full blog post on the development and use of the Mission Model Canvas here.

And watch the Mission Model Canvas videos below.

If you can’t see the Introduction to the Mission Model Canvas video click here

If you can’t see the Beneficiaries and Stakeholders video click here

If you can’t see the Value Proposition video click here

If you can’t see the Buy-In video click here

If you can’t see the Deployment video click here

If you can’t see the Mission Achievement video click here

If you can’t see the Key Activities video click here

If you can’t see the Key Resources video click here

If you can’t see the Key Partners video click here

If you can’t see the Mission Budget video click here

If you can’t see the Key Concepts video click here

You can find the entire video series collected here

Filed under: Hacking For Defense, Teaching | 3 Comments »

AgileFall – When Waterfall Sneaks Back Into Agile

Posted on September 17, 2019 by steve blank


This article previously appeared in the Harvard Business Review

AgileFall is an ironic term for program management where you try to be agile and lean, but you keep using waterfall development techniques. It often produces a result that’s like combining a floor wax and dessert topping.

I just sat through my a project management meeting where I saw AgileFall happen first-hand. The good news is that a few tweaks in process got us back on track.

I just spent half a day with Henrich, the head of product of a Fortune 10 company. We’re helping them convert one of the critical product lines inside an existing division from a traditional waterfall project management process into Lean.

Henrich is smart, innovative and motivated. His company is facing disruption from new competitors. He realized that traditional Waterfall development wasn’t appropriate when the problem and solution had many unknowns.a

This product line has 15 project managers overseeing 60 projects. Over the last few months we’ve helped him inject the basic tenets of Lean into these projects. All are Horizon 1 or 2 projects – creating new features for existing products targeting existing customers or repurposing existing products, tools, or techniques to new customers. Teams are now creating minimum viable products (MVPs), getting out of the building to actually talk with users and stakeholders, and have permission to pivot, etc.  All good Lean basics.

AgileFall in Real Life
But in our latest meeting I realized Heinrich was still managing his project managers using a Waterfall process. Teams only checked in – wait for it – every three months in a formal schedule review. I listened as Henrich mentioned that the teams complained about the volume of  paperwork he makes them fill out for these quarterly reviews. And he was unhappy with the quality of the reports because he felt most teams wrote the reports the night before the review. How, he asked, could he get even more measures of performance and timely reporting from the project managers?

At first glance I thought, what could be bad about more data? Isn’t that what we want – evidence-based decisions? I was about to get sucked down the seductive path of suggesting even more measures of effectiveness when I realized Henrich still had a process where success was measured by reports, not outcomes. It was the same reporting process used to measure projects that used linear, step-by-step Waterfall.

(To be fair to Henrich, his product team is a Lean island in a company where Waterfall still dominates. While his groups has changed the mindset and cadence of the organization, the folks he reports up to don’t yet get Agile/Lean learning and outcomes. They just want to see the paperwork.)

In both managing down and up we needed a very different project management mindset.

Lean Project Management Philosophy
So our discussion was fun. As the conversation progressed, we agreed about the ways to manage projects using a few operating principles of Lean/Agile project management (without ever mentioning the words Lean or Agile.)

  1. It was the individuals who were creating the value (finding solution/mission ft) not the processes and reports
  2. However, the process and reports were still essential to management above him.
  3. Having the teams build incremental and iterative MVPs was more important than obsessing about early documentation/reporting
  4. Allow teams to pivot to what they learned in customer discovery rather than blindly follow a plan they sold you on day one
  5. Progress to outcomes (solution/mission ft) is non-linear and not all teams progress at the same rate

Pivoting the Process
With not too much convincing, Henrich agreed that rather than quarterly reviews, the leadership team would to talk to 4-5 project managers every week, looking at 16-20 projects. This meant the interaction cycle – while still long – would go from the current three months to at least once a month.

More importantly we decided that he would focus these conversations on outcomes rather than reports. There would be more verbal communication and a lot less paper. The reviews would be about frequent delivery, incremental development and how leadership could remove obstacles. And Henrich’s team would continue to share progress reporting across the teams so they could learn from each other.

In sum, the radical idea for Henrich was tha this role was not to push the paperwork down. It was to push an outcome orientation down, and then translate its progress back up the chain. While this was great for the teams, it put the onus on Henrich to report progress back up to his leadership in a way they wanted to see it.

I knew the lightbulb had fully gone on when near the end of the meeting Henrich asked his team, “Going forward, who are the right team members to manage a Lean process versus a Waterfall?” And I smiled when they concluded that Lean could be managed by fewer people who could operate in a chaotic learning environment, versus a process-driven, execution one.

I can’t wait for the next meeting.

Lessons Learned

  • AgileFall is a seductive trap – using some Lean processes but retaining the onerous parts of Waterfall
  • The goal of leadership in Lean product management is not to push the paperwork down. It’s to push an outcome orientation down and translate its progress back up the chain

Filed under: Corporate/Gov't Innovation, Customer Development, Harvard Business Review | 7 Comments »

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