steve blank

Epitaph for an Entrepreneur

Posted on June 18, 2009 by steve blank

Raising our kids and being an entrepreneur wasn’t easy. Being in a startup and having a successful relationship and family was very hard work. But entrepreneurs can be great spouses and parents.

This post is not advice, nor is it recommendation of what you should do, it’s simply what my wife and I did to raise our kids in the middle of starting multiple companies. Our circumstances were unique and your mileage will vary. Read the previous post first for context.

Biological Clocks
After Convergent and now single again, I was a co-founder of my next two startups; MIPS and Ardent. I threw myself into work and worked even more hours a day. And while I had great adventures (stories to come in future posts,) by the time I was in my mid-30’s I knew I wanted a family. (My friends noticed that I was picking up other people’s babies a lot.) I didn’t know if I was ready, but I finally could see myself as a father.

I met my wife on a blind-date and we discovered that not only did we share the same interests but we were both ready for kids. My wife knew a bit about startups. Out of Stanford Business School she went to work for Apple as an evangelist and then joined Ansa Software, the developer of Paradox, a Mac-database.

Product Launch
Our first daughter was born about four months after I started at SuperMac. We ended up sleeping in the hospital lounge for 5 days as she ended up in intensive care. Our second daughter followed 14½ months later.

Family Rules
My wife and I agreed to a few rules upfront and made up the rest as went along. We agreed I was still going to do startups, and probably more than most spouses she knew what that meant. To her credit she also understood that meant that child raising wasn’t going to be a 50/50 split; I simply wasn’t going to be home at 5 pm every night.

In hindsight this list looks pretty organized but in reality we made it up as we went along, accompanied with all the husband and wife struggles of being married and trying to raise a family in Silicon Valley. Here are the some of the rules that evolved that seemed to work for our family.

We would have a family dinner at home most nights of the week. Regardless of what I was doing I had to be home by 7pm. (My kids still remember mom secretly feeding them when they were hungry at 5pm, but eating again with dad at 7pm.) But we would use dinner time to talk about what they did at school, have family meetings etc.
Put the kids to bed. Since I was already home for dinner it was fun to help give them their baths, read them stories and put them to bed. I never understood how important the continuity of time between dinner through bedtime was until my kids mentioned it as teenagers.
Act and be engaged. My kids and wife had better antenna than I thought. If I was home but my head was elsewhere and not mentally engaged they would call me on it. So I figured out how to spit the flow of the day in half. I would work 10 hours a day in the office, come home and then…
Back to work after the kids were in bed. What my kids never saw is that as soon as they were in bed I was back on the computer and back at work for another 4 or 5 hours until the wee hours of the morning.
Weekends were with and for my kids. There was always some adventure on the weekends. I think we must have went to the zoo, beach, museum, picnic, amusement park, etc. a 100 times.
Half a day work on Saturday. While weekends were for my kids I did go to work on Saturday morning. But my kids would come with me. This had two unexpected consequences; my kids still remember that work was very cool. They liked going in with me and they said it helped them understand what dad did at “work.” Second, it set a cultural norm at my startups, first at Supermac as the VP of Marketing, then at Rocket Science as the CEO and at E.piphany as President. (Most Silicon Valley startups have great policies for having your dog at work but not your kids.)
Long vacations. We would take at least a 3-week vacation every summer. Since my wife and I liked to hike we’d explore national parks around the U.S. (Alaska, Wyoming, Colorado, Washington, Oregon, Maine.) When the kids got older our adventures took us to Mexico, Ecuador, India, Africa and Europe. The trips gave them a sense that the rest of the country and the world was not Silicon Valley and that their lives were not the norm.
Never miss an event. As my kids got older there were class plays, soccer games, piano and dance performances, birthdays, etc. I never missed one if I was in town, sometimes even if it was in the middle of the day. (And I made sure I was in town for the major events.)
Engage your spouse. I asked my wife to read and critique every major presentation and document I wrote. Everything she touched was much better for it. What my investors never knew is that they were getting two of us for the price of one. (And one of us actually went to business school.) It helped her understand what I was working on and what I was trying to accomplish.
Have a Date-Night. We tried hard to set aside one evening a week when just the two of us went out to dinner and/or a movie.
Get your spouse help. Early on in our marriage we didn’t have much money but we invested in childcare to help my wife. While it didn’t make up for my absences it offloaded a lot.
Traditions matter. Holidays, both religious and secular, weekly and yearly, were important to us. The kids looked forward to them and we made them special.
Travel only if it needed me. As an executive it was easy to think I had to get on a plane for every deal. But after I had kids I definitely thought long and hard before I would jump on a plane. When I ran Rocket Science our corporate partners were in Japan (Sega), Germany (Bertelsmann) and Italy (Mondadori) and some travel was unavoidable. But I probably traveled 20% of what I did when I was single.
Document every step. Like most dads I took thousands of photos. But I also filmed the girls once a week on the same couch, sitting in the same spot, for a few minutes – for 16 years. When my oldest graduated high school I gave her a timelapse movie of her life.

“Live to Work” or “Work to Live”?
When I was in my 20’s the two concepts that mattered were, “me” and “right now.” As I got older I began to understand the concept of “others” and “the future.” I began to realize that working 24/7 wasn’t my only goal in life.

As a single entrepreneur I had a philosophy of, “I live to work” – nothing was more exciting or important than my job. Now with kids it had become, “I work to live.” I still loved what I did as an entrepreneur but I wasn’t working only for the sheer joy of it, I was also working to provide for my family and a longer term goal of retirement and then doing something different. (The irony is when I was working insane hours it was to make someone else wealthy. When I moderated my behavior it was when they were my startups.)

Work Smarter Not Harder
As I got older I began to realize that how effective you are is not necessarily correlated with how many hours you work. My ideas about Customer Development started evolving around these concepts. Eric Ries’s astute observations about engineering and Lean Startups make the same point. I began to think how to be effective and strategic rather than just present and tactical.

Advice From Others
As my kids were growing up I got a piece of advice that stuck with me all these years.

The first was when our oldest daughter was 6 months old, and a friend was holding her. She looked at the baby then looked at me and asked, “Steve do you know what your most important job with this baby is?” I guessed, “Take care of her?” No. “Love her?” No. “OK, I give up, what is my most important job.” She answered, “Steve, your job is teaching her how to leave.” This was one of the most unexpected things I ever heard. This baby could barely sit up and I have to teach her how to leave?

My friend explained, “your kids are only passing through. It will seem like forever but it will be gone in a blink of an eye. Love them and care for them but remember they will be leaving. What will they remember that you taught them?”

For the next 18 years that thought was never far from my mind.

What Will Your Epitaph Say?
At some point I had heard two aphorisms which sounded very trite when I was single but took on a lot more meaning with a family.

This life isn’t practice for the next one. I started to realize that some of the older guys who I had admired as role models at work had feet of clay at home. They had chose their company over family and had kids who felt abandoned by their dads for work – and some of these kids have turned out less than optimally. I met lots of other dads going through the “could-have, would-have, should-have” regrets and reflections of the tradeoffs they had made between fatherhood and company building. Their regrets were lessons for me.

What will your epitaph say? When our kids were babies I was still struggling to try to put the work/life balance in perspective. Someone gave me a thought that I tried to live my live my life around. He asked me, when you’re gone would you rather have your gravestone say, “He never missed a meeting.” Or one that said, “He was a great father.” Holding my two kids on my lap, it was a pretty easy decision.

I hope I did it right.

Know When to Hold Them, Know When to Fold Them, Know When to Walk Away
When my last startup, E.piphany went public in the dot.com boom, I was faced with a choice; start company number nine, or retire.

I looked at my kids and never went back.

Thanks to my wife for being a great partner. It takes two.

Listen to the blog post here

[audio http://steveblank.com/2009/06/18/epitaph-for-an-entrepreneur/]

Download the podcast here or here

Filed under: Customer Development, Family/Career/Culture, Technology | Tagged: Entrepreneurs, Steve Blank, Tips for Startups | 89 Comments »

Lies Entrepreneurs Tell Themselves

Posted on June 15, 2009 by steve blank

Watching my oldest daughter graduate high school this week made me think about what it was like raising a family and being an entrepreneur.

Convergent Technologies
When I was in my 20’s I worked at Convergent Technologies, a company that was proud to be known as the “Marine Corps of Silicon Valley.” It was a brawling “take no prisoners,” work hard, party hard, type of company. The founders coming out of the DEC (Digital Equipment Corporation) and Intel culture of the 1960’s and ‘70’s. As an early employee I worked all hours of the day, never hesitated to jump on a “red-eye” plane to see a customer at the drop of a hat, and did what was necessary to make the company a winner. I learned a lot at Convergent, going from product marketing manager in a small startup to VP of Marketing of the Unix Division as it became a public company. Two of my role models for my career were in this company. (And one would become my mentor and partner in later companies.) But this story is not about Convergent. It’s about entrepreneurship and family.

Like most 20-somethings I modeled my behavior on the CEO in the company. His marketing and sales instincts and skills seemed magical and he built the company into a $400 million OEM supplier, ultimately selling the company to Unisys. But his work ethic was legendary. Convergent was a 6-day a week 12-hour day company. Not only didn’t I mind, but I couldn’t wait to go to work in the morning and would stay until I dropped at night. If I did go to social events, all I would talk about was my new company. My company became the most important thing in my life.

But the problem was that I was married.

Uh oh.

What’s More Important – Me or Your Job?
If you’re are a startup founder or an early employee, there may come a time in your relationship that your significant other/spouse will ask you the “what’s more important?” question. It will come after you come home at 2 am in the morning after missing a dinner/movie date you promised to make. Or you’ll hear it after announcing one morning that weekend trip isn’t going to happen because you have a deadline at work. Or if you have kids, it will get asked when you’ve missed another one of their plays, soccer games or school events because you were too busy finishing that project or on yet another business trip. At some point your significant other/spouse’s question will be, “What’s more important, me and your family or your job?”

I remember getting the question after missing yet another event my wife had counted on me attending. When she asked it, I had to stand there and actually think about it. And when I answered, it was “my job.” We both then realized our marriage was over. Luckily we had no kids, minimal assets and actually held hands when we used the same lawyer for the divorce, but it was sad. If I had been older, wiser, or more honest with myself, I would have understood that my wife and family should have been the most important thing in my life.

Lies Entrepreneurs Tell Themselves
Part of my problem was that my reality distortion field encompassed my relationships. In hindsight I had convinced myself that throwing myself into work was the right thing to do because I succumbed to the four big lies entrepreneurs tell themselves about work and family:

I’m only doing it for my family
My spouse “understands”
All I need is one startup to “hit” and then I can slow down or retire
I’ll make it up by spending “quality time” with my wife/kids

None of these were true. I had thrown myself into a startup because work was an exciting technical challenge with a fixed set of end points and rewards. In contrast, relationships were messy, non deterministic (i.e. emotional rather than technical) and a lot harder to manage than a startup.

The Reality
If it was up to my wife she wouldn’t have had me working the hours I was working and would rather have me home. She didn’t sign up for my startup, she had signed up for me.

While she stuck it out for seven years, she had no connection to the passion and excitement that was driving me; all she saw was a tired and stressed entrepreneur when I got home.

At this point in my career I had hit a couple of successful startups as a low level exec, making enough to remodel our kitchen, but not the big “hit” that made us so much money I could slow down or retire. And even if it did, startups are like a gambling addiction – if I had been honest, I would have had to admit I would probably be doing many of them.

“Quality time” with the wife or kids is a phrase made up by guilty spouses. My relationship wasn’t going to be saved by one great three-day weekend after 51 weekends at work. A great vacation with my wife wasn’t going to make up for being AWOL from home the rest of the year.

Summary
For the next few years I licked my wounds and threw myself into two more startups. Over time I began to recognize and regret the tradeoffs I had made between work and relationships. I realized that if I ever wanted to get married again and raise a family that my life/work balance needed to radically change.

The next post describes what I have learned and observed in the following years about balancing my entrepreneurial drive with building a healthy relationship with my wife and kids.

Filed under: Customer Development, Family/Career/Culture, Technology | Tagged: Entrepreneurs, Steve Blank, Tips for Startups | 43 Comments »

Am I a Founder? The Adventure of a Lifetime.

Posted on June 11, 2009 by steve blank

When my students ask me about whether they should be a founder or cofounder of a startup I ask them to take a walk around the block and ask themselves:

Are you comfortable with:

Chaos – startups are disorganized
Uncertainty – startups never go per plan

Are you:

Resilient – at times you will fail – badly. How quickly will you recover?
Agile – you may find the real opportunities for your company was somewhere else. Can you recognize and capitalize on them?
Creative / Pattern Recognition – can you think “out of the box?” Or if not, can you recognize patterns others miss?
Passionate – is the company/product/customers the most important thing in your life? 24/7?
Tenacious – can you keep going when everyone else gives up? Can you keep giving 200% despite all the naysayers who don’t believe in your idea?
Articulate – can you create a reality distortion field and have others see and share your vision and passion?

And I remind them that they should be bringing some type of domain expertise (technical or business) to the table.

This is the minimum feature set for founders.

Other Roles in a Startup
Generic advice given to entrepreneurs assumes that everyone is going to be the founder/co-founder. Yet for every founder there are 10-20 other employees who take the near-equivalent risks in joining an early-stage company. If you’re not a founder (by choice, timing or temperament,) you may be an early employee or a later stage startup employee.

(And my advice to students who believe they want to do a startup but are unsure if they want to start one, is to join one that’s already raised their first round of funding. Founders know they want to start something. If you’re unsure, you’ve just decided.)

I believe that founder, early and later stage employees require different risk/personality profile.

The Early Employee
If you’re a founder/co-founder all the attributes I mentioned above are needed in spades. However, if you want to join a startup as an early employee (say in the first 25 employees,) you can modify the list above.

You still need to be comfortable with chaos and uncertainty, but by this time the major risk of where the first round of funding is coming from is gone. However, you will be dealing with almost daily change, (new customer feedback/insights from a Customer Development process and technical roadblocks,) as the company searches for a repeatable and scalable business model. This means you still need to have a resilient personality, and be agile.

Early stage employees are “self-starters” and show initiative rather than waiting for other people to tell them what to do or how to do it. (You may be wearing multiple hats in one-day.) You have to be passionate about your work, the company and its mission to be working 24/7. But more than likely you don’t need to be as articulate or creative as the founders (they’re doing the talking, while you’re doing the work.) And while you do need to be tenacious, you won’t need to be the last man standing if the ship goes down.

The Later Employee
If you want to join a startup as a later employee (say employee number 25-125, before the company is profitable) you can continue to modify the list above.

You still need to be comfortable with chaos and uncertainty. And you will be dealing with change, but it won’t be the constant daily change the early employees dealt with. By now the company may have found and settled on a repeatable business model. And at this stage of the company rather than everyone doing everything, actual departments may begin to form. However, job responsibilities and organizations will change regularly and you need to feel comfortable in embracing those changes and taking responsibility and ownership.

And you’ll still need to have a resilient and agile personality, as new customer and product opportunities will appear and change your work. But it won’t be happening daily. And while you still need to love what you do your passion doesn’t have to extend to tattooing the company’s logo on your arm.

The Adventure of a Lifetime
Take the time and think through who you are and what level of challenge you are looking for.

You’re not joining a big company. Startups are the adventure of a lifetime. But make sure it fits who you are.

Filed under: Customer Development, Technology | Tagged: Early Stage Startup, Entrepreneurs, Steve Blank, Tips for Startups | 18 Comments »

Vertical Markets 4: Putting it All Together

Posted on June 8, 2009 by steve blank

This post makes sense when you read the previous three vertical markets posts first.

In the last three posts, we drew the relationship of market risk and invention risk with vertical markets and pointed out verticals where customer development would be useful.

Customer Development by Vertical – Click to Enlarge

(As a reminder, the Customer Development process says your business plan is just a series of untested hypothesis (unless you’re a domain expert.) In contrast to simply executing your business plan, the Customer Development process is built on low-cost and continuous learning and iterating. You take your product vision and get out of your building to turn your hypothesis into facts. Ultimately you want to see if you can find customers and a market for the product as specified – as early as possible.

Execution by Vertical Market
As the class progressed, students asked how the activities/functions of a startup; (Sales, Marketing, Business Development, Product Development, etc.) would look in each of the verticals. For example, How does sales differ from one market to another? Is marketing different if you’re in the cleantech business versus medical devices? How does product development differ in communications hardware versus enterprise software, etc.

Startup activities/functions
So we started by listing the basic startup activities/functions we thought that might differ by vertical market. Some of these are questions that would be addressed in a business plan. Others you need to know when you execute the plan.

Here is the list of basic startupactivities/functions our class discussion generated:

Opportunity – How big? Where do the ideas come from?
Innovation – Business Model? Technology?
Customers – Who are the Users? Who are the economic buyers?
Market Type – Existing/Sustaining? Niche? Low Cost? New/Disruptive?
Competition – Who is the competitor? Who is the Complementor?
Sales – What Channel to reach the customer?
Marketing – How do you create end user demand? Brand?
Business Development – What type of partnership or whole product is needed?
Customer Development Steps – How do we iterate with customers?
Business and Revenue Model – How do we organize to make money?
Intellectual Property/Patents – Strategic or Tactical, timing?
Regulatory Issues – What are they?
Time to Market – How long?
Product Development – How do you engineer it? Waterfall, Agile, Lean?
Manufacturing – How do you build it? Where?
Seed and Follow-on Financing – How do your finance it? How much? When?
Liquidity – How? M&A, IPO?

(These are just my checklist list items for students, your list doesn’t have to look like this.)

Building a Chart
We realized that if we wrote the names of the vertical markets across the top of the board, and then the startup functions on the left of the board, we could make a chart that could visually compare what differs across the vertical markets. Then it would be to discuss the optimum strategy for each of these market segments.

Each week, as the students learned something new about their particular project (what sales channel they should use, who the customer were, what type of manufacturing was appropriate, etc.) we added what they learned to each cell under their market. (This chart is not complete, just representative of what I’m using to teach and will be filling in over time.)

But even with a partially filled-in chart, you can see what used to be disconnected information is now sorted by vertical market. At a glance, you can see how startup capital needs differ by markets, how distribution channels and demand creation activities differ by market, and even how VC’s assess risk and reward by market.

It seem evident that success in a startup requires:

domain specific knowledge and/or hard won experience
and a methodology to acquire that knowledge or experience.

As an exercise, try filling in the chart for your market.

Filed under: Customer Development, Technology, Vertical Markets | 4 Comments »

Faith-Based versus Fact-Based Decision Making

Posted on June 5, 2009 by steve blank

I’ve screwed up a lot of startups on faith.

One of the key tenets of entrepreneurship is that you start your company with insufficient resources and knowledge.

Faith-based Entrepreneurship
At first, entrepreneurship is a Faith-based initiative. There is no certainty about a startup on day-one. You make several first order approximations about your business model, distribution channels, demand creation, and customer acceptance. You leave the comfort of your existing job, convince a few partners to join you and you jump off the bridge together.

At each startup I couldn’t wait to do this. No building, no money, no customers, no market? Great, sign me up. We’ll build something from scratch.

You start a company on a vision; on a series of Faith-based hypotheses.

Fact-based Execution
However, successfully executing a startup requires the company to become Fact-based as soon as it can.

Think about all the assumptions you’ve made to get your business off the ground. Who are the customers? What problems do they have? What are their most important problems? How much would they pay to solve them? What’s the best way to tell them about our product?…

Ad infinitum. These customer and market risks need to be translated into facts as soon as possible.

You can blindly continue to execute on faith that your hypothesis are correct. You’ll ship your product and you’ll find out if you were wrong when you run out of money

Or you can quickly get out of the building and test whether your hypothesis were correct and turn them into facts.

In hindsight, when I was young, this where I went wrong. It’s a lot more comfortable to hang on to your own beliefs than to get (or face) the facts. Because at times facts may create cognitive dissonance with the beliefs that got you started and funded.

Customer Development
This strategy of starting on faith, and quickly turning them into facts is the core of the Customer Development process.

Filed under: Customer Development, Family/Career/Culture, Technology | Tagged: Customer Development, Early Stage Startup, Entrepreneurs, Startups, Steve Blank, Tips for Startups | 11 Comments »

Vertical Markets 3: Reducing Risk in Startups

Posted on June 3, 2009 by steve blank

This post makes sense when you read the previous two vertical markets posts first.

Reducing Risk – Simulation versus Customer Development
If you remember the first part of this discussion, startups face two types of risk; invention risk and/or customer/market risk. In either type of startup you want to put in place processes in place to reduce risk.

Simulation to Reduce Invention Risk
If you’re in a vertical where “invention risk” is dominant, then you want to do everything you can to manage and reduce those risks. Simulation allows you to build test, fail, and iterate without actually building the physical device. (You can use static methods like Monte Carlo simulation, or dynamic methods using continuous or discrete simulation.) But however you do it, in companies with invention risk you want to simulate as much of process as possible, as early as possible. For some markets you can design a model of your product on a computer and conduct experiments with the computer model to understand whether it will work, long before you actually build it. For example, in the semiconductor business engineers spend enormous time, money and effort on simulation, the process of actually building the chip in software and running tests to see how well it will perform – well before they ever get to first silicon. And the holy grail of the biotech business is another simulation process called computer aided drug discovery, which someday might be used to streamline the drug discovery and development process.

Customer Development to Reduce Risk
Conversely, if you’re in a startup where the greatest set of risks are about failing to find the right customers/markets you would look for processes to reduce those risks. The Customer Development Process I teach and write about is designed to do just that.

The Customer Development Model

The Customer Development model says that when you start your company customer needs are unknown. You may have a set of hypothesis about them but you really don’t know. The Customer Development process puts you in continuous contact with customers to test your concept, fail, and iterate way before you actually ship the product. It allows you to systematically replace each business-critical hypothesis with facts.

(When I wrote the Four Steps to the Epiphany, the Customer Development text, I hadn’t yet thought about what vertical markets it might be appropriate for.)

Since my class was using the Customer Development text, I updated this diagram on to reflect in which markets the process was appropriate. For example, I told my students doing life sciences projects it would be 5-10 years before they needed to worry about customers. However, for the Web 2.0 companies they needed to start the Customer Development process now.

Customer Development by Vertical – Click to Enlarge

(As a reminder, if you’ve slogged you way through the Customer Development textbook, you know the Customer Development process says your business plan is just a series of untested hypothesis (unless you’re a domain expert.) So starting with the vision of your product, get out of the building, and see if you can find customers and a market for the product as specified. In contract to the linear execution via business plan, the Customer Development process is built on low-cost and continuous learning and iterating.)

Two Sides of the Same Coin
Simulation and Customer Development are simply two sides of the same coin. They both have offer startups a path of getting it wrong often and early without go out of business.

The next Vertical Markets post will put all the pieces together.

Filed under: Customer Development, Technology, Vertical Markets | Tagged: Customer Development, Early Stage Startup, Steve Blank, Tips for Startups | 7 Comments »

Rocks in the Rocket Science Lobby

Posted on June 1, 2009 by steve blank

In 1994 Rocket Science Games was the only video game company with a rock in its lobby.

We had moved our game development facilities from Berkeley and Palo Alto and consolidated into one building on Townsend Street in the “South of Market” neighborhood in San Francisco. (We’re were just around the corner from the future home of SF Giants AT&T Baseball Park, which then was just a rubble-strewn parking lot in a sketchy neighborhood.)

Since we were the hip, new, edgy, “Hollywood meets Silicon Valley” video game company (more about “big hat, no cattle” startups in subsequent posts,) our office obviously had to match the image.

Our receptionists’ desk was built on the wing of a WWII P-51 fighter plane, and the rest of the office décor matched. All that is, except for our lobby, as our offices were on the 4^th floor. When you got off the elevator, you faced a non descript corporate-looking set of walls.

This was about the time Christies and Sotheby’s were starting to auction Soviet space program artifacts, and I was thinking that perhaps a spacesuit in the lobby would be appropriate given our name.

One day, out for a walk at lunch, enjoying one of my favorite activities – watching them tear down the Embarcadero freeway (San Francisco urban upgrade post 1989 earthquake,) – I realized I was looking at the answer.

And it was much, much better than a space suit.

A week later as our employees came up the elevator there was a Lucite case on a pedestal with a single grey rock, lit with a single spotlight, on a velvet pillow. In front of it was a brass plaque that read:

“Moon rock, Apollo 18, July 1973 – Copernicus Crater.”

For the next few years, people from all around South of Market would come by the Rocket Science Games lobby to see our moon rock. It added to the mystique of the company – which helped with raising money and getting press ink. Everyone agreed that having our own moon rock was way cool.

————————————

Postscript: In all that time, not a single person who admired the moon rock questioned its provenance or authenticity. A bit surprising considering the intersection between geekdom and space. Maybe it was just too much ancient history.

NASA’s moon missions ended at Apollo 17.

The rock was a piece of rubble from the Embarcadero Freeway.

————————————

Only over time would I realize it augured the future of the company.

Download the podcast here or here

Filed under: Marketing, Rocket Science Games | Tagged: Entrepreneurs, Steve Blank | 5 Comments »

Vertical Markets 2: Customer/Market Risk versus Invention Risk

Posted on May 28, 2009 by steve blank

This post makes sense when you read the previous vertical markets post first.

Customer/Market Risk Versus Invention Risk
One day I was having lunch with a VC sharing what I learned from my students. “Steve,” he said, “you’re missing the most interesting part of vertical markets. Our firm has a portfolio of companies across a broad range of markets and the way we look at it is pretty simple – the deals fall into two types: those with customer/market risk and those with invention risk.”

Markets with Invention Risk are those where it’s questionable whether the technology can ever be made to work – but if it does customers will beat a path to the company’s door.

Markets with Customer/Market Risk are those where the unknown is whether customers will adopt the product.

Based on this insight, I updated my earlier diagram to look like this. (The line is just a first approximation, nothing hard and fast about it.)

Market Risk vs. Invention Risk – Click to Enlarge

For companies building web-based products, product development may be difficult, but with enough time and iteration engineering will eventually converge on a solution and ship a functional product – it’s engineering, not invention. The real risk in markets like Web 2.0 is whether there is a customer and market for the product as spec’d. In these markets it’s all about customer/market risk.

There’s a whole other set of markets where the risk is truly invention. These are markets where it may take 5 or even 10 years to get a product out of the lab and into production. (Whether it will eventually work no one knows, but the payoff could be so large, investors will take the risk.) If the product does work, and say we’ve developed a drug that cures a type of cancer, your only problem is how big is the licensing deal going to be – not about whether there will be customers. In these markets it’s all about invention risk.

A third type of market has both invention and market risk. For example, complex new semiconductor architectures, (i.e. a new type of graphics architecture, or a new communications chip architecture) mean you may not know if the chip performs as well as you thought until you get first silicon. But then, because there might be entrenched competitors and your concept is radically new, you still need to invest in the customer development process to learn how to get design wins from companies who may be happy with their existing vendors.

The implications for entrepreneurs is that each of these (market risk versus invention risk,) require radically different financing models, a different type of venture investor, different timing for hiring sales and marketing, etc.

I now advise entrepreneurs to add these questions to their checklist when they start a company:

Am I in a “customer/market risk” company?
Am I in a company with “invention risk?
Or does my company have both types of risk?
How would that change my company strategy?

We’ll talk about how to reduce risk in each type of market in the next post.

Filed under: Customer Development, Technology, Vertical Markets | Tagged: Customer Development, Early Stage Startup, Steve Blank, Tips for Startups | 7 Comments »

Vertical Markets 1: Bad Advice – All Startups are the Same

Posted on May 26, 2009 by steve blank

In the past entrepreneurship was viewed (and taught) as a single process, with a single approach to creating a business plan and securing funding for a startup. The best entrepreneurship textbooks and blogs assume that advice to startups is generalizable. But as I learned from my students this “one-size-fits-all” approach does not work for all startups. Different market opportunities present radically different startup risks and costs.

Capital Requirements
In my class students form teams and spend a semester building a detailed plan for a company. When I started teaching I launched project teams with this advice: All you need is a half a million dollars to start a company and at most a few million more to scale the company.” And the students nodded, OK, yes sir, and they wrote down, “a half a million bucks to start.”

The next week in class a project group raised their hands and said, “Hey, Professor Blank, we found out the common wisdom in the biotech business is that “we need $10-20 million just for the R&D phase and 100’s of million to get through clinical trials.”

“Of course,” I said, “Life science is completely different. The time to product and scale of investment is radically different than other startup markets.”

Intellectual Property
At the next class I said, “You all ought to get out and start talking to customers on day one, and get early feedback on your idea. You don’t need to worry about any Intellectual Property (IP) issues. Just get out of the building.”

The next week another team, working on a new type of solid oxide fuel cell, remarked, “Professor Blank, in our industry there’s a ton of patents and stuff and people tell us we shouldn’t be out there unless we start patent protecting all our IP.”

“Oops,” I said, “you’re right. In clean tech nanomaterials you guys need to be talking to patent attorneys. Don’t share the details of your manufacturing process with customers until you’ve locked up your intellectual property.”

Government Regulations
I turned to the class and said, “The rest of you can keep building your company and shipping your product because you don’t need to worry about government regulations. You’re a startup, just get your product out the door.”

The next week another group raised their hands, “Professor Blank, we’re building a medical device and there’s something called the 510K that the FDA requires, and that’s a two-year process.”

Verticals Are Different
I began to realize that entrepreneurs (and their professors) act like every vertical market and industry has the same set of rules. The guidelines I had originally proposed to my students worked for enterprise software or Web 2.0 startups, but medical device, biotech and cleantech startups required radically different approaches.

So the first heuristic is: do not assume the startup rules are the same for all vertical markets.

Now when my students begin their team projects, I list 13 vertical markets on the whiteboard. Just for discussion, the markets I chose were:

Web 2.0,
enterprise software
enterprise hardware
communications software
communications hardware
consumer electronics
games software

Vertical Markets – Click to Enlarge

semiconductors
Electronic Design Automation (EDA)
clean tech
medical devices
life sciences
personalized medicine

There’s nothing special about this list other than it represents a diverse set of markets. If your market is missing, just add it as we go through this discussion.

Entrepreneurs who have experience in the vertical market they’re entering do this analysis automatically. If you don’t have deep knowledge of the domain you are about to start a business in, you need to begin by understanding the answers to questions like these:

What vertical market are you in?
Do you have domain expertise in your market?
Do you have advisors who are domain experts in your market?
Do your potential investors understand your market?
What is it that’s unique about the market I’m in?

We’ll talk about the implications of what vertical market you’re entering in the next few posts.

Filed under: Customer Development, Technology, Vertical Markets | Tagged: Customer Development, Early Stage Startup, Entrepreneurs, Startups, Steve Blank, Tips for Startups | 11 Comments »

Going to Trade Shows Like it Matters – Part 2

Posted on May 22, 2009 by steve blank

I wrote this “Going to Trade Shows Like it Matters” memo as a board member after I saw our company at a trade show. Part 1 of this post offered some suggestions on going to trade shows to generate awareness. This post offers suggestions if you are going to a trade show to generate leads.

Ignore This Post
The same caveat applies as in the first post; If you’re selling via the web, and trade shows seem hopelessly anachronistic, ignore this post. If you’re in markets that still exhibit at them (semiconductors, communications, enterprise software, etc.,) this may be a useful read.

————

To: Marketing Department
From: Steve
Subject: Going to Trade Shows Like it Matters

Generating Leads

Ownership
If your company is going to a show to generate leads, then sales owns the show. Marketing is at the trade show as a support organization. Marketing may be physically “staging” the booth, and may even it “man it,” but don’t be confused, this is the VP of Sales party. While one could argue that a trade show is just another demand creation activity akin to advertising or PR, trade shows are the closest eyeball-to-eyeball contact you’re company is going to have with customers, competitors and partners.

While the industry average says only 20% of show leads are followed up, that only happens in other companies, not yours. Going to a show to get leads is a sales function, if the leads aren’t followed up marketing won’t be supporting these kinds of trade shows out of their budgets. Period. This is worthy of an open and honest discussion with sales up front. Just as marketing needed sales agreement that it was worth going to shows to generate awareness, sales needs to commit to marketing that leads will be followed up.

The Goal
Remember your goal is to get qualified leads into the sales pipeline. You want to maximize the number of people who give you their contact information, and gather enough information so a sales person can prioritize who to call first. This can’t happen unless you sit down with your sales team before the show and agree on who are the likely prospects. What companies should they booth team be looking for? What titles? Will there be a salesperson manning the booth so important prospects can talk to them immediately?

Promoting Your Presence
The best trade show planning will fail if nobody knows you’re there. Three-quarters of show attendees know what exhibits they want to see before they get to the show. Strong pre-show promotion will let your customers and prospects know about your exhibit. Are you twittering your appearance at the show? Did you create a Facebook page for the show? Are you buying Google adwords and adsense for the show? Direct email or snail mail to the pre-registered attendees is essential. Companies that don’t do this are the same ones who would have a party without sending out any invitations.

Many people arrive at a show with a schedule of what they want to see and have little or no time for other booths, so it’s important to get on that schedule. If sales is committed to the show, they will be contacting prospects and suspects reminding them you will be there. And inviting to the booth/dinner/private demo. While marketing can help, if sales isn’t fully engaged in this activity it’s a bad sign.

Follow-up as a Priority
While 80% of show leads aren’t followed up in other companies, it doesn’t happen in yours. Lead follow-up is your number one priority after a show, taking precedence over just about everything else — including catching up on what you missed while you were out of the office. Rank your leads by level of importance and interest, and base your post-show efforts on these priorities. Make sure that sales is emailing/ phoning/ texting the hottest prospects within a week after the show ends — the longer you let them sit, the staler they’ll become.

Send everyone else who gave you a lead some kind of follow-up email/paper mailing. Your post-show email or mailing can be as simple as a thank-you note or a brochure with a cover note. Write it before you leave for the show, so you can send the mailing immediately upon our return. Send PDF versions of brochures and product sheets as soon as you get back to the office. Have enough dead-tree brochures and product sheets on hand before the show so you can snail-mail out the information after you emailed it. You’d be surprised how effective sending a paper followup to a PDF can be.

Measurement
We measure everything. Particularly leads. It’s pretty simple. a) How many overall leads did you generate, b) how many leads ended up in the sales pipeline, and c) how many leads ever turned into an order.

To close the loop between leads and orders, always offer a sales commission bonus for orders that came from leads followed up from a show. It’s amazing how effective how a bonus can be. If leads from this show do not turn into orders, why are we going again next year?

General Comments for both Awareness and Lead Generation
Demo’s
I don’t care how small the booth or trade show is, do a canned demo every 20 to 30 minutes regardless of whether anyone is at your booth or not. The demo repeats the one or two key messages you decided were most important. Assume everything you’re showing will be seen by every one of your competitors, so this is not the place for showing the “secret new release.” You can do that in a private hotel suite for important prospects.

Demo’s are the heart of the booth. Without one, you’ll be having your booth staff standing in the aisles mournfully waiting for someone to walk up to them. Or worse, your salespeople will be talking to each other looking like they’re too busy to be interrupted. In both cases, that means you’re broadcasting “nothing interesting is in this booth folks, keep walking.” A continual demo lets you act like you have something important to share. Your sales people can gather the crowd, work the crowd and use their sales skills to see if prospects in the audience have interest. The difference between booths offering a demo and those without one is striking. One of them is a loser. It isn’t going to be your booth.

Competitive Analysis
Unless you are at the wrong show your competitors will be there as well. Someone from your company has to be designated the official competitive intelligence officer for this show. They are in charge of coordinating collection of competitive data, and preparing a summary report which contains facts as well as analysis. Get competitors literature, press packets from the press room, sit through their demos, and don’t come home until you know everything they’re saying. At the same time keep an eye out for competitors at your booth, (they may not be wearing their own company’s badges.) Welcome them loudly and openly. Put your arm around them and walk them around your booth. Make sure the staff is trained to never disparage a competitor. (Either at the show or anywhere else.)

Partnership Opportunities
At any show you are attending there has to be tons of opportunity for business to business relationships you hadn’t thought about. Everyone should have a chance to walk the floor looking for deals, technology, distribution, customers, etc. Someone from your company has to be designated the opportunity monitor, responsible for coordinating potential partner information and disseminating it in writing after the show.

No Literature at the Booth
Fancy brochures are expense, and most trade show literature ends up on the hotel room floor. Have sample literature under Lucite and chained to the booth. Take imprints of badges in exchange for paper literature requests. Each imprint is now a lead. (Keep a stash of literature for real live prospects under the table, but they should be pulling out their wallet to buy before you let go of it.)

Booth Staffing
You can’t do it alone. Even if it’s a small 10-foot booth you will need at least one person to “spot” you when you leave the booth to take a break or to check out the competition. For bigger booths a good rule of thumb is to have two to four staffers for every 100 square feet of exhibit space.

Even for the smallest trade show, no one shows up without booth training. (Messages, themes, demo’s. Everyone should be articulate and agile in describing and demoing the products.) And if you don’t show up for booth training, work somewhere else. (I’ve always visibly sent someone home from a tradeshow for missing training or booth duty. It makes the point and becomes company lore. You’ll never have to do it again.) Everyone should understand your goals, your messages, your demos and your theme and know their role. If your don’t have enough employees on the payroll, hire relatives, friends, or part-timers and train them.

Trade Show Post Mortem
Evaluate the experience.