Steve Blank

I had breakfast with two of my ex-students from Singapore who were building a really interesting startup. They were deep into Customer Discovery and presented a ton of customer data on the validity of their initial hypothesis – target customers, pricing, stickiness, etc.  I was unprepared for what they said next. “We’re going to do a big launch of our product in three weeks.”  I almost dropped my coffee. “Wait a minute, what about the rest of Customer Development? Aren’t you going to validate your hypotheses by first getting some customers?”

Without any sense of irony they said, “Oh, our investors convinced us to skip that part, because our customer feedback was all over the map and our schedule showed us launching in three weeks and they were worried that we’d run out of cash. They told us to stay on schedule.”  Now I was confused, and I asked, “Well what do you guys believe – Customer Development or launch on a schedule?” Without missing a beat they said, “Oh, we believe both are right.”

I realized I was listening to them treat Customer Development as an item on their
To Do list.

Suddenly, I had a massive case of déjà vu.

Can You Pull This Off
I was VP of marketing at Ardent, a supercomputer company where a year earlier I had a painful and permanent lesson about Customer Discovery. I was smart, aggressive, young and a very tactical marketer who really hadn’t a clue about what strategy actually meant.

One day the CEO called me into his office and asked, “Steve I’ve been thinking about this as our strategy going forward. What do you think?” And he proceeded to lay out a fairly complex and innovative sales and marketing strategy for our next 18 months.  “Yeah, that sounds great,” I said. He nodded and then offered up, “Well what do you think of this other strategy?” I listened intently as he spun an equally complex alternative strategy. “Can you pull both of these off?” he asked looking right at me.  By the angelic look on his face I should have known that I was being set up. I replied naively, “Sure, I’ll get right on it.”

Ambushed
25 years later I still remember what happened next. All of sudden the air temperature in the room dropped by about 40 degrees.  Out of nowhere the CEO started screaming at me, “You stupid x?!x. These strategies are mutually exclusive. Executing both of them would put us out of business.  You don’t have a clue about what the purpose of marketing is because all you are doing is executing a series of tasks like they’re like a big To Do list. Without understanding why you’re doing them, you’re dangerous as the VP of Marketing, in fact you’re just a glorified head of marketing communications.”

I left in daze angry and confused. There was no doubt my boss was a jerk, but unlike the other time I got my butt kicked, I didn’t immediately understand the point. I was a great marketer. I was getting feedback from customers, and I’d pass on every list of what customers wanted to engineering and tell them that’s the features our customers needed. I could implement any marketing plan sales handed to me regardless of how complex. In fact I was implementing three different ones. Oh…hmm… perhaps I was missing something.

I was doing a lot of marketing “things” but why was I doing them?  I had approached my activities as simply as a task-list to get through. With my tail between my legs I was left to ponder; what was the function of marketing in a startup?

Strategy is Not a To Do List, It Drives a To Do List
It took me awhile, but I began to realize that the strategic part of my job was two-fold. First, (in today’s jargon) we were still searching for a scalable and repeatable business model. My job was to test our hypotheses about who were potential customers, what problems they had and what their needs were. Second, when we found these customers, marketing’s job was to put together the tactical marketing programs (ads, pr, tradeshows, white papers, data sheets) to drive end user demand into our direct sales channel and to educate our channel about how to sell our product.

Once I understood the strategy, the To Do list became clear. It allowed me to prioritize what I did, when I did it and instantly understand what would be mutually exclusive.

Good Luck and Thanks For the Fish
My students were going through the motions of Customer Development rather than understanding the purpose behind it. It was trendy, they had read my book and to them it was just another step on the list of things they had to do. They had no deep understanding of why they were doing it.  So they were at a crossroads. Since their investors had asked them to launch now, what happened if their initial assumptions were wrong?

As they left I hoped they would be really lucky.

Lessons Learned

• Entrepreneurs get lots of great advice.
• Most of it is mutually exclusive.
• Don’t do it if you can’t explain why you’re doing it.
• Or else it all becomes a To Do list.

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Filed under: Ardent, Customer Development | 22 Comments »

At Ardent we assembled an amazing group of talented engineers to build personal supercomputers to sell to scientists and engineers. (Context here.)  The company failed.

Getting Out of the Building Wasn’t Entertainment – Discovery and Validation
Now that I was the master of the “facts” about customer needs in these specialized vertical markets, and with my team of vertical marketers, I thought I had achieved absolution and redemption. Opinions had been eliminated as part of marketing’s dialog inside the company; we had achieved “fact nirvana.” But there was one fatal flaw. As I enjoyed my post-graduate vertical marketing education, I had forgotten the real purpose of spending time in the field.

While understanding how customer’s do their work was one key part of Customer Discovery, I neglected the other key component – Customer Validation – to understand whether there were sufficient number of customers who had a problem that needed to be solved – and would pay to solve it. I had needed to ask customers four simple questions.

1. Did the customers know they had a problem?
2. If so, did they want to change the way they were doing things to solve that problem?
3. If so, how much would they pay to solve the problem?
4. Would they write us a Purchase Order now before our supercomputer was even complete, to be the first to solve their problems?

In hindsight, these questions seem blindingly apparent yet not asking them led to the ultimate demise of Ardent.  I just assumed that since customers were talking to me and spending time with me, it must mean that they agreed with our new company’s vision and would spend piles of money with us. At this point in my career I didn’t understand that the goal of getting outside the building was not only finding markets with potential customers to sell to but also confirming the company’s vision, business model and product/market fit.

I had done a good job of Customer Discovery but failed at Customer Validation.

Ignoring the Red Flags
While I had lots of people willing to talk to me, we never really pushed hard to see if any customers were willing to buy and pay for the product before it shipped.

Early startup customers are visionaries just like the founders selling to them. If your startup’s vision is compelling enough, these early customers want to buy into the dream of what could be, and they want to get in early. They will put up with an unfinished system that barely works to get a competitive advantage outside their company (or sometimes a political one inside their company.)  They will count on your startup to listen to their needs for subsequent releases or follow-on systems that actually deliver on the initial promise.

All industries, markets and segments have these visionary, early adopters. It is one of the wonderful intersections between human nature, capitalism, and startups. Not finding a sufficient set of these early visionaries is the biggest red flag a company can encounter.  Ignoring these warning signs is fatal.

Product/Market Fit
Getting out of the building is not to collect feature lists from prospective customers nor run tons of focus groups (I had passed this test.) Instead it was to validate the product/market fit by discovering if their were enough customers who would buy our product as spec’d.  This was where I had failed at Ardent. Once we had found our target customers we spent our meetings describing our new personal supercomputer and what it could do for these researchers instead of listening and truly understanding whether what we were offering was a “nice to have it” or “got to have it.”

If I had had actually been asking “Were we solving a problem these scientists and engineers felt they had?” I would have gotten a half-hearted “maybe.” If I had followed that up with a “If our personal supercomputer delivers as promised, would you write me a check now, before it ships?” I would have seen that no one was falling over themselves to be the first to buy our product. Another clue: lots of people said, “We’d try it if you give it to us.”  That answer is always a dead give-away that you don’t yet have a product compelling enough to build a business.

As often happens in a startup, we confused our own vision and passion with the passion of our potential customers.

I had talked too much and listened too little.

What did the company do when we heard customer input that contradicted our business plan and assumptions?  More in the next post.

Lessons learned:

We had “discovered” Ardent’s initial markets and customers

We spent too much time selling our vision and not enough time validating whether customers would actually buy

A lack of early, eager purchasers is a red-flag – time to revisit your business model

Filed under: Ardent, Customer Development | 12 Comments »

At Ardent we were building personal supercomputers to sell to scientists and engineers. (Context here.) While the last post was titled “You Know You’re Getting Close to Your Customers When They Offer You a Job“, this post should probably be titled, “You Know You’re Getting Close to Your Customers When You Offer Them a Job.”

I would discover that there was a more effective alternative in building a marketing department than hiring traditional marketers with MBA’s.

Building an Advisory Board
In my travels outside the building I kept my eyes out for articulate and visionary scientists and engineers who had expertise we lacked, and were willing to help in an advisory capacity. I set up an advisory board as a vehicle to get these industry experts engaged with the company and product. Some of these advisors from the academic community would work with our of VP of Engineering and help us solve specific technical problems.

Other advisors provided marketing with industry-specific advice in our initial vertical markets (computational fluid dynamics, computational chemistry, finite element analysis, and petroleum engineering). They gave us input on 1) features our system needed, 2) what applications we needed to have, and 3) how to sell to people just like them. Of course we also hoped that in listening to their advice in how to build the perfect computer for customers just like them, they would actually buy one of the first computers.  Since some of these advisory board members were leaders in their fields, we knew they would tell their peers about our company. Our company’s stock was an inducement, but all of them were in it to help us build a better computer.

Velvet Painting Period – MFLOPS Poster

Engineers as Marketers
There was one other reason I was talent-spotting our advisors and potential customers. In most other companies a product-marketing department was responsible for the pricing, positioning and promotion of the product. Yet in our case the product, the machine as delivered from engineering, was a blank, featureless computer with just an operating system and compilers. The hardware held no interest for our target customers until it had become a “whole product,” – that is not until the computer had the complete suite of applications appropriate for a scientist in their specific vertical market – i.e. all the applications to run computational fluid dynamics or finite element analysis.

While I had learned a lot about our target markets in the first few months, I would never know as much as people who had spent their careers in these fields. Since the universe of people who were great marketers who also understood these esoteric applications like finite element analysis could be counted on one hand, (and were all working at Cray, the market leader) my choices were limited. I could either hire smart MBAs who were generalists and try to get them up to speed on these simulation applications, or I could hire some of the most articulate domain experts and teach them how to be marketers.

I chose to hire engineers from within each of our target markets and set up “Steve’s one month MBA course for engineers.”

At the time this was a pretty controversial decision. These hires were definitely not your standard marketing types. We hired a PhD in computational fluid dynamics from Duke who had worked on helicopter design. (Years later he would become a venture capitalist at Sequoia Capital.)

Our head of finite element analysis came from General Motor’s Chevy division, where he headed up one of their analysis groups. (He would go on to be a co-founder of two mechanical engineering software companies.) The rest of the vertical marketing recruits had similar backgrounds (and similar careers.)  (I never could find one from the petroleum industry so I wore that hat along with the VP of Marketing title.)

Few of them had ever seen a data sheet or a price list let alone written one, but they were domain experts, they knew their fields, and they could communicate the benefits of owning a machine like ours to run their applications. They knew which applications were critical for their markets and which were nice-to-have. And they were responsible for helping our 3^rd party software group reach the right application providers to port their software to our computer. Since these marketers knew what publications their peers read and what conferences and trade shows they attended, they led our presence at the right shows and conferences.  They knew the technology trendsetters in their fields and got us in front of them. In short order they learned how to transition from being customers on the receiving end of a sales pitch to giving one. To a person they became passionate evangelists and effective marketers.

Technical Marketing
Years later in my career I would realize I had simply reinvented what the early pioneers in Silicon Valley knew and did – hiring engineers who were domain experts who could talk as peers to customers and communicate effectively with their own company’s engineers.  (Back in the 1960’s and 70’s no sane MBA’s would work for a Silicon Valley startup.) While MBA’s have a ton of useful skills, what they don’t have is what most marketing departments lack – customer insight.  I found that having a senior marketer responsible for business strategy surrounded by ex-engineers and domain experts makes one heck of a powerful marketing department.

A quick diagnostic I now use for marketing departments: if you are in a startup selling to a specific set of customers and/or industry and your marketing department doesn’t have any people from that industry, your tenure as a VP of Marketing has passed its half-life.

Lessons learned:

• Advisory boards with domain experts get you connected quickly to customer needs
• In specialized markets, hire domain experts, and teach them to be marketers

Filed under: Ardent, Customer Development | 12 Comments »

As VP of Marketing at our new startup, the CEO literally threw me out of the building and told me not to return until I understood the market and could identify the key applications and customers for Ardent’s new personal supercomputer. (See the previous Ardent posts for context.)

Supercomputers
With the introduction in 1976 of the Cray-1, supercomputers were defined as the fastest vector-processing computer, one in which a single instruction performed operations on an array rather than a single number. Cray’s first customers were the U.S. Nuclear Weapons Laboratories which used supercompurters to run their hydrodynamics codes to simulate what went on in the first microseconds in a nuclear weapon and the National Security Agency (with Cray putting in a special population count hardware instruction) used to facilitate decryption of codes.

At first only the national laboratories and the largest companies could afford to buy supercomputers, (the Cray-1 cost ~$9 million) but over time scientists and researchers were also starting to use them. Companies wanted to run numerical simulations to model things that were too expensive, too dangerous or too time consuming to physically build.  Because of the vagaries of how floating point units in computers were designed, your average IBM mainframe of the day would take forever to run a simulation application. A supercomputer could be a 100x faster.

What Markets?
At Ardent our hypothesis was that if we could build a desktop supercomputer powerful enough to run and display these numerical simulations there were enough customers to make this a big business. My job was to figure out what markets Ardent should target, who were the key customers in these markets and what applications these customers had to have.

The problem was I didn’t have a clue. And while others in our new startup came from companies like Digital Equipment Corporation (DEC) that had sold computers to automate scientific instrumentation and process control, the computers we were building at Ardent were targeted to different customers and markets.

The one thing I did know is that we were probably going to be running some of the same applications as the market leader Cray. I concluded that my first job was to understand what Cray’s markets, customers and applications. When I learned that Cray users would be giving papers at the Society of Petroleum Engineering conference in Denver the next day, I got on a plane to listen and learn.

Follow the Leader
At the conference I attended a bunch of technical sessions, and got lost when the speaker got past, “My name is xxx.”  I could see that quite a few oil companies were buying or thinking of buying their own supercomputer.  As I walked out of the conference hall, I ran into a small booth with salespeople from Cray.  Since their computers were way too large to bring to a trade show, the Cray booth just had literature describing their machines.  I grabbed one of each piece of literature, stuffed into my bag, and wandered through the exhibit hall looking at other hardware and petroleum software companies.

Later I sat down for lunch and began to leaf through the bag of data sheets and brochures I had collected.  Hmm… typical booth stuff…key chains, data sheets, pens… Until I got to the material from Cray.

Intelligence
As I leafed through the Cray sales material, a glossy magazine with the headline Cray Channels jumped out of the pile.  Skimming a few pages, I realized that this particular issue was all about computational fluid dynamics, one of Cray’s key markets.  The articles described the applications these users depended on and featured interviews with their most important customers.

I went back and looked at the cover not quite believing what I was reading was real. Cray Channels was describing my market, applications and customers for me.  Was it possible that my market research was being handed to me by the existing market incumbent?

I kept thinking, “could this be possible?  Did Cray ever publish any more of these magazines?”  I looked at the cover of the magazine again and almost fell off my chair. It was Volume 7 issue 2.  These magazines had been published for the last seven years. Could Cray have actually been describing their markets and users for that long?

I ran back to the Cray booth and as casually as I could, asked the salesman about the magazine. He assured me that each one profiled a different market, applications and users. I could order back issues from their publications department.

I don’t remember how quickly I got to a payphone, but I’m pretty sure that every back issue of these magazines were on the way to Sunnyvale by the end of that day.

Supercomputer Porn
When the back issues of Cray Channels arrived at Ardent, I ripped open the package with the Cray return address and eagerly started to flip through them. I was excited about what I was going to learn, yet somehow felt guilty, as if I really shouldn’t be looking at them. The pictures were great but I was reading it for the articles. But I was breathing heavy and it felt like I was looking at supercomputer porn. The magazines got passed around to all the engineers until they were dog-eared and worn.

I spent the next few days building a table with three columns: markets, applications, key customers.  At the same time I had found the Wall Street analyst who followed Cray (now a public company) who kept a list of where every one of Cray’s machines was installed.  I could now cross-correlate the markets by company who used supercomputers.

I started sharing what I had learned about potential target markets with our engineering team and my CEO. We agreed that now we had a roadmap, it was time to hit the road, talk to Cray customers and learn about supercomputer markets and applications in detail.

Lessons learned:

• If you are in an existing market or trying to resgement an existing market you need to understand the market leader
• Market leaders tend to educate the market
• Step one for a startup is know what the market leader knows

Filed under: Ardent, Customer Development | 11 Comments »