Steve Blank

I was pleasantly surprised to hear from Suresh, an ex-student I’ve known for a long time. A U.S. citizen he was now the head of sales and marketing for a company in London selling medical devices to hospitals in the UK National Health Service.  His boss had identified the U.S. as their next market and wanted him to set up a U.S. salesforce. Suresh understood that the U.S. health system was very different from the system in the UK, not just the regulatory regime through the FDA, but the reimbursement process and the entire sales process.

Over a Zoom call Suresh explained, “I’m trying to push the importance of running customer discovery and testing these hypotheses before we build our U.S. product, but I’m running into a pushback from my CEO. He says, “We’re disruptors! Discovery is going to slow us down.  We need to move quickly!”

Suresh was concerned. “If we don’t test our assumptions about the market and any changes needed to our products, we’ll build something I can’t sell. Worse, given how expensive clinical trials are in medtech, I’m concerned if we build a product that isn’t commercially viable, we’ll be out of business before we even start.”

I could hear his frustration and concern when he asked, “How can I convince my boss to use customer discovery to test our hypotheses?”

That’s when I realized that Suresh was overlooking a few things.

1. He was trying to sell the “story” of Customer Discovery as part of the Lean Methodology to his CEO by explaining how discovery worked with the business model canvas, agile engineering, pivots and MVPs.
2. But talking about the method to others is not the same as “doing” Customer Discovery.
3. Customer Discovery is about gathering validated evidence, not proselytizing a method.
4. The goal of discovery is to gather evidence to test hypotheses, deeply understand the customer problem and validate a solution.
5. As head of sales and marketing, Suresh didn’t need his CEO to buy into the process or give his permission to start the discovery process. He was in charge.
6. Given the ubiquity of Zoom, he could use it to rapidly get out of the building to the U.S. to test some hypotheses and gather some initial insights.

I pointed out that once he had potential customer, regulator, and reimbursement data from his Discovery interviews, he could bring that data into conversations with his CEO.

Having real data turns conversations from faith-based to evidence-based.

Lessons Learned

• Talking about the Lean method to others is not the same as doing it
• If you’re in charge or part of a customer-facing organization, you don’t need to wait for permission to talk to customers to test hypotheses
• Having real data turns conversations from faith-based to evidence-based

Filed under: Customer Development | 5 Comments »

There are no facts inside your building, so get the heck outside

I just had a call with Lorenz, a former business school student who started a job at a biotech startup making bacteria to take CO2 out of the air. His job was to find new commercial markets for this bacteria at scale.  And he wanted to chat about how to best enter a new market.

His market research found that the concrete industry contributes between 5 and 10% of the world’s carbon emissions. So it seemed logical to him that the concrete industry was going to be one the first places to approach since it was obvious that they need to reduce carbon emissions. He believed that if used as an additive to concrete, his bacteria could strengthen it while reducing CO2.

The conversation got interesting when I asked, “How are you going to describe the product to potential customers in the concrete industry?” Lorenz began a long description of the details of the bacteria, his founders’ research papers on bacteria, the scientific advisory board bacteria experts they had assembled, how the bacteria was made at scale in fluidized bed reactors, etc… This went on for at least ten more minutes. When he was done I asked him, “So why should anybody in the concrete industry care? Do you really think they’re looking for bacteria made in fluidized bed reactors? Do you think there are a significant number whose number one issue is to buy bacteria? Do you know what if any of the features you mentioned actually matter to a potential customer?” There was silence for a moment. And then he said, “I don’t know.”

I wasn’t completely surprised because as a young marketeer, I made this mistake all the time – thinking that my product was a solution to someone’s problem  – without ever understanding what problems the customers really had. And that I needed to have all the answers when in fact I didn’t even understand the questions.

I suggested that perhaps he should get out of the building and actually talk to some large-scale concrete suppliers and rather than starting with what he wanted to sell them, try to understand what their needs were. For example, how were current and upcoming green building regulations on CO2 emissions affecting the concrete industry? How are they solving that problem today? (If they weren’t solving it, it may not be a problem they’ll pay to solve.) What was the current cost of low carbon concrete? How much would they have to charge to be competitive? Were there specific use-cases that made sense for initial adoption/pilots? What additional benefits could bacteria as an concrete additive make (ie. greater strength, crack healing)?

We talked for a few minutes more and by then I could see the lightbulb going on over his head when he said, “I think I got my work cut out for me.”

Lessons learned

• Your product is not someone’s problem
• Start with a deep understanding of a customer problem or need before you start pitching your solution
• Ask customers how they solve the problem today
• Understand future regulations that might change your customer’s priorities or challenges

Filed under: Customer Development | 3 Comments »

I first met Shawn Carolan and his wife Jennifer at the turn of the century at 11,000 feet. I was hiking with my kids between the Yosemite High Sierra camps. Having just retired from a career as an entrepreneur I had started thinking about why startups were different from large companies. The ideas were bouncing around my head so hard that I shared them with these strangers around a campfire, drawing out the four steps with a stick in the dirt. Shawn immediately said the name I had given the four steps was confusing – I had called it market development – he suggested that I call it Customer Development – and the name stuck. What I didn’t realize was that both were graduate students at Stanford and later both would become great VCs – Shawn at Menlo Ventures and Jennifer at Reach Capital. (And Jennifer is now my co-instructor in the Stanford Lean LaunchPad class.)

The MVP Tree
Over the last two decades Shawn has seen hundreds of startups use the Lean Methodology. Many of them get hung up on understanding how to select the right minimal viable product. He came up with the concept to simply the search for product/market fit by using an MVP Tree.

Shawns guest blog post describing describing the MVP Tree is below.

(Note that if you’re familiar with the business model canvas, Steps 1-4 below are equivalent to a visual map of the choices a founder makes as they develop a business model canvas. Step 5 and 6 leads you to selecting the right MVPs.)

Filed under: Customer Development | 10 Comments »

The pandemic has upended the business models of most startups and existing companies. As the economy reopens companies are finding that customers may have disappeared or that their spending behavior has changed. Suppliers are going out of business or requiring cash-up-front terms. Accounts receivables are stretching way out. Revenue models and forecasts are no longer valid.

In sum, whatever business model you had at the beginning of the year may be obsolete.

While there’s agreement that companies need to adapt to changing markets, rapidly find new markets, new customers and new revenue models, the question is how? What tools and methods can a C-suite team use to do so?

While the Lean Startup was built with Business Model Canvas, Customer Development and Agile Engineering, there’s an additional tool — the Market Opportunity Navigator — that can help entrepreneurs discover new opportunities.

Here’s how.

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Companies have rapidly responded to Pandemic Needs
When COVID-19 first emerged established companies rapidly pivoted. Some focused on remote work, others offered new ways to learn online. Swiss smart flooring startup Technis now helps supermarkets regulate the flow of shoppers. Large companies like GM, Ford and Rolls-Royce began to produce ventilators. Companies in cosmetics and perfume production pivoted their production lines as well. With ethanol and glycerin on hand and equipment required to fill bottles, French luxury giant LVMH has started to produce sanitizer – just like gin and whiskey distilleries across the US and UK have done.

Although the large firms made the headlines, startups also pivoted. For instance, Italian additive manufacturing startup Isinnova used its 3D-printing equipment to produce a crucial valve for oxygen masks. New York-based startup Katena Oncology discovered that a cancer detection tool under development could be adapted to test for coronavirus..

Capture opportunities by building on or repurposing your start-up’s abilities
In these examples CEOs instinctually figured out, 1)  their core , and 2)  market needs where their competencies/abilities could be used.

Rather than running on instinct, the Market Opportunity Navigator can help CEOs figure out their next moves in this confusing recovery. It can provide a big-picture perspective to find different potential markets for your company’s competencies/abilities. This is the first step before you zoom in and design the business model, engage in focused customer development or test your minimal viable products.

Take the example of Abionic, a nanotech startup.

Abionic: pivoting a sepsis test to fight COVID-19
Abionic’s tests can detect allergies, cardiovascular diseases, sepsis and other diseases in 5 minutes. As the pandemic hit, the company’s leaders wondered how their tests could be used in the fight against COVID-19. Using the Market Opportunity Navigator, Abionic realized that their test could diagnose sepsis up to 72 hours before a septic shock would occur in COVID-19 patients.

One of the worksheets below from the Market Opportunity Navigator provides a systematic view of Abionic’s market discovery process: The upper part of the worksheet shows Abionic’s technological assets and the lower part shows how these abilities can be used different market opportunities.

You can download the Market Opportunity Navigator and its free worksheets here.

By looking at their technological abilities, especially in the early detection of sepsis, and clinical data showing that septic shock is one of the key complications of a coronavirus infection, Abionic identified a new market opportunity to help patients suffering from COVID-19. Their CEO Nicolas Durand explains: “If doctors are able to diagnose sepsis up to 72 hours before a septic shock would occur in COVID-19 patients they can prescribe an antibiotic therapy much earlier, thereby potentially saving the lives of millions. In order to test this application of our technology, we deployed our machines at the Hospital at the University of Geneva and see promising results!”

Beyond medical needs: Discovering new opportunities with the Market Opportunity Navigator
Abionic and other companies were able to act fast, as they already possessed technological abilities that, with limited adjustments, could be pivoted or repurposed to the newly identified COVID-19 opportunities.

Yet, because the crisis and recovery will create a “new normal,” additional opportunities will emerge that wait to be discovered by startups and existing companies. Think about looking beyond the immediate opportunities of existing customers and markets, and take a mid- to long-term view on how you can proactively identify new and emerging market opportunities. The three worksheets of the Market Opportunity Navigator help you to:

1. Identify new market opportunities stemming from your technology or abilities
2. Reveal the most attractive domain(s) by evaluating the potential and challenges of each option
3. Prioritize market opportunities smartly to set the boundaries for your lean experimentations

Lessons Learned

• The COVID-19 crisis and recovery creates fundamental shifts in our economies and societies, and a “new normal” is emerging
• Winners in this new normal will be able to quickly understand
  • what are their company’s core competencies/abilities, and
  • the new market needs where their competencies/abilities could be used
• The Market Opportunity Navigator is a framework for this identification process
  • Worksheets and supporting material can be downloaded at wheretoplay.co

Filed under: Customer Development | 6 Comments »

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 »