Why the Navy Needs Disruption Now (part 2 of 2)

The future is here it’s just distributed unevenly – Silicon Valley view of tech adoption

The threat is here it’s just distributed unevenly – A2/AD and the aircraft carrier

This is the second of a two-part post following my stay on the aircraft carrier USS Carl Vinson. Part 1 talked about what I saw and learned – the layout of a carrier, how the air crew operates and how the carrier functions in context of the other ships around it (the strike group.) But the biggest learning was the realization that disruption is not just happening to companies, it’s also happening to the Navy. And that the Lean Innovation tools we’ve built to deal with disruption and create continuous innovation for large commercial organizations were equally relevant here.

This post offers a few days’ worth of thinking about what I saw. (If you haven’t, read part 1 first.)


The threat is here; it’s just distributed unevenly – A2/AD and the aircraft carrier
Both of the following statements are true:

  • The aircraft carrier is viable for another 30 years.
  • The aircraft carrier is obsolete.

Well-defended targets
Think of an aircraft carrier as a $11 billion dollar portable air force base manned by 5,000 people delivering 44 F/A-18 strike fighters anywhere in the world.

The primary roles of the 44 F/A-18 strike fighters that form the core of the carrier’s air wing is to control the air and drop bombs on enemy targets. For targets over uncontested airspace (Iraq, Afghanistan, Syria, Somalia, Yemen, Libya, etc.) that’s pretty easy. The problem is that First World countries have developed formidable surface-to-air missiles – the Russian S–300 and S-400 and the Chinese HQ-9 – which have become extremely effective at shooting down aircraft. And they have been selling these systems to other countries (Iran, Syria, Egypt, etc.). While the role of an aircraft carrier’s EA-18G Growlers is to jam/confuse the radar of these missiles, the sophistication and range of these surface-to-air missiles have been evolving faster than the jamming countermeasures on the EA-18G Growlers (and the cyber hacks to shut the radars down).

Hq9

This means that the odds of a carrier-based F/A-18 strike fighter successfully reaching a target defended by these modern surface-to-air missiles is diminishing yearly. Unless the U.S. military can take these air defense systems out with drones, cruise missiles or cyber attack, brave and skilled pilots may not be enough. Given the F/A-18’s are manned aircraft (versus drones), high losses of pilots may be (politically) unacceptable.

Vulnerable carriers
If you want to kill a carrier, first you must find it and then you have to track it. In WWII knowing where the enemy fleet located was a big – and critical – question. Today, photo imaging satellites, satellites that track electronic emissions (radio, radar, etc.) and satellites with synthetic aperture radar that can see through clouds and at night are able to pinpoint the strike group and carrier 24/7. In the 20th century only the Soviet Union had this capability. Today, China can do this in the Pacific and to a limited extent, Iran has this capability in the Persian Gulf. Soon there will be enough commercial satellite coverage of the Earth using the same sensors, that virtually anyone able to pay for the data will be able to track the ships.

During the Cold War the primary threat to carriers was from the air – from strike/fighters dropping bombs/torpedoes or from cruise missiles (launched from ships and planes). While the Soviets had attack submarines, our anti-Submarine Warfare (ASW) capabilities (along with very noisy Soviet subs pre-Walker spy ring) made subs a secondary threat to carriers.

In the 20th century the war plan for a carrier strike group used its fighter and attack aircraft and Tomahawk cruise missiles launched from the cruisers to destroy enemy radar, surface-to-air missiles, aircraft and communications (including satellite downlinks). As those threats are eliminated, the carrier strike can move closer to land without fear of attack. This allowed the attack aircraft to loiter longer over targets or extend their reach over enemy territory.

Carriers were designed to be most effective launching a high number of sorties (number of flights) from ~225 miles from the target. For example, we can cruise offshore of potential adversaries (Iraq and Syria) who can’t get to our carriers. (Carriers can standoff farther or can reach further inland, but they have to launch F-18’s as refueling tankers to extend the mission range. For example, missions into Afghanistan are 6-8 hours versus normal mission times of 2-3 hours.)

In the 21st century carrier strike groups are confronting better equipped adversaries, and today carriers face multiple threats before they can launch an initial strike. These threats include much quieter submarines, long-range, sea-skimming cruise missiles, and in the Pacific, a potential disruptive game changer – ballistic missiles armed with non-nuclear maneuverable warheads that can hit a carrier deck as it maneuvers at speed (DF-21d and the longer range DF-26).d21d range

In the Persian Gulf the carriers face another threat – Fast Inshore Attack Craft (FIAC) and speedboats with anti-ship cruise missiles that can be launched from shore.

The sum of all these threats – to the carrier-based aircraft and the carriers themselves –  are called anti-access/area denial (A2/AD) capabilities.

Eventually the cost and probability of defending the carrier as a manned aircraft platform becomes untenable in highly defended A2/AD environments like the western Pacific or the Persian Gulf. (This seems to be exactly the problem the manned bomber folks are facing in multiple regions.) But if not a carrier, what will they use to project power?  While the carrier might become obsolete, the mission certainly has not.

So how does/should the Navy solve these problems?

Three Horizons of Innovation
One useful way to think about in innovation in the face of increasing disruption / competition is called the “Three Horizons of Innovation.” It suggests that an organization should think about innovation across three categories called “Horizons.”

  • Horizon 1 activities support executing the existing mission with ever increasing efficiency
  • Horizon 2 is focused on extending the core mission
  • Horizon 3 is focused on searching for and creating brand new missions
    (see here for background on the Three Horizons.)

Horizon 1 is the Navy’s core mission. Here the Navy executes against a set of known mission requirements (known beneficiaries, known ships and planes, known adversaries, deployment, supply chain, etc.) It uses existing capabilities and has comparatively low risk to get the next improvement out the door.

In a well-run organization like the Navy, innovation and improvement occurs continuously in Horizon 1. Branches of the Navy innovate on new equipment, new tactics, new procurement processes, more sorties on newer carriers, etc. As fighter pilots want more capable manned aircraft and carrier captains want better carriers, it’s not a surprise that Horizon 1 innovations are upgrades – the next generation of carriers – Ford Class; and next generation of navy aircraft – the F-35C. As a failure here can impact the Navy’s current mission, Horizon 1 uses traditional product management tools to minimize risk and assure execution. (And yes, like any complex project they still manage to be over budget and miss their delivery schedule.)

Because failure here is unacceptable, Navy Horizon 1 programs and people are managed by building repeatable and scalable processes, procedures, incentives and promotions to execute and the mission.

In Horizon 2, the Navy extends its core mission. Here it looks for new opportunities within its existing mission (trying new technology on the same platform, using the same technology with new missions, etc.) Horizon 2 uses mostly existing capabilities (the carrier as an aircraft platform, aircraft to deliver munitions) and has moderate risk in building or securing new capabilities to get the product out the door.

An example of potential Naval Horizon 2 innovations is unmanned drones flying off carriers to do the jobs fighter pilots hate such as serving as airborne tankers (who wants to fly a gas tank around for 6 hours?) and ISR (Intelligence, Surveillance and Reconnaissance), another tedious mission flying around for hours that could be better solved with a drone downlinking ISR data for processing on board a ship.

However, getting the tanker and ISR functions onto drones only delays the inevitable shift to drones for strike, and then for fighters. The problem of strike fighters’ increasing difficulty in penetrating heavily defended targets isn’t going to get better with the new F-35C (the replacement for the F/A-18). In fact, it will get worse. Regardless of the bravery and skill of the pilots, they will face air defense systems evolving at a faster rate than the defensive systems on the aircraft. It’s not at all clear in a low-intensity conflict (think Bosnia or Syria) that civilian leadership will want to risk captured or killed pilots and losing planes like the F-35C that cost several hundred million dollars each.

Management in Horizon 2 works by pattern recognition and experimentation inside the current mission model. Ironically, institutional inertia keeps the Navy from deploying unmanned assets on carriers. In a perfect world, drones in carrier tanker and ISR roles should have been deployed by the beginning of this decade. And by now experience with them on a carrier deck could have led to first, autonomous wingmen and eventually autonomous missions. Instead the system appears to have fallen into the “real men fly planes and command Air Wings and get promoted by others who do” mindset.

The Navy does not lack drone demos and prototypes, but it has failed to deploy Horizon 2 innovations with speed and urgency. Failure to act aggressively here will impact the Navy’s ability to carry out its mission of sea control and power projection. (The Hudson Institute report on the future of the carrier is worth a read, and a RAND report on the same topic comes out in October.)

If you think Horizon 2 innovation is hard in the Navy, wait until you get to Horizon 3. This is where disruption happens. It’s how the aircraft carrier disrupted the battleship. How nuclear-powered ballistic missile submarines changed the nature of strategic deterrence, and how the DF-21/26 and artificial islands in the South China sea changed decades of assumptions.  And it’s why, in most organizations, innovation dies.

For the Navy, a Horizon 3 conversation would not be about better carriers and aircraft. Instead it would focus on the core reasons the Navy deploys a carrier strike group: to show the flag for deterrence, or to control part of the sea to protect shipping, or to protect a Marine amphibious force, or to project offensive power against any adversary in well-defended areas.

A Horizon 3 solution for the Navy would start with basic need of these missions (sea control, offensive power projection – sortie generation) the logistic requirements that come with them, and the barriers to their success like A2/AD threats. Lots of people have been talking and writing about this and lots of Horizon 3 concepts have been proposed such as Distributed LethalityArsenal Ships, underwater drone platforms, etc.

Focussing on these goals – not building or commanding carriers, or building and flying planes – is really, really hard.  It’s hard to get existing operational organizations to think about disruption because it means they have to be thinking about obsoleting a job, function or skill they’ve spent their lives perfecting. It’s hard because any large organization is led by people who succeeded as Horizon 1 and 2 managers and operators (not researchers). Their whole focus, career, incentives, etc. has been about building and make the current platforms work. And the Navy has excelled in doing so.

The problem is that Horizon 3 solutions take different people, different portfolio, different process and different politics.

People: In Horizon 1 and 2 programs people who fail don’t get promoted because in a known process failure to execute is a failure of individual performance. However, applying the same rules to Horizon 3 programs – no failures tolerated – means we’ll have no learning and no disruptive innovations. What spooks leadership is that in Horizon 3 most of the projects will fail. But using Lean Innovation they’ll fail quickly and cheaply.

In Horizon 3 the initial program is run by mavericks – the crazy innovators. In the Navy, these are the people you want to court martial or pass over for promotion for not getting with current program. (In a startup they’d be the founding CEO.) These are the fearless innovators you want to create new and potentially disruptive mission models. Failure to support their potential disruptive talent means it will go elsewhere.

Portfolio: In Horizon 3, the Navy is essentially incubating a startup. And not just one. The Navy needs a portfolio of Horizon 3 bets, for the same reason venture capital and large companies have a portfolio of Horizon 3 bets – most of these bets will fail – but the ones that succeed are game changers.

Process: A critical difference between a Horizon 3 bet and a Horizon 1 or 2 bet is that you don’t build large, expensive, multi-year programs to test radically new concepts (think of the Zumwalt class destroyers). You use “Lean” techniques to build Minimal Viable Products (MVPs). MVPs are whatever it takes to get you the most learning in the shortest period of time.

Horizon 3 groups operate with speed and urgency – the goal is rapid learning. They need to be physically separate from operating divisions in an incubator, or their own facility. And they need their own plans, procedures, policies, incentives and Key Performance Indicators (KPIs) different from those in Horizon 1.  

The watchwords in Horizon 3 are “If everything seems under control, you’re just not going fast enough.”

Politics: In Silicon Valley most startups fail. That’s why we invest in a portfolio of new ideas, not just one. We embrace failure as an integral part of learning. We do so by realizing that in Horizon 3 we are testing hypotheses – a series of unknowns – not executing knowns. Yet failure/learning is a dirty word in the world of promotions and the “gotcha game” of politics. To survive in this environment Horizon 3 leaders must learn how to communicate up/down and sideways that they are not running Horizon 1 and 2 projects.

Meanwhile, Navy and DOD leadership has to invest in, and clearly communicate their innovation strategy across all three Horizons.

Failure to manage innovation across all three Horizons and failure to make a portfolio of Horizon 3 bets means that the Navy is exposed to disruption by new entrants. Entrants unencumbered by decades of success, fueled by their own version of manifest destiny.

Lessons Learned

  • Our carriers are a work of art run and manned by professionals
    • Threats that can degrade or negate a carrier strike group exist in multiple areas
    • However, carriers are still a significant asset in almost all other combat scenarios
  • Speed and urgency rather than institutional inertia should be the watchwords for Horizon 2 innovation
  • Horizon 3 innovation is about a clean sheet of paper thinking
    • It’s what Silicon Valley calls disruption
    • It requires different people, portfolio, process and politics
  • The Navy (and DOD) must manage innovation across all three Horizons
    • Allocating dollars and resources for each
  • Remembering that todays Horizon 3 crazy idea is tomorrow Horizon 1 platform

Thanks to the crew of the U.S.S. Vinson, and Commander Todd Cimicata and Stanford for a real education about the Navy.

Why the Navy Needs Disruption Now (part 1 of 2)

The future is here it’s just distributed unevenly – Silicon Valley view of tech adoption

The threat is here it’s just distributed unevenly – A2/AD and the aircraft carrier

Sitting backwards in a plane with no windows, strapped in a 4-point harness, wearing a life preserver, head encased in a helmet, eyes covered by googles, your brain can’t process the acceleration. As the C-2 A Greyhound is hurled off an aircraft carrier into the air via a catapult, your body thrown forward in the air, until a few seconds later, hundreds of feet above the carrier now at 150 miles per hour you yell, “Holy Shxt.” And no one can hear you through the noise, helmet and ear protectors.


I just spent two days a hundred miles off the coast of Mexico aboard the U.S.S. Carl Vinson landing and taking off on the carrier deck via a small cargo plane.nimitz class carrier

Taking off and landing is a great metaphor for the carrier. It’s designed to project power – and when needed, violence.

It’s hard to spend time on a carrier and not be impressed with the Navy, and the dedicated people who man the carrier and serve their country. And of course that’s the purpose of the two-day tour. The Navy calls its program Outreach: Americas Navy. Targeting key influencers (who they call Distinguished Visitors,) the Navy hosts 900/year out to carriers off the West Coast and 500/year to carriers on the East Coast. These tours are scheduled when the carriers are offshore training, not when they are deployed on missions. I joined Pete Newell (my fellow instructor in the Hacking for Defense class) and 11 other Stanford faculty from CISAC and the Hoover Institution.

I learned quite a bit about the physical layout of a carrier, how the air crew operates and how the carrier functions in context of the other ships around it (the strike group.) But the biggest learning was the realization that disruption is not just happening to companies, it’s also happening to the Navy. And that the Lean Innovation tools we’ve built to deal with disruption and create continuous innovation for large commercial organizations were equally relevant here.

The Carrier
U.S. aircraft carriers like the Vinson (there are 9 others) are designed to put the equivalent of an Air Force base anywhere on any ocean anywhere in the world. This means the U.S. can show the flag for deterrence (don’t do this or it will be a bad day) or to control some part of the sea (to protect commercial and/or military shipping, or protect a Marine amphibious force – on the way or at a place they will land); and project power (a euphemism for striking targets with bombs and cruise missiles far from home).

On an aircraft carrier there are two groups of people – the crew needed to run the carrier, called the ship’s company, and the people who fly and support the aircraft they carry, called the Air Wing. The Vinson carries ~2,800 people in the ship’s company, ~2,000 in the Air Wing and ~150 staff.

Without the Air Wing the carrier would just be another big cruise ship. The Air Wing has 72 aircraft made up of jet and propeller planes. The core of the Air Wing are the 44 F/A-18 strike fighters.

The F/A-18 strike fighters are designed to do two jobs: gain air superiority by engaging other fighter planes in the air or attack targets on the ground with bombs (that’s why they have the F/A designation). Flying on missions with these strike fighters are specially modified F/A-18’s – EA-18G Growlers that carry electronic warfare jammers which electronically shut down enemy radars and surface-to-air missiles to ensure that the F/A-18s get to the target without being shot down.

Another type of plane on the carrier is the propeller-driven E-2C Hawkeyes, which is an airborne early warning plane. Think of the Hawkeyes as airborne air traffic control. Hawkeyes carry a long-range radar in a dome above the fuselage, and keep the strike group and the fighters constantly aware of incoming air threats. They can send data to the fighters and to other ships in the battle group which identifies the location of potential threats. They can also detect other ships at sea.

The other planes in the carrier’s Air Wing are 16 helicopters: 8 MH-60S Nighthawk helicopters for logistics support, search and rescue and special warfare support; and 8 MH-60R Seahawks to locate and attack submarines and to attack Surface targets. seahawk helicopterThey carry sonobuoys, dipping sonar and anti-submarine torpedoes. And last but not least, there is the plane that got us on the carrier, the C2-A Greyhound – the delivery truck for the carrier.

You’re not alone
Carriers like the Vinson don’t go to sea by themselves. They’re part of a group of ships called the “carrier strike group.”  A strike group consists of a carrier, two cruisers with Tomahawk cruise missiles which can attack land targets, and two destroyers and/or frigates with Aegis surface to air missiles to defend the carrier from air attack. (In the past, the strike group was assigned an attack submarine to hunt for subs trying to kill the carrier. Today the attack subs are in such demand they are assigned by national authorities on an as-needed basis.) The strike group also includes replenishment ships that carry spare ammunition, fuel, etc. (The 150 staff on the carrier include separate staff for the strike group, Air Wing, carrier, surface warfare (cruisers with tomahawk missiles) and air defense (Aegis-armed destroyers.)

strike groupThe strike group also receives antisubmarine intelligence from P-3/P-8 anti-submarine aircraft and towed arrays on the destroyers, and additional situational awareness from imaging, Electronic Intelligence (ELINT) and radar sensors and satellites.

Before our group flew out to the carrier, we were briefed by Vice-Admiral Mike Shoemaker. His job is aviation Type Commander (TYCOM) for all United States Navy naval aviation units (responsible for aircrew training, supply, readiness, etc.) He also wears another hat as the commander of all the Navy planes in the Pacific. It was interesting to hear that the biggest issue in keeping the airplanes ready to fight are sequestration and budget cuts. These cuts have impacted maintenance, and made spare parts hard to get. And no pay raises make it hard to retain qualified people.

Then it was time to climb into our C-2 Greyhound for the flight out to the aircraft carrier. Just like a regular passenger plane, except you put on a life vest, goggles, ear plugs, and over all that a half helmet protecting the top and back of your head while enclosing your ears in large plastic ear muffs. Then you and 25 other passengers load the plane via the rear ramp, sit facing backwards in a plane with no windows and wait to land.

On the U.S.S. Vinson
Landing on an aircraft carrier is an equally violent act. When you make an arrested landing, a tail hook on the plane traps one of the four arresting cables stretched across the deck, and you decelerate from 105 mph to zero in two seconds. When the plane hit the arresting wire on the carrier deck, it came to a dead stop in 250 feet. There was absolutely no doubt that we had landed (and a great lesson on why you were wearing head protection, goggles and strapped into your non-reclining seat with a four-point harness). As the rear ramp lowered, we were assaulted with the visual and audio cacophony of crewmen in seven different colored shirts on the deck swarming on and around F-18s, E2Cs, helicopters, etc., all with their engines running.

flight deck shirts

Captain Doug Verissimo and his executive officer Captain Eric Anduze, welcomed us to the carrier. (One of my first problems onboard was translating Navy ranks into their Army/Air Force equivalents. For example, a navy captain equals an Air Force/Army Colonel, and a rear admiral is a brigadier general, etc.)

flight deckThen for the next two days the carrier’s public affairs officer led us on the “shock and awe” tour. In four years in the Air Force I had been stationed on four fighter bases, three of them in war zones, some with over 150 planes generating lots of sorties. But I had to grudgingly admit that watching F­-18s landing on a 300-foot runway 60 feet above the water, on a pitching deck moving 30 mph at sea – one a minute – at night – was pretty impressive.  And having us stand on the deck less than 50 feet away from these planes as they landed trapping the arrestor wires, and launched via a catapult was a testament to the Navy’s PR acumen. Most of crew on the flight deck are in their late teens and maybe early 20s. (And for me, hard to believe 4 decades ago in some other life I was doing that job.) Standing on the deck on a Navy carrier, it’s impossible not to be impressed with the precision choreography of the crew and the skill of their pilots.

Our group climbed the ladders (inclined at a 68-degree angle – there are no stairs) up and down the 18 decks (floors) of the ship. We saw the hangar deck where planes were repaired, the jet engine shop, jet engine test cell, arresting cable engine room, the bridge where they steer the ship, the flag bridge (the command center for the admiral), the flight deck control and launch operations room (where the aircraft handler keeps track of all the aircraft on the flight deck and in the hangar), and the carrier air traffic control center (CATCC).LPO

At each stop an officer or enlisted man gave us an articulate description of what equipment we were looking at and how it fit into the rest of the carrier.

(What got left out of the tour was the combat direction center (CDC), the munitions elevators, ships engines and any of the avionics maintenance shops and of course, the nuclear reactor spaces.)

During lunch and dinners, we had a chance to talk at length to the officers and enlisted men. They were smart, dedicated and proud of what they do, and frank about the obstacles they face getting their jobs done. Interestingly they all echoed Vice-Admiral Shoemaker’s observation that the biggest obstacles they face are political –  sequestration and budget cuts.

Just before we left we got a briefing from the head of the Carrier Strike Group, Rear Admiral James T. Loeblein about the threats the carrier and the strike group face.

Then it was off to be catapulted back home.IMG_8187

It’s clear that the public affairs office has a finely tuned PR machine. So if the goal was to impress me that the Navy and carriers are well run and manned – consider it done.

However, it got me thinking… new aircraft carrier’s cost $11 billion. And we have a lot of them on order. Given the threats they are facing are they going to be viable for another 30 years? Or is the aircraft carrier obsolete?

Tomorrow’s post will offer a few days’ worth of thoughts about carriers, strike groups and how the Navy can continue to innovate with carriers and beyond.

Lessons Learned – part 1 of 2

Thanks to the crew of the U.S.S. Vinson, and Commander Todd Cimicata and Stanford for a real education about the Navy.

What Founders Need to Know: You Were Funded for a Liquidity Event – Start Looking

There are many reasons to found a startup.
There are many reasons to work at a startup.
But there’s only one reason your company got funded.   Liquidity.

——-

The Good News
To most founders a startup is not a job, but a calling.

But startups require money upfront for product development and later to scale. Traditional lenders (banks) think that startups are too risky for a traditional bank loan. Luckily in the last quarter of the 20th century a new source of money called risk capital emerged. Risk capital takes equity (stock ownership) in your company instead of debt (loans) in exchange for cash.

Founders can now access the largest pool of risk capital that ever existed –in the form of Private Equity (Angel Investors, family offices, Venture Capitalists (VC’s) and Hedge Funds.)

At its core Venture Capital is nothing more than a small portion of the Private Equity financial asset class. But for the last 40 years, it has provided the financial fuel for a revolution in Life Sciences and Information Technology and has helped to change the world.

The Bad News
While startups are driven by their founder’s passion for creating something new, startup investors have a much different agenda – a return on their investment.  And not just any returns, VC’s expect large returns. VC’s raise money from their investors (limited partners like pension funds) and then spread their risk by investing in a number of startups (called a portfolio). In exchange for the limited partners tying up capital for long periods by in investing in VCs (who are investing in risky startups,) the VCs promise the limited partners large returns that are unavailable from most every other form of investment.

Some quick VC math: If a VC invests in ten early stage startups, on average, five will fail, three will return capital, and one or two will be “winners” and make most of the money for the VC fund. A minimum ‘respectable’ return for a VC fund is 20% per year, so a ten-year VC fund needs to return six times (6x) their investment. This means that those two winner investments have to make a 30x return to provide the venture capital fund a 20% compound return – and that’s just to generate a minimum respectable return.

(BTW, Angel investors do not have limited partners, and often invest for reasons other than just for financial gain (e.g., helping pioneers succeed) and so the returns they’re looking for may be lower.)

The Deal With the Devil
What does this mean for startup founders? If you’re a founder, you need to be able to go up to a whiteboard and diagram out how your investors will make money in your startup.

While you might be interested in building a company that changes the world, regardless of how long it takes, your investors are interested in funding a company that changes the world so they can have a liquidity event within the life of their fund ~7-10 years. (A liquidity event means that the equity (the stock) you sold your investor can now be converted into cash.) This happens when you either sell your company (M&A) or go public (an IPO.) Currently M&A is the most likely path for a startup to achieve liquidity.

Know the End from the Beginning
Here’s the thing most founders miss. You’ve been funded to get to a liquidity event. Period. Your VCs know this, and you need to know this too.

Why don’t VCs tell founders this fact?  For the first few years, your VCs want you to keep your head down, build the product, find product/market fit and ship to get to some inflection point (revenue, users, etc.). As the company goes from searching for a business model to growth, only then will they bring in a new “professional” management team to scale the company (along with a business development executive to search for an acquirer) or prepare for an IPO.

The problem is that this “don’t worry your little head” strategy may have made sense when founders were just technologists and the strategy and tactics of liquidity and exits were closely held, but this a pretty dumb approach in the 21st century. As a founder you are more than capable of adding value to the search for the liquidity event.

Therefore, founders, you need to be planning your exit the day you get funded. Not for some short-time “lets flip the company” strategy but an eye for who, how and when you can make an acquisition happen.

acquistion steps
Step 1: Figure out how your startup generates value
For example, in your industry do companies build value the old fashion way by generating revenue? (Square, Uber, Palantir, Fitbit, etc.) If so, how is the revenue measured? (Bookings, recurring revenue, lifetime value?) Is your value to an acquirer going to measured as a multiple of your revenues?  Or as with consumer deals, is the value is ascribed by the market?

Or do you build value by acquiring users and figuring out how to make money later (WhatsApp, Twitter, etc.) Is your value to an acquirer measured by the number of users? If so, how are the users measured (active users, month-on-month growth, churn)?

Or is your value going to be measured by some known inflection point?  First-in-human proof of efficacy? Successful Clinical trials? FDA approvals? CMS Reimbursement?

If you’re using the business model canvas, you’ve already figured this out when you articulated your revenue streams and noted where they are coming from.

Confirm that your view of how you’ll create value is shared by your investors and your board.

Step 2: Figure out who are the likely acquirers
If you are building autonomous driving aftermarket devices for cars, it’s not a surprise that you can make a short list of potential acquirers – auto companies and their tier 1 suppliers. If you’re building enterprise software, the list may be larger. If you’re building medical devices the list may be much smaller. But every startup can take a good first cut at a list. (It’s helpful to also diagram out the acquirers in a Petal Diagram.) Petal diagramWhen you do, start a spreadsheet and list the companies. (As you get to know your industry and ecosystem, the list will change.)

It’s likely that your investors also have insights and opinions. Check in with them as well.

Step 3: List the names of the business development, technology scouts and other people involved in acquisitions and note their names next to the name of the target company.

All large companies employ people whose job it is to spot and track new technology and innovation and follow its progress. The odds on day-one are that you can’t name anyone. How will you figure this out? Congratulations, welcome to Customer Discovery.

  • Treat potential acquirers like a customer segment. Talk to them. They’re happy to tell anyone who will listen what they are looking for and what they need to see by way of data or otherwise for something to rise to the level of seriousness on the scale of acquisition possibilities.
  • Understand who the Key Opinion Leaders in your industry are and specifically who acquirers assemble to advise them on technology and innovation in their areas of interest.
  • Get out of the building and talk to other startup CEOs who were acquired in your industry.  How did it happen? Who were the players?

It’s common for your investors to have personal contacts with business development and technology scouts from specific companies. Unfortunately, it’s the rare VC who has already built an acquisition roadmap. You’re going to build one for them.Network diagram
After awhile, you ought to be able to go to the whiteboard and diagram the acquisition decision process much like a sales process. Draw the canonical model and then draw the actual process (with names and titles) for the top three likely acquirers

Step 4: Generate the business case for the potential acquirer
Your job is to generate the business case for the potential acquirer, that is, to demonstrate with data produced from testing pivotal hypotheses why they need is what you have to improve their business model (filling a product void; extending an existing line; opening a new market; blocking a competitor’s ability to compete effectively, etc.)

Step 5: Show up a lot and get noticed
Figure out what conferences and shows these acquirers attend. Understand what is it they read. Show up and be visible – as speakers on panels, accidently running into them, getting introduced, etc.  Get your company talked about in the blogs and newsletters they read. How do you know any of this?  Again, this is basic Customer Discovery. Take a few out to lunch. Ask questions – what do they read? – how do they notice new startups? – who tells them the type of companies to look for? etc.

Step 6: Know the inflection points for an acquisition in your market
Timing is everything. Do you wait 7 years until you’ve built enough revenue for a billion-dollar sale?  Is the market for Machine Learning startups so hot that you can sell the company for hundreds of millions of dollars without shipping a product?

For example, in Medical Devices the likely outcome is an acquisition way before you ship a product. Med-tech entrepreneurship has evolved to the point where each VC funding round signals that the company has completed a milestone – and each of these milestones represents an opportunity for an acquisition. For example, after a VC Series B-Round, an opportunity for an acquisition occurs when you’ve created a working product and you have started clinical trials and are working on getting a European CE Mark to get approval.

When to sell or go public is a real balancing act with your board. Some investor board members may want liquidity early to make the numbers look good for their fund, especially if it is a smaller fund or if you are at a later point in their fund life. If you’re on the right trajectory, other investors, such as larger funds or where you are early in their fund life, may be are happy to wait years for the 30x or greater return. You need to have a finger on the pulse of your VCs and the market, and to align interests and expectations to the greatest extent possible.

You also need to know whether you have any control over when a liquidity event occurs and who has to agree on it. (Check to see what rights your investors have in their investment documents.)  Typically, a VC can force a sale, or even block one.  Make sure your interests are aligned with your investors.

As part of the deal you signed with your investors was a term specifying the Liquidation Preference. The liquidation preference determines how the pie is split between you and your investors when there is a liquidity event. You may just be along for the ride. 

Above all, don’t panic or demoralize your employees
The first rule of Fight Club is: you do not talk about Fight Club. The second rule of Fight Club is: you DO NOT talk about Fight Club! The same is true about liquidity. It’s detrimental to tell your employees who have bought into the vision, mission and excitement of a startup to know that it’s for sale the day you start it.  The party line is “We’re building a company for long-term success.”

Do not obsess over liquidity
As a founder there’s plenty on your plate – finding product/market fit, shipping product, getting customers… liquidity is not your top of the list. Treat this as a background process. But thinking about it strategically will effect how you plan marketing communications, conferences, blogs and your travel.

Remember, your goal is to create extraordinary products and services – and in exchange there’s a pot of gold at the end of the rainbow.

Lessons Learned

  • The minute you take money from someone their business model now becomes yours
  • Your investors funded you for a liquidity event
  • You need to know what “multiple” an investor will allow you to sell the company for
    • Great entrepreneurs shoot for 20X
    • You need at least a 5x return to generate rewards for investors and employee stock options
    • A 2X return may wipe out the value of the employee stock options and founder shares
  • You can plan for liquidity from day one
  • Don’t demoralize your employees
  • Don’t obsess over liquidity, treat it strategically

I’m on the Air – On Sirius XM Channel 111

Starting this Monday, March 9th 4-6pm Pacific Time I’ll be on the radio hosting the Bay Area Ventures program on Sirius XM radio Channel 111 – the Wharton Business Radio Channel.Untitled

Over this program I’ll be talking to entrepreneurs, financial experts and academic leaders in the tech and biotech industries. And if the past is prologue I guarantee you that this will be radio worth listening to.

On our first show, Monday March 9th 4-6pm Pacific Time join me, as I chat with Alexander Osterwalder – inventor of the Business Model Canvas, and Oren Jacob, ex-CTO of Pixar and now CEO of ToyTalk on Sirius XM Radio Channel 111.

Oren Jacob - CEO ToyTalk

Oren Jacob – CEO ToyTalk

Alex Osterwalder - Business Models

Alex Osterwalder – Business Models

On Monday’s show we’ll be talking about a range of entrepreneurship topics: what’s a Business Model Canvas, how to build startups efficiently, the 9 deadly sins of a startup, the life of a startup CEO, how large companies can innovate at startup speeds. But it won’t just be us talking; we’ll be taking your questions live and on the air by phone, email or Twitter.

On April 27th, on my next program, my guest will be Eric Ries the author of the Lean Startup. Future guests include Marc Pincus, founder of Zynga, and other interesting founders and investors.

Is there anyone you’d like to hear on the air on future shows? Any specific topics you’d like discussed? Leave me a comment.

Mark your calendar for 4-6pm Pacific Time on Sirius XM Radio Channel 111:

  • March 9th
  • April 27th
  • May 11th
  • June 29th
  • July 13th
  • Aug 24th in NY

Watching Larry Ellison become Larry Ellison — The DNA of a Winner

In Oracle’s early days Kathryn Gould was the founding VP of Marketing, working there from 1982 to 1984. When I heard that Larry Ellison was stepping down as Oracle’s CEO I asked Kathryn to think about the skills she saw in a young Larry Ellison that might make today’s founders winners.

Though I haven’t talked to Larry face-to-face for 20 years, and haven’t worked at Oracle for 30 years, he’s the yardstick I’ve used to pick entrepreneurs all of these years since.

Larry had the DNA I’ve seen common with all the successful entrepreneurs I’ve backed in my 25 years of Venture Capital work—only he had a more exaggerated case than most. Without a doubt, Larry was the most potent entrepreneur I’ve known. It was a gift to be able to work with him and see him in action.

Here’s what was exceptional about Larry:

Potent Leadership Skill
Larry didn’t practice any kind of textbook management, but he was an intense communicator and inspiring leader. As a result, every person in the company knew what the goal was—world domination and death to all competitors. He often said, “It’s not enough to win—all others must fail.” And he meant it, but with a laugh.

It wasn’t as heavy as it sounds, but everyone got the point. We were relentless competitors. Even as the company grew from a handful of people when I started to about 150 when I left (yes, still ridiculously small) I observed that, every single person knew our mission.

This is not usual—startups that fail often have a lot of people milling around who don’t know what the goal is. In winning companies, everybody pulls in the same direction.

oracle-founders1978: Ed Oates, Bruce Scott, Bob Miner and Larry Ellison celebrate Oracle’s first anniversary

A corollary to Larry’s leadership style was that, at least in my day, he did it with great humor, lots of off-the-cuff funny stuff. He loved to argue, often engaging one of our talented VPs who had been captain of his school debate team. When we weren’t arguing intensely, we were laughing. It made the long hours pass lightly.

Huge Technical Vision
Larry always had a 10-year technical vision that he could draw on the whiteboard or spin like a yarn.

It wasn’t always perfect, but it was way more right than wrong, It informed our product development to a great degree and kept us working on more or less the right stuff. Back then he advocated for

  • Portability (databases had previously been shackled to the specific machines they ran on)
  • Being distributed/network ready (even though Ethernet was just barely coming into use in the enterprise)
  • The choice of the SQL a way to ask questions (queries) in an easy-to-understand language
  • Relational architecture (a collection of data organized as a set of formally described tables) in the first place—all new stuff, and technically compelling

The final proof of a compelling technical vision is that customers were interested—the phone was always ringing. Often it was people cold calling us, who had read something in a trade magazine and wanted to know more. What a gift! Not every startup gets to have this—but if you don’t, you’ve got a problem.

Pragmatic and Lean
Larry ascribed to the adage, “We don’t do things right, we do the right things.” I’m not sure if he ever actually said that, but it is what he lived.

In a startup you can’t do a great job of everything, you have to prioritize what is critically important, and what is “nice to have.” Larry didn’t waste time on “nice to have.”

I am a reformed perfectionist (reformed after those days) so often this didn’t sit well with me. I now realize it was the wisdom of a great entrepreneur. Basically if you didn’t code or sell, you were semi-worthless. (Which is why I had OEM sales as part of marketing—we had to earn our keep.)

This philosophy extended to all aspects of the company. We always had nice offices, but we didn’t mind crowding in. When I started we were in a small suite at 3000 Sand Hill Road. I would come to the office in the morning and clean up the junk food from the programmer who used my work area all night. This was cool!

Oh, and I should say, even though we were at 3000 Sand Hill, VCs kind of ignored us. They thought we were a little nuts. It took a long time for our market to develop, so Oracle wasn’t exactly a growth explosion in the early days. There we were, right under their noses!

Larry was loathe to sell any of the company stock; he generally took a dim view of VCs and preferred to bootstrap. (Sequoia Capital eventually invested just a little in us). Angel investor Don Lucas had his office above ours. I remember Larry telling me that every time we borrowed his conference room we had to pay Don $50. I’m not sure it’s true, but it’s what Larry said. I wonder if he took stock or cash.

Irresistible Salesmanship
Larry wasn’t always selling, didn’t even like salespeople half the time, but boy, when he decided to sell, he was unbeatable.

I’ll never forget sitting in an impressive conference room at a very large computer manufacturer that was prepared to not be all that interested in what we had to say.

Larry just blew them away. They had to re-evaluate their view on their database offering—and they eventually became a huge customer.

He reeled out that technical vision, described the product architecture in a way that computer science people found compelling and turned on the charm. It was neat to be in the room. I saw this a lot with Larry; the performance was repeated many times.

Hired the Smartest People
The old adage “A players hire A players, and B players hire C players” applies here. Larry often philosophized that we couldn’t hire people with software experience because there were hardly any software companies, so we just had to get the smartest bastards we could, and they’d figure it out.

I think he was particularly skilled at applying this to the technical team.

I remember a brilliant young programmer whom Larry allowed to live anywhere he wanted in the US or Canada, didn’t care about hours, where he was or any of that stuff. We just got him a network connection and that was it. This was unheard of back then, but we did it fairly often to get superstars. I remember when we hired Tom Siebel—Larry was so excited, telling me about this deadly smart guy we just hired in Chicago who was sitting in our conference room that very minute! I had to go meet him!

I should say that Larry looked for smarts in men and women—women have always had the opportunity to excel at Oracle. And now there’s Safra Catz—whom I never met, but even back in the ’80s I remember Larry telling me how smart she was.

He Had Some Quirks
Larry would sometimes take time out to think. He would just disappear for a few days, often without telling marketing people (who may have scheduled him for a press interview or a customer visit!), and return re-charged with a pile of ideas—many good, some not so much.

He liked to experiment with novel management ideas, like competing teams. He would set up some people to develop a product or go after a customer or whatever, and have competing teams trying to do the same thing. It’s always fun to experiment, though I never saw one of these fiascos succeed.

I remember one time he had his cowboy boots up on the desk, saying that we’d be bigger than Cullinet and we’d do it with 50 people, and only one salesperson. He was getting high on ideas. Only a computer historian would know Cullinet, an ancient database company that made it to $100M in sales back in the early ’80s. Yes, he was right about “bigger than Cullnet.” The “50 people” was motivated by his dream that we could just have the very, very best developers in the world, and hardly any salespeople—it was just talk. I think he came to appreciate the sales culture later on.

Larry loved to be called “ruthless.” When I asked what was his favorite book, he told me Robber Baronsworth a read even today! And he used to pore over spec sheets for fancy jets he probably thought he could never afford. Funny, I never heard him talk about sailing back then.

I’m not sure how all of this played out later because I wasn’t there. But it was clear, even back in those early days, that Larry had it all: leadership, technical vision, pragmatism, personal salesmanship, frugality, humor, desire to succeed.

I have to think my success in the VC business was due in no small part to seeing Larry Ellison in action back in the day.

Lessons Learned

Great entrepreneurial DNA is comprised of leadership; technological vision; frugality; and the desire to succeed. World-class founders:

  • Have a clear mission and inspire everyone to live it every day
  • Are the best salesman in the company
  • Hire the smartest people
  • Have a technological vision and the ability to convince others that it’s the right thing
  • Know it’s about winning customers and don’t spend money on things that aren’t mission-critical 
  • Are relentless in pursuit of their goals and never take NO for an answer
  • Know humor is powerful — and fun!

How To Think Like an Entrepreneur: the Inventure Cycle

The Lean Startup is a process for turning ideas into commercial ventures. Its premise is that startups begin with a series of untested hypotheses. They succeed by getting out of the building, testing those hypotheses and learning by iterating and refining minimal viable products in front of potential customers.

That’s all well and good if you already have an idea. But where do startup ideas come from? Where do inspiration, imagination and creativity come to bear? How does that all relate to innovation and entrepreneurship?

Quite honestly I never gave this much thought. As an entrepreneur my problem was that I had too many ideas. My imagination ran 24/7 and to me every problem was a challenge to solve and new product to create. It wasn’t until I started teaching that I realized that not everyone’s head worked the same way. While the Lean Startup gave us a process for turning ideas into businesses – what’s left unanswered was, “Where do the ideas come from?  How do you get them?”

It troubled me that the practice of entrepreneurship (including the Lean Startup) was missing a set of tools to unleash my students’ imaginations and lacked a process to apply their creativity. I realized the innovation/entrepreneurship process needed a “foundation” – the skills and processes that kick-start an entrepreneurs imagination and creative juices. We needed to define the language and pieces that make up an “entrepreneurial mindset.”

As luck would have it, at Stanford I found myself teaching in the same department with Tina Seelig. Tina is Professor of the Practice at Stanford University School of Engineering, and Executive Director of the Stanford Technology Ventures Program. Reading her book inGenius: A Crash Course on Creativity was the first time I realized someone had cracked the code on how to turn imagination and creativity into innovation.

Here’s Tina’s latest thinking on the foundational skills necessary to build a new venture.

—-

There is an insatiable demand for innovation and entrepreneurship. These skills are required to help individuals and ventures thrive in a competitive and dynamic marketplace. However, many people don’t know where to start. There isn’t a well-charted course from inspiration to implementation.

Other fields — such as physics, biology, math, and music — have a huge advantage when it comes to teaching those topics. They have clearly defined terms and a taxonomy of relationships that provide a structured approach for mastering these skills. That’s exactly what we need in entrepreneurship. Without it, there’s dogged belief that these skills can’t be taught or learned.

Below is a proposal for definitions and relationships for the process of bringing ideas to life, which I call the Inventure Cycle. This model provides a scaffolding of skills, beginning with imagination, leading to a collective increase in entrepreneurial activity.

Inventure Cycle

  • Imagination is envisioning things that do not exist
  • Creativity is applying imagination to address a challenge
  • Innovation is applying creativity to generate unique solutions
  • Entrepreneurship is applying innovation, bringing ideas to fruition, by inspiring others’ imagination

Inventure CycleThis is a virtuous cycle: Entrepreneurs manifest their ideas by inspiring others’ imagination, including those who join the effort, fund the venture, and purchase the products. This model is relevant to startups and established firms, as well as innovators of all types where the realization of a new idea — whether a product, service, or work of art — results in a collective increase in imagination, creativity, and entrepreneurship.

This framework allows us to parse the pathway, describing the actions and attitudes required at each step along the way.

  • Imagination requires engagement and the ability to envision alternatives
  • Creativity requires motivation and experimentation to address challenges
  • Innovation requires focusing and reframing to generate unique solutions
  • Entrepreneurship requires persistence and the ability to inspire others

Not every person in an entrepreneurial venture needs to have every skill in the cycle. However, every venture needs to cover every base. Without imaginers who engage and envision, there aren’t compelling opportunities to address. Without creators who are motivated to experiment, routine problems don’t get solved. Without innovators who focus on challenging assumptions, there are no fresh ideas. And, without entrepreneurs who persistently inspire others, innovations sit on the shelf.

Let’s look at an example to see these principles at work:

As a Biodesign Innovation Fellow at Stanford University, Kate Rosenbluth spent months in the hospital shadowing neurologists and neurosurgeons in order to understand the biggest unmet needs of physicians and their patients.

In the imagination stage, Kate worked with a team of engineers and physicians to make lists of hundreds of problems that needed solving, from outpatient issues to surgical challenges. By being immersed in the hospital with a watchful eye, she was able to see opportunities for improvement that had been overlooked. This stage required engagement and envisioning.

In the creativity stage, the team was struck by how many people struggle with debilitating hand tremors that keep them from holding a coffee cup or buttoning a shirt. They learned that as many as six million people in the United States are stricken with Parkinson’s disease, and other conditions that cause tremors. The most effective treatment is deep brain stimulation, an onerous and expensive intervention that requires permanently implanting wires in the brain and a battery pack in the chest wall. Alternatively, patients can take drugs that often have disabling side effects. The team was driven to help these patients and began meeting with experts, combing the literature, and testing alternative treatments. This stage required motivation and experimentation.

In the innovation stage, Kate had an insight that changed the way that she thought about treating tremors. She challenged the assumption that the treatment had to focus on the root cause in the brain and instead focused on the peripheral nervous system in the hand, where the symptoms occur. She partnered with Stanford professor Scott Delp to develop and test a relatively inexpensive, noninvasive, and effective treatment. This stage required focus and reframing.

In the entrepreneurship stage, Kate recently launched a company, Cala Health, to develop and deliver new treatments for tremors. There will be innumerable challenges along the way to bringing the products to market, including hiring a team, getting FDA approval, raising subsequent rounds of funding, and manufacturing and marketing the device. These tasks require persistence inspiring others.

While developing the first product, Kate has had additional insights, which have stimulated new ideas for treating other diseases with a similar approach, coming full circle to imagination!

The Inventure Cycle is the foundation of frameworks for innovation and entrepreneurship, such as design thinking and the lean startup methodology. Both of these focus on defining problems, generating solutions, building prototypes, and iterating on the ideas based on feedback. The Inventure Cycle describes foundational skills that are mandatory for those methods to work. Just as we must master arithmetic before we dive into algebra or calculus, it behooves us to develop an entrepreneurial mindset and methodology before we design products and launch ventures. By understanding the Inventure Cycle and honing the necessary skills, we identify more opportunities, challenge more assumptions, generate unique solutions, and bring more ideas to fruition.

With clear definitions and a taxonomy that illustrates their relationships, the Inventure Cycle defines the pathway from inspiration to implementation. This framework captures the skills, attitudes, and actions that are necessary to foster innovation and to bring breakthrough ideas to the world.

Lessons Learned

  • The Inventure Cycle defines entrepreneurship as applied innovation, innovation as applied creativity, and creativity as applied imagination
  • Entrepreneurship requires inspiring others’ imagination, resulting in a collective increase in creativity, innovation, and entrepreneurship
  • This framework allows us to parse the skills, attitudes, and actions needed at each step in the entrepreneurial process.

Why Founders Should Know How to Code

By knowing things that exist, you can know that which does not exist.”
Book of Five Rings

A startup is not just about the idea, it’s about testing and then implementing the idea.

A founding team without these skills is likely dead on arrival.

—-

I was driving home from the BIO conference in San Diego last month and had lots of time for a phone call with Dave, an ex student and now a founder who wanted to update me on his Customer Discovery progress. Dave was building a mobile app for matching college students who needed to move within a local area with potential local movers. He described his idea like “Uber for moving” and while he thought he was making real progress, he needed some advice.

Customer Discovery
As the farm fields flew by on the interstate I listened as Dave described how he translated his vision into a series of hypotheses and mapped them onto a business model canvas. He believed that local moves could be solved cheaply and efficiently through local social connections. He described when he got out of the building and quickly realized he had two customer segments – the students – who were looking for low budget, local moves and the potential movers – existing moving companies, students and others looking to make additional income. He worked hard to deeply understand the customer problems of these two customer segments. shutterstock_158330768After a few months he learned how potential customers were solving the local moving problem today (do it themselves, friends, etc.) He even learned a few things that were unexpected – students that live off campus and move to different apartments year-to-year needed to store their furniture over the summer breaks, and that providing local furniture storage over the summer was another part of his value proposition to both students and movers.

As he was learning from potential customers and providers he would ask, “What if we could have an app that allowed you to schedule low cost moves?” And when he’d get a positive response he’d show them his first minimal viable product – the mockup he had created of the User Interface in PowerPoint.

This was a great call. Dave was doing everything right. Until he said, “I just have one tiny problem.” Uh oh…

“I organized some moves by manually connecting students with the movers. And I even helped on some of the moves myself. But I’m having a hard time getting to my next minimal viable product. While I have all this great feedback on my visual mockups I can’t iterate my product. My contract developers building the app aren’t very responsive. It takes weeks to make even a simple change.”

I almost rear-ended another car when I heard this. I said, “Help me understand.. neither you nor your cofounder can code and you’re building a mobile app? And you’ve been at this for six months??” Whoah. This startup was broken at multiple levels. In fact, it wasn’t even a startup.

The Problem
Dave sounded confused. “I thought building a company was all about having hypotheses and getting out of the building and testing them?’

There were three problems with Dave’s startup.

  • He was confusing having an idea with the ability to actually build and implement the idea
  • He was using 3rd parties to build his app but he had no expertise on how to manage external developers
  • His inability to attract a co-founder who could code was a troubling sign

A Startup is Not Just About a Good Idea
As the miles sped by I explained to Dave that he had understood only two of the three parts of what makes a Lean Startup successful. While he correctly understood how to frame his hypotheses with a business model canvas, and he was doing a good job in customer development – the third component of Lean is using Agile Development to rapidly and iteratively build incrementally better versions of the product – in the form of minimal viable products (MVP’s).

The emphasis on the rapid development and iteration of MVP’s is to speed up how fast you can learn; from customers, partners, network scale, adoption, etc. Speed keeps cash burn rate down while allowing you to converge on a repeatable and scalable business model. In a startup building MVP’s is what turns theory into practice.

Dave had fallen into the new founder trap of looking at the business model canvas and thinking that coding was simply an activity (rapidly build mockups of first the the U/I and then the app). And that he could identify the resources needed, (outsourced contract developers who could build it for him) and he would hire a partner to do so. All great in theory but simply wrong. In a web/mobile startup coding is not an outsourced activity. It’s an integral part of the company’s DNA.

Having a coder as part of the founding team is essential.

Coding is the DNA of a Web/Mobile Startup
I offered that if Dave wanted to be the founding CEO then he was going to have to do two things: first, create a reality distortion field large enough to attract a technical co-founder. And second, learn how to code.

Dave was a bit embarrassed when he explained, “I’ve been trying to attract another co-founder who could code but somehow couldn’t convince anyone.” (This by itself should have been a red flag to Dave.) And then he continued, “But why should I have to know how to code, I’m not going to write the final app.”

One interesting thing about the Lean Startup is that it teaches founders about Sales and Marketing (and a bit of finance) without making them get an MBA or a decade of sales experience. Founders who go through the process will have an appreciation of the role of sales and marketing like no textbook or classroom could provide. Having done the job themselves, they’ll never be at the mercy of a domain expert. The same is true for coding.

I was glad I had a lot of time in the car, because I was able to explain my belief that all founders in a web or mobile startup need to learn how to code. Not to become developers but at a minimum to appreciate how to hire and manage technical resources and if possible to deliver the next level of MVP’s themselves.

shutterstock_161223782

Dave’s objection was to list a few successful startups that he knew where that wasn’t the case. I pointed out that are always “corner cases” and if he thought I was wrong he could simply ignore my advice.

As I was about to pull off an exit for lunch and to recharge my car I strongly suggested to Dave that for both this startup and the rest of career he put his startup on hold and invest his time in attending a coding bootcamp. It would take him to the first step in appreciating the issues in managing web development projects, identifying good developers, and finding a technical co-founder.

Weeks later Dave dropped me a note, “Boy, what I didn’t know about how much I didn’t know. Thanks!”

Lessons Learned

  • Startups are not just about the idea, they’re about testing and implementing the idea
  • A founding web/mobile team without a coder past the initial stages of Customer Discovery is not a startup
  • Everyone on the founding team ought to invest the time in a coding bootcamp
  • Your odds of building a successful startup will increase
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