Customer Development in Japan: a History Lesson

Posted on November 13, 2012 by steve blank

The Japanese edition of The Startup Owner’s Manual hit the bookstores in Japan this week. The book has been shepherded and edited by a great Japanese VC at Mitsui Sumitomo Insurance Venture Capital, Takashi Tsutsumi, with help from Masato Iino. I asked Tsutsumi-san to write a guest post for my blog to describe his experience with Customer Development in Japan.

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To celebrate the debut of the Japan edition of “The Startup Owner’s Manual” and to express great thanks to Steve and his co-author Bob Dorf, I would like to reflect back what first drew me to this book and offer Steve’s worldwide readers a look at the progress of Customer Development and the Lean LaunchPad class in Japan.

The Crater in my rookie days
Back in 1990’s, I was working for one of the leading sogo shohsa (trading company) in Japan, building data communications startups. After helping build the first Ethernet switch startup, I was attracted by Asynchronous Transfer Mode 25Mbit/sec technology, (ATM25) which was 2.5x faster than Ethernet and ran data but plus voice and video. Leveraging my marketing skills, I successfully made what Steve calls an “onslaught launch”, generating a lot of press coverage and apparent early success. But customers didn’t agree. After many sales calls, early prospects showed little rush to buy it! I got comments like, “Well, ATM25 is interesting technology, but I have no need to rush to buy it” or “I like ATM25 very much, but we need to replace my existing infrastructure to appreciate multimedia features, which I do not think that important.” I discovered my product was a “nice to have,” not a “must have,” and we shut the company down a year a later.

This made me believe deeply in the extreme importance of talking to customers before investing time and money, something I took to my next startup. The result: great success of my third startup, a load balancing technology for web servers back in the late 1990’s.

Finding a repeatable process for startups
Despite my success based on talking to customers upfront, however, I wasn’t confident I could replicate startup success consistently without a clear, and repeatable process to talk to customers. By then, I had become a venture capitalist at Mitsui Sumitomo Insurance and found myself talking to a lot of entrepreneurs who were proclaiming their great technology yet were struggling with little revenue, and claiming they were “crossing the chasm”. However, when I looked into the detail, most of them did not have even early adaptors and the problem wasn’t “chasm crossing,” it was that almost nobody wanted their products.

In 2004, Googling terms like “high tech marketing” and “startup” I discovered “The Four Steps to The Epiphany” at Cafépress.com. Amazon did not carry it yet, and I was nervous spending money at a website known mostly for cups and t-shirts, completely irrelevant to business books. After waiting for a week or so for the book to make it to Japan, I was very much shocked how impressed I was by the Customer Development Model detailed in the book. A few of the many quotations that struck me:

  • “Most startups fail due not to the failure of product development but due to the lack of customers”
  • “Learning and discovering who a company’s initial customers will be and what market they are in, requires a process separate and distinct from product development”
  • “All a startup has are mere hypotheses,” and
  • “in a startup no facts exist inside the building, get out of the building to talk to customers”

This was exactly what I was searching for.

The first meeting with Steve
After my reading The Four Steps to The Epiphany several times, my Customer Development conviction got stronger. I wanted this book not only as my “secret weapon,” but also for all entrepreneurs in Japan.

I sent Steve a cold email to allow me to translate the book into Japanese and evangelize Customer Development in Japan. Steve responded to my email in ten minutes, saying “come meet with me!” Soon we had our first meeting Steve’s favorite spot, Café Borrone on El Camino Real.

After listening to me for fifteen minutes, Steve said “Go ahead. I will support you”.  It was very, very happy moment for me.

I was extremely surprised that he gave a huge trust on completely unknown and strange Japanese VC who suddenly contacted him by email. We kept talking, with Steve asking “How long are you staying in Silicon Valley?” When I told him, “two more days,” he asked, “Are you interested in meeting with venture firms in the Valley?”  When I said of course, but who would meet with me with two days notice, he picked up his mobile phone and, surprisingly for me, started dialing … and I actually had a great meeting with one of them the very next day. More “pay it forward” culture in action.

Evangelizing Customer Development in Japan
After that meeting, I started working on the translation word by word over a number of weekends and published the Japanese edition of “The Four Steps Epiphany” in May 2009 (now in its third printing.)  Since then, I have been teaching Customer Development and running Lean LaunchPad style classes at variety of universities, national research laboratories, incubators, and startup communities throughout Japan.

After three years of evangelizing, I am very pleased to see success cases emerging in Japan by following Customer Development Model. For example, Maysee, a business card cloud services startup, got out of the building and then developed an MVP, avoiding costly UI development that customers in fact found no need for. They pivoted the product by implementing Google like wide-open search windows requested time and again in customer interviews. Maysee now enjoys hockey stick revenue growth.

Goryo Chemical, new fluorescent probe for Chemical biology startups (leveraging a technology from a university), found early in Customer Discovery that the original value proposition hypothesis was wrong, but one other feature was in fact very valuable. Their pivot resulted in great deal of customer tractions.

These kinds of success cases continue to happen in Japan’s startup community and in corporations that have to innovate to remain competitive in the global market.

Customer Development Education
Customer Development is growing fast here in Japan, with Lean LaunchPad programs in great demand among entrepreneurs and “wanabees” learning to build hypothesis and test them by getting out of the building. Some have actually established new startups with tested business model hypotheses under their belt. Lean LaunchPad teaches entrepreneurs, to test their business model until they find customers who are eager to buy, and a business model that scales profitably and repeatedly. I am confident we will see real startups and business emerge soon.

Lean LaunchPad class at Hosei University business school

Much more is happening with collaborative learning and tools, and I am looking forward to more Customer Development success ahead as more entrepreneurs, investors, and educators read the new book, The Startup Owner’s Manual.

In fact, I recently started my Customer Development blog with my partner, Masato Iino, to accumulate the learning and discovery of Customer Development and Lean LaunchPad in Japan, and to update readers with more concepts and tools to do Customer Development in their startups.

Lessons Learned – Japanese Style

  • Failure comes often, but failure is mother of success.  To appreciate a “mother,” it is important to improve from the failure and to look for a solution continuously to do a better job with a solution, hopefully resulting in a great success.
  • Pushing the boundaries collaboratively is really powerful.  Try collaborative learning by leveraging global intelligence and passion of entrepreneurs.
  • Pay-it-forward culture actually exists.  But, the key is for me to transfer the same culture to my next generation by giving them an opportunity like the one I appreciated.

Takashi Tsutsumi
ttutumi@gmail.com

本ブログ記事の内容は、堤孝志個人の見解に基づいており、所属する組織の見解を示すものではありません。
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Entrepreneurs as Dissidents

Posted on November 6, 2012 by steve blank

Here’s to the crazy ones. The misfits. The rebels. The troublemakers. The round pegs in the square holes. The ones who see things differently. They’re not fond of rules. And they have no respect for the status quo. You can quote them, disagree with them, glorify or vilify them. About the only thing you can’t do is ignore them. Because they change things. They push the human race forward. While some may see them as the crazy ones, we see genius. Because the people who are crazy enough to think they can change the world, are the ones who do.

If you can’t see the video above click here.

Countries that put their artists and protesters in jail will never succeed in building a successful culture of entrepreneurship.  They will be relegated to creating better mousetraps or cloning other countries’ business models.

Entrepreneurs as Dissidents
When Steve Jobs returned to Apple, he ran the Think Different ads, a brilliant marketing campaign to make Apple’s core customers believe that Apple was still fighting for the brand.

But in hindsight, the ad captured something much more profound.

The crazy ones? The misfits? The rebels? The troublemakers? To celebrate those people as heroes requires a country and culture that tolerates and encourages dissent.

Because without dissent there is no creativity.

Countries that stifle dissent while attempting to encourage entrepreneurship will end up at a competitive disadvantage.

Pushing the boundaries
Most startups solve problems in existing markets – making something better than what existed before. Some startups choose to resegment a market – finding an underserved niche in an existing market or providing a good-enough low cost solution.  These are all good businesses, and there’s nothing wrong with founding one of these.

But some small segment of founders are truly artists – they see something no one else does. These entrepreneurs are the ones who want to change “what is” and turn it into “what can be.“ These founders create new ideas and new markets by pushing the boundaries. This concept of creating something that few others see – and the reality distortion field necessary to recruit the team to build it – is at the heart of what these founders do.

The founders that make a dent in the universe are dissidents. They are not afraid to tell their bosses they are idiots or tell their schools they been teaching the wrong thing or to tell an entire industry to think different. And more importantly they are not afraid to tell their country it’s mistaken.

Freedom of Speech, Expression and Thought
Entrepreneurs in the United States take for granted our freedom of speech, freedom of expression and freedom of thought. It’s enshrined in our constitution as the first amendment.

In the last few years I’ve traveled to lots of countries that understand that the rise of entrepreneurship will be an economic engine for the 21st century. In several of these countries, the government is pouring enormous sums into building entrepreneurship programs, faculties and even cities. Yet time and again when I ask the local entrepreneurs themselves what questions they have, most often the first question is, “How do I get a visa to the United States?’

For years I thought the reason hands were raised was simply an economic one. The same countries that repress dissent tend to have institutionalized corruption, meaning the quality of your idea isn’t sufficient enough to succeed by itself, you now need new “friends in the right places.” But I now see that these are all part of the same package. It’s hard to focus on being creative when a good part of your creative energies are spent trying to figure out how to work within a system that doesn’t tolerate dissent.

Lessons Learned

  • Entrepreneurs require the same creative freedom as artists and dissidents
  • Without that freedom, countries will be relegated to cloning others’ business models or creating better versions of existing products
  • History has shown that the most creative people leave repressive regimes and create elsewhere

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10,000 Startups – Startup Weekend Next

Posted on October 30, 2012 by steve blank

Today we are announcing the biggest entrepreneurial program ever launched – Startup Weekend Next. A partnership of Startup Weekend, Startup America, TechStars and Udacity, Startup Weekend Next brings four weeks of amazing hands-on training learning to build your startup to cities around the world. Our goal– to inspire, educate and empower hundred’s of thousands of entrepreneurs and help create 10,000 startups.

The Lean LaunchPad Class
You may have read my previous posts about the Lean LaunchPad entrepreneurship class. The class teaches founders how to dramatically reduce their failure rate through the combination of business model design, customer development and agile development using the Startup Owners Manual. Just a crazy idea two years ago, the class is now taught at Stanford, Berkeley, Columbia, Caltech, Princeton and for the National Science Foundation at the University of Michigan and Georgia Tech.

And in the thirty days since we’ve put the Lean LaunchPad class online at Udacity – 50,000 students have been taking it.

While the Lean LaunchPad online has received rave reviews (it’s being translated into Spanish, French, Russian, Japanese and Greek, and it’s being used as part of a “flipped classroom” in other entrepreneurship courses), it’s different than taking the class in person. It doesn’t require you to form a team, and there’s no immediate instructor feedback. More importantly, it makes no demands of you to stand and deliver your weekly customer development progress in front of your peers. In sum, it lacks the rigorous and collaborative hands-on experience that entrepreneurs get in our university classes.

We thought long and hard about how we could take the Lean LaunchPad Online to the next level and deliver the same level of experiential instruction to tens and hundreds of thousands of entrepreneurs around the world.

The result – Startup Weekend Next.

Hands-On in 100’s of Cities
Startup Weekend Next is a four-week version of the Lean LaunchPad class with hands-on instructors and mentors – and we will teach it in hundreds of cities around the world.

I’m partnered with four great organizations to deliver the program. The class is organized, led and delivered by Startup Weekend, the global non-profit that teaches entrepreneurs how to launch a startup in 54 hours. They’ve hosted close to 800 Startup Weekend events in over 350 cities worldwide educating a staggering 57,000 entrepreneurs who’ve created over 5,000 startups. Today they are going to take Startup Weekend to the next level by organizing and teaching a four-week version of the Lean LaunchPad class as their Startup Weekend Next course. Their reach and scale means our goal of helping to create 10,000 startups is within our grasp.

(If you can’t see the video above click here.)

In addition, the leading experts in building entrepreneurial companies and regions, TechStars and Startup America are partnering with us in this endeavor.

In the U.S, Startup America will leverage its network of 30 startup regions to engage entrepreneurial leaders throughout the country. And TechStars will use its broad and unparalleled network of mentors (experienced entrepreneurs and investors) to coach the teams. And Udacity has put their awesome production resources behind the class and hosts the Lean LaunchPad online lectures.  And we are looking for other partners worldwide to help make this successful.

The first four-week Startup Weekend Next classes will start on Nov. 28 in more than 25 cities worldwide. The program expands to all of Startup Weekend’s 350 member communities in 2013 where it will be offered up to five times a year in each city.

The cost of attending a Startup Weekend Next is ridiculously inexpensive. It doesn’t take equity and just has a small fee that varies by city ($140 to $299), to cover event operations and expenses.

How it Works
We now know how to crack the entrepreneurial code by creating an Entrepreneurship API – a standard language for entrepreneurs. When you leave the class, you’ll know how to think about your startup in the now standard  “language” of the business model canvas. You’ll understand the customer development process used to test those hypotheses and learn how to iterate or pivot when your hypotheses need to change.  And you’ll learn about how to build a minimal viable product to get feedback early and often from customers.

Here’s how the four intense weeks in a Startup Weekend Next class works.

  • You form a startup team (if you don’t have one, taking the 54-hour Startup Weekend class is a great a way to find one) and come into class with an initial idea
  • Your team arrives with an initial Business Model Canvas. (Your pre-class reading is to watch the Lean LaunchPad initial lectures on Udacity)
  • You present your hypotheses and what you learned in front of your peers and coaches
  • Your team gets live coaching and advice from Startup Weekend Next mentors.
  • You’ll take the suggestions from the meeting, get out of the building and talk to ten plus customers per week.
  • You’ll refine your business model by iterating or pivoting your product, your target customers, pricing, channels, partners, etc.
  • Repeat for four weeks– all while working with volunteer mentor partners from Startup Weekend, Startup America and TechStars – serial entrepreneurs and seasoned startup investors – to see whether your business idea was truly a vision or simply a hallucination.

The Big Idea – Incubators – Accelerators – and Something New
In the last decade startup incubators have become increasingly popular. These incubators which provides new startups with year-round physical office space, infrastructure and advice in exchange for a fee (often in equity.)  They may be privately run but often are non-profit, attached to a university or in some locations a local government.  There is no formal “start date” so there is a no fixed time for their stay. (For some incubators, entrepreneurs can stay as long as they want.) There is no curriculum and seldom any formal instructors or mentors. There is no guaranteed funding. Think of incubators as “shelter from the storm.”

In contrast, the goal of an accelerator is not physical office space, it’s a fundable company. Startups enter and leave as a cohort (starting and ending the program at the same time) in a program of a set length. While there is no formal curriculum, most offer weekly expert lectures, experienced mentors, coaching and introductions.  Accelerators provide funding at the end of the program.  Getting into an accelerator is more competitive than grad school.

Startup Weekend Next represents something new – a pre-accelerator.

Like an accelerator there is no physical office space, and startups enter and leave as a cohort in a program of a set length. But the key difference is that Startup Weekend Next engages you in a formal curriculum. We believe we know what startups need to learn, and we focus on teaching you that. Instead of guest lecturers, you get out of the building and you learn by doing. Like the best accelerators, you get experienced mentors, coaching and introductions. Unlike accelerators, there is no funding at the end of the program.  But you leave knowing a lot more of what it takes to build a company beyond a PowerPoint deck for a VC presentation.

Lessons Learned

If you have passion, an idea and a team, and you want to take advantage of the most advanced entrepreneurial training program, sign up at Startup Weekend Next…

and wait until you see what we do next.
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10,000 Startups

Posted on October 29, 2012 by steve blank

In 24 hours we’ll announce something revolutionary.

Moving entrepreneurship forward.

Filed under: Business Model versus Business Plan, Customer Development, Lean LaunchPad, Teaching | 30 Comments »

How We Fight – Cofounders in Love and War

Posted on October 21, 2012 by steve blank

I often get asked about finding cofounders and I usually give the standard list of characteristics of what I look for in a founder.  And I emphasize the value of a founding team with complementary skills sets – i.e. the hacker/hustler/designer cofounder archetype for web/mobile apps.  But Jessica Alter, Cofounder & CEO of FounderDating, pointed out that cofounders did not mean two founders in the same room.  She suggested that I was missing one of the key attributes of what makes successful startup teams powerful. She suggested that how cofounders fight was a key metric in predicting the success of a founding team.  So I asked her to write a guest post.

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I think about [cofounding] teams a lot – an insane amount.  And, not surprisingly, I frequently get asked what to look for or what to think about when starting the process of finding a cofounder – a true partner to start your next company with.

Like second nature, I start to recite a list of important attributes: complimentary skill sets, common visions, the notion of not trying to make someone fall in love with your idea (because the idea will likely change and then where are you?).  There are plenty more and they are important. But a few weeks ago after I sat on a panel about cofounders at Startup2Startup there was a small group dinner conversation to dig deeper on the topic.  Garry Tan (Posterous, YC), in recounting his personal experience said, “success can cover up a lot.”

And it clicked in my head – one of the key things to pay attention to in a search for a cofounder is how you fight.

Taking Time
How you fight with your potential cofounder(s) matters for a lot of reasons, the simplest of which is that you have time to fight – meaning you’ve worked together long enough to hit disagreements or bumps.  It’s one of the most common mistakes we see. I literally just received an email from someone (that I don’t know) asking to me to meet with them so that they can circumvent our regular process because, “I don’t feel like I have time for the regular FounderDating process.“  Quick advice to people that think finding a cofounder is a box to check and “don’t have time” – you won’t find someone and if you do the relationship is unlikely to last.  You’re looking for an employee, not a partner.

We tell all our FounderDating members that we’re a great starting point to connect with amazing people all with high intent to start something. But in order to figure out if you can work together you have to (wait for it…) actually work together.  That could be starting a side-project, heading over to a Startup Weekend or other hackathon, working full-time for a few months or some combination of those options.  However you do it, you need to build something together.  It doesn’t ultimately matter it if ends up being the right product, you will still have areas you disagree on throughout the process. Ask yourself: Have we had disagreements? If you haven’t, maybe you should consider a longer courtship period.

Simulating Real-Life
Consider what real startup life is going to be like.  For a long-time (longer than you plan) things are not going to work and you’ll have to figure out what to do – together.  If you do eventually reach a point where the company is making real progress, you’re still going hit crazy challenges on a regular basis that you’ll have to navigate together. This pressure – which is compounded by the sound of the ticking clock if you took money – will up the stress levels and hence the propensity to disagree.

If you don’t have at least a taste of what that’s going to be like, not only have you not done your homework, but also could be in for a rude awakening. So, let’s agree you’re going to fight. That, in and of itself, doesn’t mean anything. In fact, it’s quite healthy. What matters in real life is what are the fights like? Do they escalate rapidly or become knock down, drag outs? Can you recover quickly and keep moving? Entrepreneurship and early stage companies are about moving fast; if you’re caught in a disagreement for days at a time it means decisions are not being made and/or people are walking around feeling resentful.  Either one will eventually lead to failure.  Ask yourself: When we fight do we get over it quickly and respectfully?

What Are You Fighting About?
Finally, and this is insanely important, it matters what the fights are about.  Are you fighting about whether a button should be green or blue or are you fighting about whether or not you want to raise money?

A lot of people approach finding cofounders as just a skill set need and believe once that box is checked, everything will be smooth sailing. Complimentary skill sets are important and if you’re fighting about one functional area  (e.g. design, product) it might be a sign you have too much skill set overlap. But if it were just about complimentary skill set matching it wouldn’t be very hard.

What’s difficult is making sure you’re aligned on the softer side: Why do you want to build a company? What kind of company you want to build? What are your working styles? What are your values?  What are your other priorities (family, etc.)?  We don’t care if entrepreneurs want to build lifestyle businesses or go for IPOs, if they are tethered to their email or check out at 7pm – that’s a personal decision. But you better make sure you’re on the same page as your potential cofounder about those topics. These are the issues that break up relationships, not button colors.

Ask yourself: What are we fighting about and why?

Make no mistake; I’m not suggesting you should manufacture a fight. But every relationship has ups and downs, the ones that last are able to bounce back from the downs quickly and respectfully and be better for it.  So give yourselves permission and time to fight and reflect on how you do it before you take the leap together.
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How to Get a VC Meeting – the flowchart

Posted on October 17, 2012 by steve blank

I often get asked, “how do I get a meeting with a VC?”  Here is my slightly tongue-in-cheek view.

 

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Startup Communities – Building Regional Clusters

Posted on October 8, 2012 by steve blank

How to build regional entrepreneurial communities has just gotten it’s first “here’s how to do it” book. Brad Feld’s new book Startup Communities joins the two other “must reads,” (Regional Advantage and Startup Nation) and one “must view” (The Secret History of Silicon Valley) for anyone trying to understand the components of a regional cluster.

There’s probably no one more qualified to write this book then Brad Feld (startup founder, co founder of two VC firms – Mobius and Foundry, and founder of TechStars.)

Leaders and Feeders
Feld’s thesis is that unlike the common wisdom, it is entrepreneurs that lead a startup community while everyone else feeds the community.

Feld describes the characteristics of those who want to be regional Entrepreneurial Leaders; they need to be committed to their region for the long term (20+ years), the community and its leaders must be inclusive, play a non-zero sum game, be mentorship-driven and be comfortable experimenting and failing fast.

Feeders include the government, universities, investors, mentors, service providers and large companies. He points out that some of these, government, universities and investors think of themselves as the leaders and Feld’s thesis is that we’ve gotten it wrong for decades.

This is a huge insight, a big idea and a fresh way to view and build a regional ecosystem in the 21st century. It may even be right.

Activities and Events
One of the most surprising (to me) was the observation that a regional community must have continual activities and events to engage all participants. Using Boulder Colorado as an example, (Feld’s home town) this small entrepreneurial community runs office hours, Boulder Denver Tech Meetup, Boulder Open Coffee Club, Ignite Boulder, Boulder Beta, Boulder Startup Digest, Startup Weekend events, CU New Venture Challenge, Boulder Startup Week, Young Entrepreneurs Organization and the Entrepreneurs Foundation of Colorado. For a city of 100,000 (in a metro area of just 300,000 people) the list of activities/events in Boulder takes your breath away. They are not run by the government or any single organization. These are all grassroots efforts by entrepreneurial leaders. These events are a good proxy for the health and depth of a startup community.

Incubators and Accelerators
One of the best definitions in the book is when Feld articulates the difference between an incubator and an accelerator. An incubator provides year-round physical space, infrastructure and advice in exchange for a fee (often in equity.) They are typically non-profit, attached to a university (or in some locations a local government.) For some incubators, entrepreneurs can stay as long as they want. There is no guaranteed funding. In contrast, an accelerator has cohorts going through a program of a set length, with funding typically provided at the end.

Feld describes TechStars (founded in 2006 with David Cohen) as an example of how to build a regional accelerator. In contrast to other accelerators TechStars is mentor-driven, with a profound belief that entrepreneurs learn best from other entrepreneurs. It’s a 90-day program with a clear beginning and end for each cohort. TechStars selection criteria is to first focus on picking the right team then the market. They invest $118,000 ($18k seed funding + $100K convertible note) in 10 teams per region.

Role of Universities
To the entrepreneurial community Stanford and MIT are held up as models for “outward-facing” research universities. They act as community catalysts, as a magnet for great entrepreneurial talent for the region, and as teachers and then a pipeline for talent back into the region. In addition their research offers a continual stream of new technologies to be commercialized.

Feld’s observation is that that these schools are exceptions that are hard to duplicate. In most universities entrepreneurial engagement is not rewarded, there’s a lack of resources for entrepreneurial programs and cross-campus collaboration is not in the DNA of most universities.

Rather than thinking of the local university as the leader, Feld posits a more effective approach is to use the local college or university as a resource and a feeder of entrepreneurial students to the local entrepreneurial community. He uses Colorado University’ Boulder as an example of of a regional university being as inclusive as possible with courses, programs and activities.

Finally, he suggests engaging alumni for something other than fundraising – bringing back to the campus, having them mentor top students and celebrating their successes.

Role of Government
Feld is not a big fan of top-down government driven clusters. He contrasts the disconnect between entrepreneurs and government. Entrepreneurs are painfully self-aware but governments are chronically not self-aware.  This makes government leaders out of touch on how the dynamics of startups really work. Governments have a top-down command and control hierarchy, while entrepreneurs work in a bottoms-up networked world. Governments tend to focus on macro metrics of economic development policy while entrepreneurs talk about lean, startups, people and product. Entrepreneurs talk about immediate action while government conversations about policy do not have urgency.  Startups aim for immediate impact, while governments want to control. Startup communities are networked and don’t lend themselves to a command and control system.

Community Culture
Feld believes that the Community Culture, how individuals interact and behave to each other, is a key part of defining and entrepreneurial community. His list of cultural attributes is an  integral part of Silicon Valley. Give before you get, (in the valley we call this the “pay it forward” culture.) Everyone is a mentor, so share your knowledge and give back. Embrace weirdness, describes a community culture that accepts differences. (Starting post World War II the San Francisco bay area became a magnet for those wanting to embrace alternate lifestyles. For personal lifestyles people headed to San Francisco. For alternate business lifestyles they went 35 miles south to Silicon Valley.)

I was surprised to note that the biggest cultural meme of Silicon Valley didn’t make his Community Culture chapter – failure equals experience.

Broadening the Startup Community
Feld closes by highlighting some of the issues faced by a startup community in Boulder.  The one he calls Parallel Universes notes that there may be industry specific (biotech, clean tech etc.) startup communities sitting side-by-side and not interacting with each other.

He then busts the myths clusters tell themselves; “lets be like Silicon Valley” and the “there’s not enough capital here.”

Quibbles
There’s data that that seems to indicate a few of Feld’s claims about about the limited role of venture, universities and governments might be overly broad (but doesn’t diminish his observation that they’re feeders not leaders.) In addition, while Silicon Valley was a series of happy accidents, other national clusters have extracted its lessons and successfully engineered on top of those heuristics. And while I might have misread Feld’s premise about local venture capital, but it seems to be, “if there isn’t a robust venture capital in your region it’s because there isn’t a vibrant entrepreneurial community with great startups. As venture capital exists to service startup when great startups are built investors will show up.” Wow.

Finally, local government top-down initiatives are not the only way governments can incentivize entrepreneurial efforts. Some like the National Science Foundation Innovation Corps have had a big bang for little bucks.

Summary
Entrepreneurship is rising in almost every major city and region around the world. I host at least one region a week at the ranch and each of these regions are looking for a roadmap. Startup Communities is it. It’s a strategic, groundbreaking book and a major addition to what was missing in the discussion of how to build a regional cluster. I’m going to be quoting from it liberally, stealing from it often, and handing it out to my visitors.

Buy it.

Lessons Learned

  • Entrepreneurs lead a startup community while everyone else feeds the community
  • Feeders include the government, universities, investors, mentors, service providers and large companies
  • Continual activities and events are essential to engage all participants
  • Top-down government-driven clusters are an oxymoron
  • Building a regional entrepreneurial culture is critical

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Why Too Many Startups (er) Suck

Posted on September 21, 2012 by steve blank

This is a guest post by my Startup Owner’s Manual co-author Bob Dorf.

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While statistics are weak on startup success rates, the worst one I’ve seen suggests that 2 in 1000 venture backed startups will ever achieve $100-million or more in valuation. Another stat puts that number at 2% rather than 0.2%.  Either way, the “hurdle” for successful, scalable startups is high, and it gets higher every day as customer acquisition challenges continue to increase.

I’ve spent more than four decades founding, coaching, teaching and investing in startups, and nothing breaks my heart more than meeting a starry-eyed founder who says “we’re almost ready to show it to people.”  The “it” is a physical or web product they’ve often been locked-down, pounding away at, for many weeks.

In my view, this is the nastiest of all startup sins: failing to involve customers and their feedback from literally the first day of a startup’s life, keeping the most vital opinions silent—those of the eventual customers—for far longer than necessary.

When I hear this comment, as I do far too often, I switch to pleading mode: “Please.  Take a week. Get some feedback. Does anybody really care, or are they giving you polite nods and little more.  This generally leads to the second biggest reason too many startups suck: they’re solving a non-problem.

Does anybody care? Many Startup Owner’s Manual readers ask why Steve Blank and I are adamant that Customer Discovery happen in two separate, distinct phases: “problem” discovery and, later, “solution” discovery. There’s just no other way but, as Steve Blank has said for a decade, to “get out of the building” and talk to the only folks who matter—your customers.

Building a solution to a problem of moderate or lukewarm interest to users is a long-term death sentence for startups, where founders will almost certainly commit to 20,000 hours of their lives(or 5 years of 80-hour workweeks) in order to “beat the odds” and deliver a breakout success: a sustainable, scalable, profitable business.

Why, then, are so many founders so reluctant to invest even 500 or 1,000 hours upfront to be sure that, when they’re done, the business they’re building will face genuine, substantial demand or enthusiasm.  Without passionate customers, even the most passionate entrepreneur will flounder at best.  Dropbox is a great example. It scaled like lightning by solving an urgent, painful problem for millions of consumers. The product is so good, helpful, and easy to use that it literally almost does its own marketing organically through the product’s viral nature, just as Hotmail and Gmail have done since inception.

What’s the honest trajectory?  There can only be one Mark Zuckerberg, and at last look he’s young and healthy.  Can every startup skyrocket like Facebook or Square or Google? It’s downright impossible.  The solution: understand your startup’s “honest trajectory” and align objectives of the founding team and—importantly—its investors to define and agree about what “success” looks like.  Thousands of entrepreneurs would be a lot happier if their focus was a solid, growable, defensible niche business that might never go public or be worth $100-million.  There’s a ton of money to be made “in the middle,” a broad swath between struggling or gasping for cash and ringing the bell at the NASDAQ.

Find the right trajectory for your business and focus not only on reaching it, but on assuring that the result is a sustainable, repeatable profit engine that can perform and grow healthily over time. Use Customer Development to identify and refine the potential profitable niche and stay in close contact with customers as you build, to be sure you’re building something they’ll want to have…and keep.

Stand Out in the Crowd: If you’re solving an important problem, make sure your solution stands out in the crowd.  Hundreds of entrepreneurs I’ve met never spent an entire day Googling their industry, other ways to solve “their” problem, and few have spent time “playing consumer,” trying to find “their” own product, or one like it, and creating a “market map” that assesses all the competitive solutions, their strengths/weaknesses, and where the new product fits clearly and distinctly in its competitive environment.  If you can’t figure this out on your own, and relate it to customers succinctly, it’s a certainty that your customers never will.

Going Forward is NOT About Standing Still:  Another of my high-frequency “sad” moments happens when visiting with a team that is consistently “flatlining,” or delivering minimal or trivial user growth week after week or worse.  Clearly, something’s horribly wrong, and everyone just keeps showing up, doing their jobs, without attacking the core problem that’s almost always a lack of palpable customer enthusiasm.  What’s the point? What are they waiting for? It’s time to bring the leadership team into a room, dissect each key element of the business model, and identify pivots that are worth exploring smartly—where else—with customers.

Going Forward Is Often About Going Backward First:  Entrepreneurs pride themselves in their problem-solving abilities, tenacity, and willingness to run through brick walls to make things “go.”  More often than not, the DNA strand that makes entrepreneurs great is the one that’s their undoing when confronted with “flatlining” user adoption, growth, referrals, or frequency.  These entrepreneurs need to switch smartly out of “do” mode and return to the earliest “discovery” steps to find a distinctive, exciting solution to a seriously painful customer need or problem.

It’s the only way to make a startup not suck.
Listen to this post here: Download the Podcast here

Filed under: Customer Development | 42 Comments »

The Lean LaunchPad Online

Posted on September 6, 2012 by steve blank

You may have read my previous posts about the Lean LaunchPad class taught at Stanford, Berkeley, Columbia, Caltech and for the National Science Foundation.

Now you too can take this course.

I’ve worked with the Udacity, the best online digital university on a mission to democratize education, to produce the course. They’ve done an awesome job.

The course includes lecture videos, quizzes and homework assignments. Multiple short video modules make up each 20-30 minute Lecture. Each module is roughly three minutes or less, giving you the chance to learn piece by piece and re-watch short lesson portions with ease. Quizzes are embedded within the lectures and are meant to let you check-in with how completely you are digesting the course information. Once you take a quiz, which could be a multiple-choice quiz or a fill in the blank quiz, you will receive immediate feedback.

Sign up here

——–

Why This Class?

Ten years ago I started thinking about why startups are different from existing companies.  I wondered if business plans and 5-year forecasts were the right way to plan a startup.  I asked, “Is execution all there is to starting a company?”

Experienced entrepreneurs kept finding that no business plan survived first contact with customers. It dawned on me that the plans were a symptom of a larger problem: we were executing business plans when we should first be searching for business models. We were putting the plan before the planning.

So what would a search process for a business model look like? I read a ton of existing literature and came up with a formal methodology for search I called Customer Development.

That resulted in a new process for Search: Customer Development + traditional product management/Waterfall Engineering. It looked like this:

This meant that the Search for a business model as a process now could come before execution. So I wrote a book about this called the Four Steps to the Epiphany.

And in 2003 the Haas Business School at U.C. Berkeley asked me to teach a class in Customer Development.  With Rob Majteles as a co-instructor, I started a tradition of teaching all my classes with venture capitalists as co-instructors.

In 2004 I funded IMVU, a startup by Will Harvey and Eric Ries. As a condition of my investment I insisted Will and Eric take my Customer Development class at Berkeley. Having Eric in the class was the best investment I ever made. Eric’s insight was that traditional product management and Waterfall development should be replaced by Agile Development.  He called it the “Lean Startup.”

Meanwhile, I had said startups were “Searching” for a business model, I had been purposefully a bit vague about what exactly a business model looked like. For the last two decades there was no standard definition.  That is until Alexander Osterwalder wrote Business Model Generation.

This book was a real breakthrough. Now we understood that the strategy for startups was to first search for a business model and then after you found it, put together an operating plan.

Now we had a definition of what it was startups were searching for. So business model design + customer and agile development is the process that startups use to search for a business model.

And the organization to implement all this was not through traditional sales, marketing and business development groups on day one. Instead the founders need to lead a customer development team.

And then to get things organized Bob Dorf and I wrote a book, The Startup Owners Manual that put all these pieces together.

But then I realized rather than just writing about it, or lecturing on Customer Development, we should have a hands-on experiential class. So my book and Berkeley class turned into the Lean LaunchPad class in the Stanford Engineering school, co-taught with two VC’s – Jon Feiber and Ann Miura-Ko. And we provided dedicated mentors for each team.

Then in the fall of 2011, the National Science Foundation read my blog posts on the Stanford version of the Lean LaunchPad class.  They said scientists had already made a career out of hypotheses testing, and the Lean LaunchPad was simply a scientific method for entrepreneurship. They asked if I could adapt the class to teach scientists who want to commercialize their basic research. I modified the class and recruited another great group of VC’s and entrepreneurs – Jim Hornthal, John Burke, Jerry Engel,Bhavik Joshi and Oren Jacob – to teach with me.

We taught the first two classes of 25 teams each, and then in March of 2012 trained faculty from Georgia Tech and the University of Michigan how to teach the class at their universities. Georgia Tech and the University of Michigan faculty then taught 54 teams each in July of this year and will teach another 54 teams in October.

We then added four more schools – Columbia, Caltech, Princeton and Hosei – where our team taught the Lean LaunchPad. We also developed a 5-day version of the class to complement the full semester and quarter versions.

Then last month we partnered with NCIIA and taught 62 college and university educators in our first Lean LaunchPad Educators Program.

And now we’ve spent weeks in the Udacity studio putting the lecture portion of the Lean LaunchPad class online.

Sign up and find out how to start a company!

Listen to the post here: Download the Podcast here

Filed under: Business Model versus Business Plan, Customer Development, Lean LaunchPad, Teaching | 53 Comments »

Entrepreneurship is hard but you can’t die

Posted on September 4, 2012 by steve blank

I’m posting a series of articles on family, startup culture and careers. These vignettes are about how I’ve lived my life trying to make a dent in the universe. Hoping they’ll give you a point of view about the vast possibilities in life. I’ve posted five so far: the first post is here; the second here, the third here, the fourth here, and the fifth is here.

We Sleep Peaceably In Our Beds At Night Only Because Rough Men Stand Ready To Do Violence On Our Behalf

Everyone has events that shape the rest of their lives.  This was one of mine.

——-

I’ve never been shot at. Much braver men I once worked with faced that every day. But for a year and a half I saw weapons of war take off every day with bombs hanging under the wings. It never really hit home until the day I realized some of the planes didn’t come back.

Life in a War Zone
In the early 1970’s the U.S. was fully engaged in the war in Vietnam. Most of the fighter planes used to support the war were based in Thailand, or from aircraft carriers (or for some B-52 bombers, in Guam.)  I was 19, in the middle of a hot war learning how to repair electronics as fast as I could. It was everything life could throw at you at one time with minimum direction and almost no rules.

It would be decades before I would realize I had an unfair advantage. I had grown up in home where I learned how to live in chaos and bring some order to my small corner of it. For me a war zone was the first time all those skills of shutting out everything except what was important for survival came in handy. But the temptations in Thailand for a teenager were overwhelming: cheap sex, cheap drugs (a pound of Thai marijuana for twenty dollars, heroin from the Golden Triangle that was so pure it was smoked, alcohol cheaper than soda.) I saw friends partying with substances in quantities that left some of them pretty badly damaged. At a relatively young age I learned the price of indulgence and the value of moderation.

What a great job
But I was really happy. What a great job – you work hard, party hard, get more responsibility and every once in awhile get to climb into fighter plane cockpits and turn them on. What could be better?

Near the beginning of the year when I was at an airbase called Korat, a new type of attack aircraft showed up – the A-7D Corsair. It was a single seat aircraft with modern electronics (I used to love to play with the Head Up Display.) And it was painted with a shark’s mouth. This plane joined the F-4’s and F-105 Wild Weasels (who went head-to-head with surface-to-air missiles,) and EB-66’s reconnaissance aircraft all on a very crowded fighter base.  While the electronics shop I worked in repaired electronic warfare equipment for all the fighter planes, I had just been assigned to 354th Fighter Wing so I took an interest in these relatively small A-7D Corsair’s (which had originally been designed for the Navy.)

He’s Not Coming Back
One fine May day, on one of my infrequent trips to the flight line (I usually had to be dragged since it was really hot outside the air-conditioned shop), I noticed a few crew chiefs huddled around an empty aircraft spot next to the plane I was working on. Typically there would have been another of the A-7’s parked there. I didn’t think much of it as I was crawling over our plane trying to help troubleshoot some busted wiring. But I started noticing more and more vans stop by with other pilots and other technicians– some to talk to the crew chief, others just to stop and stare at the empty spot where a plane should have been parked. I hung back until one of my fellow techs said, “Lets go find out what the party is about.”

We walked over and quickly found out it wasn’t a party – it was more like a funeral.  The A-7 had been shot down over Cambodia.  And as we found out later, the pilot wasn’t ever coming home.

An empty place on the flight line
While we were living the good life in Thailand, the Army and Marines were pounding the jungle every day in Vietnam. Some of them saw death up close. 58,000 didn’t come back – their average age was 22.

Everyone shook their heads about how sad. I heard later from “old-timers” who had come back for multiple tours “Oh, this is nothing you should have been here in…” and they’d insert whatever year they had been around when some days multiple planes failed to return. During the Vietnam War ~9,000 aircraft and helicopters were destroyed. Thousands of pilots and crews were killed.

It’s Not a Game
I still remember that exact moment – standing in the bright sun where a plane should be, with the ever present smell of jet fuel, hearing the engines of various planes taxing and taking off with the roar and then distant rumble of full afterburners – when all of a sudden all the noise and smells seemed to stop – like someone had suddenly turned off a switch. And there I had a flash of realization and woke up to where I was. I suddenly and clearly understood this wasn’t a game. This wasn’t just a big party. We were engaged in killing other people and they were equally intent on killing us. I turned and looked at the pilots with a growing sense of awe and fear and realized what their job – and ours – was.

They say that you can only understand your future by looking at your past. That day I began to think about the nature of war, the doctrine of just war, risk, and the value of National Service. The seeds of the classes I would create decades later – Hacking for Defense, Technology, Innovation and Great Power Competition and the Stanford Gordian Knot Center – all have their roots on that hot flight line with that empty revetment almost half a century ago.

Epilogue
Captain Jeremiah Costello and his A-7D was the last attack aircraft shot down in the Vietnam War.

Less then ninety days later the air war over Southeast Asia ended.

For the rest of my career when things got tough in a startup (being yelled at, working until I dropped, running out of money, being on both ends of stupid decisions, pushing people to their limits, etc.), I would vividly remember seeing that empty spot on the flightline. It put everything in perspective.

Entrepreneurship is hard but you can’t die.

Filed under: Air Force, Family/Career/Culture | 39 Comments »

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