Love/Hate Business Plan Competitions

Posted on May 7, 2009 by steve blank

I love business plan competitions.

I hate business plan competitions.

I Love Business Plan Competitions
I had a breakfast with a friend who has founded a few companies in Thailand and started the New Ventures Program at one of their universities. He was visiting Stanford and mentioned how proud he was that several of his Thai students were here in the States for a business plan competition. 74HGZA3MZ6SV

For those of you who don’t know, business plan competitions are held by universities who get their students to enter and compete to see who has the best business idea. Local venture investors and/or companies offer cash prizes for the winners.  In exchange, these VCs/companies get early looks at new deal flow and offer aspiring entrepreneurs feedback and advice on their business plan.

These competitions started in the early 1980‘s at the University of Texas and have sprouted like mushrooms in the last 10 years.  Just Google the term and you’ll be amazed.  Almost every university, region and car wash now has a business plan competition; the rules, who can participate, how large the prizes and who are the judges vary by school.

Over scrambled eggs and diet coke, I listened to this seasoned startup veteran describe the excitement of his students who came to the U.S. to compete. I finally understood how valuable these contests can be for students in cities or countries without a venture capital or entrepreneurial infrastructure.  At a university business plan competition, for the first time they can swim in the sea of expertise that we/I take for granted in the middle of Silicon Valley.  Win, lose or draw, these students have a life changing experience where they can network and get smarter as they see what good startup thinking looks like.

I love business plan competitions (and with my valley-centric bias, I think Berkeley and Stanford have two of the best.) If you are outside of Silicon Valley, you ought to jump into them with both feet.  You’ll learn a lot.

I Hate Business Plan Competitions
Yet this same conversation reminded me why every time students at Berkeley or Stanford tell me they’ve entered a technology business plan competition, I question whether they are wasting their time.

For all the reasons why business plan competitions are wonderful for students from outside the U.S., or even outside of Silicon Valley, I am left speechless when a student in a 50-mile radius of Sand Hill Road (who tells me they’re serious about starting a company) thinks their time is better spent entering one.

I have seen students spend well over a year refining a business plan competition pitch when they have could have gotten the same advice within a month by literally stepping out the door and aggressively pursuing it.  And with the other 11 months, they could have been well into actually building a company.

In the real world, most business plans don’t survive the first few months of customer contact.

And even if they did – customers don’t ask to see your business plan.

Here’s a simple heuristic: if you are one of the lucky few who are within one- or two-degrees of separation of venture capital and startup resources (law firms, patent attorneys, etc.) and you are chasing a technical business plan competition, you are signaling that you really don’t want to start a company.  (And that may be fine with you. Just don’t confuse the time you’re spending with actual progress in building a company.)

I hate business plan competitions – when they encourage students to write a “winning plan” rather than teaching them how to get out of the building and use locally available resources to start a company.

Filed under: Marketing, Technology, Venture Capital | Tagged: , , , , | 17 Comments »

Preparing for Chaos – the Life of a Startup

Posted on April 29, 2009 by steve blank

I just finished reading Donovan Campbell’s eye-opening book, “Joker One“, about his harrowing combat tour in Iraq leading a Marine platoon. This book may be the Iraq war equivalent of “Dispatches” which defined Vietnam for my generation.  (Both reminded me why National Service would be a very good idea.)

Campbell describes how he tried to instill in his troops the proper combat mentality.

I’ve paraphrased his speech into the language of a startup.  It’s eerily similar.

Startups are inherently chaos. As a founder you need to prepare yourself to think creatively and independently, because more often than not, conditions on the ground will change so rapidly that the original well-thought-out business plan becomes irrelevant.

If you can’t manage chaos and uncertainty, if you can’t bias yourself for action and if you wait around for someone else to tell you what to do, then your investors and competitors will make your decisions for you and you will run out of money and your company will die.  74HGZA3MZ6SV

Therefore the best way to keep your company alive is to instill in every employee a decisive mindset that can quickly separate the crucial from the irrelevant, synthesize the output, and use this intelligence to create islands of order in the all-out chaos of a startup.

Every potential startup founder should think about their level of comfort operating in chaos and uncertainty.  It may not be for you.

Filed under: Customer Development, Family/Career/Culture, Technology | Tagged: , , , , | 9 Comments »

Supermac War Story 8: Cats and Dogs – Admitting a Mistake

Posted on April 23, 2009 by steve blank

At SuperMac, I thought I was good VP of marketing; aggressive, relentless and would take no prisoners – even with my peers inside the company.  But a series of Zen-like moments helped me move to a different level that changed how I operated.  It didn’t make my marketing skills any worse or better, but moved me to play forever on a different field. 74HGZA3MZ6SV

Zen moment #1- Admitting a mistake and asking for help

Up until this point in my career I had one response anytime I screwed something up: blame someone else. The only variable was how big the screw-up was – that made a difference in whom I blamed.  If it was a very big mistake, I blamed the VP of Sales.  “This marketing campaign didn’t work? It was a brilliant strategy but Sales screwed it up.”  (My own lame defense here for this behavior is that sales and marketing are always cats and dogs in startups. Historically, these were two guys with high testosterone. They hit each other with baseball bats until one of them dropped.)

This first Zen moment happened at a SuperMac exec staff meeting. I was asked to explain why a marketing program that cost $150,000 bucks literally generated nothing in revenue for the company.  I still remember that I was gearing up to go into my ‘I’m going to blame the sales guy’ routine. Since our sales guy was a good street fighter, I knew the ensuing melee would create enough of a distraction that no one would talk about my marketing debacle.  My brain had queued up the standard, “It’s all Sales’s fault,” but instead, what came out of my mouth was, “You know, I really screwed this marketing campaign up, making it successful is important for the company, and I need all your help to fix it.”   You could have heard a pin drop.  It was so out of character, people were shocked.  Some stammered out, “can you say that again?”

Our president picked up on the momentum and asked me what I needed from the rest of the exec team to fix this debacle. I replied:  “This is really important for our success as company and I’m really at a loss why customers didn’t respond the way we expected.  Anybody else got some other ideas?”

From there, the conversation took a different trajectory. It was uncomfortable for some people, because it was new ground  – I was asking for help – wanting to do what was right for the company.

It was definitely a “Zen moment” for me in terms of my career.  From then on when I screwed up, not only did I own up to it, I asked for help.  This behavior had an unintended consequence I couldn’t have predicted: when others started volunteering to help me solve a problem, finding a solution became their goal as well.

Soon one or two others execs tested the waters by making a small tentative “ask” as well.  When they discovered that the sky didn’t fall and they still had their jobs, our corporate culture took one more step toward a more effective and cohesive company.

Ownership and Teamwork not turf.

Filed under: Customer Development, Family/Career/Culture, SuperMac | Tagged: , , | 7 Comments »

“Speed and Tempo” – Fearless Decision Making for Startups

Posted on April 10, 2009 by steve blank

”If things seem under control, you are just not going fast enough.”

– Mario Andretti

I was catching up over breakfast with a friend who’s now CEO of his own startup. One of the things he mentioned was that when it came to decision-making he still tended to think and act like an engineer. Each and every decision he made was carefully thought through and weighed. And he recognized it was making his startup feel and act like a big ponderous company. 74HGZA3MZ6SV

Speed = Execution Now

General George Patton said, “A good plan violently executed now is better than a perfect plan next week.” The same is true in your company. Most decisions in a startup must be made in the face of uncertainty. Since every situation is unique, there is no perfect solution to any engineering, customer or competitor problem, and you shouldn’t agonize over trying to find one. This doesn’t mean gambling the company’s fortunes on a whim. It means adopting plans with an acceptable degree of risk, and doing it quickly. (Make sure these are fact-based, not faith-based decisions.) In general, the company that consistently makes and implements decisions rapidly gains a tremendous, often decisive, competitive advantage.

Decision Making Heuristics for the Startup CEO

The heuristic I gave my friend was to think of decisions of having two states: those that are reversible and those that are irreversible. An example of a reversible decision could be adding a product feature, a new algorithm in the code, targeting a specific set of customers, etc. If the decision was a bad call you can unwind it in a reasonable period of time. An irreversible decision is firing an employee, launching your product, a five-year lease for an expensive new building, etc. These are usually difficult or impossible to reverse.

My advice was to start a policy of making reversible decisions before anyone left his office or before a meeting ended. In a startup it doesn’t matter if you’re 100% right 100% of the time. What matters is having forward momentum and a tight fact-based feedback loop (i.e. Customer Development) to help you quickly recognize and reverse any incorrect decisions. That’s why startups are agile. By the time a big company gets the committee to organize the subcommittee to pick a meeting date, your startup could have made 20 decisions, reversed five of them and implemented the fifteen that worked.

Tempo = Speed Consistently Over Time

Once you learn how to make decisions quickly you’re not done.  Startups that are agile have mastered one other trick – and that’s Tempo – the ability to make quick decisions consistently over extended periods of time.  Not just for the CEO or the exec staff, but for the entire company.  For a startup Speed and Tempo need to be an integral part of your corporate DNA.

Great startups have a tempo of 10x a large company.

Try it.

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Filed under: Customer Development, Technology | Tagged: , , , , | 23 Comments »

The “Good” Student

Posted on April 7, 2009 by steve blank

I saw an article in the New York Times about Google’s hiring practices that reminded me of the differences between great big successful technology companies and small scrappy startups.

Marissa Mayer, Google on hiring

I love Google.I think its one of the smartest companies out there. And it hires very smart people from the best schools. And if you meet their criteria of a “good student”, you ought to go to work there.Or Microsoft or IBM. 74HGZA3MZ6SV

Nothing makes me happier then to see my students getting great grades (and as they can tell you I make them very work hard for them.)

But what I remind them is that great grades and successful founders/technology entrepreneurs have at best a zero correlation (and anecdotal evidence suggests that the correlation may actually be negative.)

BTW, by the standards mentioned in the Times article, the following people would never have been interviewed or hired at Google.

College Dropouts-Bill Gates, Steve Jobs, Larry Ellison

College Dropouts – Bill Gates, Steve Jobs, Larry Ellison

These guys realized that customers don’t ask for your transcript.

There’s a big difference between being an employee at a great technology company and having the guts to start one.  You don’t get grades for having resiliency, curiosity, agility, resourcefulness, pattern recognition and tenacity.

You just get successful.

Filed under: Customer Development, Family/Career/Culture, Technology | Tagged: , , , | 29 Comments »

SuperMac War Story 1: Joining SuperMac

Posted on March 20, 2009 by steve blank

After leaving Ardent (a supercomputer company I’ll blog about later) in 1988, I consulted for Pixar when they were still in San Rafael and were a hardware company trying to make software and commercials. While I was consulting for them, I got a call from a recruiter for a company called SuperMac, which made add-on products for the Macintosh.  They were one of the first companies to sell an external disk drive for the original Mac; they had the first “color paint programs” for the Mac; and when the Mac was just black and white they had the first color graphics boards and large screen color monitors for the Mac.  And with all of that they had gone broke, out of business and into Chapter 11.

Yet two smart VC firms, Sigma and Matrix Partners, realized that somewhere in this mess there was value. Their guess was that they would find value in the high margin graphics business.  Now with a new infusion of $8 million dollars of venture capital, SuperMac had been resurrected from the dead and was attempting to restart.  The first step was to recruit a new management team.

Why they were looking to me to run marketing wasn’t clear.  They sold their product through the computer retail channel, something I knew nothing about.  They sold to a set of customers I knew nothing about.  Yet somehow they thought that my prior experience in high-end computer graphics might be relevant.  Why I was interested was equally obscure.  The company was the laughing stock of the Mac market.  The two other players in the add-on graphics business, Radius and RasterOps, had a combined 90% market share.  After talking to its resellers and customers I realized that SuperMac was the only company that could be described as “fifth in a group of three.”

In essence it was a restart with a mixed bag of assets and liabilities.  The assets were a series of products already developed and on the market or in the development pipeline.  So perhaps a more accurate description was that the company was a “restart.”  The new products potentially looked to be industry leaders if and when they came to market. When I went through their financials as part of my due diligence I realized that if they ditched their low margin disk drive products, it wouldn’t take much to make them a profitable company.  They had an existing distribution channel and their dealers and customers thought they knew who the company was and what it stood for.

The liabilities were equally clear: the existing distribution channel and their dealers and customers thought they knew who the company was – a failure – and what it stood for – a mixed bag of commodity products with low margin, no compelling reason to sell and a set of competitors with much better products.  Worse, no one inside the company had a profound belief in who the company was and why they existed.  They had no model of who their own customers were and what it would take to make those customers bang down their doors to buy their products.

Nothing I couldn’t fix.   I took the job.

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Filed under: SuperMac | Tagged: , | 1 Comment »

There’s a Pattern Here

Posted on February 23, 2009 by steve blank

After my eighth and likely final startup, E.piphany, sitting in a ski cabin, it became clear that there is a better a way to manage startups. Joseph Campbell’s insight of the repeatable patterns in mythology is equally applicable to building a successful startup. All startups (whether a new division inside a larger corporation or in the canonical garage) follow similar patterns—a series of steps which, when followed, can eliminate a lot of the early wandering in the dark. Looking back on startups that have thrived reflect this pattern again and again and again.

So what is it that makes some startups successful and leaves others selling off their furniture? Simply this: startups are not small versions of large companies.  Yet the processes that early-stage companies were using were identical to that of large corporations. In hindsight it appeared clear that startups that survive the first few tough years do not follow the traditional product-centric launch model espoused by product managers or the venture capital community. Through trial and error, hiring and firing, successful startups all invented a parallel process to product development. In particular, the winners invent and live by a process of customer learning and discovery. It’s a process that doesn’t exist in large companies with existing customers and markets.  But it is life and death for a new venture.

I call this process “Customer Development,” a sibling to “Product Development,” and each and every startup that succeeds recapitulates it, knowingly or not.

The “Customer Development” model is a paradox because it is followed by successful startups, yet articulated by no one.  Its basic propositions are the antithesis of common wisdom yet they are followed by those who succeed.

It is the path that is hidden in plain sight.

Listen to the podcast here

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Filed under: Customer Development, E.piphany, Venture Capital | Tagged: , , , , , | 15 Comments »

Out of the Ashes – Something Isn’t Quite Right

Posted on February 23, 2009 by steve blank

“Customer Development” was born four years earlier and 200 miles away on Sandhill Road.  I was between my 7th and 8th and final startup; licking my wounds from Rocket Science, the company I had cratered as my first and last attempt as a startup CEO. I was consulting for the two venture capital firms who between them put $12 million into my last failed startup. (My mother kept asking if they were going to make me pay the money back. When I told her they not only didn’t want it back, but were trying to see if they could give me more for my next company, she paused for a long while and then said in a very Russian accent, “Only in America are the streets paved with gold.”  It was a long way from Ellis Island.) Both venture firms sought my advice for their portfolio companies. Surprisingly, I enjoyed seeing other startups from an outsider’s perspective. To everyone’s delight (and my surprise,) I usually could quickly see what needed to be fixed. At about the same time, two newer companies asked me to join their boards.  Between the board work and the consulting, I enjoyed my first-ever corporate “out-of-body experience.”

No longer personally involved, I became a dispassionate observer. From this new vantage point I began to detect something deeper than I had ever seen before: there seemed to be a pattern in the midst of the chaos. Arguments that I had heard at my own startups seem to be repeated at others. The same issues arose time and again: big company management styles versus entrepreneurs wanting to shoot from the hip, founders versus professional managers, engineering versus marketing, marketing versus sales, missed schedule issues, sales missing the plan, running out of money, raising new money. I began to gain an appreciation of how world-class venture capitalists develop pattern recognition for these common types of problems. “Oh yes, company X, they’re having problem 343. Here are the six likely ways that it will resolve, with these probabilities.” No one was actually quite that good, but some VCs had “golden guts” for these kinds of operating issues.

Yet something in the back of my mind bothered me. If great venture capitalists could recognize and sometimes predict the types of problems that were occurring, didn’t that mean that the problems were structural rather than endemic? Wasn’t something fundamentally wrong with the way everyone organizes and manages startups? Wasn’t it possible that the problems in every startup were somehow self-inflicted and could be ameliorated with a different structure? Yet when I talked to my venture capital friends, they said, “Well, that’s just how startups work. We’ve managed startups like this forever; there is no other way to manage them.”

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Filed under: Customer Development, Customer Development Manifesto, Venture Capital | Tagged: , , , , | 1 Comment »

The Product Development Model

Posted on February 23, 2009 by steve blank

I realized that traditional ways to think about startups – have an idea, raise some money, do product development, go through an alpha test, beta test and first customer ship was the canonical model of how entrepreneurs thought about early stage ventures.

product-dev-diagram-b751

This product development diagram had become part of the DNA of Silicon Valley.  So much so that after I started teaching I’d ask, “Can anybody recognize this model of startups?”  And when everyone raised their hands I used to joke, “Even the waiters in San Francisco could draw this model.”  But in 2002 a student with a pained look on his face raised his hand and said, “Well, we’re now waiters in San Francisco because we used to be CEO’s of dot-com companies.”  So I no longer make that joke.

When I looked at the diagram in that ski cabin I realized there was a fundamental question I couldn’t answer: if all startups follow that model, why is it that some companies are opening bottles of champagne at their IPO and others who almost followed the same rules are selling off their furniture?  What was the difference here?  Were all startups the same? Were startups failing because of product failures or was there some other failure mode?  Is there any way to predict success or failure?  And even more importantly, was there any way to reduce risk in early stage ventures?

That day, alone in the cabin I knew I had to find the answer.

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Filed under: Customer Development, Customer Development Manifesto | Tagged: , , , , , | 7 Comments »

Retirement and Redemption

Posted on February 23, 2009 by steve blank

In 1999 I retired and began to reflect about my career and what had happened in the previous 21 years and eight startups in Silicon Valley.  Alone in a ski cabin with the snow coming down outside, and my wife and daughters out on the slopes all day, I started collecting my thoughts by writing a series of “lessons learned” stories that I had hoped would become my memoirs.

Eighty some pages later I realized that a) I had some great war stories as a good marketeer and failed CEO, b) I’d have to pay my wife and kids to read them, c) the three of them were probably the entire total available market, and d) when I looked at what I had done and what other entrepreneurs had done at their startups, that there was a pattern.

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Filed under: Customer Development | Tagged: , , , , | 2 Comments »

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