Agile Opportunism – Entrepreneurial DNA

Entrepreneurs tend to view adversity as opportunity.

You’re Hired, You’re Fired.
My first job in Silicon Valley: I was hired as a lab technician at ESL to support the training department. I packed up my life in Michigan and spent five days driving to California to start work. (Driving across the U.S. is an adventure everyone ought to do. It makes you appreciate that the Silicon Valley technology-centric culture-bubble has little to do with the majority of Americans.) With my offer letter in-hand I reported to ESL’s Human Resources (HR) department. I was met by a very apologetic manager who said, “We’ve been trying to get a hold of you for the last week. The manager of the training department who hired you wasn’t authorized to do so – and he’s been fired. I am sorry there really isn’t a job for you.”

I was stunned. I had quit my job, given up my apartment, packed everything I owned in the back of my car, knew no one else in Silicon Valley and had about $200 in cash. This could be a bad day. I caught my breath and thought about it for a minute and said, “How about I go talk to the new training manager. Could I work here if he wanted to hire me?” Taking sympathy on me, the HR person made a few calls, and said, “Sure, but he doesn’t have the budget for a lab tech. He’s looking for a training instructor.”

You’re Hired Again
Three hours later and a few more meetings I discovered the training department was in shambles. The former manager had been fired because:

  1. ESL had a major military contract to deploy an intelligence gathering system to Korea
  2. they needed to train the Army Security Agency on maintenance of the system
  3. the 10 week training course (6-hours a day) hadn’t been written
  4. the class was supposed to start in 6 weeks.

As I talked to the head of training and his boss, I pointed out that the clock was ticking down for them, I knew the type of training military maintenance people need, and I had done some informal teaching in the Air Force. I made them a pretty good offer – hire me as a training instructor at the salary they were going to pay me as a lab technician. Out of desperation and a warm body right in front of them, they realized I was probably better than nothing. So I got hired for the second time at ESL, this time as a training instructor.

The good news is that I had just gotten my first promotion in Silicon Valley, and I hadn’t even started work.

The bad news is that I had 6 weeks to write a 10 week course on three 30-foot vans full of direction finding electronics plus a small airplane stuffed full of receivers. “And, oh by the way, can you write the manuals for the operators while you’re at it.” Since there was very little documentation my time was split between the design engineers who built the system and the test and deployment team getting the system ready to go overseas. As I poured over the system schematics, I figured out how to put together a course to teach system theory, operations and maintenance.

Are You Single?
After I was done teaching each the day, I continued to write the operations manuals and work with the test engineers. (I was living the dream – working 80 hour weeks and all the technology I could drink with a fire hose.) Two weeks before the class was over the head of the deployment team asked, “Steve are you single?” Yes. “Do you like to travel?” Sure. “Why don’t you come to Korea with us when we ship the system overseas.” Uh, I think I work for the training department. “Oh, don’t worry about that, we’ll get you temporarily assigned to us and then you can come back as a Test Engineer/Training Instructor and work on a much more interesting system.” More interesting than this? Sign me up.

You’re Not So Smart, You Just Show Up a Lot
While this was going on, my roommate (who I knew from Ann Arbor where he got his masters degree in computer science,) couldn’t figure out how I kept getting these increasingly more interesting jobs. His theory, he told me, was this: “You’re not so smart, you just show up a lot in a lot of places.” I wore it as a badge of honor.

But over the years I realized his comment was actually an astute observation about the mental mindset of an entrepreneur, and therein lies the purpose of this post.

Congratulations, You’re now in Charge of your Life
Growing up at home, our parents tell us what’s important and how to prioritize. In college we have a set of classes and grades needed to graduate. (Or in my case the military set the structure of what constituted success and failure.) In most cases until you’re in your early 20’s, someone else has planned a defined path of what you’re going to do next.

When you move out on your own, you don’t get a memo that says “Congratulations, you’re now in charge of your life.” Suddenly you are in charge of making up what you do next. You have to face dealing with uncertainly.

Most normal people (normal as defined as being someone other than an entrepreneur) seek to minimize uncertainty and risk and take a job with a defined career path like lawyer, teacher or fire fighter. A career path is a continuation of the direction you’ve gotten at home and school – do these things and you’ll get these rewards. (Even with a career path you’ll discover that you need to champion your own trajectory down that path. No one will tell you that you are in a dead end job. No one will say that it’s time to move on. No one will tell you that you are better qualified for something elsewhere. No one will say work less and go home and spend time with your partner and/or family.  And many end up near the end of their careers trapped, saying, “I wish I could have…, I think I should have…”)

Non-Linear Career Path
But entrepreneurs instinctually realize that the best advocate for their careers is themselves and that there is no such thing as a linear career path. They recognize they are going to have to follow their own internal compass and embrace the uncertainty as part of the journey.

In fact using uncertainty as your path is an advantage entrepreneurs share. Their journey will have them try more disconnected paths than someone on a traditional career track. And one day all the seemingly random data and experience they’ve acquired will end up as an insight in building something greater than the sum of the parts.

Steve Job’s 2005 Stanford commencement speech still says it best –
Stay Hungry, Stay Foolish.

Lessons Learned

  • Trust your instincts
  • Showing up a lot increases your odds
  • Trust that the dots in your career will connect
  • Have a passion for Doing something rather than Being a title on a business card.

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Convergent Technologies: War Story 1 – Selling with Sports Scores

When I was a young marketer I learned how to listen to customers by making a fool of myself.

Twenty eight years ago I was the bright, young, eager product marketing manager called out to the field to support sales by explaining the technical details of Convergent Technologies products to potential customers.

The OEM Business
Convergent’s business was selling desktop computers (with our own operating system and office applications) to other computer manufacturers – most of them long gone: Burroughs, Prime, Monroe Data Systems, ADP, Mohawk, Gould, NCR, 4-Phase, AT&T.  These companies would take our computers and put their name on them and resell them to their customers.

Business customers were starting to ask for “office automation solutions” – word processing, spreadsheets, graphing software on a desktop.  This was just before the IBM PC hit the desktop so there were no “standard” operating systems or applications for desktop platforms. Computer hardware companies were faced with their customers asking for low-cost (relatively) desktop computers they had no experience in building. Their engineering teams didn’t have the expertise using off-the-shelf microprocessors (back then “real” computer companies designed their own instruction sets and operating systems.) They couldn’t keep up with the fast product development times that were enabled by using standard microprocessors. So their management teams were insisting that they OEM (buy from someone else) these products.  Convergent Technologies was one of those OEM suppliers.

Their engineers hated us.

I was traveling with the regional sales manager who had called on these companies, gotten them interested and now needed someone from the factory to provide technical details and answer questions about how the product could be configured and customized.

See How Smart I Am
As the eager young marketer on my first sales call, as soon as we shook hands I was in front of the room pitching our product and technical features. I knew everything about our operating system, hardware and applications – and I was going to prove it.  I talked all about how great the new products were and went into excruciating detail on our hardware and operating system and explained why no one other than our company could build something so brilliantly designed. (This being presented to another company’s proud engineering team who was being forced to buy product from us because they couldn’t build their own in time.)  After I sat down I was convinced the only logical conclusion was for the customer to tell us how many they wanted to buy.

The result wasn’t what I expected. The customers didn’t act particularly excited about the product and how brilliantly I presented it. I do believe some actually rolled their eyes.  They looked at their watches, gave our sales guy a quizzical look and left.

After the meeting our sale rep took me aside and asked if “perhaps I wouldn’t mind watching him on the next call.“

Sports Scores
The next day, as I drove to our next meeting the sales guy was intently reading the sports section of the newspaper and as I glanced over he seemed to be writing down the scores.  I wondered if he had a bookie.  When we got to the meeting he reminded me to be quiet and follow his lead.

We shook hands with the customers, but instead of launching into a product pitch (or better, letting me launch into the pitch) he started asking how their families were.  He even remembered the names of their wives and kids and some details about schools or events. (I couldn’t believe it, here we were wasting precious time and the dumb sales guy is talking about other stuff.)

Just as I thought we were going to talk about the product, he then mentioned the previous nights football game. (Damn, another five minutes down the tube as the whole room chimed in with an opinion as we talked about something else unimportant.)

The Customer is a Genius
Then instead of talking about our products he segued the conversation into their products. He complemented their elegantly designed minicomputers and made some astute comment about their architecture (now I’m rolling my eyes, their computers were dinosaurs) and asked who were the brilliant designers.  I was surprised to see that they were in the room.  And soon the conversation were about architectural tradeoffs and then how customers didn’t appreciate the elegant designs and how the world was going to hell in a handbasket because of these commodity microprocessors.  And our sales guy was agreeing and commiserating.  (And I’m thinking why is he doing all this, just tell these idiots that the world has passed them by and they need to buy our stuff and lets get an order.)

The engineers spoke about all the pressure they were getting from management to build desktop personal computers rather than their traditional minicomputers. And that their management wanted these new systems on a schedule that was impossible to meet. Then our sales guy says something that makes me stop breathing for a while.  “I bet if your management team would give you guys the resources you guys could build desktop computers better than anyone, even better than us.”  There’s a unanimous agreement around the table about how great they were and how bad management was.

The Consultative Sale
Our sales guy then quietly asked if there was any way we could help them.  (Help them?!! We’re here to sell them our stuff, why can’t we just present what we got and they’ll buy it.)  The VP of Engineering says, “well we don’t have the resources or time, and as long as you know we could build better computers then you guys, why don’t you tell us the details about your computers.”

I had just watched a master of the consultative sale.

Engineers as Salesmen
I thought (and still do) that this sales guy walked on water. He had spent 12 years at DEC, first as a hardware engineer designing part of the PDP-16, then as the marketing manager for the LSI-11 and then into sales.

Making sales calls with him taught me what a world class salesperson was like.  It also made me understand what kind of support sales people needed from marketing and what marketing programs were wasted motion.

It also made me realize that there are times you don’t want any sales people in your company.

Startups and Sales
If you read this post you can come away with the impression that every startup with a direct salesforce needs a consultative sales team.  Not true.

The answer depends on your answer to two questions:

  1. which step in the Customer Development process are you on?
  2. what Market Type is your startup?

Customer Development and Selling Strategy
If you’ve just started your company you are in customer discovery.  If you’ve tried to slog your way through my book on Customer Development you know that I’m insistent that the founders need to be the ones getting outside the building (physically or virtually) to validate all the initial hypotheses of the business model and product.  If you hire a VP of Sales with the idea that they can do customer discovery you violated the first principle of Customer Development – this isn’t a step the can be outsourced to a non-founder.

Customer Development DiagramHiring a VP of Sales in customer discovery typically sets a startup back. It’s only after you’re done with customer discovery and are in the final steps of customer validation (building a repeatable and scalable sales process) that you start hiring a sales executive.

The next thing you need to do is match your sales team with your market type.

Market Type and Sales Teams
If you remember from a previous post, startups fall into four Types of Markets. You need to hire the right type of sales people for the type of market.

market-typeIf you are in a New Market, (delivering what Clayton Christensen calls disruptive innovation) the market doesn’t even have a name and customers have no clue on how your product works or how it could help them.  This market cries out for a sales force that can help educate and guide the market to making the right choices.  Your sales team is an extension of your marketing department.  The same is true if you are in an existing marketing and trying to sell to a niche or a segment of the market based on your knowledge of their particular needs.  Both New Markets and Resegmented Niche Markets required a skilled consultative sales force.

This is very different from the sales team you would hire to sell in an existing market or a cheaper product.

If you’re in an existing market and you have a superior product, by all means tout your features and specifications.  However, your product itself will be doing a lot of the selling.  If it is demonstrably better as you claim your marketing department needs to communicate that competitive advantage and your sales curve should look linear as you take share from the existing incumbents.

If you are resegmenting an existing market a product with a cheaper alternative, by all means tout your price.  Your marketing department should be all over this.  In both cases you really don’t need a skilled/consultative sales force.  A sales team with a great rolodex will do.

Sales by Market Type

Sales by Market Type

Lessons Learned

  • Get out of the building (physically or virtually)
  • Sales calls aren’t your IQ test or PhD defense
  • Stop talking and listen to the customers problem
  • Hire a sales team at the Customer Validation step
  • Match the sales team to market type

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Epitaph for an Entrepreneur

Raising our kids and being an entrepreneur wasn’t easy. Being in a startup and having a successful relationship and family was very hard work. But entrepreneurs can be great spouses and parents.

This post is not advice, nor is it recommendation of what you should do, it’s simply what my wife and I did to raise our kids in the middle of starting multiple companies. Our circumstances were unique and your mileage will vary. Read the previous post first for context.

Biological Clocks
After Convergent and now single again, I was a co-founder of my next two startups; MIPS and Ardent.  I threw myself into work and worked even more hours a day.  And while I had great adventures (stories to come in future posts,) by the time I was in my mid-30’s I knew I wanted a family. (My friends noticed that I was picking up other people’s babies a lot.) I didn’t know if I was ready, but I finally could see myself as a father.

I met my wife on a blind-date and we discovered that not only did we share the same interests but we were both ready for kids. My wife knew a bit about startups. Out of Stanford Business School she went to work for Apple as an evangelist and then joined Ansa Software, the developer of Paradox, a Mac-database.

Product Launch
Our first daughter was born about four months after I started at SuperMac. We ended up sleeping in the hospital lounge for 5 days as she ended up in intensive care.  Our second daughter followed 14½ months later.


Family Rules
My wife and I agreed to a few rules upfront and made up the rest as went along. We agreed I was still going to do startups, and probably more than most spouses she knew what that meant.  To her credit she also understood that meant that child raising wasn’t going to be a 50/50 split; I simply wasn’t going to be home at 5 pm every night.

In hindsight this list looks pretty organized but in reality we made it up as we went along, accompanied with all the husband and wife struggles of being married and trying to raise a family in Silicon Valley. Here are the some of the rules that evolved that seemed to work for our family.

  • We would have a family dinner at home most nights of the week.  Regardless of what I was doing I had to be home by 7pm.  (My kids still remember mom secretly feeding them when they were hungry at 5pm, but eating again with dad at 7pm.)  But we would use dinner time to talk about what they did at school, have family meetings etc.
  • Put the kids to bed.  Since I was already home for dinner it was fun to help give them their baths, read them stories and put them to bed.  I never understood how important the continuity of time between dinner through bedtime was until my kids mentioned it as teenagers.
  • Act and be engaged.  My kids and wife had better antenna than I thought.  If I was home but my head was elsewhere and not mentally engaged they would call me on it. So I figured out how to spit the flow of the day in half. I would work 10 hours a day in the office, come home and then…
  • Back to work after the kids were in bed.  What my kids never saw is that as soon as they were in bed I was back on the computer and back at work for another 4 or 5 hours until the wee hours of the morning.
  • Weekends were with and for my kids. There was always some adventure on the weekends. I think we must have went to the zoo, beach, museum, picnic, amusement park, etc. a 100 times.
  • Half a day work on Saturday.  While weekends were for my kids I did go to work on Saturday morning. But my kids would come with me. This had two unexpected consequences; my kids still remember that work was very cool. They liked going in with me and they said it helped them understand what dad did at “work.” Second, it set a cultural norm at my startups, first at Supermac as the VP of Marketing, then at Rocket Science as the CEO and at E.piphany as President. (Most Silicon Valley startups have great policies for having your dog at work but not your kids.)
  • Long vacations.  We would take at least a 3-week vacation every summer. Since my wife and I liked to hike we’d explore national parks around the U.S. (Alaska, Wyoming, Colorado, Washington, Oregon, Maine.) When the kids got older our adventures took us to Mexico, Ecuador, India, Africa and Europe. The trips gave them a sense that the rest of the country and the world was not Silicon Valley and that their lives were not the norm.
  • Never miss an event.  As my kids got older there were class plays, soccer games, piano and dance performances, birthdays, etc. I never missed one if I was in town, sometimes even if it was in the middle of the day. (And I made sure I was in town for the major events.)
  • Engage your spouse.  I asked my wife to read and critique every major presentation and document I wrote. Everything she touched was much better for it. What my investors never knew is that they were getting two of us for the price of one.  (And one of us actually went to business school.)  It helped her understand what I was working on and what I was trying to accomplish.
  • Have a Date-Night.  We tried hard to set aside one evening a week when just the two of us went out to dinner and/or a movie.
  • Get your spouse help.  Early on in our marriage we didn’t have much money but we invested in childcare to help my wife. While it didn’t make up for my absences it offloaded a lot.
  • Traditions matter.  Holidays, both religious and secular, weekly and yearly, were important to us. The kids looked forward to them and we made them special.
  • Travel only if it needed me.  As an executive it was easy to think I had to get on a plane for every deal. But after I had kids I definitely thought long and hard before I would jump on a plane. When I ran Rocket Science our corporate partners were in Japan (Sega), Germany (Bertelsmann) and Italy (Mondadori) and some travel was unavoidable. But I probably traveled 20% of what I did when I was single.
  • Document every step.  Like most dads I took thousands of photos.  But I also filmed the girls once a week on the same couch, sitting in the same spot, for a few minutes – for 16 years. When my oldest graduated high school I gave her a timelapse movie of her life.

“Live to Work” or “Work to Live”?
When I was in my 20’s the two concepts that mattered were, “me” and “right now.” As I got older I began to understand the concept of “others” and “the future.” I began to realize that working 24/7 wasn’t my only goal in life.

As a single entrepreneur I had a philosophy of, “I live to work” – nothing was more exciting or important than my job. Now with kids it had become, “I work to live.” I still loved what I did as an entrepreneur but I wasn’t working only for the sheer joy of it, I was also working to provide for my family and a longer term goal of retirement and then doing something different. (The irony is when I was working insane hours it was to make someone else wealthy.  When I moderated my behavior it was when they were my startups.)

Work Smarter Not Harder
As I got older I began to realize that how effective you are is not necessarily correlated with how many hours you work. My ideas about Customer Development started evolving around these concepts. Eric Ries’s astute observations about engineering and Lean Startups make the same point.  I began to think how to be effective and strategic rather than just present and tactical.

Advice From Others
As my kids were growing up I got a piece of advice that stuck with me all these years.

The first was when our oldest daughter was 6 months old, and a friend was holding her.  She looked at the baby then looked at me and asked, “Steve do you know what your most important job with this baby is?” I guessed, “Take care of her?” No. “Love her?” No. “OK, I give up, what is my most important job.” She answered, “Steve, your job is teaching her how to leave.” This was one of the most unexpected things I ever heard. This baby could barely sit up and I have to teach her how to leave?

My friend explained, “your kids are only passing through. It will seem like forever but it will be gone in a blink of an eye. Love them and care for them but remember they will be leaving. What will they remember that you taught them?”

For the next 18 years that thought was never far from my mind.

What Will Your Epitaph Say?
At some point I had heard two aphorisms which sounded very trite when I was single but took on a lot more meaning with a family.

  • This life isn’t practice for the next one. I started to realize that some of the older guys who I had admired as role models at work had feet of clay at home. They had chose their company over family and had kids who felt abandoned by their dads for work – and some of these kids have turned out less than optimally. I met lots of other dads going through the “could-have, would-have, should-have” regrets and reflections of the tradeoffs they had made between fatherhood and company building. Their regrets were lessons for me.
  • What will your epitaph say? When our kids were babies I was still struggling to try to put the work/life balance in perspective. Someone gave me a thought that I tried to live my live my life around. He asked me, when you’re gone would you rather have your gravestone say, “He never missed a meeting.” Or one that said, “He was a great father.” Holding my two kids on my lap, it was a pretty easy decision.

I hope I did it right.

Know When to Hold Them, Know When to Fold Them, Know When to Walk Away
When my last startup, E.piphany went public in the dot.com boom, I was faced with a choice; start company number nine, or retire.

I looked at my kids and never went back.

Thanks to my wife for being a great partner.  It takes two.

Listen to the blog post here

[audio http://steveblank.com/2009/06/18/epitaph-for-an-entrepreneur/]

Download the podcast here or here

Lies Entrepreneurs Tell Themselves

Watching my oldest daughter graduate high school this week made me think about what it was like raising a family and being an entrepreneur.

Convergent Technologies
When I was in my 20’s I worked at Convergent Technologies, a company that was proud to be known as the “Marine Corps of Silicon Valley.”  It was a brawling “take no prisoners,” work hard, party hard, type of company. The founders coming out of the DEC (Digital Equipment Corporation) and Intel culture of the 1960’s and ‘70’s. As an early employee I worked all hours of the day, never hesitated to jump on a “red-eye” plane to see a customer at the drop of a hat, and did what was necessary to make the company a winner.  I learned a lot at Convergent, going from product marketing manager in a small startup to VP of Marketing of the Unix Division as it became a public company.  Two of my role models for my career were in this company.  (And one would become my mentor and partner in later companies.) But this story is not about Convergent.  It’s about entrepreneurship and family.

Like most 20-somethings I modeled my behavior on the CEO in the company.  His marketing and sales instincts and skills seemed magical and he built the company into a $400 million OEM supplier, ultimately selling the company to Unisys.  But his work ethic was legendary. Convergent was a 6-day a week 12-hour day company. Not only didn’t I mind, but I couldn’t wait to go to work in the morning and would stay until I dropped at night.  If I did go to social events, all I would talk about was my new company. My company became the most important thing in my life.

But the problem was that I was married.

Uh oh.

What’s More Important – Me or Your Job?
If you’re are a startup founder or an early employee, there may come a time in your relationship that your significant other/spouse will ask you the “what’s more important?” question. It will come after you come home at 2 am in the morning after missing a dinner/movie date you promised to make. Or you’ll hear it after announcing one morning that weekend trip isn’t going to happen because you have a deadline at work. Or if you have kids, it will get asked when you’ve missed another one of their plays, soccer games or school events because you were too busy finishing that project or on yet another business trip.  At some point your significant other/spouse’s question will be, “What’s more important, me and your family or your job?

I remember getting the question after missing yet another event my wife had counted on me attending. When she asked it, I had to stand there and actually think about it.  And when I answered, it was “my job.”  We both then realized our marriage was over.  Luckily we had no kids, minimal assets and actually held hands when we used the same lawyer for the divorce, but it was sad.  If I had been older, wiser, or more honest with myself, I would have understood that my wife and family should have been the most important thing in my life.

Lies Entrepreneurs Tell Themselves
Part of my problem was that my reality distortion field encompassed my relationships. In hindsight I had convinced myself that throwing myself into work was the right thing to do because I succumbed to the four big lies entrepreneurs tell themselves about work and family:

  • I’m only doing it for my family
  • My spouse “understands”
  • All I need is one startup to “hit” and then I can slow down or retire
  • I’ll make it up by spending “quality time” with my wife/kids

None of these were true.  I had thrown myself into a startup because work was an exciting technical challenge with a fixed set of end points and rewards.  In contrast, relationships were messy, non deterministic (i.e. emotional rather than technical) and a lot harder to manage than a startup.

The Reality
If it was up to my wife she wouldn’t have had me working the hours I was working and would rather have me home.  She didn’t sign up for my startup, she had signed up for me.

While she stuck it out for seven years, she had no connection to the passion and excitement that was driving me; all she saw was a tired and stressed entrepreneur when I got home.

At this point in my career I had hit a couple of successful startups as a low level exec, making enough to remodel our kitchen, but not the big “hit” that made us so much money I could slow down or retire.  And even if it did, startups are like a gambling addiction – if I had been honest, I would have had to admit I would probably be doing many of them.

“Quality time” with the wife or kids is a phrase made up by guilty spouses.  My relationship wasn’t going to be saved by one great three-day weekend after 51 weekends at work.  A great vacation with my wife wasn’t going to make up for being AWOL from home the rest of the year.

Summary
For the next few years I licked my wounds and threw myself into two more startups.  Over time I began to recognize and regret the tradeoffs I had made between work and relationships.  I realized that if I ever wanted to get married again and raise a family that my life/work balance needed to radically change.

The next post describes what I have learned and observed in the following years about balancing my entrepreneurial drive with building a healthy relationship with my wife and kids.

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Am I a Founder? The Adventure of a Lifetime.

When my students ask me about whether they should be a founder or cofounder of a startup I ask them to take a walk around the block and ask themselves:

Are you comfortable with:

  • Chaos – startups are disorganized
  • Uncertainty – startups never go per plan

Are you:

  • Resilient – at times you will fail – badly.  How quickly will you recover?
  • Agile – you may find the real opportunities for your company was somewhere else.  Can you recognize and capitalize on them?
  • Creative / Pattern Recognition – can you think “out of the box?”  Or if not, can you recognize patterns others miss?
  • Passionate – is the company/product/customers the most important thing in your life? 24/7?
  • Tenacious – can you keep going when everyone else gives up? Can you keep giving 200% despite all the naysayers who don’t believe in your idea?
  • Articulate – can you create a reality distortion field and have others see and share your vision and passion?

And I remind them that they should be bringing some type of domain expertise (technical or business) to the table.

This is the minimum feature set for founders.

Other Roles in a Startup
Generic advice given to entrepreneurs assumes that everyone is going to be the founder/co-founder. Yet for every founder there are 10-20 other employees who take the near-equivalent risks in joining an early-stage company.  If you’re not a founder (by choice, timing or temperament,) you may be an early employee or a later stage startup employee.

(And my advice to students who believe they want to do a startup but are unsure if they want to start one, is to join one that’s already raised their first round of funding. Founders know they want to start something.  If you’re unsure, you’ve just decided.)

I believe that founder, early and later stage employees require different risk/personality profile.

The Early Employee
If you’re a founder/co-founder all the attributes I mentioned above are needed in spades.  However, if you want to join a startup as an early employee (say in the first 25 employees,) you can modify the list above.

You still need to be comfortable with chaos and uncertainty, but by this time the major risk of where the first round of funding is coming from is gone.  However, you will be dealing with almost daily change, (new customer feedback/insights from a Customer Development process and technical roadblocks,) as the company searches for a repeatable and scalable business model. This means you still need to have a resilient personality, and be agile.

Early stage employees are “self-starters” and show initiative rather than waiting for other people to tell them what to do or how to do it. (You may be wearing multiple hats in one-day.) You have to be passionate about your work, the company and its mission to be working 24/7. But more than likely you don’t need to be as articulate or creative as the founders (they’re doing the talking, while you’re doing the work.)  And while you do need to be tenacious, you won’t need to be the last man standing if the ship goes down.

The Later Employee
If you want to join a startup as a later employee (say employee number 25-125, before the company is profitable) you can continue to modify the list above.

You still need to be comfortable with chaos and uncertainty.  And you will be dealing with change, but it won’t be the constant daily change the early employees dealt with. By now the company may have found and settled on a repeatable business model. And at this stage of the company rather than everyone doing everything, actual departments may begin to form. However, job responsibilities  and organizations will change regularly and you need to feel comfortable in embracing those changes and taking responsibility and ownership.

And you’ll still need to have a resilient and agile personality, as new customer and product opportunities will appear and change your work.  But it won’t be happening daily.  And while you still need to love what you do your passion doesn’t have to extend to tattooing the company’s logo on your arm.

The Adventure of a Lifetime
Take the time and think through who you are and what level of challenge you are looking for.

You’re not joining a big company.  Startups are the adventure of a lifetime.  But make sure it fits who you are.

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Faith-Based versus Fact-Based Decision Making

I’ve screwed up a lot of startups on faith.

One of the key tenets of entrepreneurship is that you start your company with insufficient resources and knowledge.

Faith-based Entrepreneurship
At first, entrepreneurship is a Faith-based initiative.  There is no certainty about a startup on day-one.  You make several first order approximations about your business model, distribution channels, demand creation, and customer acceptance. You leave the comfort of your existing job, convince a few partners to join you and you jump off the bridge together.

At each startup I couldn’t wait to do this.  No building, no money, no customers, no market?  Great, sign me up.  We’ll build something from scratch.

You start a company on a vision; on a series of Faith-based hypotheses.

Fact-based Execution
However, successfully executing a startup requires the company to become Fact-based as soon as it can.

Think about all the assumptions you’ve made to get your business off the ground.  Who are the customers?  What problems do they have?  What are their most important problems?  How much would they pay to solve them?  What’s the best way to tell them about our product?…

Ad infinitum. These customer and market risks need to be translated into facts as soon as possible.

You can blindly continue to execute on faith that your hypothesis are correct.  You’ll ship your product and you’ll find out if you were wrong when you run out of money

Or you can quickly get out of the building and test whether your hypothesis were correct and turn them into facts.

In hindsight, when I was young, this where I went wrong.  It’s a lot more comfortable to hang on to your own beliefs than to get (or face) the facts.  Because at times facts may create cognitive dissonance with the beliefs that got you started and funded.

Customer Development
This strategy of starting on faith, and quickly turning them into facts is the core of the Customer Development process.


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Vertical Markets 3: Reducing Risk in Startups

This post makes sense when you read the previous two vertical markets posts first.

Reducing Risk – Simulation versus Customer Development
If you remember the first part of this discussion, startups face two types of risk; invention risk and/or customer/market risk.  In either type of startup you want to put in place processes in place to reduce risk.

Simulation to Reduce Invention Risk
If you’re in a vertical where “invention risk” is dominant, then you want to do everything you can to manage and reduce those risks. Simulation allows you to build test, fail, and iterate without actually building the physical device. (You can use static methods like Monte Carlo simulation, or dynamic methods using continuous or discrete simulation.) But however you do it, in companies with invention risk you want to simulate as much of process as possible, as early as possible. For some markets you can design a model of your product on a computer and conduct experiments with the computer model to understand whether it will work, long before you actually build it. For example, in the semiconductor business engineers spend enormous time, money and effort on simulation, the process of actually building the chip in software and running tests to see how well it will perform – well before they ever get to first silicon. And the holy grail of the biotech business is another simulation process called computer aided drug discovery, which someday might be used to streamline the drug discovery and development process.

Customer Development to Reduce Risk
Conversely, if you’re in a startup where the greatest set of risks are about failing to find the right customers/markets you would look for processes to reduce those risks.  The Customer Development Process I teach and write about is designed to do just that.

Customer Development Diagram

The Customer Development Model

The Customer Development model says that when you start your company customer needs are unknown.  You may have a set of hypothesis about them but you really don’t know.  The Customer Development process puts you in continuous contact with customers to test your concept, fail, and iterate way before you actually ship the product. It allows you to systematically replace each business-critical hypothesis with facts.

(When I wrote the Four Steps to the Epiphany, the Customer Development text, I hadn’t yet thought about what vertical markets it might be appropriate for.)

Since my class was using the Customer Development text, I updated this diagram on to reflect in which markets the process was appropriate.  For example, I told my students doing life sciences projects it would be 5-10 years before they needed to worry about customers. However, for the Web 2.0 companies they needed to start the Customer Development process now.

Customer Development by Vertical - Click to Enlarge

Customer Development by Vertical – Click to Enlarge

(As a reminder, if you’ve slogged you way through the Customer Development textbook, you know the Customer Development process says your business plan is just a series of untested hypothesis (unless you’re a domain expert.)  So starting with the vision of your product, get out of the building, and see if you can find customers and a market for the product as specified. In contract to the linear execution via business plan, the Customer Development process is built on low-cost and continuous learning and iterating.)

Two Sides of the Same Coin
Simulation and Customer Development are simply two sides of the same coin.  They both have offer startups a path of getting it wrong often and early without go out of business.

The next Vertical Markets post will put all the pieces together.

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Rocks in the Rocket Science Lobby

In 1994 Rocket Science Games was the only video game company with a rock in its lobby.

We had moved our game development facilities from Berkeley and Palo Alto and consolidated into one building on Townsend Street in the “South of Market” neighborhood in San Francisco.  (We’re were just around the corner from the future home of SF Giants AT&T Baseball Park, which then was just a rubble-strewn parking lot in a sketchy neighborhood.)

Since we were the hip, new, edgy, “Hollywood meets Silicon Valley” video game company (more about “big hat, no cattle” startups in subsequent posts,) our office obviously had to match the image.

Our receptionists’ desk was built on the wing of a WWII P-51 fighter plane, and the rest of the office décor matched.  All that is, except for our lobby, as our offices were on the 4th floor. When you got off the elevator, you faced a non descript corporate-looking set of walls.

This was about the time Christies and Sotheby’s were starting to auction Soviet space program artifacts, and I was thinking that perhaps a spacesuit in the lobby would be appropriate given our name.

One day, out for a walk at lunch, enjoying one of my favorite activities – watching them tear down the Embarcadero freeway (San Francisco urban upgrade post 1989 earthquake,) – I realized I was looking at the answer.

And it was much, much better than a space suit.

A week later as our employees came up the elevator there was a Lucite case on a pedestal with a single grey rock, lit with a single spotlight, on a velvet pillow.  In front of it was a brass plaque that read:

Moon rock, Apollo 18, July 1973 – Copernicus Crater.”

Apollo 16 Moon Rock

For the next few years, people from all around South of Market would come by the Rocket Science Games lobby to see our moon rock. It added to the mystique  of the company – which helped with raising money and getting press ink. Everyone agreed that having our own moon rock was way cool.

————————————

Postscript: In all that time, not a single person who admired the moon rock questioned its provenance or authenticity.  A bit surprising considering the intersection between geekdom and space.  Maybe it was just too much ancient history.

NASA’s moon missions ended at Apollo 17.

The rock was a piece of rubble from the Embarcadero Freeway.

————————————

Only over time would I realize it augured the future of the company.

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Vertical Markets 2: Customer/Market Risk versus Invention Risk

This post makes sense when you read the previous vertical markets post first.

Customer/Market Risk Versus Invention Risk
One day I was having lunch with a VC sharing what I learned from my students. “Steve,” he said, “you’re missing the most interesting part of vertical markets.  Our firm has a portfolio of companies across a broad range of markets and the way we look at it is pretty simple – the deals fall into two types: those with customer/market risk and those with invention risk.”

Markets with Invention Risk are those where it’s questionable whether the technology can ever be made to work – but if it does customers will beat a path to the company’s door.

Markets with Customer/Market Risk are those where the unknown is whether customers will adopt the product.

Based on this insight, I updated my earlier diagram to look like this.  (The line is just a first approximation, nothing hard and fast about it.)

Invention Risk

Market Risk vs. Invention Risk – Click to Enlarge

For companies building web-based products, product development may be difficult, but with enough time and iteration engineering will eventually converge on a solution and ship a functional product – it’s engineering, not invention. The real risk in markets like Web 2.0 is whether there is a customer and market for the product as spec’d.  In these markets it’s all about customer/market risk.

There’s a whole other set of markets where the risk is truly invention. These are markets where it may take 5 or even 10 years to get a product out of the lab and into production. (Whether it will eventually work no one knows, but the payoff could be so large, investors will take the risk.)  If the product does work, and say we’ve developed a drug that cures a type of cancer, your only problem is how big is the licensing deal going to be – not about whether there will be customers. In these markets it’s all about invention risk.

A third type of market has both invention and market risk.  For example, complex new semiconductor architectures, (i.e. a new type of graphics architecture, or a new communications chip architecture) mean you may not know if the chip performs as well as you thought until you get first silicon.  But then, because there might be entrenched competitors and your concept is radically new, you still need to invest in the customer development process to learn how to get design wins from companies who may be happy with their existing vendors.

The implications for entrepreneurs is that each of these (market risk versus invention risk,) require radically different financing models, a different type of venture investor, different timing for hiring sales and marketing, etc.

I now advise entrepreneurs to add these questions to their checklist when they start a company:

  • Am I in a “customer/market risk” company?
  • Am I in a company with “invention risk?
  • Or does my company have both types of risk?
  • How would that change my company strategy?

We’ll talk about how to reduce risk in each type of market in the next post.

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Vertical Markets 1: Bad Advice – All Startups are the Same

In the past entrepreneurship was viewed (and taught) as a single process, with a single approach to creating a business plan and securing funding for a startup.  The best entrepreneurship textbooks and blogs assume that advice to startups is generalizable.  But as I learned from my students this “one-size-fits-all” approach does not work for all startups.  Different market opportunities present radically different startup risks and costs.

Capital Requirements
In my class students form teams and spend a semester building a detailed plan for a company. When I started teaching I launched project teams with this advice: All you need is a half a million dollars to start a company and at most a few million more to scale the company.” And the students nodded, OK, yes sir, and they wrote down, “a half a million bucks to start.”

The next week in class a project group raised their hands and said, “Hey, Professor Blank, we found out the common wisdom in the biotech business is that “we need $10-20 million just for the R&D phase and 100’s of million to get through clinical trials.”

“Of course,” I said, “Life science is completely different. The time to product and scale of investment is radically different than other startup markets.”

Intellectual Property
At the next class I said, “You all ought to get out and start talking to customers on day one, and get early feedback on your idea. You don’t need to worry about any Intellectual Property (IP) issues. Just get out of the building.”

The next week another team, working on a new type of solid oxide fuel cell, remarked, “Professor Blank, in our industry there’s a ton of patents and stuff and people tell us we shouldn’t be out there unless we start patent protecting all our IP.”

“Oops,” I said, “you’re right.  In clean tech nanomaterials you guys need to be talking to patent attorneys.  Don’t share the details of your manufacturing process with customers until you’ve locked up your intellectual property.”

Government Regulations
I turned to the class and said, “The rest of you can keep building your company and shipping your product because you don’t need to worry about government regulations. You’re a startup, just get your product out the door.”

The next week another group raised their hands, “Professor Blank, we’re building a medical device and there’s something called the 510K that the FDA requires, and that’s a two-year process.”

Verticals Are Different
I began to realize that entrepreneurs (and their professors) act like every vertical market and industry has the same set of rules. The guidelines I had originally proposed to my students worked for enterprise software or Web 2.0 startups, but medical device, biotech and cleantech startups required radically different approaches.

So the first heuristic is: do not assume the startup rules are the same for all vertical markets.

Now when my students begin their team projects, I list 13 vertical markets on the whiteboard.  Just for discussion, the markets I chose were:

  • Web 2.0,
  • enterprise software
  • enterprise hardware
  • communications software
  • communications hardware
  • consumer electronics
  • games software
Vertical Markets

Vertical Markets – Click to Enlarge

  • semiconductors
  • Electronic Design Automation (EDA)
  • clean tech
  • medical devices
  • life sciences
  • personalized medicine

There’s nothing special about this list other than it represents a diverse set of markets.  If your market is missing, just add it as we go through this discussion.

Entrepreneurs who have experience in the vertical market they’re entering do this analysis automatically. If you don’t have deep knowledge of the domain you are about to start a business in, you need to begin by understanding the answers to questions like these:

  • What vertical market are you in?
  • Do you have domain expertise in your market?
  • Do you have advisors who are domain experts in your market?
  • Do your potential investors understand your market?
  • What is it that’s unique about the market I’m in?

We’ll talk about the implications of what vertical market you’re entering in the next few posts. 

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