Steve Blank on Customer Development: The Second Decade

because in fact they retired the day before our S1 or IPO went effective cuz I actually wanted to see my kids grow up um which how many of you have families or want to have families there's a a search for a post called Epitaph for an entrepreneur how many of you have read it um oh okay uh for those of you who haven't print it out hand it to your significant other and then post it on your refrigerators a couple people are nodding um it was our 21 years of how to stay married and do startups and have a couple kids um and it wasn't like we figured it all out on day one it was all the trial and error of having um uh a career which could have consumed 247 but actually deciding to have a family and a career and I was not a part-time entrepreneur but it was how to get everybody engaged but the story is I decided to see my kids grow up so I didn't know what I was going to do next fames out skiing up in Tahoe I decide I'm going to write my Memoirs I know I that sounds even silly to me and in fact I got 80 pages into it and I realized two amazingly important things one is I'd have to pay my children to read this um because well it was exciting to me it wasn't exciting to anybody else and then two is which was kind of why you're all here is I realized there were patterns in what I had done for 20 years that I had never noticed and not only patterns that the companies I had done by the time I retired I was sitting on technology advisory boards I was on the boards of a couple of public companies um I invested in a ton and those patterns that I was writing about in my career were repeating themselves in multiple companies yet no one had ever called them no one had ever said hey wait a minute Silicon Valley more technology risk per square inch than anywhere else in the world and over 90% of startups that fail fail from a lack of customers not from a lack of Technology oh my gosh how come like no one's writing about this stuff and in fact we have all these processes to manage product development we have no processes to manage customer development and that was the Genesis the book four steps The Epiphany first started out as my class notes um which some of you could attest to if you've discovered all the unfinished sentences in the book um and then one of my students in fact my best student Eric Reese who was taking my class at Berkeley said hey why don't you slap a cover on it and stick it on Amazon so now you know where the book came from um so thank you Eric um but I have to tell you when I started teaching entrepreneurship teaching hey I'm a professor now I know everything I knew what entrepreneurship was was I knew what an entrepreneur and a startup was I did it for 20 years and luckily head of my department said Steve you might want to sit in in some of these other professors classes n what you know I know Steve do me a favor just sit in I walked out a couple days later stunned I had no idea what they were talking about it turns out that my definition of what a startup is who an entrepreneur was what founder was and what they were all supposed to do was completely different than what was being taught at Stanford Berkeley and Colombia and in fact I'll observe that even today there is no agreement on what an entrepreneur and startup is so I'm going to give you Steve blank's taxonomy and you could decide where you fit who you are what you want to accomplish and this is just a preamble to this talk I think there are six types of startups nothing magic about it um the first startup is what I'll call lifestyle startups these are entrepreneurs Who start companies just to have do enough work to live their passion now up north I also live on the coast and to me a classic California lifestyle entrepreneur is someone who wants to Surf 247 anybody a surfer here imagine you could do it 247 but you needed a job to at least pay the rent so up North I know a couple friends you know what they do to work they teach surfing they make enough money then they put clothed on the store they go out and surf some more and they run out of money don't have any food open okay teach some more surfing don't kill any Surfers okay closed now translate that to not just surfing but coating or anything else those people are entrepreneurs they've started a company they don't work for anybody else but they're just working to live their passion and so their goal is to create a small business known customer known product feed the family Drive the passion we don't really teach these people in entrepreneurship classes but they truly F fill at least my characterization of who's a founder and entrepreneur now the other ones are small business startups instead of lifestyle startups small business startups their goal is to build a business that allows them to be self-employed but they don't wake up in the morning saying I'm going to take over the universe they wake up in the morning going I hope I turn a profit this week small business startups grocery stores dry cleaners Carpenters plumbers database Consultants UI designers people who just are happy to work for themselves and their goal is to go from a startup to have a profitable small business so they need to look for a business model profitable business existing team you know if they make a 100 Grand a year in Revenue they're doing great now my parents started as small business people they were immigrants to the United States came over in the boat under the Statue of Liberty went through Ellis Island worked in sweat shops in the Lower East Side of New York and their dream was to open a grocery store big American dream and they worked really hard and when we were tall enough not to drown in The Pickle Barrel they allowed us to work in the store turned out that that was entrepreneurship and in fact in the United States it is entrepreneurship there are 5.7 million businesses in the US make up 99.7% of all corporations employ about 50% of all non-governmental workers outside of Technology clusters like New York Silicon Valley parts of Santa Monica the United States when you talk about entrepreneurship and found ERS everybody is thinking about these people big idea entrepreneurship Founders and startup outside of Technology clusters mean small business Innovation and Entrepreneurship now what Silicon Valley became known for is not this not let let's do a startup and have a small repeatable business it's for something I call scalable startups other people call them high growth startups a scalable startup typically is solving for unknown customers and unknown features but the founders have billion dooll Visions billion doll Visions on day one they're looking for a business model but they're looking for total available markets that are huge so they could generate $100 million a year or more in Revenue unlike the other businesses so far scale ailable startups attract Venture Capital why because Venture capitalists want obscene returns in fact the mob and Venture Capital have that one thing in common right they are not happy with making 4% a year Venture Capital bets on scalable startups because while over 90% of their Investments fail the 10% that make it generate obscene returns if they're good now a scalable startup is designed to grow big and this historically is when Silicon Valley said startup who they meant now in the last 3 to five years there's one more category I'll share with you in a second but I got to tell you a secret when I was an entrepreneur this was kind of how I thought it worked I was a startup and someday if I succeed I'll be the CEO of a large company right how many of you think it works that way come on raise your hand come on yeah you're right that's it don't tell anybody but I'm about to show you the secret memo you'll never get you ready there's a box in the middle and the box in the middle says you're fir it's a big idea big idea and you can never explain why until now turns out there truly is a box in the middle you'll hear me say this throughout the entire presentation What We Now understand that startups really do which I'll be talking about later is search for a repeatable and scalable business model search that's what Founders are great at well you think you might be great at coding and you think you might be great at UI or great at something else no no you're not you you will fail if that's all you're great at you're looking for a business model we'll explain what that is but think make money large companies are large because they've already figured out the business model their job is to execute a known business model oh search execute but it's the stuff in the middle that's screw up Founders let me tell you how that goes you've been a founder of a company for a year or two and then one day you realize hey if we just keep doing this this like number starts going positive and oh my gosh by accident we're making money look at that and you have a board meeting and you're like really proud you're going to announce we like we Crack the Code we found out how to make money thinking that maybe the parade could go around the cubicles and the confetti could be thrown over here and they'll pin the little Award right on right here and so that's how you're going into the board meet now you got to understand from your investor point of view how many of you have VCS or investors am I ever been through this you see one VC every 6 weeks what you don't realize or I didn't for a long time is they're seeing 8 to 12 of you in those 6 week periods they sit on 8 to 12 boards and so while you recognize who they are in your parking lot they're actually looking up your name and picture right when they drive in they're going who who is this guy again but the day you announce we have found a repeatable and scalable business model and you're expecting the Applause and the hugs and the high fives all of a sudden your VCS start looking at you in a way that's making you very personally uncomfortable what do you think they're doing what do you think they're doing all of a sudden your company which had a negative value to them all of a sudden is a very important part of their portfolio and they're now taking your measure to see if you're the executive that could go from search to execute and all that stuff you were great at doing one thing on Monday a different thing on Tuesday 14 different things on Thursday fly here to there to changing the code to doing this to doing that all of a sudden those things are detriments rather than assets big idea and what they need is not a executive who could search but an operating executive who could take advantage of the business model you found so just memo to self when you find a repeatable model and the VCS start muttering operating exec they're not doing anything to screw you it's just that your interest and theirs have now become unaligned and what you need to do as a Founder separate discussion separate presentation is understand what are the skills necessary to build an organization so it could eventually execute does that make sense to anybody ever encounter this of like you know I I used to be running my company and the next day like they're pushing me out and and I'm holding on to the door frame I mean that's what's going on and it's actually quite understandable from their point of view but they never tell you this which is why it's the secret memo when you get funded why because why would you ever take any money from the guys who tell you hey by the way when you succeed we'll fire you right so everybody every VC tends to lie to you until it comes to that point um there's a second type of startup that's now emerg truly in the last 3 to 5 years and this is another type of Silicon Valley or um entrepreneurial cluster company and just for the sake of definition I'll call it a buyable startup a buyable startup is typically an internet or mobile or gaming apps or advertising Etc and their goal is to sell to a larger company hey 3 to 50 million bucks we're out of here thank you very much right how many of you would be happy with that kind of exit yeah come on how many you want to hold out for a billion bucks there you go okay two different models both of them are now funded these are a lot more prevalent for all the reasons Eric and I talk about the cost of starting these things could be done on your credit card time to Market is measured in weeks and months rather than years etc etc etc everything we know about lean is appropriate here and I'll just C create this category called buyable startups to say that's also part of the ecosystem but it turns out if somebody gave you 10 million bucks you'd probably spend only you know 9.5 or else you'd be in Brazil and that's another story um but these startups don't require Millions to get started if you're successful and tend to grow them they require Millions later to scale but they don't need the amount of cash which is why we now get super Angels rather than traditional VCS funding a large segment here this make sense scalable startups buyable startups versus small business and lifestyle now there's another couple of startups also worth mentioning particularly we in in the business school how many of you are in the business school here getting your MBA so here's the part you ought to pay attention to you ready it's the large companies sorry oh by the way before I get into large companies Steve blank's definition of a startup pretty simple because I didn't even know so what is a startup oh startup's a thing that you have beer with on Friday oh you know and then I I asked well how long you your startup in around 12 years there's no such thing as a 12-year-old startup there's a 2-year-old startup with a 10-year-old failure attached to it um and note to self you know you're no longer in a startup a startup is a temporary big idea temporary organization used to search for repeatable and scalable business model now come up with your own one but this one to me is a pretty actionable definition when it's temporary their goal of a startup is not to be a startup the goal of a startup is to be a large company right and what are we supposed to be doing we're supposed to be searching for something what are we searching for repeatable and scalable business model how do we make money how do we optimize users Etc we'll explain that all right this is where the NBA pay attention another type of innovation mbas how many of you have read Clinton Christensen okay needs to go on your reading list um innovators dilemma innovator solution 15 years ago Christensen who's a professor at Harvard really nailed two things large companies do one is they do sustaining Innovation that is we know how to execute well we know how to make cell phones cheaper every year we know how to you know make them in blue green and red and we know how to make them in every country and we know how to do everything about the cell phone business or pick whatever industry that's sustaining Innovation that does require Innovation but it's around your core business existing Market known customers known product features but one day you're in the cell phone business and you've been laughing at this outside company that thought they knew something about cell phones H we've been we're Nokia was called Apple by the way I just came back from Finland and you can't utter the word Nokia without every fin like looking ashamed and I told these guys they ought to lighten up they said you don't understand it was our only national hero I mean they were no they were truly wrapped up in that this was our champion I said light up you guys have been disrupted and what dis happens in disruption is you typically laugh at the new entrance in the beginning cuz they always look toy like in stupid but they tend to eat your share as they add more and more features so you know iPhone 1 doesn't have copy and paste who would ever buy a phone well oh iPhone 4 you know by now they're like going maybe we should build one of these four years later disruption usually takes two forms to existing company one is your sleep at the wheel and two is there's an external competitor that understands either technology or markets or custom customers in some way that you didn't so Nokia and rim Etc were disrupted by the ultimate innovator which was Apple but they were also a sleep at the wheel how you counter disruption is you build you partner or you acquire best example is in Silicon Valley is Google Google was the on-ramp to the internet any may remember Google we only hire a students do you remember that yeah they never would have hired Steve Jobs or Larry Ellison or Bill Gates they never graduated from college but that's another story but Facebook Mark Zuckerberg looked at that and said we only hire Pirates now I got to tell you for a couple years it was the Pirates versus a students and right now they on-ramp to the net most of the time is not Google it's Facebook Google understands that and the last couple years they've been countering disruption by Acquisitions and unlike traditional companies that used to buy customers or businesses Google buys Talent they just buy teams sometimes with products Android do they buy an entire product line in business no they acquired a small company that had a prototype with a killer CEO Andy ruin who you know has taken over that part of the business large companies countered disruption by either ignoring it and going out of business but more often trying to either build it partner or acquire and so for mbas in this room understanding that in the 21st century the cycle of disruption for existing businesses not just technology is starting to be compressed more rapid more Innovations required and Steve Jobs godr the soul is going to become The Benchmark for every Fortune 1000 CEO who needs to build constant Innovation and Entrepreneurship inside their own company know what people don't realize about jobs is that he long past just being a technology icon or Silicon Valley icon you know he long passed the metaphor of oh our next Thomas Edison or Henry Ford or maybe even Thomas Edison with Picasso thrown in he was something we haven't seen before he was in fact the best Global Innovation executive period period and that will be the Benchmark for large corporations for the rest of this Century by the way the last type of startup social entrepreneurship these are entrepreneurs who get ready for this I don't know how to say this inside of a business school don't want to make money can't figure it out I get a good number of them in Berkeley and Stanford as well um they decide that they'd like to live their lives solving pressing social problems either building a profitable company but using social entrepreneurship as a brand Advantage Seventh Generation method Etc some good examples Ben and Jerry's or they want to create entirely new nonprofits NGS Kea Etc and I only say this half factiously please don't get me wrong I am blown away by people who decide in your 20s that this is where you'd like to spend your life I sit on lots of boards and nonprofits um it just wasn't who I was but it just makes me in awe of people who dedicate their lives to doing this so that's the six types of startups and why is it important why don't I even go through this because each one of these startups require different skills and here we are in a university my biggest takeaway when I stepped out of those classrooms dazed going whoa all I knew about with scalable startups that's what I did for 20 years yet we were all teaching entrepreneurship like it was this one thing that the skills you need to do a scalable startup are exactly the same skills that you need to do in a large corporation no way anybody ever try to start an Innovative division in a large corporation right any anybody know what the biggest issue is in a large corporation trying to be Innovative the CF o and number two the head of HR seriously these are real issues and if you don't understand them and treat them just like a startup you're already doomed to failure um because what we now know by the way and this is what we got wronged for 40 years in Silicon Valley is startups are not smaller versions of large companies large companies execute startups search now any accountants in the room all right I will um anybody want to refund I will pay your 20 bucks back um but typically accountants don't run startups and here's why startups are searching and pivoting what a startup knows on day one is that everything they think is simply a hypothesis it's a guess that startups need to get out of the building and test everything they think they know yet in large companies it's all about execution cash flow Break Even profitability scale Senior Management and by the way when you get to 150 people anybody know what that number is called dunbar's number magic number go look it up turns out you are immediately a large company has to do with how the human brain processes tribes groups Etc now large companies you can't run a large company without knowing accounting anybody take accounting yeah good okay save that so maybe you have something to account okay okay balance sheet income statement cash flow great I did startups for 20 years every startup first couple months goes like this have my first board meeting I know what the VCS want to see they want to see my financials income statement balance sheet cash flow have a rent a CFO he types them up formats them the fonts line up the columns are beautiful I push them across the table and the VC's go well hey look at these columns Etc and what do you think the income statement said month one zero but man is that formatted correctly and we talk about that you know in the boardroom hey look at that income statement okay second board meeting yeah hey look at that we do this for 21 years not like for one company I did it for eight never once going what are we doing because in a startup I'm just going to now piss off every VC in LA if that's all your board knows how to do walk out of the room tell them thank you for the check but fire me now because you know what you should be so lucky to need this crap all you need to know is how much my burning per month and how many months does that like add up to hand that to your six-year-old and they could figure that out those are the only two numbers you need to know in your first year your startup you want your board beating you with a stick trying to figure out what are your business metrics not what your accounting metrics the metrics you need to be figuring out is all the stuff about your business model if you're in the internet for example what's my customer acquisition cost do I have a viral coefficient is customer lifetime value average selling price all this stuff will change depending on your on your business and business model but those are the numbers that need to be discussed in a board meeting does that make sense at all it's not ultimately you don't want to have this discussion but if this is dominating the conversation on day one like you got people who are adding zero value now if that's all they know how to do tell them to come back when you find the business model but you don't need them in your room they're just like acting busy the next thing is sales sales in a large corporation anybody know how tall the vpa sales of a Fortune 100 company is 6'2 of course gray hair if he's a guy gray hair if it's a woman great golin no joke and anybody ever work for a Fortune 100 or th000 coming is that true is that what they look like and you think I'm making this up it's not an accident and it's not that they don't need to do this they actually do need to do this large companies VPS of sales have figured out how to manage sales organizations play golf or integrate themselves with large customers and have a sales organization that's scalable and could sell off of Priceless data sheets known material now to me when I did startups my Ultimate Fantasy ones at least I could tell you about was to hire a large company VPS sales as early as I could some of you are laughing it's the curse of getting what you asked for because in my last startup hey we were funded by kiner Perkins we were the hottest whatever and I got my wish I hired a senior director of sales from Oracle somebody who was going to the million dooll club or 20 million doll Club in Hawaii just always wanted to work in a startup and he was a worldclass guy ah so it's now month six in our startup it's rainy California winter we've now given probably five presentations in a row and five times in a row with my new vpa sales we were literally booted out of an office and I'm like in shock and I stumble into the car VPS sales is driving that's his job joh I'm just a dumb founder and I'm like just Jay we just got thrown out Jay is smiling I said Jay why are you smiling he said Steve world class fee piece of sales this just rolls right off our back we no we have thick skins this is what you hire us for and I'm going I got to fire this guy and so he puts the key in the car said where are we going he said Steve we got three more calls to make I said Jay we were just thrown out this stuff doesn't work I mean whatever we're saying is just not working so I take out my laptop and I start typing and he goes what are you doing and I go Jay I'm changing the presentation and whoa the car almost went off the road you can't do that well why not well I memorized the last presentation well Jay it didn't work it doesn't matter I memorized it okay well you know the back on the road Steve what are you doing now well I'm changing the price list who car almost you can't do that I just realized that a large company executive is comfortable with certainty not always but it explains why large company Executives don't do well in startups in startups sales is selling where pricing and features and the entire business model is unstable it's not not yet repeatable it's done one offs you're making it up as you go by the way this explains a ton of behaviors anybody ever hire a senior VP from a large company into a startup before the business model was frozen anybody have a good experience um it sometimes happens but most often than not here's what goes wrong it's a big idea and by the way you get to buy beer every time I say big idea um we confuse the titles which are identical in a large company and in a startup the titles are the same but the job specs are completely different think about that the job specs are completely different whether they're VPS sales VP of marketing product management VP of engineering product management delivers mrds doing customer development in a startup VP of engineering large company requirement docs waterfall development I could usually tell that they hired the wrong VP of engineering and any startup in the first year or two when he starts telling me about the tech pubs Department see a couple people texting fire tech pubs Department why cuz in a startup if your head of engineering isn't doing Agile development and worrying about how many releases a day you're doing you've hired the wrong people doesn't mean eventually you don't want to have QA and Tech PBS maybe you should be so lucky but right now you're not doing this just to see how many releases you could do you're doing this so you could see what the customer needs are and if you're not doing agile engineering you really can't do customer development the last piece is large companies plan this is my favorite for years we had to write business plans anybody ever write business plans so they still teach that in UCLA yeah don't don't raise your hand if you do because there might be a professor in the room I'm going to insult so business plans are now defined in Silicon Valley as the documents that VCS make you write which no one reads right and we're kind of even past that even VC kind of giggle when you talk about a business plan business plans make all the sense in the world for large corporations they do when you're doing a followon product you know the market you know the customers you know the channels and you're talking about what features or what changes you're making in Product 2 3 through n but in a startup those are all unknown and therefore what you really want to do is be working on a business model so you know the thinking used to be in the valley is all I need to do is write a business plan and then I just execute the plan because that's what I did in a large company after 40 Years of detailed scientific research We Now understand the following no business plan survives first contact with customers it doesn't might be Corner cases if you're doing a clone business in the existing Market but those are exceptions and the part that truly doesn't survive first contact with customers is usually called appendix a the revenue plan which most of you if you would admit was written under the influence of something and actually deserves to be taught in the English Department under the creative writing section now now just to screw with my students I tell them that of course they know Excel has an automatic business plan generator if you find the right code keys and I still have students going really gay I haven't found it yet um so what do you do instead in a startup we kind of Now understand that the right thing to do is to be searching for a business model now a business model is a great you know academic thing because if you get three professors in a room it used to be you could come up with 14 definitions of a business model and completely confuse any class but look important but instead in the last year I've just kind of decided that Alexander ouer walder's work which says any company can be design can be described the nine building blocks was the way I wanted to go and so I use austar walder's definition of what a business model is and he said look the first thing you need to think about in any business is who the heck are your customers who are they great write them down what are you going to sell them he uses a fancy word called value proposition think of it as what's your product or service that you're going to deliver to these customers how are you going to deliver it on the web it's pretty easy there it is Boom if you have a physical product how are you going to get it to that customer what's the sales Channel and how are you going to create demand he calls it customer relationships I think it's even easier on the web is it SEO or sem or Facebook ads if it's a physical product is it radio or TV or you know again web ads how are you driving demand into that channel and by the way do you have any interest in making money probably a pretty good thing uh but there are some business models that are multi-sided models Google how many of you use Google right how many of you pay to use Google oh some of you figured out how you do pay for Google the rest of us thank you for paying for us CU they're you know they make more money than anybody on the planet now for those you don't pay for Google what product do you use in Google what do you use search bar right and you don't pay anything let's just talk about Google search for a second but there's a whole another side of Google search what are you paying for AdWords what product do you see yeah what am I sell no what do you see when do you see the search bar or would you see something yeah I see that yeah and you see the AdWords user interface so while the rest of us are getting the product for free there's a whole another product the other side when we say multi-sided Market in multi-sided markets there are multiple value props delivered to multiple customer segments there are hundreds of Millions of Google users but there's probably less than a 100,000 adword buyers who are like paying for everything and they typically have different Revenue models so different products different customer segments different Revenue models sometimes different channels as well make sense you now just learn the definition of a multi-sided market on the other side Key Resources what do you need for your business to run for software company it's pretty easy EAS I need worldclass engineers and you could Define that to I need UI people backend people Etc might need some great marketeers what do they need to do what are the key activities they need to code or do I need a warehouse or do I need something else do I need any key Partners N I never need Partners well let's look at Steve Jobs again you know when the first iPod came out it was a great piece of Hardware but everybody had great Hardware the first big Insight was iTunes Great Piece of software had an ecosystem but what jobs was able to do is get partners who own content in a way no other normal human being could have done and most of you are in La so you understand the impossible job he did in walking into the head of a record label and saying you will give me all your content and and they were H and then you will give me and after about 3 minutes they would say here is all our content and then they woke up about three years later going how come he's making what the hell happened here that's the definition of a partner the at least the apple version and the last piece was what's the resulting cost structure no joke every one of you who are doing a startup needs to understand these pieces the most important pieces to be honest on day one is what's the value prop who the heck are the customers and how do I make money I mean like if you don't get that like what are you doing now uster Walder has actually turned this into What's called the business model canvas which you could download from the web and I usually have students start with multiple business models who could these customers be and what kind of channels could we use because paper's free literally you paste this to a wall you have little sticky notes it's a great thought exercise but you realize after doing this for about an hour that the these are just hypothesis now you got to know I love to use the word hypothesis because at Stanford they pay $50,000 to hear that word because they could tell their parents we learned all about hypothesis and they go oh great write another check to Stanford this quarter anybody know what the real word for hypothesis is effing guesses right they're just effing guesses we're just guessing it looks better now cuz they're organized on the wall and you know looks impressive I'm guessing but you're still guessing because you're still inside the building and that brings us finally to what the heck I'm supposed to talk about can I keep going all right it's customer development and that's the process of having the founders get out of the building and start searching for the facts behind those guesses business model design is you setting up my theory but customer development is how I get outside and take every one of those guesses and kick its butt around the country or the world testing whether I was hallucinating more than likely or whether I was correct at a vision and the customer development process is a four-step process customer Discovery customer validation customer creation and Company building when I first Drew this 10 years ago I had this Loop that said you know you're more than likely wrong but I never named it another wonderful Eric ree invention he said Steve that's the pivot I loved it Eric had a couple observations one is that what you're doing in this phase Discovery and validation is testing when you're building a product the smallest possible feature set that gets you the most something and I'll explain this in a second but there are two key ideas here it used to be in the dark old days of engineering that we would spec an entire product because the founder said so here's my product spec I believe I know what the customer wants so the natural outcome of my belief is a product spec I don't need to talk to anybody I've gotten funded I'm the founder today we know that's a going out of business proposition for those of you still doing that just look at your shoes right now um but it is a bad idea it's a good idea in a large company where you might actually know who the customers are in a startup doing that is insane when what you really want to do is still have that Vision but figure out what's the minimum possible piece of that product you could build to test some of your hypothesis whether it's to get orders or learn about the customer segment or feedback or quickly figure out if you're going to fail but the idea is to use agile engineering to very quickly get some feedback and the pivot is defined as a change in one or more of the business model canvas components remember I said you put up all those hypothesis the minute you learn something that says oh my gosh the customers aren't over here they're over here and you make a substantial change in one of those boxes you've just pivoted or you figure out wait a minute I thought my Revenue model was premium it ought to be direct sales that's a pivot oh but I ought to Chang the pricing from $9.99 to $8.99 that's not a pivot that's an iteration you've learned something but it wasn't a substantive change make sense so far so the pivot actually is the heart of customer development it's a subtle but important change in how we think about startups in the last 30 years a pivot used to require you to fire an executive it's not a joke in the old days what would happen is you would build the entire product you'd go to First customer ship you'd have this revenue forecast and the first board meeting everybody's high-fiving each other because boy was that product launch great and look at all the blogs we've gotten written up in or the press and everybody's excited and the VPR marketing is feeling good and had a sales of smiling because there was a lot of you know noise about the product six weeks later you have another board meeting this time the board you know still happy the trying to remember your names but they kind of remember it was good and meeting last time they turned to the VP of sales and ask her how we doing and she goes great pipeline now if you know sales that's where you're supposed to laugh because it's not supposed to be a pipeline there's supposed to be Revenue but instead she's going oh man that pipeline meaning we got a lot of leads or something looks really good and the board goes you know it's just been one board meeting in a large corporation again for Anderson mbas this is a huge deal in a large corporation you are hired to perform and execute a known job spec if you screw up execution of a known function in an existing Corporation you're an idiot yeah you're an idiot yeah yeah both of you are idiots think about it people have been doing this job for 30 years know how to do it it's a spec it's a vpa sales or something there's a known spec so we expect that you need to be replaced because it is a failure the mistake we've made for decades was treating startups just like that where in fact we're wrong there is no known spec and in fact what we never managed to say out loud is that startups mostly instantaneous customer feedback at least for web-based startups drives the feuture set so if we blow up the customer Discovery box what is it you're supposed to do you know put together business model canvas take out hypothesis test the problem test the solution figure out whether you're going to Pivot or proceed but when I first wrote the four steps of the Epiphany customer development was all about what I knew which was Enterprise software that was it that's what the book was kind of centered about and if you were in the web or you were in anything else you kind of had to fake it yourself which Eric Reese did wonderfully at IMVU what about medical devices semiconductors web mobile cloud and that's the second decade so let me quickly go through what that is when I was thinking about how to make customer development work for all possible configurations of startups I realized it could be done by special casing every possible startup and we would run out of atoms in the universe so instead I just kind of thought about this and said you know let's think about what's happened in distribution channels we have two types or two ways to distribute products in the 21st century how we used to do them physically by moving a physical product from a factory to a sales endpoint a store or or somewhere else but now we could also distribute products virtually either as a mobile app or just as bits and we could think of products as occurring in two different configurations physical products things you could touch and feel smell or virtual products which don't exist at all other than on your computer or or your smartphone in fact when you put these things together you find you have a 2X two Matrix to describe what I will contend to be almost any type of startup company let me give you an example physical product physical sales Channel food right can eat bits get it in grocery store cars planes steel solar panels bookstores consumer electronics historically physical product physical Channel some of these are now distributed in other places but those are historically in fact that box on the bottom right was basically all business was before the middle of the 20th century physical product physical Channel but then we started physically selling things you couldn't quite touch or eat life insurance stocks and bonds then in the mid '70s enterprise software then in the 80s and '90s shrink wrap software there were entire stores selling bits physical stores that GameStop is still around they may step in GameStop still what you're buying you're buying bits in a physical store seems a little weird but that's what we still do but starting in 1995 netscape's IPO my definition the beginning of the internet boom we could buy physical products virtually there was no physical storefront books shoes movies consumer electronics and now we could buy bits and feel great about spending money on things we don't even own and touch games on Zinga Facebook movies Netscape has moved up and streaming Kindle books Etc does this make sense you can now describe almost every possible company in saying is it a physical Channel virtual channel is the product physical or virtual what does this have to do with customer Discovery and customer development we now could break down the next generation of customer development by just saying is our product physical or virtual and for all cases you start with aser walder's business model canvas but then if you're a physical product you start figuring out Market size you spec the minimum viable product and the physical product you go start specking customers and channel and Market type you start extracting all the hypothesis you have from your business model but if you're on the web you're doing something quite different you're no longer just talking about hypothesis you're specking what we call the low Fidelity minimum viable product which is typically your first website or mobile app ASAP and you're talking about not get keep and grow customers but you're talking about your plans for acquisition and activation for physical product how you test the problem is you get out of the building and maybe you have a prototype maybe you just have great slides but you start talking to a ton of customers ibought eyeball but things are different now if you have a virtual product because right now you need to be worrying about customer engagement by building a web page or mobile app today now why call the low Fidelity version doesn't have to be every featured doesn't have to be fancy Graphics but I want you to start testing stuff now and you start start thinking about track trffic and competitive analysis you're a physical product you test the solution you create a prototype or and a product presentation and you actually test the solution with a customer if you're on the web you test the high fidelity meaning more fully featured minimum viable product and you start measuring customer Behavior you update your business model get your first Advisory board members and then you pivot or proceed to The Next Step most of the time you'll find you didn't learn enough but you might decide we do know enough let's see if we can get some serious orders or start getting scale if we're on the web and so the next step is customer validation get ready to sell sell take the data and position your company and again pivot or proceed validation physical product you develop sales materials you start hiring somebody to help you actually C close orders you have a sales Channel action plan and you're fine the road map that you think you'll need to sell but the web is very different you actually start putting together your demand creation tools for acquisition and activation you build a higher Fidelity version of your website or mobile app you build metrics and metrics tools and you actually hire people who could start analyzing the data in a physical product you're looking for early customers and you start selling in a virtual product you start getting users or orders and you start testing traffic Partners in both physical and virtual you do company and product positioning you assemble data validate your financial model and you pivot or proceed to see whether you're going to raise a ton of money and scale the company but these two steps are What It Takes we got five minutes to show you an example should we yeah okay so this is nice Theory but this physical versus virtual really helps refine what is it you're supposed to be doing in customer Discovery and validation let me show you a class I teach at Stanford The Lean LaunchPad class these students are Engineers they have eight weeks to not only build a product everybody teaches that it's to get out of the building and get orders they have to build the product and get orders in 8 weeks using customer development let me show you an example or two tell me when you're bored these guys were Machine Vision experts they were you know rocket scientists we could you know teach computers to recognize stuff they talked to 75 customers physically in 8 weeks I'll show you what they did they decided hey we're Machine Vision guys you know what would be cool let's go build a tractor that can mow the lawn itself and I went your parents sent you to Stanford for this you're going to build a lawn Mar you got to be king oh but it's going to be cool it's going you know you're going to drive around there was like you know every boy Vision oh yeah okay well what do you use it for golf courses and people with big Lawns okay and so great that's who your customer segment is get the hell out of the building well can't we build it somewhere oh you got to build it too but get out the building and start talking to people so they started and that was their idea they did in the first two weeks 20 interviews six site visits and they started talking to people who did both mowing Stanford Golf Course Parks Etc to Toro dealers user of backyard mowing systems but they also said you know let's try a different customer segment while we're at it we don't think anybody be interested but let's talk to people that' be interested in weeding you know Farmers you know who that would want a robotic farming machine but cuz we beat them up a little hard said talk to some other people and so they went out and as you guys know in California the Central Valley isn't that far from Stanford it was about 160 mil round trip they went out and talked to a bunch of people whole couple of farms Bakersfield um Selena Valley got some people on the phone in Nebraska Etc and remember here was the first business model canvas right we made them take ostar walder's canvas tell us what your value proposition is you know who are your customers how are you going to make money what's your Channel all the things you would expect on day one from Engineers we're going to sell the hardware you know we're going to sell to publicly uh public or commercial used green spaces like the golf courses um you know our key resources resources are of course Engineers with autonomous vehicles great but while you're out there why don't you find out some other stuff and they start discovering that you know while it's great to be thinking about a robotic lawnmower they found that weeding in organic farm Fields is a huge problem why because farmers in California need to hire Crews of hundreds or thousands to manually because you can't use chemicals pick weeds multiple times as a crop is growing 1 to five weedings a year and it's expensive and has big risk of food contamination so they had a decision to make do we want to be in mowing or did we want to be me weeding and would an autonomous vehicle solve this problem and so they decided you know what we think that data is telling us we ought to be in the weeding business so everything in red is their first pivots big idea pivots change of one or more of the business model canvas components they now said we're in the farming weeding business and our partners are going to be a dealers and service providers and our whole value proposition just changed now you got to understand any engineers in this room right these guys they weren't just Engineers they were Stanford Engineers who could do anything so I said great you guys found out a lot of stuff where's the robot they said Professor BL don't build a robot and like a year you know maybe at the end of the year I said no no no where's the robot I said maybe you didn't hear us I said no no no maybe you didn't hear me let me explain something you've probably never seen at Stanford it's a be be it looks like this a be and there was like I was speaking in Polish because they went what why I said B it's you know you'll show this to your parents it's okay you're gr students I'm sure that no be we can't we're not going to take the CL what do you mean we can't maybe we'll have the robot by the end of the semester I said next week what no we're quitting we can't it can't be done I next week b b they walked out the most pissed guys you've ever seen in your life yeah oh I got off on that because I knew what would happen they showed up with a carrot bot next week 100 hours hours no sleep entire team they probably failed every other class yeah oh yeah and they took the carrot bot a Machine Vision data collection Pro um platform with monochrome and color cameras laser Lin sweepers and coders onboard data acquisition in fact they were about to mount a high power DARPA laser before I stopped them thinking they'll kill fluffy or a farm worker and said this is good enough thank you very much and they got out actually started taking real measurements um when you push somebody this is what they do if they're excellent um and so they updated their canvas you know key resources are now about IP and patents and video classifier files they're now thinking that we're kind of narrowing um it's a weeding service provider maybe conventional farmers and we think we're doing direct service we're no longer just selling Hardware maybe we'll rent it so their business model is getting a little more sophisticated and they were now showing us all pictures the farm fields and look at the weeds and look there's a you know there's the plant and there's the weed and look and you know they're buddies with farmers and here's our competitor and you know they're drawing customer hypothesis and you know they're now showing you pictures of Cliff the farm manager and you know all right all right now we're now we're and by the way this is just week four and more you know there's me and Marty and you know Doug you know the grower and and their business model canvas okay we think we understand midf large organic farmers and we're still doing direct service with equipment rental um we still got to work on patents and have still some technology issues and then just coincidentally in California the world a Expo happens these guys dress up in denim and boots and they show up and they do interviews at the shows they figure out their revenue stream you know they're still updating their canvas and then what they finally find out and I have to tell you for me while all this was fun here's something you would never have figured out as smart as you are the farmers taught them is listen you could try to sell us Hardware at 150 Grand we buy Hardware but we'd love to pay you guys per acre with a modifier according to weed density the farmers taught them how to price the product they said you do this and we'll we'll buy this stuff for you forever now you should know the goal of this was not to make them a business this was teaching them a methodology now these guys happen to ignore all that and just got funded so just f um should I show you one more example or would you like to one more example now you got to understand I picked some Hardware guys because listen this is a no-brainer for software right you know doing the lean process is pretty easy for software but people said well Steve this never worked for Hardware there was one let me show you another Hardware team so out of the 14 teams I'm going to show you the two Hardware ones these were guys um um who were also hardcore Hardware Engineers who decided to go after breast cancer uh because they were going to build a device that had um um much better resolution and much better um uh detection than traditional mamography so the first thing they did was a technology comparison and I agreed that they could put up a little blue bar over their stuff which and that initial says if I told you I would have to kill you um in terms of their technology comparison but the technology truly was good they did their first business model canvas you know who are the customers it's going to be radiologist in hospitals Capital Equipment Sales oh it's Steve this is easy we'll just build this thing and we'll just sell this to doctors and hospitals and put all the mamography people out of business okay great good good luck guys see you later so their first test which we make people get out of the building for first thing we tell you test your customer segment and value prop those are the first things if you're not testing those I don't care about your Revenue good you think that's your customer get the hell out of the building so first these are finding the right customers so here's who they talk to Leading doctors and patients and technicians and our Hospital managers and we made them draw in this case because it was fairly complicated remember these are Engineers I've never been in a hospital doctors whatever first week this is what they drew here's how hospitals make decisions boom boom boom and they said oh my God this is pretty complex and there are several sabator that was the word we taught them people who don't want you to succeed because it threatens your job their job and they said boy there are a ton of sabots in here so they said okay let's look at Private Practice you know private breast radiologist a peer doctor Etc and they said hey Private Practice faster adoption rate attractive value proposition so their business model canvas now kind of looked like this um you know they were going to go after OBGYNs and private practice uh people and now the question was how do you get to them so getting to the customer they said so what's this sales and marketing stuff we just kind of laughed and said okay you need to interview some more people so the next week they went out and talked to people who knew something about sales and marketing and FDA clinical trials and they quickly realized that market adoption for something that was going to replace mography required all these things how do you get to the American College of Obstetricians and gen gynecologists how are you going to get the key opinion leaders medical journals continuing medical education conferences and breast cancer advocacy groups I thought this was a pretty darn good slide and they said okay we're done I said b b I said what do you mean we drew the diagram this is it I said well this doesn't mean anything undergrads could do this they were insulted I said tell me how you're going to do each one of these in detail he said well wait a minute this is like week three I said well that's okay week four I want to see this all right so they decided okay to get to the American College of uh gynecologists this is what we're going to have to do to get to the key opinion leaders this is what we're going to have to do to get to the medical journalists this is what we're going to have to do to get to continuing medical education this uh conferences this breast cancer advocacy groups this so they did one more level of detail then for direct sale then for sales we could either do direct sales or Distributors I said well you got to pick one they said okay we'll do five dedicated salespeople at first and then we'll continue with a a core group of salespeople but use women health care equipment distributors and so they put together a pricing strategy that customers and investors said they'd pay they put together a customer work workflow that now they said what if we replaced mography completely well the breast Radiologists would lose their jobs technicians would lose their jobs but hospitals would go yeah and so they said well what would it take to do that the insurance companies would love it and the American College of gynecologists would love it so maybe we should start thinking about what if we actually attack this Market head on um the OBGYNs would like it the patients would like it and it would be great for their company and so they decided to see whether they could do that um updated their business model canvas um with the new things they needed to do looked at Distributors per use fees uh and marketing costs and they learned how to reach the customers and now they wanted to know how do they build a company now they talked to some more people and realized that they needed to manufacture the device they needed to know about reimbursement reimbursement talk about a multi-sided market medical device who's the customer artificial hip who's the customer really you put in the hip into them patient is the patient the customer right who who's the customer great really the insurance company well how do I get into the patient doctors who are the doctors who are the doctors you said insurance companies who are the doctors right well who are the doctors right who who's the hospital the answer is in some markets multi-sided means lots of sides not just two remember the Google example medical devices wait a minute there are doctors there are patients there's the hospital there's insurance companies Because unless you have something called the CPT code for reimbursement oh by the way great so let's just cook up we'll get the insurance company let's just cut up a medical device in our back room and go implant it can we do that in the United States no you need the FDA boy there's another side there need something called a 510k for approval all of a sudden for some markets it's really complex and these guys are just about to find that out first of all they discovered something called CPT codes for insurance reimbursement then they've realized uhoh the FDA wants us to do clinical trials look how much that cost right wait a minute 7.2 million 20.5 million bucks just for a new medical device isn't even going into your body right and look how long it takes 48 63 69 months and how are we going to raise money so they put together a financial and operations timeline now by the way these are guys who had never seen anything outside the building right eight weeks put this together so their business model canvas went from one to two to three to four to five to six to 7 to 8 to 9 Etc one last thing we made the students blog their progress which all you might want to consider even though we saw them week to week we really wanted to see what they were doing outside the building so we had them use WordPress to tell us all about a narrative of how they were doing and a business model canvas to show us their progress so the first guys went out and published their interviews they didn't have to be fancy just tell me what you were doing and photos and videos of them in the field some of the other guys did surveys the web people publish your ab tests other people interviews and photos comp of analysis key findings AB test results by the way there's one other team I need to tell you about another team came in front of us a complete web team by week four they only had like 300 people having used their product they were doing a Groupon clone on the web and I did you know what the right B right and they said but how are we going to get more users and I said you're entrepreneurs I don't care how you get users but you need to like crank this up by a factor of 10 or 100 I don't want to see 200 emails out you need tens of thousands of people tens of thousands how are you going to do that I said you're entrepreneurs figure it out 1 p.m. that night I get a call from the head of IT of Stanford University your students have have hijacked the Stanford email system and they've sent out 16,000 emails before we shut down the system and I went oh I'm so sorry yeah man did I highfive them in class but I went oh just not allowed to do that right when when we're talking about entrepreneurs see the rules right you see those rules if you do you're not an entrepreneur okay so they were blogging all this stuff strategy Etc canvases um and just as an aside turned out all this stuff was great for not only the teaching team it dawned on me that if you were an angel investor and you put some money in startups that poor startup to keep you a breast of what's going on either has to have coffee with 15 Angels or you have no idea what's going on so I was having lunch with a VC friend of mine Sean Carolyn at menual Adventures who's a partner wanted me to meet some other entrepreneur hear what he was doing and as a favor to Sean I did and then I said hey you know let me tell you what happened in class this stuff was really amazing we were just using Wordpress boy imagine if somebody built some real software to do this and the entrepreneur Ben maap and looked at Sean and Sean looked at Ben and Ben the entrepreneur said to Shawn this is a much better idea than mine and and Sean said well and Ben said I'd like to do it only in Silicon Valley Sean took out his checkbook at launch wrote b a check for a quarter of a million dollars and the lean launch Lup is now taking beta customers I've used it in my first class um and it's real so if any of you want to do this um that is blog your progress share it with investors and other entrepreneurs it's actually quite a useful process so I'm done um except for one more thing um the uh lean launch FL launch pad class was just adopted by the United States government the National Science Foundation any of you use the NSF or get NSF grants gives scientists and Engineers 18,000 grants a year gives out7 billion of your tax money they just decided to set up an incubator they're going to take a hundred of the best teams out of those 18,000 pay them 50 Grand to come to Stanford to take our class and they're going to send 25 teams a quarter and the first teams show up on Monday so uh I just thought I'd so thank you for hanging out so long um I think I've overstayed my welcome but I'm if any of you are silly enough to want to stay I'm happy to take questions from the audience and there's yeah people have questions you can just uh form a line behind the microphone come on come on up here or for those you want to get out of here now um feel free to happy to answer a question about anything going going once how do you get a c you don't take the class yeah so the all the slides everything I've ever presented is on slideshare.net blank um so every possible slide deck including this one are up online um anything you ever wanted to see I've open sourced all my classes all the curriculum all the syllabus um if you're interested in how this class really worked in detail on my website is a category called The Lean LaunchPad just click on that category I blogged every session of the class with the links to the student slides of what we taught and what they showed up and presented question first of all thank you so much uh second of all um we're we're about to launch um a mobile app that we've been working on for for a lot of months um it's going to be Android and iPhone and it's going to be pretty awesome in productivity our biggest question right now is is is two of our our competitors in the space are Evernote and wonder list and they've done a great job Y and uh Evernote got to a million users in 400 and something days and wonder listed it in like 300 days our goal is to do ours in in 200 days but the challenge that we're having is we don't want to release it yet until we get a chance to do a lot of uh customer development so we we've already decided to have like a giant party with like 500 of our friends and have them use it in like a private beta that way all the negative comments come here before they go into the Apple Store like one star when do we do the Mashable Tech crunch because we have relationships there that they can launch it with the whole beta invite a great question when is the right time to do that it's a great question so um let me preface all the answers I'm going to give tonight is with all due respect it's one asshole's opinion okay now truly there are no facts here they're just opinions so take them as as there is um there's one thing about press that's hard to remember when you're passionately doing this getting business press is kind of like launching an ICBM you can't recall it and when it impacts the consequences are pretty severe and and um Eric Reese if he hasn't told you the story sometimes cringes when he does when he was in my class him and his partner will Harvey were starting IMVU and they came in one day so excited that they just got wired on the phone and they were wired was doing a story on them and when will and Eric got done with me they couldn't sit down for a week and they went what's wrong wired it's the big deal I said well what was your positioning what did you tell them oh we're the best AOL add-on you could ever buy now AOL was the big thing you you know back then my point is their positioning was changing literally on a daily basis and if you want to talk to the Press now my advice is the the Uris is has your positioning that is who you are what features you're talking about what users you're going after been stable for several weeks now in the real world I would probably say months but no entrepreneur nowadays has that patience but your positioning and your Str stry should not be vibrating like brownie in motion because whatever you then say is just going to be wrong and embarrassing but you don't unless your Apple get multiple bites at the Apple so to speak your positioning will be locked by what people write about you when you go after that first launch am I making sense and and so it doesn't mean you're going to be wrong it just means do we have enough data that this thing has stayed the same and that's that feedback loop of the brilliant thing you're thinking about the test I would do just as a fun test for yourself write down what you would say to Tech crunch before you talk to the 500 people then talk to the 500 people and go holy are we glad we didn't talk to am I making sense does that help all right uh um good evening Steve uh this is this is a question I typically ask everyone because you know people have different perspective uh what is according to you uh lean for a social product because uh you know to kind of explain my thought there's nothing like a specific set of you know features that somebody is going to be you know uh uh happy about you know when you're releasing a social product because he himself doesn't know the experience it's a new experience that you trying to give someone and until there is an ecosystem that's formed a set of features might not really make sense you know some kind of a community or know some kind of an ecosystem that's found where somebody can experience that feature with others you know that that set of features might not really make sense so there's it it becomes difficult to go and ask someone if if you know such an experience will really be useful for you or it'll be really great somebody people sometimes people might tell that yes it'll be great but until you go and test it out you you never know it might really you know go the other way so for testing it out again you know you need that ecosystem and you need a minimum set of features which can really you know uh help give qu so what is your thought with respect to lean approach for social products so you just defined it and maybe you didn't want to hear it for yourself it lean works the same way it's just that the ecosystem you need to test is a little broader if if the answer you want to get to is therefore I need to launch the product to the entire ecosystem you've come to a conclusion without figuring out what is a test I could run so let's agree that in some social products you might want to test something more than a set of users you might want to see is this thing viral what happens when is is there a network effect what happens in the network but the but the excuse usually is therefore I need to launch it and see I I just think that's a answer and I don't mean that you're giving me that though you might um um I think the challenge to you is great I agree it requires an ecosystem how do I go test the ecosystem without launching the entire product and peeing in my pants in front of the entire you know world when it's almost irretrievable and the the onus back to you is am I creative enough to figure out how to construct those tests am I making sense I mean I'm agreeing with you you've defined the problem but I'm afraid I hear this question a lot because then there's a conclusion that says see we just need to launch it I just believe that that's just a weak answer and I'm happy to brainstorm later if you want to think about the ways to do that but there are ways to test so you know which part of the social network do you want to test how much do I need to test is the answer binary that I could get no data or I could get some I just think that that's a cop out does that answer question next if anybody yet yeah hey um just want to say thanks a lot um and I'm hoping to get your opinion on uh how you think going about uh entering a market that's pretty litigious uh and doing it in a lean fashion what's what's the best way to go about that we just don't want to you know shoot ourselves in the foot give me an example um online gaming like online casino environment like the poker scene yeah yeah you you know um people who um volunteer for war zones um should not expect to come home alive I mean um you know which part of full tip Tilt Poker did you not understand oh no absolutely I mean but but really like the long that has nothing to do with lean that's an intelligence test um and no no I I don't mean to Dish you but but but but you're asking this has nothing to your question is nothing to do with lean it's about risk reward Etc about any type of business you're truly consciously which is good going to decide to enter a war zone because you've decided There's an opportunity there given that what's happening and I'm not denying that there might be but you now know the risks and the risks are how you prepare for risk and a Wars you buy you know bulletproof armor and whatever and in your case it's what country has no extradition you know treaty no I'm dead serious I mean I would be thinking about all those things about that's true we we are no I know you are right so so but but don't make this a lean thing this is truly a I understand what the risks are G I hope the reward is Comm measuring with you know 5 to 10 in a federal pen um and I'm not being factious I mean you're picking a business that the US government has now declared for whatever reason something that they're not happy about maybe some large donors from Las Vegas don't want to have that happen I and that's not probably a a bad hypothesis am I making sense no absolutely yeah and so I don't mean to to I mean if I were you and I were your parents you know I'd be like sending you away for a while in fact in fact the Marines in Afghanistan are probably looking for you I mean now don't laugh I mean my career started you know during the Vietnam War when I volunteered to join the Air Force so I I did the equivalent but um I could just claim stupidity you seem a little smarter than that so no but truly all the things you're thinking about I would get all the lawyers you could find I would find uh people who wrote the law who are now retired I would you know be hiring Consultants or whatever but but I would truly understand the consequences about the one you just picked because the government's declared war on you um that's my two absolutely thank you very much in one so uh first off I'm probably not the only person by a long stretch I just want to acknowledge you because I've been an entrepreneur since 1994 and I feel like I just got whacked in the head and it in a way that made me feel like all of a sudden I understand my own value you know you know like I I've been trying to I'm like well I'm not quite like that trying to fit into the big company thing and actually I'm a phenomenal asset in a startup and I'd be a nightmare in a big company me too so you know so I I mean it's like you just pulled a gigantic thorn out of my foot or something I let me make you even feel better or worse um couple of things one is I believe that there's a genetic pattern of there were you know when we were on the Savannah as the tribe there was everybody who was intelligent who said hey the grass is green look we have antalope and whatever and there were always the bunch of crazies who went what's over that hill and 90% of them never came back right over the hill was big scary thing but about 10% of the time they went hey there's the antalope come up and fall down at your feet over here and that's why that genetic pattern I think continued as a recessive but important Gene in human race the other that's my theory but the other Theory which I actually ask classes and I you guys don't have to raise your hand but there's another pattern about founding CEOs just do the test you can raise your hand if you want how many of you are founding CEOs or you know Founders how many of you have come from dysfunctional families right you don't have to raise right dysfunctional families unfortunately are the world's best creators of Founders found Founders because the survivors not everyone most people don't survive that process but for those of you who are who are here you know what it's like operating in a permanent state of chaos and bringing order out of Chaos in your life some of you were going holy how did he know and they're looking around going does he figured out that was me um turns out there's a higher percentage of CEOs who come from dysfunctional families it's the only time in your life and probably the first time in your life that you have an extreme competitive advantage over normal people big idea it's truth and two is it will explain why you will personally up your company when it becomes successful because here's what happens Founders from dysfunctional families are wonderful Under Fire smoke battle things changing it's hey it's a normal say I grew up like this I didn't even know what the hell was going to happen when I opened the door when I went home that's how I grew up but when things start going well in a normal company you need to start doing the same thing dayt day and be repeatable and that drives those people crazy to such an extent that they will throw hand grenades into their own organization to keep chaos going anybody ever work for those people yeah now you you can understand who you're working for and why any of you are those people right no seriously if you are just understand it's no longer it's about you it is about a type congratulations just now understand that as you grow up and and either age or or you know or maturity you need to understand who you are what it gave you that was great and also what it's gave you that could be destructive in all forms of your life so I just wanted to I don't even know how we got there from there but it's I was with you the whole way yeah you know I got to tell you that was me and until I got to a certain age I went wa that's what makes me great and then I realized look at all that broken glass I've left how the hell did that get here um and then as you get older you realize that was a good part but you need the other part in your life as well now what was your question so my question actually I just want to add one thing you said about the the the entrepreneur Jean I I we can argue this later but I genuinely believe that women Drive Evolution yeah and I have noticed that girls like guys who are a little crazy looking so I think there's a genetic reason all right what's the question the question is I just want to hear like your was your Epiphany I want to hear more about when this hit you what it was like or where it was in the classes when you went in and which part the customer development part or the U what the difference between like you know startups and big companies and how people fit in both so um so the four steps of the Epiphany was the process of customer development uh and it was like inventing strength Theory without understanding the rest of physics that is if you really think about it again we haven't any of the mbas who still stayed um because I'm going to tell you guys something that's really might be relevant for your careers any might know when the first MBA was issued Harvard 1908 Dartmouth did one a little before but didn't call it an MBA anybody know the first modern Corporation East India Company about 1600 the Greeks had companies and Romans but the first modern Corporation if you squinted was the East India Company so 300 years between the first modern Corporation and the issuance of the first MBA the first question people in business school ask is how the hell did they have companies without mbas the second thing is whoever that was at Harvard was brilliant because what they did was simply concatenate 300 years of business knowledge and make a management stack for execution and administration masters of business

Channel: Lean Startup Circle LA

Views: 93,926

Keywords: leanla, lean startup, four steps to the epiphany, steve blank, ucla, los angeles, tech, startups, software development

Id: 6t0t-CXPpyM

Length: 93min 29sec (5609 seconds)

Published: Mon Feb 20 2012