What does it mean to be an entrepreneur?
In this month’s Windback Wednesday series, we’re exploring entrepreneurship: how to brush up on your business skills, where to get venture capital funding and more. In this podcast, I speak to Steve Blank, an associate professor at Stanford University engineering school, a lecturer at UC Berkeley Haas Business School, Columbia Business School and the University of California in San Fransisco (UCSF). On top of all of that, he is also a thought leader of the Lean Start-up movement.
I met Steve last week at a SynBioBeta event at Imperial College London. He gave a very engaging key note speech on the Wednesday evening, giving us a flavour of what a Lean Start-up business is. He put several audience members on the spot, asking them to sell someone else’s “idea or concept” to neighbours, who always (as per Steve’s instruction) said no thanks. They said no thanks, because of who was doing the selling. Steve was trying to make the point that if you, the scientist, have an idea or an invention that you think could be commercialised, then you, the scientist, need to go out and sell. You can’t hire a VP of sales or a marketing manager. YOU know your invention better than anyone else, YOU need to leave the lab and sell YOUR idea.
What Steve was trying to show us is that the idea of basing a start-up business on a large corporation won’t work. Large companies have thousands of staff, all working on various projects. They have rules, systems, policies, procedures and a business plan in place because they know that this will work over and over again.
This isn’t the case for a start-up, as Steve has learned in his 21 years as an entrepreneur. In the past, scientists were told by investors to write a business plan with a 5 year projection and then execute said business plan. If this worked for large companies, it should work for small ones too, right? And if all went wrong, this of course, wasn’t the fault of the business plan, it was the fault of the scientist. Failure couldn’t have come from the plan, because the plan was solid and funded by venture capital.
This, said Steve, was where things were going wrong. Instead of attempting to execute, start-ups should be searching. And searching cannot be done in the lab. This was the key message to take away: an invention won’t turn into anything with commercial value unless you get out of the lab and speak to people.
Of course, in reality, the most successful start-ups ignored all of this advice from investors. And as Steve says, “no business plan survived first contact with customers. You could write everything you want down, but the minute you get out of the building, nothing works like the plan.”
This heuristic was the basis for Steve’s book The four steps to the epiphany, which kick-started the famous Lean Start-up movement. What this book articulated is that all you have in a start-up is a series of untested hypotheses, “which really is a fancy word for ‘we’re just guessing!'” Business plans weren’t much use because for a start-up it is difficult to know exactly what your product price should be, or who your customers are. “So my observation was, why don’t we just get out of the building on Day 1 and start iterating and learning about whether those were valid hypotheses or not.” In other words: a Customer Development Process.
Steve likens this approach to the scientific method: set up some experiments to test your hypothesis, go out (leave the lab – don’t get someone else to do it) and collect some data, get some insight, and then if necessary, modify your hypotheses. And repeat.
Steve’s student, Eric Reis (best-selling author of The Lean Start-up) said that the best way to match your Customer Development Process was to use an Agile Engineering Process. This means that “instead of building the entire product on Day 1, we can actually build the product incrementally and iteratively.” Alexander Osterwalder later came up with the Business Model Canvas: a way to frame all these hypotheses. A combination of these three things: the Customer Development Process, the Agile Engineering Process and the Business Model Canvas, add together to make The Lean Start-up.
My question to Steve was: what if, during the customer development process, scientists get resounding “no thank-yous”? According to Steve, it depends on the type of start-up you’re building as to how you deal with this.
You could be building a start-up in an existing market, and are providing something at a higher performance or something cheaper. In this market you’ve already got an audience to test your ideas on. If everyone is turning your ideas down in this market, maybe “you need to be thinking kinda hard about whether you’ve got the right product-market fit.”
The other option is you’re entering a new market: you’re a visionary solving a need that might not even exist yet, where you have to make predictions about your future market. Rejections in this market might not be a big problem, but “you need to find out what is it going to take for that market to develop.”
(There is another type of start-up is a clone business, where you take an already functioning idea from one country, and set up (politely) your version in another country.)
“The whole idea of getting out of the building is to match your view of what the product is to the market. And those two things, the product-market fit, are sometimes the two most important things that you need to discover.”
This searching is what Steve recommends scientists do before they even begin to execute a plan. “If you’re a very very smart researcher, you might think “well I’m the smartest person in this building, obviously I know all the answers.” My response is, “OK, let’s agree you’re the smartest person in the building, but you’re not smarter than the collective intelligence of your potential customers, partners or funders. And therefore you need to go out and get that data.””
But how do you do this? How do you turn your idea into something that could become a commercial product? “Well the first thing I would do is tell them to buy Osterwalder’s book, and mine!” the second thing he suggests is to brush up on the business sector that you want to sell your idea into. Don’t go and hire a proxy: “this is where these things fail. Is that you personally need to get involved and understand that industry and those people you’re going to be selling to….you need to want to be looking them in the eyes and watching their pupils dilate when you describe what products and services you’re going to be providing them.”
If you think you’re right, and that you’ve come up with the best thing since sliced bread, and you’ve pitched the idea to the right people – hey presto! Funders will jump all over you to help you get that idea off the ground. “The reality,” Steve says, “is usually not that pretty. The reality is that the people you think should love this….already have this or they’re not interested in the features you think are important.” This, Steve says, is the learning curve that every single entrepreneur has to go through. Do this before you start raising and spending money, then you already know what the right path is and don’t need to waste investors’ cash to learn you’ve got the wrong end of the stick.
As we all know, time is money, and as a scientist you are well aware of this – balancing umpteen plates in the air is never easy. Add onto this that you want to go out and build up a business, it’s no wonder that you might think of hiring a VP of sales to do all this talking and research for you.
“I think it goes back to what is a founder and what is commercialisation.” At this point, you need to decide how committed you are to your potential product. If you’re just a scientist with something that you think might make some money, but don’t want to go and find out: stay in the lab and continue with your wonderful research. But, “there’s another set of researchers, but they’re a small segment. Let me emphasise, it’s not everyone who will want to do this. It’s the crazy ones who should want to do this!” By crazy ones, Steve means the artists, and I’ll leave you with his final words.
“Artists have something inside of them that they want to bring to fruition, and actually see tangible results of: it’s not just thinking about music or listening to music, they want to make music. Making a start-up and making something commercial is exactly that same feeling, and if you don’t have that passion for it, you shouldn’t get engaged. But if you do have that passion for it, you will figure out how to split up some time, take 6 months off or take a sabbatical…. [and] you will find, once in your life, you will experience what it takes to actually do a start-up. But this isn’t a job, this is a passion.”
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