My Takeaways from Steve Blank’s Talk at UCLA

Steve Blank’s anecdotes and lessons that he’s shared with us through his blog have helped many of us (and by that, I mean entrepreneurs) figure out our businesses better and provide that wake-up call. For that, he has a sense of mystique about him and you can tell that the startup community treats him as a sort of oracle. So given his reputation and the fact that I’ve been following his blog quite a bit, you can imagine how excited I was to hear that he’d be presenting at UCLA on Thursday, October 6! This was one opportunity to hear what new wisdom he had to share with budding entrepreneurs.

The title of the talk was “Customer Development: The Second Decade” but none of the information presented was altogether too revolutionary if you’ve been keeping up with his blog. To wrap up what the second decade entails, it’s to note that goods are no longer necessarily confined to physical products and sales channels are no longer confined to physical locations. The internet has effectively changed all this and it’s going to be even more true with time.

But all of that came later. Before even moving into a discussion into the actual bits and pieces of the customer acquisition process, Steve Blank first touched on the 6 types of startups that most companies will fall under and are as follows:

  • Lifestyle Businesses: These are businesses that work more for the passion than for anything else since their goal isn’t to retire rich as much as to obtain enough income to live on. Usually, these people are working with known customers with a known product and the example he gave was a surfer who offers people surfing lessons and, when he has enough money to live on, continues with his passion for surfing.
  • Small Businesses: Most small businesses you see fall under this category. They consist of people who are self-employed in some trade or business and work to feed the family, but not necessarily from doing what they love. Like Lifestyle Businesses though, they are operating with known customers with a known product. These businesses include the mom and pop stores or the small accounting firms that you see here and there.
  • Scalable Startups: This category is where we really begin to get into what we usually think of when the word “startup” enters our heads. Oftentimes, the tendency is to turn towards Silicon Valley’s tech giants. Many of the companies in this arena are some of the most adventurous of the lot as they try to solve unknown problems for unknown customers. Their models have not been proven, so their goal is to find a repeatable and scalable business model and thereby grow the startup until it becomes a large company.
  • Buyable Startups: This type of startup isn’t unlike the Scalable Startup in that it’s trying to find a business model, but it isn’t necessarily scaling. Their ultimate goal is that once they find a good, repeatable business model, their next step is to sell to a larger company. Oftentimes, you’ll see them fall into the domain of webapps, mobile apps, or plain old enterprise software. They also tend to be low cost and they don’t necessarily need to grow big before selling.
  • Social Startups: As we’ve seen recently, there’s been a movement towards this particular kind of business model where people work towards a social cause while trying to make a profit.

One of the things that he did not consider to be a startup was corporate entrepreneurship, and that was because of a nuanced factor that separates startups from their corporate counterparts. While large companies execute upon a known business model, startups are trying to find that repeatable, scalable business model. Startups are working off what is, at best, a hypothesis, and so, must continue scouring the business and customer landscape until they find something that actually works.

This sort of searching and pivoting that startups engage in runs contrary to what large companies are all about. And if you are planning to try something like this within the confines of a large company, expect a lot of resistance from upper management. It’s not surprising to see why when you remember what I said above: that large companies operate upon a known business model. They’re not the types of organizations to embrace uncertainty, preferring to go with a model that has proven to be profitable and is documented as a detailed, well-planned process.

Even though many company infosessions I’ve attended thus far all proclaim that they have an entrepreneurial culture, I’m very skeptical of that claim. Given the sheer size and culture of large corporations, there’s a tendency to execute business ideas in the same manner; it’s how they’ve always operated and it’s always worked. Because of this, there’s not really many opportunities to take big risks. If you go upon a completely different track and fail, it wouldn’t surprise me if they put your head on the chopping block. To them, the idea you’ve pursued is so outlandish that there’s no way it could possibly work. However, if you stick to the corporate guidelines and still fail, well, at least you tried your best and it could just be bad luck that did you in. After all, the business model has worked before and has a proven track record.

So in large companies, there’s really no room for the kind of disruptive innovation that you see in the startup world. Now, these companies don’t necessarily need to engage in that disruptive type of activity; they’re doing one thing and startups are doing something else. But I do think it helps protect them against the possibility of competitive myopia from disruptive companies who emerge out of left field. One doesn’t need to look far to see examples like Blockbuster’s demise from being blindsided by Netflix or Nokia’s downfall as a result of Apple’s surge in the smartphone market to see good object lessons in competitive myopia.

So now that we’ve clarified how startups operate in the unknown and how large companies operate in the known, the next is to figure out how startups work in their process of searching for that repeatable business model. One excellent tool that Steve Blank tossed up for all of us is Alexander Osterwalder’s Business Model Canvas:

Click to enlarge.

Now this is something that I had seen before through my Introduction to New Ventures Class with Professor Helena Yli-Renko, but it was nice to see another entrepreneurship professor affirm its usefulness. The diagram links up the various components of the business together, forcing entrepreneurs to think their ideas through.

Basically, what the chart allows you to do is to lay out your hypothesis. And like any good scientist, once you’ve established your hypothesis, the next step is to get the plan validated. Not by VCs or angels or other investors, but by your customers. The goal is to see whether your model is feasible. A business plan? Well, the quotes that Steve Blank put up sums up what I think about business plans:

No business plan survives first contact with a customer.

When you first start out, the goal is to test, then pivot if needed, proceed otherwise, and test, test, test. There will be tweaks, there will be detours, and there may even be dead ends, but you can roll with it and keep moving. None of this seems orderly and there may be a lot of detours along the way. But that’s the seemingly chaotic nature of startup life, where nothing is ever quite certain.

But this is why I’m drawn to starting my own venture. Life doesn’t unfold like a business school case study. It’s unpredictable, customers are capricious, and there’s a lot of work involved in untangling the strands of order amidst the chaos as you try to figure out what people really want. But it’s also fun and there’s nary a dull moment. Fearful and panicky moments yes, but never dull. Even after experiencing the ups and downs, it sure makes you feel alive! And that is perhaps the best feeling of all.

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