Like many folks in the startup crowd, I’m a reader of Eric Ries' blog (some links), and I’ve read Steve Blank’s Four Steps to the Epiphany. What I didn’t know is that these guys have joined forces to build a movement they are calling “lean startups.” After attending the Startup Lessons Learned conference last week, I now believe this methodology is on its way to making a major impact on the world of entrepreneurship.
Lean startup methodology has a lot in common with agile. But where agile applies to software, lean startups applies to customers and markets. Customer discovery, validation of markets, iteration on product, and intensive customer feedback are all part of the lean startup.
The energy at the conference reminded me of what Ruby conferences were like a few years ago. Charismatic, passionate, opinionated leaders draw together a crowd of strangers; and then those strangers look around to realize they are surrounded by people that share their passions. It’s the birth of community.
I took some notes during some of the talks. What follows are some of the quotes I jotted down, and some commentary.
Randy Komisar on Pivots
Randy Komisar wrote Getting to Plan B: Breaking Through to a Better Business Model. His thesis is: your first idea never works, but that’s ok. What’s really important is getting to the next idea, and the next and the next, zeroing in on something that will work - and all of this as quickly and as cheaply as possible. Transitioning between plans is called a pivot, a word that was in heavy use by most of the speakers at the conference.
Some quotes from Komisar:
- “Plan A never works”
- “‘Lean’ means get to the right answer with as little time and money as possible”
- “I invest in people irrationally committed to a purpose” - Founders believe in a vision; maximizing their personal wealth is a side-effect, not a primary purpose. Being an entrepreneur is not a good way to make money, even though some people strike it rich.
- “Leap of faith question” - The premise your startup is built on. What question can you ask, where the answer will make or break your business? For example, “People will pay more for outstanding design” might have been Apple’s leap of faith in the 2000s. “People will switch to using personal productivity software on the web” could have been 37Signals’ leap of faith.
- “Once you decide to change, you will always wish you changed earlier”
- “Everything is derivative - that’s not a bad thing. Steal liberally”
- “We’ve got to zig and zag through the realities of the opportunities in front of us and the information they are giving us” - Founders aren’t founders because they know what to do. They’re founders because they can figure out what to do, quickly, in the face of rapidly changing information. This is why, for example, fixed business plans are of no use in a startup.
During the discussion with Randy, Eric Ries used the term “success theater” to describe what happens in boardrooms when plan A starts to go south. Instead of admitting “what we’re doing isn’t working, we need to try something else,” founders dress up the trajectory of the business in false clothes. This doesn’t help anyone in the long term.
Pivots are what startups do. The sooner that investors, founders, early employees, and early customers come to grips with this, the less heartache needs to surround each pivot, and the quicker you can get to the right answer.
Steve Blank on Entrepreneurship
Much as I like Four Steps to the Epiphany, I’ve never gotten much value from Steve Blank's blog - so I wasn’t expecting much from his talk. To my surprise, I was absolutely riveted. While Eric Ries is the father of the lean startup movement, Steve Blank is a very active and hands-on grandfather. His presentation was both enlightening and inspiring.
There was so much good stuff in this talk it’s hard to capture it all. A few quotes:
- “A startup is a search for a scalable, repeatable business model”
- “No business plan survives first contact with customers”
- “Startups search and pivot. Large companies execute.”
- “Founders make order from chaos”
- “Lean startup is the first business methodology that is being crowdsourced and developed iteratively - we’re collectively getting smarter at a scary rate”
- “My personal goal is to change the state of entrepreneurial education in the United States”
- “In the 1950s, Venture Capital was called Adventure Capital”
Blank lays out the lifecycle of a scalable startup in three phases: search, build, grow.
- Search - The one and only mission of the company in its early life is to search for a scalable business model. Nothing else matters. Small team, little to no management, very little of the formal trappings of a company. Staying lean, nimble, and chaotic is how you search rapidly. Formality and structure only slow you down.
- Build - Once the business model is found (in technology, this usually comes in the form of a software product that people love and have demonstrated willingness to pay for) the company starts to build out. Here the team is expanding, infrastructure is being put in place, branding and market position clarified. The organization goes from feeling like a ragtag band of buddies working on something made out of passion and elbow grease, and to something that feels like a “real” company.
- Growth - Everything is figured out, the company’s direction is decided: it’s now a matter of turning up the volume and continuing the business model on increasingly large scales. This is generally where the founders and many of the early employees of the company will make an exit. There are examples of founders who have stayed on through the final phase: Bill Gates, Steve Jobs, Larry Ellison. But these guys are the exception, not the rule (and that’s part of what they are famous). Founders need to be aware of, and prepared for, the likelihood that success means they have made themselves irrelevant in the organization they have built.
A Tale of Two Businessmen
Blank closed with a fascinating story about two figures involved in the early life of General Motors. The first was Alfred Sloan. Sloan was the CEO of GM Motors in the early part of the 20th century. He’s widely recognized as the man that took GM to being the largest company in the world. Many business schools are named after him, and his managerial style was considered to be a pioneering approach that defined the new business of the 20th century.
The other player in this story is virtually unknown: Billy Durant. Durant founded GM and took it up to $3.6 billion in revenue (that number is adjusted for today’s dollars, if I’m recalling correctly). He was then fired by the board of directors, and he left to found Chevrolet. He quickly grew that company until it was bigger than GM, and then he bought GM. This guy was the Steve Jobs of his day - why don’t we remember him?
The answer is that the last century of business education has focused almost entirely on the last stage of a company’s life. Business degrees are MBAs, which Blank cautions are useless or perhaps even harmful in the early life of a startup. (MBAs working at a startup will try to apply their knowledge, creating structure and formality at a time when that’s the worst possible thing you can do.) Blank feels that entrepreneurial education should be separate from business education - B-schools can give out MBAs, and E-schools should give out MEAs.
He argues we’ve seen the first glimpse of this in the past several years, pioneered by Y Combinator. Blank points out that there are now over 100 (!) YC clones in operation, proof of the huge thirst for startup-focused education. He has a goal of bringing this entrepreneurial education into a more academic setting as well.
While he hasn’t done this yet (though he sounds quite serious about it), he offers up a small bit of entertainment to tide us over: the Durant School of Entrepreneurship, available in T-shirt form.