Notes on Steve Blank and the Second Decade of Customer Development

I had the pleasure of seeing Steve Blank at a LeanLA event at UCLA Anderson last week. It was epic. Everyone in the SoCal tech community came out, and I learned a lot of useful stuff from the creator of the customer development movement himself.

Below are my notes on the talk.

Background

• Steve did 8 startups in 21 years
  
• Retired because wanted to see his kids grow up
  
• See his post: Epitaph for an Entrepreneur
  

Introduction

• Realized so many processes for product pev but no processes for customer dev so wrote a book about it based on what he learned
  

What's a startup?

• 6 types of startups
  

Lifestyle startup

• Known customer with known product
  
• Pay for their hobby
  
• Surfing instructor
  

Small biz startup

• Work to feed family
  
• Grocery store, plumber
  
• Exit criteria: profitable biz, existing team
  
• 99.7% of all companies employ 50% of total US workers
  
• 5.7 million small businesses with < 500 people
  

Scalable startups

• Unknown customers
  
• Unknown features
  
• TAM > $500M
  
• Attract VC because VCs want obscene returns (like the mob)
  

Search, build, execute

• Startups search for a scalable biz model
  
• Founders are not going to be CEO of big company because they will get fired
  
• Large companies execute on biz model
  
• In middle, founders depart and professional mgmt comes in
  
• When you find a repeatable biz model, VC will then figure out if you will be the executing operating exec or someone else
  

Buyable startup

• Goal is to solve problem for internet, mobile, gaming apps
  
• Sell $5-50m acquisition
  
• Super-angels fund these
  

His startup definition: a startup is a temporary organization used to search for a repeatable and scalable business model.

Business model found

• Product-market fit
  
• Repeatable sales model
  
• Managers hired
  

Big companies good at sustaining innovation

• Existing market, known customer
  
• Known product features
  
• In a large company, a disruptive innovation creates a new division
  
• Or external competitor does disruptive innovation
  
• Counter disruption by building, partnering, or acquiring IP, talent, product, customers, business
  

Social entrepreneurship startups

• Don't want to make money
  
• Solve pressing social problems
  
• Social enterprise: profitable
  
• Social innovation, new strategies
  

Each of 6 startup types requires different skills

• Startups are not smaller versions of large companies
  
• Large companies execute
  
• Startups search
  
• Accountants don't run startups
  
• Startups require metrics, not accounting
  
• Save accounting until you have something to account
  
• Startup metrics are only ones that matter for board meetings
  
• Customer acquisition cost
  
• Viral coefficient
  
• Customer lifetime value
  
• Average selling price / order size
  
• Monthly burn rate
  

Customer validation versus sales

• Large company sales are scalable, have price list, revenue plan, data sheets; VPs of sales play golf, have gray hair, have a sales organization that sells in a scalable way
  
• Startups look for customer validation
  
• Large company execs comfortable with certainty and can't adjust quickly
  
• Startups: pricing, features unstable, one-offs, sales done by founders
  
• Sales titles the same but the job specs are completely different
  
• Startups: agile development, not QA and Tech Pubs
  
• Maximize releases per day
  
• Continuous learning
  
• Minimum feature set
  
• Large companies plan, business plans describe knowns, features for line extensions
  
• Startups model and test
  
• Focus on business model generation
  
• No business plan survives contact with customers

Business model: 9 building blocks

1. Customer segments
   
2. Value propositions/product or service
   
3. Channels: how deliver
   
4. Customer relationships: how will create demand
   
5. Revenue streams: what will pay for
   
6. Key resources: world class engineers, team
   
7. Key activities
   
8. Key partners, suppliers
   
9. Cost structure
   

Business model canvas

• Start with multiple business models and sketches
  
• These are just hypotheses
  

Customer development

• The founders get out of the building and search for the business model
  
• Customer discovery
  
• Customer validation (pivot back)
  
• Customer creation
  
• Company building
  

Use MVP in first 2 steps

• Smallest feature set that gets you the most orders/learning/feedback/failure
  
• Pivot = change in 1 or more business model components
  
• Iteration without crisis
  
• Fast, agile, and opportunistic
  
• Pivot cycle time matters
  
• Minimum feature set with instant customer feedback
  

Second decade: web, mobile, cloud

• Distribution channel: physical or virtual
  
• Products: physical or virtual
  
• Customers often teach you explicitly how to price the product
  
• First test customer segment and value prop
  

Student examples from Stanford Lean Launchpad class

• Lots of pivots
  
• Students blogged progress
  
• Photos of interviews
  
• Videos posted
  
• Surveys posted
  
• AB testing results posted
  
• Use Lean Launchlab
  

His slides on slideshare

Miscellaneous

• Slides on SlideShare
• Talk to press when your positioning has been stable for several weeks
• Dysfunctional families the best creators of founding CEOs because used to constant chaos and change
• Bring order out of chaos in life
  

Recommended books

• The Innovator's Dilemma
  
• The Innovator's Solution
  
• The Lean Startup
  
• Business Model Generation
  
• The Four Steps to the Epiphany