Steve Blank's Blog, page 14

Hacking for Defense @ Stanford 2020 Lesson Learned Presentations

We just finished our 5th annual Hacking for Defense class at Stanford.

What a year.

At the end of the quarter each of the eight teams give a final “Lessons Learned” presentation. Unlike traditional demo days or Shark Tanks which are, “here’s how smart I am, please give me money,” a Lessons Learned presentation tells the teams’ stories of a 10-week journey of hard-won learning and discovery. For all the teams in a normal year it’s a roller coaster narrative of what happens when you discover that everything you thought you knew on day one was wrong and how they eventually got it right.

But this year? This year was something different. 32 students were scattered across the globe and given a seemingly impossible assignment-  they had 10 weeks to understand and then solve a real Dept of Defense problem – by interviewing 100 beneficiaries, stakeholders, requirements writers, et al while simultaneously building a series of minimal viable products – all while never leaving their room.

Watching each of the teams present I was left with wonder and awe about what they accomplished

Here’s how they did it and what they delivered.

Our keynote speaker for this last class was ex Secretary of Defense General Jim Mattis who gave an inspiring talk about service to the nation.

Part 1

Part 2

Part 3

Part 4

If you can’t see the four videos of General Mattis click here for the entire talk.

How Do You Get Out of the Building When You Can’t Get Out of the Building?

This year the teams had to overcome two extraordinary pandemic-created hurdles. First, most of the students were sequestering off campus and were scattered across 24 time zones. Each team of four students who would have spent the quarter working collaboratively in-person, instead were never once physically in the same room or location. Second, this class – which is built on the idea of interviewing customers/beneficiaries and stakeholders in person – now had to do all their customer discovery via a computer screen. At first this seemed to be a fatal stake through the heart of the class. How on earth would customer interviews work via video?

But we were in for two surprises. First, the students rose to the occasion, and in spite of time and physical distance, every one of them came together and acted as a unified team. Second, doing customer discovery via video actually increased the number of interviews the students were able to do each week. The eight teams spoke to over 945 beneficiaries, stakeholders, requirements writers, program managers, warfighters, legal, security, customers, etc.

A good number of the people the students needed to talk to were sheltering at home, and they weren’t surrounded by gatekeepers. While the students missed the context of standing on a navy ship or visiting a drone control station, or watching someone try their app or hardware, the teaching teams’ assessment was that remote interviews were more than an adequate substitute.

We Changed The Class Format

Going remotely we made two major changes to the class. Previously, each of the eight teams presented a weekly ten-minute summary of; here’s what we thought, here’s what we did, here’s what we found, here’s what we’re going to do next week.  While we kept that cadence it was too exhausting for all the other teams to stare at their screen watching every other team present. So we split the class in half – four teams went into Zoom breakout rooms where they met with a peer-team to discuss common issues. The remaining four were in the main Zoom classroom; one presenting as three watched and listened to the instructor comments, critiques and suggestions. We rotated the teams through the main room and breakout sessions.

The second change was the addition of guest speakers. In the past, I viewed guest speakers as time filler/entertainment that detracted from the limited in-class time we needed to listen to and coach our students. But this year we realized that our students had been staring at their screens all day and it was going to fry their heads. They deserved some entertainment/distraction. But in true Hacking for Defense practice we were going to deliver it in the form of edification and inspiration. Joe Felter and I got out our rolodex’s and invited ten distinguished guest speakers. Their talks to this year’s Hacking for Defense class can be seen here.

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Lessons Learned Presentation Format

Each of the eight teams presented a 2-minute video to provide context about their problem. This was followed by an 8-minute slide presentation describing their customer discovery journey over the 10-weeks. All the teams used the Mission Model Canvas, (videos here) Customer Development and Agile Engineering to build Minimal Viable Products, but all of their journeys were unique.

By the end the class all of the teams realized that the problem as given by the sponsor had morphed into something bigger, deeper and much more interesting.

All the presentations are worth a watch.

Team Omniscient – An Unclassified Imaging Analyst Workbench

If you can’t see the Omniscient 2-minute video click here

If you can’t see the video of the Omniscient team presenting click here

If you can’t see the Omniscient slides click here

 Mission-Driven Entrepreneurship

This class is part of a bigger idea – Mission-Driven Entrepreneurship. Instead of students or faculty coming in with their own ideas — we now have them working on societal problems, whether they’re problems for the State Department or the Department of Defense, or non-profits/NGOs, or for the City of Oakland or for energy or the environment, or for anything they’re passionate about. And the trick is we use the same Lean LaunchPad / I-Corps curriculum — and kept the same class structure – experiential, hands-on, driven this time by a mission-model not a business model. (The National Science Foundation, National Security Agency and the Common Mission Project have helped promote the expansion of the methodology worldwide.)

Mission-driven entrepreneurship is the answer to students who say, “I want to give back. I want to make my community, country or world a better place, while solving some of the toughest problems.”

Team Protocol One – Ensuring JTAC to Pilot Communication

If you can’t see the Protocol One 2-minute video click here

If you can’t see the video of the Protocol One team presenting click here

If you can’t see the Protocol One slides click here

It Started with an Idea

Hacking for Defense has its origins in the Lean LaunchPad class I first taught at Stanford in 2011. I observed that teaching case studies and/or how to write a business plan as a capstone entrepreneurship class didn’t match the hands-on chaos of a startup. And that there was no entrepreneurship class that combined experiential learning with the Lean methodology. Our goal was to teach both theory and practice.

The same year we started the class, it was adopted by the National Science Foundation to train Principal Investigators who wanted to get a federal grant for commercializing their science (an SBIR grant.) The NSF observed, “The class is the scientific method for entrepreneurship. Scientists understand hypothesis testing” and relabeled the class as the NSF I-Corps (Innovation Corps). The class is now taught in 9 regional locations supporting 98 universities and has trained over 1500 science teams. It was adopted by the National Institutes of Health as I-Corps at NIH in 2014 and at the National Security Agency in 2015.

Team SeaWatch – Maritime Security in the South China Sea

If you can’t see the SeaWatch 2-minute video click here

If you can’t see the video of the SeaWatch team presenting click here

If you can’t see the SeaWatch slides click here

Origins of Hacking For Defense

In 2016, brainstorming with Pete Newell of BMNT and Joe Felter at Stanford we observed that students in our research universities had little connection to the problems their government was trying to solve or the larger issues civil society were grappling with. Wondering how we could get students engaged, we realized the same Lean LaunchPad/I-Corps class would provide a framework to do so. That year we launched both Hacking for Defense and Hacking for Diplomacy (with Professor Jeremy Weinstein and the State Department) at Stanford.

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Team TimeFlies – Automating Air Force aircrew scheduling

If you can’t see the TimeFlies 2-minute video click here

If you can’t see the video of the TimeFlies team presenting click here

If you can’t see the TimeFlies slides click here

Goals for the Hacking for Defense Class

Our primary goal was to teach students Lean Innovation while they engaged in a national public service. Today if college students want to give back to their country they think of Teach for America, the Peace Corps, or Americorps or perhaps the US Digital Service or the GSA’s 18F. Few consider opportunities to make the world safer with the Department of Defense, Intelligence Community or other government agencies.

Next, we wanted the students to learn about the nation’s threats and security challenges while working with innovators inside the DoD and Intelligence Community. And while doing so, teach our sponsors (the innovators inside the Department of Defense (DOD) and Intelligence Community (IC)) that there is a methodology that can help them understand and better respond to rapidly evolving asymmetric threats. That if we could get teams to rapidly discover the real problems in the field using Lean methods, and only then articulate the requirements to solve them, could defense acquisition programs operate at speed and urgency and deliver timely and needed solutions.

Finally, we wanted to familiarize students about the military as a profession, its expertise, and its proper role in society. And conversely show our sponsors in the Department of Defense and Intelligence community that civilian students can make a meaningful contribution to problem understanding and rapid prototyping of solutions to real-world problems.

Team AV Combinator –  Autonomous Vehicle Safety Standards

If you can’t see the AV Combinator 2-minute video click here

If you can’t see the video of the AV Combinator team presenting click here

If you can’t see the AV Combinator slides click here

Mission-driven in 35 Universities

What started as a class is now a movement.

Hacking for Defense is offered in over 35 universities, but quickly following, Orin Herskowitz started Hacking for Energy at Columbia, Steve Weinstein started Hacking for Impact (Non-Profits) and Hacking for Local (Oakland) at Berkeley. Hacking for Conservation and Development at Duke followed. Steve Weinstein subsequently spun out versions of Hacking for Oceans at both Scripps and UC Santa Cruz.

And to help businesses recover from the pandemic the teaching team will be offering a Hacking For Recovery class this summer.

Team Anthro Energy – next generation lightweight flexible batteries

If you can’t see the Anthro Energy 2-minute video click here

If you can’t see the video of the Anthro Energy team presenting click here

If you can’t see the Anthro Energy slides click here

Team Helmsman – Navigating in GPS denied areas

If you can’t see the Helmsman 2-minute video click her

 

If you can’t see the video of the Helmsman team presenting click here

If you can’t see the Helmsman slides click here

Team Election Watch – Open Source Tool to Track Political Influence Campaigns

If you can’t see the Election Watch 2-minute video click here

If you can’t see the Election Watch video of the team presenting click here

If you can’t see the Election Watch slides click here

What’s Next for These Teams?

When they graduate, the Stanford students on these teams have the pick of jobs in startups, companies and consulting firms. Recognizing the ability of these teams to produce real results, 38 members of the venture and private equity community dialed in to these presentations. Every year they fund several teams as they launch companies. This year a record 6 of the 8 teams (Anthro Energy, AV Combinator, Election Watch, Helmsman, Omniscient and Seawatch) have decided to continue with their projects to build them into dual-use companies – selling both to the Dept of Defense and commercial businesses.) Most are applying to H4X Labs, an accelerator focused on building dual-use companies.

Student Feedback

While Stanford does a formal survey of student reviews of the class, this year we wanted more granular data on how remote learning affected their class experience.

While we had heard anecdotal stories about how the class affected the students perceptions of the Department of Defense we now had first hand evidence. The same was true for the life-changing experience of actually doing customer discovery with 100 people. The results reinforced our belief that the class, scaling across the county was helping to bridge the civilian/military divide while teaching students a set of skills that will last a lifetime.

Student feedback on the class is here

It Takes a Village

While I authored this blog post, this class is a team project. The teaching team consisted of myself and:

Pete Newell retired Army Colonel and ex Director of the Army’s Rapid Equipping Force and CEO of BMNT.
Joe Felter retired Army Colonel and former deputy assistant secretary of defense for South Asia, Southeast Asia, and Oceania
Steve Weinstein 30-year veteran of Silicon Valley technology companies and Hollywood media companies.  Steve was CEO of MovieLabs the joint R&D lab of all the major motion picture studios. He runs H4X Labs.
Tom Bedecarré the founder and CEO of AKQA, the leading digital advertising agency.
Jeff Decker a Stanford social science researcher. Jeff served in the U.S. Army as a special operations light infantry squad leader in Iraq and Afghanistan.

Our teaching assistants this year were Nate Simon and Sam Lisbonne both past graduates of Hacking for Defense, and Valeria Rincon. A special thanks to the National Security Innovation Network (NSIN) and Rich Carlin and the Office of Naval Research for supporting the program at Stanford and across the country as well Lockheed Martin and Northrop Grumman. And our course advisor – Tom Byers, Professor of Engineering and Faculty Director, STVP.

We were lucky to get a team of mentors (VC’s and entrepreneurs) who selflessly volunteered their time to help coach the teams. Thanks to Todd Basche, Teresa Briggs, Rachel Costello, Gus Hernandez, Rafi Holtzman, Katie Tobin, Robert Locke, Kevin Ray, Eric Schrader, Mark Rosekind, Don Peppers, Nini Moorhead, Daniel Bardenstein.

We were privileged to have the support of an extraordinary all volunteer team of professional senior military officers representing all branches of service attending fellowship programs at Stanford’s Hoover Institution, and Center for International Security and Cooperation (CISAC) and Asia Pacific Research Center (APARC) at the Freeman Spogli Institute (FSI) as well as from the Defense Innovation Unit. These included COL Smith-Heys, COL Liebreich and LTC Campbell – Army, CAPT Sharman, CAPT Romani – Navy, CDR Malzone – Coast Guard, LT COL Lawson, LT COL Hasseltine and LT COL Cook – USMC, LT COL Waters and LT COL Tuzel – Air Force and Mr. Smyth -State Dept.

[image error]And of course a big shout-out to our problem sponsors. At In-Q-Tel – Mark Breier/Zig Hampel, U.S. Army – LTC Leo Liebreich, U.S. Air Force – LTC Doug Snead/ MAJ Mike Rose, Joint Artificial Intelligence Center – Joe Murray/MAJ Dan Tadross, Special Operations Command Pacific – MAJ Paul Morton, United States Africa Command – Matt Moore, and from the Office of Chairman of the Joint Chief of Staff – MAJ Jeff Budis.

Be sure to check out the other Hacking For Defense classes in universities in the U.S. and the U.K.

Thanks to everyone!

The Covid-19 virus is not politically correct

The Covid-19 virus is not politically correct. It discriminates against the old and the unhealthy. The biggest risk factor in dying from the virus is age. If you’re 60 to 70 years old, you’re 30 times more likely to die from Covid-19 than if you’re under 40. And if you’re over 80, you’re 180 times more likely. It’s not that the young don’t get sick or die, but the odds are dramatically different.

In the early days of the virus epidemiologists, who believed that the virus would equally kill the young and old, predicting a million or more deaths in the U.S., wanted everyone to shelter. The result has crashed our economy. Meanwhile, economists view 15% unemployment as an unacceptable and unsustainable cost of protecting everyone and want the economy to rapidly reopen, accepting that some additional deaths are inevitable.

They both may be missing the obvious. We’ve created an equal opportunity recession when in fact, the pandemic is not equal at all.

If the data about the demographics is correct, it may be possible to dramatically reduce cases and deaths if we shelter those at greatest risk and pay them to stay sheltered until a vaccine is available. This would allow those with dramatically lower risk to get back to work and bring a faster economic recovery.

Here’s how.

We’ve spent the last 50 years working to not discriminate for age or disabilities so it’s hard to acknowledge what, if these number are correct, or even in the ballpark, the data seems to say that people over 60 are 30-180 times more likely to die of Covid-19. And ~1/3rd of those U.S. deaths have been in nursing homes.

  Age           Relative Death Rate

18

40

50

60

70

80+                  12.64

Compounding the age risk factor are chronic health problems (i.e. heart disease, high blood pressure, asthma and other respiratory diseases, obesity and diabetes.) In addition, racial and ethnic minorities seem to have been at greater risk.

A good visualization of the fatality rates by age is below. It takes data from South Korea, Spain, Italy and China. The relative fatality rates by age in the U.S. seem to track these.

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For COVID-19, data suggests that 80% or more of infections are mild or asymptomatic, 15% are severe infection, requiring oxygen and 5% are critical, requiring ventilation.  If you’re under 40, the data says you’re five times more likely to die from Covid-19 than the seasonal flu.[image error]

Today, federal and state plans to reopen the economy focus on reducing the density and duration of exposure to the virus equally, across all ages. But little emphasis has been on focusing resources to keep safe the actual people who get sick and die.

We Got it Backwards – Protect the Old Versus Everyone

The consequences of mixing young, largely asymptomatic and much lower risk, with the old who are at significantly higher risk seems like a deadly game of whack-a-mole.

As states loosen shelter-in-place restrictions, mixing young versus old as we reopen restaurants, live entertainment (theaters, concerts, sports venues,) crowded office buildings etc. guarantees unnecessary deaths.

20% of those over 60 work. 12.5% of workforce is over 60

What if we acknowledged that the virus (much like the flu) discriminates against the old. As a thought experiment, how would we design a recovery that protected the old but required minimal restricting of our economy and a rapid return to normal?  Here are some ideas.

Continue sheltering in place adults over 60 (or some other age that the data shows most elevated risk), plus those with chronic health risks as well as other affected populations
Open up the economy to everyone else
Offer everyone over 60 (and those with chronic health problems) whose job can be done remotely the option to work at home. Pay for their computer, network, etc. Offer their employer an incentive to compensate for lost productivity – until a vaccine is available
Provide Americans over 60 and those with chronic health problems whose job cannot be done remotely with a “personal payroll protection program” –pay to have them not show up at work – until a vaccine is available.
Focus our scarce testing tools first on nursing homes and their employees and front line medical workers, next to everyone over 60, then those whose illness puts them at risk and then to the general population
Provide this protected population with full health care
Provide resources ($’s for separate housing via empty hotel/airbnb rooms etc) to protect the elderly who live in multi-generational housing
Where possible continue wearing masks and distancing to reduce the risks to those under 60
Broadcast the comparative risk of getting sick/dying from Covid-19 to typical risks we lived with pre-pandemic. This would allow everyone to make comparative informed decisions.

For example, car accidents ~39,000 deaths in 2019 and over three-fourths of a million dead since 2000, ~70,000 drug overdose deaths in 2019 and over three-fourths of a million dead since 2000. All of these are avoidable, but as a society we decided that we are not shutting down our economy to solve these problems.
Understanding deaths from seasonal flu in 2018/2019 ~34,000 deaths (~25,000 deaths >65, ~8,000 100,000 died in the 1968 flu pandemic, and the 116,000 dead in 1957/58. We made different decisions in those pandemics. We may want to think about why.


Remove all business restrictions for workers and customers under a certain age. As a thought experiment, imagine restaurants serving only those under 40 (carding at the door). They would have no distancing requirements. Or that business rate themselves based on how age appropriate their virus safety is. Imagine movie theaters with special distancing showings for those over 60, nightclubs for under 30 or over 60. Same for sports and entertainment venues. Those who do attend will understand that the risks are not zero, but within the range of those they live with today.  Same with offices.
Create special hours and venues (stores, restaurants, workplaces, etc.) for those who need to shelter. Offer businesses who cater to them large financial incentives.
Create special mass transit options with over 60 subways cars, buses, etc.

This would do six things:

We’d protect the most vulnerable at-risk population
With those over 60 sheltering, jobs are now opened up for unemployed younger people
Businesses can return to normal without the burden of significant additional overhead costs
Businesses can make additional revenue catering to those who remain sheltered
The potential burden on the healthcare system would be lowered by removing the vulnerable from risk
And this plan would dramatically reduce the overall economic cost of sheltering and accelerate the recovery

We’ve spent the last 50 years fighting age discrimination, but the virus is the ultimate discriminator against the elderly. It’s unequal and unfair. But it exists. Let’s look for ways to move beyond the choice between exploding death rates and economic disaster by acknowledging what the data is showing. Shape a plan to protect the most vulnerable and let everyone else get back to work.

Note: the author is over 65 and willing to abide by these restrictions

Lessons Learned

We need to run some thought experiments about different ways we can protect the most vulnerable and restore our economy
We need to put the risks in context with other risks we’ve taken and accepted as a society versus the damage that sustained 15% unemployment would bring

Seven Steps to Small Business Recovery

What doesn’t kill me makes me stronger.

Friedrich Nietzsche

The world is a different place than it was 90 days ago. Countries traded saving lives by shutting down most of their economy. Tens of millions who had jobs are now unemployed worrying about their future. Business owners large and small are struggling to find their footing, wondering what will be the new normal when the recovery happens. For the majority of companies, the business models of the past will not return.

Hit hardest were most small business service providers. Each day as they sheltered in place watching their bank accounts dwindle, they wondered: If I can’t perform my services, what will happen to my business? The reactions ping-ponged between uncertainty, fear, panic, anger and distress. But over the last month the reaction from a growing percentage has been resolve. Resolve to leave behind elements or services in their business that no longer work in the current environment, and determination to create new ones that do.

A company that has its finger on the pulse of tens of thousands of small businesses is Honeybook. They provide the software for freelancers and small businesses to manage clients and their business – proposals, billing, contracts, payments, project tracking, etc.

Honeybook CEO Oz Alon has had a front-row seat to how their members have pivoted, providing their services in new and creative ways, and are sharing these in a special Rising Tide feature on their website. Here are a few examples:

Pivot from In-person to Online

Jill Johnson, owner of The Paint Mixer, used to offer painting parties and creative adventures in her Salt Lake City studio. She started offering paint-from-home kits and hosting private parties via Zoom for team building, social hours, and birthday parties. “Our clients are loving the experience and are very grateful. I receive emails and texts, as well as social media posts daily, and it is inspiring,” Jill says.
Regina, owner of Silly Sparkles, is a children’s entertainer offering magic/puppet shows, face painting and balloon twisting at events. Since she can’t perform in person anymore, she’s switched to virtual party packages with customized entertainment for each client. “People still have birthdays, and they still want to make them special!” Regina says. “Virtual parties are a great way to serve those clients, and they’re willing to pay for it.”
Jordan Edelson, co-founder of Chic Sketch, reimagined his events business as a virtual events business. His goal was to create a similar experience to their in-person events where guests are sketched live by their team of talented illustrators. Their team now does live sketching during virtual events over a video conferencing platform.
Melissa Rasmussen of Catering By Chef Melissa normally offers custom catering with a farm-to-table approach, but in this current business climate, she’s pivoted to offer dinner meal kits. The menu is posted on social media and on their website; customers pay their invoice online; and the meal kits are available to be picked up at their commercial kitchen or delivered for a small fee.
Florist Robin Smith of  Rhapsody in Blooms started offering virtual floral design classes. She either ships class supplies (including the flowers and a vessel) directly to participants or arranges no-contact pickups. All students have exactly the same products to work with and join a Zoom call to attend the class.

The Seven-Step Small Business Pivot Process

Honeybook CEO Oz Alon observed that there was a pattern to these pivots. Regardless of the type of service they were offering or the kind of businesses they had, they took the same seven steps:

Create an MVP, Minimal Viable Product or MVS, Minimum Viable Service—Assess your current business model. What capabilities and current services do you have? Then think about what the market needs right now and how you can adjust your services to meet those needs. What is it that people will grab out of your hands? Create an MVP or MVS to start.

Alexander Osterwalder co-creator of the business model canvas, suggests a playbook of business model moves you can make:

Shelter in place as a market opportunity

What new value propositions (products/services) can you offer to those stuck at home or to those who need to operate with new social distancing rules?

Resource pivots

How can you use/repurpose your existing resources for new offerings?

Delivery/Distribution Channel innovation

Can you move to digital/online, extending your reach and potential customers?

Opportunity to buy/acquire

Are there resources (people/physical assets) that others are abandoning that you can now get?

Jill Johnson, The Paint Mixer owner, suggests taking a look at the assets you already have. “Our pivot happened pretty quickly,” she says. “I knew as soon as our surrounding counties started to mandate closure that the business would be in trouble if I didn’t try something. After a good cry (and a glass of whiskey), I met with my team to talk ideas and short-term solutions. I looked around the studio and decided to use what we had. We offer painting parties and creative adventures. With the stock in our studios I took photos of what could be a potential ‘create-at-home kit.’”

Regina, owner of Silly Sparkles, seconds working with what you have as a starting point for a Minimum Viable Service. She says before you invest money in new equipment, it’s important to be resourceful. “When you use what you have, you’ll quickly learn what works for you and what doesn’t,” she says. “For my first virtual show, I only had magic props, green fabric for a green screen and a laptop. I didn’t need to invest a lot of money in a green screen because what I had worked just fine. I did, however, need to invest in a better mic.”

2. Customer discovery— While you might have come up with a great Minimum Viable Service, it’s just a series of guesses and assumptions. The next step is to validate the problem/need with customer discovery, by asking your existing customer base if they would be interested in your new service. You can do a poll on social media or send out an email blast to get a sense, then use video conferencing to do deep dives on real interest and intent to buy. Jill says, “We did a soft rollout with our mailing list to see if there was any interest, and there was!”

3. Rapid testing—Don’t spin your wheels trying to perfect your new service. Get it in the hands of your customers as soon as you can to test product/market fit. “Don’t spend energy building it. Create one, take a photo and try it with your current list. Then, when demand is apparent, build like crazy,” Jill says.

If you want to get started testing your idea quickly, consider giving it away for free at first. “It’s easy to get overwhelmed,” Regina says. “Instead of complicating the process, just jump in and try something! Start by offering a free, live magic show to family and friends. You’ll learn so much from this test run and it will give you momentum.”

4. Refine your offering—Another key part of rapid pivoting is a fast feedback loop. Constantly ask for feedback and act on it—improve on what’s working and tweak what’s not. Jill says, “The first 6 weeks I hand-delivered every package in the neighboring areas. I would text to let [customers] know it was outside and that I would love feedback. This touch allowed direct contact with every consumer.”

While customer feedback is great, also consider getting feedback from your peers. “Once you’ve started simple and tried a test run, it’s time to learn about how to improve your process,” Regina says. “Send out a recording of your first rough performances to other performers who have already been doing virtual parties. You’ll most likely receive insightful feedback. With some minor tweaks, you can upgrade your show significantly.”

5. Market on all your channels—Share about your new offering everywhere your audience is, whether that’s your website, email list, or on social media. Jordan Edelson of Chic Sketch shares about his new business offering on Instagram, driving customers to a specific landing page to learn more. The landing page also includes a YouTube video of an actual live event to help potential clients see how the service works.

Don’t forget to keep both your offering and your messaging simple. “Make it fun, make it accessible and make it easy for your clients to buy,” Jill advises.

6. Rely on tried-and-true tools—While some parts of your business may need to be altered, others may still work just fine, including tools, processes and frameworks that help you run and scale your business. Continue to rely on these to make pivoting business easier.

7. Share with the community—If your new service works, be sure to share this knowledge with your community, whether that’s on Facebook groups or in virtual meet-ups. In case anyone else has tried something similar, you can get feedback to refine your service. If it didn’t work, sharing with your community is still valuable as you may swap stories that may inspire you to go a different direction entirely.

What doesn’t kill me makes me stronger

Shelter in place is a mass extinction event for many industries. Not every business will survive. But what will emerge are businesses that diversified their offerings better positioned to withstand future volatility by providing complementary channels and offerings. And they’re opening up new ways service providers can scale to more customers.

“I think our Paint Mixer business is changed forever,” Jill Johnson says. “For the first time we now have a service that allows us to reach a national audience way beyond our local area. It will also allow us to create more classes that people can join virtually. I don’t think this is a short-term solution at all, but an entirely new direction that we have to take.”

Jordan Edelson of Chic Sketch observes, “There has been a paradigm shift in consumer behaviors, especially in their adoption and emotional acceptance of virtual video conferencing. The world changed overnight, and it has opened a door for our new service.”

Lessons Learned

The Seven-Step Small Business Pivot Process

Create an MVP or MVS, Minimum Viable Service
Do Customer Discovery
Rapidly test your idea
Refine your offering
Market on all your channels
Rely on tried-and-true tools
Share with the community


Carpe Diem – seize the day

We’re going to be holding a series of 5-day Hacking for the Recovery classes for businesses searching for the new normal at Stanford this summer. If you’re affiliated with Stanford, find out more or sign up at https://h4r.stanford.edu

Hacking 4 Recovery

[image error]We’re holding a series of 5-day online classes at Stanford where teams will learn how to develop new business models for an economy that’s getting back to work and on the road to recovery.

 

Sign up at http://h4r.stanford.edu

The post-pandemic world will be a very different place. The Covid-19 virus has upended traditional ways of doing business, travel, education, entertainment, healthcare, etc. How do these institutions reconfigure and reinvent themselves? What new businesses and services will emerge? Hacking 4 Recovery provides students with the tools to understand the new normal and to build innovative solutions for recovery.

Out of crisis – Opportunity

Do you have a startup idea or new technology that you’d like to learn how to bring to market in the post-pandemic economy? Or perhaps you would like to join a team creating a new business, or reinventing an existing business, and learn the lean startup techniques that will be critical to our recovery.

Stanford’s Lean LaunchPad

Hacking 4 Recovery is a 5-day version of the Lean LaunchPad / Hacking For Defense / National Science Foundation I-Corps curriculum that’s trained tens of thousands of entrepreneurs and innovators. This class offers students a unique online opportunity to build the future with the Stanford University instructors who have inspired a generation of entrepreneurs.

The first 5-day class will be aimed at “Finding New Business Models” for businesses to adapt and pivot to find new customers, new markets, new products and new services to win in the recovery. Additional 5-day-long classes will explore Health, Travel and Hospitality, Food Service, Entertainment and Education.

Course Description

This course provides real world, hands-on learning on what it’s like to actually start a company or to find a new business model for an existing one. This class is not about how to write a business plan. It’s not an exercise on how smart you are in a classroom, or how well you use the research to size markets.

This class combines theory with a ton of hands-on practice. Our goal, within the constraints of a virtual classroom and a limited amount of time, is to give you a framework to test a business model.

You will be virtually “getting your hands dirty” by talking to customers, partners and competitors as you encounter the chaos and uncertainty of how a startup (or a restart) actually works.

You’ll practice evidence-based entrepreneurship as you learn how to use a business model to brainstorm each part of a company and formulate their hypothesis. Next, you’ll use customer development to virtually get out of the classroom and talk to 10-15 customers/ partners each day to validate whether your assumptions are correct, and to see whether anyone other than you would want/use your product or service. Finally, based on the customer and market feedback you gathered, you will use agile development to build Minimal Viable Products (incremental and iterative prototypes) to show prospective customers each day to see if customers would actually buy and use. Each day will be a new adventure outside the classroom as you test each part of your business model and then share the hard earned knowledge with the rest of the class.

This class is team-based.  (We’ll help Individuals without a team find a place on one.) Working and studying will be done in teams. You will be admitted as a team. Teams must submit a proposal for entry before the class begins. Projects must be approved before the class.

The teams will self-organize and establish individual roles on their own.

Hacking 4 Recovery Instructors and Team

Steve Blank, Tina Seelig, Steve Weinstein, Tom Bedecarré, Mar Hershenson, and Pete Newell
Mentors, advisors and subject matter experts to support the teams

Class Dates

Five Hacking 4 Recovery 5-day online classes will be offered this summer:

First session: Monday, June 29th to Friday, July 3rd at 4-7pm Pacific
Second session: Monday, July 13th to Friday, July 17th at 4-7pm Pacific
Third session: Monday, August 3rd to Friday, August 7th at 4-7pm Pacific
Fourth session: TBD
Fifth session: TBD

Find Out More – Info Sessions

We’ll be offering a series of information sessions describing the class, expectations and the application process.

May 21  4:00 PM PDT  Information session

May 28  12:00 PM PDT  Information session

Signup at the website at http://h4r.stanford.edu

Who Can Attend?

Hacking 4 Recovery is open to Stanford undergraduate and graduate students, as well as all Stanford faculty, staff and alumni. Students visiting Stanford for the summer are also invited to apply for this free course, (if they are registered for at least one Summer Session course (3-unit minimum).

The class is team-based. Priority is given to teams of 3 to 5. We will hold team formation mixers and help you find additional team members or teams to join.

June 4  4:00 PM PDT  Team formation mixer and Q&A

June 11  12:00 PM PDT  Team formation mixer and Q&A

June 18  4:00 PM PDT  Team formation mixer and Q&A

June 25  4:00 PM PDT  Team formation mixer and Q&A

Signup at the website at http://h4r.stanford.edu

Summer Startup Accelerators

Students who take the Hacking 4 Recovery class will have an opportunity to be apply for affiliated summer startup accelerators and incubators, including Pear VC, Stanford Venture Studio, H4XLabs and others.

For More Information

For more information or to apply online, please check out our Hacking 4 Recovery website at http://h4r.stanford.edu or email us at hacking4recovery@gmail.com

Join this class and help restart our economy.

What’s Missing From Zoom Reminds Us What It Means to Be Human

Over the last month billions of people have been unwilling participants in the largest unintentional social experiment ever run – testing how video conferencing replaced face-to-face communication.[image error]

While we’ve discovered that in many cases it can, more importantly we’ve discovered that, regardless of bandwidth and video resolution, these apps are missing the cues humans use when they communicate. While we might be spending the same amount of time in meetings, we’re finding we’re less productive, social interactions are less satisfying and distance learning is less effective. And we’re frustrated that we don’t know why.

Here’s why video conferencing apps don’t capture the complexity of human interaction.

All of us sheltering at home have used video conferencing apps for virtual business meetings, virtual coffees with friends, family meetings, online classes, etc. And while the technology allows us to conduct business, see friends and transfer information one-on-one and one-to-many from our homes, there’s something missing. It’s just not the same as connecting live at the conference room table, the classroom or local coffee shop. And it seems more exhausting. Why?

What’s missing?

It turns out that today’s video conferencing technology doesn’t emulate how people interact with others in person. Every one of these video applications has ignored a half-century of research on how people communicate.

Meeting Location

In the physical world the space and context give you cues and reinforcement. Are you meeting on the 47th floor boardroom with a great view? Are you surrounded by other animated conversations in a coffee shop or sitting with other classmates in a lecture hall? With people working from home you can’t tell where the meeting is or how important the location or setting is. In a video conference all the contextual clues are homogenized. You look the same whether you are playing poker or making a sales call, in a suit or without pants. (And with video conferences people are seeing your private space. Now you need to check if there’s anything embarrassing lying around. Or your kids are screaming and interrupting meetings. It’s fatiguing trying to keep business and home life separate.)

In the real world you just don’t teleport into a meeting. Video conferencing misses the transitions as you enter a building, find the room and sit down. The same transitions are missing when you leave a video conference. There is no in and out. The conference is just over.

Physical Contact

Second, most business and social gatherings start with physical contact – a handshake or a hug. There’s something about that first physical interaction that communicates trust and connection through touch. In business meetings there’s also the formal ritual of exchanging business cards. Those all are preambles to establish a connection for the meeting which follows.

Meeting Space Context

In person we visually take in much more information than just looking at someone’s face. If we’re in a business meeting, we’ll scan the room, rapidly changing our gaze. We can see what’s on desks or hanging on the walls, what’s in bookshelves or in cubicles. If we’re in a conference or classroom, we’ll see who we’re sitting next to, notice what they’re wearing, carrying, reading, etc. We can see relationships between people and notice deference, hierarchy, side glances and other subtle cues. And we use all of this to build a context and make assumptions—often unconsciously —about personalities, positions, social status and hierarchy.

Looking in a Mirror While Having A Meeting

Before meeting in person, you may do a quick check of your appearance, but you definitely don’t hold up a mirror in the middle of a meeting constantly seeing how you look. Yet with the focus on us as much as on the attendees, most video apps seem designed to make us self conscious and distract from watching who’s speaking.

Non-Verbal Cues

Most importantly, researchers have known for at least fifty years that at least half of how we communicate is through non-verbal cues. In conversation we watch other’s hands, follow their gestures, focus on their facial expressions and their tone of voice. We make eye contact and notice whether they do. And we are constantly following their body language (posture, body orientation, how they stand or sit, etc.)

In a group meeting it’s not only following the cues of the speaker, but it’s often the side glances, eye rolls and shrugs between our peers and other participants that offer direction and nuance to the tenor of a meeting. On a computer screen, all that cross person interaction is lost.

The sum of these non verbal cues is the (again often unconscious) background of every conversation.

But video conferencing apps just offer a fixed gaze from one camera. Everyone is relegated to a one-dimensional square on the screen. It’s the equivalent of having your head in a vise, having been wheeled into a meeting wearing blinders while tied to a chair.

Are Olfactory Cues Another Missing Piece?

There’s one more set of communication cues we may be missing over video. Scientists have discovered that in animals, including mammals and primates, communication not only travels through words, gestures, body language and facial expressions but also through smells via the exchange of chemicals and hormones called pheromones. These are not odors that consciously register, but nevertheless are picked up by the olfactory bulb in our nose. Pheromones send signals to the brain about sexual status, danger and social organization. It’s hypothesized odors and pheromones control some of our social behaviors and regulate hormone levels. Could these olfactory cues be one additional piece of what we’re missing when we try to communicate over video? If so, emulating these clues digitally will be a real challenge.

Why Zoom and Video Teleconferencing is Exhausting

If you’ve spent any extended period using video for a social or business meeting during the pandemic, you’ve likely found it exhausting. Or if you’re using video for learning, you may realize it’s affecting your learning by reducing your ability to process and retain information.

We’re exhausted because of the extra cognitive processing (fancy word for having to consciously do extra thinking) to fill in the missing 50% of the conversation that we’d normally get from non-verbal and olfactory cues. It’s the accumulation of all these missing signals that’s causing mental fatigue.

Turning Winners Into Losers

And there’s one more thing that makes video apps taxing. While they save a lot of time for initial meetings and screening prospects, salespeople are discovering that closing complex deals via video is difficult. Even factoring out the economy, the reason is that in person, great salespeople know to “read” a meeting. For example, they can tell when someone who was nodding yes to deal actually meant “no way.” Or they can pick up the “tell me more signal” when someone leans forward. In Zoom all those cues are gone. As a result, deals that should be easy to close will take longer, and those that are hard won’t happen. You’re investing the same or more time getting the meetings, but frustrated that little or no forward progress occurs. It’s a productivity killer for sales.

In social situations a feel for body language may help us sense that a friend who’s smiling and saying everything is fine is actually have a hard time in their personal life. Without these physical cues—and the loss of physical contact—may lead to a greater distance between our family and friends. Video can bridge the distance but lacks the empathy a hug communicates.

An Opportunity for Innovators to Take Video Conferencing to the Next Level

This billion person science experiment replacing face-to face communication with digital has convinced me of a few things:

The current generation of video conferencing applications ignore how humans communicate

They don’t help us capture the non-verbal communication cues – touch, gestures, postures, glances, odors, etc.
They haven’t done their homework in understanding how important each of these cues is and how they interact with each other. (What is the rank order of the importance of each cue?)
Nor do they know which of these cues is important in different settings. For example, what are the right cues to signal empathy in social settings, sincerity, trustworthiness and rapport in business settings or attention and understanding in education?


There’s a real opportunity for a next generation of video conference applications to fill these holes. These new products will begin to address issues such as: How do you shake hands? Exchange business cards? Pick up on the environment around the speaker? Notice the non-verbal cues?
There are already startups offering emotion detection and analytics software that measure speech patterns and facial cues to infer feelings and attention levels. Currently none of these tools are integrated into broadly used video conferencing apps. And none of them are yet context sensitive to particular meeting types. Perhaps an augmented reality overlay with non verbal cues for business users might be a first step as powerful additions.

Lessons Learned

Today’s video conferencing applications are a one-note technical solution to the complexity of human interaction

Without the missing non-verbal cues, business is less productive, social interactions are less satisfying and distance learning is less effective


There’s an opportunity for someone to build the next generation of video conference applications that can recognize key cues in the appropriate context

This time with psychologists and cognitive researchers leading the team

In a Crisis – An Opportunity For A More Meaningful Life

Sheltering in place during the Covid-19 pandemic, my coffees with current and ex-students (entrepreneurs, as well as employees early in their careers) have gone virtual. Pre-pandemic these coffees were usually about what startup to join or how to find product/market fit. Though in the last month, even through Zoom I could sense they were struggling with a much weightier problem. The common theme in these calls were that many of them were finding this crisis to be an existential wakeup call. “My job feels pretty meaningless in the big picture of what matters. I’m thinking about what happens when I can go back to work. I’m no longer sure my current career path is what I want to do. How do I figure it out?”

Here’s what I’ve told them.

In a Crisis – An Opportunity to Reflect

If you’re still in school, or early in your career, you thought you would graduate into a strong economy and the road ahead had plenty of opportunities. That world is gone and perhaps not returning for a year or more. Economies across the world are in a freefall. As unemployment in the U.S. passes 15%, the lights are going off in companies, and we won’t see them back on for a long time. Some industries will never be the same. Internships and summer work may be gone, too.

But every crisis brings an opportunity. In this case, to reassess one’s life and ask: How do I want to use my time when the world recovers?

What I suggested was, that the economic disruption caused by the virus and the recession that will follow is one of those rare opportunities to consider a change, one that could make your own life more meaningful, allow you to make an impact, and gain more than just a salary from your work. Perhaps instead of working for the latest social media or ecommerce company or in retail or travel or hospitality, you might want to make people live healthier, longer and more productive lives.

I pointed out that if you’re coming out of school or early in your career you have an edge –  You have the most flexibility to reevaluate you trajectory. You could consider alternate vocations – medical research or joining a startup in therapeutics, diagnostics, medical devices, or digital health (mobile health, health IT, wearable devices, telemedicine, and personalized medicine). Or become an EMT, doctor or nurse.  Or consider the impact remote learning has had in the pandemic. How can you make it better and more effective? What are ways you might help to strengthen organizations that help those less able and less fortunate?

Here are the steps you can take to get started:

Use the customer discovery methodology to search for new careers.

Start by doing some reading and research, looking to the leading publications in the field you’re interested in learning more about. News sources for Digital Health and Life Sciences are different from software/hardware blogs such as Hacker News, TechCrunch, etc.

If you’re interested in learning more about a career in Life Sciences, start reading:

Medgadget– medical technology blog
MobiHealth News
Science Daily – medical research news
NEJM Frontiers in Medicine – New England Journal of Medicine
FierceHealthIT, FierceBiotech, FierceMedtech
Medcity News – news about the business of healthcare innovation
MDDI+QMED – Medical Device and Diagnostic Industry
In the Pipeline – commentary on drug discovery and the pharma industry
Xconomy – news and trends in life science
CBInsights – Startups in health
Reddit – search for topics of interest

If you’re thinking about educational technology start by reading EdSurge

And if you’re thinking about getting involved in social entrepreneurship, read The Stanford Social Innovation Review as well as the social entrepreneurship sections of publications like Entrepreneur, Inc., Fast Company and Forbes.

Get out of the building (virtually) and talk to people in the professions you’re interested in. (People on the front-line of the Covid-19 fight (e.g. first responders, health care workers) might be otherwise engaged, but others in the field may be available to chat.) Learn about the job, whether they enjoy it and how you can get on that career track.
Get out of the building physically. If possible, volunteer for some front-line activities. Think about internships in the new fields you’re exploring.
If you’re thinking of starting a company, get to know the VC’s. They are different depending on the type of startup you’re building. Unlike in the 20th century where most VC’s financed hardware, software and life sciences, today therapeutics, diagnostics, and medical devices, are funded via VC firms that specialize in only those domains. Digital health crosses the boundaries and may be founded by all types of firms. Get to know who they are.

Some of the Life Science VC blogs and podcasts:

Rock Health News – digital health VC news
LifeSciVC – Bruce Booth Atlas Ventures
A Healthy Dose – Bessemer Partners Podcast
The Long Run – Biotech Podcast

For edtech the VC firm to know is Reach Capital

Inexpensively pivot your education into a new field. An online education could be a viable alternative to expensive college debt. Coursera, EdX and ClassCentral have hundreds of on-line classes in medicine, health and related fields. Accredited universities also offer online programs (see here.) If you’re in school, take some classes outside your existing major (example here.)

My advice in all of these conversations? Carpe Diem – seize the day.

Now is the time to ask: Is my work relevant?  Am I living the life I really wanted? Does the pandemic change the weighting of what’s important?

Make your life extraordinary.

Lessons Learned

Your career will only last for 14,000 days
If you’re still in school, reconsider your major or where you thought it was going to take you
If you’re early in your career, now is the time to consider what it would take to make a pivot
In the end, the measure of your life will not be money or time. It’s the impact you make serving God, your family, community, and country. In the end, our report-card will be whether we left the world a better place.

Customer Discovery In the Time Of the Covid-19 Virus

With in-person classes canceled, we’re about to start our online versions of Hacking for Defense and Hacking for Oceans (and here). The classes are built on the Lean Startup methodology: Customer Discovery, Agile Engineering and the Business/Mission Model Canvas. So how do our students get out of the building to talk to customers to do Customer Discovery when they can’t get out of the building?  How do should startups do it?

—-

Reminder: What’s the Point of Talking to Customers?

Talking to customers seems like a simple idea, but most founders find it’s one of the hardest things they have to do. Founders innately believe they understand a customers problem and just need to spend their time building a solution. We now have a half a century of data to say that belief is wrong. To build products that people want and will really use, founders first need to validate the problem/need, then understand whether their solution solves that problem (i.e. finding product/market fit). Finally to have a better chance of a viable enterprise, they need to test all the other hypotheses in their business/mission model (pricing, demand creation, revenue, costs, etc.)

[image error]The key principles of customer development are:

There are no facts inside the building so get the heck outside
All you have are a series of untested hypotheses
You can test your hypotheses with a series of experiments with potential customers

[image error]Now with sheltering-in-place the new normal, we’ll add a fourth principle:

In-person interviews are not the only way to test your hypotheses

Reminder: What’s the Point of Physically Getting Out of The Building?

One of the reasons for interviewing people in person is to engage in a dialog that lets you be sure you understand the problem you are solving and measure customers’ reactions to the minimal viable products you put in front of them.

There’s a rule of thumb that says, “If you can see their pupils dilate and can tell they’re checking not their watch,” it’s a valuable interview.  The gold standard are in-person interviews where you can not only do all of that, and get to see what’s on their desks, the awards on their walls, the books on their shelves, and other ephemera that may give you clues about their interests and behavior. But today, with the Covid-19 pandemic that’s no longer possible. So the next best thing is a Video Teleconference.

Video Teleconferencing is Your Virtual Friend

Video (via Zoom, Skype, Google Hangouts, Microsoft Teams, etc.) with enough resolution to see someone’s facial expressions –  is more than an adequate substitute, and in some cases better – as it allows you to connect to more people in a shorter period of time. When we first taught the National Science Foundation Innovation Corps 11 years ago, the first 75 teams did Customer Discovery this way. (More advanced tools for remote user testing like Validately, Usertesting, Lookback, etc. are worth checking out.)

Our classes require students to talk to 100 Customers/Beneficiaries in 10 weeks. Before the pandemic, customers were found where they worked or played. Today, while some may still be at work, most will be sheltering at home, and almost all have more time on their hands than before. (You certainly do! Given you’re not traveling to customer interviews, you ought to be able to do more than 100 interviews.)

Getting a Meeting in the Midst of Chaos

Don’t assume potential interviewees are answering their work phones. And if they’re working at home, they may have a different email address. Don’t use the same opening email pitch you did before the virus. Your email should recognize and acknowledge the new normal. (i.e. Hello, my name is xx. I know this must be a crazy time for you. I’m a student/PI at xx University. All our classes have gone online. I’m investigating whether [problem x] would be valuable to solve today or when the world returns to normal. Would you be willing to speak to me?)

One upside is that you may now be able to get access to people who normally have a cloud of administrative gatekeepers around them. If you have a solution that is relevant to their business in this uncertain time, reach out to them.

Find Out How Their World Has Changed

In addition to the standard customer discovery and validation questions (how they did their job, what pains they had around current solutions, etc.) you need to understand:

What were their needs/problem/solution/industry pre-Covid 19?
What is it like now?
Have there been regulatory changes? Customer behavior changes?
What do they think it will be like when the recovery comes?
Will their problem/solution be the same or do they think it may change?

Presenting Your Minimal Viable Product (MVP) Online

An MVP is an experiment. It’s what you can show a potential customer/ user/ beneficiary/partner that will get you the most learning at a point in time. You build MVP’s to validate the need/problem, then to validate product/market or mission/solution fit and finally the rest of the business/mission model canvas. You can use wireframes, PowerPoints slides, simulated screenshots, storyboards, mockups or demo’s. The rest of the canvas might be validated with pricelists, spreadsheets, etc. (Alex Osterwalder and David Bland’s new book, Testing Business Ideas is a great help here.)

Given that you are now presenting over video, you are going to be trying to communicate a lot of information in a small window on a computer screen. On-line MVP building and delivery will need to become an art form. Rather than doing every demo of your MVP live, consider 1) recording it 2) highlighting the key points.

Break your MVP demo into
If you would normally have your potential customer hold, feel or use the product, make sure you demo someone doing that. Take the time to zoom in.
As you show your MVP, split the screen so you can see the customer’s reaction as the demo unfolds.
Practice, practice, practice the delivery of MVP’s. First it needs to be built and practiced, then the smaller parts for delivery need to be practiced. Anticipate questions and prepare your answers to them.
Ask if you can record the session. If not, make sure a team member is online to take notes.
Remember – at this point you’re testing hypotheses – not selling.

Validate the Rest of Business/Mission Model Components

A common mistake in building a startup is testing only product/market (mission/solution) fit. But other business/mission model components must be tested and validated, too. How can you test demand creation hypotheses during shelter in place for the Covid-19 virus? Important ideas you’ll want to consider:  Are potential customers beneficiaries now reachable in new ways? How can you test distribution/deployment? Are they the same now? Will they be the same after the recovery? Which changes are temporary? Which are permanent?

Your Business Model and the World Have Changed

If you’re business model still looks like your original assumptions a month ago, you’ve been living under a rock. Every part of your business model – not just product and customer – will change now. Recognize that in the post pandemic world, the map of surviving competitors will change, regulations will be changed, distribution channels may no longer be there, the reimbursement environment will be different, etc.

Ask everyone you interview, “What’s changed since the Covid-19 virus? What will the world look like after?” (Be specific. Ask questions not just about product, but about every other part of your business model.

Some Discovery Can’t Be Done Now

The reality is that some discovery and validation can’t be done right now. If you need to talk to people on the front-line of the Covid-19 fight (e.g. first responders, health care workers, delivery, network, remote work, telemedicine), ask yourself if your solution is relevant to making people healthier, safer, more effective?  If it is, then keep at it.

If not, don’t be tone deaf. In the midst of the crisis, testing ideas for businesses that are shutting down (travel, hospitality, etc.,) or from employees who are worried whether they’ll have a job will not work. Even if you have great new ideas for when recovery comes, most responses you’re going to get will be framed in the moment.

If so, consider putting your project on hold or find another problem to solve. Be conscientious about not taking people away from the important work required on the front line of this fight.

Lessons Learned

Customer Discovery and Validation can be easily done via video teleconferencing
Recognize that many potential interviewees are working from home
Break your MVP demos into small pieces, leaving time for people to respond
Adjust your questions to understand how customers’ situations have been changed by the pandemic
Some Customer Discovery can’t be done now

How To Keep Your Company Alive – Observe, Orient, Decide and Act

[image error]

This article previously appeared in the Harvard Business Review. It’s been updated with new information about the U.S. Paycheck Protection program and the Economic Injury Disaster Loan program.

 

What cashflow-negative companies must do to survive

We’re in uncharted territory with the Covid-19 pandemic. But it’s increasingly looking grim.

Companies that outlast this crisis will have CEOs who can rapidly assess these new circumstances, recognize new patterns and opportunities, and act with urgency to take immediate action to pivot and restructure their companies. Those that don’t may not survive.

So here’s a five-day playbook to help CEOs of cash-flow negative startups, or ones about to go negative, assess the new normal and respond with speed and urgency.

Your Company Survival Depends on A Simple Formula

Your company’s survival in this downturn can be captured in a simple formula.

Survival = (speed of your understanding of the situation) x (the magnitude of the pivots/cuts/lifeboat choices you make) x (the speed of your time to make those changes)

Notice that the word speed appears twice. This is not the time for committees, study groups or widespread consensus building. Even with imperfect information, the future of your company depends on your ability to make rapid decisions and start acting.

If you’re a CEO who can’t quickly bias yourself for action and if you wait around for someone to tell you what to do, then your investors, or more likely the market, will make those decisions for you.

Huge segments of the economy have shut down: travel, hospitality, restaurants. Any place with a fixed cost that relies on foot traffic will come under pressure. With millions of people out of work in the next quarter, it’s obvious that discretionary purchases like furniture, fashion, lifestyle will take a hit. But other businesses like law firms, contracting firms, real estate firms, will take hits, too. The ripple effects won’t be obvious at first. Your customers will no longer be your customers. Your revenue plans are no longer valid. To understand the state of things, you need to rapidly assess your internal and external environments going forward.

Day 1: Prepare An Assessment of the Internal and External Environment:

What did the external and internal environment look like for your company today? What do you believe the world will look like for each of the next five quarters? For companies burning cash, such as startups, how much cash do you have? What’s your monthly cash burn at your new low revenue level? How many months of cash do you have?  Cut costs to stay alive for 24 months.

External Assessment

State of the economy

Unemployment %
Shelter in place yes/no?


Health of Your Current Target Market(s)

Actively buying? Not returning calls? Out of business?


Emergence of New Market(s)

Are there new opportunities?


Forecasted recovery date

Workers can return
Your customers start buying


Check if the the Paycheck Protection Program, (here and here) which provides 100% federally guaranteed loans to small businesses, can apply to your company. Also see if the the Economic Injury Disaster Loan program applies.
If you were raising money, validate whether your investors are still on board – with the same terms – or at all

Internal Assessment

Operating Numbers

Liquidity and likely cash-out date under your worst-case scenario
Accounts receivable, accounts payable
Sales pipeline/forecast
Marketing programs spending
Payroll costs/other variable costs


Sources of additional capital – For existing companies: debt commitments, and new lenders. Can the Paycheck Protection Program, (here and here) be a source of capital?For startups: source of VC money?

Don’t overthink this. And most importantly do not outsource this to your staff. Set up a war room and work with your CFO and C-level staff together until it’s done. That will start to get your team aligned about the size of the problem. The CEO should dial through as many of the largest existing customers to get a firsthand understanding of the magnitude of any revenue shortfall. If you were expecting angel or venture funding get on the phone to your investor(s). Some VC’s are walking away from signed term sheets. Others are cutting their valuations. The CFO should be on the phone to sources of additional capital. There is no market research that’s going to get it “right.” No one can predict how this plays out and for how long. All we know is that it’s going to be very different than it was a few weeks ago and likely going to be worse a few weeks from now.

Day 2: Iterate the assessment with your investors/board

Whatever assessment you develop, you need to get feedback from your board and investors. While you’re seeing just your own company, hopefully they’re getting data from multiple companies across a wider set of industries. If you’re a startup you’ll also get a sense of how much of a nuclear winter the funding scene is for your market/company.

Boards need to insist on an immediate assessment and be actively engaged. I listened in on a board call with an enterprise software company this week, and when the CEO said, “Our VP of sales assured me our pipeline won’t be affected.” Board members gave her a wakeup call: there was either going to be a much more realistic assessment tomorrow based on her first-hand customer conversations, or a new CEO. Some CEOs can and will rise to the occasion by themselves but having a unified board can accelerate the process.

But what if you think the situation is more dire and you disagree with your board’s assessment? CEOs in this position are going to face a major career decision – go along with advice you think will damage/destroy the company – or put your job on the line. Remember, a year from now no one wants to be the CEO of a company out of business whose lament is, “I did what the board told me to do.”

Once you have agreed on what the world will look like, it’s time to build the plan for your new company. This plan has three parts: Pivots to your new business model, changes to your operating plan, and what initiatives you save for the recovery. The plan must also take into account that this crisis has exposed how vulnerable companies are to a single source of supply. CEOs of companies that manufacture goods in the U.S. are about to face a moral dilemma. China and South Korea are starting their factories up again. Going forward, do you move your supply chain from China or at least create a second source from other countries? Do you source/build things there while laying off people here? What does your board suggest? What do you think is the right thing to do?

Days 3 and 4: Prepare new business model and operating plan

First, think about potential pivots. Ask yourself: Are there now new customers, new services and new channels to pursue? Which parts of your business model can now serve the new normal where business is booming – remote work/education, social cohesion over distance, telemedicine, home delivery, etc.?

For example:

If you had brick and mortar locations, how much can you pivot to Ecommerce (for basics), so customers can acquire goods without having to leave the house? Can you also offer specialized services?
Automated delivery services – the more people you can take out of the equation, the safer the product. Are there parts of your supply chain that can be repurposed? What about parts of your manufacturing lines?
Online/Virtual learning – schools will need to embrace virtual learning in a way they haven’t before.
B2B – cloud services, online meetings, virtual workforce management, collaboration tools. With more work from home happening, all of these services will see increased demand from companies
Virtual Travel/Tourism – how can consumers get out without leaving the safety of their house?
Remote Workforce automation – past the obvious conferencing tools, how do you maintain cohesion and coordination?
Remote health care – Can you do initial triaging/diagnosis online before having a patient come in?
Personalized Video Entertainment – VOD, AVOD, Short Form Social Sites, Twitch, etc. …

Next, plot out the changes to your operating plan. What cuts will you make to spending programs – marketing, service, manufacturing, R&D? What are your “lifeboat choices” – what layoffs to make, renegotiate payables, rents, leases, how to trade off cash management versus revenue growth? How can you shift focus to customer retention versus acquisition?

As part of these operating changes, make sure your heads of HR and finance recognize that they have entirely new jobs.

Your CFO now becomes the head of cash management. Draw down all debt commitments. Ask existing and new lenders for additional funding. Call all large vendors and ask for lower prices. If appropriate, offer to sign a longer agreement in exchange for lower cash payments in 2020 and 2021. See if your fixed costs are really fixed, or will they agree to defer some for higher payments at a future date. Make sure your CFO is familiar with the Paycheck Protection Program, (here and here) as a potential source of cash and to avoid/defer layoffs.

Nothing is more important than assuring the company can continue to pay its employees.

Your head of HR is now head of layoffs. He or she has 48 hours to grow into it, or you need to find someone else from the ranks to do it. Before layoffs, cut all salaries by 20%. Cut CXO salaries by at least 30%. Award equity to employees equal to the value of their reduced salaries. Try to protect the most vulnerable employees. Letting people go needs to be done with compassion and adequate compensation. And if you do it correctly, it will hopefully be done just once.

For those remaining employees, offer remote therapy to deal with the stress of working from home and pay for any equipment/network upgrades.

As you make these plans, remember: There will be a morning after. What changes in your industry will be permanent? If you have sufficient cash reserves, what initiatives do you want to keep in the lifeboat that may give you the ability to take advantage of these changes? To recover and grow quickly? Or to launch new products? Or if you have sufficient cash, now is the time to hire great people who were never available.

Although you prepared the internal and external assessment with just your C-level staff, now you want to rapidly engage the collective intelligence/wisdom of the company. Ask everyone in the company to suggest changes to the business model, operating plan and recovery plan.Your employees likely have ideas and see opportunities not visible in the C-suite. This will signal to every employee that now is the time for all-hands-on-deck and that you will be making decisions to quickly separate the crucial from the irrelevant.

You need to communicate, communicate and communicate some more to your employees about why you’re asking for their ideas. This is the perfect time to start a daily update from the C-suite. This is critical if your employees are working remotely. Let them know what you’re learning and then when you begin implementing changes, tell them why.

Day 5: Iterate with investors/board

Whatever business model, operating plan and recovery plan you come up with, you need to get feedback from your board. Keep in mind they’re likely dealing with multiple companies rapidly replanning, so remind them about the assessments you mutually agreed on. Then walk them through why the changes you’re suggesting match that plan. They may have seen new ideas from other companies in their portfolio so be open to additional suggestions.

Beyond the five-day plan, I want to specifically address two of the most challenging parts of the new operating plan you need to address: Layoffs and culture.

Carpenters use the aphorism “Measure twice, cut once.” The same applies to layoffs. In every downturn I’ve lived through, there were CEOs who handled layoffs as “a death by a thousand cuts.” For example, in a company with 1000 employees, they’d layoff a 100 people the first month, another 100 the next month, then a 100 the third month to downsize to 700 people over several months. Rather than being productive, the constant layoffs were demoralizing and paralyzed the remaining workforce. Employees saw that the direction was a downward spiral with no end in sight. And everyone worried: “Am I next?”  I’ve watched other CEOs immediately layoff 400 people and have 600 left. If/when they overshot, they could rehire 100 people (including some of the same people who had been laid off). While the mass layoffs created an immediate shock, people adjusted. They worried but began to feel more secure. When hiring began again, everyone was relieved: “The worst is over. Things are getting better.” (Remember to investigate whether the Paycheck Protection Program can save some or all of those jobs.)

To begin adjusting the culture to this new reality, communicate these business model and operating plan changes to your employees. Offer relentless optimism for survival, but ruthless cost-cutting (starting with the CXO salaries.) Let them know that as CEO you are going to be micromanaging for survival and expect each of them to do the same. You’re going to be relentless, direct and clear that once decisions are made, there are no disagreements. And remind them that together you are all working to save the company and their own jobs.

At some point this crisis will run its course. Running this five-day playbook will help your business survive so when the recovery does come, you’ll emerge stronger and ready to hire and grow again.

Lessons Learned

CEOs need to take control and take drastic action. Be decisive and do it immediately
Survival = (speed of your understanding of the situation) x (the magnitude of the pivots/cuts/lifeboat choices you make) x (the speed of your time to make those changes)
Involve the board and the rest of the company
Communicate with all employees daily
Move with speed and urgency, you have days — not weeks or months
As painful as it might be, when you make cuts do it once
Assume you’ll emerge on the other side. What will you wish you had kept?

Action Today for CFO’s

Jeff Epstein is on the board of Shutterstock, Twilio, Kaiser Permanente, and was the CFO of Oracle, DoubleClick, Nielsen and King World and is an operating partner at Bessemer Venture Partners. He teaches the Lean LaunchPad class at Stanford with me. And the minute he talks about financing I shut up and take notes.

He sent this message to the CFOs of his companies yesterday.

(Read it along with yesterdays survival strategy advice to CEOs.)

I thought it was important enough to share it with all of you.

Action This Day

Our first priority is the health and safety of our families, employees, customers and communities.

As CFOs, our next key priority is preserving cash.

For immediate action:

1. Evaluate your liquidity and likely cash out date under your worst-case scenario.

2. Objective: minimum of 18 months of cash. 24 months is better.

If you have more than 24 months, congratulations.

If not, take action now.

Draw down all debt commitments. It’s like buying insurance. There’s a cost, but it’s worth it if things get worse. Ask existing and new lenders for additional funding.
Make a list of all vendors, by $ spend amount. Call all large vendors and ask for lower prices. If appropriate, offer to sign a longer agreement in exchange for lower cash payments in 2020 and 2021.
Review all marketing programs. Cut marketing by x%.
Payroll costs are probably your largest cost item. If necessary, you may need to take action. Choices include:

Hiring freeze
Layoffs.
Cut all salaries by 20%. Cut CXO salaries by 30%. Award equity to employees equal to the value of their reduced salaries.


Some of your customers will delay paying you; some will default. Credit card customers will dispute charges leading to chargebacks to you. Monitor collections and chargebacks frequently. Develop a playbook for mitigation.
If you own bonds or other investments, review them for risk. Some companies, and perhaps some governments, may default.
Because events are changing so quickly, have your CEO consider sending a short weekly email to your Board with any updates.
Call if you’d like a sounding board to discuss the decisions you’re considering.

Most of all, stay safe.

Jeff

The Virus Survival Strategy For Your Startup

“Winter is coming.”

This is the one blog post that I hope I’m completely wrong about.

With the Covid-19 virus a worldwide pandemic, if you’re leading any startup or small business, you have to be asking yourself, “What’s Plan B? And what’s in my lifeboat?”

Here are a few thoughts about operating in uncertainty in a pandemic.

Impact

Social isolation and a declared national emergency have had an immediate impact on industries that cluster people; conferences, trade shows, airlines/cruise ships and all types of travel, the hospitability industry, sporting events, theater and movies, restaurants and schools. Large companies are sending employees to work at home. Large retail chains are shutting down their stores. While the impact on small businesses and workers in the “gig-economy” hasn’t made the news, it will be worse for them. They have fewer cash reserves and less margin of error for managing sudden downturns. The ripple and feedback effect of all of these closures will have a major impact on our economy, as each industry that gets impacted puts people out of work, and those laid off workers don’t buy products and services.

It’s no longer business as usual for the rest of the economy. In fact, shutting down the economy for a pandemic has never happened. Millions of jobs may be lost in the next few months, as entire industries get devastated, something not seen since the Great Depression of 1929-39. I hope that I’m very wrong, but the impact of this virus social and economic effects are likely to be profound, and will change how we shop, travel and work for years.

If you’re running a startup or small business, your first priority (after your family) is keeping your employees and customers safe. But next the question is, ‘What happens to my business?”

The questions every startup or small business CEO needs to ask now are:

What’s my Burn Rate and Runway?
What does your new business model look like?
Is this a three-month, one-year or a three-year problem?
What will my investors do?

Burn Rate and Runway

To answer the first question, take stock of your current gross burn rate i.e. how much cash are you spending each month. How much are fixed expenses (those you can’t change, i.e. rent?) And how much are variable expenses (salaries, consultants, commission, travel, AWS/Azure charges, supplies, etc.?)

Next, take a look at your actual revenue each month – not forecast, but real revenue coming in each month. If you’re an early stage company, that number may be zero.

Subtract your monthly gross burn rate from your monthly revenue to get your net burn rate. If you’re making more money than you’re spending, you have positive cash flow. If you’re a startup and have less revenue than your expenses, that number is negative and represents the amount of money your company loses (“burns”) each month. Now take a look at your bank account. See how many months your company can survive burning that amount of cash each month. This is your runway –  the amount of time your company has before it runs out of money. This math works in a normal market…

The World Turned Upside Down

Unfortunately, it’s no longer a normal market.

All your assumptions about customers, sales cycle and most importantly, revenue, burn rate and runway are no longer true.
If you’re a startup, you’ve likely calculated your runway to last until you raise your next round of funding. Assuming there was going to be a next round. That may be no longer true.

What does my business model look like now?

Since the world today is no longer the same as it was a month ago, and likely will be worse a month from now, if your business model today looks the same as it did at the beginning of the month, you’re in denial – and possibly out of business.

It’s the nature of startup CEOs to be optimistic, however you need to quickly test your assumptions about customers and revenue. If you are selling to businesses (a B-to-B market) have your customers’ sales dropped? Are your customers closing for the next few weeks? Laying off people? If so, whatever revenue forecast and sales cycle estimates you had are no longer valid. If you’re selling directly to consumers (a B-to-C market,) were you in a multi-sided market (consumers use the product, but others pay you for their eyeballs/data?) Are those assumptions about payers still correct? How do you know?

What are the new financial metrics? Receivables – get on top of them. Days of cash left?

You need to figure out your actual burn rate and runway in this new environment now.

Is this a three-month, one-year, or a three-year problem?

Next, you need to take a deep breath and ask, Is this a three-month problem, a one-year problem or a three-year problem? Are the shutdowns of businesses going to be a temporary blip in the economy or will they drive the U.S. and Europe into a long recession?

If it’s just three-months, (looking more unlikely by the day) then an immediate freeze on variable spending (hires, marketing, travel, etc.) is in order. But if the effects are going to reverberate in the economy longer, you need to start reconfiguring your business. You need a lifeboat strategy. That’s a fancy phrase for figuring out what are minimal things you need to keep your company alive and what to leave behind.

A one-year problem means taking a knife to your burn rate (layoffs and elimination of perks and programs to reduce your variable expenses,) renegotiating what previously seemed liked fixed expenses (rent, equipment lease payments, etc.) and putting only the essential elements for survival in the lifeboat.

If you were selling online versus in-person, you may have an advantage (assuming your customers are still there.) Or you change sales strategy.

Whatever your product/market fit was last month it’s no longer true and needs to change to meet the new normal. Does this open new value propositions or kill others? Alter the product?

And if it’s a three-year problem? Then not only do you need to jettison everything that isn’t essential for survival, it probably requires a new business model. In the short term, explore if some part of your business model can be oriented around the new rules of social isolation. Can your product be sold, delivered or produced online? Does it have some benefits if delivered that way? (See the advice from Sequoia Capital here.) If not, can your product/service be positioned as a lifeboat for others to ride out the downturn?

Leadership – Plan, Communicate and Act with Compassion

Revise your sales revenue goals, product timelines and create a new business model and operating plan – and communicate them clearly to your investors and then to your employees. Keep people focused on an achievable plan that they clearly understand. From the perspective of having lived through the last three crashes, I’ve observed the biggest mistake CEO’s made was not making draconian cuts to expenses quickly enough. They dripped out layoffs and cuts holding on to favored projects with magical thinking that somehow this was just something that would pass.  You need to act now.

If you’re in a large company considering layoffs, the first option should be to cut the salaries of the higher paid exec/employees to try to keep the people who can least afford it, employed. (Good things will come to CEOs who first try to save everyone on the ship before they jump in the lifeboat.) If/when people need to be laid off, do it with compassion. Offer extra compensation. If in the worst case you see you’re running out of cash, under no circumstances run it down to zero. Do the right thing and have enough cash on hand to offer everyone at least two weeks or more of pay.

Your Investors

One of the key elements of survival is access to capital. As a startup or small business you should realize your investors are also asking themselves how this pandemic will affect their business model. The cold hard truth is that in a crash VC’s are running their own “What do I save in the lifeboat?” exercise. They triage their deals –  first worrying about liquidity of their late stage deals which have the highest valuations. These startups typically have very high burn rates and funding for those could fall off a cliff. You and the survival of your startup may no longer be their priority and your interests are no longer aligned. (VC’s who tell you otherwise are either naïve, lying through their teeth, or not serving the interests of their investors.) In every major downturn inflated valuations disappear and the few VC’s still writing new checks find it’s a buyer’s market. (Hence the term “Vulture Capitalists.”)

Some investors have only lived in a booming market when valuations only went up and investment capital was plentiful. But investors with grey hair can remember the nuclear winter after the past recessions of 2000 and 2008 and can offer some historical patterns of crashes and recovery to CEOs running early stage startups – some who weren’t born when the crash of 1987 hit, were 10 years old in the crash of 2000 and 18 in the last crash of 2008. Keep in mind, that today’s circumstances are different. This isn’t a bear stock market. This is a conscious shutdown of most of our economy, trading jobs for saving hundreds of thousands of lives, that’s causing a bear market and a likely recession.

Data from the last large crash in 2008 had seed rounds recovering early, but later stage funding cratered and took years to recover. (see the figure below showing quarterly VC investments before and after this crash – part of this post from Tomasz Tunguz.)

[image error]This time around, the health of the venture business may depend on what hedge funds, investment banks, private equity firms, sovereign wealth funds, and large secondary market groups do. If they pull back, there will be a liquidity crunch for later stage startups (Series B, C…). For all startups in the short term, the deal terms and valuations will get worse, and there will be fewer investors looking at your deal.

As a startup CEO you need to know if your board is going to be screaming at you for not radically cutting burn rate and coming up with a new business model or, will they be yelling at you to stop being distracted and stay the course?

And if the latter, I’d want to know what skin in the game they have, if they’re wrong. It’s pretty easy for VC’s to tell you that they’ll be right behind you when you’ll need a next round, until they’re not. Unless your investors are matching their orders for “full speed ahead” with a deposit into your bank, now is not the time to be railroaded into a burn rate that is unrecoverable.

Prepare for a long cold winter.

But remember no winter lasts forever and in it smart founders and VCs will be planting the seeds for the next generation of startups.

Lessons Learned

This is a conscious shutdown of our economy, trading jobs for saving hundreds of thousands of lives
It’s likely going to cause a recession
The Covid-19 virus will change how we shop, travel and work for at least a year and likely three
It’s inconceivable that you can have the same business model today as you did 30-days ago
Put in place lifeboat plans for three-month, one- year and three year downturns
Recognize that your investors will act in their interests, which may no longer be yours
Take action now
But act with compassion