Steve Blank's Blog, page 52

Greatest Hits – The Gigaom Interview

Om Malik runs Gigaom, probably the most interesting and technically accurate sites on the blogosphere.

He had me in for an interview. We covered a wide range of topics.

0:22 – the Entrepreneurial explosion

1:45 – Are we in a Bubble?

3:20  - The Last Bubble

6:30 – Rules for the New Bubble

8:05 – Metrics for Success

10:10 – Total Available Market in the Billions

11:45 – Is this a Really a Bubble – the greater fool theory

13:00 – VC's – The Pact With the Devil

14:10 – What to Use VC's $'s for?

15:36 – How to Get Customer Centric – an unnatural act

17:00 – The Secrets to Social Networks – Bowling Alone

17:45 – Who Are the Best Entrepreneurs?

18:45 – Entrepreneurs are Artists

21:39 – What Makes Silicon Valley Special?

22:50 – Risk and Culture in Silicon Valley

Filed under: Customer Development, Lean LaunchPad, Teaching, Venture Capital

The Four Steps to the Epiphany is Now in French

The Four Steps to the Epiphany (Les quatre étapes vers l'épiphanie) is now available in French.

Order it from the Bookediton.com  (Search for Les quatre étapes vers l'épiphanie)

Thanks to Antoine Bruyns for making the French version happen.

It joins the Japanese version (アントレプレナーの教科書 [単行本（ソフトカバー）available on Amazon.

Thanks to Tsutsumi Takashi for making it happen in Japanese.

Collect the set!

Filed under: Uncategorized

Philadelphia University Commencement Speech – May 15th 2011

I am honored to be with you as we gather to celebrate your graduation from Philadelphia University.

While I teach at Stanford and Berkeley, to be honest… this is the closest I've ever gotten to a college graduation.

I realize that my 15 minutes up here is all that's between you and the rest or your life, so if I can keep you awake, I'm going to share 4 short stories from my life.

My first story is about finding your passion.

My parents were immigrants…  Neither of them had been to college—my mother graduated from high school but my father left school after the 7th grade.  Still, like many immigrants, they dreamed that someday their children would go to college…  Unfortunately that was their dream—but it wasn't mine.

I ended up at Michigan State because I got a scholarship…Once I got there, I was lost…unfocused…and had no idea of who I was and why I was in school. I hated school.

One day my girlfriend said, "You know some of us are working hard to stay here. But you don't seem to care.Why don't you find out what you really want to do?"

That was the moment I realized I, …not anyone else…was in charge of my life.

I took her advice. I dropped out of Michigan State University after the first semester.

In the middle of a Michigan winter, I stuck out my thumb and hitchhiked to Miami, the warmest place I could think of.

I had no idea what would be at the end of the highway. But that day I began a pattern that I still follow—stick out your thumb and see where the road takes you.

I managed to find a job at the Miami International Airport loading racehorses onto cargo planes. I didn't like the horses, but the airplanes caught my interest.

Airplanes were the most complicated things I had ever seen. Unlike other kids who were fans of the pilots, I was in awe of the electronics technicians in charge of the planes' instruments. I would hang around the repair shop just helping out wherever I could. I didn't know anything, so I didn't get paid…

But soon some technician took me under his wing and gave me my first tutorial on electronics, radar and navigation. I was hooked. I started taking home all the equipment manuals and would read them late into the night.

For the first time in my life, I found something I was passionate about.

And the irony is that if I hadn't dropped out, I would never have found this passion…the one that began my career. If I hadn't discovered something I truly loved to do, I might be driving a cab at the Miami airport.

My life continued to follow this same pattern…I'd pursue my curiosity, volunteer to help, and show up a lot. Again and again, the same thing would happen… people would notice that I cared…and I'd get a chance to learn something new.

Now that you paid for your degree…I'm going to let you in on a secret. It's your curiosity and enthusiasm that will get you noticed and make your life interesting—not your grade point average.

But at the time…as excited as I was…I couldn't see how my passion for airplanes and avionics could ever get me anywhere.  Without money, or a formal education, how could I learn about them?

The answer turned out to be a war.

My second story is about Volunteering and Showing Up.

In the early 1970's, as some of you might remember, our country was in the middle of the Vietnam War—-and the Air Force was happy to have me.

I enlisted to learn how to repair electronics. The Air Force sent me to a year of military electronics school. While college had been someone else's dream, learning electronics had become mine.

After electronics school, when most everyone else was being sent overseas to a war-zone, I was assigned to one of the cushiest bases in the Air Force, right outside of Miami.

My first week on the base… our shop chief announced: "We're looking for some volunteers to go to Thailand." I still remember the laughter and comments from my fellow airmen. "You got to be kidding… leave Miami for a war in Southeast Asia?"

Others wisely remembered the first rule in the military: never volunteer for anything. Listening to them, I realized they were right. Not volunteering was the sane path of safety, certainty and comfort.

So I stepped forward, raised my hand—and I said, "I'll go."

Once again, I was going to see where the road would take me. Volunteering for the unknown…which meant leaving the security of what I knew…would continually change my life.

Two weeks later I was lugging heavy boxes across the runway under the broiling Thailand sun. My job was to replace failed electronic warfare equipment in fighter planes as they returned from bombing missions over North Vietnam.

As I faced yet another 110-degree day, I did consider that perhaps my decision to leave Miami might have been a bit hasty. Yet every day I would ask, "Where does our equipment come from… and how do we know it's protecting our airplanes?"

The answer I got was, "Don't you know there's a war on? Shut up and keep doing what you're told."

Still I was forever curious. At times continually asking questions got me in trouble…

once it almost sent me to jail…

but mostly it made me smarter.

I wanted to know more.  I had found something I loved to do.. …and I wanted to get better at it.

When my shift on the flightline was over, my friends would go downtown drinking. Instead, I'd often head into the shop and volunteer to help repair broken jammers and receivers. Eventually, the shop chief who ran this 150-person shop approached me and asked, "You're really interested in this stuff, aren't you?" He listened to me babble for a while, and then walked me to a stack of broken electronic equipment and challenged me troubleshoot and fix them.

Hours later when I was finished, he looked at my work and told me, "We need another pair of hands repairing this equipment. As of tomorrow you no longer work on the flightline." He had just given me a small part of the electronic warfare shop to run.

People talk about getting lucky breaks in their careers. I'm living proof that the "lucky breaks" theory is simply wrong. You get to make your own luck. 80% of success in your career will come from just showing up. The world is run by those who show up…not those who wait to be asked.

Eighteen months after arriving in Thailand, I was managing a group of 15 electronics technicians.

I had just turned 20 years old.

My third story is about Failure and Redemption

After I left the military, I ended up in Palo Alto, a town south of San Francisco. Years later this area would become known as Silicon Valley.

For a guy who loved technology, I was certainly in the right place. Endlessly curious, I went from startups in military intelligence to microprocessors to supercomputers to video games.

I was always learning. There were times I worried that my boss might find out how much I loved my job…and if he did, he might make me pay to work there. To be honest, I would have gladly done so.  While I earned a good salary, I got up and went to work every day not because of the pay, but because I loved what I did.

As time went on, I was a co-founder or member of the starting team for six high-tech startups…

With every startup came increasing responsibility. I reached what I then thought was the pinnacle of my career when I raised tens of millions of dollars and became CEO of my seventh startup… a hot new video game company. My picture was in all the business magazines, and made it onto the cover of Wired magazine. Life was perfect.

And then one day it wasn't.

It all came tumbling down. We had believed our own press, inhaled our own fumes and built lousy games. Customers voted with their wallets and didn't buy our products. The company went out of business. Given the press we had garnered, it was a pretty public failure.

We let our customers, our investors, and our employees down. While it was easy to blame it on others…and trust me at first I tried… in the end it was mostly a result of my own hubris—the evil twin of entrepreneurial passion and drive.

I thought my career and my life were over. But I learned that in Silicon Valley, honest failure is a badge of experience.

In fact, unlike in the movies, most startups actually fail. For every Facebook and Zynga that make the press, thousands just never make it at all.

All of you will fail at some time in your career…or in love, or in life.

No one ever sets out to fail. But being afraid to fail means you'll be afraid to try.  Playing it safe will get you nowhere.

As it turned out, rather than run me out of town on a rail, the two venture capital firms that had lost $12 million in my failed startup actually asked me to work with them.

During the next couple years…and much humbler… I raised more money and started another company, one that was lucky enough to go public in the dot.com bubble.

In 1999… with the company's revenue north of $100 million…I handed the keys to a new CEO and left. I had married a wonderful woman and together we had two young daughters.

I decided that after 20 years of working 24/7 in eight startups, I wanted to go home and watch my kids grow up.

Which brings me to my last story—There's a Pattern Here.

When I retired I found myself with lots of time to think.

I began to reflect about my career and what had happened in my 21 years with startups in Silicon Valley.

I was all alone in a ski cabin with the snow falling outside…with my wife and daughters out on the slopes all day… I started to collect my thoughts by writing what I had hoped would become my memoirs.

Eighty pages later, I realized that I had some great stories as an entrepreneur and a failed CEO. But while writing them was a great catharsis, it was quickly becoming clear that I'd even have to pay my wife and kids to read the stories.

But the more I thought about what I had done, and what other entrepreneurs had tried, I realized something absurdly simple was staring at me.  I saw a repeatable pattern that no else had ever noticed.

Business schools and investors were treating new companies like they were just small versions of large companies. But it struck me that startups were actually something totally different. Startups were actually like explorers—searching for a new world, where everything—customers, markets, prices—were unknown and new.

These startups needed to be inventive as they explore, trying new and different things daily. In contrast, existing companies, the Wal-Mart's and McDonalds, already had road maps, guide books and playbooks—they already know their customers, markets, and prices. To succeed they just need to do the same thing every day.

Now it would have been easy to say, "Nah, this can't be right—every smart professor at Harvard and Wharton and Stanford believes something different."

In fact, in your lives this will happen to you.

You will have a new idea, and people will tell you, "That can't be right because we've always done it this way."

Ignore them…..  Be persistent… Never give up. Innovation comes from those who see things that other don't.

As a retired CEO, I had a lot of free time.  So I was often invited to be a guest lecturer at the business school at Berkeley. They thought I could tell stories about what it was like to start a company. I was generous with my time…and I showed up a lot.

But I began to nag the head of the department about this new idea I had…one that basically said that everything you learn about starting new companies in business schools was wrong. I thought that there was a better a way to teach and manage startups than the conventional wisdom of the last 40 years. And to their credit…Berkeley's Business School and then Stanford's Engineering School let me write and teach a new course based on my ideas.

Now…a decade later… that course called Customer Development… is the basis of an entirely new way to start companies.

If you're in a technology company or build a web or mobile application, it's probably the only way to start a company.

How did this happen?  By showing up a lot and questioning the status quo.

These days I write a weekly blog about entrepreneurship.  At the end of each post, I conclude with lessons learned—a kind of Cliff Notes of my key takeaways.  So in case you haven't been listening, that's how I'll finish up today.

–

Be forever curious.

Volunteer for everything.

Show up a lot.

Treat failure as a learning experience.

Live life with no regrets.

Remembering…There is no undo button.

Congratulations again to you all…and thank you very much.

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Filed under: Air Force, Family/Career, Teaching

The Lean LaunchPad at Stanford – The Final Presentations

The Stanford Lean LaunchPad class was an experiment in a new model of teaching startup entrepreneurship. This last post – part nine – highlights the final team presentations. Parts one through eight, the class lectures, are here, Guide for our mentors is here. Syllabus is here.

This is the End

Class lectures were over last week, but most teams kept up the mad rush to talk to even more customers and further refine their products. Now they were standing in front of us to give their final presentations. They had all worked hard. Teams spent an average of 50 to 100 hours a week on their companies, interviewed 50+ customers and surveyed hundreds (in some cases thousands) more.

While the slide presentations of each team are interesting to look at, that's actually the sideshow. What really matters are the business model canvas diagrams in the body and appendix of each presentation. These diagrams are the visual representation of the how and the what a team learned in the class – how they tested their hypotheses by getting out of the building using the Customer Development process and what they learned about each part of their business model.

By comparing the changes the teams made week-to-week-week in their business model canvas diagrams, you'll see the dynamics of entrepreneurship, as they iterate and Pivot over time. We believe these are the first visual representations of learning over time.

Team Agora

If you can't see the Agora slides above, click here.

Team Autonomow

If you can't see the Autonomow slides above, click here.

(p.s. they're going to make a company out of this class project, and they're hiring engineers.)

Team Blink Traffic

If you can't see the Blink traffic slides above, click here.

Team D.C. Veritas

If you can't see the D.C. Veritas slides above, click here.

Team Mammoptics

If you can't see the Mammoptics slides above, click here.

Team OurCrave

If you can't see the OurCrave slides above, click here.

Team PersonalLibraries

If you can't see the PersonalLibraries slides above, click here.

Team PowerBlocks

If you can't see the PowerBlocks slides above, click here.

Team Voci.us

If you can't see the Voci.us slides above, click here.

———

Why Did We Teach This Class?

Many entrepreneurship courses focus on teaching students "how to write a business plan." Others emphasize how to build a product. We believe the former is simply wrong and the later insufficient.

Business plans are fine for large companies where there is an existing market, existing product and existing customers, but in a startup all of these elements are unknown and the process of discovering them is filled with rapidly changing assumptions. Experienced entrepreneurs realize that no business plan survives first contact with customers. So our goal was to teach something actually useful in the lives of founders.

Building a product is a critical part of a startup, but just implementing build, measure, learn without a framework to understand customers, channel, pricing, etc. is just another engineering process, not building a business. In the real world a startup is about the search for a business model or more accurately, startups are a temporary organization designed to search for a scalable and repeatable business model. Therefore we developed a class to teach students how to think about all the parts of building a business, not just the product.

There was no single class to teach aspiring entrepreneurs all the skills involved in searching for a business model (business model design, customer and agile development, design thinking, etc.) in one quarter. The Lean LaunchPad was designed to fill that void.

What's Different About the Class?

The Lean LaunchPad class was built around the business model / customer development / agile development solution stack. Students started by mapping their assumptions (their business model) and then each week they tested these hypotheses with customers and partners outside in the field (customer development) and used an iterative and incremental development methodology (agile development) to build the product.

The students were challenged to get users, orders, customers, etc. (and if a web-based product, a minimum feature set) all delivered in 8 weeks. Our goal was to get students out of the building to test each of the nine parts of their business model, understand which of their assumptions were wrong, make adjustments and continue to iterate based on what they learned.  They learned first-hand that faulty assumptions were not a crisis, but a learning event called a pivot —an opportunity to change the business model.

What Surprised Us?

The combination of the Business Model Canvas and the Customer Development process was an extremely efficient template for the students to follow – even more than we expected.
It drove a hyper-accelerated learning process which led the students to a "information dense" set of conclusions. (Translation: they learned a lot more, in a shorter period of time than in any other entrepreneurship course we've ever taught or seen.)
The process worked for all types of startups – not just web software but from a diverse set of industries – wind turbines, autonomous vehicles and medical devices.
Insisting that the students keep a weekly blog of their customer development activities gave us insight into their progress in powerful and unexpected ways. (Much more on this in subsequent blog posts.)

What Would We Change?

In this first offering of the Lean Launchpad class we let students sign up without being part of a team. In hindsight this wasted at least a week of class time. Next year we'll have the teams form before class starts. We'll hold a mixer before the semester starts so students can meet each other and form teams. Then we'll interview teams for admission to the class.
Make Market Size estimates (TAM, SAM, addressable) part of Week 2 hypotheses
Show examples of a multi-sided market (a la Google) in Week 3 or 4 lectures.
Be more explicit about final deliverables; if you're a physical product you must show us a costed bill of materials and a prototype. If you're a web product you need to build it and have customers using it.
Teach the channel lecture (currently week 5) before the demand creation lecture (currently week 4.)
Have teams draw the diagram of "customer flow" in week 3 and payment flows in week 6.
Have teams draw the diagram of a finance and operations timeline in week 9.
Find a way to grade team dynamics – so we can really tell who works well together and who doesn't.
Video final presentations and post to the web. (We couldn't get someone in time this year)

It Takes a Village

While I authored these blog posts, the class was truly a team project. Jon Feiber of Mohr Davidow Ventures and Ann Miura-Ko of Floodgate co-taught the class with me (with Alexander Osterwalder as a guest lecturer.) Thomas Haymore was our great teaching assistant. We were lucky to get a team of 25 mentors (VC's and entrepreneurs) who selflessly volunteered their time to help coach the teams. Of course, a huge thanks to the 39 Stanford students who suffered through the 1.0 version of the class. And finally special thanks to the Stanford Technology Ventures Program; Tom Byers, Kathy Eisenhardt, Tina Selig for giving us the opportunity to experiment in course design.

E245, the Lean LaunchPad will be offered again next Winter.  See you there!

Filed under: Business Model versus Business Plan, Lean LaunchPad, Teaching

The LeanLaunch Pad at Stanford – Class 8: Key Resources, Activities and Expense Model

The Stanford Lean LaunchPad class was an experiment in a new model of teaching startup entrepreneurship. This post – part eight – was the last formal lecture. Parts one through seven of the lectures are here, Syllabus is here.

While this is the last lecture, the teams still have one more week to work on their companies, and then they have their final presentations – for 30% of their grade.  All the teams have crossed the Rubicon. 

Week 8 of the class.

Last week the teams tested their Revenue Models hypotheses: what are customers willing to pay for? This week they were testing their hypotheses about Partners. Partners are the external companies whose product or service combines with your Value Proposition to create a complete customer solution or "whole product" to satisfy customers. For example, Apple needed music from their record label partners to make the original iPod and iTunes experience complete. (The concept of Partners, took some explanation as some teams confused partners with the Distribution Channel.)

The Nine Teams Present

PersonalLibraries was now an on-line "social shopping system." After a week of hectic customer discovery, the team further refined their new business model. Their minimum viable product would be "Trusted Advice on products tailored to your needs by people and groups relevant to you." Their initial customer segment were upwardly mobile professionals with $2-10K discretionary purchases/year (excluding travel,) and their revenue model was affiliate program fees.

With the clock ticking down to the end of the class the team appeared to give up sleep for the remainder of the quarter. They contacted a dozen admissions consulting firms, ran three Usertesting.com video interviews on a social shopping tool, surveyed 40 Stanford students on their on-line shopping habits, and then did another survey of 700 Stanford MBA students (!) to find out what books they'd recommend for prospective students. They used that data as their first "trusted advice" for the new website they built in a week. http://insidely.com/books/

Within the week they were #6 in Google search results for "Stanford Admission Books."

Amazingly it looked like the PersonalLibraries team had restarted the company and found a segment where customers wanted their product. They had another week to go until their final presentations. This looks like a race to the wire.

If you can't see the slides above, click here.

Autonomow, the robotic farm weeder, spent part of the week investigating Partners that could help them build a more complete offering for farmers. The team talked to an agricultural sensor expert at U.C. Davis, a German applied Laser research group, a California organic farmer who wanted to be an Earlyvangelist, four service partners and three weed/pest management consultants.

On the technology front, last week they tested whether their Carrotbot (their research platform they built to gather data for machine vision/machine learning) could tell the difference between a carrot and a weed in a farm field versus the lab. This week the team started investigating whether the spectral reflectance curves of healthy green plants are different from weeds, and if so could an infrared Hyperspectral imaging camera be better suited than their current visible light camera for weed/plant recognition.

But what got our attention was when they told us they were investigating what it takes to kill a weed in the field. Their answer? With a laser. Way cool.

They spent the week sorting through some basic laser technical questions. How much energy does it take to kill a weed? Answer: About 5 Joules of energy. Next question: How much energy will the laser require? Answer: If the robotic weeder is traveling at 1.5 mph, the laser needs to kill the weed in about 10 milliseconds; therefore the laser needs to put out no more than 500 watts of energy. What wavelength of laser? Answer: The most cost effective wavelength is 800-900nm ~ $20/watt. But water (the main ingredient in a weed) best absorbs light at higher frequencies – think microwaves. Final question: Is the improved absorption efficiency worth the extra cost? Testing for all of these is required.

If you can't see the slides above, click here.

The next team was D.C. Veritas, building a low cost wind turbine for cities. Last week the team did mass interviews of city officials across the United States to understand the project approval process inside a city. This week they broadened the discussion with interviews with the city planner in Mariposa, Texas and the city engineer from Rapid City, South Dakota.

They worked on understanding their partners. D.C. Veritas needs three types of partners: installers (to reduce their overhead,) certification authorities (who would provide credibility) and government and research labs (for testing facilities).

Of real interest was their evolving view of their revenue model. Instead of selling a city the wind turbine hardware, their revenue model moved to a Wind Power Purchase Agreement, a long term contract with a city to buy the electricity generated by the D.C. Veritas turbines.

If you can't see the slides above, click here.

The Agora Cloud Services team was now making a tool set for managing Amazon Web Services cloud compute usage. They believed their tools could save customers 30% of their Amazon bill. Their value proposition was to provide service matching, capacity planning and usage monitoring & control.  They had another 3 interviews, this time with potential partners and integrators.

If you can't see the slides above, click here.

The Week 8 Lecture: Q&A and Summing Up

Our lecture covered Key Resources and Cost Structure. The textbooks for this class were Alexander Osterwalder's Business Model Generation (along with the Four Steps to the Epiphany). So who better to have as a surprise guest lecturer for our last class than Alexander Osterwalder himself.

His lecture covered: What resources do you need to build your business?  How many people? What kind? Any hardware or software you need to buy? Any IP you need to license?  How much money do you need to raise?  When?  Why? Importance of cash flows? When do you get paid vs. when do you pay others?

Our assignment for the teams during their final week: What's your expense model? What are the key financials metrics for costs in your business model?  Costs vs. ramp vs. product iteration? Access to resources. Where is the best place for your business? Where is your cash flow break-even point? Assemble a resources assumptions spreadsheet.  Include people, hardware, software, prototypes, financing, etc.  When will you need these resources?  Roll up all the costs from partners, resources and activities in a spreadsheet by time.

The last part of their assignment is their final presentation – a "Lessons Learned" summary of their work over the entire quarter – which will count for 30% of their grade. To help them get ready for their final, one of our mentors plans to hold a mandatory "story-telling" workshop, to assist them in assembling their final presentation.

If you can't see the slides above, click here.

———

Over the last few weeks as our students presented, we had a growing feeling that we were seeing something extraordinary. Our teaching objective was to take engineers (with a smattering of MBA's) and give them an immersive hands-on experience of how an idea becomes a profitable business. We taught them theory, methodology, and practice using Customer Development and business model design.

Watching them we realized that we had found a way to increase the information density a student team could acquire in eight short weeks. But what was truly awe-inspiring was the breathtaking speed and tempo of the teams' Pivots.

All teams had all accomplished something remarkable, but it won't be clear what a singular achievement this was until we see their final presentations.

Stay tuned for the last post – the Final Presentations and Lessons Learned.

Filed under: Business Model versus Business Plan, Lean LaunchPad, Teaching

The LeanLaunch Pad at Stanford – Class 7: Revenue Model

The Stanford Lean LaunchPad class was an experiment in a new model of teaching startup entrepreneurship. With one week and one more updates to go, this post is part seven. Parts one through six are here, Syllabus is here. 

With a week to go the teams are starting to look like opening night before the big play. Teams are iterating and pivoting right and left, one team threw their entire business model out the window and did a complete restart, and another team was having a meltdown over personalities.

Week 7 of the class.

Last week the teams were testing their hypotheses about their Channel (how a company delivers its value proposition (i.e. its product or service) to its customers. This week they were testing their hypotheses about Revenue Models: what are customers really willing to pay for? How? Are you generating transactional or recurring revenues? Is it a multi-sided market, and if so who's the user versus who's the payer.

The Nine Teams Present

The first team up was PersonalLibraries the team making a reference management system for discovering, organizing and citing researchers' readings. Oops.  No more.  The team looked at the potential revenue and concluded that the outlook for this business with this customer segment was dismal. They decided to do something more dramatic than just a Pivot. They did a restart. They moved from "Reference Libraries" to "Product Libraries"— an on-line social shopping system. (If this had been a real startup rather than a class we would have had the team test many more variants on customer segment, revenue models, channels, etc before such an extreme move.)

They quickly came up with a new business model canvas, value proposition and customer segment.

The team hasn't been getting much sleep as they have a week and a half to make meaningful progress. Lets see what they can pull off.

If you can't see the slides above, click here.

Autonomow, the robotic farm weeder had a busy week. In talking to their sales channel (farm equipment dealers) and customers (organic farmers) they realize they have an opportunity to come up with a unique revenue stream. Instead of selling or leasing the equipment they are going to charge for leasing according to weed density in the farm fields. The denser the weeds the higher the rental price per day. Customers and dealers agree that it's a fair deal.  Wow.

.

On the way to the WorldAg Expo their Carrotbot (their research platform they built to gather data for machine vision/machine learning) hit the farm fields near Avenal, California.

The videos of the robot in the field were priceless.

and

.

At the World Ag Expo in Tulare the team encounters its first potential competitor –  "Robocrop." (No kidding, I couldn't make this up.) The Robocrop Precision Guidance System for row crop cultivators uses a camera to shift a hitch so cultivators can cut very close to the plant rows and the Robocrop InRow is a robotic weeder.

If you can't see the slides above, click here.

The next team was D.C. Veritas, the team building a low cost residential wind turbine wind turbine for cities and utilities.Last week the team pivoted and their wind turbine is now embedded into street and highway light poles.

This week the D.C. Veritas team put it into overdrive and did mass interviews of city officials across the United States. In Palo Alto they talked to the financial and utilities mangers. In Williamstown, West Virginia they spoke to the city planner and a member of the budget committee. In Oklahoma City, Oklahoma it was the city engineer and director of public works. In Amarillo, Texas they had interviews with the head of the bidding process, the Street light manager, Director of Public Works and the utilities engineer.

They quickly got a good handle on the canonical project approval process inside a city.

They combined their understanding of the city approval process with the data they gleaned from customer interviews and developed preliminary archetypes. These represented the different customers in the approval cycle inside a city.

If you can't see the slides above, click here.

Agora Cloud Services

The Agora team, a marketplace for cloud computing, (a relative island of calm in a turbulent sea of other teams) now believed their business was žproviding a tool set for managing Amazon Web Services cloud compute usage. They believed they could build tools that would save customers 30% of their Amazon bill by provide service matching, capacity planning and usage monitoring & control.  The team was a paragon of steady and relentless progress. They had another 4 interviews with potential customers and consultants.

If you can't see the slides above, click here.

The Week 7 Lecture: Partners

Our lecture this week covered Partners. Which partners and suppliers leverage your model? Who do you need to rely on?

Our assignment for the teams for next week: What partners will you need? Why do you need them and what are risks? Why will they partner with you? What's the cost of the partnership?  What are the benefits for an exclusive partnership? What are the incentives and impediments for the partners?

If you can't see the slides above, click here.

———

The pressure was on. The other five teams were also furiously iterating and pivoting. The JointBuy team (the one that sent out 16,000 emails last week) realized that their low-fidelity website they used to test key concepts needed to get real to attract buyers and sellers in volume. The team pulled a week of all nighters and turned the wireframe prototype into a fully functioning site.

In almost every entrepreneurship class with a team project there's a team that can't figure out how to work together. These are the same problems one sees in real startups (disagreements over who controls the vision, team members not pulling their weight, disillusionment with the team direction, individuals uncomfortable in rapid decision making with less than perfect data, etc.) We give the students an escalation path if they're having interpersonal problems (mentors – to Teaching Assistant – to Professors) to see if they can first worth through the issues without our intervention. While these are always painful we try to teach that they are part of the learning process. Better you encounter the problems in a classroom than after you raised a venture round.

At this point in the class almost all the teams are in a full sprint to the finish line. Next week, the last lecture. Then the final presentations.

Filed under: Business Model versus Business Plan, Lean LaunchPad, Teaching

The Apprentice – Entrepreneur Version

We are all apprentices in a craft where no one ever becomes a master

Ernest Hemingway

Silicon Valley is built on simple myths – one of the most pervasive is that all winning startups are founded straight out of school by 20 year olds from Stanford or Harvard. The reality is these are the exceptions not the rule.

Too Old at 30?

I was having coffee with an ex-student at the ranch, watching our bobcat hunt in the front lawn. This student had called and said he had to meet  - "I'm having a career crisis," was how he described it. I invited him to make the drive down.

As the story unfolded, it turned out that he just turned 30 and realized that he hadn't founded a company yet. "Everyone now starts a company out of school. All my classmates who were interested in entrepreneurship have started their own companies. I've just been working my way up the ladder." He explained that he had a progressively set of better jobs at companies that were in the "build" phase. These ex-startups had found a repeatable business model and were putting the processes in place to grow into a large company. They had hired operating executives and were starting to scale.

"Well what's wrong with what you've been doing?" I asked. "Oh, I've learned a ton," he replied. "If I had started a company out of school I would have made all kind of stupid mistakes."

Ok I wondered, the problem is what? "So how have your friends done?" We watched as the bobcat patiently stalked a gopher. "Hmm" he said,  "A few did ok, but most of them cratered their startups. For the amount of money they made most of them would have been better off working at Walmart."

Slow Learner

I told him he wasn't alone. Early in my career I apprenticed at companies that had recently been startups, hadn't yet gone public and were still innovative. My career was a slow 20-year progression from training instructor to product marketing manager to VP of Marketing. It wasn't until my 7th startup that I was a CEO in a startup I co-founded (and its failure left a crater so deep it had it's own Iridium layer.)

Perhaps the most important part of this non-metoric career trajectory was the mentoring I received. I managed to work for, with, and around people who were truly skilled at what they did. Some of them consciously taught and shared their skills. For others I tried my best to suck out every bit of what they knew and emulate the best of their skills. (At times the learning was painful, but it was never forgotten.)

While the Silicon Valley myth is that all winning startups are founded straight out of school it's just not true.

No Longer a Startup

In raw numbers, most engineers and MBA's aren't founding companies, they're going to work for others who have; Facebook, Google, Zynga, Four Square, Twitter, etc. While the jobs at these companies are still incredibly challenging, and passion and innovation may still pervade their company cultures, the startup risk ("will we run out of money before we find our customers?") is gone. As great as these companies may be, they are no longer startups. (A startup is a temporary organization searching for a repeatable and scalable business model.)

But employees in these ex-startups are getting the best hands-on education for entrepreneurship there is – as apprentices.

Apprentice

As we watched the bobcat make a meal out of the gopher I offered that his career was proceeding just fine. Someday, he'll hear a calling, pull his head out of his computer, look around and say, "I can do this myself."

And the cycle of creative destruction will begin anew.

Lessons Learned

Not all startups are founded by 20-somthings straight out of college
Working for companies that were recently startups is a great way to apprentice
These companies can you give a lifetime of mentorship hard to achieve in other ways
When you're ready you'll hear a calling, and it won't be a job

Filed under: Big Companies versus Startups: Durant versus Sloan, Family/Career

The LeanLaunch Pad at Stanford – Class 6: Channel Hypotheses

The Stanford Lean LaunchPad class was an experiment with a new model of teaching startup entrepreneurship. With two weeks and two more updates to go, this post is part six. Parts one through five are here, Syllabus is here.

While we've been pushing hard on the teams, this week the teaching team was about to get its socks blown off. All the teams were showing us what agile looked like, but this week several would remind us what focused and relentless really meant.

Week 6 of the class.

Last week the teams tested their hypotheses about Customer Relationships (how do they get, keep and grow customers.) This week they were testing their hypotheses about the sales "Channel" – how a company delivers its value proposition (i.e. its product or service) to its customers. There are two major channels: physical channels and virtual (web/mobile) channels. Physical channels include Direct Sales, Rep Firms, Systems Integrators, Value-added Resellers, Distributors, Dealers, Mass Merchandisers, and Original Equipment Manufacturers. Virtual channels include Dedicated e-commerce, Two-step e-distribution and Aggregators.

The Nine Teams Present

The first team up was Autonomow, the robotic mower farm weeder. They believed tthey would sell their robotic weeder to farm equipment dealers and distributors so they interviewed 9 more of them this week. They found that sales to this channel would require a demonstration, and that dealers would have to demo the robotic weeders to the customers. They learned that farmers expect personal and timely service/support. Relationships and trust are important.

Their week 6 business model now looked like this: 

All that we expected. But what they showed us next astonished all of us.

Last week we challenged the team that unless they developed hardware which could tell the difference between a weed and a plant, their business model would be just another set of PowerPoint slides. We expected that at best in the final 3 weeks of class they might build prototype hardware on a lab bench. Instead they built the prototype of an entire weeding robot – in one week. They called it the CarrotBot.

CarrotBot was their research platform to gather data for machine vision/machine learning. They wanted to test: can a machine tell the difference between a weed and a plant in the field? What about under different lighting and soil conditions? Could they train a machine to do this automatically?

The CarrotBot had a high-speed machine vision camera and a high-resolution camera for visual data as well as a panning LIDAR system for sub-millimeter depth measurement. Encoders on the drive motors and RTK-GPS measured precision position and velocity. After they validated the weed detection system, the next step was to arm the CarrotBot with a weed kill system (clove oil, high pressure steam/water, or lasers).

The Autonomow team worked 20-hour days, Wednesday – Monday. (On Wednesday night they got the idea to build a robot. On Thursday they ordered the parts, received them Friday, then built the robot over the next three days. (They got help from another student researcher in robotics and machine learning in the Stanford Artificial Intelligence Lab.)

Their goal is to deploy CarrotBot this week in the farm fields in Avenal, California, on the way to the World Ag Expo.

I'm sure the teaching team gave them some advice, but we were so busy trying to hide our jaws hitting the floor I can't remember what it was..

If you can't see the slides above, click here.

Next was D.C. Veritas, the team building a low cost residential wind turbine. This week the team got religion and decided that a major pivot was in order. They ditched the residential market as they realized that a more accessible and profitable customer segment(s) were cities, lighting companies and utilities.

In talking to customers, the team found that cities are actively trying to reduce street lighting costs (retrofitting with LEDs, turning off lights, and charging streetlight fees.) If they redesigned their the wind turbine,  it could be embedded into street and highway light poles. Not only could the turbine power the street lights, but it would make excess energy that could be sold back into the grid. Their value proposition had now changed from a wind turbine supplier to homes, to a distributed power supplier to cities and utilities.

Their channel was still direct sales, but now selling to cities allowed them to sell multiple turbines with a larger order size.

D.C. Veritas estimated that their new total available market was 13 million city street lights in the U.S., plus an unknown number of highway lights.

The feedback from the teaching team was that with a new customer segment identified the team was now in a race against time to provide a meaningful business model before the class ended.

If you can't see the slides above, click here.

PersonalLibraries was focused on creating a reference management system for discovering, organizing and citing researchers' readings. Last week the teaching team had suggested that they ought to "run away from the academic researcher market as fast as possible." Yet like passionate entrepreneurs,  the team ignored our advice and pressed on. (To be fair, one of their team members had built the software and worked on it for awhile.)

This team spoke with 10 more customers and potential channel partners. They heard: "the academic market is terribly small, charging $1 a user for a high volume academic site license is unrealistic, the cost of reaching lab managers is prohibitive, despite poor economics there are many niche competitors, and academic software is a "dinosaur" business with lots of competitors in the space because they started there years ago and aren't able to pivot out."  Ouch!

With the evidence piling up, the team is now starting to think about pivoting to other customer segments and/or other pricing models. Should they create a freemium version of their current product?  Should they look at the Document Management market?

Time is running out for the PersonalLibraries team. Two more weeks of the class to go.  Take a look at their presentations and you decide – what should they do?

If you can't see the slides above, click here.

The Agora Cloud Services team, (a marketplace for cloud computing) spent the week testing their channel hypotheses and further refined their business model canvas. They believed they were going to have inside sales reps, third party cloud computing consultants and their own web channel sales.

The team interviewed another 9 customers and industry experts and attended the Amazon Web Services meetup in San Francisco.

If you can't see the slides above, click here.

The Week 6 Lecture: Revenue Model

This week's lecture covered the Revenue Model including questions like these: How does your company make money? What are your customers going to pay for? What types of revenue streams are there? How does the web differ from other channels?

Our assignment for the teams for next week: What are the key financials metrics for your business model? If you have more than one product, how will you package it into various offerings?  How will you price the offerings? What is the customer lifetime value?  How are your competitors pricing? Each team has to test their pricing in front of 100 customers on the web or 10-15 customers non-web. And they had to assemble an income statement for the their business model.

If you can't see the slide above, click here.

———

Most of the teams were doing great. A few were doing spectacularly well. One other team in the class, Jointbuy (an online platform allowing buyers to purchase products in bulk) turned in an equally extraordinary effort. When testing demand creation in their multi-sided business model, they couldn't get enough sellers to their site. So they sent out mass emails to create demand. They certainly got noticed – as they had hijacked the Stanford email system to send 16,000 emails before they got shut down.

Much like startups in the real world, team performance in entrepreneurship classes seems to follow a Pareto distribution.

Two weeks to go. Let's see how tenacity, sleepless nights, customer feedback and agile iteration change the final outcome.

Filed under: Lean LaunchPad, Teaching

Mentors, Coaches and Teachers

When the student is ready, the master appears.

Buddhist Proverb

Lots of entrepreneurs believe they want a mentor. In fact, they're actually asking for a teacher or a coach. A mentor relationship is a two-way street. To make it work, you have to bring something to the party.

A Question from the Audience

Recently when I was at a conference taking questions from the audience, I got a question that I had never heard before. Someone asked, "How do I get you, or someone like you to become my mentor?" It made me pause (actually cringe.) As I gathered my thoughts, I realized that I've never thought much about the mentors I had, how I got them, and the difference between mentors, coaches and teachers.

Teachers

What I do today is teach. At Stanford and Berkeley, I have students, with classes and office hours. For the brief time in the quarter I have students in my class, at worst I impart knowledge to them. At best, I try to help my students to discover and acquire the knowledge themselves. I try to engage them to see the startup world as part of a larger pattern; the lifecycle of how companies are born, grow and die. I attempt to offer them both theory, as well as a methodology, about building early stage ventures. And finally, I have them experience all of this first hand by teaching them theory side-by-side with immersive hands-on using Customer Development to find a business model.

At times, the coffees, lunches and phone calls I have with current and past students are also a form of teaching. Most of the time students come with, "Here's the problem I have. Can you help me?" Usually, I'll give a direct answer, but sometimes my answer is a question.

In both cases, inside or outside the classroom, I consider those activities as teaching. At least for me, mentorship is something quite different.

Mentors

As an entrepreneur in my 20's and 30's, I was lucky to have four extraordinary mentors, each brilliant in his own field and each a decade or two older than me. Ben Wegbreit taught me how to think, Gordon Bell taught me what to think about, Rob Van Naarden taught me how to think about customers and  showed me how to turn thinking into direct, immediate and outrageous action.

At this time in my life, I was the world's biggest pain in the rear, lessons needed to be communicated by baseball bat, yet each one of these people not only put up with me, but also engaged me in a dialog of continual learning. Unlike coaching, there was no specific agenda or goal, but they saw I was competent and open to learning and they cared about me and my long-term development. I'm not sure it was a conscious effort on their part, (I know it wasn't on mine,) but it continued for years, and in some cases (with my partner Ben Wegbreit) for decades. What is interesting in hindsight is that although the relationship continued for a long time, neither of us explicitly acknowledged it.

Now I realize that what made these relationships a mentorship is this: I was giving as good as I was getting. While I was learning from them – and their years of experience and expertise – what I was giving back to them was equally important. I was bringing fresh insights to their data. It wasn't that I was just more up to date on the current technology, markets or trends, it was that I was able to recognize patterns and bring new perspectives to what these very smart people already knew. In hindsight, mentorship is a synergistic relationship.

Like every good student/teacher and mentor/mentee relationship, over time the student became the teacher, and this phase of relationship ends.

How Do I Find A Mentor

All this was running through my head as I tried to think of how to answer the question from the audience.

Finally I replied, "At least for me, becoming someone's mentor means a two-way relationship. A mentorship is a back and forth dialog – it's as much about giving as it is about getting. It's a much higher-level conversation than just teaching. Think about what can we learn together?  How much are you going to bring to the relationship?"

If it's not much, than what you really want/need is a teacher, not a mentor. If it's a specific goal or skill you want to achieve, hire a coach, but if you're prepared to give as good as you get, then look for a mentor.

But never ask. Offer to give.

Lessons Learned

Teachers, coaches and mentors are each something different.
If you want to learn a specific subject find a teacher.
If you want to hone specific skills or reach an exact goal hire a coach.
If you want to get smarter and better over your career find someone who cares about you enough to be a mentor.




Filed under: Family/Career, Teaching

The LeanLaunch Pad at Stanford – Class 5: Customer Relationship Hypotheses

The Stanford Lean LaunchPad class was an experiment in a new model of teaching startup entrepreneurship. This post is part five. Parts one through four are here, Syllabus is here. 

Week 5 of the class.

Last week the teams were testing their hypotheses about their Customers (who are the users, payers, buyers, etc.)  This week they were testing one of the most confusing sections of a company's business model – Customer Relationships - the activities used to "Get, Keep and Grow" customers in a physical or virtual (web or mobile) channel. (Internet investor Dave McClure coined the acronym "AARRR," to remember the parts of Customer Relationships on the web.)

Many of the students had heard phrases that fall under Customer Relationships before; "customer acquisition, SEO/SEM, public relations, Social Network, Advertising, Loyalty programs, cross-sell and up-sell" etc., but now they were actually trying to implement it. (If their team was a web or mobile app they actually had to buy Google or Facebook ads and create demand.)

For some of the teams their expectation was if they built the product customers will come. Filing into the classroom I could tell that for some reality had just come crashing down on them. Seeing the lack of customer interest for the first time is always depressing. (The goal of the class was to get them to understand that in a startup, that was the norm not the exception. And to teach them a methodology of what to do about it.) It was making some of the teams question other parts of their business model (did they have the right customer, did they have the right product features to meet customer needs, etc.)

The Nine Teams Present

The first team to present was D.C. Veritas, the team building a low cost, residential wind turbine. During the week they interviewed 7 more companies and consultants, developed case studies for 20 different cities in 5 states, and finalized the bill of materials for the wind turbine. But the big project for the week was testing and analyzing Customer Acquisition Costs.  The team put together their sales funnel and started testing demand.

The results were disappointing. The most optimistic estimates showed that the residential wind turbine market was less than $20m in year 5 and the costs to acquire the customers made this a money-losing business.

After regrouping the team decided that a major pivot was in order. Perhaps residential customers were the wrong target?  Maybe the wind turbine they were building was better suited to a different customer segment?  They had gotten feedback from consultants and industry experts that cities and utilities might be a more receptive audience. What if they redesigned the wind turbine to be embedded into street and highway light poles?  Then they could serve cities, lighting companies and utilities. Using the business model canvas, the changes to their business were obvious.

(BTW, our definition of a Pivot: it's when you significantly modify one or more of the business model building blocks.)

Three more weeks to go.  Can the D.C. Veritas team discover whether there's a real opportunity for their wind turbine in cities? The teaching team observed that the next few weeks are going to be interesting. Time to dig in and find out.

Our next team up was Autonomow, the robot lawn mower farm weeder. Last week they had pivoted from customers who needed large areas mowed, to organic farmers who needed lower costs for weeding. In this weeks foray into farm country they spoke to five farm implement dealers and interviewed yet another farmer. However, their primary focus was thinking through how they would "get" their initial customers. In talking to farmers and farm equipment dealers they learned the farm-specific places to create demand; trade shows like the World Ag Expo and magazines such as Vegetable Grower, Ag Source, Farm Equipment and Tractor House. The team then put together a specific budget for initial demand creation.

The teaching team suggested that was the research to date was great, but until they built a robot that could actual tell the difference between a weed and a plant, this would just be a paper exercise. They were engineers, certainly they could do better than that? The Autonomow team started thinking how they could prove that their paper business model was real.

If you can't see the slides above, click here.

PersonalLibraries

Last week we asked the PersonalLibraries team: are there enough customers to make this a business?  So during the week they ran more hands-on user testing, A/B tests, landing page conversion tests, and bought Google Adwords.

The results were not impressive. The feedback they were getting was that the product was a "nice to have" but not a "hair-on-fire" product.

Our feedback was, that their data seemed to say that their current users don't want to spend money and will incur infinite support and infinite cost. Our suggestion was, "run away from the academic researcher market as fast as possible." We offered that the team  might want to expand their user research to think about new features and verticals (document management, law firms, lab managers with discretionary budget, etc.)

If you can't see the slides above, click here.

Agora Cloud Services

The Agora team ended last week wondering whether they were 1) a true marketplace for cloud computing, where they provide both matching and exchange capabilities for real-time trading. Or were they 2) an information exchange, providing matching services for cloud computing buyers and sellers, providing matching services.  This week they answered the question by "punting."  They decided they were going to start as a information services, move to brokering, then prediction and finally evolve into a true market.  They interviewed another 8 buyers/sellers/industry experts.

Their results on whether they could acquire with Google Adwords was a bit sobering. Their first effort didn't get much traffic: 6 clicks out of ~2000 impressions.  Worse yet, each of these clicks cost about a $1.00.  Reason? They had been bidding on keywords that are too generic (e.g. cloud, ec2, Amazon Web Services, etc.)

Their ads of "Cloud Demand Prediction" hadn't been catching the eyes of people searching for these keywords.  So they picked more specific keywords such as, (cloud comparison, best cloud providers, etc).  And they created ads with specific headlines, such as "Too many cloud providers?", "Reduce your cloud spend", etc).  They also increased their daily campaign budget to $20.00.  What they found was that the keywords that did have traffic volume are extremely expensive. Depending on the keyword, the first page bids were between $5.00 to $25.00 per click! Ouch.

The team concluded that AdWords may not be the best channel to create demand.

If you can't see the slides above, click here.

The Week 5 Lecture: Channel

Channels are how a company delivers its value proposition (i.e. its product or service) to its customers. There are two major channels – virtual (web/mobile) and physical channels – and the difference is dramatic. In one, physical goods move from a loading dock to a customer or a retail outlet. In another the product is offered and sold online. (If the product is itself bits, it may not only be sold online but is often also delivered or used on-line.)

Our lecture talked out how to choose the right sales channel, how the channel makes money, how they're motivated, and the economics of a sales channel.

If you can't see the slide above, click here.

———

The lesson for the students this week was failure. What we wanted to teach them wasn't how to fail fast – any idiot can do that. We wanted to teach them how to recognize failure, learn from it, and pivot.  It's not about failing fast – it's about learning faster. That's the lesson at the heart of the search for a repeatable and scalable business model.

Now deep into the class most of the teams are starting to rethink their initial assumptions. Which teams will continue to Pivot?  Will any completely abandon their current business and pick a new one?

Stay tuned.

Filed under: Lean LaunchPad, Teaching