Notes from a talk by Steve Blank, father of Customer Development methodology that inspired the Lean Startup movement.
Steve shared how, through his experience founding and working with countless numbers of startups, he had the realization that big companies and startups are very different. Big companies are all about execution: the reason that they’re big is that they’ve identified a business model that works and they continue to execute on that model, increasing revenue each year. In contrast, startups are all about searching for the next big opportunity and proving that it’s valid.
In the “old days”, startups pitched to VCs by making business plans and forecasts for all the money they were going to bring in if their idea worked. The problem with that is when you’re working in a completely new space, on a completely new opportunity, there isn’t really anything to benchmark yourself against. This means that all those “forecasts” are really just blind guesses. Founders try to make better guesses by paying for expensive market research, but market research can only tell you about today, not inform you about tomorrow.
Tech has traditionally followed a waterfall software development approach - specifying everything up front and then building it out from start to finish before showing it to a customer. This was based on the assumption that we already know our customer’s problems and what sorts of product features are needed. This doesn’t work well for startups, though, where the customer has yet to be defined and the features are still TBD.
Steve observed that:
In thinking about how to increase the rate of success and minimize wasted resources and failure, he came up with Customer Development Process.
In considering the definition of a startup:
Startups are constantly searching for a way to create value for itself while delivering products or services for customers in a repeatable and scalable way.
The process Blank proposes is to start by filling out the Business Model Canvas with a series of hypotheses about what will work.
Next, the customer development team (founders from any discipline, without titles) work together to validate each hypothesis. The goal is to test each of these as quickly and scrappily as possible - for example using prototypes or wireframes - to maximize feedback with minimal cost. When hypotheses fail, this is an opportunity to reevaluate your guesses and tweak the business model.
More about customer development can be found in Blank’s books:
Reflection:
I was intrigued by how Blank defines the goals of big companies (“execute”) versus those of startups (“search”). There are many examples of big companies that excel at executing, but fade into irrelevance as times change. As time passes and the market shifts, how can large companies stay relevant? How best to balance the need to execute with the (arguably just as important) need to search?
During the Q&A I asked Blank whether he saw any ways to apply the Customer Development Methodology to large companies. He replied by telling a story about a GE executive who was given a new department and a large amount of funding to run with. The executive decided to reject the funding in the short-term, and instead ask for more time to identify and test the business model. It ended up being the right call– when they were ready to scale, the division was very successful. This showed how focusing on testing out a business model using a Customer Development approach can help large companies to make smart investments in future products and opportunities.
Blank cautioned that for large companies to take a Customer Development approach, it really needs to “come from the tops down” because it’s a real mindset shift. This made me thankful to work at a company like Intuit which is actively adopting a “lean startup” philosophy across the organization. By shifting our mindset across the organization, we too can reduce “waste” and more quickly get to solving the right problems for our customers with the right products and services.