My guest on this episode, Steve Blank says he very well could have been chosen “least likely to succeed” by his New York City High School classmates. Yet, his story is one of incredible success including leadership of 8 high tech companies, co-founding a business from his living room, heading two startups, and serving as a consultant and educator. His book, “Four Steps To The Epiphany” has been referred to by many as the beginning of the Lean Startup movement. In this conversation, Steve and I talk about what it means to be an entrepreneur, how Lean Startup methodology and crowdfunding are similar and different, and why it’s important to build your business on facts, not beliefs.

Many companies are confusing crowdfunding with learning – and it’s a horrible mistake

Lean Startup methodology is based on the premise that a company doesn’t have to have its products or services refined perfectly before making them available to customers or clients. Steve Blank says that many lean entrepreneurs who are using crowdfunding as their means to generate revenue are trying the same approach, iterating as they go – and it’s a mistake. Steve says crowdfunding requires that most of your learning already be done so that you can provide a finished product to those who pledge support to your campaign. The Lean Startup approach, on the other hand, is built to facilitate learning all along the way. Steve says the confusion between the two has caused many to fail at their crowdfunding attempts and has some advice for how you can ensure it doesn’t happen to you.

Failure often comes from confusing a religious activity (I believe) with the facts customers reveal to you

Most entrepreneurs are powerfully motivated by their belief in the product they are creating. Belief is a wonderful thing, some might even say essential. But Steve Blank asserts that belief is not enough to carry you all the way to success. You’ve got to be open to hearing the facts as they are revealed once your customers begin using and experiencing the product or service that you provide. Those facts are what give you the kind of information needed to make your offering truly beneficial to those who use it. All the belief in the world can’t get you to that. Find out how Steve counsels startup founders and their teams to make the best use of the feedback they receive from customers, on this episode of Art of the Kickstart.

Any failure you experience in business can be redeemed if you know how to do one thing with it – learn

When I asked Steve what he thinks about the benefits of failure he was quick to say that failure sucks. It’s never fun to fail when you have put so much energy and thought behind a product or new approach to a problem in the market. But he says that failure is not the end of the story if you are willing to learn what it has to teach you. Failure lessons are the most valuable lessons any entrepreneur can receive and it takes an honest, humble person to look at them objectively and actually learn from them. This conversation is packed with insights like that – from a guy who has become synonymous with business success. Be sure you take the time to listen.

Key Takeaways

  • [1:09] Who is Steve Blank?
  • [4:07] How Lean Startup methodology relates to crowdfunding
  • [6:26] Why entrepreneurship is not a job, but rather a calling
  • [8:20] How startup failures can be redeemed – through learning
  • [10:53] Navigating the chaos between the “search” and “growth” phases of a company
  • [12:43] Entrepreneurship is a team sport and how the fact impacts success

Links

Connect With Steve Blank

Sponsors

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Transcript

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Roy Morejon:

Welcome to Art of the Kickstart, your source for crowdfunding campaign success. I’m your host, Roy Morejon, President of Enventys Partners, the top full-service turn-key product development and crowdfunding marketing agency in the world. We have helped startups raise over $100 million for our clients since 2010. Each week, I’ll interview a crowdfunding success story, an inspirational entrepreneur, or a business expert in order to help you take your startup to the next level with crowdfunding.

Art of the Kickstart is honored to be sponsored by BackerKit and the Gadget Flow. BackerKit makes software that crowdfunding project creators use to survey backers, organize data, and manage orders for fulfillment by automating your operations and helping you print and ship faster. The Gadget Flow is a product discovery platform that helps you discover, save, and buy awesome products. It is the ultimate buyer’s guide for luxury gadgets and creative gifts. Now let’s get on with the show.

Well Steve, thank you so much for joining me. If you would, give my audience a little bit of your background.

Steve Blank:

Thanks Roy. Steve Blank. I currently teach on entrepreneurship at Stanford in the Engineering School. I’m an adjunct professor at Berkeley in the Business School and I’m a senior fellow at Columbia University. Spent the first 21 years of my career doing eight startups and I’ve scored four IPOs and two creators of the [inaudible 00:01:33]. Those failures actually led to something called the Lean Startup.

Roy Morejon:

So the Lean Startup movement, something that I think Eric Ries kind of coined the book around. Obviously all teachings and understand what was going on there. Can you talk to our audience a little bit about lean start up movement and how they can actually use that for their start up and why they should?

Steve Blank:

Sure. The lean start up was kind of in response to what I did when I did start ups, because you simply wrote a plan, raised money, built stuff as per the plan, shipped it, and then [inaudible 00:02:06] no one wanted to buy them. We were always kind of surprised. In hindsight, the answer was we were operating like we were a large company with no customers, no channels, no pricing, where in fact, start ups don’t have any knowns at all. Large companies get to execute on a business model. Start up companies search for a business model. But we didn’t have any tools. Before even thinking.

So a lean startup has three parts. It says, why don’t you write down all your hypotheses, which is a university, fancy term for guesses. What’s your guess about who the customer is? What’s the pricing? What’s your product or service, you know, how are you going to distribute it? What’s your costs, etc? And that’s nice, but let’s use the business model [inaudible 00:02:43] from Alexander Oswald, who [inaudible 00:02:45]. But the second part is my invention, let’s get out of your building and actually test those hypotheses. We want to actually do the A/B test. We want to personally interview customers. We want to figure out how we can go from customer discovery to customer validation to get to what we call product market fit. We think we have the first deep understanding that people will grab this thing out of our hands if we can deliver. We don’t know if we can scale, but at least we got early “traction”. Favorite buzz word.

And then the third part was Eric Ries’ observation that the 21st century, everybody should be building their products gradually. That is, iteratively and incrementally. So, they’re building every possible feature, let’s built it and as we get out the building of customer development, we can test these things called minimal viable products. That is, what’s the minimum feature set that will get us the most reaction, most learning, most repute, most whatever at a certain point in time. Day one, it might be a PowerPoint or web slide. Month three it might be a [inaudible 00:03:42] web app that works, and so those three components, business model, design, customer development, gradual engineering is what you’re doing when you hear the word start up, actually has some thinking and methodology behind it and the goal is to make startups fail less. Start ups tend to fail because we’re confusing a religious activity, which is “I believe”, with facts from customers, which you could very quickly discover.

Roy Morejon:

Yeah. No, I mean, it’s certainly interesting. Certainly in our industry, in the crowdfunding side, we hope that companies fail upwards, is kind of how we point it, where there’s actually learnings from it when they launch their product, hopefully there’s an audience for it. We did enough pre-campaign work to find an audience, get some engagement early on, but once they truly launch a product out there, it’s public and you know, as you mentioned in your speech earlier that basically innovation kind of stops at that point, but there is an opportunity for them to at least get feedback from their customers.

Steve Blank:

Right. And this is where you and I [inaudible 00:04:38] companies are confusing crowdfunding with learning. You know, when you crowdfund something, unless it’s changed since I understood it, you basically have to deliver what you said you were going to deliver. That means you’re now in execution. The learning has stopped until you’re done delivering. In my world, I tell people, crowdfunding is great, but you want to make sure you’re done with enough early learning before you kind of say, here’s what I’m going to deliver because you better deliver that product.

Roy Morejon:

Absolutely and that’s probably one of the biggest things that we see with founders is that not only do they fail to deliver on time, you know more than 95% of the time, because they think their timelines are perfect, but many of them are first time entrepreneurs, right? They have to learn that entire ecosystem of what it takes to bring a product to market.

Steve Blank:

Right and sometimes crowdfunding becomes the goal rather then delivering products and services that customers necessarily want and enjoy. So that’s trap I also see entrepreneurs fall into is chasing the money rather than chasing … see the money as a vehicle to grow something that is going to be spectacular when it succeeds to scale.

Roy Morejon:

Absolutely. Yeah. We’ve worked with some companies now that have pivoted multiple times during our pre-campaign marketing all based on the data that we’re seeing from the customers, potential customers that are coming in.

Steve Blank:

So, it sounds like your pre-campaign marketing is actually a version of Lean.

Roy Morejon:

Absolutely.

Steve Blank:

You’re actively teaching these customers how to get out of building and the marketing is actually giving them some feedback that says, gee, before you actually push the button here, perhaps we ought to listen to the customers.

Roy Morejon:

Absolutely because we’re usually on the hook for it as well, since we’re the marketing agency behind it, you know, if we’re the one putting out the message, but nobody is responding to it, we should’ve done our homework beforehand to find out what the actual crowd truly wants in terms of that product.

I know you’ve talked in a few different interviews that you know, entrepreneurship is not a job, but it’s a calling. You want to touch on that?

Steve Blank:

Sure. And this is for the founders. Not for early employees or not for later employees, but being a founder is actually nothing like being an accountant or a [inaudible 00:06:39], you might have been those things, but when you become a founder, you’re more like an artist. You know, a painter or a sculptor or a musician. You see things other people don’t. You hear things other people don’t. You see something far out there and everybody goes, what? And that’s when we coin the word, visionary. You see these things and what truly makes successful founders and not only you can see them, but you can convince other people. Early employees, early investors, early customers, and so your job as a … It’s not a 9:00 to 5:00 job. Being a founder for a company is a 24-7 activity. It’s all in game and a lot of people don’t understand that. Like just … And you can decide you want to be a small business entrepreneur, open a restaurant or if you have a web consulting firm, but have a normal lifestyle, but if you want to be Facebook, Google, Twitter, or something scalable, that’s different. You’re being [inaudible 00:07:33]. And by the way, like most artists, most of the stuff you do [inaudible 00:07:41], right?

Roy Morejon:

Absolutely. You know you talked about entrepreneurs potentially doing apprenticeships, you still think that that’s a factor that young, aspiring entrepreneurs should be doing?

Steve Blank:

You know, when I was an entrepreneur, that was the only way to get big. It wasn’t even basic information. Nowadays, all of the information is available. Everywhere. But what’s not available is experience and over time, experience kind of weights to wisdom, sometimes.

Roy Morejon:

Usually.

Steve Blank:

At least it leads to practice. You know, if you think you’re Steve Jobs on day one, for God’s sake, go out and do it. But the odds are, you’d probably be better having you know, worked with somebody else’s shtick for a while and said, well, I could do better than this. Basically that’s what makes a great entrepreneur.

Roy Morejon:

Do you think that failure is good when launching a company?

Steve Blank:

Failure sucks.

Roy Morejon:

Yeah.

Steve Blank:

Whoever tells you that failure is fine, obviously hasn’t failed or hasn’t failed big enough. Failure is terrible, but learning is great. And so, if you’re capable of learning from failure, you know the first couple of steps and most entrepreneurs is step one, if you fail, to blame everybody else first. First denial and then blame everybody else and then maybe you’ll kind of accept some of it. And then, the real key about learning from failure is so what would I have done different? Not how to blame other people differently? What did I do or did not do that I won’t do next time? And so, in our entrepreneur culture, if you’re in the right cluster, actually rewards that kind of learning. You’re going for an interview and someone says, “What happened to your last company?” The first words out of your mouth is, well let me tell you what I learned. Not like, oh boy, did I fail, but let me tell you what I learned. You know, I didn’t understand X or Y, or I was chasing the money or I didn’t understand customers, customers, customers, or I didn’t understand the goal was key to get acquired or whatever it is, you need to actually process that and if you can’t have that conversation, it was a wasted failure.

Roy Morejon:

Yeah.

Steve Blank:

And as I said, I used to go through all … No it ain’t happening, too risky, my co-founders fault. And finally you kind of get to a point where …

Roy Morejon:

Self-reflection.

Steve Blank:

Yeah. Suck it up and own it and then you’ll be better next time. You’ll make different mistakes, but you won’t make those.

Roy Morejon:

In your presentation at Web Summit, you mentioned that potentially looking at founders that grew up in slightly dysfunctional families was a unique trait to have. You want to touch on that?

Steve Blank:

Yeah. It’s probably the cruelest training ground one could imagine, but I think the most effective. The survivors of dysfunctional families have a common skillset of shutting down everything except for survival. They’re shutting out noise, shutting out distractions, and if you think about what the early days of the start up are, it’s like looking at a dysfunctional family. You never know what’s coming at you. You know, everybody else is kind of melting down and you’re going, normal day at home. You know, the only bad news for those founders is when the company starts scaling and things start going well, they throw hand grenades into their own company to keep the chaos going.

Roy Morejon:

Really? That’s too bad. You know, obviously, we like our companies to have predictability at a certain point, right? But obviously …

Steve Blank:

The upside of downside.

Roy Morejon:

You’ve mentioned like the three steps from going to a start up to like a large company and the first one being search, you know, when you’re trying to find that repeatable thing.

Steve Blank:

And then you build and then you scale.

Roy Morejon:

Right. And I think, you know, we’re currently in that build to grow phase and it’s tough because everything you talk about it terms of, oh now we need to think about HR and you know, really honing in our culture and having, obviously, our business practices written down. It’s great to graduate into that, but can you talk about a little bit of that chaos in between?

Steve Blank:

The problem is that most founders, because they’re founders, love the search phase and they hate the paperwork. We’re not doing no stinkin’ paperwork.

Roy Morejon:

Right.

Steve Blank:

But in Ted Talk companies go through some magic numbers, you know, eight people is a magic number, 45 is the next magic number, 160. It turns out the [inaudible 00:11:41] as we structure on those size organizations because we know that band of brothers, that kind of one side, so 160 people is called Dunbar’s Number, where you no longer recognize anybody over 160 people. The size of a tribe. So that’s when you tend to diversionalize within a company. So there are kind of things we’ve learned over time, which every start up seems to forget. If you have smart investors, they’ll say, oh let me tell you what’s going on now, you’re no longer a start up or now you need … Because as a founder I never could quite understand why the stuff I did as a founder in year one was actually bad in year three. I mean, you want to see a world-class example of bad behavior like that, take a look at Uber. I mean, it wasn’t like all those dirty tricks they did isn’t what every start ups would probably do, as long as they’re not breaking the law. But to do that at scale, now you’re got tens of thousands of employees, modeling their culture on that, that’s probably not a good idea.

Roy Morejon:

Yeah. It can be difficult.

Steve Blank:

Does that make sense?

Roy Morejon:

Absolutely. You’ve mentioned before that entrepreneurship is a team sport. I know when we went to hire people and bring people on, we looked for those qualities in terms of whether or not they actually were part of a team, were they a part of a fraternity or sorority? You want to touch on that?

Steve Blank:

Very funny. Entrepreneurship is a start up, it’s a social construct as much as it is an engineering achievement or a business achievement. And we kind of disconnect that, you know, sports teams with coding, but early on I’d rather trade sometime, not always, team players for the smartest bookers or the world’s best sales people. I’d rather have people who take one for the team or at least, we know this is going to be an all-nighter for the next four days. We gotta get our product out the door, there’s a trade show coming up or something else. Now, you can’t keep that up. That’s the big idea. Eventually you need scale and consistency and I will trade off team players for world class contributors who are on a 9 to 5 circuit. But you need to understand what that balance … In the early, first 10 to 20 people, man I’ll go for team players who will just understand what the goal is.

Roy Morejon:

Yeah. That’s certainly where we were early on. A couple of quick questions for you. Who’s your favorite entrepreneur throughout history?

Steve Blank:

[inaudible 00:13:57]

Roy Morejon:

Have you met [inaudible 00:13:58]?

Steve Blank:

He was my intern at his first job in Silicon Valley.

Roy Morejon:

Oh my goodness. Favorite book?

Steve Blank:

Quint Christensen’s Innovators Dilemma.

Roy Morejon:

Favorite travel spot?

Steve Blank:

That’s a hard one. I don’t know. [inaudible 00:14:14].

Roy Morejon:

What do you fear?

Steve Blank:

Not learning anymore.

Roy Morejon:

Last question, what does the future of crowdfunding look like?

Steve Blank:

I hope you guys are going to invent it.

Roy Morejon:

That’s our hope. That’s our hope. Well, I appreciate your time, Steve. It’s been great.

Steve Blank:

Great. Thank you.

Roy Morejon:

Awesome.

Thanks for tuning in to another episode of Art of the Kickstart, the show about building a business, world and life with crowdfunding. If you’ve enjoyed today’s episode, awesome. Make sure to visit artofthekickstart.com and tell us all about it. There, you’ll find additional information about past episodes, our Kickstarter guide to crushing it and of course, if you loved this episode a lot, leave us a review at artofthekickstart.com/itunes. It helps more inventors, entrepreneurs, and start ups find the show, it helps us get better guests to help you build a better business. If you need more hands on crowdfunding strategy advice, please feel free to request a quote on enventyspartners.com. Thanks again for tuning in and we’ll see you again next week.