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Startups are no longer business as usual: Steve Blank, Stanford's startup guru

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To be successful, startups and entrepreneurial ventures should never attempt to emulate established businesses. Startups need to be outward-looking and customer-facing from the get-go -- and prepared to change direction, if necessary.  

That's the view of Steve Blank, entrepreneurial visionary, author of The Four Steps to the Epiphany: Successful Strategies for Products That Win, and lecturer at Stanford. I recently had the opportunity to chat with Blank, who just launched a startup course for the healthcare and life sciences industry at the University of California, San Francisco, modeled after his successful Lean LaunchPad class at Stanford, which brings innovators together with venture capitalists. (The Lean Launchpad is also available through Udacity as a massive open online course.)

With all the change and turmoil taking place within healthcare, Blanks sees this as a ripe time for entrepreneurial opportunity within this staid and bloated sector. "Obamacare just changed the rules -- it's a major disruption," he explains. "Major disruptions mean new opportunities for new entrants. Typically the incumbents in the last generation of an industry almost never make the transition to the new generation."

Blank knows the startup experience well. He has been part of eight startups himself, including the co-founding of E.piphany. His Lean Launchpad course at Stanford University has drawn considerable attention and interest, and the healthcare class, which just launched this semester, attracted 110 students, 28 teams, and 30 mentors, he reports. "Were talking about guys showing up for interviews in their scrubs. They had scalpels in their pockets," he states. Their willingness to engage the traditionally hidebound healthcare industry to tap into unmet needs is also impressive. "They’re getting out of the building, and talking to other scientists, patients, clinicians, regulatory bodies, and doing customer discovery."

This willingness to get "out of the building" and work collaboratively with customers is what separates successful startups from also-rans or more traditional businesses, Blank explains. "We've gotten smarter about startups in the last five years -- probably smarter in the last five years than we’ve been in the last 100."

The problem was, Blank explains, business schools and investors have "treated startups like they were smaller versions of large companies. Venture capitalists used to say, 'write a business plan, then summarize the plan in a set of slides, and if I like your idea, and I like your five-year forecast, I’ll give you some money, and you go off and execute the idea and you fail, it's because you were an idiot.'"

That's not the way to foster and grow new businesses, he continues. "Life just doesn’t work like that. Business plans and five-year plans work quite well in existing companies, where you know your customers, and you know your competitors, and you know your channel, and you know all this other stuff. What we never realized is in startups, there’s a series of unknowns rather than knowns. While large companies might have to execute a known business models, startups actually search for them."

New thinking is needed among the startup and investor community, Blank continues. "We need to be teaching startups how to think differently about their approach to new ventures. That is, if you’re searching for a business model, there are no facts inside your building. You need to get out of the building and use the collective intelligence of your potential customers."

The key is to work iteratively with customers, developing ideas and products with their input every step of the way -- versus taking the attitude of "build it and they will come." Be ready to even throw away ideas and models as customers enlighten you with what is really needed or desired, Blank says. "Start building the product iteratively, getting feedback all while you’re doing that. What that means is you end up burning less cash up front. You might spend as much or more cash over the lifetime, but you wont go out of business as quick, as you kind of experiment, iterate, and then embrace value rather than run away from it."

Don't get attached to five-year plans, Blank adds. "Instead of firing the VP of sales, fire the plan."

In the second installment of this interview, Steve Blank will discuss why there's no such thing as one definition of an entrepreneur.

— By on October 15, 2013, 7:35 AM PST

Joe McKendrick

Contributing Editor

Joe McKendrick is an independent analyst who tracks the impact of information technology on management and markets. He is a co-author of the SOA Manifesto and has written for Forbes, ZDNet and Database Trends & Applications. He holds a degree from Temple University. He is based in Pennsylvania. Follow him on Twitter. Disclosure