Lean Startup Customer Development Approach

Steve Blank Customer Development Transcript

Steve Blank: What happened was I had time to think about, finally in 1999, about what happened in the previous 21 years. I realized that when I looked at what I had done and what other entrepreneurs had done that there was a pattern. And it was interesting thinking about what was going on with startups. I realized that traditional ways to think about startups, have an idea, raise some money, do product development, go through alpha test, beta test, and first customer ship was the canonical model of how entrepreneurs thought about early stage ventures.

In fact, in my class, I kind of used to ask, “Can anybody draw this model?” And I used to say, “Even the waiters in San Francisco could draw this model.” So somebody raised their hand and said, “Well, we’re waiters in San Francisco because we used to be CEOs of dotcom companies.” So I no longer make that joke.

But the canonical product development model. idea, raise money, develop, alpha, beta, first customer ship, is the one that the Valley grew up in. And when I looked back at it, I realized that it really set me up for a fundamental question. It’s if you all follow that model, why is it that some companies are opening bottles of champagne at their IPO or at their acquisition, and others, who almost did the exact same rules are selling off their furniture? What was the difference here? And is there any way to predict, other than you got to work hard, and all the war stories you would hear, is there any way to predict success or failure?

And even more importantly was there any way to reduce risk in early stage ventures? Because I had done eight of them. I had sat on a ton of advisory boards, and by the end of my career I was investing, and these patterns kept coming up. And I’ll tell you what the biggest pattern was for me, and observation number one, was that most entrepreneurs, whether they were engineers, or the CEOs, or part of the founding team, were focused on one thing, and that was getting to launch and first customer ship. The board was driving them to that, engineering was driving to that, and everybody was focused on, “That’s the box we’re heading to.” Well, that’s interesting. Product development, concept, develop, alpha, beta, first customer ship.

I started asking a heretical question. Whose diagram was this? What’s the product development diagram? Well, that’s interesting because in the product development diagram, we seem to be hiring and staffing sales, marketing, and business development people based on the timing of events on a product development diagram. Turns out, if you look at canonical model, around alpha or beta time, you start hiring marketing people, start getting ready for launch, start doing positioning and data sheets, maybe hire an ad agency, start writing blogs, start communicating, all heading to that big launch event.

And if you’re doing something not on the web, how many of you are doing or will do non-web products? How many of you are going to do web products? Assume that there’s a world outside the web, you start thinking about, “Maybe it’s time to hire sales people, start staffing, getting early customers.” And if you’re thinking about business development, you start thinking about deals. The observation that I had was this was all heading for a party. What do we do at first customer ship? Anybody know? What?

Student: Party.

Steve Blank: Party. It’s a party. Who’s having the party? Anybody know? Anybody ever been in a company that had a first customer ship party? Anybody? Trust me, the whole company parties. If you really think about it, who should be having the party? Who’s done at the end of product development? Sales done? No. Marketing done? No. Biz dev done? Not really. The only people who are actually done is engineering, yet somehow we end up inviting everybody else to engineering’s party. While that might seem a little facetious, it actually drives a lot of company culture; spending, burn rate, et cetera.