Steve Blank is one of the progenitors of the lean start-up movement. Many of the principles that now form the foundation of the lean methodology were first introduced by him.
His books The Startup Owner’s Manual and The Four Steps to the Epiphany have become indispensable fonts of information for those looking to create a lean start-up. He sat down for an exclusive interview with Entrepreneur SA for this article.
One of your most famous sayings is: Start-ups are not smaller versions of large companies. What do you mean by this?
This seems so intuitive, that I was surprised that in a hundred years, no one ever explicitly articulated this. Existing companies execute known business models.
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That’s a fancy way of saying existing companies know who their customers are, they’re aware of their competitors, they have distribution channels and they know what features any offering should have.
They know all this because it has been figured out through trial and error. So the core thing they need to do is to execute the existing model.
What people never understood is that this is not what start-ups do. For a long time, start-ups were operating like existing companies. The problem was, they were just guessing. They shouldn’t have been executing, they should have been searching for a business model.
This distinction between search and execution had never been articulated. And even if it had been articulated, there were no tools or strategies to do anything with that information. That is where the lean start-up movement comes in. It teaches start-ups how to search for a business model.
You’ve called a start-up a series of untested hypotheses. Why is a business plan unsuited to this situation?
A business plan makes all the sense in the world within a large corporation, when you’re executing a plan. The core of a business plan is a five-year model, which is fine when you’re in an existing company.
That document simply doesn’t work in a start-up, because it doesn’t survive first contact with customers. There is a series of unknowns, so, for a start-up, a business plan is nothing more than creative writing.
You call a start-up a temporary organisation. Why is it ‘temporary’?
A start-up is a fun place to be. You get to bring your dog, you get free food; it’s great. Emotionally, it’s a very satisfying place. But the goal is not to be a start-up — the goal is to become a large company.
You want to ultimately exit that comfortable place and scale. So, being a start-up should be a temporary situation.
You’re known for the mantra: ‘Get out of the building’. What exactly is the intention of this instruction? If you’re a founder, you believe you’re a visionary. You believe you understand the problem, and you have the solution, so all you need to do is build the product.
It’s great to be passionate and believe in what you’re doing, but the reality is, you have no facts. So I encourage founders to write down all their hypotheses with regards to who their customers are and what they want, and take that information out into the street.
I tell them to just find ten people who agree with them completely. Of course, rarely do they turn out to be right. About 99 out of 100 find that their hypotheses were incorrect.
So getting out of the building is really the core of the lean start-up movement. By getting out of the building and validating your hypotheses before you’ve spent too much time and resources on your idea, you compress the start-up process, which means creating a business becomes more efficient.
That said, it’s not about ‘failing’. There’s a myth surrounding lean start-up that it’s about ‘failing early’. It’s about learning. Failure implies you’ve completely blown it or simply gone home and quit.
Learning is something very different. We don’t say that scientists have failed because their theory has been disproved. It is a process of discovery. Lean start-up is similar, which is why I call it the scientific method for entrepreneurship.
Customer development is not selling. It’s about listening. Can you talk a little about this and briefly explain what the process is actually about?
If you’re selling, all you’re really doing is overlaying your view of the problem and solution onto potential customers. What you really want to do is to try and understand the problems of potential customers, and how you might solve them.
You need to find out if you have product/market fit. If you don’t find this out, you’re going to struggle a lot more when you do try to go out and sell.
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Now, a passionate founder might be able to sell a solution to customers, even if the product/market fit isn’t quite there, but they’ll never have success through traditional sales forces.
How have you seen entrepreneurs — even those who have embraced the process of customer development — go wrong? What are some of the pitfalls and hidden complexities of the process?
The lean start-up methodology consists of just three simple parts. First, articulate your hypotheses. Secondly, get out of the building and test your hypotheses. Lastly, start building minimum viable products (MVPs).
The hardest part of the process for founders is to just get down to business and actually do it. The process isn’t technically difficult, but it can be difficult on an emotional level, because you have to really put your idea to the test.
Also, the fact is, most start-ups fail. Even if you embrace the process, there’s still a high probability of failure. Even if you’re testing, you might find that your initial hypotheses were just wrong. Or you could discover that the idea isn’t scalable. But lean start-up makes entrepreneurship more efficient. Success is never guaranteed. There are simply too many variables involved.
Lean start-up principles have gained a lot of traction in the tech industry, but they can obviously be applied elsewhere.
In a country such as South Africa, where many lack the funds, education and access to technology needed to pursue other avenues, entrepreneurship is often seen as the only path to success.
Could you talk about the role you see lean start-up playing in South Africa?
Lean start-up actually has nothing to do with technology. It’s just a way of testing hypotheses about businesses. SMEs make up the bulk of entrepreneurs, both in the US and places such as South Africa.
They could be a dry cleaner or a database consultant, it really doesn’t matter. And this is a major category where the principles of lean start-up apply.
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You also need to look at the fact that tech-based start-ups are becoming increasingly affordable to launch. The price of starting one has dropped by a factor of a 1 000 over the last few decades. You no longer need $4 million to create a software start-up; you can do it on a laptop.
So lean start-up makes entrepreneurship accessible. You might need money at a later stage to scale, but you can get started without spending anything.