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.
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.
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.
Start-ups Need More Than Money To Succeed – They Need Smart Money
Start-ups need investors who bring not only cash to the table, but also their networks and business acumen.
Ask any start-up what the single most important element to success is and – more often than not – the answer will be money. Financing always ranks as a high priority for the small fish trying to make it happen in the big pond of business – but often discussed with less fanfare is where this cash comes from and what will come with it. These are actually the most important details to a start-up.
That is not to say that money is not important. In fact, the second most common reason for start-up failure is lack of funding, according to CB Insights. Although, perhaps ironically enough, the top reason for start-up failure is lack of market need – a problem which could have been identified and avoided by investors who bring money with direction and money with experience.
Start-ups don’t just need money, they need smart money.
Start-ups need investors who bring not only cash to the table, but also their networks and business acumen. Essentially, they bring experience and direction to outfits that are usually inexperienced or directionless. So, let’s talk smart money and the start-up.
What is smart money?
“Smart money” refers to investors who are simply more intuitive and aware of market movements and business health. The Financial Times describes “smart money” as “sophisticated investors who tend to pick the right moment to buy or sell assets because they can identify trends and opportunities before others do.” These investors calculate based on history and profit and invest accordingly. Where they go, other investors follow.
These business heavyweights are invaluable to a startup because they put more than simply their money where their mouth is; they also invest their expertise. A start-up could have all the money in the world but it will fail more without the proper business direction and market placement.
Smart money works best for start-ups when nascent businesses pair with investors who provide a holistic approach to business. They can help in hiring the best talent, attracting interest from the most relevant stakeholders, securing a continuous presence in the press, avoiding pitfalls and, ultimately, fulfilling ambitions.
There are more than a few ways that money can be termed as smart. Perhaps the cash infusion also comes with experts in thought leadership and strategy, or executional capacity, or the ability to increase sales and raise funds. Whatever the method, smart money brings something more to the table than dollars. This becomes abundantly clear when conducting post-mortems of the startups which have failed.
Why do start-ups fail?
Start-ups fail all the time – and it is important to understand why. As mentioned above, the top reason start-ups fail is simply the lack of market need. Tackling problems that are interesting to solve rather than those that serve a market need is the most common issue start-ups cite for their downfall. The next most common reason for start-up failure, as likely predicted, is money. Smart or not, money does need to flow into any start-up to make it possible. Meanwhile, the third most common reason for startup collapse was team composition. More to the point: Start-ups need to comprise a diverse team with different skill sets.
These top three reasons for start-up failure could be solved with the right management approach from the top down. Each of these reasons can be addressed with smart money. The right business and management structure will allow the right hires to be made and course to be charted. Smart investors can identify the right people for your team and help you to hire staff who will take the business to the next level.
While start-ups think money is the key, it is not the end-all and be-all for their potential success. They need skills and networks. Business and innovation expert Rosemarie Truman explained this misunderstanding best: “A common mistake entrepreneurs make in their struggle to find funding is focusing too much on getting the money under specific terms and not paying enough attention to who is providing the funds.”
Show me the (smart) money
Savvy entrepreneurs recognise their businesses need more than cash to be successful – especially those at the top. Alibaba chief executive officer Jack Ma, who ranks as one of the richest people in the world, described the need for smart hires and smart staff as thus: “At first, I knew nothing about technology. I knew nothing about management. But, the thing is, you don’t have to know a lot of things. You have to find the people who are smarter than you are.”
Smart business owners want to work with investors who provide not just money but also their expertise, time and access to networks – and this is especially important for businesses looking to scale. The proof is in the research: Take for example a paper by Morten Sorensen, professor of finance at Copenhagen Business School, about venture capital and its impact on an overall business. Sorensen found that companies funded by more experienced venture capital funds were more likely to go public, and also that more experienced venture capital funds invest in better companies, leading to better long-term business health.
So, the question then becomes: Where does one access smart money? The answer will depend on whom is asked, but startups that have survived and later grown into viable businesses are a good place to start. The founders of collaborative blogging platform Niume, Daniel Gennaoui and Francesco Facca, have this advice for start-ups who are on the hunt for smart money:
“First, you need a strong founding team with complementary skills that can actually deliver on their promises. Second, you need a working minimum viable product (MVP), showing that there is traction and interest for the product and people willing to use and pay for it,” the founders said. “The actual amount they invest is far less important than the value they bring to your company.”
It is also worth noting that crowdfunding can be considered a form of smart money, as it brings an ecosystem of partners who will help to scale and countless brand ambassadors who have invested their hard-earned cash.
It’s simply more than capital
Gaining start-up finance is not only venture capital or crowdfunding – it should also provide an ecosystem of business management and be viewed as such. It’s simply wrong to think funding is only funding. Start-ups can have all the money in the world but will fail more often than not without the proper business direction and market placement. Those who want to make a lasting impression in their given field need the guidance and support smart money brings.
This article was originally posted here on Entrepreneur.com.
7 Lessons For The New Entrepreneur To Take Into 2019
You already have what it takes to make this year successful, but keep these points in mind.
Human behaviourist, Dr John Demartini upacks some important lessons that new entrepreneurs would be wise to take into the new year.
1. Find a need to fill that will also fulfill you as well
First and foremost, the most important thing an entrepreneur needs to do is to find out what exactly it is that businesses or people need, and make sure that this matches what is absolutely most meaningful and inspiring to you.
This need or value that you are going to fill must also be important to you and on your list of highest values so that you have a relentless drive to go and serve this need. In other words, it is important to make sure that you are doing something that’s meaningful and inspiring to you and serves a great number of people.
Related: Awaken Your Entrepreneurial Spirit
2. Clearly define all the functions required to build your business
Those functions are based on exactly what is systems and structures are required to fulfill your customer’s needs or values and to profit.
You must imagine every single step required to serve the customer. This helps build an infrastructure step by step.
3. Meet the need and generate the income
I think a great number of entrepreneurs set up fantasies that they have to depend on money to get their business started. Many have this grandiose idea that they’re going to do this, and then they need a certain amount of capital to get it going, instead of going in and actually meeting a need and generating income and then infusing capital into a proven model.
If you do it that way, then you don’t have to give away portions of your business and accumulate possibly unnecessary debt. Ask how you can be paid up front to fulfill each essential step instead of how you can borrow to fulfill them. Sure selling in advance is often wiser than borrowing and gambling on what customer might want.
Those who decide to wait for capital before they start their business often feel they can’t get it started without outside capital. Then, a year later they’re still trying to get the capital together to get their business started. It’s often wise to actually make sure you have something that really meets a need and be willing to work from the grassroots up and prove yourself and then infuse capital based on what’s already produced and proven and build it that way.
4. Manage money wisely
Save a portion of the money earned, and take another portion and return it back into the business to grow it. It’s important to have a liquid cushion – it’s unwise spending all your money or putting all of it back into the business and then having no cushion to fall back on.
Make sure that a portion of the money is put into liquid cash. The greatest companies have a great reserve of cash. Liquid cash is important. Many entrepreneurs are gambling instead of investing and looking for a quick return instead of being patient.
5. Have adequate liquidity to prevent opportunity take overs
Watch out for opportunists – when you are running a successful business. There will be opportunists who come along and offer to purchase the business for much less than it may be worth. That is another reason to have adequate liquid capital on hand, because without it, you can become vulnerable to others coming in and taking over the business. Leverage buyouts can occur.
Remember, cash is king. Cash grabs opportunities. So be sure to save and invest.
6. Keep focused
If you are not making money, then you must not be serving people. So make sure you are truly meeting your customer’s needs and serving them. Don’t take your focus off your mission. Don’t forget what got you to a point of success.
Related: Make A New Start In 2019
7. Be true to yourself
Don’t try to be somebody that you are not. Don’t envy and imitate other companies, you may end up not being authentic and true to what your values are. It is wiser to recognise where and when you already own the traits of those you admire according to your own highest values. You already have what it takes.
Outdoor Versus Indoor: How Different Conditions Will Impact Your Budding Marijuana Business
When starting out you should know the difference between indoor and outdoor production and why it matters to your future cannabis business.
If you’re looking to start growing and cultivating a strategy in the hopes that weed will be legalised, you’ll need to do some experimentation. Growing marijuana is a science and will require more than just a splash of water every other day like normal house plants.
Firstly, you’ll need to determine if you can grow your “crop” outside or if you’ll need to set-up a space inside. Here is what you need to know about growing cannabis inside versus outside:
Optimised versus natural
Deciding which option will work better for you depends on your unique circumstances. If you have access to an outdoor area you can use the natural resources of the sun and wind. If, on the other hand, you prefer to grow your crop inside you’ll need to cater for the natural elements you’ve lost, but you can also optimise the environment to give you exactly what you’re looking for.
When growing indoors you can control:
- Light source
- CO2 production
This will create a stable habitat for your weed plant to grow in, without having to risk any outdoor elements. Keep in mind, no bulb is going to be able to produce the same spectrum of light as the Sun, which will leave you will smaller yields and less vigorous plants.
You’ll also find it challenging to simulate the natural environment. For example: wasps, ants and ladybugs are natural helpers against mites, you won’t be able to mimic this ecosystem indoors, and if your plants become infested with mites it can be difficult to control. To avoid using pesticides and insecticides some cultivators could find the trade-off of growing outdoors appealing.
Outdoor growers will need a suitable climate for cannabis production such as:
- Good sun exposure
- Hot days, warm nights
- Low humidity.
Can you afford to grow indoors versus outdoors?
Whether you’re growing indoor or outdoor there will be significant initial costs, however, the difference will come in when it comes to long term costs.
An indoor climate control system can be quite capital intensive compared to outdoor where the majority of the costs are in the initial start-up.
The expected labour costs for indoor and outdoor are also quite different. There is always work that needs to be done to create an optimal environment with indoor marijuana growing. With a smaller yield, like in indoor growing, pruning, trellising, watering, feeding and harvesting are more demanding and continuous.
When growing cannabis outdoors, you’ll work on one crop throughout the seasons. A farm with a large output typically can sustain four full-time workers until harvest, when more employees will be needed.
You can recoup the high cost of indoor weed farming through:
- Breeding projects
- Year-round harvests
- Potent products
- Higher selling points.
Indoor marijuana farming also allows you to cultivate strains that wouldn’t thrive outdoors.
Pro tip: Keep in mind, with the rising cost of energy and an increasing demand for more product within the current marketplace, outdoor farming could produce quality product at a more reasonable price.
Will outdoor or indoor offer you better quality?
Being able to optimise your environment and accelerate breeding has allowed indoor cannabis to hold the title of top of the line product and generate beautiful strains with powerful flavour profiles. With indoor marijuana growth you can increase the CO2 level increasing bud growth and producing higher THC levels, which are difficult to obtain outdoors.
Indoor buds also remain in pristine condition as they aren’t exposed to the elements. Having an indoor operation enables you to harvest crops at peak conditions and curing the product in a controlled climate.
On the other hand, many users prefer the sun-grown organic marijuana. Although the actual plants tend to be more damaged, so the product isn’t as pristine. However, once you’ve gained enough experience you should be able to produce products of the same high quality as indoor growers.
The best of both options
There has been a growing trend of commercial greenhouse marijuana farming. This seems to capture the best of both methods. It produces high quality cannabis, while using natural elements and optimised environments simultaneously.
Both styles of farming offer positives and negatives, and as a consumer or a future producer, you’ll need to continually educate yourself on the current trends. Continue to evolve your process, try something new and keep your mind open to possibilities.
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