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Game-Changing Lessons From Lean Start-Up Founder Steve Blank

Steve Blank is one of the founders of the lean start-up movement. In this exclusive interview he unpacks the fundamental mistakes start-up founders make.

GG van Rooyen

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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.

Related: The Start-Up Crash Diet

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.

Related: 6 Things I Wish Somebody Had Told Me When I Started My Small Business

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.

Related: 10 Businesses You Can Start Part-Time

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.

Related: 8 Musts to Start Your Business With Little to No Capital

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.

GG van Rooyen is the deputy editor for Entrepreneur Magazine South Africa. Follow him on Twitter.

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Start-up Advice

6 Resources For Start-ups Looking For Funding

Here are 6 online resources that can help you pay the bills and grow your business at the same time.

Josh Althuser

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Anyone who has ever considered starting their own business, or is currently in the process of doing so, knows that every little bit helps when it comes to making ends meet. Part of the charm of start-up culture is the low-budget creative atmosphere that seems to continually fuel innovation. But, eventually you’re going to have to keep the lights on and water running, and you can’t do that with creativity alone.

Whether you are a business that is just starting out, or already well on your way, there are plenty of online platforms that offer start-ups advice and funding opportunities. Here are 6 online resources that can help you pay the bills and grow your business at the same time.

1. Kickstarter

kickstarter-logoAt one point it seemed that anyone with a clever idea could make a video showing why the world should invest in the next big thing. While a lot of crazy projects have gotten funded over the years, utilising a crowdfunding platforms like Kickstarter continues to be a viable way to get your project off the ground. Of course, if you want to reach your funding goals, it’s best that you have already done your market research, have a solid plan, and treat crowdfunding like a global VC.

Visit Kickstarter here.

Related: 4 Tips To Secure Funding For Your Start-up

2. Toptal

toptal-logoThose who are new to the start-up world might not know exactly where to start when it comes to looking for funding. While the freelance economy has grown immensely in the last 5 years, it’s important to know where to look.

Platforms like Toptal offer a wide range of freelance professionals that specialise start-up funding. Start-ups seeking a consultant on Toptal can also rest easy knowing that they carefully screen each candidate, ensuring they have the necessary professional background and experience to guarantee a successful project. 

Visit Toptal here.

3. Appbackr

appbackrIf you couldn’t already tell by the name, appbacker is definitely worth checking out if you are a start-up working in app technology for both Android and Iphone. The platform helps people discover different apps through the crowdsourcing model. Investors can scroll through apps from around the world, and if they like what they see, they can choose to invest. Funding incentive is based on an investor’s ability to purchase an app at the wholesale price, eventually making a profit once the app starts flying off the shelves in the official app store.

Visit Appbackr here.

Related: 7 Strategies For Development As An Entrepreneur

4. Gust

Gust logoInvestors are more likely to invest locally, which is why Gust is an attractive option for start-ups around the world, as they represent over eighty countries worldwide. Founded by a team of investors and lawyers, Gust knows their way around the start-up world.

With portals for both start-ups and investors, the platform seamlessly connects those seeking funds and those looking to invest. Start-ups can create a profile on Gust, and also have access to tools and tips to help them regulate finances and legal matters. 

Visit Gust here.

5. AngelList

angellist-logoNot just for investment, although that is a major part of the platform, AngelList is also a great place to find start-up jobs as well as recruitment. Those start-ups that are looking to expand can greatly benefit from this feature, while also getting their name out there to potential investors.

Their syndicate platform, led by technology experts make room for those who are looking to invest the chance to apply to a lead or directly invest in a fund.

Visit AngelList here.

Related: 6 Steps To Building A Million-Dollar Ecommerce Site In 60 Days

6. Seedrs

seedrs-logoFrom top corporations to big name accelerators, Seedrs aims to simplify the funding process for investors. Providing a vast network of investors from 48 different countries, who tap into an additionally impressive network of start-ups, there is plenty of room for collaboration on this platform. Seeders also encourages investors and start-ups to continue their relationship after the transaction is made. Their online and offline networks aim keep both start-ups and investors in the loop.

Depending at what stage of development your company has currently reached, exploring various funding options available to you is a worthwhile endeavour. Rather than blindly pitching investors, investigating each potential platform, whether it’s crowdfunding or a hiring a freelance funding expert, will save you time and resources so you can focus on the right type of investment based on your needs.

Visit Seedrs here.

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Start-up Advice

Picking Your Lane: Maximising Your Chances Of Success And Happiness

How do you choose? What do you prioritise? What’s right for me is almost certainly not right for you.

Anthony Miller

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Most entrepreneurs start businesses out of necessity.  They do what they have to.  They don’t think far ahead.  They fight fires every day.  They are the foundation of every economy all over the world.  Some succeed, some fail, few shoot the lights out.  Some are happy, some are not.

For me, there’s nothing more thrilling than building a business.  Seeing your ideas turn into reality.  Seeing your team exceed your expectations every day.  Seeing your customers’ lives improved by your products.

But, entrepreneurship is not for the faint-hearted.  You pour blood and sweat and tears into your business.  You get more than your fair share of punches in the nose.  It’s hard, but if you’re lucky and you persevere, the rewards are great.

So, how do you maximise your chances of getting into the ‘happy and shooting the lights out’ club?

Related: 9 Quotes Every Entrepreneur Should Live By

Picking the right lane – figuring out what you’re going to do – is probably the most important decision you’ll make.  Once you’ve figured that out, you can get down to the nitty gritty of picking your team and building your business.

But, how do you choose?  What do you prioritise?  What’s right for me is almost certainly not right for you.

sweet-spot-modelThe Sweet Spot Model, which has been drifting around the web for years, provides great guidance.  If you do what you love, the hard yards won’t feel like work.  If you do what you’re good at, you’ll beat or (even better) outstrip the competition.  If you provide something the world needs, you’ll feel a sense of purpose.  If someone will pay for it, you have a business.

When I co-founded Simply, I wanted to tick all 4 boxes AND work from Cape Town AND be extremely flexible (so I could prioritise family health).

I worked on three different ideas: A GIS-platform for solar and other utilities; a transaction platform for stokvels; and a cheeky online life insurance play.

The life insurance play quickly emerged as my best choice (it helped that my partners are top actuaries J):

  1. What I’m good at – doing start-ups, connecting people and teams, and using technology and data to solve business problems.
  2. What I love – working with people I like and trust to build businesses that solve hard problems and make the world a better place.
  3. What the world needs – most adult South Africans have one or more funeral policies. Few have life or disability cover and policies are often very expensive.  There’s a clear need for simple, convenient, well-priced life, disability and funeral cover.
  4. What someone will pay for – the market we’re targeting is huge – nearly R7.5Bn of new premium is written annually.

Related: 7 Strategies For Development As An Entrepreneur

With the stars lining up, we pressed the go button in early 2016.  It’s now twelve months since we launched to market and early signs are good:

  1. Our innovative, online products – Family Cover, Domestic Cover and Group Cover – have been well received and are improving all the time.
  2. We have an amazing, engaged team – inspired by the purpose of protecting vulnerable people.
  3. We’ve sold more than 4 500 policies to date, providing more than R2.5Bn of cover to more than 20,000 people.
  4. We’re based in Cape Town, working hard and having fun, and I seldom miss a swimming gala, netball game or opportunity to go mountain biking.

While picking the right lane is no guarantee of success, it definitely helps stack the odds in your favour. You’re going to need all the help you can get. So, take the time to pick your lane. I bet it’ll be worth the effort.

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9 Quotes Every Entrepreneur Should Live By

Entrepreneurship takes great perseverance. Failure is common. In fact, it is expected. Over 75% of venture-backed start-ups fail.

Jennifer Keithson

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Entrepreneurship takes great perseverance. Failure is common. In fact, it is expected. Over 75% of venture-backed start-ups fail.

There are great learning opportunities that present themselves when we fail, but we must be willing to continue on and try again in order to learn anything at all.

It can be quite an arduous task to strive for your own means, to create your own vision and to rally the support within yourself that starting and running your own business requires.

Thankfully, we’re not in it alone. The wisdom of others can greatly ameliorate the process learning from our missteps and hiccups.

Taking from sagacious investors, inventors and thinkers can help you pick yourself up and make something meaningful out of your quest to become a successful entrepreneur.

By studying the thought processes of other entrepreneurs, we can become more enriched and more aware of how to approach the challenges we face in business and in life.

Here are 9 quotes every entrepreneur should live by:

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