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.
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.
Put On Your Wellies: It’s Time To Wade Into Risk
Entrepreneurs aren’t all leaping into the unknown like lemmings off a cliff, but they do need to consider it…
You’ve had a great idea. You’ve looked into its development. You’ve recognised that it has potential beyond just what Auntie Mabel and Mike From The Grocer think. And you’ve clearly nailed a pain point that can make money. Now it is time to take the risk of running with it.
Every big idea comes with risk. You can’t step out into the world of entrepreneurial thinking and business development without it. Your idea may fail. It will also be time consuming, demanding, hungry for money, and hard work. It is unrealistic to expect that your project will leap out into the world and be an unmitigated success.
It is also unrealistic to assume that it isn’t worth taking this risk.
There are steps that you can follow to ensure that your risk is managed so you aren’t blindly leaping off that cliff…
Step 01: Do your research
No, canvassing your neighbours, friends and family is not doing research. You need to know that your idea will appeal to a broad market and that it will have significant legs. This may sound like daft advice, but you would be surprised how many people think an idea will take off just because Susan in Accounting said so.
Step 02: Understand the costs
Projects are hungry for money and investment. Realistically work out your budgets and how much it will cost to take your project off the ground and then stick to it.
A calculated risk is a far better bet than one that shoots from the hip and hopes for the best. You can also use this as an opportunity to draw a clear line under where you will stop investing and end the project. If it keeps eating money and isn’t getting anywhere with results you need to be able to walk away.
Step 03: Know when to walk away
As mentioned before, this can be defined by a line you’ve drawn in the proverbial sand (and budget) but no matter where you draw this line, you have to stick to it. Often, when time, money and energy have been poured into a project it can be incredibly hard to walk away.
You think ‘but I have put so much into this, just one more’ and then it gets to a point where the ‘just one more’ has taken you so far down the line that walking away feels impossible. Leave. Learn the lessons. Apply them to your next project.
Mind The Gap
The entrepreneur’s guide to finding the gaps and building the right solutions.
Innovation may very well be the key to business success but finding the gap into which your innovative thinking can fit is often a lot harder than people realise. Some may be struck by inspiration in the shower, others by that moment of blinding insight in a meeting, however, for most people finding that big idea isn’t that simple. They want to be an entrepreneur and start their own high-growth business, but they need some ideas on how to find that big idea.
Here are five…
It sounds trite but networking is actually an excellent way of picking up on patterns and trends in conversation and business problems. The trick is to note them down and pay attention. Soon, you will find patterns emerging and ideas forming.
2. Look for pain
Just as networking can reveal trends in the market, so can spending time reading. The latter will also help you find common business pain points. These are the touchpoints that frustrate people, annoy business owners, affect productivity, or impact employee engagement.
Be the Panado that fixes these pains.
This is probably the most annoying of the ideas, but it is unfortunately (or fortunately) very true. Luck does play a role in helping you capture that big idea. However, luck isn’t just standing around and random people offering you opportunities. Luck is found at networking events, it is found in research and it is found in conversations with other entrepreneurs.
4. Luck needs courage
You may have found the big idea through your network, a pain point or pure blind luck, but if you don’t have the courage to take it and run with it, you will lose it to someone else.
Being bold in business is highly underrated because most people assume that everyone is bold and prepared to take big leaps into the unknown. However, not all brilliant entrepreneurs were ready to throw their family funds to the wind and leap into an idea – they were courageous enough to figure out a way of harnessing their ideas realistically.
5. Pay attention
This is probably one of the most vital ways of finding a gap in the market. Often, people are so busy that they don’t really pay attention to that niggling issue that always bothers them on a commute, or in a mall, or at a meeting. This niggling issue could very well be the next big business opportunity. Pay attention to it and find out if that issue can be solved with your innovative thinking.
5 Things To Know About Your “Toddler” Business
As you navigate this new toddler phase of your business, here are five things to bear in mind.
Ah, toddlers. Those irresistible bundles of joy bring a huge amount of energy, curiosity and fun to any family – but there’s also frustration and worry that comes with their unpredictability, as they grow and start to become more independent. If you own a business and it’s successfully past its “infancy” of the first year or so, it’s likely it will also go through a toddler stage of its lifecycle.
Pete Hammond, founder of luxury safari company SafariScapes, agrees with this. “Our business is now three and a half years old, and we’ve found that we’re not yet big enough to justify employing a large team of people to handle the day-to-day admin tasks, yet we still need to grow the business as well,” he says. “As a result, our main challenge is finding the time to step back and see the bigger picture. Kind of like when you are raising a busy toddler and you spend most of your time running after them!”
As you navigate this new toddler phase of your business, here are five things to bear in mind:
1. This too shall pass
Everything in life is temporary – and that goes for both the good and the bad. It’s as helpful to remember this when you’re facing the might of a toddler temper tantrum, as it is when you’re facing throws of uncertainty in your business. If your new(ish) venture is going through a rough patch in its first few years, it can be easy to think about giving up – but don’t. As long as you have an overall big idea that you believe can add value to your customers, keep pushing through the rough parts until you come out the other side.
2. Appreciate what this phase brings
The toddler years mean that the initial newborn joy is officially behind you. But these small humans also bring their own kinds of joy, as you watch them learn new skills, say funny things, and give affection back to you. While your two-year-old business may not hold the same exhilaration for you as it did during those first few months, there are now different things to appreciate about it: Maybe you’re expanding your product range, or employing new people who can take the workload off you.
3. Establish boundaries
Toddlers thrive on boundary and routine – and your toddler business will too. As it grows into a new phase, try and establish limits in terms of the type of clients you want to work with and the type of work you’ll do. It’s also a good idea to make a decision about the hours you’ll work and when you’ll switch off, which will help you establish a good work-life balance.
4. Take a break
Every parent with a toddler needs a break every now and then, even if that means a walk around the block (on your own!), a dinner out with friends, or even a few days away. The same is true for a demanding small business: every so often, remember to take time out to rest properly, where you switch off your laptop and completely unplug. You’ll return much more inspired and resilient to deal with the everyday uncertainty that it brings.
5. Give it space to make mistakes
While the unpredictability of a young business can be stressful and tiring, it’s also a time for trying new things without the risk of huge consequences if they don’t quite work. After all, it’s much simpler to change your USP if you’re a small business employing a few people, rather than a big company where 50 people are relying on you for their salary, or where you’ve received a huge amount of investment capital. While you may fail in some of the things you try with your business (in fact, this is almost guaranteed), see it as a toddler that’s resilient enough to pick itself up, dust its knees and keep moving forward.
During this phase of business growth it’s also essential to have the right type of medical aid cover. There are medical schemes such as Fedhealth which has a number of medical aid options and value-added benefits to ensure that your health and wellness is taken care of too. After all, the healthier you and your staff are, the more productive your business will be – during the toddler (business) stage and beyond.
While this phase can be frustrating, it’s a sign that your business is growing and adapting, rather than remaining in its infancy, and that can only be a good thing! So embrace the difficulties, learn from them, and watch as your business strides forward confidently into the next exciting phase.