Can you introduce yourself?
Sure. I'm Steve Blank. I'm a retired serial entrepreneur. I did 8 startups in Silicon Valley in 20 years. I teach entrepreneurship at Stanford University, in the Engineering School, and UC Berkley in the business school.
You're also the author of Four Steps to the Epiphany.
That's what I really want you to focus on today and the customer development model.
I would say, personally, for me the greatest challenge is truly understanding the customer and finding a market. What would your approach be to really getting that understanding from a customer?
Sure. If you're an entrepreneur you start typically with both vision and passion. Vision and passion are what make you get up in the morning and what makes you keep working. When, in spite of everybody's skepticism and incredible odds, no one actually believes that what you see is real. Entrepreneurs tend to be driven by their beliefs. The problem is, is that while that's what eventually will make you successful, it also has the seeds of disaster.
The bad part of that is that your vision and passion get you into 2 tracks. It's because you tend to believe that you understand the customer problem you're solving. That is, “I know I'm going to build that and it's going to solve this problem for this customers.” Maybe e because you are a domain expert, but that belief, "I know what the customer needs,” gets you into a second track, which is if I know what they need, therefore I know what to build.
Immediately, the “I know what they believe,” and “I know what to build” puts you on a death spiral. If you don't get out of the building and actually check these 2 fundamental hypothesis, I know the customers and I know the complete product that they want, you're going to spend a lot of wasted effort. In, actually, finding out only too late, after you burn money and time, that your vision was actually a hallucination.
If you would have stepped outside, got some fresh air, and talked to a couple people, you could have shortened both the process and the time. It's not because people are stupid. It's, in fact, the other way around. It's because people are visionary and passionate, but they don't have any room, like 10 more neurons for actually turning what I call a phase-based startup into a fact-based startup. All startups start with a phase, but very quickly, I'll contend, they need a process to turn that phase into facts. That's why I invented the customer development process.
When you're out talking to these customers, in the book you mention that you should really try to find the ones that have a burning need, rather than the ones that are not too aware of their own problem How do you find those people?
Well, what's kind of interesting is, almost every market has early adopters. People will either have a burning need or the first to try something or the first to tell others about it. What really confuses entrepreneurs is that on day one, when you have a new idea, particularly, the newer it is or the more innovative it is, you think that everybody you talk to ought to be a customer. That's just a fundamental fallacy that really confuses entrepreneurs. Is that everything ought to be a sale. "Gee, if I talk to you and I explain. I just have to explain it to you and you'll love it."
Turns out that's not how products usually get adopted. Unless you're in an existent market making something subsidiary identical, but faster or better than an incumbent, usually there's a small segment at first. These people tend to self-identify. They either self-identify by raising their hands or try to grab it out of your hands. The key idea is, it's usually 1 in out of 20. It's not 19 out of 20 who want to try an early product.
How do you find them?
Well, it depends. For web-based product, they will find you. If you communicate who you are and why you're different. Enterprise software was just calling on a lot of companies until you found people who are just like you and they grab the pen out of your hand, went to the white board and finished your presentation for you because they've been thinking about the same thing.
You will know them when they find you. You just need to do a lot of looking. By the way, if you can't find any, what I call early evangelist, that's a sign from God that it's time to pivot. Meaning, finding no one who's interested, is also great data. It doesn’t mean you give up. It just means that you have misunderstood something about your value proposition. That is what features your product should have and the customer is just wrong. This product market fit is, instead of giving up or spending a lot of money, that usually happens in a startup, so time to go back and say, "I guess, we really didn't understand what those needs were. Let's try it again."
What is that duration of trying to find your customers and if you don't find anybody? How long should you give yourself? Is it a year, it is 6 months, is it 5 years?
It depends on 2 major variables. One is, what type of product or industry are you in. If you're in a web or mobile app, it could be as short as 3 to 6 months. If you're doing medical device or enterprise software, it could be a year or 2. The other overlay on top of this is, what type of market is it? Is it an existing market? An existing market is where customers can tell you, "Oh, yeah. This is the home shopping market and here is the features I expect."
Well, if you can't find customers that immediately see that you have a better offering, then you might want to think about pivoting right now. If you're creating something new, though, if it's a new market where it never existed before, social network 5 years ago, you might not know about the data you're getting.
There are so many web startups that just seem to be gimmicks almost. How do you know if you're solving a high value problem?
Those are usually called entertainment. I wouldn't call Angry Birds important in everyday life. I know this is a serious question, but we should be careful when we're talking about products using entertainment. There's a whole class of products that don't do anything or add any value other than fulfill a basic human need, which is entertainment or sex. Social networking doesn't solve a problem either, but it's also basic human need. In fact, I think we've done a bad job of differentiating between the 2.
Applications on the internet and mobile have, actually, supplanted things we used to do when we physically used to meet people, eyeball to eyeball. We used to communicate. We used to have things called real friends. If you think about what all people used to really have sex. There's a whole series of activities that are occurring online that aren't new inventions. They're actually recapitulating the things that people used to do when they had time or space to do them physically. I just wanted to put that on the side.
There is still value in what they're doing then?
Of course. I used Angry Birds just as a joke, but to make the point. People used to go and entertain themselves with playing games with others. People used to play Solitaire with a physical deck of cards, but I think the other question is how do you know whether you're building a product that has any value? Remember what value is, it is whether it can eventually can make money. A lot of these websites are, actually, two-sided markets, which means Google's a classic.
If you and I use Google, we don't pay anything. The user interface we see is as a search bar. With the customers for Google search or the entire planet. Yet, that isn't what makes Google. That interface and us as those customers, isn't what makes Google one of the most profitable companies in the world. It's in fact, the other side of search. It's the people that we don't see. It's the advertisers. The advertisers, actually, take us as the users as a customer-base, and Google has a completely different product for them AdSense and AdWords.
Their revenue model is completely different. It's not free, it's pay-per-click. A good number of these internet startups are essentially trying to build the user biz phase that somehow they can monetize either by advertising or upselling, etc. Some of them just could never get enough traction to do that, and some of them will. The good news is, nowadays, the cost of building a web startup is a fraction of what it used to cost to build the traditional application. I think the world is much better for it.
Steve, I noticed that you stated a new hypothesis, which is that the goal of a startup is to build value, but also to get attention. How do you get attention in such a noisy environment?
Well, let's go back to the premise. Let me be clear. At least the goal of a startup is always to build value. It's just that now, we're coming out of a dead zone where companies really had a hard time getting liquid on a public market. I think 2011, is the beginning of the next bubble. Certainly in internet and mobile apps. Now, in addition to building customer's revenue and profit, companies can actually get bought out or go public if they're visible and understood to be the market leader.
For years, or at least for the last decade, I suggested that startups really didn't need fancy PR or hype or going to a ton of conferences or whatever. I, actually, suggested this to some of my startups that those rules have changed a bit. That you don't want to be the secret startup making lots of money in the closet because back then that was the best you could do. Now, if you actually do have a ton of users or do have interesting revenue or do have kind of hockey stick growth on user acquisition or revenue or both, don't be shy about it. You really want to get known. That is just being in everybody's face.
Is that as simple as contacting bloggers all over the world and saying write about us.
That's the dummies version of that. You have to put yourself in the bloggers shoes. That they're having 7,000 other dummies saying that. Now, the question is why should somebody write about you? What is unique about what you’re doing? What would other people say? Is there something special about you? Is there something that you're changing? Why are you the most interesting? You need to think about what this means to people who want to write about you or speak about you or invite you to talk, etc. It's not just getting into people's face. It's getting into people's face trying to understand what it is you're changing for the world. Or at least your market segment.
Who should be in a customer development team?
Certainly the founders. This is not something you could outsource. This is just pretty important. People say, "I got it. I got it. Steve, I really understand. You need to talk to customers. I hired somebody to do that." My point is, don't even bother saying you're doing it because that just happens to be human nature. It turns out when you hear bad news from someone you hired, your first reaction is, "You know, you're just not explaining it well enough. Get the hell back out there and explain it again." Person you're talking to is rolling their eyes. Okay, they go back out again.
They come back in a month later. They go, "Steve, customers really think this product sucks." Normal response is, "You're fired." Now, just imagine. You wasted 3 months, fired an executive, whatever. Imagine you run that experiment again, but this time it's you having to go out and talk to customers. They start telling you, "Steve, this is the worse product we've ever seen." Or, "No. I might use it, but I'd never pay for this." If you're like me, you'd probably ignore those words 2 to 5 times thinking that they just don't get it. About the 5th or 6th time, you just can't avoid dealing with that information.
You have to process it somehow. There's nowhere to run and hide. This is not about how smart you are. It's not about your technology. This is just about human nature. If you're the passionate founder and it's your idea, having customers tell you that it's a bad idea creates enormous cognitive dissidence. That's why I have the founders get out of the building because they need to hear the data correctly. They're the only ones in the company who could respond by changing the strategy, by pivoting, when they finally go, "Oh, this is what they're asking for. Oh, I could do that. Really, that's what they want, okay." Does that make sense?
It does. What things do you want me to ask you? What things do you think people need to hear?
This process might seem like a lot of work or it might sound mysterious or might sound whatever. We teach this to students and they not only build the product, but they get orders in 8 weeks, while they're taking 3 or 4 other classes. If you go to my blog on SteveBlank.com, there's a category called the Lean LaunchPad.
You could see, literally, how startups inside a classroom did this over an 8 -week period. I will contend that their slide decks, their summaries, probably, are more information dense than any startups I've seen even in Silicon Valley. I will try to go see what the combination of customer development and the business model canvass together look like, and how to actually use all that data.
Right. Do you think Silicon Valley is the place to be?
Silicon Valley is kind of like Athens or Paris in their time. It's kind of like Detroit when we were building cars in the '20s through '50s or Hollywood in the '40 and '50s. It's certainly has become a company town from San Jose to San Francisco, and the business we do here is no longer Silicon or startups or mobile apps.
What we now do is innovation. That's a pretty powerful statement. There is no other business here. Obviously, there are other companies, but what we specialize in is innovation and entrepreneurship. It's the only place in the world where they answer the question of, you know what they call failed entrepreneurs here?
Yeah, experienced. Where else in the world you get that answer. Anywhere else in the world you have to change your name, leave town. It's also the only place in the world when you just blew a couple of million dollars of somebody else's money, and the first words out of your friends mouth when they see you for coffee is, “So what company are you doing next?” That's the culture here.
Now, I wouldn't suggest therefore this is the only place to start a company. I'm just pointing out what makes this place unique. I think we might be inventing some ways to allow startups to be innovative and creative in place, but you still have to fight against the local culture that treats failure as failure rather than experience. I would, in fact, suggest that startups try to start where they are in place. Then, when they need to scale come out to Silicon Valley, but it is a pretty amazing place if you've never been here.
No, I haven't, but I do intend on visiting. If you were going to do a business, what would you do? If you were going to jump back into the entrepreneur part as some might call it, what would you do?
Probably whatever anybody else isn't doing. I tended to be incredibly curious, and maybe that was an excuse for an attention deficit disorder, but I did military intelligence companies. I did 2 semi-conductor companies, a video game company, enterprise software, consumer retail, so I tended to be attracted to the most technically challenging companies.
With all due respect to web and mobile apps, there's not much technical challenge. Its challenge in web and mobile apps are customer and market risk, not technology risk. Not saying that it isn't hard to build those sites, but there is almost no RND risk in most of them. Obviously, there are cases where there are. For me, personally, I'd be looking at things that had science and technology, but that's just who I am, not what I would suggest others do.
Coming to a close now, what's the one thing that people need to be aware of when applying their customer development model? What's the one thing? If they forgot about what you said for the past 20 minutes, what's the one thing that you need to know?
Well, you actually need 2 things. One is, there are no facts inside the building, so get the hell out. That's thing number 1. If you remember anything, that's the thing I've been teaching for now the last 20 years. 2 is, it's very easy to think of customer development as, "Oh, I get it. It's a giant focus group. I just add up all the votes that people said on features and now I know what to build.” That's wrong.
It's not a focus group. It's why accountants don't run startups. Artist run startups. Even though you might be an engineer or a technical person, you're actually a visionary and an artist. The idea of getting out of the building is to inform your instinct. Not to have you fill out a spreadsheet. I would balance those 2. Get out of the building and get the data, but don't confuse the data with a vote. You're still the artist here. That's why you're not an accountant.