Steve Blank – 2 of 5

“Founders are artists in the true sense of the word.” Steve is inspiring founders and challenging the establishment on how to approach launching startups.

Matthew: Now that you’re teaching entrepreneurship, what’s the focus of your research and how do you feel that it’s empowering entrepreneurs? What makes it unique, why are you so passionate about it?

Steve: To call it research is a real stretch. That’s what the professional faculty do. I just do drive-by teaching at these universities. Let’s just call it my interest. My interest came about because when I retired, believe it or not, I started because I was bored. I had no idea what I was going to do. I started writing my memoirs and got 80 pages into it, which was in hindsight, a great emotional catharsis as a decompression technique, If your audience are entrepreneurs, they know that entrepreneurship is a full body contact, 24/7 sport. I did it for 20 years. I needed some time to just kind of find out where the real world was. For me, writing happened to be a great exercise.

I got 80 pages into it and realized two things. The first thing is I’d have to pay my children to read it. While it was interesting, I didn’t think it had much commercial importance. Even more interesting is that there were patterns about the companies I had been in or done. By this time I was also sitting on advisory boards or boards of public companies. These patterns weren’t only about my businesses, they seemed to be common about every type of startup. After 20 years, I had never heard anybody articulate this set of rules.

I had done most of this writing while my family was up skiing in Tahoe and we were sitting in a cabin. I literally drove down from the mountain and started talking to my friends in the VC community and their answer was, “Why, of course.” Of course? How come you guys never wrote this down? It still kind of pisses me off but it’s true; they said, “Not our job. Our job is to understand the patterns and invest in them, and teach our entrepreneurs at least a set of heuristics.” I said, “Well, isn’t that like teaching this?” “Well, no.”

The first version of the book “The Four Steps to the Epiphany” came from that kind of insight. I only understood what the real insight was ten years after I wrote the book, so I’ll just tell you to fast forward ten years. The insight was that for 40 years we believed in acting like startups are smaller versions of large companies. The advice we got, write a business plan, hire operating execs, etc, were all essentially about managing a small version of IBM or Microsoft, when in fact we now know that distinction is pretty simple.

Large companies execute business models. At some time they were a startup, but now large companies execute known models. I know how to build another Walmart or a McDonalds or another auto assembly plant or another version of Microsoft. But startups, in their early days, what founders and their entrepreneurial teams do is something so different. They don’t even show up in business school literature.

What founders and entrepreneurs do is search for repeatable and scalable business models. The people who search and the people who execute don’t even come from the same planet. They don’t encounter the same problems, they don’t have the same passions, they don’t have the same skills. We used to think they were interchangeable. Worse, we used to take all the execution skills and people, etc., and drop them into the early days of a startup and say, “Oh, yeah. Use these tricks.”

The great news is in spite of all that bad advice startups used to find their own path, mostly by ignoring all this bad advice. But no one had every made that distinction and that’s probably at the core of what I teach. And then I teach the process of how you do the search. It’s called customer development. That was my first contribution to what I now call now an entrepreneurial management style.

There has been a lot of great work since I accidentally wrote “The Four Steps of The Epiphany”. I now believe there’s a stack of knowledge that’s almost equivalent to the stack of knowledge you have on how to build and execute large companies. Things like Eric Ries’ work in lean startups, agile engineering, [inaudible 4:42] Osterwalder’s stuff on business model design and generation. All those now add up to almost courseware. For a founder, you need to read this stuff before you even write a line of code or put down some hardware, or get out a building. You need to really understand what’s going on there. Instead of a B-school, you could almost do an E-school in your basement.

Let me just point out that what’s really funny is companies have been around since the year 1600. East India Company. Let’s just take an arbitrary date for first corporation, when it would kind of look like a company. The first MBA wasn’t until Harvard in 1908. The first question is, “How were people able to run companies without having a MBA?” And the answer is, when you kind of stop giggling, you think, “Well, they did just fine, thank you.”

What Harvard brilliantly did was observe. America was industrializing at an ever-increasing scale and we had a body of knowledge that was not collected anywhere, that in fact if we collected and then taught to a professional management cast, we could teach them how to be masters of business administration. Not business-starting, but business administration.

The American Century truly happened when we were able to take these people as a professional class and professionalized all these ad hoc things in accounting, the strategy, etc. If you had an MBA first from Harvard, and then from other great universities, you now could be inserted into these corporations and execute them and grow them in a predictable fashion full stop.

I’ll observe that people have been entrepreneurs since somebody knocked out the first wheel, but modern entrepreneurship is, at best, 50 or 60 years old. Whether we date it back to the start of American research and development, George Thoreau’s first venture capital company in 1947, or maybe another starting date is the first limited partnership in Silicon Valley circa 1960-something. In either case, that body of knowledge of venture capital and technology entrepreneurship is what I believe is the start of the modern era.

Yet, we only have about 50 years of knowledge, so it’s not surprising that for the first 50 years we were using the tools that worked over here in the big company, in the MBA. I’ll just observe that my passion and interest is understanding, “Wait a minute, wait a minute. These guys aren’t the same people who started companies who run billion dollar companies. What tools have we given them?” And the answer is, “Well, not anything.” In fact, there is no E-school that’s equivalent to a B-school.

So the body of stuff I tend to think about or work on is what are the set of heuristics or tools or rules or strategies that could be the equivalent of those for founders and their entrepreneurial staff? And I apologize for the long . . .

Matthew: No, that was very beautifully put.

  • Jordi

    [inaudible 4:42] Osterwalder’s = Alexander Osterwalder’s


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