Home » Steve Blank’s Corner (Page 6)

  • Well They ‘Should’ Be Our Customers

    Steve BlankOriginally published Nov. 13, 2013, at www.steveblank.com

    By Steve Blank

    When scientists and engineers who’ve been working in the lab for years try to commercialize their technology they often get trapped by their own beliefs  - including who the customers are, what features are important, pricing etc.

    I hear nothing

    ——–

    One the key tenets of the class is that every week each team gets out of the building and talks to 10+ customers/partners to validate a new part of their business model.  Back in class they present their findings to their peers and team in a 10-minute Lessons Learned presentation. One of the benefits of the class is that the teams get immediate unvarnished feedback on their strategy.

    For researchers and clinicians who’ve been working on a project in the lab for years, getting out of the building and talking to customers at times creates cognitive dissonance.  While they’ve been in the lab they had a target customer in mind. However when they leave the building and start talking to these  supposed customers there’s almost always a surprise when the customer is not interested in the product.

    Often when they consistently hear that their expected customers aren’t interested the first reaction is “the customers just don’t get it yet.”  Rather than testing a new customer segment they keep on calling on the same group – somehow thinking that “we just need to explain it better.”

    Some times it takes a nudge from the teaching team to suggest that perhaps looking at another customer segment might be in order.

    They Should be Our Customers
    The Mira Medicine Team is trying to accelerate the path to the right treatment for each patient in complex Central Nervous System diseases. They spent years building their first tool MS Bioscreen, which was developed for the physicians at the Dept of Neurology. So they naturally believed that their first customers would be neurologists.

    This was a very smart team who ran into the same problem almost every smart researcher attempting to commercialize science faces.  Here’s what happened.

    To see the video click here.

    Listen for:

    0:35 “Our primary customer we built this app for was neurologists…

    1:00 “(but neurologists have told us) your prototype is interesting… and probably some features are nice to haves…

    2:26 “What’s special about neurology?  Doesn’t cardiology and oncology have problems like this?

    3:00 “Is neurology a key component of what you’re trying to do?

    3:15 “I’ve worked on this for two years…”

    3:24 “You’ve already done too much prototyping work. You’re hung up on the prototype.”

    3:29 “You have a square peg you’er trying to jam in a round hole…”

    3:43 “Don’t be afraid to think laterally”

    Postscript: 70 customers later they no longer talking to neurologists.

    Lessons Learned

    • Don’t get trapped by your own beliefs
    • When reality outside the building doesn’t match your hypotheses – test alternate hypotheses
    • Most of the time your vision is just a hallucination
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  • A New Way to Look at Competitors

    Steve BlankOriginally published Nov. 8, 2013, at www.steveblank.com

    By Steve Blank

    Every startup I see invariably puts up a competitive analysis slide that plots performance on a X/Y graph with their company in the top right.

    Competitive XY

    The slide is a holdover from when existing companies launched products into crowded markets. Most of the time this graph is inappropriate for or existing companies creating new markets.

    Here’s what you need to do instead.

    ——-

    The X/Y axis competitive analysis slide is a used by existing companies who plan toenter into an existing market.  In this case the basis of competition on the X/Y axes are metrics defined by the users in the existing market.

    This slide typically shows some price/performance advantage.  And in the days of battles for existing markets that may have sufficed.

    But today most startups are trying to resegment existing markets or create newmarkets. How do you diagram that? What if the basis of competition in market creation is really the intersection of multiple existing markets?  Or what if the markets may not exist and you are creating one?

    We need a different way to represent the competitive landscape when you are creating a business that never existed or taking share away from incumbents by resegmenting an existing market.

    Here’s how.

    The Petal Diagram
    I’ve always thought of my startups as the center of the universe. So I would begin by putting my company in the center of the slide like this.

    Slide1In this example the startup is creating a new category –  a lifelong learning network for . To indicate where their customers for this new market would come from they drew the 5 adjacent market segments: corporate, higher education, startup ecosystem, institutions, and adult learning skills that they believed their future customers were in today. So to illustrate this they drew these adjacent markets as a cloud surrounding their company. (Unlike the traditional X/Y graph you can draw as many adjacent market segments as you’d like.)

    Slide2Then they filled in the market spaces with the names of the companies that are representative players in each of the adjacent markets.companies updated

    Then they annotated the private companies with the amount of private capital they had raised. This lets potential investors understand that other investors were interested in the space and thought it was important enough to invest. (And plays on the “no VC wants to miss a hot space” mindset.)

    Slide4

    Finally, you could show the current and projected market sizes of the adjacent markets which allows the startups to have a ”how big can our new market be?” conversation with investors.  (If you wanted to get fancy, you could scale the size of the “petals” relative to market size.)

    Slide5

    The Petal Diagram drives your business model canvas
    What the chart is saying is, “we think our customers will come from these markets.”  That’s handy if you’re using a methodology because the Petal Chart helps you identify your first potential customer segments on the business model canvas.add the canvasYou use this chart to articulate your first hypotheses of who are customers segments you’re targeting.  If your hypotheses about the potential customers turn out to be incorrect, and they aren’t interested in your product, then you go back to this competitive diagram and revise it.

    Lessons Learned

    • X/Y competitive graphs are appropriate in an existing market
    • Mapping potential competitors in new or resegmented markets require a different view – the Petal diagram
    • The competitive diagram is how develop your first hypotheses about who your customers are

    Update: I’ve heard from a few entrepreneurs who used the diagram had investors tell them “”it looks like you’re being surrounded, how can you compete in that market?”

    Those investors have a bright future in banking rather than .

    Seriously, I would run away fast from a potential investor who doesn’t or can’t understand that visualizing the data doesn’t increase or decrease the likelihood of success. It only provides a better way to visualize potential customer segments.
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  • Lean Goes Better with Coke – the Future of Corporate Innovation

    First published Nov. 7, 2013, at www.steveblank.com

    By Steve Blank

    Steve BlankIn 2012 I got together with Alexander OsterwalderHenry Chesbrough and Andre Marquis to think about the Lean and the future of corporate . We had some radical thoughts how companies were going to have change to remain competitive in the 21st century in a blog post. What we didn’t envision was that one creative corporate VP would take that post and build a world-class program around it.

    David Butler is the VP of Innovation and  of at The Company – responsible for finding breakthrough innovation and building an entrepreneurial culture.  Here’s how he’s shaping the future of corporate innovation.

    Coke logo

    Innovation isn’t the destination it’s the Journey. What CEOs, management teams and shareholders care about is growth—revenue growth, greater user adoption, increased market share, bigger margins, etc. So the first step for any corporate  “innovation” organization is to tie the word, “innovation,” to the more tangible concept of “growth.” That single step can create a lot of clarity and direction for the organization.

    “Breakthrough Innovation.” Innovation can create 2 kinds of growth: sustaining innovation (small and incremental growth yet predictable) and disruptive innovation (explosive exponential growth yet highly uncertain). Like most big companies, we’re pretty good at the kind of innovation that creates incremental growth. We know how to fund it, how to staff it, how to measure it, etc.

    For the past year or so, we’ve been focused on disruptive “breakthrough” innovation (game-changing, etc.) to create exponential growth.

    Innovation sounds easy. It never is. In our case, we’re local in over 200 countries with operations in basically every city on the planet. We have a portfolio of more than 500 brands and 4000 products and people invite us into their lives more 1.8 billion times a day. Our market cap is around $170B. For most big, established companies like us, our business models were developed years—even decades ago. We’ve built up strength in executing our business model, not creating new ones. So, if you’re Coca-Cola, where do you begin?

    It didn’t take us very long to connect the dots between exponential growth, business model innovation and the “” movement. The Lean Startup movement is almost a decade old now and it’s now easier than ever for anyone to learn “Lean Startup” methods and become more entrepreneurial. In fact, I believe the movement is now mainstream—, VCs, accelerators, are no longer “new.”

    There are co-working spaces in basically every city in the world—from Nepal to New York. Almost every large organization has some kind of incubator or accelerator program. And this has created a global entrepreneurial ecosystem.

    But most big companies are still in the shallow-end of the entrepreneurial ecosystem pool. And this is ironic because big companies have so much to add. Big companies know how to scale—most have a lot to learn about starting (as in Lean Startup) but they know how to leverage assets, use network effects, plan and execute. Big companies with big brands have a lot to learn from startups but together, they can do things neither one of them could do alone. And that has become our vision—to make it easier for starters to be scalers and scalers to be starters.

    So this is where my head was when I read Steve’s “The Future of Corporate Innovation and Entrepreneurship” post last year. At the time, we were definitely in the shallow-end. Now, a year later, (and A LOT of learning), we’re moving into the deep-end and Steve’s 8 strategies are more relevant than ever. Based on our experience, here’s are our Lessons Learned from Steve’s 8 corporate innovation strategies and then four more from Coke for consideration:

    Lessons Learned

    1. 21st century corporate survival requires companies to continually create a new set of businesses by inventing new business modelsWhat is sometimes missed is the opportunity for big companies to leverage their enormous assets (brands, relationships, routes-to-market, etc.) in developing these new models. Most startups can only dream of the kinds of assets most big companies have.
      We believe that using the process to monetize these assets through new business models can create huge competitive advantageand more speed to market for us and other big companies.
    2. Most of these new businesses need to be created outside of the existing business units. We’ve found that this can only happen if it’s just on the edge of a business unit. Startups need to be close enough to the BU to validate assumptions and leverage BU resources (people, funding, relationships, etc.) but just far enough out to be able to use different processes and systems to move fast, pivot, etc. But there’s no one-size fits all approach to this—every company will have to figure out what works for them.
    3. The exact form of the new business models is not known at the beginning. It only emerges after an intense business model design and search activity based on the customer development process. This is so true but so foreign for most big companies. And why wouldn’t it be? All of their internal systems are designed to keep doing what they’ve always done best. They are also under huge pressure to deliver quarterly earnings for shareholders and meet analysts expectations. Using an alternative process including different systems and metrics is key.
    4. Companies will have to maintain a portfolio of new business model initiatives, not unlike a firm, and they will have to accept that maybe only 1 out 10 initiatives might succeed. We’re hoping for 1 out of 10 but hedging our bets by launching and networking  “Accelerators” around the world in both developing and developed economies—from Bangalore to Buenos Aires. We call this our Accelerator Program but our goal is to create new startups, not really invest in existing startups like most traditional accelerator programs. When we need to mash-up with a startup to do something neither of us could do alone, we’re doing that but or goal is to really build new companies.
    5. To develop this new portfolio, companies need to provide a stable innovation funding mechanism for new business creation, one that is simply thought of as a cost of doing business. Absolutely, but it’s not just about a new “innovation” fund—that’s almost the easy part. The hard part is designing all of the systems to enable the success of the startups. From Tax to Legal to Finance to HR, designing the new systems requires enormous amount of collaboration, transparency and trust.
    6. Many of the operating divisions can and should provide resources to the new businesses inside the company. That’s the only way this works. Everybody has to have “skin-in-the-game.” But again, when you get this right, it can create enormous engagement and excitement inside the Business Unit and across the company.
    7. We need a new organizational structure to manage the creation of new businesses and to coordinate the sharing of business model resources.Again, absolutely true. But in our case, creating the new structure and systems has been almost like starting a startup. Pitching to senior management, using minimum viable products (MVPs), validating assumptions through lots and lots of testing, pivoting hard when you need to—all of this is required in setting up the structure and systems to do this inside of a big company.
    8. Some of these new businesses might become new resources to the existing operating units in the company or they could grow into becoming the new profit generating business units of the company’s future. We’re betting on the latter. Our goal is to create new, high-growth companies outsideof the NARTD industry (non-alcoholic ready-to-drink) through this program. We have literally hundreds of thousands of people focused on our core business. We’re hoping to use this opportunity to leverage our assets in new, fast-growing industries.
    9. In building capability, the company should look for “starters,” not “scalers.”Starters have a completely different mindset and skills than scalers have. We found we needed to hire expert starters—people who knew how to bootstrap, build MVPs, find a free or very low-cost way of testing a hypothesis, pitch, pivot, etc. We also learned that creating the same kinds of conditions that enable co-founders to thrive on the “outside” is very important to maintain on the “inside.” We had to design a whole new hiring process, compensation model, operating model, co-working spaces, etc. to find, attract and retain “starters.”
    10. But it’s not only about creating new revenue streams—creating new behaviors across the company’s culture is key. Getting everyone on the same page with the same language and familiar with new methods and tools is key to making this stick. So along with our Accelerator Program, we’ve also introduced a new “Open Entrepreneurship” program to give everyone inside our company the opportunity to learn Lean Startup methods and tools. This is what we mean by making it easier for “scalers” to be “starters.”
    11. Finding the balance between transparency and opacity is critical. Inside the company, the person or team or group that’s been asked to lead this effort must be completely transparent—function agnostic, open, inclusive, freely sharing everything. This is so new for everyone involved, that there can’t be any kind of “black box” or “cool club” perception around this or it won’t work. On the flip side, just like it is for every startup, there is so much iteration, learning, testing, etc. going on that even if you wanted to talk about what you’re doing in detail, it would sort of depend on the day as things change so frequently. We’ve found it best to take a “more is more” approach internally and a “less is more” approach externally.
    12. Nobody, no matter how smart they are, can do this alone. Forming informal networks, both internally and externally, is key. It’s really important for the co-founders of the internal startups to build relationships across the company. And in the same way it’s equally important for the company to authentically connect with the startup community. Being very open and honest with what they’re trying to do is key. And we’ve found that once we built this bridge, we’ve been able to count on a lot of help from the startup community (and visa versa). And as the relationship grows, so does the trust.

    These are still early days for us at Coke and we have a lot to learn. But we feel that if we and other big companies can get this right, it could be really big.Butler Fast Company

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  •  
  • This Will Save Us Years — Lean LaunchPad for Life Science

    Steve Blank 2011 Photo

    Published Oct. 11, 2013, on www.steveblank.com

    We’re deep into week 2 of teaching a Lean LaunchPad class for Life Sciences and Health Care (therapeutics, diagnostics, devices and digital health) this October at with a team of veteran venture capitalists.

    Part 1 of this post described the issues in the drug discovery. Part 2 covered medical devices and digital health. Part 3  described what we’re going to do about it.

    This is post is a brief snapshot of our progress.

    Vitruvian is one of the 28 teams in the class. The team members are:

    • Dr. Hobart Harris  Chief of  General Surgery, Vice-Chair of the Department of Surgery, and a Professor of Surgery at  UCSF. Dr. Harris is also a Principal Investigator in the UCSF Surgical Research Laboratory at San Francisco General Hospital.
    • Dr. David Young,  Professor of Plastic Surgery at UCSF. His area of expertise includes wound healing, microsurgery, and reconstruction after burns and trauma. His research interests include the molecular mechanisms of wound healing and the epidemiology and treatment of soft tissue infections.
    • Sarah Seegal is at One Medical Sarah is interested in increasing the quality and accessibility of healthcare services. Sarah worked with Breakthrough.com to connect individuals with professional therapists for online sessions.
    • Cindy Chang is a Enzymologist investigating novel enzymes involved in biofuel and chemical synthesis in microbes at LS9

    Vitruvian’s first product, MyoSeal, promotes wound repair via biocompatible microparticles plus a fibrin tissue sealant that has been shown to prevent incisional hernias through enhanced wound healing.  The team believed that surgeons would embrace the product and pay thousands to use it.  In week 2 of the class 14 of their potential customers (surgeons) told the team otherwise.

    Watch this 90 second clip and find out how the class saved them years.

    (If you can’t see the clip above click here.)

    Lessons Learned

    • Get out of the building
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  • The Air Force Academy Gets Lean

    By Steve Blank

    Originally published Sept. 17, 2013, at www.steveblank.com

    Steve Blank 2011 PhotoI can always tell when one of my students has been in the military. They’re focused, they’re world-wise past their years, and they don’t break a sweat in the fast pace and chaotic nature of the class and . Todd Branchflower took my Lean LaunchPad class having been entrepreneurial enough to convince the Air Force send him to Stanford to get his graduate engineering degree.

    In class I teased Todd that while the Navy had me present my Secret History of Silicon Valley talk in front of 4,000 cadets at the Naval Post Graduate School, I had yet to hear from the Air Force Academy.  He promised that one day he would fix that.

    True to his word, fast-forward three years and Todd is now Captain Todd Branchflower, computer engineering at the .  He extended an invitation to me to come out to the Air Force Academy to address the cadets and meet the faculty. Besides the talk I brainstormed with Todd and other faculty on how to integrate the into the Air Force Academy Capstone engineering class (a Capstone class puts together all the pieces that a students has learned in his or her major.)

    Here’s Todd’s story of how we got there and progress to date.

    ——-

    Not That Long Ago
    In 2007, I graduated United States Air Force Academy as a computer engineer and entered the Air Force’s acquisition corps, excited and confident about my ability to bring technology to bear for our airmen.

    Graduation day with classmate Joseph Helton (right), killed in action in Iraq in 2009

    Graduation day with classmate Joseph Helton (right), killed in action in Iraq in 2009

    And I couldn’t have been put in a better place: testing the Air Force’s newest network security acquisitions. I was their technical man on the inside – making sure big defense contractors delivered on their promises. We were modernizing data centers, buying vulnerability-scanning software, and adding intrusion detection appliances – all things typical of anyone running an enterprise-scale network.
    46th test sqd

    I was in the thick of it – chairing telecons, tracking action items, and drafting test plans. I could recite requirements and concepts of operations from memory. I was jet-setting to team meetings and conferences across the country. I was busy.

    Sure, I wasn’t working very closely with the airmen who were going to use the equipment.  But they called into the weekly telecons, right? And they were the ones who had given the program office the requirements from the outset. (Well, their bosses had.) And I’d distilled those requirements into system characteristics we could measure. Well, more measurable versions of the original requirements. And meeting the requirements was the most important thing, right?

    Doing it Wrong
    Here’s what I learned: I was doing it wrong. The way our process worked, customers were just a stakeholder that provided input – not drivers of the process. That meant that program offices were only accountable to a list of requirements, which were locked early. Success only consisted of passing tests against these requirements, not delighting our airmen. I began to wonder – how could we learn about user needs earlier?  How could we deliver them solutions more quickly?  More cheaply?

    It was only after returning to Stanford and taking the Lean LaunchPad class that I became convinced that a radically different, customer-centric approach was the solution. I returned to the Air Force Academy as an instructor in the Electrical and Computer Engineering Department, intent on spreading the gospel of and Lean.academy ee

    Our existing Capstone senior engineering design course followed the defense acquisition process; the focus of defense acquisition is to “nail down requirements” early and manage customer expectations to “avoid requirements creep”. I saw this as counter to the joint, iterative discovery process between and customers I had experienced on my Lean LaunchPad team.

    I kept in touch with Steve as I started teaching. We discussed how the Lean LaunchPad approach might find a place in our curriculum, and how it might be adapted to fit the unique Air Force Academy / military environment. We grew excited about how showing success here might prove a good model for how it could be done in the broader Air Force; how exposing future officers to the Lean philosophy might bring about change from within.

    So when I invited Steve out to the Air Force Academy to speak last spring, there was more at stake than the talk.  We set up a meeting with our department head, Col Jeff Butler, and Capstone course director, Lt Col Charlie Gaona, to pitch the idea.  They shared our enthusiasm about the impact it could have on our future design projects and how it might bring a change in perspective to our acquisition corps. They gave the go-ahead to send a pilot team through the program in the Fall semester, with the potential for it to be applied across the entire course if we delivered results.

    I found a willing co-conspirator in Capt Ryan Silva, a star instructor who mentors a project named Neumimic, using technology to aid in the rehabilitation of patients with chronic loss of limb motion.  In the first year, they had developed a proof of concept around the Xbox Kinect – and Ryan had high hopes for the future. But he found some elements of the traditional systems engineering process cumbersome and frustrating to cadets. Ryan signed on to lead our test class.

    V-Model of Systems Engineering
    The current Capstone class follows the V-Model of Systems Engineering, with teams creating a detailed system design throughout the Fall semester and building their design in the Spring.

    Vmodel

    There are a series of formal reviews throughout the two semesters, in line with the Air Force acquisitions process.  Requirements and a concept of operations are presented at the first, the System Requirements Review.  Cadets receive instruction on the process in about a quarter of the course lessons.

    What we decided to do instead was have semi-weekly informal reviews Lean LaunchPad style, focusing on product hypotheses, customer interactions, learning, and validation / refinement.  We emphasize customer interaction via “getting out of the building” and rapid iteration through “cheap hacks.”  We’ve removed most of the structure and firm requirements from the original course in favor of a “whatever it takes” philosophy.  Instruction is presented in tandem with the reviews, focusing on areas we see as problematic.

    Last year’s team meeting with Dr. Glen House at Penrose-St. Francis Hospital

    Last year’s team meeting with Dr. Glen House at Penrose-St. Francis Hospital

    Back to the Present
    We’re about a quarter of the way through the fall semester. Team Neumimic consists of nine sharp cadets across multiple academic disciplines. Based on initial customer interactions, they divided themselves into two complementary but standalone teams. One will focus on design, execution, and measurement of therapy sessions – building on the original Xbox Kinect work.  The other will work on adjustable restriction of patient motion – forcing patients to use the proper muscles for each movement.

    Here’s Ryan on the impact of the process change:

    “Last year the team found themselves handcuffed to a process that required a 100% design solution on paper before we could even think about touching hardware…crazy right?! We spent the entire first semester nailing down requirements for a system that was supposed to meet the needs of stroke and traumatic brain injury patients as prescribed by their occupational therapists. For five months we slogged our way through the process emerged with a complete design for our system, custom-built to meet the needs of patients and doctors alike. Our design was flawless. We had nuts-and-bolts details all the way down to the schematic level. We were ready to build! The fact that we had yet to even see a patient or spend any real time with an occupational therapist had not even registered to us as a problem, until we were invited to watch a therapy session.

    Our entire team walked out of the hospital ashen-faced and silent. We knew we had just wasted half the course designing a system that wouldn’t work. We were back to square one. The remainder of the course was spent in a frenzy of phone calls with doctors and therapists paired with many design reviews, but this time with our customers in the room. We were able to iterate a few solutions before we ran out of time, but the customers were thrilled with what they saw. I could only imagine what we could have accomplished if we didn’t waste the first half of the course on a solution that ultimately wasn’t what the customers wanted. I was fired up when Todd approached me with his idea to fundamentally change the way we did business.

    So far the results have been incredible compared to last year. The team has learned more about the problem in a month than last year’s team learned in an entire semester. I’m not saying this year’s cadets are any more capable than last year’s; just that I believe this year’s team has been given a better chance to succeed.  They’re freed of a lot of stifling overhead and are embracing a process where requirements are derived from those who will actually use the system…imagine that! I’m excited to see what the team does with their remaining eight months.”

    Current team members observing Dr. House conduct a therapy session

    Current team members observing Dr. House conduct a therapy session

    But we have experienced challenges in implementing this approach. Here’s what we’ve noticed so far:

    In typical Lean Launchpad classes, students apply as teams with their own idea.  There’s also the potential for teams to pursue the opportunity beyond the class if they’re successful. In our Capstone, projects are predetermined and cadets are assigned based on preference and skill set.  Cadets will graduate and be commissioned as officers, doing various jobs throughout the Air Force. It’s highly unlikely they’ll be able to continue their project. These factors might make the initial motivation of our team less than that of other Lean Launchpad teams.  We found that early interactions with customers excited about their work went a long way to remedy this.

    We’re offering cadets much less structure than they’re used to. Some cadets are uncomfortable with the ambiguity of the requirements (“What are you looking for?  What do I have to do to get an A?”).  I’d imagine this is typical of most high-performing students.

    We’re trusting cadets with more freedom and less oversight than they’re used to.  There’s the potential for our trust to be abused.  I’m hopeful that our cadets rise to this challenge.  I think they’ll feel ownership of the project and empowerment, rather than see an opportunity to shirk responsibilities.

    Since this course is a senior design experience, cadets expect to be “using their major.”  There’s the tendency for some to sit on the sideline if the pressing work isn’t directly related to their area of expertise.  It has taken some prodding for cadets to embrace the “hustler” mindset – to take any job necessary to move the team forward.

    These are challenges we can overcome.  I know we’re moving in the right direction.  I know we have the right team and project to be successful.  I know our cadets will make us proud.

    Up the hill!

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  • Why Real Learning is Outside the Building, Not Demo Day

    Steve Blank 2011 PhotoOriginally posted Sept. 5, 2013, at www.steveblank.com

    By Steve Blank

    Over the last three years our Lean LaunchPad / NSF Innovation Corps classes have been hundreds of entrepreneurial teams a year how to build their by getting out of the building and testing their hypotheses behind their business model.  While our teams have mentors, socialize a lot and give great demos, the goal of our class final presentations is “Lessons Learned”  – about product/market fit, pricing, acquisition/activation costs, pricing, partners, etc.  We think teaching teams a formal methodology around the Lean Framework (Business Model design, and Agile Engineering) is a natural evolution of how successful incubators/accelerators will build startups.

    Here’s the story of one such team; Jonathan Wylie, Lakshmi Shivalingaiah and the Evoke team.

    —–

    Imagine if, in the course of ten rollercoaster weeks, your customer segment changed from executives on corporate campuses to moms on playgrounds, a tool that was just part of your product turned into the killer product, and the value of the problem you were solving went from number 47 to customers trying to give you money when you demo’d.  Here’s how that happened.

    We came to the Lean LaunchPad class wanting to build a mobile/web research management system aimed at helping qualitative researchers better manage the media they captured in the field. We were ready to learn, but pretty confident we would end the journey in the same market space in which we started.  We had a killer team and all the right skillsets.  I was a consultant and ethnographer, another teammate was a market researcher, and two others had the software engineering skills to build what the market needed.  And what the market needed would, of course, be exactly what we had envisioned. After all, there must be a huge number of researchers struggling with the exact same problems we had, right?  Not quite…

    Out of the Building
    In the first 4 weeks, our team got out of the building and spoke with employees at 42 different companies.  We spoke with people at all levels, from front line user experience researchers at large tech firms to the CMO of a fortune 500 consumer goods company. Discover X WorkflowFrom the first 10 interviews, we learned that video is a big problem for researchers who use that medium.  It takes an average of 4 hours to mine every hour of video for the relevant 10 seconds of insight that matters.  Thus, we focused our early minimum viable product on helping researchers save money and time in finding insight in market research videos.

    Wireframes
    We built wireframes as a Minimum Viable Product to elicit feedback and began showing them to customers during our interviews.  At this point, things got real…and a bit ugly.  Given something tangible, customers were able to start gauging their willingness to use and pay.  Discover X wireframeTurns out, researchers were “just not that into us.”  We heard consistently that the product looked good and solved a problem, but it was not an important problem.  It was number 47 on their list, and there was no way they could justify paying to solve that problem.

    First Pivot
    As disappointing as this was, we dug deeper with our questioning.  To our surprise, customers started offering ideas on where there might be a true need; one of which was the legal market, specifically the deposition process. We thought this would be perfect for our product. There is a lot of video being recorded, and attorneys need to be able to pull out the insights quickly. After a solid week of speaking with lawyers and attending webinars on real-time deposition software, we had mapped both the technology and the buying relationships.  What we learned was that, we would just be an incremental feature to the incumbents and would need to integrate our solution with theirs. This, combined with regulation from the courts, a 2-year sales cycle, and the realization that e-discovery groups are not early adopters, made this an unattractive market.

    Technology in search of a market
    By this point, we were a technology in search of a market…not a good place to be.   The next customer segment we tried was startup founders.  After all, they are just like us – researching their markets and needing a way to share insights and keep their teams connected to customers. However, we found that most just assume that what they are building will have a market. The few who did get it felt uncomfortable using video during the interview process.

    Pivot Two
    While at times we felt like we wanted to give up, we began to hear a positive signal in the noise of all the customer rejections. Evoke BrainstormingAt first it was faint.  While customers in all three markets were lukewarm for use at work, they got visibly excited telling us that it would definitely solve a problem at home. Say what??  They told us “too bad we weren’t making a consumer product so they could document their kids… they would pay a lot of money for that product.”  Whoah…were customers telling us we are a consumer product rather than B-to-B??

    We settled on a small-scale experiment to test the consumer market. We decided to speak with 10 parents over the course of a week. If 5 had a similar problem, we would dive deeper. What we got was a landslide of interest.  All 10 parents had the problem.  Even more amazing to us, 9 of them liked our solution!

    We learned that parents capture moments with their families to:

    1. remember and relive later
    2. share with those closest to them
    3. pass along a memoir to their kids

    To our surprise, it turns out that none of these are being accomplished well with existing products, and parents are stressed because they feel like they are failing in an important responsibility.

    Eureka!
    Since that initial experiment in class, we’ve validated these findings (and many others) during over 200 hour-long interviews.

    1st evoke wireframes

    We even partnered with the university on a 112-person design workshop to learn more about how photos and videos fit into people’s lives.  It’s always an incredible experience to be invited into someone’s home to learn about how they capture their most precious family moments.  Sometimes, the learning is immediate and conclusive. Other times, we have to do multiple rounds before we arrive at an answer to an important question.

    The result of all this effort is that we have found a large and underserved market in hidden in plain sight, right in the middle of an area that gets a lot of attention – photos and videos!

    Lessons Learned
    There’s no way we would have learned any of this unless we were out of the building and in the trenches, with parents over an extended period.

    Knowing our customers and their problems first hand has given us a huge head start and a competitive advantage. Most seem to just make this stuff up for a pitch deck or to please stakeholders, but the validated learning that we gained through these interviews and other methods of business model experimentation is not something that can be easily replicated.

    As for our current status, we are building the product, continuing customer development, exploring and validating other aspects of our business model, and…oh yeah…hitting the pavement to raise our first round of funding!  If you want to talk to us about that, or if you know parents that we should be speaking to, please feel free to reach out.

    For all the parents out there, relief (and much more) is on its way… http://www.evokeapp.com

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  • How to Get Meetings with People Too Busy to See You

    Originally published Aug. 12, 2013, at www.steveblank.com

    By Steve Blank

    Steve Blank 2011 PhotoAsking, “Can I have coffee with you to pick your brain?” is probably the worst possible way to get a meeting with someone with a busy schedule.  Here’s a better approach.

    ——

    Jason, an entrepreneur I’ve known for over a decade, came out to the ranch today. He was celebrating selling his company and just beginning to think through his next moves. Since he wasn’t from Silicon Valley, he decided to use his time up here networking with other meetings with VC’s and company executives.

    I get several hundred emails a day, and a good number of them are “I want to have coffee with you to bounce an idea off.” Or, “I just want to pick your brain.” I now have a filter for which emails get my attention, so I was curious in hearing what Jason, who I think of as pretty good at networking, was asking for when he was trying to set up meetings.

    “Oh, I ask them if I can have coffee to bounce an idea off of them.”…Sigh.foot in the door

    I realized most don’t know how to get meetings with people too busy to see you.

    Perfect World
    Silicon Valley has a “pay-it-forward” culture where we try to help each other without asking for anything in return. It’s a culture that emerged in the 60’s semiconductor business when competitors would help each other solve bugs in their chip fabrication process. It continued in the 1970’s with the emergence of the Homebrew Computer Club, and it continues today.  Since I teach, I tend to prioritize my list of meetings with first my current students, then ex-students, then referrals from VC firms I’ve invested in, and then others.  But still with that list, and now with a thousand plus ex-students, I have more meeting requests than I possibly can handle. (One of the filters I thought would keep down the meetings is have meetings at the ranch; an hour from Stanford on the coast, but that hasn’t helped.)

    So I’ve come up with is a method to sort out who I take meetings with.

    What are you offering?
    I’m not an investor, and I’m really not looking for meetings with entrepreneurs for deal flow. I’m having these meetings because someone is asking for something from me – my time – and they think I can offer them advice.

    If I’d had infinite time I’d take every one of these “can I have coffee” meetings. But I don’t.  So I now prioritize meetings with a new filter: Who is offering me something in return.

    No, not offering me money.  Not for stock.  But who is offering to teach me something I don’t know.

    The meeting requests that now jump to the top of my list are the few, very smart entrepreneurs who say, “I’d like to have coffee to bounce an idea off of you and in exchange I’ll tell you all about what we learned about xx.”

    get into my head

    This offer of me something changes the agenda of the meeting from a one-way, you’re learning from me, to a two-way, we’re learning from each other.

    It has another interesting consequence for those who are asking for the meeting – it forces them to think about what is it they know and what is it they have learned – and whether they can explain it to others in a way that’s both coherent and compelling.

    Irony – it’s
    While this might sound like a, “how to get a meeting with Steve” post, the irony is that this “ask for a two-way meeting” is how we teach entrepreneurs to get their first customer discovery meetings; don’t just ask for a potential customers time, instead offer to share what you’ve learned about a technology, market or industry.

    It will increase your odds in any situation you’re asking for time from very busy people – whether they are VC’s, company executives or retired entrepreneurs.

    • Lessons Learned
    • Wanting to have coffee is an ask for a favor
    • Offering to share knowledge is a different game
    • Try it, your odds of will increase
    • And the meetings will be more productive
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  • Reinventing Life Science Startups – Evidence-based Entrepreneurship

    Steve Blank 2011 PhotoOriginally published Aug. 21, 2013, at www.steveblank.com

    What if we could increase productivity and stave the capital flight by helping build their companies more efficiently?

    We’re going to test this hypothesis by teaching a Lean LaunchPad class for Life Sciences and Health Care (therapeutics, diagnostics, devices and digital health) this October at with a team of veteran venture capitalists.

    Part 1 of this post described the issues in the drug discovery. Part 2 covered medical devices and digital health. This post describes what we’re going to do about it.  And why you ought to take this class.

    ——

    When I wrote Four Steps to the Epiphany and the Startup Owners Manual, I believed that Life Sciences startups didn’t need . Heck how hard could it be?  You invent a cure for cancer and then figure out where to put the bags of money. (In fact, for oncology, with a successful clinical trial, this is the case.)

    Pivots in Life Sciences Companies

    But I’ve learned that’s not how it really works. For the last two and a half years, we’ve taught hundreds of teams how to commercialize their science with a version of the Lean LaunchPad class called the National Science Foundation Innovation Corps.  Quite a few of the teams were building biotech, devices or digital health products.  What we found is that during the class almost all of them pivoted - making substantive changes to one or more of their business model canvas components.

    In the real world a big pivot in life sciences far down the road of development is a very bad sign due to huge sunk costs.  But pivoting early, before you raise and spend millions or tens of millions means potential disaster avoided.

    Some of these pivots included changing their product/service once the team had a better of understanding of customer needs or changing their position in the value chain (became an OEM supplier to hospital suppliers rather than selling to doctors directly.) Other pivots involved moving from a platform technology to become a product supplier, moving from a therapeutic drug to a diagnostic or moving from a device that required a PMA to one that required a 510(k).

    Some of these teams made even more radical changes.  For example when one team found the right customer, they changed the core technology (the basis of their original idea!) used to serve those customers. Another team reordered their device’s feature set based on customer needs.

    These findings convinced me that the class could transform how we thought about building life science startups.  But there was one more piece of data that blew me away.

    Control versus Experiment – 18% versus 60%
    For the last two and a half years, the teams that were part of the National Science Foundation Corps wanted to learn how to commercialize their science, applied to join the program, fought to get in and went through a grueling three month program.  Other scientists attempting to commercialize their science were free to pursue their startups without having to take the class.

    Both of these groups, those who took the Innovation Corps class and those who didn’t, applied for government peer-reviewed funding through the SBIR program. The teams that skipped the class and pursued traditional methods of starting a company had an 18% success rate in receiving SBIR Phase I funding.

    The teams that took the class  – get ready for this – had a 60% success rate. And yes, while funding does not equal a successful company, it does mean these teams knew something about building a business the other teams did not.

    The 3-person teams consisted of Principal Investigators (PI’s), mostly tenured professors (average age of 45,) whose NSF research the project was based on. The PI’s in turn selected one of their graduate students (average age of 30,) as the entrepreneurial lead. The PI and Entrepreneurial Lead were supported by a mentor (average age of 50,) with industry/startup experience.

    This was most definitely not the hoodie and flip-flop crowd.

    Obviously there’s lots of bias built into the data – those who volunteered might be the better teams, the peer reviewers might be selecting for what we taught, funding is no metric for successful science let alone successful companies, etc.  – but the difference in funding success is over 300%.

    The funding criteria for these new ventures wasn’t solely whether they had a innovative technology. It was whether the teams understood how to take that idea/invention/patent and transform it into a company. It was whether after meeting with partners and regulators, they had a plan to deal with the intensifying regulatory environment. It was whether after talking to manufacturing partners and clinicians, they understood how they were going to reduce technology risk. And It was after they talked to patients, providers and payers whether they understood the customer segments to reduce market risk by having found product/market fit.

    Scientists and researchers have spent their careers testing hypotheses inside their labs. This class teaches them how to test the critical hypotheses that turn their idea into a business as they deal with the real world of regulation, customers and funding.

    So after the team at UCSF said they’d like to prototype a class for Life Sciences, I agreed.

    Here’s what we’re going to offer.

    The Lean LaunchPad Life Sciences and Health Care Class

    The goal of the Lean LaunchPad Life Sciences class at UCSF is to teach researchers how to move their technology from an academic lab into the commercial world.UCSF Logo

    We’re going to help teams:

    • assess regulatory risk before they design and build
    • gather data essential to customer purchases before doing the science
    • define clinical utility now, before spending millions of dollars
    • identify financing vehicles before you need them

    We’ve segmented the class into four cohorts: therapeutics, diagnostics, devices and digital health.  And we recruited a team of world class Venture Capitalists and to teach and mentor the class including Alan MayKarl HandelsmanAbhas Gupta, and Todd Morrill.

    The course is free to UCSF, Berkeley, and Stanford students; $100 for pre-revenue startups; and $300 for industry. – See more here

    The syllabus is here.

    Class starts Oct. 1 and runs through Dec. 10.

    Download the all three parts of the Life Science series here.

    Watch my fireside chat at the recent Health Innovation Summit here.

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  • Reinventing Life Science Startups – Medical Devices and Digital Health

    Steve Blank 2011 PhotoOriginally published Aug. 20, 2013, at www.steveblank.com.

    What if we could increase productivity and stave the capital flight by helping build their companies more efficiently?

    We’re going to test this hypothesis by Lean LaunchPad class for Life Sciences and Healthcare (therapeutics, diagnostics, devices and digital health) this October at with a team of veteran venture capitalists.

    In this three post series, Part 1 described the challenges Life Science companies face in Therapeutics and Diagnostics. This post describes the issues in Medical Devices and Digital Health.  Part 3 will offer our hypothesis about how to change the dynamics of the Life Sciences industry with a different approach to commercialization of research and .  And why you ought to take this class.

    ——–

    Medical devices prevent, treat, mitigate, or cure disease by physical, mechanical, or thermal means (in contrast to drugs, which act on the body through pharmacological, metabolic or immunological means). They span they gamut from tongue depressors and bedpans to complex programmable pacemakers and laser surgical devices. They also diagnostic products, test kits, ultrasound products, x-ray machines and medical lasers.

    Incremental advances are driven by the existing medical device companies, while truly innovative devices often come from doctors and academia. One would think that designing a medical device would be a simple engineering problem, and startups would be emerging right and left. The truth is that today it’s tough to get a medical device startup funded.

    Life Sciences II – Medical Devices

    Regulatory Issues
    In the U.S. the FDA Center for Devices and Radiological Health (CDRH) regulates medical devices and puts them into three “classes” based on their risks.

    Class I devices are low risk and have the least regulatory controls. For example, dental floss, tongue depressors, arm slings, and hand-held surgical instruments are classified as Class I devices. Most Class I devices are exempt Premarket Notification 510(k) (see below.)

    Class II devices are higher risk devices and have more regulations to prove the device’s safety and effectiveness. For example, condoms, x-ray systems, gas analyzers, pumps, and surgical drapes are classified as Class II devices.FDA approvals

    Manufacturers introducing Class II medical devices must submit what’s called a 510(k) to the FDA. The 510(k) identifies your medical device and compares it to an existing medical device (which the FDA calls a “predicate” device) to demonstrate that your device is substantially equivalent and at least as safe and effective.

    Class III devices are generally the highest risk devices and must be approved by the FDA before they are marketed. For example, implantable devices (devices made to replace/support or enhance part of your body) such as defibrillators, pacemakers, artificial hips, knees, and replacement heart valves are classified as Class III devices. Class III medical devices that are high risk or novel devices for which no “predicate device” exist require clinical trials of the medical device a PMA  (Pre-Market Approval).Life Science Decline

    • The FDA is tougher about approving innovative new medical devices. The number of 510(k)s being required to supply additional information has doubled in the last decade.
    • The number of PMA’s that have received a major deficiency letter has also doubled.
    • An FDA delay or clinical challenge is increasingly fatal to Life Science startups, where investors now choose to walk away rather than escalate the effort required to reach approval.

    med device pipeline

    Business Model Issues

    • Cost pressures are unrelenting in every sector, with pressure on prices and margins continuing to increase.
    • Devices are a five-sided market: patient, physician, provider, payer and regulator. Startups need to understand all sides of the market long before they ever consider selling a product.
    • In the last decade, most device startups took their devices overseas for clinical trials and first getting EU versus FDA approval
    • Recently, the financing of innovation in medical devices has collapsed even further with most Class III devices simply unfundable.
    • Companies must pay a  medical device excise tax of 2.3% on medical device revenues, regardless of profitability delays or cash-flow breakeven.
    • The U.S. government is the leading payer for most of health care, and under ObamaCare the government’s role in reimbursing for medical technology will increase. Yet two-thirds of all requests for reimbursement are denied today, and what gets reimbursed, for how much, and in what timeframe, are big unknowns for new device companies.

    Issues

    • Early stage Venture Capital for medical device startups has dried up. The amount of capital being invested in new device companies is at an 11 year low.
    • Because device IPOs are rare, and M&A is much tougher, liquidity for investors is hard to find.
    • Exits have remained within about the same, while the cost and time to exit have doubled.

    Life Sciences III – The Rise of Digital Health
    Over the last five years a series of applications that fall under the category of “Digital Health” has emerged. Examples of these applications include: remote patient monitoring, analytics/big data (aggregation and analysis of clinical, administrative or economic data), hospital administration (software tools to run a hospital), electronic health records (clinical data capture), and wellness (improve/monitor health of individuals). A good number of these applications are using Smartphones as their platform.digital health flow

    Business Model Issues

    • A good percentage of these startups are founded by teams with strong technical experience but without healthcare experience. Yet healthcare has its own unique regulatory and reimbursement issues and business model issues that must be understood
    • Most of these startups are in a multisided market, and many have the same five-sided complexity as medical devices: patient, physician, provider, payer and regulator.  (Some are even more complex in an outpatient / nurse / physical therapy setting.)
    • Reimbursement for digital health interventions is still a work in progress
    • Some startups in this field are actually beginning with while others struggle with the classic execution versus search problem

    Regulatory Issues

    • Digital Health covers a broad spectrum of products, unless the founders have domain experience startups in this area usually discover the FDA and the 510(k) process later than they should. 

    Venture Capital

    • Seed funding is still scarce for Digital Health, but a number of startups (particularly those making physical personal heath tracking devices) are turning to crowdfunding.
    • Moreover, the absence of recent IPOs and public companies benchmarks creates uncertainty for VCs evaluating later investments too

    Try Something New
    The fact that the status quo for Life Sciences is not working is not a new revelation. Lots of smart people are running experiments in search of ways to commercialize basic research  more efficiently.

    Universities have set up translational R&D centers; (basically university/company partnerships to commercialize research).  The National Institute of Health (NIH) is also setting up translational centers through its NCATS program.  Drug companies have tried to take research directly out of university labs by licensing patents, but once inside Pharma’s research labs, these projects get lost in the bureaucracy.  Realizing that this is not optimal, drug companies are trying to incubate projects directly with universities and the researchers who invented the technology, such as the recentJanssen Labs program.

    But while these are all great programs, they are likely to fail to deliver on their promise. The assumption that the pursuit of drugs, diagnostics, devices and digital health is all about the execution of the science is in most cases a mistake.

    The gap between the development of intriguing but unproven innovations, and the investment to commercialize those innovations is characterized as “the Valley of Death.”valley of death

    We believe we need a new model to attract private investment capital to fuel the commercialization of clinical solutions to todays major healthcare problems that is in many ways technology agnostic. We need a “Needs Driven/Business Model Driven” approach to solving the problems facing all  the stakeholders in the vast healthcare system.

    We believe we can reduce the technological, regulatory and market risks for early-stage life science and healthcare ventures, and we can do it by teaching founding teams how to build new ventures with Evidence-Based .

    ——

    Part 3 in the next post will offer our hypothesis about how to offer our hypothesis how to change the dynamics of the Life Sciences industry with a different approach to commercialization of research and innovation in this sector. And why you ought to takethis class.

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