Home » Steve Blank’s Corner (Page 6)

  • Reinventing Life Science Startups –Therapeutics and Diagnostics

    Steve Blank 2011 PhotoOriginally posted on August 19, 2013, on www.steveblank.com

    It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way.

    Charles Dickens

    Life Science (therapeutics- drugs to cure or manage diseases, diagnostics- tests and devices to find diseases, devices to cure and monitor diseases; and digital health –health care hardware, software and mobile devices and applications streamline and democratize the healthcare delivery system) is in the midst of a perfect storm of decreasing productivity, increasing regulation and the flight of .

    But what if we could increase productivity and stave the capital flight by helping Life Sciences build their companies more efficiently?

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

    It was the best of times and the worst of times
    The last 60 years has seen remarkable breakthroughs in what we know about the biology underlying diseases and the science and of developing commercial drug development and medical devices that improve and save lives. Turning basic science discoveries into drugs and devices seemed to be occurring at an ever increasing rate.

    Yet during those same 60 years, rather than decreasing, the cost of getting a new drug approved by the FDA has increased 80 fold.  Yep, it cost 80 times more to get a successful drug developed and approved today than it did 60 years ago.Overall efficiency

    75% or more of all the funds needed by a Life Science startup will be spent on clinical trials and regulatory approval. Pharma companies are staggering under the costs.  And medical device in the U.S. has gone offshore primarily due to the toughened regulatory environment.

    At the same time, Venture Capital, which had viewed therapeutics, diagnostics and medical devices as hot places to invest, is fleeing the field. In the last six years half the VC’s in the space have disappeared, unable to raise new funds, and the number of biotech and device startups getting first round financing has dropped by half. For exits, acquisitions are the rule and IPOs the exception.

    While the time, expense and difficulty to exit has soared in Life Sciences, all three critical factors have been cut by orders of magnitude in other investment sectors such as internet or social-local-mobile.  And while the vast majority of Life Science exits remain below $125M, other sectors have seen exit valuations soar.  It has gotten so bad that pension funds and other institutional investors in venture capital funds have told these funds to stay away from Life Science – or at the least, early stage Life Science.

    WTF is going on?  And how can we change those numbers and reverse those trends?

    We believe we have a small part of the answer.  And we are going to run an experiment to test it this fall at UCSF.

    In this three post series, the first two posts are a short summary of the complex challenges Life Science companies face; in Therapeutics and Diagnostics in this post and in Medical Devices and Digital Health in Part 2.  Part 3 explains 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 take this class.

    ——-

    Life Sciences I—Therapeutics and Diagnostics

    It was the Age of Wisdom – Drug Discovery
    There are two types of drugs. The first, called small molecules (also referred to as New Molecular Entities or NMEs), are the bases for classic drugs such as aspirinstatins or high blood pressure medicines. Small molecules are made by reactions between different organic and/or inorganic chemicals. In the last decade computers and synthesis methods in research laboratories enable chemists to test a series of reaction mixtures in parallel (with wet lab analyses still the gold standard.) Using high-throughput screening to search for small molecules, which can be a starting point (or lead compound) for a new drug, scientists can test thousands of candidate molecules against a database of millions in their libraries.

    Ultimately the FDA Center for Drug Evaluation and Research (CDER) is responsible for the approval of small molecules drugs.Drug discovery pipeline

    The second class of drugs created by biotechnology is called biologics (also referred to as New Biological Entities or NBEs.) In contrast to small molecule drugs that are chemically synthesized, most biologics are proteins, nucleic acids or cells and tissues. Biologics can be made from human, animal, or microorganisms – or produced by recombinant DNA . Examples of biologics include: vaccines, cell or gene therapies, therapeutic protein hormones, cytokines, tissue growth factors, andmonoclonal antibodies.

    The FDA Center for Biologics Evaluation and Research (CBER) is responsible for the approval of biologicals.

    It was the Season of Light
    The drug development pipeline for both small molecules and biologics can take 10-15 years and cost a billion dollars. The current process starts with testing thousands of compounds which will in the end, produce a single drug.

    In the last few decades scientists searching for new drugs have had the benefit of new tools — DNA sequencing3D protein database for structure datahigh throughput screening for “hits”, computational drug design, etc. — which have sped up their search dramatically.Drug funnel

    The problem is that the probability that a small molecule drug gets through clinical trials is unchanged after 50 years. In spite of the substantial scientific advances and increased investment, over the last 20 years the FDA has approved an average of 23 new drugs a year. (To be fair, this is indication-dependent. For example, in oncology, things have gotten significantly better. In most other areas, particularly drugs for the central nervous system and metabolism, they have not.)

    drugs approved

    It was the Season of Despair
    With the exception of targeted therapies, the science and tools haven’t made the drug discovery pipeline more efficient. Oops.

    There are lots of reasons why this has happened.

    Regulatory and Reimbursement Issues

    • Drug safety is a high priority for the FDA. To avoid problems like Vioxx, Bexxar etc., the regulatory barriers (i.e. proof of safety) are huge, expensive, and take lots of time. That means the FDA has gotten tougher, requiring more clinical trials, and the stack of regulatory paperwork has gotten higher.
    • Additional trials to demonstrate both clinical efficacy (if not superiority) and cost outcomes effectiveness are further driving up the cost, time and complexity of clinical trials.

    Drug Discovery Pipeline Issues

    Drug target Issues

    • In a perfect world the goal is to develop a drug that will go after a single target(a protein, enzyme, DNA/RNA, etc. that will undergo a specific interaction with chemicals or biological drugs) that is linked to a disease.
    • To get FDA approval new drugs have to be proven better than existing ones.  Most of the low-hanging fruit of easy drugs to develop are already on the market.
    • Unfortunately most diseases don’t work that simply. There are a few diseases that do, (i.e. insulin and diabetes, Gleevec -Philadelphia Chromosome and chronic myeloid leukemia), but most small molecule drugs rarely act on a single target (target-based therapy in oncology being the bright spot.)

    Venture Capital Issues

    • For the last two decades, biotech venture capital and corporate R&D threw dollars into interesting science (find a new target, publish a paper in Science,Nature or Cell, get funded.) The belief was that once a new target was found, finding a drug was a technology execution problem.  And all the new tools would accelerate the process.  It often didn’t turn out that way, although there are important exceptions.
    • Moreover, the prospect of the FDA also evaluating drugs for their cost-effectiveness is adding another dimension of uncertainty as the market opportunity at the end of the funnel needs to be large enough to justify venture investment

    drug dev pipeline fundedIn Part 2 of this series, we describe the challenges new Medical Device and Digital Health companies face.  Part 3 will 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 take this class.

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  • How Kevin O’Connor and FindTheBest Got Lean

     By Steve Blank

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

    When we started E.piphany there was an equally scrappy startup calledDoubleClick (later acquired by Google for $3.1 billon). Other the years Kevin O’Connor, former CEO and founder of DoubleClick and I got to know each other.  It’s been fun watching a 20th Century entrepreneur learn new tricks as he builds his next startup, FindTheBest using Lean Methodology.  Here’s Kevin’s story to date.

    kevin_oconnor_headshot

    ——–

    You might say Steve and I have lived parallel lives. We’re both serial . We’ve both used a combination of luck, hard work, and mild insanity to get where we are today. We’ve both published bestselling books.*map_of_innovation_kevin_oconnor

    * Okay: my book sold way less copies than Steve’s.

    Steve and I have long held similar beliefs about how to run start-ups, even if we’ve used different names to describe the key principles. He came down a few weeks ago to visit our company, FindTheBest, where we chatted about his lean start-up concept and held a Q&A for the FindTheBest team and others in the Santa Barbara tech community. Here’s how our company is following the Steve Blank blueprint.

    1. An Untested Hypothesis
    Connection: Business Model Canvas

    By 2009, I was fed up. I remember trying to search for the best college for my son and the top ski resort for a family vacation, only to find scam sites promoting a “top 10″ list or “featured” options, meaning they were getting paid to promote them. Visiting each official site took too long, and the information wasn’t always easy to compare (ex: “Net Cost of Attendance” vs. “Resident Tuition per Semester”).

    That’s when it hit me: what if there was a site where you get all the best information in one place, and have access to great research tools to help make a decision? What if you could think like an expert on any topic in a matter of minutes, instead of after hours of inefficient web browsing? Granted, the idea was a little crazy. To really be a game-changer, FindTheBest would have to compete against the thousands of niche sites that focus exclusively on a single market.

    When we started building the site, we had to assume a lot. We figured our key partners would include consumers (to contribute data much like Wikipedia’s users), manufacturers (to keep their product information updated) and the US government (to supply datasets to power our content). We assumed our customers would be any smart Internet users looking to make a decision—granted, an extremely broad customer segment. We guessed that these customers would find value in the ability to make quick decisions on complicated topics. We hoped to start acquiring customers mostly through responsible, focused SEO, where we would target a variety of high-value search terms and provide relevant, useful content to users.

    From day one, we knew our biggest cost would be hiring more employees, but we didn’t know exactly how much it would cost to enter each new market (ex: smartphones, then mountain bikes, then business schools, etc.). By leaning on our , we knew we could build cheaply, we just didn’t know how cheaply. We resolved to build out the first dozen comparisons before we started calculating an exact cost per new market.

    Regarding revenue, we made a big bet on “purchase intent.” We looked at social sites—like Facebook and Twitter—with huge user bases, but comparably small revenue. We then looked at wildly profitable ventures—like Google or Kayak—noting that their users were much more likely to make purchases. When you enter a search query for “car insurance,” or submit details for a trip to London, you’re much more likely to end up spending money. We hypothesized that FindTheBest, with its focus on making big decisions, would attract the same purchase-minded users found on Google or Kayak.

    We didn’t need to spend months researching; we just needed to create a viable product to test these hypotheses against. As we went out and started building, many people thought we were insane, stupid, or both. In fact, some probably still do.

    Our First FIndtheBest Wireframe

    2. Validation
    Lean Startup Connection: Customer Development

    Over the next couple of years, several of our hypotheses were confirmed. Thousands, then millions of new customers were coming to the site through SEO, just like we’d guessed with our customer acquisition hypothesis. Our assumptions about cost also proved correct—we were entering new markets incredibly cheaply. Here, we even beat our most optimistic assumptions.

    Once we built out a sales team, revenue also started to grow nicely. We’ve confirmed our ability to harness purchase intent, like Google and Kayak before us, verifying our revenue stream hypothesis.

    That said, a few of our hypotheses were proven at least partially wrong. First, our assumption that consumers would be a key supplier of content (like Wikipedia contributors) was wrong. While user adds and edits grew at a small rate, it wasn’t nearly enough to support the hundreds of topics on the site. Visitors loved using the site to research new topics, but were less likely to add their own listings or consistently update old content. Our customers had identified a flaw in our original plan. We realized our internal team would need to be bigger, and adjusted our business model canvas accordingly .

    Additionally, our value proposition needed adjustment. We had focused on quickdecisions, when really, users wanted a sophisticated research tool for making carefully considered decisions. As a result, we’ve had to adjust our positioning and messaging to better capture the value users see in our product. We’re now promoting FindTheBest as a research hub that helps you think like an expert, much closer to what users were telling us in feedback surveys.

    3. Staying Agile
    Lean Startup Connection: Agile Development

    At FindTheBest, we constantly practice a “test-fail-learn-test-succeed-scale” approach, which is simply another way of describing the philosophy of “agile development.” We’re happy to fail, as long as we do so quickly, learn the appropriate lesson, and move to a new hypothesis. Once we find one that works, we scale the hell out of it.

    For example, we tested out two features early on that didn’t end up as popular as we’d wanted: video guides (a how-to video about researching the topic) and green guides (an environmental report on which products and services were most eco-friendly). Each time, we hoped to capture a new audience by appealing to a specific subset of Internet users. We rolled them out on a limited number of pages to test. Once we saw that these new guides weren’t attracting significant visits or creating increased interaction, we quickly ended the projects.

    On the flip side, we’ve had many major successes that have helped inform our product’s direction. Sister sites FindTheData (a site for researching huge datasets on topics like crime, salaries, and government spending) and FindTheCompany (a tool for finding key information on millions of companies and organizations) have grown user bases of several million visitors per month. We’ve found that people love our platform and use our technology for doing research in a variety of different ways.

    * * *

    At just 3 years in, FindTheBest is real-time proof of Steve Blank’s lean startup blueprint. Even as we make the transition from startup to established company (which I call “company puberty”), we’ll continue to test our hypotheses, seek customer feedback, and test before we scale.

    Hopefully we’ll find that FindTheBest will have a bigger exit than DoubleClick – this time as a Lean Startup.

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  • An MVP is not a Cheaper Product. It’s About Smart Learning

    Steve Blank 2011 Photo

    A minimum viable product (MVP) is not always a smaller/cheaper version of your final product. Defining the goal for a MVP can save you tons of time, money and grief.

    Drones over the Heartland
    I ran into a small startup at Stanford who wants to fly Unmanned Aerial Vehicles (drones) with a Hyper-spectral camera over farm fields to collect hyper-spectral images. These images would be able to tell farmers how healthy their plants were, whether there were diseases or bugs, whether there was enough fertilizer, and enough water. (The camera has enough resolution to see individual plants.) Knowing this means farms can make better forecasts of how much their fields will produce, whether they should treat specific areas for pests, and put fertilizer and water only where it was needed.drone over farm

    (Drones were better than satellites because of higher resolution and the potential for making more passes over the fields, and better than airplanes because of lower cost.)

    All of this information would help farmers increase yields (making more money) and reduce costs by using less water and fertilizer/chemicals but only applying where it was needed.

    Their plan was to be a data service provider in an emerging business called “precision agriculture.” They would go out to a farmer fields on a weekly basis, fly the drones, collect and process the data and then give it to the farmers in an easy understandable form.

    Customer Discovery on Farms
    I don’t know what it is about Stanford, but this was the fourth or fifth startup I’ve seen in precision agriculture that used drones, robotics, high-tech sensors, etc.  This team got my attention when they said, “Let us tell you about our conversations with potential customers.”  I listened, and as they described their customer interviews, it seemed like they had found, that – yes, farmers do understand that not being able to see what was going on in detail on their fields was a problem – and yes, – having data like this would be great – in theory.

    So the team decided that this felt like a real business they wanted to build.  And now they were out raising money to build a prototype minimum viable product (MVP.) All good.  Smart team, real domain experts in hyper-spectral imaging, drone design, good start on customer discovery, beginning to think about product/market fit, etc.

    Lean is Not an Process
    They showed me their goals and budget for their next step. What they wanted was a happy early customer who recognized the value of their data and is willing to be an evangelist.  Great goal.

    They concluded that the only way to get a delighted early customer was to build a minimum viable product (MVP). They believed that the MVP needed to, 1) demonstrate a drone flight, 2) make sure their software could stitch together all the images of a field, and then 3) present the data to the farmer in a way he could use it.

    And they logically concluded that the way to do this was to buy a drone, buy a hyper-spectral camera, buy the software for image processing, spend months of engineering time integrating the camera, platform and software together, etc.  They showed me their barebones budget for doing all this. Logical.

    And wrong.

    Keep Your Eyes on the Prize
    The team confused the goal of the MVP, (seeing if they could find a delighted farmer who would pay for the data) with the process of getting to the goal.  They had the right goal but the wrong MVP to test it.  Here’s why.

    The teams’ hypothesis was that they could deliver actionable data that farmers would pay for.  Period.  Since the startup defined itself as a data services company, at the end of the day, the farmer couldn’t care less whether the data came from satellites, airplanes, drones, or magic as long as they had timely information.

    That meant that all the work about buying a drone, a camera, software and time integrating it all was wasted time and effort – now. They did not need to test any of thatyet. (There’s plenty of existence proofs that low cost drones can be equipped to carry cameras.) They had defined the wrong MVP to test first. What they needed to spend their time is first testing is whether farmers cared about the data.

    So I asked, “Would it be cheaper to rent a camera and plane or helicopter, and fly over the farmers field, hand process the data and see if that’s the information farmers would pay for?  Couldn’t you do that in a day or two, for a tenth of the money you’re looking for?”  Oh…

    Shortcut

    They thought about it for a while and laughed and said, “We’re engineers and we wanted to test all the cool , but you want us to test whether we first have a product that customers care about and whether it’s a business.   We can do that.”

    Smart team.  They left thinking about how to redefine their MVP.

    Lessons Learned

    • A minimum viable product is not always a smaller/cheaper version of your final product
    • Think about cheap hacks to test the goal
    • Great founders keep their eye on the prize
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  •  
  • Your Computer May Already be Hacked — NSA Inside?

    By Steve Blank

    Steve Blank 2011 PhotoPosted  July 15, 2013 at www.steveblank.com

    In a time of universal deceit – telling the truth is a revolutionary act.
    George Orwell

    In Russia, President Putin’s office just stopped using PC’s and switched to typewriters.  What do they know that we don’t?

    Perhaps it’s Intel  inside.

    ———

    For those of you who haven’t kept up, the Agency (NSA’s) Prismprogram has been in the news. provides the NSA with access to data on the servers of Microsoft, Google, Facebook, etc, extracting audio and video chats, photographs, e-mails, documents, etc.

    Prism is just a part of the NSA’s larger mass electronic surveillance program thatcovers every possible path someone might use to communicate; tapping raw data as it flows through fiber optic cables and Internet peering points, copying the addresseeson all letters you physically mail, all credit card purchases, your phone calls and your location (courtesy your smart phone.)Slide03

    All hell broke loose when Edward Snowden leaked all this to press.

    Given my talks on the Secret History of Silicon Valley I was interviewed on NPR about the disclosure that the NSA said they had a new capability that tripled the amount of Skype video calls being collected through Prism. Like most Americans I said, “I didn’t remember getting the memo that the 4th amendment to our constitution had been cancelled.”

    But while the interviewer focused on the Skype revelation, I thought the most interesting part was the other claim, “that the National Security Agency already had pre-encryption stage access to email on Outlook.”  Say what??  They can see the plaintext on my computer before I encrypt it? That defeats any/all encryption methods. How could they do that?

    Bypass Encryption
    While most outside observers think the NSA’s job is cracking encrypted messages, as the Prism disclosures have shown, the actual mission is simply to read all communications. Cracking codes is a last resort.

    Slide04

    The NSA has a history of figuring out how to get to messages before or after they are encrypted. Whether it was by putting keyloggers on keyboards and recording the keystrokes or detecting the images of the characters as they were being drawn on a CRT.

    Today every desktop and laptop computer has another way for the NSA to get inside.

    Intel Inside
    It’s inevitable that complex microprocessors have bugs in them when they ship. When the first microprocessors shipped the only thing you could hope is that the bug didn’t crash your computer. The only way the chip vendor could fix the problem was to physically revise the chip and put out a new version. But computer manufacturers and users were stuck if you had an old chip. After a particularly embarrassing math bug in 1994 that cost Intel $475 million, the company decided to fix the problem by allowing it’s microprocessors to load fixes automatically when your computer starts.

    Slide05

    Starting in 1996 with the Intel P6 (Pentium Pro) to today’s P7 chips (Core i7) these processors contain instructions that are reprogrammable in what is called microcode. Intel can fix bugs on the chips by reprogramming a microprocessors microcode with a patch. This patch, called a microcode update, can be loaded into a processor by using special CPU instructions reserved for this purpose. These updates are not permanent, which means each time you turn the computer on, its microprocessor is reset to its built-in microcode, and the update needs to be applied again (through a computer’sBIOS.).

    Since 2000, Intel has put out 29 microcode updates to their processors. The microcode is distributed by 1) Intel or by 2) Microsoft integrated into a BIOS or 3) as part of aWindows update. Unfortunately, the microcode update format is undocumented and the code is encrypted. This allows Intel to make sure that 3rd parties can’t make unauthorized add-ons to their chips. But it also means that no one can look inside tounderstand the microcode, which makes it is impossible to know whether anyone is loading a backdoor into your computer.

    The Dog That Never Barked
    The NSA has been incredibly thorough in nailing down every possible way to tap into communications. Yet the one company’s name that hasn’t come up as part of the surveillance network is Intel. Perhaps they are the only good guys in the entire Orwellian mess.Slide07

    Or perhaps the NSA, working with Intel and/or Microsoft, have wittingly have put backdoors in the microcode updates. A backdoor is is a way of gaining illegal remote access to a computer by getting around the normal security built-in to the computer. Typically someone trying to sneak malicious software on to a computer would try to install a rootkit (software that tries to conceal the malicious code.) A rootkit tries to hide itself and its code, but security conscious sites can discover rootkits by tools that check kernel code and data for changes.

    But what if you could use the configuration and state of microprocessor hardware in order to hide? You’d be invisible to all rootkit detection techniques that checks the operating system. Or what if you can make the microprocessor random number generator (the basis of encryption) not so random for a particular machine? (The NSA’s biggest coup was inserting backdoors in crypto equipment the Swiss sold to other countries.)

    Rather than risk getting caught messing with everyone’s updates, my bet is that the NSA has compromised the microcode update signing keys  giving the NSA the ability to selectively target specific computers. (Your operating system ensures security of updates by checking downloaded update packages against the signing key.) The NSA then can send out backdoors disguised as a Windows update for “security.” (Ironic but possible.)

    That means you don’t need backdoors baked in the hardware, don’t need Intel’s buy-in, don’t have discoverable rootkits, and you can target specific systems without impacting the public at large.

    Two Can Play the Game
    A few months ago these kind of discussions would have been theory at best, if not paranoia.Slide09The Prism disclosures prove otherwise – the National Security Agency has decided it needs the ability to capture all communications in all forms. Getting inside of a target computer and weakening its encryption or having access to the plaintext of encrypted communication seems likely. Given the technical sophistication of the other parts of their surveillance net, the surprise would be if they haven’t implemented a microcode backdoor.

    The downside is that 1) backdoors can be hijacked by others with even worse intent. So if NSA has a microcode backdoor – who else is using it? and 2) What other pieces of our infrastructure, (routers, smartphones, military computers, satellites, etc) use processors with uploadable microcode?

    ——

    And that may be why the Russian president is now using a typewriter rather than a personal computer.

    Putin's TypewriterUpdate: I asked Intel:

    • Has Intel received any National Security Letters?
    • If you had received a National Security Letter would you be able to tell us that you did?
    • has Intel ever been contacted by anyone in the U.S. government about Microcode Updates or the signing keys?
    • Does anyone outside of Intel have knowledge of the Microcode Updates format or the signing keys?
    • Does anyone outside of Intel have access to the Microcode Updates or the signing key

    Intel’s response from their Director of Corporate and Legal Affairs (italics mine):

    “First, I have no idea whether we’ve ever received a National Security Letter and don’t intend on spending any time trying to find out.  It’s not something we would talk about in any case, regardless of the subject of your blog.

    Second, the questions related microcode and the speculative portion of your blog related to our encryption of microcode and the key all seem to focus around one question:  Do we have backdoors available as a result of our microcode download encryption scheme?
    The answer is NO.  Only Intel has that knowledge.”
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  • Don’t Give Away Your Board Seats

    Steve Blank 2011 PhotoBy Steve Blank

    Published on www.steveblank.com, July 9, 2013

    I had a group of ex-students out to the ranch who were puzzling over a dilemma – they’ve been working hard on their startup, were close to finding product/market fit and had been approached by Oren, a potential angel investor. Oren had been investing since he left Google four years ago and was insisting on not only a board seat, but he wanted to be chairman of the board. The team wasn’t sure what to do.

    I listened for a while as they went back and forth about whether he should be chairman. Then I asked, “Why should he even be on your board at all?”  I got looks of confusion and then they said, “We thought all investors get a board seat. At least that’s what Oren told us.”

    Uh oh.  Red flags just appeared in front of my eyes. I realized it was time for the versus advisors talk.

    Roles for Financial Investors
    I pointed out that there are four roles a financial investor can take in your company: a board member, a board observer (a non-voting attendee of board meetings), an advisory board member, or no active role. I explained that as a non-public company there was no legal requirement for any investor to have a board seat. Period. That said, professional firms that lead a Series investment round usually make their investment contingent on a board seat. And it sounded like if successful, their startup was going to need additional funding past an angel round to scale.

    In the last few years, it’s become more common for angel investors to ask for a board seat, but I suggested they really want to think hard about whether that’s something they need to do now.

    “But how do we get the advice we need? We’re getting to the point that we have lots of questions about strategic choices and relationships. Isn’t that what a board is for?  That’s what we learned in business school.”

    What’s a board for?
    I realized that while my students had been through the theory it was time for some practice. So I told them, “At the end of the day your board is not your friend. You may like them and they might like you, but they have a fiduciary duty to the shareholders, not the founders. (And they have a fiduciary responsibility to their own limited partners.) That means the board is your boss, and they have an obligation to optimize results for the company. You may be the ex-employees one day if they think you’re holding the company back.”Board Fight

    I let that sink it for a bit and then asked, “How long have you worked with Oren?”

    I kind of expected the answer, but still was a bit disappointed. “Well we met him twice, once over coffee and then over lunch.”

    “You want to think hard about appointing someone to be your boss just because they’re going to write you what in the scheme of things will be a small check.”

    Now they looked really confused. “But we need people with great advice who we can help us with our next moves.”

    Advisory Board
    “Do you know what an advisory board is?” I asked.  From the look on their faces, I realized they didn’t so I continued, “Advisors are just like they sound. They provide advice, introductions, investment, and visual theater – (proof that you can attract A+ talent). An advisor that provides a combination of at least two of these is useful.”

    A “board” of advisors is not a formal legal entity like a board of directors. That means that they can’t fire you or have any control of your company. While some founders like to meet their advisors in quarterly advisory board meetings, most companies don’t really have their advisory board meet as group. You can connect with them with them on an “as needed” basis. While you traditionally compensate advisors by giving them stock, I suggest you ask them to match any grant with an equal investment in the company – so they have “skin in the game.”

    shutterstock_70458487Equally important in an advisory board is a great farm team for potential outside board members. It allows you to work with them over an extended period of time and see the quality of their advice and how it’s delivered. If they are world-class contributors, when you raise a Series A round and you need to bring in an outside board member, picking someone you’ve worked with on your advisory board is ideal.”

    Finally I suggested that Oren’s request to be chairman of a five-person startup seemed to be coming from someone looking to upgrade their resume, not to optimize their startup.

    No Outsiders Until a Series A
    As we wrapped up, I offered that there was no “right answer” (see Brad Feld’s post) but they should think about their board strategy as a balance between the amount of control given to outsiders versus the great advice outsiders can bring. I suggested that if they could pull it off they might want to consider keeping the board to the two founders for now, surrounded by great advisors which may include their seed investors. Then when they got a Series A, they’ll probably add one or two professional VC’s on the board with one great advisor as an outside board member.

    As they left they were going through the experienced execs they knew who they were going to take out for coffee.

    Lessons Learned

    • Your board of directors is your boss
    • Your advisory board is your friend
    • Not all investors get board seats, it’s your choice
    • Date advisors, marry board members
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  • The Lean LaunchPad Educators Course

    By Steve Blank

    There is nothing more powerful than an idea whose time has come

    Victor Hugo

    The curriculum has caught fire. This week 100 educators from around the world will come to Stanford to learn how to teach it.

    —–

    Life is full of unintended consequences.

    Ten years ago I started thinking about why are different from existing companies.  I wondered if business plans and 5-year forecasts were the right way to plan a startup.  I asked, “Is execution all there is to starting a company?”

    It dawned on me that the plans were a symptom of a larger problem: we wereexecuting business plans when we should first be searching for business models. We were putting the plan before the planning.

    So what would a search process for a business model look like? I read a ton of existing literature and came up with a formal methodology for search I called Customer Development. I wrote a book about this called the Four Steps to the Epiphany.

    “Search versus Execution”
    In 2003 U.C. Berkeley asked me to teach a class in at Haas business school. In 2004 I funded IMVU, a startup by Will Harvey and Eric Ries. As a condition of my investment I insisted Will and Eric take my class at Berkeley. Having Eric in the class was the best investment I ever made. Eric’s insight was that traditional product management and Waterfall development should be replaced by Agile Development. While I had said startups were “Searching” for a business model, I had been a bit vague about what exactly a business model looked like. For the last two decades there was no standard definition. That is until Alexander Osterwalder wroteBusiness Model Generation.

    Finally we had a definition of what it was startups were searching for. Business model design + customer development + agile development is the process that startups use to search for a business model. It’s called the . The sum of these parts is now the cover story of the May 2013 Harvard Business Review. Bob Dorf and I wrote a book, The Startup Owner’s Manual that put all these pieces together.

    Idea who's time has come

    But then I realized rather than just writing about it, or lecturing on Customer Development, we should have a hands-onexperiential class. So my book and Berkeley class turned into the Lean LaunchPad class in the Stanford school. The class emphasizes experiential learning, a flipped classroom and immediate feedback as a way to engage students with real world entrepreneurship.

    Students learn by proposing and immediately testing hypotheses. They get out of the classroom and talk to customers, partners and competitors and encounter the chaos and uncertainty of commercializing innovations and creating new ventures.

    Then in July 2011, the National Science Foundation read my blog posts on the Lean LaunchPad class.  They said scientists had already made a career out of hypotheses testing, and the Lean LaunchPad was simply a scientific method for entrepreneurship. They asked if I could adapt the class to teach scientists who want to commercialize their basic research. The result was the NSF Innovation Corps, my Lean LaunchPad class now taught at 11 major universities to 400 teams/year. ARPA-E joined the program this year, and in the fall we’ll teach a Life Science version of the class atUCSF. And other countries are adopting the class to commercialize their nations scientific output.

    Unexpected Consequences
    One of the most surprising things that came out of the National Science Foundation classes was the reaction of the principal investigators (these were the tenured professors who leading their teams in commercializing their science.)  A sizable number of them went back to their schools and asked, “How come we don’t offer this class to our students?”

    While I had open-sourced all my lectures and put them online via Udacity, I was getting requests to teach other educators how teach the class.  I wasn’t sure how to respond, until Jerry Engel, the National Faculty Director of the NSF Corps suggested we hold an educators class.  So we did. The Lean LaunchPad Educators program is a 3-day program designed for experienced entrepreneurship faculty.  It is a hands-on program where you experience the process, and be given the tools to create, a curriculum and course plan you can put to immediate use.

    We offered the first class in August and had 50 attendees, the January class had 70, and the one being held this week we had to cap at 100.

    As part of each of the classes we open source our educators guide here

    and all our other tools for educators here.

    Where are we in Entrepreneurial Education?
    Entrepreneurial education is in the middle of a major transition.

    Entrepreneurship educators are realizing that curricula oriented around business plans and “execution” fail to prepare students for the realities of building or working in startups. Startups are a fundamentally a different activity than managing a business and “search versus execute” require very different skills. Therefore entrepreneurial education must teach how to search the uncertainties and unknowns.

    Educators are now beginning to build curricula that embrace startup management tools built around “searching for a business model” rather than the “execution of a business model” tools needed in larger companies.

    But we’re just beginning the transition. Like other revolutionary changes there are the early adopters and others who adopt later. For the Lean LaunchPad classes we’ve seen adoption fall into five categories:

    1. Those who get how teaching students how to “search versus execute” changes our curriculum.
      • They say, “Here’s how we are going to add value to what you started.”
    2. Those who get how teaching students how to “search versus execute” changes our curriculum.
      • They say, “We’re teaching the Lean Launchpad class as is. Thanks!”
    3. Those who get that there is a major shift in entrepreneurial education occurring and we understand business model design + customer development + agile engineering is at it’s core
      • They say, “We are going to rename each of these components so we can take credit for them at our business school.”
    4. Those who are not changing anything
      • They say, “We don’t buy it.”
    5. Those who really don’t understand the key concepts but we need to be “buzzword compliant” to seem relevant
      • They say, “We’re throwing Lean on top of our “how to write a business plan” and other standard classes.”

    The good news is that it’s the marketplace that will eventually drive all schools to adopt experiential classes that teach Lean principles. We’re incredibly proud of those educators who already have.
    There is nothing more powerful than an idea whose time has come

    The next Lean LaunchPad Educators Class will be held in New York, September 25-27th. Info here.

    We’ll also offer a version for incubators and accelerators in New York, September 22-24th. Email [email protected]

    Lessons Learned

    • Entrepreneurial education is in the middle of a major transition
    • Transition from startups are a smaller version of a large company, teaching execution
    • To teaching that startups search for a business model
    • Business model design + customer development + agile development is theprocess that startups use to search for a business model
    • Lean LaunchPad is an experiential class that teaches students how to search
      • It’s part of a broader new entrepreneurial curriculum
      • We teach this in the Lean LaunchPad Educators Class
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  •  
  • Fund Raising is a Means Not an End

    By Steve Blank

    Not all that glitters is gold
    William Shakespeare

    For many “raising money” has replaced “building a sustainable business” as their goal.  That’s a big mistake. When you take money from investors their business model becomes yours.

    ———–

    One of my ex students came out to the ranch to give me an update on his startup. When I asked, “What are you working on?” the first words out of his mouth was his fund raising progress.  Sigh… What I should have been hearing is the search for the business model, specifically the progress on product/market fit, but I hear the fund raising story first at least 90% of the time.  It never makes me happy.

    shutterstock_2694848Entrepreneurs need to think about 1) when to raise money, 2) why to raise money and 3) who to take money from, 4) the consequences of raising money.

    It all starts with understanding what a startup is.

    What’s a Startup? Just as a reminder, a startup is a temporary organization designed to search for a repeatable and scalable business model.  It’s worth parsing this sentence:

    •  Temporary Organization: The goal of a startup is not to remain a startup. The goal is to scale.  (If you don’t have scale as a goal then you shouldn’t be raising money from angel or venture investors, you should be getting a commercial or government small business loan.)

    •  Search. Although you believe your idea is the most brilliant ever thought of, the odds are that you are wrong. If you raise millions of dollars on day one, simply executing the idea means you’re going to waste all those dollars attempting to scale a bad idea.

    •  Repeatable:  may get orders that come from board members’ customer relationships or heroic, single-shot efforts of the CEO. These are great, but they are not repeatable by a sales organization. What you are searching for is not the one-off revenue hits but rather a repeatable pattern that can be replicated by a sales organization selling off a pricelist or by customers coming to your web site.

    •  Scalable: The goal is not to get one customer but many – and to get those customers so each additional customer adds incremental revenue and profit. The test is: If you add one more sales person or spend more marketing dollars, does your sales revenue go up by more than your expenses?

    •  Business model: A business model answers the basic questions about your entire business: Who are the customers? What problems do they want solved? Does our product or service solve a customer problem (product-market fit)? How do we attract, keep and grow customers? What are revenue strategy and pricing tactics? Who are the partners? What are the resources and activities needed to make this business happen? And what are its costs?

    Who to take money from?
    First, decide what type of startup you are.  If you’re a lifestyle entrepreneur or a small business, odds are the return you can provide is not what traditional angel or venture investors are looking for.  These types of startups are better suited to raising money from friends, family, commercial and government small business loans, etc.

    If you’re a scalable startup, you want to spend small amounts of money (seed capital) as you run experiments testing your hypotheses. Why small amounts? No startup ever spends less then it raises. And at this early stage you’ll be giving up a larger percentage of your firm to investors. A seed round can come from friends, family, Kickstarter, angels – and most importantly, early customers.

    These sources are a lot more forgiving of iterations and pivots than later-stage venture-capital funds.

    When to raise money
    In a Lean Startup, the goal is to preserve your cash until you find a repeatable and scalable business model. In times of unlimited cash (internet bubbles, frothy venture climates) you can fix your mistakes by burning more dollars. In normal times, when there aren’t dollars to undo mistakes, you use Customer Development to find product-market fit.  It’s only after you have found product-market fit (value proposition – customer segment in the language of the business model canvas) that you spend like there is no tomorrow.

    Don’t confuse “raising money” with “building a sustainable business.” In a perfect world, you would never need investors and would fund the company from customer revenue.  But to achieve scale, startups need risk capital.

    Raise as much money as you can after you have tangible evidence you have product/market fit, not before.

    The consequences of raising venture money
    The day you raise money from a venture investor, you’ve also just agreed to their business model.

    Here’s a simple test: If you’re the founder of a startup, go to a whiteboard and diagram how a VC fund works.  How do the fund and the partners make money? What is an IRR? How long is a fund’s life? How much will they invest in the life of your company? How much do they need to own at a liquidity event?  What’s a win for them? Why?

    There are two reasons to take venture money. The first is to scale like there is no tomorrow. You invest the dollars to create end-user demand and drive those customers into your sales channel.

    The second is the experience, pattern recognition and contacts that great investors bring to the table.

    Just make sure it’s the right time.

    Lessons Learned

    • Fund raising is a means not an end
    • Preserve your cash until you find a repeatable and scalable business model
      • Focus on product – market fit
      • Run small experiments testing your hypotheses
    • Raise as much money as you can after you have tangible evidence you have product/market fit
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  • Who’s Doing the Learning?

    By Steve Blank

    In a startup instead of paying consultants to tell you what they learned you want to pay them to teach you how to learn.

    —-

    Roominate, one of my favorite Lean LaunchPad teams came out to the ranch last week for a strategy session. Alice and Bettina had taken an idea they had tested in the class – building toys for young girls to have fun with Science, , , and Math, and started a company. The Roominate dollhouse building kits are being sold via their own website and soon, retail channels. They’ve shipped over 5,000 to enthusiastic parents and their daughters.

    Roominate kit

    As soon as they had designed the product, they found a contract manufacturer to build the product in China. Alice and Bettina are hands-on mechanical and electrical engineers, so instead of assuming everything would go smoothly, they wisely got on a plane to Dongguan China and worked with the factory directly. They learned a ton.

    But we were meeting to talk about sales and marketing. They outlined their retail channel and PR strategy and told me about the type of consultants they wanted to hire.

    Hiring Channel Sales
    “So what would the retail channel consultant do?” I asked.  Alice looked at me like I was a bit slow, but went on to describe how this consultant was going to take their product around to buyers inside major retail chains like Target, Toys R Us, Walmart, and others to see if they could get them to buy their product. “That sounds great.” I said, “When are you leaving for the trip?”  They looked confused.  “We’re not going on any of these calls.  Our consultant is going and then he’s going to give us a report of how willing these stores are to carry our product.”  Oh…

    I said, “Let me see if I understand this correctly. What if a buyer asks, can you make a custom version of your product? Can your consultant answer that question on the spot? What if a buyer said no? Will your consultant know what questions to ask right then to figure out how to get them to yes?”  I let this sink in and then offered, “Think about it for a minute. You’re going to pay someone else to learn and discover if your product fits this channel, and you’re are not going to do any of the learning yourself?  You didn’t skip the trip learning how to manufacture the product. You got on a plane yourself and went to China. Why doesn’t this sound like the right thing to do for channel sales?”  They thought about it for a moment and said, “Well we feel like we understand how to build things, but sales is something we thought we’d hire an expert to do.”

    Hiring PR Agencies
    We had an almost identical conversation when the subject turned to hiring a Public Relations agency.  Bettina said, “We want to drive customer demand into our channel.”  That’s smart I thought, a real clear charter for PR.  “What are they going to do for you?” I asked.  “Well all the agencies we interview tell us they can survey our customers and come up with our positioning and then help us target the right blogs, influencers and press.

    This felt like déjà vu all over again.

    I took a deep breath and said, “Look this is just like the channel consultant conversation. But in this case it’s even clearer.  Didn’t you get started by testing out every iteration with girls and watching firsthand what gets them excited? Don’t you have 5,000 existing customers? And haven’t you been telling me you’ve been talking to them continuously?”  They nodded in agreement.  I suggested, “Why don’t you guys take a first pass and draft a positioning brief with target messages, think through who you think the audiences are, and you take a first pass at who you think the press should be.  The team looked at me incredulously.  “You want us to do this? We don’t know the first thing about press, that’s why we want to hire the experts.”  It was the answer I expected.Roominate project

    “Let me be clear,” I explained.  “At this moment you know more about your customers than any PR agency will.  You’ve spent the last six months testing positioning, messages, and talking to the press yourself.  What I want you to do is spend an hour in a conference room and write up all you learned.  What worked, what didn’t, etc.  Then summarize it in a brief – a one, max two-page document that you hand to prospective PR agencies.  And when you hand it to them say, “We know you can do better, but here’s what we’ve learned so far.”” They thought about it for a while and said, “We want to hire a PR agency so we don’t have to do this stuff. We’re too busy focusing on getting the product right.”

    I pushed back, reminding them, “Look, half the agencies that see your brief are going to decline to work with you. They make most of their money doing the front-end work you already did.  You do need to hire a PR agency, but I’m suggesting that you start by raising the bar on where they need to start.”

    You Need to Do the Learning
    Thinking that founders hire domain experts to get them into places and do things they don’t have any clue about is a mistake most founding CEOs make.  It’s wrong. If you plan to be the CEO who runs the company, you need these resources you how to do it, not reporting their results to you.  For Roominate I suggested that Alice and Bettina needed to try to find a channel consultant who would take them along on the sales calls and have the founders meet buyers directly.  Why?  Not to turn them into channel sales people but to hear customer objections unfiltered. To get data that they – and only they, not a consultant – could turn into insight about iterations and pivots about their business model.  And to see how the process works directly.

    A year from now when they will be hiring their first VP of Channel Sales, they want the interview to go something like,  “Well we sold the first three channel partners ourselves – what can you do for us?”

    The same is true for hiring the PR agency.  The conversation should be, “Here’s what we learned, but we know this is your expertise.  Tell us what we’re missing and how your firm can do better than our first pass.”

    As a founder –  when you’re searching for a business model make sure that you’re the ones doing the learning… not the outsourced help.

    There’s Not Enough Time
    The biggest objections I get when I offer this advice is, “There’s not enough time in the day,” or “I need to be building the product,” or the more modern version is, “I’m focused on product/market fit right now.”

    The reality is that they’re all excuses. Of course product and product/market fit are the first critical steps in a startup –  but outsourcing your learning about the other parts of the business model are the reasons why your investors will be hiring an operating executive as your replacement - once you’ve done all the hard work.

    Lessons Learned

    • You need to do the learning not your consultants
    • Most consultants will think that’s their secret sauce and not want your business
      • The smart ones will realize that’s how they’ll build a long-term relationship with you
      • Hire them
    • Not understanding the other parts of your business model is a reason investors hire an operating executive
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  • U of Minnesota Commencement Speech

    Steve at Podium

    By Steve Blank

    Originally published May 15, 2013,  at www.steveblank.com

    I am honored to be with you as we gather to celebrate your graduation.

    This school has a distinguished roster of graduates… Earl Bakken, the founder of Medtronic, was an Electrical grad, and Bob Gore of Gortex, and your current president are both alums of your Chemical Engineering program.

    In fact, I feel very connected to another one your grads. I’m sure you’ve heard of Seymour Cray, he built a supercomputer company in Chippewa Falls that made the fastest computers in the world. These were very expensive supercomputers. They cost 10’s of millions of dollars and filled two tractor-trailers worth of space.

    Back in Silicon Valley I co-founded a company that built desktop workstations powerful enough to compete against Cray. We bid against them in a sale to the Pittsburgh Supercomputer Center… and lost. I never forgot that loss because instead of buying hundreds of our small computers they spent $35 Million on that Cray. My startup never recovered and soon after went out of business.

    Fast-forward 15 years, Now retired I noticed that the Pittsburgh Supercomputer Center had put their Cray for sale on Ebay.  Yep – the $35 Million machine was now for sale for $35,000 dollars.

    I bought that Cray, … Honest… you can Google “Cray on eBay” and there I am… I had it shipped to my ranch and kept it in the barn next to the cows and manure.

    It was closure.

    But the story about Cray is also a story about success and failure.  If I can keep you awake, I’m going to tell you why – while you may have thought today was the end of your education – it’s really only the beginning. And while you might be moaning about that thought, pay attention because what I’m about to share could make a few of you very, very successful.

    First day of your life
    For most of you, college was the first day of your own life – the morning you stepped onto campus you were no longer just a child of your parents – college was the first place you could taste the freedom of making your own decisions – and in some of those mornings-after – learn the price of indulgence and the value of moderation.

    Here at school you had your first years of taking responsibility for yourself. While it may not be obvious to you yet, your college years were a transition from having your parents make decisions for you to making decisions for yourself.  But now you face a new chapter that -– if you’re not careful – could result in having companies make decisions for you.

    UofM Commencement

    Career Choices
    It might turn out that graduating from college and getting a job may be just an illusionof independence. If you’re not careful you’ll simply end up having others tell you what to work on, how to spend your time, when to show up and when to go home.  In fact, working in a company could be the adult version of listening to your parents tell you what to do… Only the pay is usually a whole lot better than your allowance.

    For some of you, that may be exactly what you are looking for. Many of you are going to take what you learned here, get a good job, get married, buy a house, have a family, be a great parent, serve your community and country, hang with friends and live a good life. And that’s great. Minnesota is a wonderful place to hunt, fish, canoe, raise kids, and pursue lots of interests other than just your job.

    All of you will ultimately make a choice… a choice about whether you “work to live” or you “live to work.” This should be a conscious choice. Don’t get trapped into the daily routine of showing up and just getting by.

    Diverging Interests
    While you’re excited about your first “real” job, recognize that your interests and those of your employer are probably not the same. Having your employer tell you what a great job you’re doing and rewarding you for it is not the same as discovering your passion, and figuring out who you are, and what’s rewarding for you.

    What I am saying is, “Don’t let a career just happen to you.”  And as much you love, respect and honor your parents, don’t live their lives. Your obligations to meet theirexpectations ended the day you became an adult.

    At the end of the day, you can decide whether you want to be an employee with a great attendance record, getting promoted to ever better titles and working on interesting projects – or whether you want to attempt to do something spectacular – this be or do should be a question you never stop asking yourself — for the next 20 years, and beyond. Be? or Do?

    Let me share with you the day I faced the Be or Do question.

    Big Company versus Startup
    Out of the military, my first job in Silicon Valley was with one of the most exciting companies you never heard of. By the time I joined it was a decade old, and no longer a startup. Our customers were the CIA, , and National Reconnaissance Office. Our CEO, Bill Perry eventually became the Secretary of Defense.

    In the 1970’s and ‘80’s the U.S. military realized that our advantage over the Soviet Union was in silicon, software and systems. These technologies allowed the U.S. to build weapons previously thought impossible or impractical.  The was amazing, and somehow in my 20’s I found myself in the middle of all of it.

    Building these systems required resources way beyond the scope of a single company. A complete system had spacecraft and rockets and the resources of ten’s of thousands of people from multiple companies.

    If you love technology, these projects are hard to walk away from. It was geek heaven.

    While I worked on these incredibly interesting intelligence systems, my friends in worked on new things called microprocessors.  They’d run around saying, “Hey look, I can program this chip to make this speaker go beep.” I’d roll my eyes, comparing the toy-like microprocessors to what I was working on – which was so advanced you would have thought we acquired it from aliens.

    But before long I realized that at my company, I was just a cog in a very big wheel. A small team had already figured out how to solve the problem and ten’s of thousands of us worked to build the solution. Given where I was in the hierarchy, I calculated that the odds of me being in on those decisions didn’t look so hot.

    In contrast, my friends at startups were living in their garages fueled with an energy and passion to use their talents to pursue their own ideas, however unexpected or crazy they sounded. “Really, you’re building a computer I can have in my house?”

    For me, the light bulb went off when I realized that punching a time clock is not the way to change the world. I chose the path of entrepreneurship and never looked back.

    Engineers Run the World
    Engineers used to be the people who made other peoples ideas work. Today, they change the world.  We live in a time where scientists and engineers are synonymous with continuous . We don’t think twice as our phones shrink, our computers fit in our pockets, our cars run on batteries, and our lives are extended as new medical devices are implanted in our bodies. Scientists and engineers no longer work anonymously in backrooms. Today we celebrate them for improving the quality of peoples’ lives.

    George Bernard Shaw once said, Some men see things as they are and ask why. Others dream things that never were and ask why not.” Engineers like you have the capacity to move the world forward by continually asking “why not?” It’s your special “doing” gene that empowers us to do better.

    You invent. You imagine. You see things that others don’t. Where others see blank canvases, you’ll see finished paintings. You hear the music that’s not written, you see the bridges that have yet to be built.  You envision the products and companies that don’t exist yet.

    DSC_5829

    Only In America
    University of Minnesota Science and Engineering alumni have founded more than 4,000 active companies, employing over ½ million people and generating annual revenues of $90 billion. These alums chose not to take the safe road but instead topush beyond their boundaries and DO.

    At some time you might decide that you want to become the master of your own destiny – that you want to take an idea – and start your own company. And all of you sitting here just earned a degree that gives you choices that very few other professions have.

    is not something foreign – it’s built into the DNA of this country.America was built by those who left the old behind. Not too many generations ago your family packed up what they had, got on boat and came to America. They struck out across the country and ended up here in Minnesota.

    And what’s great about the United States… No other country embraces innovation and entrepreneurship quite like we do. You don’t have to stay in one job, and it’s really, really hard to starve to death.

    Passion
    I predict that 78% of all speeches this year will have advice about “pursuing your passion and doing stuff you love.” But they don’t tell you why.  Well here’s the secret – if you’re going to spend your career in a company, doing stuff you enjoy will help you keep showing up..

    But if you want to do something, something entrepreneurial, just loving what you do is isn’t enough. You’re pursuing ideas you can’t get out of your headIdeas that you obsess about. That you work on in your spare time.

    Because that fearless vision and relentless passion are what it takes to sustain an entrepreneur through the inevitable bad times - the times your co-founder quits, or when no one buys, or the product doesn’t work. The time when everyone you know thinks that what your doing is wrong and a waste of time. The time when people tell you that you ought to get a “real” job.

    By the way, every year I remind my students that great grades and successful entrepreneurs have at best a zero correlation – and anecdotal evidence suggests that the correlation may actually be negative. There’s a big difference between being anemployee at a great company and having the guts to start one.

    You don’t get grades for resiliency, curiosity, agility, resourcefulness, pattern recognition and tenacity.

    You just get successful.

    Failure
    The downside of starting something new is that’s it’s tough, because unlike the movies – you fail a lot. For every Facebook and Google, thousands never make it.

    Like Rocket Science Games, which was my biggest failure. 90 days after showing up on the cover of Wired Magazine I knew the game company where I raised 35 million dollars was headed for disaster.

    We’d believed our own press, inhaled our own fumes and built lousy games. Customers voted with their wallets and didn’t buy our products. The company went out of business. Given the press we had garnered, it was a very public failure.

    We let our customers, our investors, and our employees down. I thought my career and my life were over. But I learned that in Silicon Valley, honest failure is a badge of experience.

    All of you will fail at some time in your career…or in love, or in life.

    No one ever sets out to fail.

    But being afraid to fail means you’ll be afraid to try.  Playing it safe will get you nowhere.

    As it turned out, rather than run me out of town, the two firms that had lost $12 million in my failed startup actually asked me to work with them again.

    During the next couple years…and much humbler… I raised more money and started another company that we were ultimately able to take public, and those patient investors more than made up for their earlier loss – many times over.

    Hypothesis Testing
    As scientists and engineers, you know about failure. You know that virtually no experiment works the first time.  And in a new company all you have is a series of untested hypotheses. You learned something vital in school — to test your hypotheses by designing experiments, getting accurate data, analyzing the results, and then modifying your initial hypotheses based on those results. This is the scientific method, and surprisingly we found the exact same method works for startups.

    Because failure is a part of the startup process. In Silicon Valley, we have a special word for a failed entrepreneur – it’s called experienced.  Our country and our entrepreneurial culture is one of second and third chances. It’s what makes us great. You don’t have to change your name or leave town. in America know that they get multiple shots at the goal.

    Be or Do
    Someday several of you in this graduating class will be worth a $100 million dollars. And a few of you might change the way the world works.

    I want you to look around you.  …Go ahead.  Take a few seconds and give it a look…

    While most of you were looking around wondering who this was going to be, I hope a few of you were feeling sorry for the rest of your classmates, knowing that the most successful person in the audience is going to be you.

    These days I write a blog about entrepreneurship.  At the end of each post, I conclude with “lessons learned”—a kind of Cliff Notes of my key takeaways.  So that’s how I’ll finish up today.

    Here are the two lessons that I’d like to pass on to you

    Your science or engineering degree gives you tremendous choices – you, and no one else gets to decide two things:

    • whether you choose to be or you choose to do
    • whether you “work to live” or whether you “live to work”

    Remember… live your life with no regrets. There’s no undo button.

    And Congratulations  — you’ve earned it!

    Thank you very much.

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