What makes some startups win and what makes others sell their furniture? That's the question Steve Blank made himself after facing two business failures.
You know how this story ended. The American entrepreneur-turned-professor created the customer development model, a.k.a. the seed of the lean startup movement.
And if you don't, we got you covered below. Yeah, because we love you. 💖
What you might not know is that you might have been making some first-time founder mistakes while using the customer development model 😨.
Good thing we called Steve Blank so he could tell us all about that and make everybody’s on the right track to discover what customers want, am I right or am I right?
Steve had a chat with our wonderful ✨ Latitud community ✨ recently. Here's a sneak peek at what we chatted about:
Customer development is nothing more than gathering the best practices founders have developed over the years and creating a repeatable methodology. It's not that people never got out of their buildings and talked to customers – it's just that there was never any formal process.
Entrepreneurs and investors favored instead writing a business plan full of plans and projections (a document that you write and nobody reads, Steve says).
"We can't forecast the future unless we're in an existing market. But the more interesting markets are the ones that don't exist. The market size on day one is zero. Investors said, 'Well, we don't wanna invest in that'. Well, the smart ones did."
Large companies already had established processes and tools to do product management and follow-on products. But there was no method for startups that only had a napkin and a series of unknowns.
Imagine it's the first day of your startup. You think you know who your customers are. What features they want. The right pricing. The right channel. And how and how much to spend on demand creation.
But Steve Blank makes an all-win bet with you: you're mostly guessing. Or if you wanna be fancier, you have a series of untested hypotheses. So you lock yourself in a room, get some funding, and spend that cash and your time to build a product that will literally engineer you out of that "who knows" problem.
Steve understands you. Because he only had time to think after he built eight businesses and then retired. If you've been on the race to reach product-market fit and don't have spaghetti code, a.k.a. you threw it to the wall hoping it'd stick, you've been thinking too hard.
"If any of you have time to think and are the founder of a company, you're actually not the founder of the company," Steve says. Ouch. Is it getting hot in here? 🔥
Still, that is a pretty wasteful way to build early-stage ventures.
Ta-da. That's when you need a methodology.
Steve Blank summarizes his customer development model in a way even the suculenta that keeps you company in your office desk can understand.
There are no facts inside a building.
Get the hell outside.
This idea was transformed into a discovery method by Steve in a book called The Four Steps to Epiphany: Successful Strategies for Products That Win.
The first practitioner of Steve's teachings was someone he invested in and eventually became his student: Eric Ries. Eric saw that Steve was born in a world where engineering followed the waterfall method. Things were built one step at a time. But people were already following a new method called agile, a.k.a. everything everywhere all at once.
Eric combined Steve's customer development model with the agile method.
And then, the lean startup movement was born. 👶
Steve also saw a cool thing called Business Model Canvas, created by Alexander Osterwalder. It was the missing piece before using his customer development model and then getting to the agile method shared by Eric.
Steve would finally write on the blackboard of his Stanford classes something like this:
First-time founders worry about the product first.
Second-time founders worry about the customer first.
And finally, third-time founders worry about the whole ecosystem, Steve says.
Yes, product and customers are super important and they're the ones that will get you to the holy grail of product-market fit. But you can't forget about things like channel or demand creation – the business model canvas can be a good reminder of that.
If you only think about product and customers, you'll have product-market fit but you won't be able to scale. And you can't have a startup if your customers are going from your dad to your dad and uncle, Laura.
Remember that first-time founders worry about products first? Well, most also think that the minimum viable product is, as the name suggests, only about the product and its connection to customers' needs. A.k.a. product-market fit.
But that's not all.
You can have MVPs that test every part of your business model, says Steve. Have you ever thought of building a new MVP to test a new pricing strategy, a new channel, or a new partner? Nope? You're welcome.
Some entrepreneurs take the "get the hell outside" thing quite literally.
As in, they take ten steps out of their building and quickly go back to build their startup.
Don't think talking to ten customers in a day, one of them being your mom, is enough. Having enough good data to test your business model is a constant, rigorous effort.
You think Steve Blank never had a mistake, or that he had only when he was just starting out? Well, think again.
Steve's biggest mistake actually happened when he was building his 7th business. And what was that mistake? "I believed my own bullshit." (Hey, his words, not ours.)
"I was so good at creating a reality-distortion field about being able to raise money and attract people that I believed I was right. And turned out customers voted with their feet. It was a large disaster."
In 90 days, Steve went from being on the cover of Wired Magazine to having to go out of business. The failure happened because he didn't go out of the building to deeply understand his customers. "I thought I was god's gift of entrepreneurship. It was startup number seven, so I thought I knew a lot. But in fact, I'd forgotten the rule I had actually learned." That rule was the customer development model.
Check out the full chat with Steve Blank on the Latitud Podcast: