Professor Steve Blank has helped found more than 10,000 new businesses through his ability to systematize the creation of startups. The whole lean startup movement has its origins in Steve Blank’s Stanford classes. This knowledge is synthesized in The Four Steps to the Epiphany, and he has made the book one of the most influential guides to entrepreneurship.
For Blank, a startup is completely different from an established company. While the established company runs a business model, the challenge of a startup is to find this business model to run. In this book, Blank helps entrepreneurs discover their problems before they have big costs. Quick iterations, customer feedback and testing ideas early. These are some of the things you will learn here. This book is essential for anyone who is going to start something new. Have a good time!
A Startup Is Not a Miniature Of a Great Company
Traditional knowledge tells us that companies are similar and that best management practices should be adopted by all companies. However, when you are starting a new business, a startup, the same rules of the corporate world do not apply. Unlike large companies, startups need to find their customers and prove that their vision is workable. If they fail to achieve this goal, they die. Although most people believe that startups are only small versions of large companies, this understanding ends up hurting the entrepreneur, and many mistakes are made by believing in popular wisdom. Big companies have great resources and can launch new products into mass markets, while startups are not able to go down this road.
A startup can not afford to use the processes of launching new products from large companies, after all, large companies already have a large customer base and know their competitors well. So to create new products they use a different process: first they design the product and then find customers to buy it. Startups do not understand their market, they do not count on customers, and so they must first know their potential customers and then develop a new product. The process adopted by successful startups is the reverse. They first build a customer base and then create a suitable product. When a startup focuses on developing a product without understanding its customers, big mistakes and problems can occur. An interesting example is the case of the Segway, equipment that was developed with one principle in mind: people do not want to walk and need a personal vehicle.
All the people who walk are our potential clients. That caused the company to invest more than 200 million dollars in a product that did not obtain commercial success, and until today it looks for its real applications in the market. Most of the time, a founder of a startup does not know their market as established companies. He has a vision he believes in, but his main challenge is to prove it. For this, it is necessary to go through a long journey of uncertainties, challenges, and learning. During this journey, he needs to overcome these challenges and find out who his potential customers are, how the market works, and then build a large company.
The first step in this journey is to define a set of core values and a clear long-term mission to guide you on your journey. Almost all startups go through challenging periods in their early stages, and it is during this period that mission statement will be vital in showing the way forward. But while fundamental values never change, the mission statement can change over time with new product launches, for example.
Understanding How New Technologies Are Adopted
If the model stated that the product was first to be built and then sold through marketing and sales strategies in the 1990s, that model began to be questioned. Everett Rogers, for example, created the technology adoption curve that shows how people embrace innovations in their everyday lives. According to Rogers, technology is adopted in phases by five different groups: Enthusiastic, visionary, pragmatic, conservative and skeptical.
The first two groups, the enthusiasts, and the visionaries are the initial market. The next two groups, the pragmatic and conservative, are the mass market. The adoption of a product by the market has the shape of a bell curve, where the first groups begin to adopt a technology slowly and gradually grows into the mass market. There is a chasm between the different groups, and the hardest thing to beat is getting out of the initial users to go to the mass market. These chasms exist because of the different needs and consumption habits of each of the groups. The main challenge to getting across this chasm is that the marketing and sales lessons learned from early markets may not be useful in the mass market and this may call for major changes in the models of clients’ attraction and technologies’ adoption. Many startups focus on finding ways to overcome the chasm and create a mass product. But that’s the wrong approach.
The first challenge of a startup is to focus on the process of discovery and learning through trial and error. For this reason, Steven Blank proposes a new model that helps startups to progress gradually through each of these phases and calls this methodology “Customer Development.”
Customer Development Requests You to Leave The Office
Startups can greatly reduce the risk of making mistakes by collecting feedback from your users as quickly as possible, even before you develop your product and start selling it! The goal of a startup is to find out if there is a market for your product and whether people will buy it. For this, you need to leave the office and talk to real people, the potential customers of your company. For Blank, you must “pitch and learn” always. He suggests that you begin by learning. Do not write a business plan but a series of testable assumptions before starting the customer development process. The client development process has four steps:
- Customer discovery;
- Validation of clients;
- Creation of clients;
- Construction of the company;
The process is iterative, so at each step, you can go back to the previous step or go forward. With each interview with a potential customer, you can change your product to better match your audience’s expectations. Once this is done, you resume the process: collect feedback and use it to optimize your product. Your goal is not to sell but to collect as much information as possible. To adapt to a dynamic marketplace where changes occur faster and faster, startups cannot be slow and bureaucratic.
That is why we need to adopt horizontal, agile structures and decisions need to be made with speed by all team members. Startups that follow the product creation processes of large companies think that just building a product for customers to come in, but that rarely works. Product development is just an internal process, and to create products that sell, you have to synchronize them with the discoveries of the customer development process, which focuses on external influences, the guesses of potential customers for the success of the product. Your startup should invest in the customer development process by building their solid customer base and ensuring that their products meet their needs.
The first ideal clients of its startup in the process of developing clients are enthusiasts and visionaries, also called early adopters. But many startups ignore early adopters and instead spend a lot of time and money building a product designed for the mass market. These startups face several problems. The most common ones do not have enough money to change their products in response to customer feedback or launching a perfect product that arrives outdated to the market because it took a long time to build. In the customer development process, you need to launch the product as quickly as possible to get real customer feedback and follow an agile cycle of responding to customer demands to evolve it. Let’s take the steps in the customer development process.
To run the customer discovery phase, you need to ask yourself:
- Have we identified a problem that customers want resolving?
- Does our product solve this problem?
- Do we have a viable business model?
- Have we learned enough to go to the market and sell our product?
To ensure that we find the right customers, it is recommended that we focus on evangelists and enthusiasts. Ideally, they have a budget to solve the problem, are actively seeking solutions to the problem or have created a partial solution. Once customer discovery has been completed, the next step is validation with customers.
At this stage, your first goal is to have a minimum viable product being used by your customers and that they are happy with your results. Customer discovery and validation prove your business model. At this stage, you need to prove that you can have a clear marketing and sales plan. One must prove that every real invested in marketing and sales generates more than one real in new revenue. That is done by mapping and optimizing your marketing funnel. One must prove that the market is scalable and that the value of the customer throughout its life cycle is greater than the operating costs of the business. Once we find out who our customers are and validate the problem our product solves, it’s time to answer the following questions:
- Do we have an understanding of our sales process?
- Is our process repeatable?
- Did we sell the current version of the product?
- Are we confident that this business will be profitable?
- Do we position the product and the company correctly?
The validation process is based on being ready to sell to visionary customers, creating their positioning, and verifying that sales are occurring according to their assumptions.
The process of creating customers consists of being ready to effectively launch the product and from there start generating demand. If in the validation stage we raise assumptions and create a “marketing and sales plan,” now is the time to put this plan into action. So far our investments in marketing and sales have been conservative to focus on preserving the company’s cash flow. Now is the time to put this plan into action and invest wisely, according to the plan created.
For this, it is essential to understand what kind of market you are in after all your launch strategy depends on it. The cost of market entry can vary a lot and, most of the time, you need a huge amount of capital to enter an existing market. If the market is a monopoly or a duopoly, avoid entering it. Avoid attacking the market leader. See if you can segment the market or even create a new market. At this stage, startups have to decide whether they want to continue to seek out clients similar to early adopters, enter a specific niche, or seek a wider range of clients. The answer varies if they find themselves in a new, existing or re-segmented market.
The goal of a startup is to go into the execution mode of a repeatable and scalable business model to stop being a startup and become an established company. Once the previous three steps have been completed, the last step is building the company itself. The goal, in this case, is to reach mass markets, review and scale up the company’s culture and mission. To grow, a company must continually build a customer base, and to do so; it is necessary to move forward among the different groups of customers in the market.
It is at this point that you begin to stop focusing on constant learning to focus on mastering. Obviously, your focus should be on never losing agility and having teams focused on new learning and quick response to market demands. From the creation of the company, formal departments like marketing, sales, business development begin to design and have directors and VPs responsible for them. The founders, at this stage, start working on projects oriented to the vision of the company using the learnings of the initial success of the company in the market.
Startups are a chaotic, challenging environment where there is only one certainty. Inside the office, there are no facts, only opinions. Truths are out of the office, and they appear when you step out of it and are willing to talk to your potential customers with just one purpose. Learn. The greater the learning before putting your hand in the dough, the better results your product will have. Many startups fail to adopt a premature execution, delivering to the market a product dated or that does not solve a real problem. The customer development process is the solution to prevent you from making this mistake. The whole book is fascinating and has good insights. Because of its colossal size and somewhat tiring reading format, I would not recommend that you read it all, but it pays to buy and read the chapters that you find most relevant to your company in the situation you are in now!
12min tip: Learn more about lean startups in Running Lean, by Ash Maurya