I realized that traditional ways to think about startups – have an idea, raise some money, do product development, go through an alpha test, beta test and first customer ship was the canonical model of how entrepreneurs thought about early stage ventures.
Getting “funded” is the holy grail for most entrepreneurs. Unfortunately in early stage startups the drive for financing hijacks the corporate DNA and becomes the raison d’etreof the company. Chasing funding versus chasing customers and a repeatable and scalable business model, is one reason startups fail.
One of the classes I teach in the engineering school at Stanford is E145: the Fundamentals of Technology Entrepreneurship, an introduction to building a scalable startup. While the class is open to everyone at the University, we want to teach science and engineering undergraduates how they can take a technical idea and turn it into a profitable and scalable company.
Customer Development is a technique startups use to quickly iterate and test each part of their business model. How you execute Customer Development varies, depending on your type of business. In my book, “The Four Steps to the Epiphany” I use enterprise software as the business model example.
The Lean Startup Circle is a Google discussion group (anyone can join) centered on Customer Development/Lean Startup strategy, tactics and implementation. They were kind enough to sponsor a meet-up in San Francisco.
One of the benefits of teaching is that it forces me to get smarter. I was in New York last week with my class at Columbia University and several events made me realize that the Customer Development model needs to better describe its fit with web-based businesses.
At a board meeting last week I watched as the young startup CEO delivered bad news. “Our current plan isn’t working. We can’t scale the company. Each sale requires us to handhold the customer and takes way too long to close. But I think I know how to fix it.” He took a deep breath, looked around the boardroom table and then proceeded to outline a radical reconfiguration of the product line (repackaging the products rather than reengineering them) and a change in sales strategy, focusing on a different customer segment. Some of the junior investors blew a gasket.
This week I’m at the California Coastal Commission hearing in Ventura California wearing my other hat as a public official for the State of California. After the hearing I drove up to Santa Barbara to give a talk to a Lean Startup Meetup.
Over the last 50 years engineers have moved from building computers out of individual transistors to building with prepackaged logic gates. Then they adopted standard microprocessors (e.g. x86, ARM.) At the same time every computer company was writing its own operating system. Soon standard operating systems (e.g. Windows, Linux) emerged. In the last decade open source software (e.g LAMP) emerged for building web servers.