tatiyants.com Large Company Startups

I recently attended a great talk by Steve Blank on Customer Development. It was full of fascinating insights that left me both alarmed and energized (more on that in a bit).

Who is Steve Blank?

Steve Blank has been in the Silicon Valley long enough to work in eight startups, with varying success. Along the way, he figured out a methodology that startups can use to succeed. He calls this methodology Customer Development.

What is Customer Development?

As I understand it, customer development is the process by which startups discover their business model.

Unlike established companies, startups do not have a well defined business model to execute. Startups don’t know who their customer is, how they will deliver value to that customer, and how they’ll make money doing it. What startups have instead are lots of hypotheses (i.e. guesses) about all of those things.

Because of the uncertainty involved, large company processes (sales, engineering, product development, and finance) don’t work for startups. Instead, what works is continuously testing and refining hypotheses about the business model. The goal is to either validate the business model and move the company into the execution phase or pivot (i.e. try something else) until the money runs out.

Large Company Startups

As I listened to Steve talk about startups and customer development, I couldn’t help but think about how it all applies to established companies.

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Most importantly, failure to deliver is equated with failure to execute, even if the real failure was in fact a successful invalidation of a flawed business model. The whole system and its reward structure is just not set up to uncover unknowns. On a side note, Steve Blank observed that the two largest anti-startup forces in a company are the CFO and the VP of HR.

Now, this inability to discover new business models would not be a major problem if existing business models could be relied upon into perpetuity. After all, if you could continue executing, while adding new bells and whistles, continuously optimizing, delivering more value for less, and growing profitably, things would be fine.

Unfortunately, we don’t live in that world anymore. Clayton Christensen originally wrote about this in his 1997 classic, The Innovator’s Dilemma. He observed that large and established players across all industries are constantly being uprooted by nimble newcomers with simpler, cheaper, even initially inferior alternatives. Christensen called this disruptive innovation and examples of it are abound:PCs disrupting mainframes, cellphones disrupting landlines, online streaming disrupting cable companies, tablets disrupting pcs, and so on and so forth.

As Steve Blank so correctly observed, the cycle of disruption is shortening. It used to take decades for business models to play out. It now takes a few short years.

I personally found this insight to be the most alarming, but also energizing. After all, if you work in an established company, it’s just a matter of time (and not a lot of time at that) before the next thing has to be discovered. Heck, you may be the one who ends up doing the discovering. Exiting, right?

Who is Steve Blank?

What is Customer Development?

Large Company Startups

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