Steve Blank: Author, Entrepreneur, and Start Up Whisperer

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I'm Guy Kawasaki and this is Remarkable People. This episode's Remarkable guest is Steve Blank. Steve attended the University of Michigan for one semester and then joined the military. After the Vietnam War, he moved to Silicon Valley and has been involved with tech companies including Zilog, MIPS Computers, Convergent Technologies, Supermac, esl, Ardent, Rocket Science Games, and Epiphany, to put it mildly. He truly understands high tech entrepreneurship because he's been there and done that, as opposed to studied that or passively invested and advised that. He created the methodology called customer development that led to the lean startup movement popularized by his student Eric Reiss. The gist of the lean startup movement is to deeply understand customer problems, build minimal viable products, and get these products quickly and inexpensively to market to validate the business hypotheses. Key practices include a short and simple business model canvas instead of an intricate business plan Getting out of the building to solicit real world feedback Agile product development involving iterative and incremental changes, aka MVPs minimum viable products. Steve is the author of three books, the Four Steps to the Epiphany. Not all those who wander are lost holding a cat by the tail. He also co authored the Startup Owner's Manual with Bob Dorff, and he teaches at Stanford and Columbia. In short, there are not many people who know more about entrepreneurship than the remarkable Steve Blank. This episode of Remarkable People is brought to you by Remarkable the Paper Tablet company. Yes, you got that right. Remarkable is sponsored by Remarkable. I have version two in my hot little hands and it's so good. A very impressive upgrade. Here's how I use 1. Taking notes while I'm interviewing a podcast guest. 2. Taking notes while being brief about speaking gigs. 3. Drafting the structure of keynote speeches. 4. Storing manuals for the gizmos that I buy. 5. Roughing out drawings for things like surfboards, surfboard sheds, and office layouts. 6. Wrapping my head around complex ideas with diagrams and flowcharts. This is a remarkably well thought out product. It doesn't try to be all things to all people, but it takes notes better than anything I've used. Check out the recent reviews of the latest version. I'm Guy Kawasaki and this is remarkable people. Have you ever seen a company fail because it couldn't scale fast enough?

Oh, that's a great question. Yes, it wasn't MySpace, it was Friendster. Jonathan Abrams. Could have been the Facebook, or could have been whatever. And that was a technology problem where they built the MVP essentially, but didn't realize they needed to refactor the technology rapidly as they as they caught fire and either didn't have the technical skill or wherewithal to do that. So yes, and that was a technical issue. Another one was the one that's still the land of the living dead but might eventually find its way out is imvu. The original company that Eric Reese and I practiced the first customer development, which became Lean Practice. Probably missed every market trend possible. Could have been Facebook, could have been whatever. Could have been Zynga, could have been, you know, and eventually could have been Oculus, could have been whatever. Eventually they'll figure it out. But that was not a technical problem. That was a kind of a series of CEOs just dismissing the market opportunities. But the answer is yes, I've seen them and I could go through the list. But to answer your question, of course.

But I'm trying to see if there's a point that most companies have this great fear that they're going to be too successful and can't scale. So they add overhead and buildings and everything and then they don't scale and they die. So which is the greater danger?

Well, startups have a series of dangers. There's a danger of taking too little money, there's a danger of taking too much money. There's a danger of premature scaling of building salesforces and buildings before you need them. And there's a danger of missing the opportunity in front of you. I think if I had a pick, and I think this is your point, it's overbuilding, which is usually the one that occurs most often.

My experience is, of course, it's predominantly CEOs who are more worried about scaling than, as you would call doing the corporate development. But there's a part of me that also believes that in order to be successful as a CEO, you need to be somewhat delusional. So you need to believe that in fact scaling is your limiting item. Is this delusion, or at least faking it until you make it a necessary.

Part of being a CEO for a startup CEO. Remember, founders are different than operating executives. Founders are closer to artists than any other profession. They see things that other people don't, they hear things that other people don't. And 95% of the time they're actually hallucinating rather than true visionaries. But, but the ones who do see things see the, see where everybody else sees fog on the battlefield. They actually see a path through that. You know, you worked with jobs where most of people thought he was irrational, but if you go back and listen to some of his original visions of way back in the mid-80s, he actually nailed it about the nature of computing and how people would use it. So the answer is I think founding CEOs do need to be irrational. It's much like every picture that's painted by artists are not successes. Most of them are pretty horrible. Every song that's written is not a hit. And I just come from the school that says if you're not failing, you're not learning fast enough. Failure is not the goal of a startup CEO or lean methodology. But failure is rapid. Failure is an indication of rapid learning. On the other hand, if you're not learning anything out of it, it's, it's an indication of stupidity. But that's a different subject.

How do you tell if you're dealing with the 5% or the 95%?

I have a kind of an idea that on, on day one, a startup really is a faith based organization. It's really a religious activity. You know, you all have to believe, but the ones that actually succeed have a path to turn faith into facts as rapidly as possible. Lean methodology is one method to do that. I don't care how you do that, but the goal is to turn all your hypotheses into data and then act on that data. And if your guesses or assumptions were wrong, how to change them, how to pivot and how to make something new. And so what you tend to look for are CEOs who believe they see the future, but in fact are rapidly gathering facts and creating minimum viable products and doing all the things to remove all the guesswork out of their business. So yeah, you're a visionary, but again, you're clearing the fog and the path in front of you. And if you're not doing that, then you are going to be the crowd that was actually hallucinating.

I have never met a CEO who expressed to me the sentiment that he has to or she has to gather data rapidly in order to make decisions. Everyone that I've ever met, said, I know exactly what to do, this is how it's going to go.

Well, that's the nature of passionate founders. I think the ones who are smart unconsciously run that process. And I'll disagree. I'll say that now that we do have a 21st century methodology, which we never had in the 20th century, to build startups. There are a lot of startups and entrepreneurs who, who do have a way to gather data. But in any case, you know, let's take a look at elon Musk and SpaceX. He would never say I was running a lean methodology when I went from Falcon 1 to Falcon 9 to whatever. But if you just look at the process, it was an agile engineering building, MVPs, et cetera. And now you look at the design of his next generation rocket starship, it's exactly the lean methodology compared to NASA's Space Launch System. These guys are building prototypes, seeing them blow up and landing or on ascent, et cetera. And not that they don't care. And the goal obviously isn't to fail fast. The goal is to learn as fast as possible. That methodology is now being baked into a lot of startups, a lot of large companies in a way that when you and I were actually young and capable, or at least they'll speak for.

Me that long ago.

It was long ago. I mean, nowadays you have to explain to kids who Steve Jobs was. I think the point is that for the first time ever, there are a set of tools that I didn't have available and neither did you and neither did Apple or its customers to think about, well, how do we reduce early stage risk in ventures that just didn't exist? Now there's at least some understanding that we could reduce infant mortality if we actually kind of operated with two parts of our brain. The one is the passion to kind of go, I know what to do. And the other part, whispering in the back of your head is, yeah, but maybe these are just guesses and we train people to do that and we've done, I think, a pretty good job. So I guess the short answer is I disagree.

Okay, good. Now to what tools are you referring to that you're saying is now, but we didn't have.

So about the turn of the century, this century, my work, Eric Reese's work and Alexander Oster Walder's work created something called the lean startup methodology, which is simply said, look, in the 20th century, investors said, but without maybe these exact words to startups, all of you, you're nothing more than smaller versions of large companies. So everything a large company does, we want you to do. And that means we want you to write a business plan. And appendix A ought to be the five year plan, and it ought to say $100 million in revenue in year five. And your job is to convince us that you could do that. And by the way, we want you to hire sales, marketing, biz, dev on day one. And engineering, we want your engineering team to take the founder's vision, turn it into a functional, specific, use waterfall engineering, and then deliver the product. And therefore, the only problem your company is going to have is the building big enough to hold the bags of money that will inevitably come. I mean, that was right. That was the methodology. And my insight was, no, that's wrong. It was wrong because large companies, when they get large, know who their customers are, know what features they want. No competitors, no pricing. In fact, large companies at their core are executing a known business model. But startups are searching for a business model. And this distinction between search and execution had never been made clear before. And when you back up, you realize we had 100 years of tools from business schools and consulting firms for how to do execution. We had organizational strategy and HR tools and whatever, and. But we had no tools. I mean, the only thing I ever remember reading was crossing the chasm. And that was it for literature on startups. So basically, the first piece that got developed for this thing called the lean methodology was idea one, which was, there are no facts inside your building, so get the hell outside. That is, the founders usually make the mistake of, I have a vision which implicitly says, I understand the customer problem, therefore I could simply go to step two, which is, let me build the solution and get the hell out of my way. Just give me some money and some engineers and I will build the solution. I say no. What you have on day one is a series of untested hypotheses. So let's get outside the building and test them as you're building the product. But this time we're going to use something different. We're going to use agile engineering. We're going to build the product incrementally and iteratively, put it in front of customers as we're building it and get some feedback. And that feedback will allow us to do something we could never do in the 20th century. And that is something called a pivot. A pivot just says when we get some data that says maybe some of our assumptions are wrong, what features people cared about, or are we talking to the right customers? We're allowed to change our mind or change the product in the middle of the development process. Agile allows us to build these minimum viable products, test them as we're talking to customers trying to validate their needs for something called Product Market fit, and then use something called the Business Model Canvas to keep track of all this stuff. So Lean is simply customer development, Agile engineering and a Business Model Canvas that for the first time gave entrepreneurs at least a roadmap. I will never contend it's the methodology, but for the first time ever, hey, look, there's rules for us which are very different from rules that I was using when I was at IBM or Microsoft. So that's what this methodology refers to.

Are you saying that a webvan teranos or pets.com is much less likely going forward then?

It depends whether you're running a criminal enterprise or not.

Okay, take Terranos out of there. Just Webvan and pets.com?

I'M not sure that there's a Venn diagram there, because if you remember the latter two, the goal wasn't to build the company, though some of the employees thought so. The goal was to have a liquidity event during a bubble, which is a very different reason to build a startup. It used to be to have a liquidity event, and I'm sure your listeners know that means some event that says your investors and you can make money off your stock used to require an initial public offering, and in the 20th century that meant you needed to build five quarters of revenue and profit before any investment bank would take you public. And therefore your VCs would teach you how to build a profitable company that had increasing revenue. That's no longer true. Those rules are all gone. So nowadays VCs will teach you whatever's necessary to get them liquid. It might be how to get to a SPAC nowadays, or it might be how to get a million users or 10 million users or something which may or may not be connected to revenue. So the answer is yes. These tools are very useful if you want to build a company with revenue and profit. They might not be as useful if you're engineering some other form of liquidity event. Did I answer your question?

You did. I think.

You could ask it again. The simple version is yes, but the longer answer is the world's a lot more complicated now about the relationship between startups, investors, and what the goal of a company is used to be. The goal of a company is to ship a product that people want or need or solve some problems. Those are no longer aligned today A lot of companies are financial engineering plays and that's okay as long as we acknowledge what they are and think about what tool sets are useful for those. I don't invest in that class or teach that, but I just want to acknowledge that they're out there.

So you look at something like the IPO of Coinbase and you say well that's just a different mechanism, it's okay. You don't find that morally questionable or at least financially dubious?

Well, I find a good chunk of venture capital morally dubious. So it's kind of like being Purdue Pharma selling Oxycontin for the last 20 years. I don't want to equate the two, but. No, I certainly am not equating the two, but it used to be. Again, I don't want to sound like the cranky old guy, but I just want to remind people in the 20th century, by accident, most of venture capital and national interest were kind of aligned. We had no national industrial policy, but investments tended to be unethical things that made either businesses or consumers lives or something better. Let's just completely decouple because venture is a completely unregulated business. It's now completely designed to optimize the investors returns. Welcome to to the pinnacle of capitalism. And I'm a huge capitalist, but I'm just observing those two things are no longer aligned. The closest part of the business that's interesting and we don't talk about it in Silicon Valley, but it's obviously part of Boston and San Diego's VC milieu is life sciences, the modernas and the people making medical devices and diagnostics and digital health and the rest of therapeutics. But at least while again the investments there are as big or bigger than hardware and software at least you could point to people living longer or curing cancer or whatever and the returns for the VCs in that segment is equally obscene. But at least you could relate it to benefits for society. I'm not sure some of the things that that take up, I'd say at least of half of VC investments in software make our lives better or the country safer and secure. And so I'm honestly disappointed, but that is the nature of the business. Is this going in a weird way, guy? Is this going.

No, no, no, no. You have such arm's length sort of analytical and objectivity that I just don't have. I just think so much is just reprehensible, I just can't even wrap my mind around it.

Let's be clear, once we've Demonized the government and regulation. We've institutionalized criminality among commerce. Right. And demonizing the government and saying all regulation is bad didn't happen by accident. It happened to people who wanted to put their thumb on the scale. And there was always kind of that in the history of commerce for thousands of years had that. But I think in the, in the last 50 years, the US has gone to a place that's not been good for the masses of people. It's been good for a very thin veneer of the population. And a lot of people who I personally like participate in that system or kind of enable it. And as I said, I don't think that's great for society.

Speaking of great for society. So how do you assess a venture capitalist today if they're just funding stuff for financial returns, which if that's the game, that's the game. But do you think they really add value? Not even to society do they add value to entrepreneurs?

The answer is yes. We could ask is there a better way to kind of deliver that value? But they have rich personal networks and over time VCs at their worst will. So maybe at their worst have a great Rolodex. Maybe next level up is they have good pattern recognition skills, saying oh, I've seen this before, either either on personnel issues or market issues or strategy issues. And the best of them over time, and it's a small group, but they do do this, translate that pattern recognition into wisdom. And wisdom is instead of just repeating the pattern that says I've seen this, they're able to kind of distill it into a set of pieces of advice that could help coach and guide early stage companies. And that is usually valuable. So when you take money from other places, you kind of lose that. But you know, if your implicit question is, is the replacement for, for VCs a good idea? As I said, I think the, the pattern recognition skills, I mean guy, you've been doing this for, for it's longer, longer than I have. And so over time you've built up that same pattern recognition and wisdom skills. I mean the good news is you've put it in books. The bad news is most VCs don't write. And so therefore, therefore think about it that they're, that the accumulated pattern recognition skills and wisdom disappears with them when they retire. That's a tragedy because they treat that as proprietary information instead of sharing it. I mean there are a few VCs that blog and blog well, but most don't either because I'm afraid To think they have nothing to say, but I'm hoping it is because they treat it as proprietary information. Did that answer the question? Absolutely.

That absolutely answers the question.

All right, good. Maybe I'm hitting 50%.

There's no percentage here. There's no right or wrong. This is your interview.

No, it's your interview.

Just about every VC says that they're looking for a proven team in a growing market with a unique technology. I can see by your laughter you know where this is headed. So is this just, like, total, utter bullshit?

Yeah. Well, if. I sure hope that that isn't from Sequoia's website, because, you know, and I doubt it is. It does. Yeah. Yeah. Because great VCs, you know, are looking for the black swans, not the. Not the banner. So if that was true, I never would have gotten funded. I mean, I'm. I'm still not qualified to teach in the schools I teach at. I mean, it's like, neither was Jobs or Ellison or Gates was probably the only one of that generation who was qualified. Elon Musk was. Are you kidding?

I once asked Michael Moritz, so what do you look for in a team? Truly, Michael, tell me. And he basically said, two engineers in a garage or spare bedroom or a dorm who are building the tool that they want to use. That's it. No proven team, no proven technology, no proven market. Two people building the tool they want to use. That's the richest vein he's found.

Yeah. Good pattern, I would add, depending on the industry. Complementary team. Ones that work together and have skills that kind of. Where one is, one is weak, the other strong. Every startup I did that succeeded had that good. Number one with my same partner, Ben Wegbright, and. And some others. Ben was the engineering guru and I was the marketing and salesperson. And the other is some unique insight. They see things or hear things that other people don't. That is, you can. If everybody starts renting their mother's bedroom or garage, that. That doesn't guarantee success. They have to see things or want things that other people don't see or want or hear. So the answer is, I'd agree with you with those caveats. Complementary team and an insight.

I think that if you were to ask most young Entrepreneurs what are VCs looking for, they would say, a proven team in a growing market with unique technology. You and I just laughed at that. So what is the young entrepreneur supposed to put in his or her pitch? What we just laughed at or something different?

Again, the timing is timing and market dependent, as always. And now more than ever. Ten years ago, if you would have said in the life sciences, I'm doing research and Cas9 and other therapeutic technologies, you would have been laughed out of the room. That's nice. That's a research project. Now people stand at your door and say, well, you know, how much can we give you again? Fifteen years ago, if you would have talked about AI or machine learning, even at Stanford, yeah, maybe you could have got a job at some research department. And now you write your own ticket anywhere, just as an employee, let alone getting funded. So I just want to. What I'm about to say has the caveats of there are hot things that can get startups funded with a competent team just by showing up. But in lieu of that, that is, if you're not in a hot space, I kind of tell students that you should probably take your idea past the step of I have an idea in a garage. Before you see even a seed round angel, let alone a vc. And that is, you might want to go out and validate some of those initial hypotheses. I mean, okay, that's great. Have you talked to anybody other than you and your co founder or people in your dorm? Do you have any, do you have a prototype? Do you have something that people have seen and want to grab out of your hands? Do you have some early orders or early indications that people are interested? Or if it's a really technical product, do you have something that's a proof of principle? Nowadays you could get to those steps on your own dime or very little capital to kind of reduce some of the early questions that initial smart investors will ask. Because, and again, I'm going to make a blanket statement, but if VCs could see the future, they'd be the entrepreneurs. There are financial asset class that are truly, and some of them are truly smart about where they invest. But it's the entrepreneurs that see the future and they just need a way to kind of, especially if it's something unique with a unique insight to provide some, any type of early evidence that they're correct.

So let's suppose an entrepreneur is listening to this, say, okay, got it, I got to go out and validate. Now let me ask you this because I've experienced this myself when I had new products, which is there are two kinds of people or the two factors that work against this theory. One is that many people are too lazy to tell you what's wrong with your product. They just want to say oh, very interesting, goodbye. That's number one. And number two, I Think, in many people minds, it's socially unacceptable to tell you that your software, your product, your service, whatever, sucks. It's just they don't want to be negative. So how do you truly get their opinion?

Yeah. So step one in this lean stuff of getting out of the building is customer discovery. Just kind of figuring out, you know, you're talking the right people or you're getting any kind of reaction from the product, etc. But the important step after that is you come back and you're really excited. Everybody said they loved it. Great. Did you ask for an order, Steve? It's not done. I have a PowerPoint slide. They're an MVP. Wait a minute. Did anybody say, if you could build this, I'll give you an order? I didn't ask. Did anybody say, you can't leave this room until I figure out how I'm your first customer? Well, no. So step two in customer development is this validation phase. And I don't care if it's a mobile app or web app piece of enterprise software, let's go figure out how to get an early indication that someone is serious. And everything from, I'm building an app that costs $9. Great. Did you ask somebody to put $9 or 10 bucks in an envelope and you'll hold it for them, but you want the money now because it said they told you it was a good idea? No. Go out and try that. And of course they'll find no one. We'll give them $10 or even a dollar. Or can you get people to sign up for give me additional information or I want to be part of the beta? No, no one has signed up. So you could run a ton of experiments. And in fact, Alexander Osterwalter has a great book with a section on customer discovery and validation called Testing Business Model Ideas. And I point my students that there's a million of these tests that you could run to validate that. Everybody said, like, oh, it's great. In fact, I remind people that when you hear the oh, that's really interesting. Why don't you come back when it's ready? Means you've actually been thrown out with a smile. And they go, no, no, no. They said, come back when you're ready. I said, well, don't you think if they thought it was a great idea, you would not been able to leave the room without, like, oh, never thought of that. So, yes. So there's a whole art to getting some early indications. And of course, that's when students and entrepreneurs start getting depressed going, everybody who said yes before? No one wants to commit. Well, guess what?

Exactly.

You've just learned a ton in this early stage, and it's better to learn it now than it is after you build the full product and ship it and spent all that time in development. That is the purpose of getting out of the building.

So I would extend this, and I think I know what you'll say, but you never know.

You never know.

So are you not validating the concept of Kickstarter? Isn't that really market validation?

Yeah. So Kickstarter is the worst thing that ever happened to customer development. Because.

What? Why?

Because once you put something on Kickstarter, you frozen your ability to learn. That is, you've launched the product. Half the things that fail at Kickstarter is you have this great optimistic view of what would happen, and then you find out how much it's really going to cost to develop or that it's 10x harder to write the code than you thought. But the. But the video was easy to develop, to put on Kickstarter, but the reality was so much harder. Kickstarter ends not only your learning, it stops your ability to pivot. You discover that what you thought you had was a cheap consumer product, actually makes more sense in the enterprise. But you've now taken money from 1500 people to deliver consumer product. Well, you're kind of screwed. I call it as premature. Let's just call it premature launch. But it has another analogy. It's way too early. And so it doesn't mean I don't like Kickstarter. When you think you found product market fit, but this is not the way to search for product market fit.

Okay, I was totally wrong in what I thought you were going to say.

That's good.

That shows signs of, I don't know, stupidity.

No, it shows signs of a good interview.

Okay, next question. You have a whole thing about early evangelists and how these are the people, these early adopters.

I stole that name from you, guy.

Yeah, well, I stole it from Jesus. So one of the things I learned from Steve Jobs is you got to know what to steal. So now how do you know if these early evangelists, these early adopters, what if they're the only nut cases who will ever buy your product and you're basing all your feedback and they're the only nutcases who will buy it?

I think as. As you've seen, early evangelists are not the same as early adopters. Right. An early adopter might be the first few people, but an early evangelist goes out and proselytizes your product and services to their peers and others, and literally helps you get orders unintentionally or sometimes intentionally if you design a program to do that. But if there is no force multiplier effect, then you realize you have sold to the very early adopter category, which sometimes does not scale. But if, in fact, if there's a viral component to their work, where all of a sudden one early evangelist is convincing the CEO and convincing folks like them in other companies, then you actually have something that's viral and will potentially scale. And I think that distinction that you just brought up is important. When I used to sell it to the enterprise, the thing that you always wanted to be careful about, there was always some excited guy or woman in kind of the product evaluation group, and they would always buy one of everything. And sometimes you get excited that you sold one into the evaluation group until you went into their office or room and you realized they did have one of everything on the shelf and most stuff never left their department. What you're looking for is an early enthusiast who believes this could solve a problem or fulfill a need or change competitive advantage or do something that. Or give them a political advantage internally that will help the scale inside of a company, or if it's a consumer app, actually just like, has huge network effects. So those are the things you're looking for. Those are different than the few early adopters who will put it on the shelf. But Guy, why are you asking? You're the expert at this.

But I conflated evangelists with early adopter. That's why I learned something every day.

Well, listen, I do remember selling into a lot of product specification groups and literally opening the door and finding my products sitting on a shelf next to about 53 others and going, I've been selling into the wrong group. This is never leaving this organization. This will never scale inside the company.

But immediately after that one unit was sold into the evaluation department, it got into the pitch that Boeing is a customer.

Of course, that's different. One is bad sales, but the other is great marketing.

Oh, my God. Okay, that's a quote. You use the S word a couple times already. Scale. And I need some clarification, because I think that in many of my experiences, you had to do things at the start to get evangelists or early adopters that you could never afford to do later at scale. I'll give you an example with the Macintosh division. To get Pete Marwick to embrace Macintosh, we had to create special software for them. We had to jump through hoops to make everything work for Pete Mark's auditors in the field. So if we had to do that for every customer, or at least every large customer, it just could not be done. But we got the ability to say, when people asked us, what's a big established organization that's using Macintosh? We got to say Pete Marwick, for example. So that's where I learned that sometimes in a startup, you got to do things that don't scale, and then you figure it out later. Am I right or wrong there? Because so far, I've not been able to predict what you're going to say.

That's okay. Neither can I. I think there's two different questions in there, one which you asked and another that you didn't, but is quite parallel. The first one is, early on, startups, particularly those selling in the enterprise, look to light what Mike Maples calls Lighthouse customers. The Pete Marwitz and the whatever that establish credibility. And if you're in a type of business that needs to establish credibility, then you need to pick your Lighthouse customers carefully. That is, you want to pick the ones that require the least custom work with the most impact. I mean, it seems pretty obvious, but sometimes not, because sometimes the large customers want exclusivity or they want so much custom work, you end up being a custom shop that you've just devoted six months of engineering to when you could have in fact, been selling a ton more. So be very careful about Lighthouse customers, But the answer is yes. But there's another piece of difficult scale engineering that is actually equally interesting, and that is the PayPal story is that banks who thought of PayPal as potentially competitors, and they were right in some sense, forced them to get approval from every state regulator to be able to offer their services. And eventually they didn't take advantage of that, but they actually went through the drill of getting every state to kind of sign off on that service that gave them a huge competitive barrier. Even though it was painful and whatever, it just forced everybody else to kind of either have to follow or not cross that moat. So there are some things that might look like large obstacles that if you think about it, gee, if we have the capital or time and we invest in this now, this will give us a leg up on anybody else, and we might want to consider doing that. Does that answer the question?

Yes. Yes. You can stop asking if you answer the question, because you are asking the question every time.

I'm not sure I understand the questions half the time.

Well, then, you know, that's shame on Me, not you. All right, so here's a straightforward question.

Yeah.

What is a good career path for a CEO?

So there is no good career path for a CEO. Do you mean a startup CEO?

Yes.

Yeah. So when I was an entrepreneur, you actually did kind of apprenticeship. You know, you joined a startup, you watched somebody else in some junior roles or product manager, and then you worked your way up and you eventually, after three or four startups, tried it yourself. Nowadays, of course, I have students who think they're capable. And, and, and by the way, the world's changed enough that what used to be information that was only available by having coffee with venture capitalists in an innovation cluster like Silicon Valley or New York or Boston, now it's available on the Net. And so there's a million pieces of advice on how to run companies, et cetera. So the good news is the Net is democratized, the kind of written tutorials that you would need. The bad news is apprenticeship gives you that visceral hands on experience of theory versus practice. You know, there are multiple. So the answer is there are multiple paths. One is you could try to do it yourself and it will be expensive and painful, but it is a quick way to get up to speed if you get the funding. The other way is again, I still believe apprentice like heck and make sure you're paying attention to all the things that go wrong or you would do differently because it's going to be your turn soon. That's the best answer I could give.

I haven't heard you mention go work for McKinsey or Arthur Anderson or BCG.

Yeah, that's a great question. Because every year I get that question for students in the business school and the question goes like this. Hey, Professor Blank, I got two great job offers. Can I get some advice? What are the offers? Well, I got an offer from McKinsey and I go, McKinsey, great firm. What else could you be thinking? Well, me and a doormate are still thinking about that startup we started in your class. And I go. And they go, let me tell you about it. And I go, no, no, no, you've already decided. What do you mean I've already decided? I go, well, you can't keep working for McKinsey. Which is the world's best job with doing a startup, which is the world's worst job? It's the world's best calling. It's a big idea. Being a founder of a company is a calling, it's not a job. You cannot keep both in your head simultaneously. And I said, if you're thinking about McKinsey, then that's the job you ought to take. And if you still wake up early in the morning and thinking why am I not at a startup? Or in the middle of the day thinking that, then you're still being called and go do that. But they're not the same. To me, a startup is an irrational calling. It's run by often dysfunctional people who operate well. True, right. I mean you've worked for a couple of them often.

Always.

I did a survey until I stopped counting of my students and entrepreneurs that a good chunk of them, a disproportionate amount, come from dysfunctional families, which is a kind of a sad but cruel observation. And there's the survivors. And if you think about it, that's the cruelest but most effective training ground for what an early stage startup looks like, which is completely chaotic, completely unpredictable. You have to have great skill in shutting out everything except that which is necessary for survival. That is the description of survivors and dysfunctional patterns. Not everybody makes it through. But they had brain chemistry that allowed them. You're laughing guy. This is sound familiar?

Maybe that's why I never really succeeded as a CEO. I didn't have a dysfunctional family.

Right. The other piece you'll appreciate is that if they're one of the CEOs who succeeds in the early stage and it's time to scale, they'll throw hand grenades into their own company to keep the chaos going because it is the only state that they're comfortable in. And that's when you, that's in fact where a good number of these things used to fail.

You certainly didn't say, well, a very good background is going to work for McKinsey or Arthur Anderson or BCG because you'll gain a broad exposure to management practices that you can apply to your own business.

Well, that's the point. Startups are not smaller versions of large companies. Right. As you know, and I think most of your listeners know by now, there's nothing the same until you start scaling, until you find product, market fit and go through the scale up stage. But in the early stages and a couple women or guys in their garage, it's unlike anything you're going to find in a structured environment. It's a completely unstructured environment. And if you're not comfortable with that, what I suggest is that you don't think about being a founder, you think about maybe being an early employer or figuring out where the inflection points are that you're comfortable. Do you want to come pre or post? Funding, boy, that's a major decision. Do you want to come pre or post? Product market fit. Do you want to come pre or post? Cash flow positive. Those are scale points where you could kind of decide where you know, do you want to come? There's another test. You want to come pre or post? They have an HR handbook. You know, that's kind of another milestone that sends shivers up my back. But, but, but still it's necessary. You know, process and procedure is basically how we do management and execution. Startups, founding a company is about leadership, not about management. That's a big idea. Managing large companies, that's execution. But startups are about leadership and culture as much as technology and product and customs. And those are different skills at different times.

I'll give you another litmus test that this one I am sure you'll agree with that. The first time you see your company have a job wreck that requires an mba, it's the beginning of the end.

Maybe just the end. I have to tell you a funny story is I was at a, I was at a Macintosh peripheral company called Supermac and that is the job specs I inherited when I took over marketing. And again, obviously things are much different now and this is the 20th century. Luckily we got these resumes from Stanford and Harvard and other great skills. All wanted to do, quote strategy. And I was going, you don't understand, we're in a street fight. You know, the strategy which we did need is going to last about three weeks. And it did, but the execution was three years. This is a ground war and if you're not going to be happy or comfortable slugging it out, we went from 11 to 68% market share in two and a half years. That was a ground war. That was some, you know, great strategy. And by the way, those applicants self selected out and the ones I ended up with, I ended up with a great woman with a degree from MIT from Sloan I think and an engineering degree and a couple others. But I was looking for different people in the early stage. I didn't need much strategy and that doesn't mean you don't need any strategy. But that is not the game early on. This is a hands on, dirty whatever and I don't mean physically dirty, but you're doing everything from writing data sheets like calling on the press to visiting customers to sleeping under the table before a product launch. I mean that's.

The thing.

Go ahead.

I think the thing that prepared me best for my career as a software evangelist was that previously I was in the jewelry manufacturing business selling to retailers, which is truly hand to hand combat. And that was the best training to work in the Macintosh division, not working for Hewlett Packard in third party developer relations or anything like that.

Right. And I don't want to diss those skills. All the listeners should understand. No, I really don't. Because as I've gotten older I've now managed and consulted for organizations at much larger scale. And so those skills are necessary at different points in a company's life cycle. It's just early on I think as you mentioned, a startup is a street fight and if you're not prepared to do that, then it's not the right time for you. It might be rider time when it is a scale up or is a large company or a larger company. But I think there's a notion of a time element when the right skills are needed. And I think the what's the song in Hamilton where he talks about being young, scrappy and hungry? I mean that is the job description for an early stage entrepreneur and their team. He or she needs to be, if not necessarily young, at least hungry and scrappy and willing to get into it and willing to do what it takes.

When is it time to pivot?

When you're, when your fantasy doesn't match the facts. And you know, a pivot to me is a substantive change in any part of your business model. It could mean that you've discovered that the customers, you're going after the wrong customers, but you've discovered the right ones. Or it could be you've got the right customers, but you're they're telling you we only care about features 3, 7 and 12. We don't care about the rest of the software. That's time to maybe talk to engineering or maybe you're the head of engineering and say why are we writing the rest of this code? Or you might discover that the pricing model is wrong, that you were thinking it was a direct sale, but you should be like doing a subscription business or the wrong channel. You were going through an app store when in fact it should have been a piece of enterprise software. So basically you pivot is when you have substantive evidence that it's time to change any one of those business model components. How much evidence you need depends on the business you're in. If I'm in enterprise software and I got five customers who want to pay me $100,000 for something slightly different about feature set, that might be enough data. But if I'm building a mobile app and I have five customers, you're off by a factor of 10,000 about having sufficient evidence. So the amount of evidence depends. But a pivot is just not only on product or market, it could be on all the other pieces of the business model.

But what about the stories you hear about everybody's telling you to pivot, it's wrong, change models do this. But you believed and you persevered and you succeeded.

People who are advising you should learn the skill of why, why do you believe? And sometimes you can't even articulate the data you've actually implicitly have collected as you've been talking to people or seeing things or reading things, and it's just not been processed enough for you to be able to spit that out. But I kind of force the issue. I go, is it belief because you're being stubborn? Add some adjective after this. Or do you believe because you have some data you haven't sat down and actually thought through? Is what. What is it that's making me think about this? Do I truly have an insight that I just haven't been able to write down yet? So I tend to force the issue if I can't articulate any evidence. That's when I start trying to shut down my I'm stubborn to what are these people trying to tell me? And I can't tell you as a, as an ex entrepreneur, I mean I did eight startups and I can't tell you how many times in hindsight I had wished I had listened and try to remember is why was I just a stubborn sob Just shutting down some in hindsight was great advice or advice that I had to go reinvent and find out myself. And maybe part of that is when you're hearing you need to pivot or something. The first part is incumbent on the entrepreneur to try to articulate why not is try to ask the next set of questions, well, why do you believe I should pivot instead of just saying you need to? Is it you don't think I've gotten enough evidence that this current market is right? What evidence do you think I do need to have? Or how long should I go after this? That is often the entrepreneurs don't ask the five whys to kind of get to the what are people trying to tell me and why? And I'm just kind of reverse engineering what I wish I would have asked when I was digging my heels in.

And how do you know when it's time to simply give up? It's just not going to work when.

It'S no longer exciting to go to work or you're coming home early and going to bed early. And in fact your spouse says, I think going to bed at 4pm is a sign of depression. And I have to tell you, in 21 years, serial entrepreneur. That happened to me once where I truly could see no way out of this corner I had painted myself in. And it was a second to the last startup called Rocket Science Games and we had just been on the COVID of wired magazine about 90 days earlier and I realized we're building games that no one wants to play and couldn't figure out. I mean eventually sold the coming to Sega, but I was literally going home at 4 and going to sleep and my wife said this is a sign of depression. I still remember it like it was yesterday because it was the only time I didn't love to go to work. I remember Guy, I'd be driving down Highway 101 for your listeners in main highway through Silicon Valley multiple times in my career thinking how much would I pay the company to work there because I love the job so much. I couldn't believe they were paying me to work there because how much I was learning. If that's not the feeling you have, unless you really need the paycheck, go home, do something else. There's no shame in. You know, the good news about innovation clusters is that there's a special word for a failed entrepreneur. Guy, you know what that is? That special word in a failed entrepreneur, Venture capitalist, experienced. It's a big idea. It's a big idea. Yeah. In our culture, if you fail honestly as a founder, honestly, you didn't steal, you didn't like treat your employees badly, etc. You get multiple shots at the goal. That's a pretty unique aspect of a cluster where people understand that this is the business. And so failure is not a badge of shame. If you treat it well, people will ask you what happened? And you'll go xyz, I wish I would have understood this or this or boy, I was, you know, Uber killed it on my part, etc. But, but the first coffee you will have with your friends. And I was stunned. It actually happened to me. They, they asked so what are you doing next? And I went, what do you mean what I'm doing? My life is over. They go no, no, what's your next startup? And you went oh yeah. And, and you know, in my case that, that second to last company failed because of hubris on my part. And the next one I got to retire out of because out of the ashes. And I basically took all those lessons I learned and kind of integrated them into eventually what became lean, but also building a much better company. So the answer question of when to quit is when it's no longer enjoyable. There's obviously you need to treat your company well and your people well and your obligations to your VCs, but there's not a notion of indentured servitude here, nor is it career ending. And a lot of young entrepreneurs forget that it's just business. Make sure that it ends and gets tidied up. But go think about what your next one is.

I would love to know what you think about patents. Let me give you more context. So you're meeting with a young entrepreneur and you say to this entrepreneur, so what's your competitive advantage? How do you protect yourself? And the answer is I have patents.

Yeah. So if it's in life science, you're not going to leave your bedroom without getting patents, let alone leave the building. If you're doing a therapeutic or even a medical device and possibly diagnostics, I want to know that you're patented up to your and even more if you're doing hardware in Silicon Valley, I'd still say you probably should patent up given how Weaponized Intellectual Ventures has made patents which in the 20th century didn't exist, at least mostly in software, there was a ton of freedom to operate. I actually tell startups that it's not a offensive thing, it's a defensive thing. And you ought to be thinking if there are patents in your industry, that will give you a tradable space for freedom to operate places where others might also own patents that they might want to prevent you from operating. So the answer is don't waive I have patents as an answer, but think of it as a strategy. Do I need patents to operate defensively or ultimately offensively, or will not having patents cost me a couple hundred million dollars? Tons of stories in the therapeutics area that is an ethical drugs where people fail to secure or patent first or. Or someone applied for a patent but someone else expedited a provisional patent. And in fact the whole CRISPR Cas9 patent war was about someone actually got a provisional patent before Duda processed a regular patent. Shame on that lawyer. That probably cost them and their investors billions of dollars. So the answer is it depends. But it's no longer oh, we don't need any patents anymore. It's more of a strategy is do we need any patents? And for why should be a conversation I believe that needs to Be had.

How do you do your best and.

Deepest thinking in the shower or on a hike? And why even where I live is full of distractions. Teaching lots of courses, students, things I'm working on, things I'm trying to write, but just getting outside with nothing but your footsteps and nature or standing in a shower, which I think really is the white noise of just the water falling, it gets me into a state where you're just focused on being able to think about pure thoughts about just the subject you want to spend time on. And I think my most productive, not work, but insights come out of those times. And very rarely, I think maybe four or five times in my life there's more than insights. There's been a couple of, excuse the pun, but epiphanies. And an epiphany is a sudden flash of insight where something unfolds completely, not just a single idea, but an entire company or an entire end to end thing. And I've had that happen four or five times. And it's not just a Steve thing. You know, people write about epiphanies for thousands of years. We still don't know why they occur or how they occur. But to any of your listeners, if that ever happens to you, you have an epiphany of something unfolds in front of you. If this is how it's going to play out, for gosh sake, do it. Because it's the neural net that's been percolating in the back of your head that's kind of broken through to just kind of tell you that you've been processing this thing for a while. So again, where I get my best, individual ideas are kind of in, in low distraction environments and as I said, just like decades apart, maybe in an epiphany or two.

I love the theory of crossing the chasm, but it seems to me in your book you went through an entire discourse about how crossing the chasm is not appropriate for startups, if I got that right. So can you explain your attitude towards the crossing the Chasm product life cycle theory?

Crossing the Chasm was, was the first great book. It was Jeff Moore's interpretation of, oh, I forgot Everett's name, but of a researcher who came up with the idea. And then Moore did a great job in popularizing what became the kind of the first book on there are a set of rules on how startups should think about early sales. And it was this notion of their different types of customers and that there was a chasm between those early adopters and mainstream adopters. I don't quite diss it. I just kind of think there's more to it than that and that there was a whole methodology that needed to be built on top of that one insight that early adopters are not mainstream or often are not mainstream adopters. So it was less so a disagreement and more so. I wanted to provide a fuller framework than what existed. And by the way, the good news is two decades after Eileen Startup, people are still writing hundreds or thousands of books making it better. I think I just stood on the shoulders of Christensen and Jeff Moore and lots of other people rather than they were wrong. It was here are some more tools and more ways to think about how to build early stage ventures. You know, the.

But what would you specifically add to the crossing the chasm concept?

Well, no, it's, you know, Christensen called it sustaining and disruptive innovation. I call it existing markets resegmented and new. And then I also have this notion of discovery, validation, customer creation and company building. Those are just. To me, the chasm part is kind of embedded in that, but it really is different depending on market type. So in an existing market, the chasm really doesn't exist because it's already there. In a new market, that's when you encounter the chasm that is in a new market where it's the first time a product was ever popularized. Yeah, the early adopters will buy it, but the mainstream, it's the canonical hockey stick you're selling to all those early adopters. But if you can't get that mainstream, but in an existing market, that sales curve looks nothing like a hockey stick. It's a straight diagonal line. You're taking share from incumbents. And so this notion that there was just this simple gap for all products was I just thought insufficient. It needed to be overlaid about the type of product and technology. Again, if it's an existing market, the width of that chasm is almost non existent. In a new market, the width of that chasm might be infinite, but it's certainly large.

My blinders are so strong that I can't even think about. I'm always thinking new product in new market. I'm never thinking new product in old market. And there's no chasm.

So. Right, right. If you think about me. Right. No, no, but think about it, right? In the old market, the mainstream and the existing people have the same information. They go, oh, this is just better. And yeah, there might be like a little delay. So I think of that chasm as a variable with constant depending on the market type. And once you introduce the idea of market type, it kind of explains a lot of behaviors. There is a hockey stick sales curve in one side, but there's a straight diagonal in another.

But there's another aspect in the product life cycle, the so called top of the pyramid. Whether it's Walt Mossberg at the Wall Street Journal telling the rest of us what to do, it seems to me that that pyramid is not the same. Or maybe it's even inverted that It's Trixie and lonelyboy15 on Amazon who are making the reviews that matter. It's not Walt Mossberg telling us in the Wall street journal to buy Lotus 1, 2, 3 anymore.

Right. And just to follow on. In an existing market, the types of influencers are radically different than in a new market. In a new market, it's a long term guerrilla warfare kind of market shaping set of activities. Right. Evangelists and the rest in the old school. And in an existing market it's kind of branding. And why is mine better than this existing product? But I don't have to convince you about the category. I just have to convince you mine is cheaper or flashier or better. And so the types of things you do really depends on. Do you remember the scene in one of the old Star Trek movies where they pick up a mouse from the Macintosh and try to talk to it? I don't know if you remember. Yeah, it was a great scene, but. But it was like they didn't even understand what the product was. Well, that was to them, that was a new market. But going from one version of the Mac to another, the marketing was. I didn't have to explain to you what a Mac was or a graphic user interface. I had to sell you the next version. But the first version of the Mac, I needed to explain to you about what a mouse was and why green text on black screen wasn't what you wanted anymore, etc. That was a new market. Even though obviously there was a Lisa and there was Xerox star, etc. But the Mac had to sell a whole set of concepts that the next version of the Mac didn't. Think about that and then you have the metaphor of new versus existing.

Okay, okay. My last. Seriously, my last question, because I think this is fun.

I'm having a good time.

It's kind of, you know, orthogonal to all the stuff we've been talking about. But tell me about your idea for national service.

I'm old enough to remember when the country had something called a draft where it was mandatory military service for men and it was only men over 18, and we were in the middle of a war, a very unpopular war, which Vietnam War. And I served for four years in the Air Force and I went to Southeast Asia for a year and a half, two tours actually. And you know, when I was in the Air Force, I grew up in New York City in a pretty narrow ethnic ghetto. But I was immediately dropped into a world I had no idea existed like that. Spam was a food. I know I'm using that, but seriously, put salt on watermelon or what the heck was a muffaletta sandwich? I mean, and then different points of view. I mean, you were living with different people, and then they had different beliefs and different religions and came from different classes. Rich guys and white guys and black guys and poor guys and I mean, my best friend was a rice farmer. I didn't even know we grew rice. I was like, really? In Louisiana? And I just say that because once that ended, everybody thought, what a great idea. But in fact, we've now run a 50 year old science experiment of what that's done to the country. So the fact that most families, at least on the coasts, don't have family in the military, we've basically outsourced our wars. So we've ended up with perpetual war. We spent 20 years in Afghanistan with no end in sight until Biden just said enough. My point is, is that because we no longer physically had a mesh together, social media took that place. And instead of bringing us together, it actually tore us apart because people figured out how to optimize social media not for bringing us together, but for maximizing profit and made us vulnerable to disinformation. At the same time, as I started earlier, at the same time that people had vested interest in making people believe that government regulation was all bad and that the government was not here to help you in any form. So we ended up in our own silos that I think have been just horrifically bad for the country. And whatever your beliefs in the last couple years, I think the evidence is on the plate. And so this is a long way to say is I don't believe we need a draft. I believe we need mandatory service. And I mean mandatory. And service to me could be public service. So Teach for America, or you know, there's a million other activities, Peace Corps or something else. Or you could opt into the reserves or you could opt into whatever and we ought to give people something back for it. You know, if you do a tour in the military, you get the GI Bill, which I went to School on or in my model, you would do a year of service, any type of service, and you get free community college. I mean, what a great trade. So we could level up the educational stuff, but I would literally make it mandatory for every 18 year old that we physically had to go somewhere with other people we normally wouldn't meet. And because I can't wave that magic wand, I did what I could and we started a program called Hacking for Defense, another one called Hacking for Diplomacy. We now have Hacking for Oceans where students at research universities and other colleges work on government problems and they use this Hodelin methodology. And we go out to government sponsors, get a series of problems, students form teams, they pick problems they want to solve, and in 10 weeks they go out and talk to 100 customers, partners, stakeholders build MVPs every week, and at the end they show their sponsors, here's what we built to understand your problem, and here are a set of solutions that might help. And this is now in 47. Hacking for Defense is in 47 universities. It's now spinning out close to 500 students a year, or maybe now even close to 1,000. And it's just an example of what I think we ought to do on a much, much larger scale. You know, I think there's something like 4 million 18 year olds a year and maybe service programs touch 100,000 of them. I think the country's ready for something that would bring us together.

I hope you agree with me that every entrepreneur should listen to this podcast and read the works of Steve Blank. This would save a lot of money, a lot of time, a lot of aggravation, and a lot of frustration. Mvp, Minimum Viable Product. I love that in my speeches. I call it Don't Worry, Be Crappy. That's why Steve teaches at Stanford in Columbia and I don't. I'm Guy Kawasaki and this is remarkable, people. My thanks to Peg Fitzpatrick and Jeff C. Who made me an mvp. A Minimum Viable podcaster. Until the next episode. Be safe, be well, be happy, mahalo and aloha. This is remarkable, people.