Future360 was thrilled to meet with serial entrepreneur Steve Blank who offered sage advice to entrepreneurs on how to build a lean startup.
"We used to believe that startups were nothing more than smaller versions of large companies, and we now know that that is a mistake. Large companies execute known business models, while startups search for business models. By using new search tools, we can reduce the failure rate for early stage ventures. This is a big idea, because every entrepreneur would like a set of tools on how to fail less. The overall phrase for this process is "the lean startup" of which there are three components.
The first is called business model design. Rather than write a business plan, based on a series of facts, we use Alexander Osterwalder's Business Model Canvas which says what you really have on day one is a series of untested hypotheses. Entrepreneurs figure out what they will deliver to their customers and how they will make a profit. There are nine factors to consider: value proposition, customer, channel, demand, revenue, partners, resources, activities and costs.
The second is customer development which is based on the premise that there are no facts inside your building so go outside. This is the "what am I supposed to do" step that turns hypotheses into facts.
The third step is called agile engineering. If you're an engineer you desperately want to build your entire project all at once before you show it to anyone. But we now know when you do that there's a 90% chance that you're going to have a ton of unwanted features and you're going to miss the right ones. We should develop enough just get customer feedback to test these hypotheses.
These three things -- business model design, customer development and agile engineering -- is the new tool set for searching for business model. If you do that, it doesn't guarantee success but decreases your failure rate because you will find out quickly if you need to iterate or pivot.