The 3rd NEXT Cologne kicked off on the evening of October 23rd and this time we have four very early-stage startup teams attending the program – Including one team traveling all the way up from France to attend in Cologne – respect!
I’m currently in Silicon Valley on a scholarship, invited to receive the Lean Launchpad Instructors class with Steve Blank at Stanford so I thought I’d share the story about what Customer Development and the Lean Startup Movement means to me and how I got involved.
Although I read “The Lean Startup” book by Eric Ries as it came out in 2011 and found it quite insightful and actionable, it would take almost a year before I got seriously into Customer Development – which the book mentions as one of the components of the Lean Startup but in my opinion doesn’t really go into much detail about.
At the time I first read it, I felt the book, aside from being a bit heavy on anecdotes, was highly focused on building and tweaking stuff (and that is probably why it was a runaway hit with developers and entrepreneurs – Hey! We like to build things, exert our agency in the world and we’re all about action, not about talking!) and could not help feeling something crucial was missing- that in it seemed to me an inherent danger of inviting only more building of stuff for the sake of building more stuff.
It wasn’t before almost a year later and after doing my own startup in all sorts of wrong ways that I got re-introduced to the Customer Development methodology and the teachings of Steve Blank in-depth.
As we were planning to organize the very first Startup Weekend Cologne, we were introduced to the new NEXT program – basically a democratized version of the Lean Launchpad program taught by Blank at Stanford, Berkeley and Colombia and used by the National Science Foundation, teaching Customer Development, Business Model Generation and the Lean Startup methodologies.
So we (Lukas Strniste, Puja Abbassi, Till Ohrmann, Sara Usinger and I) just said yes and jumped on the bandwagon, not really knowing what we were getting ourselves into. Thus I was trained as an official instructor by Steve Blank, Bob Dorf and Eric Koester and in December 2012 Cologne became one of the first very few cities in the world to offer the Lean Launchpad curriculum as taught at Stanford on a local level and for a nominal symbolic fee. And now, half a year later, we are about to start our third cohort of the program.
During the training to become an instructor for NEXT and running the program for two cohorts so far, it became clear to me why Customer Development resonates so strongly with me, and orders of magnitude more so than when reading the “Lean Startup” book.
I founded my first own software company back in 1997 and since then my philosophy in creating software for F500 enterprises and GOs has been “It’s not about technology – It’s about people. Listen very carefully to your customers – and their users. Engage in humble conversation and learn, learn, learn.”.
When creating software for enterprises and GOs, it’s incredibly important to assume that the customer, the person actually doing the project ordering, is only tasked with ordering the problem fixed and not actually having any proprietary insights to the actual problem. So I always asked and listen, asked and listened, challenging the assumptions that they already knew what the problem was and how to solve it – and for whom it actually represented a felt problem.
Anyway, when I finally had a good idea about what the customers ordering the project thought what the problem was and how to solve it, it was incredibly important to press on and ask for further interviews with their actual users, the people who were actually supposed to feel this problem and that would have to live with the actual solution in their everyday corporate life.
And what these users told me usually did not rhyme with what the people ordering the project thought. Usually there was a real and clear cognitive dissonance between the two types of stakeholders, about what their ideas about what the problem actually was and what an actual solution should look like.
So my secret to creating highly successful software that solved real problems for real people for 16+ years now was simply to listen – and listening to enough people, to all stakeholders affected by the problem and the proposed solution, assuming that I wouldn’t get to the whole truth by only listening to the customer ordering the project.
That I wouldn’t get to the truth about the problem before I started recognizing a frequently recurring signal from a significant amount of stakeholders on all levels. And that I would not be able to know what a viable solution to that problem could look like without comparing the stories, the recurring signal, from the different types or groups of stakeholders and figure out the different motivations, jobs they were trying to get done and how they would overlap.
Because the actual solution, the truth, was normally found somewhere in between.
Although enterprises are not startups (the problem that I was trying to solve and the customers I was trying to solve it for was usually somewhat known) suddenly Customer Development made a whole lot of more sense to me as it was in part something I had already been intuitively practicing for years.
In Customer Development, I now had a complete methodology for building a startup incorporating methodologies I myself knew to be validated through my own experiences. I could now preach what I had been practicing – and that is how I became a true believer and practitioner.
So what is Customer Development?
Customer Development is a methodology to get from a belief-based to a fact-based venture, from a half-baked business idea to a company with a validated repeatable and scalable business model.
In an over-simplified nutshell, the Customer Development methodology has two main components. The “search” for and the “execution” of a business model.
The “search” component has four steps, divided in two sub-components – Customer Discovery and Customer Validation.
Customer Discovery – Test the Problem
- Define your hypothesis: map out your guesses about your business model using a Business Model Canvas as your communication and tracking tool
- Test the problem you think you are solving by getting out of the building and talking to and listening to potential customers, partners and resources – real people
Customer Validation – Test the Solution
- Test the solution you think solves the problem to a known set of customers by building a minimum viable product (MVP) containing just the minimum features needed to allow you to start learning, to start an iterative build-measure-learn cycle
- Iterate or pivot your business model repeating the steps until you have validated it
Once you’ve validated your business model, you move on to the “execute” component which is also divided into two sub-parts, Customer Creation and Company Building, which consist of creating user demand and building the organization to scale.
For a more detailed and more entertaining introduction, I highly recommend taking Steve Blank’s “How to Build a Startup” course on Udacity and picking up the book “The Startup Owner’s Manual“. If you’ve not heard of it before, Udacity is an amazing online learning site that offers a range of courses for many professions. But don’t just take my word for it as you can find a detailed review of the site here https://learnacourseonline.com/udacity-review/
Now GET OUT OF THE BUILDING!
It seems to me that he doesn’t know how crowd funding without selling equity (e.g. Kickstarter and IndieGoGo) works – or deliberately wants to discredit the incredibly powerful new tool available to entrepreneurs for validating ideas and product – or perhaps more likely he just lost track of the evolution of entrepreneurial methodologies since graduating.
(Kudos to him on the polemic page impressions link bait material, though.)
These are my highly opinionated thoughts on his three outrageous claims in the Inc. article.
Claim 1. “It [Crowd Funding] makes it too easy to kid yourself”
– In which he argues for the writing of a business plan (!) instead.
1. Crowd Funding without selling equity is bootstrapping.
There’s nothing more sobering and honest feedback than direct contact with the market. Crowd funding WITHOUT selling equity can be used as a valid MVP (Minimal Viable Product) that will help you validate your thesis that if you build it, they will indeed come – AND buy.
Just don’t build and produce anything until you’ve received pre-orders that will cover the production at cost or better. Obviously. Crowd Funding without equity IS a valid bootstrapping strategy. Make no mistake about it.
Who cares about business plans? No business plan ever survives first contact with a customer anyways. Business plans can only work if you are executing a known and validated business model. That’s the polar opposite of a startup which sole purpose it is to search for a scalable and repeatable business model. No magical business plan is ever going to help you find it. Validating your product in the market will.
I do personally recommend writing a very basic business plan as an educational exercise to arrive at an back of the envelope estimate of how much money is going to come in and go out and where – and then burn it! It’s not an operational guide nor a road map. It’s a work of fiction, a fantasy, a guess.
Isn’t it a no-brainer that as long as you can sell your shizzle, you should try to make as many pre-orders as you can before production and shipping, at least enough to make it cover your cost and perhaps contain some profit to channel into marketing of the second batch? Isn’t crowd funding a perfect viable channel for facilitating such pre-orders?
If you can’t sell enough to just break even, isn’t that a clear sign that maybe you’re not solving a problem that the market cares enough about to pay you? Or that you are doing a crappy job at describing the problem you’re solving and the solution you’re offering? That you should probably be doing something differently?
Isn’t crowd funding an awesome low-risk, low-cost channel to test the viability of your business idea, to help the market find you and fail or succeed faster?
And so frigging what if you don’t make your funding goals? At least you failed before you committed significant amounts of your or other friends, fools or family’s money – let alone an investor’s – bet the barn and lost your life partner.
At least with crowdfunding, you had the sense to save all of that money and maybe even invest some of it into mutual funds or stocks (more here on that if you’re still stock hunting). By now you probably have a pretty diverse portfolio that gives you decent if not great returns and can use that money to fuel the business this time around!
And hopefully you learned more about what you should be selling instead by getting invaluable feedback directly from the market. Consider your time spent raising crowd funding a considerable investment in your personal entrepreneurial education.
And consider this: Every time you fail at crowd funding, you get to play again and again and again ad nauseam, ad infinitum – without going bankrupt or having to beg private equity funds for the privilege to play.
Claim 2: “It [Crowd Funding] isolates you from people who can actually help you”
– In wich he argues you need feedback, permission and validation from investors, not the actual market and your actual potential customers.
2. An investor is a commodity, an outstanding entrepreneur is the prize.
If you as an entrepreneur can show a VC or an angel how you already validated your business and how you’re already making money, you can pretty much shop around for the investor you want to a price advantageous to you.
Basically, you’ll have the best bargaining chip available to any entrepreneur in your pocket. In fact, you might even find out that you don’t need an investor at all to scale your business, that you can build on actual pre-orders and sales yourself.
I call hot steaming bullshit on the ridiculous assumption that savvy VCs and Angels would be less interested in you if you crowd fund (read: bootstrap) your startup at an early stage.
In fact I’ll claim the polar opposite: Crowd funding provides you with a new channel to get found. If you’re able to show traction and sales – they’ll come knocking, or at least it will help get you through most doors.
As an anecdotal proof, I myself have been approached by tier one Silicon Valley investors as a direct consequence of crowd funding projects.
Claim 3: “I’d never recommend investing in a crowdfunded company. What does that tell you?”
– In which he is trying to distract you from your own logical reasoning by “Argument from Authority” when possessing seemingly none.
3. One swallow doesn’t make a summer.
That Ari Zoldan won’t invest in crowd funded startups means only that Ari Zoldan won’t invest in crowd funded startups.
What you see is all there is – WYSIATI.
I’d never heard about Ari Zoldan before I read this article. He’s not to be found on Angel List, not listed as an investor on CrunchBase, not listed as an investor on LinkedIn nor on his Wikipedia page.
I think that speaks for itself how qualified Ari Zoldan is to give startup entrepreneurs advice on how to get funded – or not.
So we brought Startup Weekend NEXT to Cologne as one of the first few cities in the world back in December 2012 and now the second cohort of the program in Cologne recently finished.
Here’s a little update on how that turned out.
Startup Weekend NEXT is an intensive five week educational program to help more startups survive by having the startup teams getting out of the building and into the real world applying customer development and business model generation to help validate their startup idea and find their product-market fit.
Julia Tide, founder of Petomino presenting on Canvas Day
Let there be light!
You might already know of my bootstrapped startup Gauss – The People Magnet. What some of you might not know is that I teach entrepreneurial students at universities, young hopeful startups at NEXT, keynoting events and F500* corporates that as a startup entrepreneur you need to:
- Talk to everybody about everything all of the time
- Expose yourself and your ideas to as many people (your potential users and customers) as soon as possible
- Acknowledge and understand that no smart person or company will ever copy you before you have a validated and proven business model
I have come to realize that it is about embarrassingly high time that I start practice what I preach. It’s about time to start eating my own dog food. I’m spontaneously throwing everything out there to see what happens when you shine as much light from as many sources as possible on your ideas and assumptions instead of having them worshipped inside the cult of the stealth startup. I don’t expect much and I have nothing to lose but my vanity, so here we go.
I hereby declare death to the cult of stealth startups and pledge and acknowledge that I will:
- Publish and solicit feedback as broadly as possible on any and all prototypes before writing a single line of code (e.g. as features described in text, click-dummies or paper wireframes)
- Be ready to face any and all critique in public in any form or way, the more and more brutally honest the better
- Risk the embarrassment of being ridiculed and failing spectacularly in public
- Risk having my ideas stolen by competitors
- Only exercise the option to stop sharing everything in public, if and only if, I have a validated product-market fit or when I have a validated business model
As of now, I’m going to publish all prototypes instead of following the cult of the stealth startup. I LOVE your feedback going forward and you can use this form (so you can remain anonymous) or feel free to leave comments on this post in public. Be brutally honest. I’m ready to take it! :)
Here’s a scrappy video walk-through (and in no way am I apologizing for the poor quality, because I also preach it is better to have something instead of nothing!):
And here are two click dummies for you to test on your iPhone for yourself (they should sort of work on Android too, though).
The main click-dummy with core concepts. (Try this first for basic concepts and tap Robert Scoble to test features as his profile is the only interactive one)
This next click dummy will show you what happens when you get a notification from Gauss. (BTW, profiles are inactive, not tap-able in this version)
Let me know what you think. Is this a great idea or worst ever? Should we all remain loyal followers of the dark cult of the stealth startup or is it about time to let the public sunshine in? I shared this post on HN so feel free to continue the discussion there too.
*Caveat: Obviously, if you’re inside a F500 corporation, sharing within your enterprise is assumed, not necessarily with the public. That would obviously open up a can of whoop-ass from your legal department. Enterprise is funny that way.