The Customer discovery catharsis
There is a sublime moment of clairvoyance when an early stage entrepreneur realizes that his approach to starting a new high-growth venture has been wrong. Namely when he comes to understand that he is not building out a new business but instead searching for one. When you’ve given up your job, taken on so much risk and are smack in the middle of the start-up process, this is a very powerful moment of realization that I’m calling the “Customer Discovery Catharsis” in reference to Steve Blank’s famous Customer Development approach to starting up a new company (google his name and Customer Development to learn more).
I had this moment of Catharsis about a year ago when my partner Prashant Samant joined my team (the rippleQrew as we call ourselves), and he forced me to see the light. More recently I watched some of my cohorts from the Hub Ventures program have it a couple weeks ago during our Monday Hub Ventures workshop on Customer Development. An expert on the subject from UC Berkeley, Teddy Zmrhal, came in to explain these principles to us and it just clicked for a number of entrepreneurs in the room. The following week a number of entrepreneurs from my cohort started calling up their customers and completely transforming their start-up approaches in profound ways. This is powerful stuff.
So what’s this all about? Customer development is taking the valley and innovators throughout the world by storm! The core insight is that a successful business needs customers to buy its product or service so an entrepreneur should prioritize his time to figure out what his customer wants instead of spending all his time at first developing the product or service (i.e. Product Development). It’s easier said than done.
Steve Blank coined the concept and layout out the how-to blueprint in his book Four Steps to Epiphany, which is a must read for any entrepreneur. Soon after the Hub Ventures session with Teddy, I had the opportunity to meet with Steve Blank in an intimate setting out of Stanford’s Entrepreneurship Center where I went to business school. One of Steve’s many fascinating points was that investors and MBA programs have been thinking about entrepreneurship all wrong. This is a big statement especially while sitting in a GSB classroom with a room full of GSB alumni entrepreneurs! He argues convincingly that it is an unreasonable assumption to presume that the entrepreneur knows what his business is from the very beginning — from the moment he comes up with the idea and finishes writing the business plan. However this is how business schools teach it. Once you finish your business plan, your job is to execute on that plan, build and manage a business. As a result the flawed entrepreneurship process is taught a lot like a mini-business and the execution skills are considered to be very similar to those needed in a regular business. The reality is completely different. In large businesses the optimal processes, organizational structures, sales processes and employee skill-sets are completely wrong for start-ups still in the discovery phase. To presume you’re out of the discovery phase too early is entrepreneurial suicide.
What makes customer development so difficult? In my opinion, the hardest part is psychological. It requires a ton of humility and patience from self-assured (often stubborn) entrepreneurs to admit that they have NOT yet figured out there product-market fit and still need to listen to the market to help guide the process. The need to slow down, table our own visions, and pause our go-to-market plans in order to discover what the market really wants is very hard for the go-go-go entrepreneur wanting to push things forward.
To understand the psychological challenge, you must put yourself in the shoes of an entrepreneur. I spend most of my day pitching. I’m asked on average 5 times a day, “What’s rippleQ?” I might answer, “Well, it’s a social software platform for organizational development, namely to increase employee engagement and success rates in large OD employee training and behavior change initiatives. We’re building continuous learning organizations! It’s the future of agile management.“ I have to say this with complete confidence and clarity or else people will think, I don’t know what I’m doing, I’m not committed, or I don’t have the leadership skills to execute. It’s very hard to spend the whole day pitching something that in the back of your mind you know is at least partially flawed! In the discovery phase, you should be assuming that you don’t know what your business is yet, and you’re figuring it out. You are most likely to continue to take large or small pivots until your product-market fit is finally discovered. It feels fake to go out pitching confidence and certainty when that’s not what you’re practicing. The worst is when you do inevitably pivot (usually a weekly process if you’re doing it right) and then need to update those people you already talked with. It’s difficult but necessary. I’ve built up very thick skin as a result.
The final point to underscore is that the skills of discovering a company are very different from administering a business (the “A” in the MBA). The moment you’ve found product-market fit and validated it sufficiently with sales and primary market research, your investors are likely to be thinking about replacing you! Yes, exactly the moment the entrepreneur is expecting a big raise and pat on the back is when most experienced investors are thinking about bringing in somebody else to scale the company. The entrepreneur’s core-competency of discovering a business opportunity is very different from the skill set needed to grow a company.
I’m left with the question, why are we only learning this now in 2011? Why do most entrepreneurs stumble upon Blank’s customer development in the middle of the customer development process instead of learning it beforehand? If innovation is the engine to our global economy then we need to do better, and if you have a friend who’s just starting a new venture do them a favor and give him or her a copy of Steve Blank’s book.