Urban Mill has applied now nearly one year its own tailored Lean Startup approach. Here are some thoughts from Steve Blank and his associates, which ideas have guided us through our business model generation period:
”For the last decade we’ve been teaching students how to write business plans. Yet time and again we watched as few business plans survived first contact with customers. It took us awhile until we recognized that we’ve insisted on business plans because we assumed startups were just smaller versions of large companies. What we’ve now know is that they’re not.
After decades of watching thousands of startups follow this standard regimen, we’ve now learned at least three things:
1. Business plans rarely survive first contact with customers. As the boxer Mike Tyson once said about his opponents’ prefight strategies: “Everybody has a plan until they get punched in the mouth.”
2. No one besides venture capitalists and the late Soviet Union requires five-year plans to forecast a series of unknowns. These plans are generally fiction, and dreaming them up is almost always a waste of time.
3. Startups are not smaller versions of large companies. They do not unfold in accordance with master plans. The ones that ultimately succeed go quickly from failure to failure, all the while adapting, iterating on, and improving their initial ideas as they continually learn from customers.
Existing companies execute a business model, startups search for one. This distinction is at the heart of the lean startup approach. It shapes the lean definition of a startup: a temporary organization designed to search for a repeatable and scalable business model.
The Customer Development model breaks out all the customer-related activities of an early-stage company into four easy-to-understand steps. The first two steps of the process outline the “search” for the business model. Steps three and four “execute” the business model that’s been developed, tested, and proven in steps one and two. The steps:
1. Customer discovery first captures the founders’ vision and turns it into a series of business model hypotheses. Then it develops a plan to test customer reactions to those hypotheses and turn them into facts.
2. Customer validation tests whether the resulting business model is repeatable and scalable. If not, you return to customer discovery.
3. Customer creation is the start of execution. It builds end-user demand and drives it into the sales channel to scale the business.
4. Company-building transitions the organization from a startup to a company focused on executing a validated model.
In the “search” steps, you want a process designed to be dynamic, so you work with a rough business model description knowing it will change. The business model changes because startups use customer development to run experiments to test the hypotheses that make up the model. (First testing their understanding of the customer problem and then solutions.) Most of the time these experiments fail. Search embraces failure as a natural part of the startup process. Unlike existing companies that fire executives when they fail to match a plan, we keep the founders and change the model.
Once a company has found a business model (it knows its market, customers, product/service, channel, pricing, etc.), the organization moves from search to execution.
Searching for a business model requires a different organization from the one used to execute a plan. Searching requires the company to be organized around a customer development team led by the founders. It’s only the founders who can make the strategic decisions to iterate and/or pivot the business model, and to do that they need to hear customer feedback directly. In contrast, execution (which follows search) assumes that the job specifications for each of the senior roles in the company can be tightly authored. Execution requires the company to be organized by function (product management, sales, marketing, business development, etc.)
Companies in execution suffer from a “fear of failure culture,” quite understandable since they were hired to execute a known job spec. Startups with Customer Development Teams have a “learning and discovery” culture for search. The fear of making a move before the last detail is nailed down is one of the biggest problems existing companies have when they need to learn how to search.
The idea of not having a functional organization until the organization has found a proven business model is one of the hardest things for new startups to grasp. There are no sales, marketing or business development departments when you are searching for a business model. If you’ve organized your startup with those departments, you are not really doing customer development. (It’s like trying to implement a startup using Waterfall engineering.)”