Sunday, November 14, 2010

Rediscovering Search

Please check out the wonderful Slideshare "Creating Start Up Success" by Alex Osterwalder and Steve Blank which contains 5 rules for start up success. The basic concept is that no business plan survives the first contact with customers, and that entrepreneurs should spend a lot more time developing their customers and business model than a fancy business plan.

This is not a new idea, but it is contrary to the dominant logic of start ups (which the slideshare quickly covers).* Folks like Steve, Alex and Eric Ries are now presenting this concept in a compelling way, the "lean" start up, and it seems to be getting more traction every day.

I think part of the reason it is getting more traction is that it is getting more right every day. Changes are disrupting the way start ups are being started, operated and financed. Start ups, in general, are getting cheaper to start, at least in many industries. Technology, global talent, more distribution options help drive this. The balance of power between founders and funders is changing. If you don't have to raise millions of dollars and give up a chunk of your company, why would you? The last time the balance shifted (the internet craze), VC investors paid more to play. This time, they may not get to play.

Anyway, the reason for this post is not to regurgitate what Steve and Alex are doing, or speculate on the state of the VC industry, but instead point out that there is a common thread between the lean start up work and the work of William Easterly. In White Man's Burden, Easterly categorizes international development approaches as being either those of the planners or searchers. He is critical of the failure of the planners' approach, and hopeful that searchers will do a better job on reducing poverty, disease, illiteracy and other seemingly intractable challenges of the developing world. Both Easterly's critique of the World Bank, and Blank's critique of Motorola, show planners who fall in love with their theories can burn through a lot of other people's cash for far longer than they should. This isn't to say entrepreneurs shouldn't plan, just that their planning should be about how to search, not on polishing up a 40 page glossy business plan.

While Steve and Alex's advice is mostly aimed at mainstream entrepreneurship,** it's emphasis on searching is key to BOPreneurs as well. Many times, entrepreneurs tell me that they need money to get started on their wonderful, world changing ideas. But that usually isn't so. As Andy Hargadon is fond of saying, there are plenty of $5 and $50 experiments to test your business concept. Applying the lessons of the lean start up, and using the business model canvas, can help an entrepreneurial team map out their assumptions, try on different prototypes, and test those at low cost and with lower consequences. I can't see any reason to vary the approach for a BOP start up.*** If anything, it is more critical for a social entrepreneur. If a new web app fails, no one is going to go without food or water.

OK, gotta go. I am working with our GSSE students on just this topic tomorrow. We will discuss the Envirofit case, and the question of the day is: are start ups pretty when they are born? Usually not, in my experience. I sure wish we had some of these materials to guide us at Envirofit back in 2003-04. We certainly made a few mistakes, particularly in customer development. And we are still learning every day. One could even say "searching"....
*In his book, Four Steps to the Epiphany, Steve has a number of examples of the dominant model, which is product development focused- have a cool idea, get some people working on it, do some market research, write a business plan, raise money... and then see if any customers will buy it or if there is a scaleable business model. I might quibble and say this is more the dominant model of the Silicon Valley Venture world, and that many outside the valley have learned to bootstrap or at least finance without venture capital, which requires earlier contact with customers. But let's not get distracted with that here.
** Alex has a nice presentation on social entrepreneurship, and Steve and Alex blogged on one early stage BOPreneur, PeePoo. I expect we may see more in the future from them on this topic.
*** I do want to emphasize that when BOPreneurs "get out of the building" they must go all the way to their market. Sure Kiva was started at Stanford, but only after the co-founders spent time in Africa, and partnered with local micro-finance organizations. Similarly, Grameen Phone, profiled in Alex's book, was very much a Bangladeshi rooted venture. I am dubious of any venture that isn't rooted in the field, with some co-founders who know their way around on the ground. This raises some additional aspects of customer development that aren't touched on in Steve or Alex's books. Luckily, you can get started with Paul Polak's book and dive deeper with D-Lab, IDDS or GSSE programs.

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