Q&A with Silicon Valley “Godfather” Steve Blank

October 9, 2012

For those who don’t have a Silicon Valley area code, Steve Blank likely doesn’t have much name recognition. But amongst the Apples, Googles and Facebooks of the world, Blank enjoys iconic status. Blank says he gets asked for autographs just walking down the street in Palo Alto, where he teaches entrepreneurship at Stanford. Some young entrepreneurs reverentially refer to the 59-year-old as: “The Godfather.”

How did Blank earn his celebrity status? First, he is a successful serial entrepreneur, having started eight venture-backed Silicon Valley companies, including software company E.piphany, which raised $66 million prior to going public in 1999. Second, Blank’s first book, “Four Steps to the Epiphany”, became a handbook for every budding tech entrepreneur and spawned the term “customer development” that sparked the “lean startup” movement.

Blank’s blog has become a must-read among entrepreneurs and is widely syndicated, regularly appearing on The Huffington Post. Recently, Blank launched an online version of his customer development course, called “The Lean LaunchPad”, which he says has more than 50,000 registered users.

The following is an abridged transcript of a recent interview Reuters did with Blank that covered everything from the definition of an “entrepreneur” to how people should use his latest book: “The Startup Owner’s Manual”.

In terms of a neophyte that is maybe a Stanford student or someone who is not even in an entrepreneurship course but just wants to start their own business, can they pick “The Startup Owner’s Manual” up and use it as a blueprint?

It’s kind of intended as an encyclopedia and a blueprint. This is 613 pages, so it’s not designed to be read as a novel or go read all this and go build Google or Facebook. It’s a reference manual. As you’re building your company you’ll go back and refer to these different sections. Hopefully it will not just be for the 1 percent – tech startups – but these same tools are applicable for the 99 percent, which includes small businesses.

You also break down the difference between a small business and a tech startup, why did you feel that was so important?

I did eight startups in 20 years and the worst startup was fairly clear: you woke up in the morning and your goal was to build a billion-dollar business and take over the universe and everything else was road kill. Now that’s an elitist view. Entrepreneurs truly are people who work for themselves, start their own business, invest 24/7 in it, but might have just different goals and we’ve never built a taxonomy that is a set of buckets that explain there are different types of entrepreneurs. It’s important that we not only teach it differently, but that we fund it differently. Governments need to have different policies for each group. Each part contributes a unique piece to our economy, both locally, regionally and nationally. So while we have language to talk about them, we kept getting confused and the biggest confusion was between small business, or Main Street entrepreneurs, and high-growth tech entrepreneurs. They’re very different, but it’s not that the entrepreneurs don’t work as hard – they both work extremely hard.

There tends to be a looking down the nose from a tech-startup mindset to the Main Street small business as if to say we’re not part of that group.

Paul Graham of Y Combinator just wrote an essay, which basically threw everybody else off the bus and said the only people that matter are high-growth tech entrepreneurs and I can’t disagree more. I think that when you stop breathing your own air here (Silicon Valley), you realize that 50 percent of non-governmental employees are small businesses. They make up 99.7 percent of all companies in the United States and not thinking of them as entrepreneurs is actually a drag on our economy. Here’s the big idea: once we’ve cracked the code for entrepreneurship in high tech, we should use those same insights on how to build small businesses more efficiently and they’re a much bigger part of the economy. It’s that kind of a bias that to a hammer, everything looks like a nail. Tech entrepreneurship is a special case of a general class of entrepreneurship.

We’ve heard the president talk a lot about small business over the last four years, but is it just lip service?

The White House is getting better, but what’s really missing – and you’ll know if the government has gotten it – is if you go to the Small Business Administration website (SBA.gov) and what they still tell you to do if you’re going to start a small business, is go write a business plan. To me, that’s the litmus test because that’s now a fairly discredited process, at least in the leading entrepreneurial clusters in New York and the Bay Area. A business plan is the last thing you want a startup to write, yet we’re still not only requiring it for small businesses, we won’t fund you without one. A business plan is exactly like telling you to go boil water when someone’s having a baby: it’s to keep you busy, but there’s no correlation between success and your activity.

What are the steps that you’ve gone through to get to the point where you’re educating professors to teach your “Lean LaunchPad” course?

The whole startup stack was us re-inventing what they’ve been doing in business schools for the last 100 years in a way that was applicable to startups. This evolved over the last decade with work from a bunch of other contributors (former student Eric Ries and Alexander Osterwalder).

Now the “lean startup” is its own buzzword and people throw it around like gospel.

I don’t think it’s gospel, but I think it has a couple key insights that are easily understood. What we got wrong for the last 50 years in entrepreneurship is thinking that startups are smaller versions of larger companies. It doesn’t matter whether that startup was a tech startup or a dry cleaner, or restaurant or database consultancy. They’re not smaller versions of larger companies. It turns out that startups do something very different in their first year or two than a large company. Large companies are large because they found a repeatable business model and they spend most of their energy executing – meaning doing the same thing over and over again. They figured out what the secret is to growing their business. But a startup in its first year or two searches for a business model. This distinction between search, for a startup, and execution, for a large company, means you do different things and therefore you need different tools, different people, different strategies and different everything. But we never thought that, we just thought they were the same. So the problem was, where do we teach how to manage and execute large companies? That’s what the curriculum of a business school was, that’s why you got an MBA. But there was no school for entrepreneurship. My stuff, Ries’s stuff, Osterwalder’s stuff is all contributing to our own school for entrepreneurship and a parallel to what we did for the MBA. When you trace back to why did we do what we were doing, it was pretty understandable because the original investors in Silicon Valley came form large companies and they had business school degrees. They did what they knew and the joke is that if your VCs were creative, they’d be the entrepreneurs. At the end of the day I sometimes need to remind my (VC) friends that they’re just a different financial asset class, they’re not the entrepreneurs. And so this innovation had to come from an entrepreneur, not a venture capitalist.

So what’s next on your agenda?

We’re going to make a major announcement with some partners probably by the middle of this month about broadening it and extending it to an even wider audience. We now have a quarterly class where we teach 60 college and university educators that want to earn how to teach it. My next areas of interest are trying to convince the government, and other governments, that small business is a place where we should be taking the same lessons learned and applying them.

What is the process that you have to go through as an entrepreneur to recognize that tipping point and to just get out?

We confuse entrepreneurs with engineers or MBAs or anything else. But when the bug hits you, the closest analogy is that you’ve become an artist. By artist I mean someone who has an itch to create. That’s what drives your passion and your vision and everything else and it makes you irrational about some of the things you do. This whole lean stuff actually works best if you’ve failed once. If you’ve failed once, you’d really appreciate the value of not just following your passion, but maybe devoting 10 percent to testing your passion before you commit three to four years of your life to it. This is even harder for great entrepreneurs, because great entrepreneurs believe all I need to do is remove the obstacles in my way to bringing my vision to life.

Whether it’s (reality TV show) Shark Tank or whatever, you see people who think they have the greatest idea ever and then VCs try to kill it and yet they’ll leave saying I still believe in it.

That true believer thing – what you’re seeing is an artist at work. And watching VCs crap on it, what you’re also watching are idiots at work who haven’t figured out that while they might have some pattern-recognition skills, the best advice they could have been giving those entrepreneurs is why don’t you come back when you’ve talked about your idea to 25 people. If you’re such a genius and your idea is correct, you should come back with 25 orders. That’s when reality starts hitting the road. It’s only after people tell you your baby is ugly that you check to make sure you’re not showing them the wrong end.

Image: REUTERS/Handout courtesy of the author.

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