Steve Blank @ VETCON2017: Entrepreneurship, Innovation & Lean Startup Method

To Silicon Valley, Steve Blank is known as "godfather," a billionaire that helped lay the groundwork for innovations that still ripple through the tech industry. For business owners across the country, he's one of the masterminds behind the "lean startup" method; a new approach to starting a company that doesn't hold it hostage to a rigid business plan, and instead fosters growth and innovation in an ever-changing environment. To his students, he's the professor that rallies and drives them to help the DoD and NSA solve some of their hardest tech problems. For the attendees at VetCon, the first "vetrepreneur" conference in Silicon Valley, he was a fellow service member and a keynote speaker on day one of the event.Steve spoke extensively on how his experiences in the Air Force during the Vietnam War prepared him for the "risky" world of tech startups - well, not too risky, because you're not going to die if your business fails. He offered pieces of wisdom and advice to his audience based on lessons he learned during his service and out in the corporate world:

Volunteer for everything.

Immerse yourself in chaos.

Eighty percent of success is showing up.

Failed entrepreneurs are experienced entrepreneurs.

Startups are fundamentally different from large companies, and they need to be run differently.

I had the pleasure of sitting down with Steve after giving his speech, and got some more details from him on the lean startup method and the future of business:

You mentioned that big businesses aren't managed the same as small businesses or startups. But, almost paradoxically, the tech industry is beginning to be just that - a big business that has to work like a small business. Can large businesses function like that?

So every large company in the United States is being continually disrupted. If you look at Macy's, Sears - things that we thought were going to be around forever - are now being... When I say disrupted, I mean, It used to be that in the 20th century a company would start and they'd go out of business in 50 or 60 years. We're talking about public companies. In the 21st century? 15 years.So now every large company is scrambling to figure out, "How do startups do it?" And how to do what's called "continuous innovation;" how do I continuously innovate? And that's what the tech companies are trying to build into their culture. And, in fact, the classic is Amazon.Amazon, at least in the 20th century, was a book company. Then movies. Then Amazon web services. Then Kindle. Then whatever. And each one of these are layering on additional new businesses, some of them destroying old ones, but some of them continually innovate.

You talked in the beginning about your service in the Air Force; how you learned to function in chaos through that service and your life prior to it. That was a major asset for you as an entrepreneur. Do you think that veterans have the upper hand in business?

So remember that veterans are a pretty diverse group, which is why I was asking, "How many of you were stationed overseas?" and whatever. So you could have spent your entire career - and I don't mean to pick on these people - running the supply room in the base PX, you know? Or at the bar at some stateside base, and spent your time smoking dope or getting drunk. You know, that's like working at Sears.But if you had some of that military experience, like being in combat or a combat situation, or being in an environment where you had to make different decisions on a daily basis, without much detail... then you actually got experience that you can't get in the civilian world. It's not that others can't be entrepreneurs, but the military allows young people to have immense responsibility in chaotic situations like nowhere else in the world.So when I was 19, I was running a shop of 18 or 20 people, with millions of dollars of equipment. I wouldn't let a 19-year-old in the room today! [laugh] And plus, it wasn't just equipment; I was responsible for getting airplanes to fly. If my stuff wasn't there, those airplanes wouldn't fly... so if you have that kind of exposure, you don't get it anywhere [else], and if you're good, you'll take that and you will plug yourself in.

Do you think that's why you're empowering the college students you have at Stanford to work with the NSA and other government agencies to help solve their tech problems?

There's a different agenda there. So when I joined the military, there was a draft, meaning there was mandatory military service. And then, because it became a very political third rail... we were fighting a very unpopular war, and we ended the draft.Well, what that means is that we've just run a 40-year science experiment on what happens when you disconnect the body populace from having any say or care about what foreign policy we have. I think that's how we've ended up in perpetual war since 9/11. And I think that's a mistake for the country. So I've always had an interest in creating some form of national service that engaged part of the country that doesn't do service.I realized that just turning my regular class on its head, and reaching out to the DoD and the intel community, we could start creating a community of national service for students who never had, and never would have had any connection with commands or agencies.[caption id="attachment_10854" align="aligncenter" width="1024"]

Audience members listen intently to Steve as he describes the Lean Startup Method (Sylvia Gaenzle)[/caption]

Your section of the Lean Startup is "Customer Development." I'm curious about that because at face value it can sound like you just get out of your office, get out on the street and start talking with people. What is it actually like in practice?

There really is a methodology. "Oh, I wrote a hypothesis down on that business model canvas." Ok. Is that a fact, or is that a religious belief? What experiments do we need to set up - do we want to run an A/B test on the web, do we want to talk to 15 people?Gee, maybe the first thing I want to find out is... whether people like my product. Well, what do I need to show them to go do that? Is it a mock up, is it a piece of hardware, is it a spreadsheet, et cetera. And before I go, what do I think is going to happen? Write down what you think is going to happen.So I have a hypothesis, I've designed an experiment, let's go out and run that test. That test is actually talking to people, and there's formal set of questions you ask and how you approach it, et cetera. Now I've got some data, but I want to extract some insight from the data. Did they just say that wanted a cheap product? Or did 49 out of 50 say they wanted a cheap product, and one said, "I'll pay you 10,000 dollars." Maybe that one piece of data is actually the insight.And then I want to go back to the hypothesis and do one of three things: I could either validate it, saying, "Boy was I smart," invalidate it, saying, "Boy was I wrong," or most likely, modify it, going, "you know, it's not everybody..." and you just keep running that loop continually. And you know what that loop is? When I thought I invented it, the loop I've just described, it's 500 years old - it's called the scientific method.

When it comes to product meeting the market, typically either the market expresses a need that the product fills, or, sometimes, a product emerges and the market responds. Is there a safer option to choose when starting a business?

There are three types of startups. One is in what we call an existing market - this is market demand. You ask people what they want, and it's usually faster in some [ways]. There's a variant on the existing market where people say 'No, I don't want better, I want it cheaper, but I'm willing to sacrifice features for that.' Nowadays you go, 'Oh, I get it, let's make it in China.' Or they might say, 'you know, I want a combination of these features,' - I call that re-segmenting an existing market.What Steve Jobs did, Elon Musk did, Henry Ford did, they created a new market. If you would have asked people, 'what do you want to do with this automobile?' they would have run away because it was noisy and made explosions and whatever. But they saw something in the future of this that the customers themselves didn't.The interesting thing about a new market is it follows a curve - we call it a hockey stick curve. Nothing happens, nothing happens, you're burning a lot of cash or whatever, and then adoption happens, and it always happens after longer than you think, but when it happens it happens very fast.So when you're doing customer discovery, you just need to ask yourself, "What type of market am I in?" And if you find that, "Oh my gosh, I'm in a new market. Oops," or, "No, I'm trying to describe this as a new market, but people are saying that it's a better version of X," don't argue with that, at least not for now. Take those orders!

Let's bring this full circle: What do you think is the biggest challenge for companies to maintain continuous innovation, and keep dynamic, agile environments?

I spend a lot of time with big companies, and, now, government agencies. And here's the interesting thing about lean, Silicon Valley innovation. If you think about the amount of effort to do a startup innovation, it's 1X. You go into a company, it's 2X harder. If you go into a government agency, it's at least 3X harder. And here's why:In a startup, if you're doing this customer discovery out of the building stuff, you're only focused on doing it out of the building. That's who you're focused on. But if you're in a company, you not only need to do this discovery with customers, now you need to do it with legal, with HR, with finance, you need to convince the operating divisions that your crazy idea should actually fit within their current plans and they should give you resources, you now need to convince your existing sales channel, your VP of sales who gets commission on selling current products that they should stop doing what they're doing and work on [your idea]. So it's 2X as hard.In a government agency, you've got one more. Who builds stuff for the government? Contractors... a contract says that I have to specify everything you're going to build for me.

And if you don't know what that is, you can't do it.

Exactly.

Last question. What didn't you talk about up there that you really wanted to talk about?

You know, just because you're a vet, it doesn't mean that you have a skill set that makes you more employable or less employable. In fact, I wish I could have done these lectures as people joined the services, and remind them what to pay attention to and learn.I'm kind of the product of a whole set of accidents, but now I can look back and say "Which part of the accidents in my military career actually made me successful?" So if I were to rewind, the time to give someone this talk is when they get to their first base. Volunteer for everything. You know, I was just a contrarian, and I wasn't afraid to do what others weren't doing. Immerse yourself in chaos - gee, that happened to be because of how I was raised, but it got me some very interesting jobs in interesting places. It's almost too late to tell these guys now.The best you could tell them, if that was your experience - for god's sake you've been trained well and you have an advantage, but it doesn't do any good to the other 85% who didn't have that experience... there's almost a version of this that could be given on military bases early on, that says you have the best opportunity - especially in Iraq and Afghanistan - hey, you're in the sh*t? No, no, no - it's training for some of the best jobs in the world, even though you don't know it.To learn more about Steve and the Lean Startup Method, visit his website. American Grit will continue to bring you exclusive interviews from VetCon2017.