Steve Blank, Part 1 of 2
Steve Blank, lecturer Haas School of Business UCB. He has been a entrepreneur in Silicon Valley since the 1970s. He has been teaching and developing curriculum for entrepreneurship training. Built a method for high tech startups, the Lean LaunchPad.
Speaker 1: Spectrum's next.
Speaker 2: Okay.
Speaker 3: [inaudible].
Speaker 1: Welcome to spectrum the science and technology show on k a [00:00:30] l x Berkeley, a biweekly 30 minute program bringing you interviews, featuring bay area scientists and technologists as well as a calendar of local events and news [inaudible].
Speaker 4: Hi, and good afternoon. My name is Brad Swift. I'm the host of today's show. Today we present part one of two interviews with Steve Blank, a lecturer at the Haas School of business at UC Berkeley. Steve has been a serial entrepreneur in silicon valley since the late 1970s [00:01:00] see if you recognize any of these companies. He was involved with Xylog convergent technologies, MIPS, computer, ardent, super Mack, rocket science games and epiphany. In 1999 Steve Retired from day to day involvement in running a company since 2002 he has been teaching and developing curriculum for entrepreneurship training. By 2011 he was said to have devised [00:01:30] the scientific method for launching high tech startups, dubbed the Lean launch pad. In part one Steve Talks about his beginnings, the culture of Silicon Valley, the intersection of science, technology, finance, and business. Steve Blank, welcome to spectrum. Oh, thanks for having me. I wanted to find out from you how it is you got started as an entrepreneur. What attracted you to that?
Speaker 5: He's probably the military. I, uh, spent four years in the air [00:02:00] force during Vietnam and a year and a half in Southeast Asia. And then when I came back to the United States, I worked on a B, 52 bombers in the strategic air command. And I finally years later understood the difference between working in a crisis organization, which was in a war zone where almost anything was acceptable to get the job done versus an execution organization that was dealing with mistakes. Men dropping a 20 megaton nuclear weapon where you process and procedure was actually imperative. And it turned [00:02:30] out I was much better in the organizations that required creativity and agility and tenacity and resilience. And I never understood that I was getting the world's best training for entrepreneurship. I went back to school in Ann Arbor and managed to get thrown out the second time in my life out of University of Michigan.
Speaker 5: I call that the best school I was ever thrown out of a Michigan state was the next best school where it was a premed. And then, um, I was sent out to silicon valley. I was working as a field service engineer and what I didn't realize two years later was 16% [00:03:00] startup to bring up a computer system in a place called San Jose. And San Jose was so unknown that my admin got us tickets for San Jose, Puerto Rico until I said, I think it's not out of the country. I came out there to do a job to install a process control system. I thought it was some kind of joke is that there were 45 pages of advertisements in the newspaper at the time for scientists, engineers, et cetera. And I flew back and quit, got a job at my first startup in Silicon Valley [00:03:30] and subsequently I did eight of them in 21 years.
Speaker 5: What were some of the ones that stand out out of the eight? You know, I had some great successes. There were four IPOs out of the eight, I'd say one or two. I had something to do with the others. I was just kinda standing there when the safe fell on the guy in front of me and the money dropped down and I got to pick it up. But honestly, in hindsight, and I can now say this only in hindsight, I learned the most from some of the failures though I wouldn't tell you why I wanted to learn that at the time, but failing [00:04:00] and failing hard when it was absolutely clear it was your fault and no one else's forced me to go through the stages of denial and then blame others and then whatever. And then acceptance and then ultimately kind of some real learning about how to build early stage ventures.
Speaker 5: You know, I blew my Nixon last company, I was on the cover of wired magazine and 90 days after the cover I realized my company was going out of business and eventually did. And I called my mother who was a Russian immigrant and every time I spoke to my mother I [00:04:30] had to pause because English wasn't her first language. And you know, I'd say something and pause and then she'd say something back and pause. And whenever I said, mom, I lost 35 million hours, pause. And then she said, where'd you put it? I said, no, no, no mom, I'm calling you to tell you none of them was 30 I didn't even get the next sentence out. Cause then she went, oh my gosh, she wants $35 million. We can't even change your name. It's already plank. And then she started thinking about it and she said, and the country we came from [00:05:00] is gone.
Speaker 5: There's no fast to go. I said, no, no mom though. What I'm trying to tell you is that the people gave me $35 million, just give me another $12 million to do the next startup. And it was in comprehensible because what I find when I talked to foreign visitors to silicon valley or to any entrepreneurial cluster, you know, we have a special name for failed entrepreneur in Silicon Valley. Do you know what it is? Experienced? It's a big idea in the u s around entrepreneurial clusters, failure equals experience. [00:05:30] People don't ask you if you change your name or have to leave town or you're going to go bankrupt, et cetera. The first thing your best friend will ask you is, so what's your next startup? That's an amazing part of this culture that we've built here and that's what happened to me. My last startup, I returned $1 billion each to those two investors and it's not a story about me, it's a story about the ecosystem that we live in that's both supremely American and supremely capitalists, but also Sir Pulliam clustered in just [00:06:00] a few locations in the United States where there are clear reasons why one succeeded to some fail.
Speaker 5: You know, when I retired from my last one, I decided that after eight startups in 21 years, my company was about to go public and my kids were seven and eight years old at the time and luckily we had children when I was in my late thirties and so therefore I got to watch people I admired incredibly at work, watch how they dealt with their families. And what was surprising [00:06:30] is that most of them had feet of clay when it came to home. They basically focused 100% of their efforts at work and as their kids grew up, their kids hated them. I kind of remember that in the back of my head, and so when I had the opportunity to retire, I said, I want to watch my kids grow up. And so I did. And that's a preambled answer your question. That's at the end.
Speaker 5: For the first time in my life, my head wasn't down completely inside trying to execute in a single company. I had a chance to reflect on [00:07:00] the 21 years and believe it or not, I started to write my memoirs and I got, you know what I realize now in hindsight, it was actually an emotional catharsis of kind of purging. What did I learn? And I asked, it was 80 pages into it writing. He was a vignette and I would write lessons learned from each of those experiences and what I realized truly the hair was standing up and back of my neck. On page 80 there was a pattern I had never recognized in my career and I realized no one else had recognized [00:07:30] it either and either I was very wrong or there might be some truth and here was the pattern in silicon valley since the beginning we had treated startups like they were smaller versions of large companies.
Speaker 5: Everything a large company did. The investment wisdom was, well they write business plans, you write business plans, they organize sales, marketing and Bizdev and you do that. They write our income statement, balance sheet and cashflow and do five year plans and then you do that too. Never noticing that. In fact that distinction, and no one had ever said this [00:08:00] before, what large companies do is execute known business models and the emphasis is on execution, on process. What a known business model means is we know who our customer is, we know how to sell it, we know who competitors are. We know what pride in an existing company it's existing cause somebody in the dim past figured that stuff out. But what a startup is doing is not executing. You think you're executing. That's what they told you to go do, but reality you failed most of the time because you were actually searching [00:08:30] for something.
Speaker 5: You were just guessing in front of my students here at Berkeley and at Stanford I used the word, you have a series of hypotheses that are untested, but that's a fancy word for you're just guessing. And so the real insight was somebody needed to come up with a set of tools for startups that were different than the tools that were being taught on how to run and manage existing corporations. And that tool set in distinction at the turn of the century didn't exist. That is 1999 [00:09:00] there was not even a language to describe what I just said and I decided to embark on building the equivalent of the management stack that large corporations have for founders and early stage ventures.
Speaker 6: Mm,
Speaker 7: [00:09:30] yeah.
Speaker 8: You are listening to spectrum on k a l x Berkeley. Steve Blank is our guest. He is an entrepreneur and lecturer at the hospital of business. In the next segment of your talks about collaborating with the National Science Foundation
Speaker 9: [inaudible].
Speaker 4: [00:10:00] So when you're advising scientists and engineers who think they might be interested in trying to do a startup, what do you tell them they need to know about business and business people? Okay.
Speaker 5: It's funny you mentioned scientists and engineers because I didn't know too many years in my career. I mean I sold to them as customers, [00:10:30] but in the last three or four years I got to know some of the top scientists in the u s for a very funny experience. Can I tell you what happened? It turned out that this methodology, I've been talking about how to build startups efficiently with customer development and agile engineering and one other piece called the business model canvas. This theory ended up being called the lean startup. One of my students, Eric Reese and I had actually invested in his company and then actually made him sit for my class at Berkeley because his cofounder, [00:11:00] the lost my money last time I invested. I said, no, no, sit through my class. And of course his co founder was slow to get it, but Eric got it in a second, but came the first practitioner of customer development, the first lean startup practitioner in the world.
Speaker 5: Eric got it so much he became the Johnny Appleseed of the idea. In fact, it was actually Ericson side, the customer development. Then agile development went together and he named it the lean startup. But even though we had this theory, the practice was really kind of hard. It was like liking the furniture and Ikea until you got the pieces at home [00:11:30] and then realized it was Kinda hard to assemble. So I decided to do is take the pieces and teach entrepreneurs in a way they have never been taught before on how to start a company. Now this requires a two minutes sidebar. Can I give you? It turns out one of the other thing that I've been involved with is entrepreneurial education as I teach here at Haas, but I also teach at Stanford at UCF and a Columbia, but entrepreneurship used to be kind of a province, mostly of business schools and we used [00:12:00] to teach entrepreneurs just like they were accountants.
Speaker 5: No one ever noticed that accountants don't run startups. It's a big idea. No one ever noticed. That's the g. We don't teach artists that way and we don't teach brain surgeons that way. That is sit in the class, read these cases like you were in the law school and somehow you'll get smarter and know how to be an operating CEO of an early stage venture. Now with this, you have to understand that when I was an entrepreneur, rapacious was applied word to describe my behavior and my friends who knew me as an entrepreneur [00:12:30] would laugh when they realized that was an educator and say, Steve, you were born entrepreneur. You knew you can't teach entrepreneurship. You can't be taught. You were born that way. Now since I was teaching entrepreneurship, this set of somewhat of a conundrum in my head, and I pondered this for a couple of years until I realized it's the question everybody asks, but it was the wrong question.
Speaker 5: Of course you could teach entrepreneurship. The question is that we've never asked is who can you teach it to and that once you frame the question that way you start [00:13:00] slapping your forehead because you realize that founders of companies, they're not like accountants or MBAs. I mean they were engineers, they might be by training and background, but founders, visionaries, they're closer to artists than anybody else in the world and we now know how to teach artists for the last 500 years since the renaissance. How do we teach artists what we teach them theory, but then we immerse them in experiential practice until they're blue in the face or the hands fall off or they never want to look at another [00:13:30] brusher instrument or write another novel again in their life. We just beat them to death as apprentices, but we get their hands dirty or brain surgeons.
Speaker 5: You have, they go to school, but there's no way you'd ever want to go to a doctor who hadn't cracked open chest or skulls or whatever or a surgeon, but we were teaching entrepreneurship like somehow you could read it from the book. My class at Stanford was one of the first experiential, hands-on, immersive float body experience and I mean immersive is that basically [00:14:00] we train our teams in theory that they're going to frame hypotheses with something called the business model canvas from a very smart guide named Alexander Osterwalder. They were going to test those hypotheses by getting outside the building outside the university, outside their lab, outside of anywhere and talk. I bought eyeball to 10 to 15 customers a week. People they've never met and start validating or invalidating those hypotheses and they were going to in parallel build as much of the product as [00:14:30] they can with this iterative and incremental development using agile engineering, whether it was hardware or software or medical device, it doesn't matter.
Speaker 5: I want you to start building this thing and also be testing that. Now, this worked pretty well for 20 and 22 year olds students with hoodies and flip flops. But it was open question. If this would work with scientists and engineers, and about three years ago I was driving on campus and I got a call and then went like this, hi Steve, you don't know me. My name is heirarchical lick. I'm the head of the National Science Foundation [00:15:00] SBR program. We're from the U s government. We're calling you because we need your help. And because I was still a little bit of a jerk, I said, the government got my help during Vietnam. I'm not giving it an anymore. And he went, no, no, no, no. We're talking about your class. I went, how do you know about my class? They said, well, you've clogged every session of it.
Speaker 5: And I just tend to open source everything I do, which is a luxury I have, not being a tenured professor, you know, I, I think giving back to our community is one of the things that silicon valley excels [00:15:30] at. And I was mentored and tutored by people who gave back. And so therefore since I can't do it, I give back by open sourcing almost everything I do. If I learn it and my slides are out there and I write about it and I teach them. And so I was sharing the experiences of teaching this first class. I didn't realize there were 25 people at the National Science Foundation following every class session. And I didn't even know who the National Science Foundation was. And I had to explain what Steve, we give away $7 billion [00:16:00] a year. We're the group that funds all basic science in universities in the u s where we're on number two to the National Institute of Health, which is the largest funder of medical and research in the u s and that's great.
Speaker 5: So why are you calling? We want you to do this class for the government. I said, for the government, and I thought, you guys just fund bigger. He said, no, we're, we're under a mandate from theU s congress. All research organizations is that if any scientist wants to commercialize their basic research, we have programs called the spr and STTR programs that [00:16:30] give anywhere from $500,000 in the first phase or up to three quarters of a million dollars in phase two or more for scientists who want to build companies. Well, why are you calling me? And they're all nicely said, well thank God Congress doesn't actually ask how well those teams are doing. And I said, what do you mean? He said, well, we're essentially giving away cars without requiring drivers Ed and you can imagine the results. And I said, okay, but what did you see in what I'm doing?
Speaker 5: He said, Steve, you've invented the scientific [00:17:00] method for entrepreneurship. We want you to teach scientists. They already know the scientific method. Our insight here is they'll get what you're doing in a second. You just need to teach them how to do it outside the building. And so within 90 days I've got a bunch of my VC friends, John Fiber and Jim Horton follow and a Jerry angle and a bunch of others. And we put together a class for the national science foundation as a prototype. They got 25 teams headed up by principal investigators in material science and robotics and computer science and fluidics and teams [00:17:30] of three from around the country. And we put them through this 10 week process and we trained scientists how to get outside the building and test hypotheses. And the results were spectacular. So much so that the NSF made it a permanent program.
Speaker 5: I trained professors from Georgia tech and university of Michigan who then went off to train 15 other universities. It's now the third largest accelerator in the world. We just passed 300 teams of her best scientists. Well, let me exhale and tell you the next step, which really got interesting. This worked for [00:18:00] National Science Foundation, but I had said that this would never work for life sciences because life sciences therapeutics, cancer, dry. I mean, you know, you get a paper and sell nature and science and maybe 15 years later, you know, something happens and she, you know, what's the problem? If you cure cancer, you don't have a problem finding customers. But at the same time I've been saying this, you CSF, which is probably the leading biotech university in the world here in San Francisco, was chasing me to actually put on this class for them. And I kept saying, no, you don't [00:18:30] understand.
Speaker 5: I say it doesn't work. And they said, Steve, we are the experts in this. We say it does. And finally they called my bluff and said, well, why don't you get out of the building with us and talk to some of the leading venture capitalists in this area who basically educated me that said, look, the traditional model of drug companies for Pharma has broken down. They're now looking for partnerships, Obamacare and the new healthcare laws have changed how reimbursement works. Digital health is an emerging field, you know, medical devices. Those economics have changed. So we decided [00:19:00] to hold the class for life sciences, which is really a misnomer. It was a class for four very distinct fields for therapeutics, diagnostics, devices, and digital health. How to use CSF in October, 2013 is an experiment. First we didn't know if anyone would be interested because I know like the NSF, we weren't going to pay the teams.
Speaker 5: We were going to make them pay nominal tuition and GCSF and we were going after clinicians and researchers and they have day jobs. Well, surprisingly we had 78 teams apply for 25 slots and we took 26 [00:19:30] teams including Colbert Harris, who was the head of surgery of ucs, f y Kerrison, the inventor of fetal surgery. Two teams didn't even tell Genentech they were sneaking out at night taking the class as well. And the results, I have to tell you, I still smile when I talk about this, exceeded everybody's wildest expectations such that we went back to Washington, took the results to the National Institute of Health and something tells me that in 2014 the National Institute of Health will probably be the next major government organization to adopt [00:20:00] this class in this process. Again, none of this guarantees success and these are all gonna turn into winners. What it does is actually allow teams to fail fast, allows us to be incredibly effective about the amount of cash we spent because we could figure out where the mistakes are rather than just insisting that we're right, but we now have a process that we've actually tested.
Speaker 5: Well, I got a call from the National Science Foundation about six months ago that said, Steve, we thought we tell you we need to stop the experiment. And I thought, why? [00:20:30] What do you mean? Well, we got some data back on the effectiveness of the class. He said, well, we didn't believe the numbers. You know us. We told you we've been running this SBI our program for 30 years and what happens to the teams who want to get funded after? It's kind of a double blind review. People don't know who they are. They review their proposals and they on average got funded 18% of the time. Teams that actually have taken this class get funded 60% of the time. I thought we might've improved effectiveness 10 20% but this is a 300% [00:21:00] now let's be clear. It wasn't. That was some liquidity event mode as they went public.
Speaker 5: It was just a good precursor on a march to how much did they know about customers and channels and partners and product market fit, et Cetera, and for the first time somebody had actually instrumented the process. So much so that the national science foundation now requires anybody applying for a grant. It's no longer an option to get out of the building and talk to 30 customers before they could even show up at the conference to get funded. That was kind of the science side and that's still going on and [00:21:30] I'm kind of proud that we might've made a dent in how the government thinks for national science foundation stuff, commercialization and how the National Institute of Health might be thinking of what's called translational medicine, but running those are 127 clinicians and researchers through the f program was really kind of amazing.
Speaker 2: [inaudible] [inaudible] [00:22:00] [inaudible]
Speaker 8: spectrum is a public affairs show on k a l x Berkeley. Our guest is Steve Blank electrode at UC Berkeley's Haas School of business. In the next segment, he goes into more detail about the lean startup, also known as the lean launchpad
Speaker 2: [00:22:30] [inaudible] [inaudible]
Speaker 4: with your launchpad startup launchpad. Is that,
Speaker 5: well, there's two things. The class is called the lean launchpad lean launch and the software [00:23:00] we built for the National Science Foundation and now we use in classes and for corporations it's called launchpad central. We've basically built software that for the first time allows us to manage and view the innovation process as we go. Think of it as salesforce.com which is sales automation tool for salespeople. We now have a tool for the first time for entrepreneurs and the people working with them and managing them and trying to keep track of them and we just crossed 3000 teams who are using the software and I [00:23:30] use it in everything I teach and dude,
Speaker 4: how long does the class take for a scientist or engineer who might be trying to think about, well, what's the time sink here? Yeah,
Speaker 5: there's a shock to the system version, which I taught at cal tech and now teach twice a year at Columbia, which is days, 10 hours a day. But the ones that we teach from national science foundation, one I teach at Stanford and Berkeley, Stanford, it's a quarter at Berkeley semester from the NSF. It depends. It's about an eight to 10 week class. You could do this over a period of time. There's no magic. [00:24:00] There is kind of the magic and quantity to people you talk to and it's just a law of numbers. You talk to 10 people, I doubt you're going to find any real insight in that data. It talked to a thousand people. You know, you're probably, if you still haven't found the repeatable pattern, probably 20 [inaudible] too many or Tenex, too many a hundred just seem to be kind of a good centroid. And what you're really looking for is what we call product market fit.
Speaker 5: And there are other pieces of the business model that are important. But the first two things you're writing at is, are you building something [00:24:30] that people care about? Am I care about? I don't mean say, oh, that's nice. I mean is when you show it to them, do they grab it out of your hands or grab you by the collar and say you're not leaving until I can have this. Oh, and by the way, if you built the right thing or your ideas and the right place, you will find those people. That's not a sign of a public offering, but it's at least a sign that you're on the right track.
Speaker 2: Okay.
Speaker 3: [00:25:00] [inaudible]
Speaker 8: be sure to catch part two of this interview with Steve Blank in two weeks on spectrum. [00:25:30] In that interview, Steve Talks more about the lean launch pad, the challenge of innovation,
Speaker 10: modern commerce, the evolution of entrepreneurship and the pace of technology. Steve's website is a trove of information and resources. Go to Steve Blank, all one word.com Steve Aalto, I mentioned the lean launchpad course available
Speaker 2: on you, Udacity. That's you. [00:26:00] udacity.com
Speaker 8: spectrum shows are archived on iTunes university. We have created a simple link for you. The link is tiny url.com/k a l ex spectrum
Speaker 2: [00:26:30] [inaudible].
Speaker 10: Now a few of the science and technology events happening locally over the next two weeks. Naoshima joins me for the calendar.
Speaker 1: Dr Claire Kremen. Our previous guest on spectrum is a professor in the Environmental Science Policy and management department at UCB. She is the CO director of the center [00:27:00] for diversified farming systems and a co faculty director of the Berkeley Food Institute. Claire [inaudible] will be giving a talk on Monday, March 10th at 3:00 PM in Morgan Hall Lounge. She will be talking about pollinators as a poster child for diversified farming systems. Dr Kremlin's research on pollinators has attracted national news coverage and is of great importance to California agriculture. The talk will be followed by a reception with snacks and drinks. Again, this will be Monday, March 10th at 3:00 PM in Morgan Hall Lounge.
Speaker 6: [00:27:30] Okay.
Speaker 4: The science of cal lecture for March will be delivered by Dr Troy Leonberger. The topic is genetics. The lecture is Saturday, March 15th at 11:00 AM in room one 59 of Mulford Hall. Now a single news story presented by Neha Shah
Speaker 1: just over a week ago. You see Berkeley's own. Jennifer Doudna, a professor of several biology and chemistry classes at cal, was awarded [00:28:00] the lorry prize in the biomedical sciences for her work on revealing the structure of RNA and its roles in gene therapy. Doudna will receive the Lurie metal and $100,000 award this May in Washington DC. The Lurie Prize is awarded by the foundation for the National Institutes of health and this is its second year of annually recognizing young scientists in the biomedical field. Doudna was originally intrigued by the 1980 breakthrough that RNA could serve as enzymes. In contrast to the previously accepted notion that RNA was [00:28:30] exclusively for protein production. Downness is work today with RNA deals specifically with a protein known as cas nine which can target and cut parts of the DNA of invading viruses. Doudna and her collaborators made use of this knowledge of cast nine to develop a technique to edit genes which will hopefully lead to strides in human gene therapy. Dowden is delighted by her recent recognition and confident in the future of RNA research and the medical developments that will follow
Speaker 6: [inaudible].
Speaker 10: [00:29:00] The music heard during the show was written and produced by Alex Simon.
Speaker 7: Thank you for listening to spectrum. If you have comments about the show, please send them.
Speaker 9: All [00:29:30] right. Email address is spectrum to firstname.lastname@example.org join us in two weeks at this same time. [inaudible].