Steve Blank and Bob Dorf wrote The Startup Owner’s Manual, Vol. 1, as “a step-by-step how-to guide that details the process for building a successful, profitable, scalable company” (vii).
Successful. As entrepreneurs, that’s what we are looking for. We want our companies to be successful by whatever measure seems right to us. It may be the freedom or lifestyle it affords us, it may be the social impact, it may be the legacy. For me, I want all three.
Profitable. We want our companies to be profitable, because eking out a living isn’t worth the massive investment of time, energy, and money that are required to build a company. My CPA friend Mark used to always tell me if I am not getting a double digit return for my efforts, I should close up shop and work for someone else.
Scalable. We want our companies to be scalable because that is the best way to ensure their continued growth and prosperity. According to Investopedia, “[i]n the corporate sense, a scalable company is one that can maintain or improve profit margins while sales volume increases.” Of the dozens of startups I have observed or worked with, scalability seems the most difficult trait to build into a company. If I am the only one who can do the important work in my business, my business isn’t scalable, and it can only grow to the extent that I can manage it. To be honest, the lack of scalability almost killed my first company. And by that, I mean it almost killed me.
Successful. Profitable. Scalable. That’s not all we want, of course, but it’s a good start. If you are considering starting a company, or if you’ve started a company and it just doesn’t seem to be working, you need to read this book.
The Preface—Highlights and Insights
In the preface, Blank and Dorf provide a very brief overview of the history of modern companies, modern education and modern management. For most of the 20th century, entrepreneurs struggled to adapt things learned in MBA programs (strategies and tactics based on what worked for big businesses) and apply them to startup companies. Unfortunately, that’s a recipe for disaster, as you may know if you’ve tried that yourself. I did. I read books by Thomas J. Watson, Jr. (IBM) and Alfred P. Sloan (General Motors) and tried to extrapolate principles to help me build my little 6 figure business. Even when my business grew to 7 figures, it never resembled IBM or GM, and what worked for them wasn’t that helpful for me.
To some extent, I still see this happening today, even though by now we should know better. For example, the Small Business Administration has an article on their website called “10 Steps to Starting a Business.” The SBA’s first recommendation is to write a business plan. That’s good advice, but as Blank and Dorf state emphatically, “no startup executes to its business plan” (xiii). In fact, if you try to execute your business plan as written at the beginning, you are almost certainly doomed to fail.
What works for Ford and McDonald’s will rarely work for your startup. The reason is that “startups are not simply smaller versions of larger companies… Startups operate in ‘search’ mode, seeking a repeatable and profitable business model” (xiv, emphasis mine). By definition, a startup doesn’t know all the right questions and doesn’t have all the answers, so you cannot apply the standard, established business answers to those questions. You don’t know what your repeatable and profitable business model will be when you write your business plan, and you have to stay flexible enough to prevent your business plan from overwhelming the evidence in front of your face. It sounds obvious, but it isn’t. Many startups stick to their business plan religiously, only to see their businesses go down in flames.
Fortunately for those of us who are startup founders, a new science of entrepreneurial management has arisen, and this new understanding has resulted in a radically different process for launching a new company. One of the pillars of this new management approach is the Customer Development process that Steve Blank described in his book The Four Steps to the Epiphany. We will discuss the specifics of the Customer Development process in future blog posts, but in a nutshell the Customer Development process is a method of searching for the business model that will actually work.
The lack of a robust Customer Development process has resulted in the death of many a startup owner’s dream. We think we know what the customer wants and build a company to meet that want, only to find out they didn’t want it or that our business model couldn’t meet their want in a profitable and scalable way. In the 10 years since Blank introduced the Customer Development process, more entrepreneurial management research and insight has evolved, and the Customer Development process is now combined with agile development, business model design, lean user interface design, etc. I know that sounds like a lot of business speak, but we will make sense of it all as we go along. And as we make sense of it, you will see how it will all help you build your business more effectively and efficiently than they old ways of building a business ever could.
Tomorrow we will talk about the Hero’s Journey and the search for a repeatable path to finding a business model that works. It gets more fun as we go along.
If you need me, drop me a line.