Business Modeling and the Customer Development Manifesto

This course is based on the 'Lean Launchpad’ method developed by Steve Blank (Bio) at Berkley and perfected at Stanford. The core ideas here are the foundation of the ‘Lean’ innovation process and lean entrepreneurship movement. These tools are rapidly becoming the primary toolkit of modern entrepreneurs and corporate innovators. These methods have subsequently been adopted and adapted by universities across the country and by the national science foundation as the preferred means of creating start-ups around innovative technology. The ideas here were built upon a series of tools such as the business model canvas and value proposition canvas developed by Alexander Osterwalder and ideas and nomenclature popularized by Eric Reiss through his book the Lean Start-up.

This post is a guide to getting up to speed on lean methodology, business model development and business model validation processes.

For an introduction to lean principles and how lean differs from more traditional approaches, you should start with Steve Blank’s 2013 Harvard Business Review Article: “Why the Lean Start-up Changes Everything."

There are a couple of core principals that underly everything we do:

Waste, for a resource limited start-up that is trying to find its business model (before running out of time or money), is developing a product or building a business that no-one ultimately wants. This happens all the time. Businesses tend to be built, particularly initially on the strength of the founder’s, or lead innovator’s vision. A certain amount of start-up success is seeing something that others failed to see as an opportunity and having the force of will to capitalize on it. Technical founders and innovators tend to also be close to the product and generally believe that, like Kevin Costner in "Field of Dreams," if you build a great (dare say ‘perfect’) product, “they will come." The challenge with this approach is that it doesn’t spend a lot of time and energy figuring out what the customer actually wants, or more specifically how the new product integrates into their life. Sometime the visionary gets this right (see: Steve Jobs); Most of the time they don’t and this leads to a scramble to figure out the problem and build the right thing, before the resources run out. Traditionally, large companies, built predominantly around the principles of executing on a known business model, suffered from the opposite blind spot. Large companies are designed to listen closely to customers, particularly large important customers or large blocks of consumers, and do exactly what they tell them to do. This often misses critical innovation because it is generally not the customer’s job to tell you how to build a better business or a better mousetrap. This can be dubbed the 'Ford paradox’ based on Henry Ford’s famous quote:

“If I had asked my customers what they wanted, they would have told me a faster horse." —Henry Ford, Founder Ford Motor Company.

Large companies tend to do well with incremental innovation: the faster horse; But struggle with disruptive innovation: the ‘car' that accomplishes the job of the horse, but in a fundamentally different way. Entrepreneurial companies of which Ford Motor Co. was one, tend to be better at capitalizing on disruptive innovation. They often do this by leveraging new technology, typically behind the scenes, to fundamentally change the business model behind delivering a particular outcome. In Ford’s case, this was the conveyer belt and automated production line/production system that made faster and more comfortable car based transportation cheap enough to displace the heavily entrenched status quo (horses) and over come critical limitations like lack of gas delivery infrastructure and both real and perceived safety concerns.

Ford did this, like most innovative companies, by initially focusing on perfecting a product for a small niche market (rich hobbyists) that valued speed, comfort, and in this case, cool sufficiently to buy a high priced item and then either outright ignore or create their own hacks (dedicated drivers, own fuel supply) to overcome limitations. Ford then had the opportunity to leverage cash flow from early customers to figure out and implement the innovations and systems necessary to bring his product into the main stream.

"Because starts ups are not smaller versions of large companies (and optimizing for “search" is not the same as optimizing for “executing on a known business model") start-ups require a different set of tools centered around the core activity of search." — Steve Blank

"Search tools" aka Lean (Launchpad) methods blend the development of a vision for technology enabled disruption with a scientific method approach building the product and wrapping it in the business model that the customer actually wants. It focuses on early niche customers with the goal of getting established in a niche market where one can then implement the innovations and build the systems, to the bring innovation to a mainstream market. Search focuses on rapid iteration by developing products and hypothesis about the business model in small “testable" cycles and then responding to customer feedback to eliminate ‘waste’ at the lowest value stage. Done effectively the Lean process blends the way that effective large companies listen and respond to customers with the entrepreneurial vision to se the gaps in a market place, the underserved (or over served) customers, and the way that a new technology might enable a radical business model that could (eventually) change an industry. Long story short, Lean helps a founder or innovator build the innovative product and wrap it in the business model that the customer actually wants (…and will pay for).

Here are some required and recommended resources for you to become an expert in Lean methods:

This is your opportunity to learn lean methods directly from the source. Spend some time working through the resources above and you will be on your way to becoming an expert in lean methods.