There are lots of ways for a newborn business to crash and burn spectacularly. In fact, Steve Blank — serial entrepreneur and author of The Four Steps to the Epiphany — says there are probably 387 million ways to fail. But most screw-ups stem from five different sources; Blank told the audience in San Francisco on Wednesday, October 27, 2010 at “FailCon 2010”, a conference designed to embrace startup mistakes.
Here they are:
1. You’re letting your business plan dictate the trajectory of the business.
2. You assume your business model is correct.
3. You decide all the information you need to run your business is in your building.
4. You believe your mistaken hypotheses are crises.
5. You think you have all the time in the world.
If you’re guilty of one (or more) of the above five ways of thinking, you’re not thinking like a startup founder; you’re thinking like a corporate exec whose job it is to execute a business model. The problem is, your fledgling business doesn’t have a business model yet — no matter what your shiny business plan says.
Blank defines startups like so: “A temporary organization used to search for a scalable and repeatable business model.” The keyword there is search. When you’re just starting out and you don’t know much about your customers, you haven’t yet found your business model, so you have no business acting like your job is to simply execute a plan. Your job at this stage is to test and learn as much as you can (see #3) — and this means getting out of your building and going to your customers. And once you’ve learned that many of your assumptions are wrong, your job is to leverage that insight into building the product or service that your customers really want. It’s not a crisis when you find out you’re wrong (see #4). You could say, at this stage it’s your job is to fail. And fail again. And the faster you do it, the better.
When you finally do go to investors (and you shouldn’t even think about it until you’ve gone through at least 3 cycles of testing, failing, and learning), Blank suggests throwing out the traditional idea pitch in which you spend as much time as possible trying to convince them of the brilliance of your idea. Instead, give investors the this-is-what-I’ve-learned pitch. This accomplishes two things: It proves that you did a boatload of research on someone else’s dime (probably yours) and that you’re well on your way to searching for a business model that’s scalable.
Has anyone ever tried this kind of pitch with investors? Hit the comments area of my blog to tell us about your successes and failures.
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