70,000 Tests Later, Steve Blank Knows How Your Startup Might Fail

There is a giant experiment happening out there in Startup-land. And it’s somewhat of a secret.

“We’re collecting data on Evidence Based Entrepreneurship”, says Steve Blank proudly when being interviewed by Jim Hornthal for Startup Grind 2014. With over 3000 teams who have documented more than 70,000 hypotheses, there’s enough data to test the actual effectiveness of the Lean Startup methodology. Drawing parallels with NASA’s Technology Readiness Level (TRL) to establish common standards, meaningful terminology and shared understanding between different organizations working on components for NASA’s space rockets to determine readiness of a spacecraft, Steve wonders, “Why don’t we apply this to Startups and create an Investment Readiness Level?”

Having founded several startups throughout his career as an entrepreneur, Steve now teaches other entrepreneurs how to succeed. Steve is the creator of the Lean Startup idea and he has authored books on building early stage companies, like “Four Steps to the Epiphany” and “The Startup Owners Manual”.

In response to what a Lean Startup means to him, Steve explains, “For me, Lean starts with a notion of framing all your hypotheses. The sum of three things, Business Model Canvas, Customer Development and Agile Engineering can be called the Lean Startup”.

How The Lean Startup Continues to Change Everything

“A guy named Alexander Osterwalder came up with something called a Business Model Canvas and he managed to take 450 pages of somebody else’s textbook and put it on ONE slide”, says Steve Blank, visibly impressed. Alexander Osterwalder might have come up with a Business Model Canvas that asks who your customers are, what are you building, who are you building it for, and other essential information like the right channel, revenue, partners, resources, activities and costs, but that by itself is not enough. The crucial missing piece is Customer Development and this is where Steve jumps in with enthusiasm. Customer Development forms the cornerstone of the Lean Startup idea which was developed, evangelized and taught by Steve. His student Eric Ries went on to write a bestselling book of the same name, "The Lean Startup".

Buzzword or not, “Lean” has been on everybody’s mind in recent years, it’s probably tattooed on everybody’s shoulder in Silicon Valley by now. For every startup, it is important to figure out your value proposition (what product or service you are building) and whether customers love it (product-market fit). If you have read one of Harvard Business Review’s most downloaded articles, “Why the Lean Start Up Changes Everything”, you already understand the theory. But how do you go about testing the hypothesis in practice?

“That is why I’m pushing the envelope for Evidence Based Entrepreneurship”, admits Steve. Advocating mentoring and guidance on the side rather than lecturing on a stage, Steve ensures that teams work with entrepreneurs and investors as mentors with the goal of helping the teams fail less. Failing less is of course great in the long run, but it is important to remember that it does not necessarily translate to succeeding more.

Lean Startups and "Trickle Up" Innovation

In a true reversal of roles, startups should feel proud that large corporations now look to them for innovative ideas, borrowing from cutting edge techniques and unique perspectives. Large companies try to do this by appointing roles such as VP of Innovation because they have realized that continuous disruption means having to deal with continuous innovation. The Lean startup idea has been working wonderfully for both large corporate companies and garage-based startups.

By putting Lean Startup theories into practice, thousands of teams have literally gotten out of the building and talked with real customers. They have used the results to update their Business Model Canvas and test their hypotheses. Out with Faith based entrepreneurship, in with Evidence based entrepreneurship.

NASA came up with TRL to formalize a way to assess project maturity and quantify risks. We could measure early stage ventures on things that actually move the needle like trajectory, velocity and evidence. We already have data on thousands of teams. The next step is to have a set of common heuristics to measure and think about startups.

We now know why startups fail. Setting aside outlier contingencies, startups don’t fail because of uninspired font, white socks or a bad demo. We know they fail because of failed product market fit. They fail because their startup was based on hypotheses that did not pass the real world test. The old way of failing fast would be to pivot by firing executives who would each come in with their own strategy and try to make things work. A Lean Startup allows pivoting on the idea itself when needed. If an early stage venture is stuck on an idea and is failing to execute, they will go from failure to failure resulting in an infinite loop. It’s ok to consider that the hypothesis of some key elements of your business model might be wrong, and chuck the idea itself. Pivot and try something new while adhering to the principles of the Lean Startup.

"We have tangible data-driven checklists that we can use to determine exactly why a startup might fail", says Steve confidently. And the big idea is to use that checklist to help startups fail less.

Perhaps then the startup can focus on succeeding more and that will make all the difference.