Lesson: Customer Discovery Primer with Steve Blank

Step #2 Starting Up: No plan survives first contact with customers

What we used to believe for strategy is that you start any company with an operating plan and a financial model. What's an operating plan? Well, it's the business plan. And the belief was all I need to do is spend a lot of time writing this plan, and then all I need to do is execute it and somehow magical thinking said if I thought hard enough and if I was smart enough to do all the great market research in the library and looking up all the data and then put together a forecast the magic 5-year plan in the back of the business plan somehow magically all I needed to do is hire the people to execute that plan. If that doesn't sound silly to you now, don't worry because it didn't sound silly for 40 years, but we now know that's kind of ridiculous. What we now know is that no business plan survives first contact with customers. The first years on a startup is completely unpredictable. What you think you're doing on Monday turns out to be completely wrong on Tuesday, and on Wednesday, you discover something new, and on Friday, you're almost out of business, but on Monday you get sold for a billion dollars. A startup is an incredible roller coaster unpredictable series of events that there's no way you could put together in a 5-year plan. Yet somehow investors and educators thought that maybe we could just teach you how to put this all together in a nice spreadsheet. No one ever noticed that the only other people to do 5-year plans were these guys, the Soviet Union, and we kind of know how well that turned out as well. Though much like the fallacy about business plans and financial forecast that lasted for about 80 years. The good news is that we now know that business plans and financial forecast first are just as silly as it was in the Soviet Union. No business plan survives first contact with customers. This doesn't mean we shouldn't have any planning but it actually means what we need is planning before the plan and what that really means is you need to figure out how to actually do some planning and then you get to write the business plan. So I'll be clear, I'm not suggesting we never want to do an operating plan and I'm not suggesting we never want forecast but you need some real facts before you could do that and one of the ways we're going to organize our facts is with Alexander Oscar Walters' Business Model Canvas. We'll talk about this canvas in some excruciating detail in the following lectures but you should know we used to canvas for two things. One is initially we're going to use it organize our thinking about all the hypothesis about every part of our business. But second is we're going to get out of the building and actually turn those hypothesis into facts as we'll find out how to do later and then as we turn those hypothesis into facts, we'll be updating the canvas on a regular basis and it will become a scorecard-- a way to keep score for our progress of how much we've learned. So what this means is instead of writing the operating plan and financial forecast first, we're going to use the Business Model Canvas to actually capture all our hypotheses first. For the search for the business model, we're going to start with the model first and then after we find the model, we get to write it up.