The NFX Podcast

Steve Blank on "Don't Waste A Good Crisis"

Episode Summary

Speed is often the secret weapon, especially when adjusting to and tackling a crisis. Credited with launching the Lean Startup movement, eight-time entrepreneur-turned-educator Steve Blank joins NFX partner James Currier and shares counterintuitive advice for how startups should be thinking right now. Steve says "don't waste a good crisis" and discusses how to find opportunity in disruption. He's changed how startups are built, how entrepreneurship is taught, how science is commercialized, and how companies and the government innovate. Startups specifically need to speed up and put the pedal to the metal. It’s tough love time - if anyone at your organization is still operating under the old normal, consider one of the two P’s - pivot or part ways! Listen to how Steve breaks down how Founders can navigate an extended crisis and why now is the time to innovate. Read more at -

Episode Transcription

James Currier (00:00):

So Steve, you are a Stanford professor, you're a senior fellow of entrepreneurship at Columbian, and largely, I think we all know you as one of the fathers of modern entrepreneurship. You came up with the customer discovery methodology and really gave birth to the lead startup methods that we've seen from Eric Reese and other people you've collaborated with. How entrepreneurship is taught has really changed under your watch over the last few years. You were raised in New York, live in Pescadero and one of the foremost thinkers about innovation on the West Coast, and just incredibly grateful to have you here. The last time I think we saw each other was at a dinner at Avia with Gigi Levy Weiss, my partner.

Steve Blank (00:37):
When people were actually having dinners in restaurants.

James Currier (00:40):

That's right. And so, let's just jump right in because there's so much to be learned here. But in this new remote digital world, how do you think startup formation changes? Is there anything that you're noticing in terms of how you think the startups should be acting right now to get going?

Steve Blank (00:55):

I think number one is figuring out what the new normal looks like because that affects what your business model is. And what I remind people is if your business model looks the same as it did the 1st of March, either you were one of the luckiest people on the face of the earth, or you've been hiding under a rock, one of the two. And I'd be saying, "Check with your investors to see if they agree." Number two is if you're building your product for some startups, "Oh, I can't talk to anybody. Therefore, I could just go and build the product. No customer discovery." I've actually found the opposite is true. Customer discovery is a lot easier right now and so is early sales. At least early sales calls, is that people are at home. They are no longer surrounded by a series of gatekeepers like admins and secretaries and whatever. Some of them are happy to be like, "Dear, you deal with the kids," and she hands the kids to the husband and she'll take the call, right? You can now get to VPs.

Steve Blank (01:49):

I spend a good chunk of my time now consulting for the largest corporation in the world, which is Department of Defense and I can now get on the phone to four-star generals who are wearing their t- shirts and whatever. Usually you had to talk to three colonels and an assistant to get to their scheduler. You could get to CEO's of major corporations. As I said, though, what becomes harder is if you want to do serious deals versus demos and trials. And if you're trying to close hundred thousand, six or seven digit orders, that's a lot tougher. It doesn't mean it's impossible. But again, that connection is missing. And also large enterprises are less amenable to spending cash right now until they understand what their future looks like and their customers.

Steve Blank (02:31):

But, almost everything else, B2C is a lot easier. People are at home, they're spending money, at least those who are employed. We have a 15% unemployment rate in this country as of this podcast. So we got to take into account a large chunk of who would have been our customers are no longer there. But I think for startups it's time to rock and roll. And if you're making a list of excuses, other than you're out of cash, I'd be putting the pedal to the metal. And let me go back to that question again, one more

piece. It might be that your existing head of sales or existing head of marketing is still living in the pre- pandemic world. And by now they should have either pivoted or you need to part ways. So that's the two P's rather than the three D's, pivot or part ways.

Steve Blank (03:20):

If somebody is still saying in marketing, "I need to run the same campaign as I did before," time out. And if I'm a VP of sales, who's giving you a forecast that's just heading downward because, "Oh, we can't make personal sales calls anymore," yeah. I can understand that efficiency has gone down dramatically, but don't tell me you're doing the same process that you were doing before.

James Currier (03:43):
Yeah. People have to adjust psychologically and emotionally to the new state. If they can't, then they

shouldn't be in a startup.

Steve Blank (03:49):

Here's the other piece of that. You just said something wonderful and I want to at least make everybody feel both good and bad on what you just said. People compare to what's going on. In fact, it was Ben Horowitz who I love, but he uses the phrase war time versus peace time CEO and says, "Gee, we're now in wartime." Having been in one, I got to say, it's a little disservice to people who serve because in wartime, if you fail, it's not measured by whether you missed your numbers or you lose your corner office. You measure failure by KIAs. On the other hand, what's also unfair, it's unfair to start up CEO's because if you're in the army or marines, you spend your career mostly training for the fight. You're running battlefield drills all the time. You were assuming that you were about to hit something head on and you train that it will be chaos and uncertainty and whatever.

Steve Blank (04:38):

Not, "Oh, okay. We're on step 23. Revenue goes up to the right." So while it's unfair to say, "It's just as easy as being a wartime CEO, it's also unfair to start up and corporate CEOs who haven't trained for the fight. People didn't sign up for chaos and uncertainty at this level, the government didn't. And we're seeing how some of them do well or not, state and local federal. And we're seeing how some people rise to the occasion. The point is, is that after some period of time, you either need to step up to the fight or the fight will take over your business and you will fail. And if you're on the other side as an investor, you can't let that happen. You have to, in fact, replace wartime CEOs with people who can deal with the fight.

James Currier (05:24):
It's about that flexibility, that mental pliancy that we all need in order to adjust to any startup situation,

and in particular, this massive dislocation of the pandemic.

Steve Blank (05:36):
Yeah, this is disruption with a capital D. We've talked about it and now we're all living it.

James Currier (05:40):

And you and I talk a lot about speed is often the secret weapon. And you wrote that to adjust and tackle an acute crisis, speed is the key ingredient. So, an acute crisis is now turning into a persistent crisis,

right? It's months and months and months. Do you think anything changes using speed as a tool with startups? How do you think about speed now?

Steve Blank (06:02):

When I was writing about this in the beginning of March, it was like, "Hey, the world is over. I know it was fun, with infinite capital and everything looked like this, and people would give you money. That's over, take some action. Don't sit around." That's what I meant about speed and urgency. And hopefully the survivors have [crosstalk 00:06:20] cuts and turned down burn rates and whatever. And now I'll also suggest it's time for speed again. That is, I'll contend, it's not time for hunkering down, but we are going to go into a different recovery then back to normal.

Steve Blank (06:34):

So now the speed and urgency again is okay, what's your model for an extended recovery? That's not the same model as an extended shelter in place. And then, pick your community. Maybe your community is still sheltering in place. Okay, so you continue that, but we could see states and cities and localities are doing limited openings. I'll go back to what's that new configuration, again. So it's time to pivot with speed again, to figure out what the new normal is, how to get business and survive and ultimately how to grow and take advantage of it.

James Currier (07:07):

Do you have a feeling, I think you might have said this, that startups should run like benign dictatorships? For those that are not, you were a serial entrepreneur, you were involved in eight different startups. You've gone through this road a number of times, you wrote the book The Four Steps to Epiphany, your insights about how that company Epiphany did really well and how it came to be. And it was read by many, many people. For those who haven't read those books, you should pick them up.

Steve Blank (07:30):

Yeah. It's when dinosaurs ruled the earth is when I was an entrepreneur. Most startups, not most, but a good number of them, when times were good, really liked this collaborative, open relationship. We have Friday beer bashes, we listened to everybody's input. We protect everybody's sensitivities. We go out of our way to make everything conflict free. And when you have infinite cash and infinite time and infant whatever, and we don't make decisions before everybody buys in. And we make sure everybody is respected. Well, that's fine until the engines are on fire and the wing's about to fall off and the plane is heading like this. Somebody has to be in charge. And, by the way, if I'm smart, as the leader of this activity, I will tap into the collective wisdom of everybody about, "Are there some business ideas I'm missing," et cetera. But why don't we make decisions?

Steve Blank (08:24):

We're now in survival mode and in survival mode, it is not a collaborative. We don't have time. It's not that I don't respect you. It's not whatever. But if we debate which way that point the ship as we're heading down, we're all going to die. Metaphorically as a company, we're going to just run out of cash and go out of business and we're all going home. And so what I mean about benign dictatorship is, I'm sorry to hurt your feelings, but I've heard you. And now we've made a decision and here's where we're going. And by the way, if you're unhappy, guess what? 15% unemployment, you could join them too. But there are lots of people who would like your job. And by the way, if you're going to continue with a bad attitude, I will remove you from this company.

Steve Blank (09:05):

And that's going to be hard for a lot of employees. And it's also hard for leadership to realize, this is not the time for, if we're interested in speed and urgency and everybody moving in the same direction cohesively, we just don't have the time or bandwidth for this. We can come back to this, hopefully that is the military dictatorship will give rise again to civilian leadership when this is over, but it's the least efficient way to run a company. And maybe there are some who have figured it out, who figured out how to do it and still have everybody sing kumbaya. But I don't think so. On a battlefield, you don't take a poll of, how does the squad feel about like taking the next objective?

James Currier (09:46): Right, right.

Steve Blank (09:46): We're all doing it, guys.

James Currier (09:49):

I think if you read Plato's Republic again, you'll notice that he says the benign dictator is the best form of government. The problem is when dictator's son takes over and he's not that great of a person or the daughter takes over and forget it. So I guess the other thing is, I was looking the other day, at your secret history of Silicon Valley, which is a fantastic video talk you've given. And in it, you asked this really pressing question because you had pointed out that the foundation of Silicon Valley came from crisis that drove the military industrial complex to put a lot of money and people here in the Valley to solve a crisis need, primarily in the cold war. And then that gave way over time to the profit motive. And now we've gotten into this profit cycle and Silicon Valley, probably about 15 years ago just started talking about money, money, money.

James Currier (10:37):

And prior to that, there was a time where it was a balance between product and profit. And then you said, is there another crisis that will restart the Valley's cycle of innovation? How do you think that the cycle of innovation has stalled, really? And do you think there is going to be a crisis that we'll get back to that will mobilize us in a new direction or a different way?

Steve Blank (10:57):

That's a great question. I've been thinking about that a lot. Been thinking about that with my work with the department of defense, I'm thinking about it with my work with large companies, and obviously my fingers and teaching my students and startups as well. In the 20th century, by accident, this country had a national industrial policy that was driven by venture capital that was aligned with the country's needs. Hard to imagine now, but VCs invested in both tech, hardware and software, and life sciences, same firm. Then things got so specialized that almost every VC firm now, few exceptions, they don't even know where the life science folks live, even though they might be across the hall or in South San Francisco. And that's just the investors. And what happens post 1995 when Netscape went public and then accelerated in the first bubble and certainly accelerated 10 years ago is venture capitalists decided that social media was like a gold mine.

Steve Blank (11:55):

Initial dollars investment was incredibly low, even though you might've needed hundreds of millions of dollars for scale. It didn't require tens of millions of dollars to ship a hardware product or something as difficult as semiconductors or super computers or anything else. And so all of a sudden, the needs of national interest versus the profits that could be made, pulled investment away from what I consider were the national entrance. It wasn't that the life science folks weren't still investing. They were making a ton of money and in therapeutics and devices and diagnostics, and maybe this small overlap with tech and digital health, but at least for the traditional tech and hardware stuff, most of those dollars now no longer went to what I thought was hard tech, the things that national science foundation made, it went from largest profit.

Steve Blank (12:43):

And because the phrase national industrial policy is the third rail of the United States, there is no way politically, it's like saying let's reintroduce the draft. Those are two things you don't say, even though I think people would support some kind of natural service. I also think people should probably support some kind of national industrial policy not forcing VCs to where to invest, but actually giving them huge incentives. If we had an opinion of what would be in the country's interest.

James Currier (13:07):

Well, I think I was really driving at the fact that there's two motivations to innovate, right? If you have enough fear of the Russians, you are willing to try all sorts of things. If you have a great desire for profit, you are also willing to try a great many things. Other than that, you're going to stay in some sort of comfortable, unanimous opinion, consensus type behavior that we see in large corporations and in large parts of the government and whatnot, and the Silicon Valley has been for a while now, the crazy uncle in the garage where we do stupid things. And one out of 20, one out of 50, those stupid things turn into something wonderful. And there's a culture around that and methodologies.

James Currier (13:47):

But there are these two motivations crisis and profit, and it's been profit for quite some time. And I'm wondering if the pandemic or something else might create a crisis motivation for us to innovate and shake things up a little bit so that we see more progress faster.

Steve Blank (13:59):

So now you're going to get into personal and political opinions. I'm going to try to stay away from at least the political stuff, but it's involved here. You mentioned Russia. When we competed with the Russians in the cold war, it was pretty clear that the Russians weren't our friends and number two is that they needed Silicon Valley technology for advanced weapon systems. And in fact, what was called the opposite strategy that we used in the cold war was we actually didn't beat them with more tanks or artillery. We beat them with software and semiconductors, building the smart weapons, smart reconnaissance and stealth computing horsepower they just didn't have. And we didn't buy stuff from them. They tried to steal stuff from us. Well, fast forward today is that China is trying to turn us into great Britain of the 1950s and 60s, meaning also ran compared to the new superpower.

Steve Blank (14:48):

And they've done that with a combination of aggressive theft, aggressive growth and incredible entrepreneurship investment and talent and whatever, if you haven't been to the Pro River Valley or Northwest Beijing, yeah, they stole everything but then they figured out how to make it at a size and

scale that we haven't done since the 1950s or 60s here in the US. At the same time, China's become, and not by accident because they've had their fingers in this, a politicized issue that now sets you up for whether you're Republican or Democrat. When in fact it should be a bipartisan national issue. Does the US have any national interest? Check that box? Yes. No. Two is what are they? Three is who are we competing with? And then four is what do we do about it? And what's the role of startups and venture capital?

Steve Blank (15:39):

And again, since venture capital and startups are a completely unregulated market and are profit driven that some of their investments and some of their interests have not been in the national interest. What you probably know and I should just let your listeners know who, if any of them are interested in building what are called dual use technologies. That is products and services that could be sold commercially, but also to the military. There's a set of investors that now meet every six weeks or so called the defense investors network. That's probably now 50, 60 venture capitalists that invest in dual use companies and are interested in building the next generation of companies that actually are in the national interest. If you're building something in UAVs or something else or hardware, software, and imaging, machine learning. It's an interesting group of investors and the US government is waking up to this as well.

Steve Blank (16:31):

And entrepreneurship is springing up in all the services and combatant commands and field agencies like there's no tomorrow because all of a sudden the leadership is discovering that 20 year olds coming into the military know how to do things that look like magic to the 45 year olds. They're all computer literate. They all know how to not get online, how to hack, how to make codes, build hardware and whatever. And we finally figured out that that's an enormous resource to tap. So we're going to see some changes I think in the Valley, I think we're going to see some changes. The defense department put something called DIU, the defense investors network in place here, that basically funds and helps connect early stage companies that defense department, as a customer.

Steve Blank (17:15):

In-Q-Tel has been a venture capitalist for now two decades that funds early stage things of interest to the government scaling as well. At Stanford, we started a program called hacking for defense, which is now in 30 universities, which has our students work on serious and real problems in national defense and use the lean method to build the minimum viable products by the end of those 10 weeks. There's also a series of these things done to work on problems that scam.

James Currier (17:43):

You've written, in the end, the measure of your life will not be money or time. It's the impact you make. And so, many are former students probably reaching out to you with questions about their career paths right now. What do you say to young people who are rethinking where to put their life's energy right now?

Steve Blank (17:58):

I always think that these times, whether economic crises or unfortunately, most people go through personal crises of break up with significant others, divorces, death, new births, et cetera. They create an opportunity for reflection. Because normally, your head is down, doing your job, living your life. Things

are good. You think you have infinite time, infinite resources and you'll always be young forever and whatever, until something happens. And those crises are actually huge opportunities. And you asked me what I tell my students. Don't waste a good crisis.

Steve Blank (18:34):

It's the time to simply think. It's like working in e-commerce. What do you want to do for the rest of your life? It's okay. It's okay if you say yes, but now's the time to look around and when you go, "What else could I do?" You go, "Well, you're sitting at home, you're reading news about people in healthcare or people in education or people somewhere else. There's a ton of online classes. Maybe you ought to figure out what it's like to work in life sciences and make a contribution in diagnostics or something. Maybe you're going to reinvent school. Maybe you're going to reinvent how to deal with the less fortunate maybe you're going to do. Now's the time when you're sitting at home, staring at a screen to take stock of your life both past, present, and future, because nothing was preordained. You're master of your own fate."

Steve Blank (19:20):

If there's anybody who's a living Testament to that, that's me. By all odds, I should have not ended up where I ended up, but I just assumed that no one else was going to do it for me. And I just showed up a lot and assumed I could do whatever I wanted to do. I think that's what most people forget, is your master of your own fate. And this is the time to remember what that word carpe diem means, which is seize the day. This doesn't last forever. And so you want to make it count because you don't get it back.

James Currier (19:53):

And for talented, ambitious people, dislocation is always opportunity. And without dislocation, there's not as much opportunity for the talented, ambitious people because they're being held down by the existing systems. And so now we're having a global dislocation. And so that means that there's opportunity everywhere, not just in a particular industry or particular geography.

Steve Blank (20:12):
It's uncomfortable. It's a unsettling time, but as the opening of the book goes, it was the best of times

and it was the worst of times. And so, grab it with both hands.

James Currier (20:27):
Steve, this has been fantastic to catch up with you. Thank you for your time today. I always love chatting

with you. I hope to hear you back here again sometime.

Steve Blank (20:34):
Great. This was fun. And James, I really appreciate the opportunity to talk to you and your audience.