Entrepreneurs: Don’t let process distract you from finding the strategy

I had an important “aha” moment recently while teaching teaching an intensive five-day version of the Lean LaunchPad/I-Corps class at Columbia University. The goal of the class is to expose students to the basics of the Lean Methodology – Business Model Design, Customer Development, and Agile Engineering.

In this short version of the class, students (in teams of four) spend half their day out of the classroom testing their hypotheses by talking to customers and building minimum viable products. The teams come back into the class and present what they found, and then they get out and talk to more customers. Repeat for five days. All teams talk to at least 50 customers/partners/stakeholders, and some manage to reach more than 100.

One of the teams wanted to create a new women’s clothing brand. The good news is that they were passionate, smart, and committed. The not so good news is that other than having been customers, none of them had ever been in the fashion business. But, hey, no problem. They had the Lean Startup model to follow. They could figure it out by simply talking to customers and stores that carry unique fashion brands. How hard can this be?!

By the second day the team appeared to be making lots of progress –  they had talked to many women about their clothing line and had marched up and down NY stores talking to buyers in clothing boutiques. They built detailed value proposition canvases for each customer segment (young urban professional woman, students, etc.) – trying to match customer pains, gains, and jobs to be done with their value proposition (their new clothing line.) They were busily testing their hypotheses about customer segments and value proposition, seeing if they could find product/market fit.

In listening to them it dawned on me that I had fallen victim to teaching process rather than helping the teams gain insight. I asked them to remind the class what business they were in. “We’re creating a clothing fashion brand,” was the reply.  I asked, “And how much fashion brand expertise do you have as a team?” “None, we’re using customer discovery to quickly acquire it.” On the surface, it sounded like a good answer.

But then I asked, “Has anyone on your team asked if any of your 120 classmates are in the apparel/fashion business?” After a moment of reflection they did just that, and eight of their classmates raised their hands. I asked, “Do you think you might want to do customer discovery first on the domain experts in your own class?” A small lightbulb appeared over their heads.

A day later, after interviewing their classmates, the team discovered that when creating a women’s clothing brand, the clothing itself has less to do with success than the brand does. And the one critical element in creating a brand is getting written about by a small group (fewer than 10) of “brand influencers” (reviewers, editors, etc.) in fashion magazines and blogs.

Whoah … the big insight was that how you initially “get” these key influencers – not customers or stores – is the critical part of creating a clothing fashion brand. This meant understanding these influencers was more important than anything else on the business model canvas. The team immediately added brand influencers to their business model canvas, created a separate value proposition canvas for them, and started setting up customer discovery interviews.
The lessons?

• This team was entering an existing market. (The team had already drawn the Petal Diagram mapping the competitive landscape.)

• In an existing market there is a track record for how new entrants create a brand, get traction and scale. Many of the key insights about the business model and value proposition canvases are already known.
• In an existing market, going through customer discovery (talking to customers, buyers, distribution channel, etc.) without first asking, “Are there any insights that can be gained by understanding the incumbent strategies,” can be a trap for the unwary.

Ironically, when I was an entrepreneur I knew and practiced this. When I started a new venture in existing markets, I would spend part of my initial customer discovery attending conferences, reading analysts’ reports, and talking to domain experts to understand current market entry strategies. (None of this obligated me to follow the path of other companies. At times I took this information and created a different strategy to disrupt the incumbents.) But as an educator I was getting trapped in teaching the process not the strategy.

The fashion brand team’s experience was a great wake-up call.

From now on my first question to startups in an existing market is: “Tell me the critical success factors of the existing incumbents.”

Lessons Learned

• In an existing market, draw a Petal Diagram with adjacent companies
• Focus part of your initial customer discovery on learning competitive insights.
• Describe how those companies entered the market. What was critical?

[This story originally ran on the author’s blog.]

Steve Blank is a retired serial entrepreneur-turned-educator who has changed how startups are built and how entrepreneurship is taught. He created the Customer Development methodology that launched the lean startup movement, and wrote about the process in his first book, The Four Steps to the Epiphany. His second book, The Startup Owner’s Manual, is a step-by-step guide to building a successful company. Blank teaches the Customer Development methodology in his Lean LaunchPad classes at Stanford University, U.C. Berkeley, Columbia University, and NYU. He is the architect of the National Science Foundation Innovation Corps and co-creator of Hacking for Defense, a course piloted at Stanford and now taught in 23 universities that uses Lean Startup techniques to address real-world national security problems. He writes regularly about entrepreneurship at www.steveblank.com.