Steve Blank is a Silicon Valley serial-entrepreneur and academician who is based in Pescadero, California.

Blank is recognized for developing the Customer Development methodology, which launched the Lean Startup movement. Blank is also the co-founder of E.piphany.

Blank has spent over thirty years within the high technology industry. He has founded or worked within eight startup companies, four of which have gone public.

Blank's Google Tech talk, The Secret History of Silicon Valley, offers a widely regarded insider's perspective on the emerging Silicon Valley's start-up innovation. Blank has published three books: The Four Steps to the Epiphany, Not All Those Who Wander Are Lost and The Startup Owner's Manual.

Blank teaches and writes about Customer Development and is a consulting associate professor of entrepreneurship at Stanford. He currently lectures at the Haas School of Business, University of California Berkeley, Columbia University and the California Institute of Technology (Caltech). Together with the Entrepreneurship Center at the University of California San Francisco (UCSF), he created a version of Lean Launchpad for Life Sciences and Healthcare which he taught there in the fall 2013.

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Video Transcript: Steve Blank, Entrepreneur and Author

Michael:         

(00:02) Hello and welcome to episode number 88. 88 CXOTalk. I’m Michael Krigsman and I’m here with my fabulous co-host, Vala Afshar. Vala how you doing.

Vala:   

(00:18) Michael I’m doing great.

Michael:         

(00:19) How about instead of a handshake doing a high-five, so they can hear it. Vala, we have a very distinct guest today.

Vala:   

(00:32) Yes we do Michael, an extraordinary guest, so please let’s start with the introductions.

Michael:         

(00:37) We’re here with Steve Blank, who is really one of the seminal thinkers of our time, teaching people (?) companies and build companies and do a great job at it. Steve how are you?

Steve:

(00:57) I’m great and thanks for having me and apologies for not having a video.

Michael:         

(01:08) (?) so hand crafted

Steve: 

(01:14) Even although I’m about 15 hours away from Silicon Valley (?)

Vala:   

(01:22) Well I’m glad that the telephones in Kansa are working right now. And we already have people asking questions. Hey guys, ask your questions but (?) first. So Steve, why don’t we begin by I don’t think you need an introduction but please make a quick introduction to yourself and then we’ll dive it.

Steve: 

(01:43) Sure, the traditional introduction is (? 01:49) for the last decade and a half and I ended up joining the (Air force repairing fighter planes when we were? in Asia?) and accidently ended up in Silicon Valley. Spent 21 I years in a enterprise software company where it (02:28?) 200 enterprise customers which gave me a pretty good distinction between early stage ? and corporations.

(02:40)Then I retired and started reflecting on what I learnt and ended up (02:44 - 02:58?) and the rest is kind of history.

Vala:   

(02:56) I’d like to add to the introduction just for our audience, awarder at Sanford University, teaching award in San José and ? in Silicon Valley, Harvard business review, listed with Master of Innovation. (03:11 03:15?) and we go on and on and on.

(03:32) But Four Steps to the Epiphany (?) can you share with us what is a lean start-up?

Note: I tried to hazard a guess at what Steve was saying here to 10:00.

Steve: 

(03:43) Sure when I was at Silicon Valley a start-up was nothing more than a small version of a large company. The way they were funded to operates was large companies ran five year plans ? giving you money because it was simple an execution problem. In terms of that it is far wrong that you can make something wrong. Stat ups don’t execute. Large companies execute and that’s one of their business models.

A new start-up you think you can do that on day one, but in fact, what start-ups are doing is (constricting? 04:53) the business model . (Most entrepreneurs would describe that as visionary? 04:57 – 05:07)

(05:07) The distinction between vision and ( 05:08 -  ? is whether you have ?) and this is a long way to say, that unlike an (existing ?) corporation, where your (? 05:20 – 05:55)

(05:55) We need to be thinking about what are your (research purpose model?) and the first tool which (? 06:05 -  08:14) why I should build it (?)

Michael:         

(08:15) What’s the difference between lean start up and? And company

Steve: 

(08:22) That’s a great question and I have to tell you (? 08:25 – 09:00) I have a pretty clear definition of (09:03 – 10:00)

Steve: 

(10:00) Consumers or whatever can we find more products for these known customer and can we do so by spending time with them, getting out the building and doing, what it’s called needs finding and then building it that are prototypes just like in when we start to build up customer development in will be build viable products.Can we start prototyping, until the customer is that we know raised their hand and say, boy, I would buy a lot of that.

(10:26) And so the difference is the starting point. Customer development are doing start-up, starts withproduct and technology in hand looking for customers and markets. Design thinking starts from the other end it says, no I know these customers, they’re mine. I already own them and I need to figure out what else I could sell them.

(10:45) Does that make sense so far?

(10:48) There’s one other component, which really isn’t a flaw in the design thinking but it just is. Because I invented customer development, I engineered in this notion of urgency . And by urgency I mean if you are a start-up CEO, you are waking up and going to sleep to 3 numbers, what is your burn rate, that’s how much money you are spending a month. How much cash you have left in the bank , and the exact hour, day and minute you are running out of cash.

(11:14) And by the way, the consequence of running out of cash is not trivial. You not only shut down your company, but you might be losing your house or something else.

(11:25) Therefore an integral part of customer development is that urgency isn’t just a phrase, it means that you are making good enough decisions. And by good enough decisions in customer development, you are in fact basically segmenting decisions into just two categories. Revocable decision and  irrevocable  decision ,

(11:45) Revocable decisions are made in a single meeting there is no scheduling another meeting, to have a committee to have another meeting. A revocable decision could be what order and we are doing the features, which customers do we call on first, or even what is the pricing .

(11:57) An Irrevocable decision could be are we signing a 10 year lease or are we taking money from these investors and giving away this much of our company. Those things are pretty hard to rollback. And those require may be a week worth of decision-making.

(12:13) But in a start-up under customer development the idea is speed and tempo. It is built into the process. Design thinking on the other hand, and this is not a criticism of it, it just is. you can engineer urgency into the process but in fact there’s typically no fixed deadlines, because in a large corporation maybe making mistakes can cost hundreds and millions of dollars, and therefore you want to gather enough data. And by the way, the consequences if you fail, in a large corporation you still keep your window office and your kids are still going to the same school, but maybe your projects don’t work.

Michael:         

(12:50) So Steve, linking this notion of evidence based entrepreneurship, because I know that is another element of foundation of the fabric of your thinking as well.

Steve: 

(13:03) So one of the things about the lean start-up is not only can we get out of the building, we can actually start accumulating real data and evidence very early about the decisions we are making. So when I’m talking about good enough decision-making, it’s not just based on guessing, it’s based on the fact that we are now talking to a ton of people.

(13:26) For examplewhen I teach this lean process in a class, both at Stamford and Berkley and Colombia were I teach, but also just as an aside, the class has been adopted by the National Science Foundation running as a pilot at the National Institute of Health, is the basis of commercialization of all sciencing and it states. What we do we make our teams go out of the building and talk to 10 to 15 customers a week.

(13:56) So in an eight or 10 week program they have talked to over 100 or 120 customers in an incredibly short period of time, and they’ve basically tested hypotheses and validated or invalidated them and have a ton of data points about all the components of a business model canvas. Is there product /market fit, is the business model correct, is it the right channel, have we AB test of the user interface. You know, and for medical devices do have freedom to operate, do we understand the regulatory environment have we talked to the people who are going to be reimbursing us,, and we understand clinical trials.

(14:36) All of these things are no longer theory. You can now go back to your investors, or are in a large company when this is run inside large corporations, you go back to management and say, we need more funding, becausehere is the data that we have and this might be an interesting project.

Vala:   

(14:51) So do you have to construct innovative product releases with shorter development cycles to be able to solicit the feedback, and have the agility to action your customer feedback. And ultimately, refine the product as you go?

Steve: 

(15:05)Right, in fact one of Eric Reis’ major contributions besides the others that he made was actually giving names to a lot of the pictures that I threw in the course of the epiphany. The first one, I drew this line, but he named it the pivot, and I called something the minimum featureset, which he called the minimum viable product, which is actually a much better name.

(15:25) And these are two concepts that are integral to lean. The first one says, when you get out of the building and you talk to all of these people, what really you are most likely going to find out is that your initial hypotheses are wrong.

(15:39) Now in a start-up in the 20th-century, you would find this out much later and that would then solve the problem and that would entail firing executives. That is, well sales didn’t work obviously the problem is the VP of sales. Let’s fire him or her. Then the new VP of sales would come in and say well that was a dumb strategy. He is our new strategy.

(16:00) It turns out now we make failure actually learning. That is, we assume that start-ups and new ventures go from failure to failure. That is a huge concept. We now know that is the case. You can almost count like on two fingers the number of start-ups that actually end up with their initial plan. And what you wanted to do, is to do that learning and when you make a major change to any part of the business model canvas - whether it is changing channel or customer segment etc. we have a name for that and it’s called the pivot.

(16:33) When a pivot is a substantive change to any component of the business model canvas, based on customer data – real evidence. Not one data point, but I’ve run a bunch of experiments and it turns out this is wrong, or this is wrong, or this is correct.

(16:48) Those experiments are in the form of, not only just talking to people. But iterative prototypes are almost too fancy of a word, iterative experiments in the form of could be a PowerPoint of an image of the product, it could be a wireframe. It could be a clay model of a heart valve or a catheter. It could be sampled data for a therapeutic drug, that you think you might get back from the clinical trials, and showing a potential pharma partner if I get this kind of data is its valid etc.

(17:22)  So we call these incremental and iterative prototypes, minimum viable products, and there is not just one there is a series of them and they change over time. As I said, they could just simply start with a PowerPoint or web page that says, if this is important click here, to a wireframe, to a model, to a prototype. To eventually you know, a low fidelity and a high Fidelity versions of the products.

(17:46) So your constantly iterating , there’s, no longer this version of alpha test,  beta test, first customer shift – that’s a waterfall model. We use this Agile engineering model, but we couple it with this customer development philosophy and the business model canvas and we are actually using agile engineering to test all of the hypothesis of the business.

Michael:         

(18:11) Tell us more about the lean launchpad and the National Science Foundation Innovation course, and how they are applying it. Because it seems on the surface at least, quite a big leap from talking with some small groups of founders to and now are trying to apply this on a broader scale, and basically a federal government scale

Steve: 

(18:37) People forget that at times, the federal government could be innovative or more innovative than start-ups or corporation and this is an example of that. The US government is one of the leaders in pushing the lean start-up philosophy and actually implementing it.

(18:56) What happened was the lean start-up theory was great theories. Here’s what you do and here it is on paper. But now that I’m an educator, teaching at Stanford and Berkeley, I was almost embarrassed I will still teaching. My students had to write a business plan and we kind of know now that no business plan survives first contact with customers for an early stage venture.

(19:18) I mean obviously in some point of time you need an operating plan. But a business plan, I mean is really a five-year plan of a series of unknowns, and the only people that require a five-year plan based on unknowns were the Soviet Union and the venture capitalists. And we know how well that turned out at least for want of the groups.

(19:37) But even if you said that, the challenge would have been well, what is the substitute, what should we be teaching our students. And there really was no answers so I invented one.

(19:48) I basically took the lean start-up principles; business model design, customer development, agile engineering and put together a pretty radically new Thank you Stamford for allowing me to do that in the engineering school, which said that students applied as teams, in teams of four. In fact, their application is a business model canvas filled out, and we teach them theory every week. Here is what a customer is, if he is what a value prop is. Here’s what channel is.

(20:17) But every week asking teach them that, they then need to get out of the building and talk to 10 or 15 customers to validate proposition and customer whatever. So, at the end of the class they have talked to 100 customers and partners. And the final presentation is not a demo day. A demo day is a snapshot of he is how smart I am, and here is my demo. And by the way do you like my font and by the way we’d use and adjectives and I project my voice. But it really doesn’t tell you if this scheme has actually learnt anything. Nor should it have any velocity of trajectory.

(20:52) So what we make our teams do is tell me what you thought on day one? What happened when you spoke to the first 10 or 20 people? Why did you pivot? At what was the pivot about? Then what did you do? Then what happened?

(21:07) And in fact, in the same amount of time that a demo day occurs, we actually do a lessons learned day and you learn a heck of a lot more about the team, the market, and how did they get from here to here in a single snapshot.

(21:19) So what happened was that I taught this class and decided that they were so radical, I historically, and still have open sourced everything that I did and I blogged every class session. Here are my lectures, here is the student presentations and he is whatever. What I didn’t realise that back in Washington DC, all of the commercialization program managers for the National Science Foundation were reading my blog like it was a serialized novel. Until the last class is over, I get a phone call that said, hi, we’re from the US government, we need your help.

(21:53) Now because I’m still a smart ass my answer was that the government got my help during the Vietnam War and then not getting it anymore. They said no, we are from the National Science Foundation and we’ve been for the last 30 years the Congress has mandated that we give away 3% of our budget. Our scientists, want to commercialize their activities, and thank goodness that Congress hasn’t asked what are we doing.

(22:15) Because you know, the results are worse than any venture capital return, and we are essentially giving away cars without requiring drivers in, and we are surprised that they crash. So why are you calling me? We think you have invented the scientific method for entrepreneurship. Well, what did that mean? Well Steve, you keep using the word hypothesis and that’s what scientists do in their entire career. What we realised is that you just have a message that scientists and engineers would understand in five minutes. All we need to do is train them how to do it for people that they don’t know or would be uncomfortable talking to. But the rest, they are going to get in five minutes and it means we no longer have to keep them in the dark in what makes up a company, or no longer have to try to teach them how to be MBA’s and income statements and balance sheets and cash flow when that is way to pre-mature on whether they even have a business. Help us put together this course.

(23:09) So we took my Stamford course, run a prototype and 25 teams that the NSF selected as the best scientists that they had and wanted to make companies out of their technology, and the results blew them away.

(23:22) So we scaled the program, fast forward three years. We’ve put over 700 teams through the i-core programme, 400 through the national programme and about 15 going on 20 universities teaching this with the National Science Foundation. They have put through another 300 or so regionally. And then last month our national institutes of health decided to prototype a class for health sciences therapeutic diagnostics and devices, and digital health.

(23:51)Last year at UCSF, they thought that was so interesting that we are running a pilot now inside the National Institute of health, hopefully to scale it there, and then last week, the Department of energy announced that next spring they are going to take the same process and same course, and launch it in the Department of energy to commercialize all energy, so it’s kind of interesting.

Michael:         

(24:14) We actually have some questions from Twitter. Mitch Lieberman asks that the lean start-up method that you were describing, how does that work if a company is developing a medical device, a heart valve for example where failure means loss of life. If you can just pivot quickly back and forth around that, how do you reconcile that?

Steve: 

(24:39) So I get these questions all the time, and they are great questions. But they really confuse the distinction between the idea, the technology of the heart valve. But what does it take to build that heart valve company.

(24:57) So it might be you’ve already gone through all of this stuff, but let me remind you to build the heart valve company. You first need to understand do I understand who the customer is. For my young students, who confused technology with companies say, well Steve it’s pretty easy, heart valve is like my grandfather it turns out that your grandfather is not the customer at all. Then they asked some more and they get it and say it’s the doctor. Then you go, can any doctor put a heart valve in. No, I guess the hospital has to with the heart valve. Great!

(25:30) You know can the hospital pick an? No, I guess the FDA has to be involved. Right, good do you know what FDA approval process that there are? It turns out for devices that there are two called the 5-10K or the PMA and they are very different. Great, so how does your grandfather pay for this, does he pull out his credit card? No, I guess it’s the insurance company.

(25:50) Great, so there is reimbursement involved, do they reimburse any new heart valve? Well I don’t know, so it turns out that you need to understand reimbursement code and CPT codes and whatever.

(26:00) This is back to the valid question which is you know if it’s life or death, great, you are going to be running clinical trials. How do you pick the right partner? What is the right date that the FDA is going to require for what process?

(26:16) Unless you understand all of those questions, all you will have is a neat technology and a failed business.

Vala:   

(26:24) Does this tie back to evidence base entrepreneurship?

Steve: 

(26:27) Because everything that I just described, you need to go and gather the evidence, in terms that your hypothesis and if I challenge you with all of those questions you might give me a set of glib answers and I say great, what data do you have and like anything you just said was nothing more than your opinion.

(26:45)  It could be that you see Steven, it’s my fifth heart valve that I invented. Let me tell you what I know, holy cow, you just validated a ton of hypothesis for me, and I would still say – let me quickly run through this one. But most of the time I’m dealing with scientists or engineers who it’s their first heart valve, and the whole idea about the rest of the components that differentiate this great piece of technology from, how do I build a medical device company.

(27:10) By the way, the other thing I would ask you, and this is not to talk you out of it but I hope you understand the odds of you taking that company public as an endpoint to a quiddity is about zero nowadays. The odds are you are going to be acquired.

(27:25) So are you going to structure your company any different, if in fact you are realization is that medical devices is at least, this point in time as an acquisition. A very interesting set of conversations.

Vala:   

(27:38) This is why you talk about getting out of the building and being crucial and can technology today like social media help accelerate the evidence based process?

Steve: 

(27:42) Well it could accelerate the demise of your company when you think it can. So it turns out, of course using surveys and whatever is another form of data. But I kind of think the equivalent of Mansell’s hierarchy quality of customer development as data. You know, it’s 100,000 foot level, there is like industry research and at the next level there might be sales data and then you are sending actively soliciting feedback. It could be social media data, and then there is telephone and email responses. But I have a Eucharistic which is if you haven’t cross correlated all of that data with watching people’s pupils dilate when you ask them questions, the rest of the data is meaningless.

(28:39) Because, human beings naturally will tell you what you want to hear. You actually want to watch body language, to see if they are looking at their watch, being glib, you want to challenge the responses. It turns out that you can’t talk to everybody. But unless you can actually cross correlate those responses with literally watching people’s facial and body language expression, you are going to get some really faulty data.

Michael:         

(29:06) Steve, let’s change gear slightly and talk about the corporate innovation, which is something you have become interested in. So to begin with, why have you developed this interest in corporate innovation?

Steve:

(29:15) It’s funny, of course my last start-up was an enterprise software company and had and it billion-dollar market cap. Hundreds of millions of dollars in revenue. It went public and I’ve retired. We brought in a great CEO and management team who knew how to take it to scale and I went off to start thinking about start-ups.

(29:39) To be honest, at the turn-of-the-century I read of almost everything there was about entrepreneurship. And ironically, almost all of the literature back then was about corporate entrepreneurship. And when I read about it I said well, the main thing to do was start-ups, so I realised other than some books by Bill Davidour, or Jeff Moss, Crossing the chasm, there really wasn’t a ton of literature really about entrepreneurship and early-stage venture.

(30:04) So that’s where my focus was until gee about a year and a half ago Harvard asked me, Harvard business review asked me to write how would a lean start-up impact corporations. Given my background and selling to companies I wrote an article called The Leanest Start-Up Changes Everything.

(30:23) It ended up on the May cover of 2013 of HBR and all of a sudden I started getting phone calls from men and women’s titles I had no idea existed. They were the chief innovation officer. And when I asked what the heck do you do half of them would be honest and say we’re still trying to figure it out.

(30:46) What I discovered was that the nature of the corporation had changed dramatically in the last 15 years. In the last 20th Century the short hand is Jack Welsh rules, ruled. Meaning being number one or two in the market, all those have gone. Not because companies have gotten stupider but because the world has changed.

(31:10)  China is a manufacturer, China is a customer, globalization. You know like new metrics like return of netta  assets and IRR. Companies outsource innovation and shut down R&D labs. Internet makes branding if not meaningless less valuable. (fares?) to entry have dropped dramatically. Some CPG companies showed me some data that, you know the number of new products coming into their field, the majority of them are from new entrants rather than established corporations.

(31:43) Every large company is dealing with my phrase, continuous disruption. So therefor in the first time in history of a corporation or just in general, companies are now looking to start-ups to do continuous innovation. Because we in fact have to do that for survival, and for the first time a number of large corporations are realizing that they need to move at a speed that they have never had to do before, because historically they could own a market segment and defend it for a decade or more.

(32:15) That’s almost impossible now unless you happen to own the regulators and/or politicians that go with them, and we see that in a couple of cases even in the US. But in almost every other market, you have got to figure out and innovate at a very different speed.

(32:32)  So now the question is and here’s the big idea is that in a corporation, we have spent the last century building execution tools, processes, and procedures that allow us to execute efficiently. It turns out that the tools and strategies and policies and procedures to innovate are the antithesis of those execution tools.

(32:57) And that sets up a real conundrum, for how do you get the 2 to operate in parallel without screwing up the ability to make money. That’s a real interesting problem.

Vala:               

(33:06) So are you saying that execution efficiency can kill your innovation capabilities.

Steve: 

(33:16) Kill is the understatement, strangles it in the crib! And I don’t mean by you know, with any malice it is by default. And Clayton Kristiansen, who I think in terms of the strategy and understanding the corporations, articulated this brilliantly in the Innovators Dilemma, in the 90s, and I think we are still working out some of these processes. I think it has taken the tactics of lean start-ups to articulate what are the actual tools that we would use to solve this problem.

(33:52) It is solvable, but we need to understand as Kristiansen rightly pointed out that it has even got worse in the last 15 years, that all the things we do, the HR manual, the comp plan per self, the branding guidelines, I mean just make the list everything it puts a roadblock into innovation that start-ups don’t face, and that’s the irony. That’s why start-ups move so fast.

Vala:   

(34:19) Is this why, should we expect a trend with large companies that are going to break up into smaller pieces, because frankly it’s given innovation a velocity and it’s just impossible to meet the market needs if you are large company.

Steve: 

(34:33) I think what we have seen is various experiments without people actually quite articulating, oh what do they do. So for example, starting in the 1950s Lockheed invented the notion of the skunk Works. Skunk Works was a way to take advanced corporate R&D, but not just R&D like Xerox Parc, but R&D with its own sales channel and its own ability to do with customers directly, still make it part of the corporation but not screw up Lockheed’s normal fighter plane and commercial plane production.

(35:07) So Skunk works was one corporate attempt to solve the how do I make innovation the integral part of the company, but not screw up my execution end. In the 1980s, when Gershwin took over IBM, he also figured out how to put innovation back into the divisions and by the way the 70s and 80s at HP figured this out. HP forgot to tell anybody that they actually figured this out.

(35:33) Now in the 21st-century the best examples are at least Amazon and Apple – continuous innovation. In fact, these are companies who are not only innovating new products but to be the ones not afraid to obsolete their own. Netflix being another example.

(35:51) These are companies that have figured out that you can chew gum and walk without shutting your company down. The antithesis is media companies and certainly the content companies that have forgotten that business is content. By the way, you can tell the distinctions between those two classes of companies. When the CEO and the CXO is on the board of staff by MBA’s and finance people, and you don’t have product people either running the company or on the board. Then the incumbents tend to fight by being rent seekers and try to win regulation and politics. The others, who are run by product people who have product people on the management and boards tend to win by innovation and that is a really interesting battle in this country.

Michael:         

(36:43) So what is the best way then to help companies with disruptive innovation.

Steve: 

(36:49) So I think what we are seeing now is a kind of wave of taking some of these lean tactics into large companies and the first wave is kind of funny, because obviously a lean Startup inside of it large corporation is going to last about five minutes if you don’t understand both the politics, the processes, the procedures, KPI’s, and the goals of the corporation.

(37:12) I mean you end up with something which I call innovation Theatre, which is let’s put on an incubator as corporate staff. So what happens to those teams as they graduate from your corporate incubator? Are they adopted by the business units? And the answer is, well, we are still working on that. Which means, we haven’t really attacked the hard problem, which is how do we get business units, functional units to kind of like buy in first as an integral part of the company’s survival strategy, rather than some kind of theatre where we are making the present board feel good that we are doing something about.

(37:48) There are companies that naturally have managed to integrate this into top to bottom, and I think to make some substance change. So the work I started at GE and Eric Geese went in and turned that into a corporate live for Gen electrics. I think right now it is the current gold standard for Eric Gees past work across what has happened across that company.

(38:11) but surprisingly, other companies are doing this and the government agencies that you wouldn’t believe have adopted this process, and in fact, the government has something called the regional Services Playbook which is a great example of the most massive bureaucracy in the world, figuring out here’ the handbook and start doing these.

(38:31) Even more so how to do contracting with lean processes and and it’s called the Tech Far handbook and you would go, this is from where? It’s the government.

Michael:         

(38:44) But the criticisms that you hear about in the digital services playbook that it’s all fine and dandy for these smaller projects. But in the government you have to face these massive multi-billion dollar large projects, even if you break them up. So how do you reconcile the scale?

Steve: 

(39:10) Usually the people who object are the ones with the multi-billion dollar contract. Not everything can be made incremental and obviously some things are, you know groping for which ones. My favorite example is the new air traffic control system which has been coming soon for the last 15 years. If you look at some of the disasters that happen, the name of the company I won’t mention got the billion dollar contract, they forgot to ask the air traffic controller whether the new UI on the system was something that they would actually care to use. it turned out that they had to re-engineer all of this because they confused the functional spec of what the user needs.

(39:59) I am not particularly sympathetic, well these are billion dollar projects that can’t be broken up. Until we’ve had the conversation of well which parts can you break up and have you actually talked to users and other stakeholders in the process.

(40:15) Most of these large government contracts, the goal seems to be to get the contract not the satisfied user and what they need for example, I’ve seen the one in the military.

Michael:         

(40:26)Well Vivek ? the former CIO of the US, who works at Salesforce now, coined the term the IT cartels.

Steve: 

(40:37)  So you really need to think about what side you want to be on. Do you want to make products to delight people or do you just want to do this for your company. Now if I’m a corporate executive I would answer the latter, if I actually cared about for the federal government and if I cared about the country I would be answering the former.

(40:59)  And that is to create tension not only in the US, but in other countries, and as I said, for our country the battle we are facing, if you take a look at Tesla or Band B is incumbents versus innovation. You can’t support both on both sides of your mouth unless you are a politician. Because incumbents tends to win with being rent seekers regulation or owning politicians.

(41:25) But if you are interested in job creation then innovation, then you are going to come down on the side of entrepreneurs and start-ups. Except they don’t write huge campaign checks. This is something that start-up companies are going to have to know how to do, because we still have deep pockets when it’s democracy but this country does this better than any other, if you want to see in fact see where in countries where corruption rules then there is almost a direct correlation between corruption and lack of innovation. Because you strangle innovation by giving it to the incumbents who pay the highest bid for keeping their spot online.

Vala:   

(42:02) Where do you see the future of corporate innovation, let’s say in the next couple of years and what is the role of corporate VC’s during that period.

Steve: 

(42:11) I have this hypothesis that if I was a hedge fund I would be starting to think that there are two types of company. Ones which have a ten-year trajectory of executing off their current product line and I either go along on them as they scale up or shore them as they start collapsing from competition.

(42:33) Or there will be others who will be mastering continuous innovation continuingly coming out with process and improvements or business model improvements or disruptive innovations. Again, the Amazon and Apple and I think those companies will have 30 or 50 year trajectory, and you will bet very different on those, for example, that is what a Tesla looks like.

(42:56) Tesla you know, you are not betting on the fact that this company is going to make 35,000 cars this year, you are betting on the fact that these guys are going to be a serious contender and in 10 years will be making 1 million cars. That is a very different bet than just a short-term start-up.

(43:12) Corporate VC’s kind of fit in with corporate M & A and also innovation. As long as these are silos M & A is one silo and corporate VC’s in another and advanced R&D in another, used to have a 20th-century model of what the innovation looks like.

(43:29) It doesn’t mean that it doesn’t work, it just means that if you are competing with somebody who integrated all of the pieces you are going to be screwed.

Michael:         

(43:38) You know it’s 45 minutes and we shall go on a long time.

Vala:   

(43:45) That was an incredibly fast 45 minutes.

Steve: 

(43:50)  I think we are in an exciting time. If I was in a corporate organisation, I would really be thinking about not lean or any of this stuff. Those are just buzzwords. I would be thinking about what’s competition look like and why are we getting our butts kicked or what’s going to happen. When we start doing that, do we have infrastructure to be responsive. That’s when I start looking at those innovation tools from early-stage ventures and how to apply them.

Vala:   

(44:12) Apart from your book, are their books that you could recommend our audience for them to read.

Steve: 

(44:19) Sure, well the the first place I would start seriously, for at least the innovation as we know it now and I think the architects and the original thinking Kristiansen innovators and the innovators dilemma, and I would read Eric Reese doing start-up and I would read Alexander Osterwalder and it isn’t only just a book on business model design, but his new one which is the value proposition.

(44:49) I think there is a set of books for corporate that I would read the other side of innovation by Vijay Govindarajan  and Chris Trimble, the future management. Gary Hamel, winning through innovation by O’Reilly. And again, another basic text that when I started thinking about customer development, which was actually only when I thought it was quite useful which was User Research by Erich von Hippel and also the sources of innovation by von Hippel.

(45:27) And there are a lot of other texts as well, but those other ones I started with and kind of help me think through informant innovation looks like. Then reading McGraths new book from Columbia and I’m blanking on the name of that title. But there is about five or six things that I would be reading just to think about.

(45:55) You know, holy cow, here is the problem. If you got your MBA anywhere longer than five years ago, most of the knowledge you have is about execution. You’re screwed, truly. Not because they were teaching you something dumb, but the world is changing so radically, that the courses that you you took really didn’t describe the world of continuous disruption and in fact, start building a set of tools for corporate continuous innovation.

(46:32) Go and show me a business school that has a certificate in corporate entrepreneurship. The ones that are offering that and if I was running a company I would be sending my exec’s. And eventually you will, you will start seeing those I’m sure and probably my guess is from Stamford and then others. But corporate entrepreneurship needs to be a core curriculum of business schools in the 21st-century or they are going to become obsolete.

Michael:         

(46:58) Well Steve I’ll tell you what, as you were talking I’ve been exchanging direct messages on Twitter with Alex Osterwalder and we are proposing and I’m going to slightly put you on the spot here. We are proposing a CXOTalk show with you, Alex, and our mutual friend Evangelist (?) Who is an expert in corporate innovation, to talk precisely about and explore in more depth these corporate innovation topics. So what do you think about that?

Steve: 

(47:31) I think that would be fun. You know, I will be quiet and learn from Alexander and Evangelist.

Michael:         

(47:37) Actually I’ll be quiet and learn from the three of you.

Vala:   

(47:39) I’m just typing.

Michael:         

(47:29) Vala will be simply taking notes.

Steve: 

(47:44) You know I would invite Rita McGrath or any of those others as well and consulting this space as a living and writing. The list of people I suggest Erik Christensen, that would be a fun conversation in what really the future of corporate innovation looks like, not just in theory where some actual practice that you could go on do. And how do you start.

(48:09) You know, one thing to kind of understand is that you can start from the board and the CEO, but are there some things that some teams can do right now inside of R&D or engineering or anywhere else. The answer is yes. There is lots of ways to start and in fact, the worst way is to have some corporate that says on Monday we are an execution company and on Tuesday we are innovators and now everybody be innovating. That would be going out of business.

Michael:         

(48:35) I think we have heard some large enterprise software companies talking about that recently.

Steve: 

(48:41) I think that just doesn’t take into account the nature of the work and how human beings operate. And by the way, my two sets is that in a large corporation you know, again this is an insight I got from Kristiansen, most people took a job in a large corporation because they do want to go home at five. They don’t want to take work home with them.

(49:01) Yet if you want to innovate new things instead of corporate, you need to find inside your company the five or 10% who are crazy people, who may be have different financial goals or needs of those who are betting their entire mortgage on a start-up. But you will find equally innovative people at alongside corporations, but they are not the entire company. So the question is, how do you build those teams and how do you not – and when you have those teams have them alienate the people who are actually generating the revenue and profits for the short term. And not to set them up as us versus them, but set them up collaboratively.

(49:38) I think that is where this gets fun.

Michael:         

(49:43) Well we are going to explore this more. We have been talking with just a phenomenal discussion with Steve Blank, who I think as we all know is the leader and founder of the lean start-up movement and just a great influence in the world of start-ups today. Vala, what do you think?

Vala:   

(50:08) I couldn’t keep up with all of Steve’s words of wisdom. I think for the first time I’m struggling on Twitter capturing all of it, so Steve an incredible insight, thank you very much it was an honor to learn from you.

Steve: 

(50:19) Great it was fun and fun being here. I think any words of wisdom, I think there was a lot of words and we will see over time whether it is wisdom and I think it is up to your listeners to figure out how does that apply to them, and to start thinking about is the things that they can be doing differently today, particularly incorporation just to kind of adopt some of these ideas and where will they start.

Michael:         

(50:42) Okay, everybody that’s it. Next week we are off for Thanksgiving, so we will see you again in two weeks. Thank you so much for watching and thank you especially to Steve Blank and I hope everybody has a great we can. Thank you very much. Bye bye.