20VC Steve Blank on Why The Startup Ecosystem is Partially A Ponzi Scheme, 3 Things That Determine Startup Survival in a COVID World & Facebook Platform vs Publisher and Where Does Their Responsibility Lie



In an insightful episode of "20 Minutes VC," Harry Stebbings converses with Steve Blank, a pivotal figure in the Lean Startup movement and an experienced entrepreneur. Blank shares his journey from the Air Force to Silicon Valley, where he co-founded eight startups before transitioning into academia. He discusses the evolution of startup methodology, emphasizing the shift from executing known business models to searching for new ones. Blank also reflects on the current economic crisis, likening it to a mass extinction event that, while devastating, opens opportunities for innovation in remote work, telemedicine, and education technology. He stresses the importance of rapid assessment, action, and execution for startup survival and criticizes the tech industry's lack of moral oversight, highlighting the potential societal harm caused by companies like Facebook and the need for a balance between capitalism and social responsibility.

Summary Notes

Introduction to 20 minutes VC Podcast

  • Harry Stebbings is the host of the 20 minutes VC podcast.
  • Steve Blank is the guest on the show, recognized for his significant contribution to the lean startup movement.
  • Steve Blank has also been a professor at Stanford University and a senior fellow at Columbia University.

You are listening to the 20 minutes VC with me, Harry Stebbings, and what a show we have in store for you today. One of the leading luminaries of the valley, and one I remember studying and reading all of their work so ferociously in my more foundational years. And so I'm thrilled to welcome Steve Blank, the man credited with being foundational to the creation of the lean startup movement and having spent the last nine years at Stanford University as a professor and the last eight as a senior fellow at Columbia University.

This quote introduces Steve Blank as the guest on the 20 minutes VC podcast and highlights his importance in the lean startup movement and his academic roles.

Steve Blank's Career and Contributions

  • Steve Blank is the author of "The Four Steps to the Epiphany" and "The Startup Owner's Manual".
  • He spent over 20 years as an entrepreneur in Silicon Valley, co-founding eight startups.
  • His work spans various industries including semiconductors, video games, personal computers, and supercomputers.
  • Steve serves on the Defense Business Board for the United States Department of Defense.

Steve is the author of the four. Steps, the Epiphany, my Personal Favorite, and also the startup owner's manual, which is also fantastic. And prior to joining the world of academics and writing, Steve spent over 20 years in the world of entrepreneurship as part of or co-founding eight Silicon Valley startups ranging from semiconductors to video games to personal computers to supercomputers. And if that wasn't enough, Steve is. Also on the defense business board for. The United States Department of Defense.

These quotes summarize Steve Blank's career as an author, entrepreneur, and his role on the Defense Business Board, demonstrating his diverse experience and expertise.

The Nature of Innovation and Entrepreneurship

  • Steve Blank reflected on his time in startups and the nature of innovation and entrepreneurship after retiring.
  • He questioned traditional startup practices and the advice given by investors.
  • Blank identified that startups are not just smaller versions of large companies but are searching for business models, unlike large companies that execute known business models.
  • This distinction led to the creation of the lean startup methodology.

But when I retired, I started to think about the nature of innovation, entrepreneurship. How did this work, this business that was so good to me and I had so much fun in. I just kind of did it and never quite questioning how people gave us money and what they told us to do, et cetera. It turned out that when you're doing a startup or when you're doing a company, your head is down, mostly doing execution of your current business. There's very little time for great thoughts or what's this about? But I finally had time to kind of ponder the nature of innovation, entrepreneurship. And in a nutshell, what I realized is in the 20th century, investors basically told startups, without ever using these words, that startups are nothing more than smaller versions of large companies. So they were saying everything a large company did you do. A large company writes a five year plan. We want you to forecast the future. They write income statement, balance sheets, cash flows for five years. We want you to do that. Even though the market might be zero, we want you to do that. And by the way, they hire sales, marketing, bizdev on day one, you do that too. And by the way, use waterfall engineering to build your products. And what a surprise. Most startups fail. And my insight was, well, most startups failed because we were just assuming everything we were writing down was a fact rather than we were just mostly effing guessing, and that we were confusing ourselves in early stage ventures and new ventures inside of large organizations, that startups were the same. It turns out that large companies, existing companies, execute known business models, which is a fancy word for saying they know their customers, know their competitors, no pricing, no channel, they know all this stuff. But startups were doing something quite different. Startups were searching for business models. And this distinction, believe it or not, between search and execution had never been made. And once you make that observation, you kind of realize, well, we had built 100 years of tools and strategies and all kinds of stuff for execution, but we had very few tools for search. And I took that upon myself to kind of create them. And that became the basis of what's now known as the lean startup methodology.

This quote explains how Steve Blank came to realize the fundamental differences between startups and large companies, leading to the development of the lean startup methodology that focuses on the search for a viable business model rather than execution of an assumed one.

The Mass Extinction Event

  • Steve Blank describes the economic impact of the COVID-19 pandemic as a self-created mass extinction event.
  • He compares the situation to the extinction of dinosaurs, suggesting that new opportunities will arise for startups and existing companies.
  • Blank suggests that the nature of work and consumer behavior will change significantly post-pandemic.

Well, this is a self created mass extinction event. I've lived through a couple of other financial cris in the 20th century, and as I said, the.com bubble. But this one, we've shut down the economies across the world to kind of save potentially millions of lives. And it looks like at the current rate, we still might have lots of bodies on the street. But in shutting down the economy, obviously some segments were impacted a lot more than others. Obviously, if you're in travel or hospitality or restaurants or even major business segments have just kind of gone dark. And so by mass extinction event, I mean, we literally have put segments of the economy not only on pause, but potentially never to return. What that means, though, is that just like when the dinosaurs became extinct, those little mammals that scurried underfoot, in fact, realized that there was a niche that now opened up, that they could become the dominant species. And they did. And the analogy means that there are new opportunities for startups or even existing companies to kind of take over. And they could do that by understanding the new normal of how people will shop and buy, or that people got used to using those types of services that might have taken a decade or more previously to kind of get adopted. So the world is no longer the same, is what I meant by a mass extinction event.

This quote provides an analogy to describe the economic impact of the COVID-19 pandemic, suggesting that it will lead to significant changes in industries and create new opportunities for those who adapt.

Dislocation in the Market

  • Steve Blank acknowledges the disconnection between the stock market and the economy during the pandemic.
  • He suggests that some investors may be expecting a V-shaped recovery, while others are simply reallocating funds typically used for other purposes into the stock market.
  • The dislocation reflects a stark contrast between financial markets and the daily lives of people affected by unemployment and the desire to return to work.

Well, I think about ten to 15% of the unemployed are asking the same question. Right. There's never been a period where the economy and the stock market have been so out of sync. I think there's a good chunk of the stock market that's basically assuming we're going to have some shape of a v shaped recovery. And possibly people are putting their money, their paychecks that they were normally putting on gambling or somewhere else into the stock market. I can't explain those. Smarter people probably can about the disconnect, but it obviously doesn't reflect the daily lives of a good number of people who are both out of jobs and or eager to get back to work.

This quote discusses the unusual disconnection between the economy's health and the stock market's performance during the pandemic, highlighting the disparity between market optimism and the reality of unemployment.

Crisis as an Opportunity

  • Steve Blank views every crisis as a potential opportunity for entrepreneurs.
  • He believes that the pandemic has created massive opportunities, particularly in how work is conducted and how markets operate.
  • Blank emphasizes that these are not necessarily technological opportunities, but rather market opportunities that require a new understanding of consumer behavior.

Yeah, I have a slightly different view. I think entrepreneurs and their investors tend to operate the idea that out of every crisis is an opportunity, and this is certainly a large crisis. And I think some of the opportunities if you're an entrepreneur, are just massive here. And while they're not tech opportunities, as you point out, they're market opportunities. I'll give you an example. The nature of work will never be the same. I mean, there are tens of millions of people, and they're ceos who are now questioning, let's see, I commute to work for an hour to sit in front of a computer, to read email and get on Zoo

This quote suggests that entrepreneurs should look for opportunities that arise from crises, such as the current pandemic, which will change the nature of work and market dynamics.## Remote Work and Commercial Office Space

  • The pandemic has led to a reevaluation of the necessity of physical office spaces.
  • There is a shift in the perception of the need to be physically present at work every day.
  • Remote work tools and video conferencing have become crucial, but they are lacking in capturing nonverbal cues.
  • There is potential for integrating emotion detection and facial recognition software into business tools.
  • Sales strategies are changing, with first meetings moving online to save time and resources.
  • Remote education for children has proven inadequate, highlighting the need for better-integrated learning tools.
  • Telemedicine has seen significant growth and changes in insurance reimbursement policies, but it also faces challenges such as potential fraud and billing issues.
  • The crisis has led to technology-enabled disruptions across various sectors.

"So the shape of commercial office space is going to change now."

This quote explains that the traditional model of commercial office space is undergoing a transformation due to the increased adoption of remote work.

"Anybody who's used video conferencing, Zoom, or teams or anything else, has now discovered that while you could see other people and talk to them via conferencing, it's exhausting."

This quote highlights the limitations of current video conferencing tools, which fail to capture the full spectrum of human interaction, leading to fatigue.

"Some smart entrepreneur are going to start integrating those into business versions of video conferencing apps to be able to read emotions of a potential client."

This quote predicts the innovation of video conferencing tools by integrating advanced software to better capture emotions and nonverbal communication.

"Telemedicine completely changed not only the ability to do this, but the ability to get reimbursed, that is paid from insurance companies and the government."

This quote discusses the impact of the pandemic on telemedicine, including changes in reimbursement policies which have enabled its growth.

Startup Survival and Leadership

  • The survival of startups in the current market is heavily influenced by the leadership's ability to rapidly assess situations, strategize, and execute actions.
  • Speed is critical in decision-making and execution of strategies.
  • CEOs must balance the necessity of rapid action with the benefits of collaboration and input from others.
  • The pandemic has created a 'new normal' that requires businesses to adapt and seize new opportunities.
  • Companies with more resources have unique opportunities to hire talent and acquire assets at this time.

"Number one is the speed in which you could assess what's going on and what do you think is going to happen."

This quote identifies the first critical factor for startup survival: the ability to quickly understand and predict market changes.

"Number two is the actions you take to get your company in shape to do that."

This quote emphasizes the importance of proactive measures to prepare companies for the evolving market conditions.

"Number three, again, the speed in which you execute those actions."

This quote reiterates the importance of swift execution in response to the assessments and strategies developed by the leadership.

The Role of Benign Dictators in Decision-Making

  • Benign dictatorship in business refers to leaders who prioritize speed and decision-making over extended collaboration.
  • This leadership style does not exclude input from others but emphasizes the urgency of action in crisis situations.
  • Leaders must gather firsthand data and validate information to make informed decisions.
  • The current environment dictates a more decisive and less collaborative approach to leadership.

"What I mean is smart leaders will realize that in this case, you have to trade off ultimate collaboration versus speed."

This quote clarifies that a benign dictator values input but recognizes the need for quick decision-making over exhaustive collaboration in times of crisis.

"But then I would suggest that whatever the past normal was of having a collaborative consensus of whatever, for most businesses, you really don't have that time."

This quote suggests that the luxury of time for consensus is no longer available, and leaders must act more decisively.

Wartime vs. Peacetime CEO

  • The wartime vs. peacetime CEO analogy is questioned for its relevance to business, as the stakes in business are not as high as in war.
  • CEOs are facing a crisis for which they were not trained, requiring adaptation to a more urgent and decisive leadership style.
  • The pandemic has necessitated a shift in how CEOs operate, with a focus on quick and sometimes unpopular decision-making.
  • Gathering firsthand data and validating information is essential for CEOs to navigate the crisis effectively.

"You have to act with speed and urgency or else you will be overrun, in this case by the circumstances of the market."

This quote explains that CEOs must act quickly and with urgency to prevent being overtaken by rapidly changing market conditions.

"The only point of this is that as part of this process, ceos need to gather firsthand data, or at least validate that the data that they have is valid and then be able to operate on that information and figure out what the new plan is in."

This quote emphasizes the need for CEOs to rely on accurate, firsthand data to make informed decisions during the crisis.

Communication with Investors

  • Effective communication with investors has become a critical skill for founders during the crisis.
  • Founders should regularly update investors on their assessments of the situation and proposed business model pivots.
  • Sharing plans and getting feedback from investors is crucial, as investors have insights from a portfolio of companies.
  • Founders must learn to communicate effectively if it is not already a strength.

"But I will contend now that isn't optional. That's a skill. If you didn't have it, you need to learn it quickly."

This quote asserts that the ability to communicate effectively with investors is now a mandatory skill for founders.

"You want to share your view of what you think is going to happen with your investors, a, because you want to inform them, but b, while you're seeing one company, they might be seeing a portfolio of ceos who might be seeing something different."

This quote highlights the importance of sharing perspectives with investors to benefit from their broader insights across multiple companies.## Strategic Communication in Business

  • Discusses the importance of clear and continuous communication within a company, especially during times of change or crisis.
  • Emphasizes the need for CEOs to communicate their view of the current and future state of the company to all employees.
  • Highlights the value of being open to suggestions from employees and the importance of explaining the reasons behind significant business decisions, such as layoffs or business model changes.
  • Suggests regular updates on company progress and actions, advocating for honesty over false positivity.

"And the first one is just kind of a strategic communication of like, hey, we're on it. We're not sitting here. Here's what we're doing. We're trying to understand what's going on."

The quote underlines the necessity for leadership to proactively communicate with their team, assuring them that they are actively managing the situation and seeking solutions.

"And then you continue to communicate about how we're doing, what we're doing, why we're doing it on a regular basis, at least once a week."

This quote stresses the need for consistent communication about the company's actions and rationale to maintain transparency and trust with employees.

Decision-Making on Layoffs

  • Discusses the difficulty founders face when deciding the extent of necessary layoffs.
  • Advises that layoffs should be sufficient to ensure the company can survive and eventually grow post-crisis.
  • Emphasizes the importance of assessing burn rate, cash runway, and the possibility of applying for government assistance.
  • Warns against gradual layoffs, suggesting that they harm morale and productivity, and recommends making necessary cuts decisively and all at once.

"Layoffs kind of depend on. I guess number one is what's your burn rate and what's your Runway and how much cash do you want to have in the bank that you'll feel comfortable your business could ride this out?"

This quote suggests that the decision for layoffs should be based on a company's financial health and its ability to endure the crisis with sufficient cash reserves.

"The biggest mistake that I've seen time and again that people make is not making the cuts, but basically cutting a bit at a time."

The quote warns against incremental layoffs, explaining that this approach can create an atmosphere of fear and uncertainty, which is detrimental to the company culture.

Perspectives on Government Assistance for Startups

  • Discusses the ethical considerations of startups accepting government assistance like the Paycheck Protection Program (PPP).
  • Suggests that the primary responsibility of a CEO is to ensure the survival of the company, which may justify accepting government aid.
  • Highlights the need to first ensure that accepting government assistance is legal.

"Well, the first thing you need to do is obviously figure out whether taking any type of government's assistance falls in the bounds of is it legal?"

This quote emphasizes the necessity of legality in the decision to accept government assistance.

"Your job is to have your company survive. And if taking that money will do that, then for gosh sake, take the money and have the other discussions later after."

The quote reflects the viewpoint that a CEO's duty is to secure the company's survival, even if it means accepting government funds.

Insights on Being an Effective Board Member

  • Discusses the role of board members in providing strategic direction and insights to the CEO.
  • Advises against board members focusing on trivial matters and instead encourages concentrating on strategy and fiduciary responsibilities.
  • Mentions the common mistake of board members offering too much unsolicited advice on various subjects.

"The board's role, I think is besides hiring and firing the CEO, is validating strategic direction for the company and providing some insights to the CEO that they might be missing."

This quote defines the primary responsibilities of board members, emphasizing strategy validation and offering critical insights.

The Startup Ecosystem and Venture Capital

  • Critiques the startup ecosystem for lacking a moral center, with investors primarily focused on financial returns rather than societal impact.
  • Suggests that there should be more oversight in venture capital investments.
  • Reflects on how the investment focus has shifted over time, with less emphasis on life sciences compared to sectors like social media and entertainment.

"Their job is to make the most money without any rules. And what they're looking for out of you, whether they personally like you or not, is a liquidity event."

The quote criticizes the venture capital industry for prioritizing profits over ethical considerations and societal benefits.

"I think it lacks a moral center."

This quote succinctly captures the speaker's view that the tech ecosystem and venture capital lack ethical guidance and responsibility.## Incentivizing Investment in Beneficial Sectors

  • Discussion about directing investment towards sectors that positively impact the world.
  • Mention of using incentives to guide where money flows.

"You could immediately see with, well, let's not use sticks, but maybe some carrots to kind of incentivize where this money goes."

The quote suggests using positive incentives ("carrots") rather than penalties ("sticks") to encourage investment in sectors that can improve the world.

Challenges of Innovating in Established Industries

  • Concerns about the difficulty of introducing innovation into sectors like edtech and healthcare.
  • These sectors are described as having large, outdated institutional structures that are resistant to change.

"I shiver at edtech and I shiver at healthcare, because I know the pains of selling into these large, monolithic, archaic institutions."

The speaker expresses trepidation about engaging with sectors like education technology and healthcare due to the challenges of working with entrenched and resistant institutions.

Impact of Visionary Entrepreneurs

  • Historical examples are given where single individuals have disrupted entire industries.
  • The discussion implies that change does not necessarily require industry or regulatory change but visionary entrepreneurs.

"One would have said the auto business was completely monolithic and hadn't changed for 100 years. And one wouldn't have said, at least in the US, the monopoly on rockets were monolithic and one guy changed both."

The quote refers to the significant impact an individual entrepreneur can have on industries perceived as unchangeable, using the auto industry and space exploration as examples.

The Role of Social Conscience in Investing

  • The current investment environment is described as lacking social conscience and national interest.
  • The speaker suggests that investments have been made without considering broader social impacts.

"We've gone and we live in a completely laissez faire type of investing environment with no social conscience and no national interests."

The speaker criticizes the current investment landscape for its lack of consideration for social and national implications, indicating a need for more socially conscious investment strategies.

Tech Industry Responsibility

  • Tech companies and their leaders are held accountable for negative societal impacts.
  • The lack of foresight into the potential misuse of technology is highlighted.

"But of all the things that are probably going to destroy a democracy, it happens to be Facebook."

The quote emphasizes the speaker's view that technology companies, specifically Facebook, can have a destructive impact on democratic societies due to irresponsible leadership and lack of accountability.

Balancing Shareholder Fiduciary Responsibility with Social Responsibility

  • The speaker questions the prioritization of fiduciary responsibility over social and moral responsibilities.
  • The potential consequences of prioritizing shareholder interests are discussed.

"Do you think the priority the fiduciary responsibility to the shareholders, or is it the moral conscious and responsibility to the improvement and kind of sustainability of society and democracy."

This quote reflects the speaker's concern about whether companies should prioritize their financial obligations to shareholders or their ethical responsibilities to society and democracy.

Capitalism and Social Justice

  • The speaker argues that capitalism and the pursuit of shareholder profit are not inherently part of the U.S. Constitution.
  • The potential for social unrest due to unchecked capitalism is mentioned.

"That's not written into our constitution. In fact, capitalism isn't even called out in our constitution."

The quote clarifies that the U.S. Constitution does not mandate capitalism or prioritize shareholder profit, suggesting that other values such as social justice should also be considered.

Tech's Role in Society and Government

  • The misuse of technology by governments and its impact on society is discussed.
  • The speaker debates the role of government in regulating the consequences of technological innovation.

"Tech has now been used and mostly misused in ways that the founders just couldn't imagine."

The quote expresses the speaker's concern about the unforeseen negative uses of technology, implying a need for more proactive government regulation.

Adam Smith's Invisible Hand Theory

  • Skepticism is expressed about the idea that markets can self-correct without government intervention.
  • The speaker suggests that the market is being manipulated by powerful interests.

"The invisible hand is actually today the invisible hand of the people who have their hands in everybody else's pockets."

The quote criticizes the idea of the invisible hand, suggesting that markets are not self-regulating but are instead manipulated by those with power and influence.

Appreciation for the Discussion

  • Thanks are given for the flexibility in scheduling the interview.
  • The conversation is praised for its depth and breadth.

"Steve, I want to thank you a for being so flexible in terms of the schedule. This was one of my favorite interviews in terms of just the plastic nature of the conversation."

The speaker expresses gratitude to the interviewee for accommodating the interview schedule and appreciates the dynamic and insightful nature of the conversation.

Promotion of Financial Products and Services

  • Endorsement of Carter, a platform for managing equity and cap tables.
  • Digits is praised for its intuitive financial software and ease of use.
  • Terminal is recommended for building and scaling remote engineering teams.

"Carter simplifies how startups and investors manage equity. Track cap tables and get valuations." "Digits.com... automatically analyzing your company's spend and visualizing it for you as it happens." "Terminal is a remote teams engine for fast growing companies connecting you with global talent."

These quotes are promotional endorsements for various financial and remote team management services, highlighting their features and benefits to startups and investors.

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