Getting to "yes" in a world of "no"…

Archive for January, 2011

Look at your world…

Look at your world…

What can you see?

What do you think?

What can you conceive?

What do your mentors think?

What can you design?

What do your customers think?

What can you build?

What do your suppliers think?

What can you fund?

What do your competitors think?

How far can you scale?

What does your market think?



Meeting your peers…

For a startup guy, it’s a bit of an odd experience the first time you properly meet your peer group – by which I don’t mean other entrepreneurs, but rather people travelling parallel to you but just that little bit further ahead.

You see, when you first start out on the whole startup path, an almost inevitable part of your constructed self-image is that of the rebel, l’étranger: seeing the entirety of an industry’s collective mistakes (quite literally) from the outside is liberating, as it gives you carte blanche to fix its key problems in an entirely new way. Before long (if you’ve got any sense) you start learning from potential customers (occasionally pivoting when you realize what a pig’s ear you’ve made of things), while trying hard to keep clear water between the real customer pain points and those that are merely industry mythology: but even so, you’re still essentially an outsider.

Then you start talking to your competitors, and to your surprise discover that they’d like to change the industry too, but can’t see how to do it: and that in fact they look to people like you to make a difference. This is where you begin to understand that the status quo was not foisted upon that industry by cabal-like conspiratorial interests, but was instead the end-result of a semi-random series of incremental evolutionary steps.

Finally, you grasp that evolution itself is a double-edged sword, and that the purpose of startups is to forcefully evolve an industry to a new state specifically by killing off the twisted state into which it has incrementally evolved. Really, the role of the entrepreneur is to call an industry’s bluff, to argue that the way it has become is not fit for purpose, to prove this by constructing a radical alternative that is significantly better, and to monetize this.

(In metaheuristics terms, this is somewhat like simulated annealing: markets tend to cool to local minima, so needs startups to add high-energy ‘kicks’ to help them reach better states.)

Hence when you happen to meet people who have followed this path all the way through, I think there’s a certain kinship at play, particularly when (as happened today at the Advanced Manufacturing Growth Summit in London) their path shares many other industry similarities with yours (“advanced manufacturing” is just a fancy way of saying “not-entirely-off-shore manufacturing”, for the most part). These are your peers: they are you, but viewed through a mirror in time. Do you like them? Do they like you? How comfortable are you with your future self?

Why I disagree with Vince Cable & BIS about “growth”…

In November 2010, BIS introduced the Government’s Growth Strategy by publishing “The path to strong, sustainable and balanced growth“: to my great surprise, I found myself disagreeing with a very great deal of it. The report began:

“The Government’s economic policy objective is to achieve strong, sustainable and balanced growth that is more evenly shared across the country and between industries.”

Is it just me, or is there is a Centrally Planned Economy shadow hanging heavily over this very first paragraph? We don’t live in an ideal world, and there will always be imbalances between different parts of the country and different industries. Surely trying to equalize these macro-social issues as a primary policy measure (particularly at such a difficult time) is simply old-fashioned left-wing positive discrimination? The only time for righteous policies is once you have already delivered growth policies that work. And as for “balanced growth”…

“The UK needs to move away from an unbalanced growth model reliant on a narrow range of sectors and ever-increasing government spending. We can no longer have an unsustainable accumulation of private debt that inflated property bubbles and ultimately caused a banking crisis and sharp falls in output. The UK needs to grow sustainably – both economically and environmentally. We need to grow, but we need to grow differently.”

As far as industry goes, I think it’s fair to say we haven’t really had anything like a “growth model” of any sort for a fair while. (In fact, have we even really had any real growth either?) What drove the property bubble was that banks were happy to lend money to anyone for property: offering 100%+ buy-to-let mortgages to anybody that walks in off the street was unsustainable bull-market nonsense. Bizarrely, even that was pretty much sound compared to the sub-prime mortgage fiscal foolishness going on in the US that really sank the system.

As for the UK commercial banking sector over the same period, its equivalent insanity was the vast number of coffee shops it happily helped to fund, all with basically the same designer-cookie-cutter business plan template. Didn’t government ministers walking down High Streets ever pause to think “Hmmm… I wonder which banks financed all these shiny new coffee shops?” [Hint: they all did] And guess what – that same money wasn’t going into the scalable home-grown export-driven IP-owning industries Mr Cable is now, ummm, banking on to rebalance the economy.

So as to the aspiration to “grow differently”, we firstly need to grow at all – new products, services, products-as-services, services-as-products, and IP, but definitely not coffee bars – and to find ways of getting capital to those things with the best chance of multiplying it on a world stage. Coincidentally, my business bank manager told me last week about the barbers and the coffee shop whose EFG loans he had not long ago approved. *sigh* It remains basically business-as-usual for the banks, it would seem.

“A new approach to growth requires a new attitude in Government. Government on its own cannot create growth. It is the decisions of business leaders, entrepreneurs and individual workers which build our economy. […]

Access to finance is a real concern for many small businesses and we have set out a package of Government and industry-led measures to work towards addressing this.”

Here, I think, are the two key concepts which BIS doesn’t seem to grasp are so tightly interwoven. Growth is a multiplier, and its final amount is always relative to the amount you are trying to multiply: while at the same time the lower the amount you start with, the more pressure you come under to exit early (if your curve is pegged low, low puts yield low gets). Hence without realistic access to finance, growth simply goes nowhere – with nothing much going in to the growth multiplier, you get nothing much coming out at the end.

It’s perfectly true that the UK has always had a decent enough supply of brainiacs: but few have the skills to simultaneously execute the kind of financial and technological alchemy needed to summon sufficient risk capital from the ether and to build a whizz-bang growth engine to multiply it up. Yet that is pretty much the kind of Renaissance Man or Woman you’d need to be to swim against the financial tide currently prevailing. You need to find workable answers to both parts of the equation, solving just one isn’t enough.

That is why today we are launching the Growth Review, a rolling programme […] a fundamental assessment of what each part of Government is doing to provide the conditions for private sector success and address the barriers faced by industry.

People with good ideas that are plugged into their particular markets will always see opportunities for growth: but what’s the point of building a jet engine if you’ve only got wood to burn? Hence, all the while that UK angels continue to under-invest slowly at uncompetitive, low valuations, UK startups – however world-beatingly clever and far-sightedly visionary their special sauce may be – will continue to go nowhere. BIS don’t seem to see that there is no private equity cavalry coming to the sector’s rescue, and that their efforts to tweak the taxation system to encourage UK angels just a little bit more are almost certainly not going to have the desired effect. Most angels I’ve talked with are not some notional 5% short of investing but 50% short.

So paradoxically, I think the biggest on-trend thing BIS could do in the interests of UK plc would be to promote ways of (and mechanisms for) helping non-UK angels to invest in UK startups. Of course, UK angel networks (ably represented by the BBAA) would almost certainly lobby BIS hard to argue an opposite position: but then again, they’re still missing all the sweet central government funding they used to get not so long ago, while the way that the majority of UK angel networks now charge entrepreneurs three times over (pay-to-prepare, pay-to-pitch, pay-to-succeed) is nothing short of scandalous, and probably contributes strongly to the current startup funding crisis. Would it really be so bad if the pendulum swung away from them for a change?

PS: note that the report does briefly mention inward investment, saying (p.14) that…

“…the Government will look to boost the stocks and flows of investment to and from the UK. The UK remains a hugely attractive market for inward investors. At the end of 2009, the stock of foreign direct investment in the UK was worth £672 billion while UK direct investment abroad was worth about £1,046 billion.”

…and that…

“The Government will start by focusing on the priorities for action identified in the previous Chapter:
* Planning
* Trade and inward investment
* Competition
* Regulation
* Access to finance
* Corporate governance”

However, my best guess is that BIS is still casting around for good ideas from industry as to how its efforts can stimulate inward investment. I’ll ask Andy Rose at the Advanced Manufacturing Growth Summit this Tuesday, see what he says…

Advanced Manufacturing Growth Summit in London…

This Tuesday (25th January 2011), I’ll be off to rub cheeks [*] with the great and the good of UK manufacturing at a BIS-chaired summit in London. That ultra-lean micro-manufacturers (such as my startup Nanodome) can sensibly share governmental mindspace with über-politicized macro-manufacturers (such as Land Rover, Jaguar, etc) may at first seem paradoxical, but then again we’re all waist-deep in the same financial quagmire, so what the hey. The rationale for the summit is that there’s a government manufacturing review due in time for the coming Budget, hence the question Vince Cable, Mark Prisk et al would like attendees to help answer is simply: what can government reasonably do to assist, preferably without spending any money?

Unlike most mainstream media pundits, I’m a big fan of coalition governments, because they frequently have to iterate and compromise their way towards workable policies, a process which I happen to believe yields better results than traditional high-level, opaque, ideology-driven politics. This oddly mirrors Steve Blank’s “Customer Development” loop, for the ‘customer’ of governmental manufacturing policy is indeed manufacturers: so let’s all raise a glass (not half-empty but half-full) to plenty of positive half-steps forward, rather than the full-steps backwards and sideways we’ve seen for so long.

But, you may say, UK manufacturing, really? Well, few people realize that the UK still produces lots of stuff, with (perhaps surprisingly) global pharma players such as AstraZeneca and GlaxoSmithKline now massive contributors to the manufacturing sector. Even though UK manufacturing has been declining for decades, its position in the world manufacturing tables has slipped from #1 only to #6 (last time I looked). Hence two of the biggest issues are of low national self-esteem (yes, the UK really is a major manufacturer, so why do investors cough politely when I say that’s what my company does?) and lack of skills support (no, a liberal arts degree doesn’t really tick any industrial hiring checkbox, why on earth would anyone think it might?).

Yet over the same period, the UK’s per-worker productivity vastly increased, largely (and unsurprisingly) due to a combination of automation and outsourcing. However, the boom in Far East outsourcing rode on the back of import-favourable currency shifts and a soft bank financing regime at home, both of which are now long gone: to my eyes, the future of manufacturing lies in ‘IDFLA’ (“industrial design for late assembly”, i.e. a middle position between “pure” in-house manufacturing and “pure” outsourced contract manufacturing) and in new ways of financing working capital, because the collapse in access to finance has squeezed most of the inventory out of distribution channels.

People often think of manufacturing as somehow dull: but actually it’s an area that’s full of design challenges, problem-driven innovation and product iteration. Design-driven manufacturers (i.e. with their own Intellectual Property) face the challenge of financing both high-risk technological R&D and low-risk working capital simultaneously, at a time when the European appetite for any kind of funding is extraordinarily limited. Which is why at the summit I’ll be heading for the 3pm breakout session on Access To Finance with Andy Rose, Head of the Infrastructure Finance Unit.

Which is, errrm, where exactly? Well… if you didn’t know, the IFU is the part of HM Treasury in charge of handling Private Finance Initiative (PFI) contracts, such as the (‘achromatic elephantine’) £10bn Future Strategic Tanker Aircraft project: yet quite how governments can lecture businesses about off-balance-sheet financial engineering when PFI has become such an active part of their post-Maastricht funding activities I don’t know, even if the Coalition rightly doesn’t like PFI solutions much. At the same time, the IFU has (in Andy Rose’s words) an infrastructure-funding-related mandate “to get involved where private sector capital is not available”, so seems to cover both sides of this particular funding coin.

Personally, I think funding manufacturing has indeed become an infrastructure issue: for with the disappearance of supply chain inventory, who now funds building things? What all the Just-In-Time supply chain optimization MBAs never really thought through was that in the end, the clunkiest part of the chain becomes the manufacturer – and because nobody else ever needs to hold stock, distribution effectively becomes virtual. And if you then join this up with a fully disintermediated worldview, distribution disappears and the manufacturer then becomes the chain, all the way from banker to retailer.

The long-term trend, then, is surely for manufacturers to become micro-banks: in which case their funding suppliers should be major infrastructural bodies such as the European Investment Bank. (Incidentally, I worked on-site for a week at the EIB a few years ago – it had the best canteen I’ve ever been to, highly recommended!) Nobody now really believes that high street banks will have any serious interest in funding manufacturing companies for the next decade, so where’s it all coming from?

The challenge with policy formulation is, in the words of Wayne Gretzky, to “[play] where the puck is going to be” – that is, to anticipate rather than to Band-Aid, while at the same time not anticipating too far ahead (i.e. to run way ahead of the puck). Trend-wise, my opinion is that macro-manufacturing is dead in the water, and that the big trend is the growth of micro-manufacturing and late assembly: but despite countless quotes from Vince Cable that superficially seem to align with this way of seeing the world, I’m struggling to see how what I do even remotely fits the practicalities of government policy.

My guess is that, for once, the government’s instincts for emerging trends may well be spot-on, but that it has little practical idea how to evolve its current line-up of industrial support into something that will genuinely support advanced manufacturers with their growth plans. Let’s see how the summit plays out!

I hope to see at least some of you there – please feel free to introduce yourself, and/or to leave a comment here.

[*] errm… depending on how spacious the networking area is, I suppose

Customer development and “Blank cheques”…

I’m confused and angry: for heaven’s sake, what’s a startup guy supposed to do?

On the one hand you’ve got Steve Blank proposing his Customer Development startup loop, Eric Ries proposing his Lean Startup development loop, and (one you may not have read about) Alex Osterwalder’s Business Model Generation loop. These three dovetail neatly into a kind of ‘zeitgeisty’ continuously-pivoting startup worldview that says: hey, business plans are for MBA robots, building stuff without a business model and customers is a bozo recipe for failure, so just keep looping and eventually you’ll have learned enough to be pretty sure of not failing.

On the other hand you’ve got 99.9% of angel investors and VCs in the world, who say: why on earth do you think I would open-endedly fund your startup when you tell me right from the start that you have no idea what your market is, who your customers are & what your product will be, and that you have no solid plan moving forward, just a deeply-felt desire to iterate and pivot repeatedly until such time as the process of bouncing ideas/demos/prototypes off your customers helps reveal one to you, at which time you’ll need to raise yet more money from me to actually execute things based on what you’ve already spent so long learning at my expense? Do you honestly expect me to fund your University of Me while you “get real”? Since when was I your parent?

There’s a bit of a conflict here.

Why, then, is it only me that seems to see this kind of funding request for (let’s call it) a “Blank cheque” as somehow genuinely unreasonable from an investor’s point of view? It’s not that I’m an apologist for MBAs, business schools and accountants (far from it!), it’s just that I can’t honestly see how focusing on iterative customer development to the exclusion of everything else helps build any kind of workable middle ground between entrepreneurs and financiers, between (in Blank’s slightly pejorative terminology) the worlds of Billy Durant and Alfred Sloan.

Note that it’s really not that I don’t understand the Blank / Ries / Osterwalder weltanschauung: on the contrary, I think I probably understand it better than most, in that their ideas closely match the ways I’ve actively developed my own company over the last three years. However, there’s a hugely strong case to be made that almost all lean startups may well be intrinsically unfundable. Though making a strength out of a weakness is a great rhetorical exercise (often used in job interviews, of course), I don’t think it translates well into the higher-level arena of funding persuasion – for how is a financier supposed to tell the difference between a “learning startup” and a “know-nothing startup”?

Can somebody please tell me why it only seems to be me who has taken the red pill?

The secret history of bootstrapping…

It has become über-fashionable to talk about ‘bootstrapped business’: but… what is this, exactly?

The inspiration for the term “bootstrapping” seems to have been a 19th century tall tale in which somebody supposedly defied the laws of physics “to pull themselves up by the bootstraps” (the leather loops on the back of your boots) right up into the air and over to the other side of a fence. So, when used in its original manner the phrase properly brings with it a sense of ‘getting going in an impossible sort of way’.

And then in the 20th century, computer people appropriated the same term – with a fond sense of irony, I happen to think – to describe the quasi-magical processes by which computers spring to life when switched on. Even today, we still “boot” computers using “boot loaders” such as (the justly famous) Das U-Boot, which some might surely put forward as a powerful argument why clever German programmers should not be allowed to construct puns. 🙂

However… the problem is that the way people now talk about “bootstrapping startups” seems to have lost any of this gentle irony. Rather, this more modern concept of “bootstrapping” paints a starkly linear picture of computer pioneers carefully engineering a tricky technical solution to solve a long series of deterministic logical puzzles to get to an end line. So, if you view starting your own business as basically the same kind of activity as Steve Wozniak doggedly squeezing his Apple II disk drive loader into 256 bytes of PROM, then you’re probably happy with the whole concept.

Of course, I don’t happen to see it like that at all. How can you view winning the battle for people’s minds as a series of technical challenges? How can you build things without money? How can you build a Minimum Viable Product without its ending up the Least Attractive Thing In The Market? Honestly, buying into the whole bootstrapped credo falls not far short of wondering how many impossible things you can believe before breakfast.

Even at the best of times, starting up your own company is a hard, hard thing to do; and bootstrapping arguably makes it even harder and significantly slower. For what even the best bootstrapping proponents typically forget to mention is that while it’s true that your unfunded quest to build your own company on a ramen noodle burn rate will consume only a little bit of money, it will also take an awful lot of time.

Yet if you peer outside the blinkers of the fiercely competitive world of TechCrunchicon Valley me-too social media startups, you’ll see countless small companies slowly eking their way into existence, one hard-won customer or product  at a time. This isn’t because bootstrapping is fashionable, but simply because it’s the only practical funding path most entrepreneurs have – funding is a million moths and a few dim lights, all else is darkness.

Now, perhaps, you’ll understand why full-on entrepreneurs have to be at least five years ahead of everyone else: because if they’re not, then by the time – say, two or three years – they’ve managed to get whatever they’re doing to market they’ll be too darn late. In a nutshell: vision buffers bootstrapping.

The recession sales formula: 2 x 2 x 2 = 8

One thing that can be annoying about Internet startup people is the way some of them act as though they themselves invented the whole idea of using metrics to improve their business. These people seem to extend Dave McClure’s well-known AARRR model all the way to AARRRGH (“Acquisition – Activation – Retention – Referral – Revenue… Grandeur… Hubris“), which I’m sure wasn’t Dave’s intention at all. Well… mostly, anyway. 😉

Putting a historical perspective on it, even today few companies are as raving metric-mad as the British catering company J. Lyons & Co. was in the first half of the 20th century. Rapid feedback was so central to its business mission that it not only extensively promoted the idea of decimal currency (from 1928 onwards, its back offices converted £ s d to decimal to get maximum use from their mechanical calculators) but also designed and built the world’s first business computer just after the second world war (in fact, here’s a short paper I wrote on LEO-1 back in 2002). Now that’s what I call an obsession with real-time metrics!

Anyhoo, I was chewing the fat lean with my developer friend Martin a few days ago when he suddenly began regaling me with recession sales stories from many years ago. What was a little unusual was that the company he worked for back then kept a particularly close eye on sales metrics, and so was able to compare almost every aspect of its business before and during that long-ago (but now oddly resonant) recession period.

What my friend learned from these comparisons was a little unexpected, and yet somewhat depressing: that there would appear to be a recession sales formula, and it looks like this:-

“2 x 2 x 2 = 8”

What this means is that, during a recession…

  • It is twice as hard to get a good quality sales lead;
  • It is twice as hard to close any individual sale; and
  • You typically end up working for half the margins.

That is, their comparative figures suggested that selling during a recession is roughly eight times harder than normal. Moreover, it was clear that if you hand over any of the individual sales stages (i.e. opening, negotiating, closing) to people who aren’t absolute sales monsters, pretty much nothing gets through at all, leading your overall pipeline to empty within a matter of days.

As far as startups go, the biggest single early sale most entrepreneurs have to make is (of course) equity to angels. So perhaps the current entrepreneurial world of pain here in the UK (where everything to do with startup finance seems ~10x harder than you’d expect) is just a straightforward expression of this same recession sales formula. After all, raising equity is just a sale like any other, right? And you are a sales monster, right?

(Well… strictly speaking, it’s not quite the same. Here in the UK, my understanding of the Financial Services Marketing Act (2000) is [*] that entrepreneurs aren’t allowed to promote any single investment proposal to more than 99 sophisticated investors (etc) at a time: yet I suspect that they now probably need to pitch to 200+ in order to stand a statistically reasonable chance of closing a round. Just so you know that both the odds and the law are against you right now!)

[*] I’m not a lawyer, none of this is legal advice, so make your own judgment call on this, etc.

Startup pitching is ‘standup tragedy’…

Startup pitching follows many of the conventions of standup comedy gigs:

  • you present to a small room half-full of people with short attention spans and a glass of booze in their hand;
  • you get a limited time slot to fill with your material to try to connect with your audience by whatever means possible;
  • you’re competing against a small group of peers to get the strongest reaction; and
  • you’re trying desperately to get people to want to see you again, to somehow ‘invest in your success’.

However, perhaps the biggest similarity is that both are ultimately long-term writing gigs, preparing carefully crafted hooks and gags to achieve your external ends: in the same way that few standups are naturally funny enough to improvise for more than a few seconds at a time, few startup pitchers are naturally communicative enough to present entirely “off-piste”, let’s say.

In fact, I call startup pitching “standup tragedy“, because what you’re really doing is standing up in front of a room of angels and posing the question: “wouldn’t it be a tragedy if you failed to back my proposal?

So there in a nutshell is the weakness of the format: the hockey-stick graphs, forecasts, predictions, trends, figures are there not to communicate the opportunity but to heighten the personal tragedy (to the investor) of refusal. Can’t you see that my company INH (“Insert Name Here”) is the next GFW (“Google /Facebook / Whatever“), and you’re about to lose your chance to get a slice – your slice – of the big-time? Put in those terms, the whole activity comes over as a thoroughly abysmal way to try to persuade anyone of anything, for it’s essentially a long-winded and overformalized double negative – “don’t not invest in my startup“.

I think the main reason for this tangly rhetorical knot is that angels have come – for whatever reason – to distrust (if not outright mistrust) anything positive startups claim any more. For them, it’s not even as if the medium is the message: rather, the medium is no better than its blind spot, making it pathetically easy to construct a knee-jerk reason why any given way of communicating the startup’s situation is probably a lie:-

  • Graphs? (Fantasy accountancy)
  • Traction? (Hearsay)
  • Social proof? (Engineered, not scalable)
  • Market trends? (Too partial, too wide a range to choose from)
  • IP? (Subjective, dubious value)
  • Patents? (Contestable, expensive)
  • Customers? (Exaggerated)
  • Advisory boards? (Fake lists of uninvolved grandees)
  • PowerPoint? (Simplistic, unhelpful)
  • Business plans? (Deluded, narcissistic, MBA nonsense)

To the contemporary angel mindset, all these have become merely decorative features, mere “Borders & Shading” buttons in automatic business plan generators, when cashflow and market focus are the only two key aspects they particularly listen to (though even those only tangentially). Unless you can demonstrate beyond a shadow of a doubt that you have utterly no need of their money, and that the only tangible reason you’re raising money is some toxic combination of greed, vanity, naivety and bad timing, they’re not going to be interested. In that sense, they’ve turned themselves into the worst parody of old-school VCs: truly the worst of both worlds.

Ultimately, the paradox of startup pitching is that you only say positive things in order to help sell a double negative. And when a discourse becomes this pervasively threaded through with distrust, mistrust, and negativity, I think it ceases to be a viable platform for finding common ground between parties. Surely it is this underlying triple negative“don’t not invest in my startup” isn’t working – that is the real tragedy here?

Steve Blank’s “Four Steps to the Epiphany”…

Just as Stephen Hawking’s “A Brief History of Time” had an extraordinarily high (buy:read) ratio, Steve Blank’s influential self-published book “Four Steps to the Epiphany” (first three chapters are online here) has an extraordinarily high (cite:buy) ratio – almost everyone relies on online summaries of what it says, rather than actually read it for themselves.

In some ways, this is a good thing because – as even arguably its #1 fan Eric Ries felt compelled to point out – the book is a tad leaden. Yet even so, Blank’s core idea (that customer development-based iteration should be at the heart of nearly every startup’s overall business development, with product development very much a secondary process) is the kind of thing that has swung strongly into startup fashion over the last few years, for the simple reason (I think) that it’s solid gold. The days of “if you build it they will come” are now thought to be long gone: if anything, the business compass has spun right around to Jim Coudal’s (2005) “if they come, you will build it” – basically, build the audience before you build the product. Incidentally, Coudal mentions “design entrepreneurship” as a specific influence here, which is pretty much exactly what I do (though “industrial design entrepreneurship” is arguably even closer).

Without much doubt, for certain industries such as book publishing (I also run my own niche publishing house, so know plenty about that), I’d say this is an excellent model. In fact, for several years I’ve advised non-fiction authors to blog extensively before writing a word, so as to build up their personal audience – it’s as much about your finding out about them as about their finding out about you. As a general rule of thumb, I’d say your blog needs to get roughly a million visits (and to have roughly a thousand people subscribed to it) before the economics of book publishing begin to work in your favour. Doubtless this is true for many other industries too.

But… is it true for tech startups?

I think the root of the opposite position – non-listening MBA-centric business plans, such as the disastrous WebVan roll-out Blank cheerily cites – lies in a kind of mid-century Father-Engineer-Knows-Best industrial paternalism. And that would be a bit of a straw man for Blank to argue against in 2011, as contemporary entrepreneurs (though possibly not business schools en masse) have become very much savvy to the idea that their customers somehow hold most of the important answers.

Yet even Blank doesn’t go as far as Coudal seems to have gone: having got tired of being the work-for-hire mindshare guru (temporarily wedged between the product guy and early customers), Coudal’s personal epiphany seems to have been that mindshare holds pretty much all the value in the equation, and the rest is mere execution. That is, he redrafted the seating arrangement such that the product guys became the work-for-hire gurus working for him.

Plan, execution, mindshare, customers: for Coudal, the mindshare comes first (plan? what plan?), while I suspect Blank is more about execution – ultimately, he just wants customers into the overall loop to help iterate the plan right. So, to me Blank’s epiphany seems more about looping, which is the part Eric Ries seems to have taken most on board for his Lean Startup ideas.

But does this tell the whole story? In the end, I suspect that Locard’s exchange principle (from the field of forensic science) is even more revealing. Edmond Locard theorized that “with contact between two items, there will be an exchange”: its relevance here is that I think every startup should see its contacts with customers as a two-way street. That is, you don’t meet customers in order to change them, you meet them in order to exchange with them. What Blank highlights is arguably only half of the traffic (i.e. what you learn from customers, how they change you): but at the same time, they do learn from you, and their buying behaviour may well change as a result – but not necessarily in the way that you hope.

In many key ways, I’m sold on Steve Blank and Eric Ries’s worldview – repeatedly bumping things up against customers is pretty much the only way to build things that really work for them – but that’s just an industrial design principle, not necessarily a business development principle. The open (and extraordinarily problematic) question remains this: whether Blank/Ries-style learning startups can ever satisfactorily be funded by business angels. Without some best guess as to when you’ll have learnt enough to ship, how can you ever agree a funding arrangement?

Much as I admire them, I can’t help wondering: by encouraging entrepreneurs to iterate and grow their startups through learning, are Blank and Ries unwittingly creating a generation of unfundable startups? Where’s the Lean Funding Movement to match their high principles?

Pivots vs epiphanies…

When a startup hits a market brick wall and has enough cash and investor confidence to change direction radically, it’s a Mike Maples (high level) ‘pivot’. Essentially: a market-driven strategic shift.

When a startup uses early customer feedback to drive its next product/service iteration, it’s an Eric Ries (low level) ‘pivot’. Essentially: a test-customer-driven tactical change.

However, when an entrepreneur suddenly grasps a significantly deeper aspect of the complex relationship between his/her startup, its people, its technology, its market and the underlying societal trends it’s betting on, that’s an epiphany. This may or may not lead to a pivot: but it certainly enriches all aspects of the startup by joining them together in a more connected, thought-provoking way. Essentially: an intuition-driven change of mind and heart.

Having just had such an epiphany yesterday, I can tell you it’s both exciting (because it helps you see your startup’s future roadmap more clearly) and unnerving (because it helps you see what you should have been doing differently in the past). While it’s happening to you, though, it feels as though the ground (specifically the “ground truth”) of your startup is shifting beneath your feet.

The background to my epiphany: having just read a long LinkedIn discussion exchange on latency in IP pan/tilt/zoom cameras (don’t glaze over, I’ll get to the point quickly enough), I suddenly realized why I disagreed with almost every single contribution to the exchange. Informed by 25 years experience developing computer games, I simply could not see how the latency introduced by state-of-the-art video compression techniques (such as MPEG and H.264) could ever be acceptable for interactive control of PTZ cameras. In what I see as an increasingly interactive world, this kind of video compression comes over as anti-trend.

But from there I suddenly grasped how my long background in the computer games industry made me ideally placed to be designing and building a new PTZ camera – for this too is an interactive video system (albeit one without Sonic the Hedgehog and Mario to help sell it). And from there it became clear to me that the tiny board I’m currently bringing to life is at heart an industrial games console. And from there I saw that a key part of Nanodome’s vision should be to make its PTZ cameras more interactive, rather than go anti-trend just to fit into the IP ‘new world order’.

So now I have a brand new set of thoughts to help me respond to the presentation deck provocation: “Why are you so uniquely qualified to meet this business challenge, to take it all the way to market and beyond?” Today’s answer: “because I have one foot each in the computer game and security camera worlds, I’m perfectly placed to design and build properly interactive PTZ cameras”. OK, as answers go this is still a work-in-progress: but you can at least see where I’m going with it.

Have you had a startup epiphany recently?