House subcommittee testimony of steve blank

INNOVATION CORPS: A REVIEW OF A NEW NATIONAL SCIENCE
FOUNDATION PROGRAM TO LEVERAGE RESEARCH INVESTMENTS

Statement
of

Steve
Blank

Architect
and
Author
of
the
National
Science
Foundation

Innovation
Corps
Curriculum

Consulting
Associate
Professor
Stanford
University,

Adjunct
U.C.
Berkeley
Haas
Business
School
and
Columbia
University

Before
the

Subcommittee
on
Research
and
Science
Education
Committee
on
Science,

Space,
and
Technology
U.S.
House
of
Representatives

July 16, 2012

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Testimony to the Congressional Committee on Science, Space, and
Technology – Subcommittee on Research and Science Education

Innovation Corps: A Review of a New National Science Foundation Program to Leverage
Research Investments

Chairman Brooks, ranking member Lipinski, and other members of the subcommittee,
thank you for the opportunity to discuss with you the National Science Foundation
Innovation Corps.

My name is Steve Blank. I am a Consulting Associate Professor at Stanford University,
and an Adjunct at U.C. Berkeley Haas Business School. I am the architect and author of
the National Science Foundation Innovation Corps curriculum. In volunteering my services
to the National Science Foundation my career has gone full circle. I started my government
service with 4 years in the U.S. Air Force during Vietnam – serving a year and a half in
Southeast Asia. I’ve spent the last 34 years in Silicon Valley, 21 years as an entrepreneur
in 8 startups and the last 11 years as an educator teaching at Stanford, U.C. Berkeley and
Columbia University.

I’m here today to offer my thoughts on the benefits of the NSF Innovation Corps (I-Corps)
program to the U.S. taxpayer, share with you some of the results of the class and to
describe my role in the program.

Summary
The National Science Foundation’s funding of America’s research universities “have been
the critical assets that have laid the groundwork—through research and doctoral
education—for the development of many of the competitive advantages that make possible
the high American standard of living. Business and industry have largely dismantled the
large corporate research laboratories that drove American industrial leadership in the 20th
century (for example, Bell Labs), but have not yet fully partnered with research
universities to fill the gap.”1

Over the last three decades the SBIR/STTR programs were created to bridge this gap by
increasing private-sector commercialization of proposed innovations derived from Federal
research and development funding and stimulate technological innovation while meeting
federal research and development needs.

Yet in the decades since the inception of the SBIR/STTR programs, there has not been a
formal education process to help these federal research innovations transition from the
university lab into a profitable company.

The NSF Innovation Corps is the first successful STEM education program to bridge the
gap between NSF funded researchers who want to commercialize their technology and the

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needs of private capital. Data from the first 50 I-Corps teams confirm the effectiveness of
the program. We believe the result will be new jobs and increased competitiveness of
American industries.

There have been two other consequences of this program. The first has been the leveraging
effect as Principal Investigators take what they learned from I-Corps back to their home
institutions and develop workshops and similar opportunities on their own campuses. The
second has been the applicability of the program to small business innovation and job
creation on “Main Street” as well as in technology startups.

What’s New About the I-Corps?
The I-Corps capitalizes on new insights we have about reducing the failure rate of new
startups. We now know that startups are not smaller versions of large companies.
○ Until now classes for entrepreneurship assumed that techniques learned in business
school (i.e. how to write a business plan, 5-year forecasts) were applicable to new
ventures. We now know that’s wrong.
○ We now know that new ventures are a series of untested hypotheses (guesses).
○ While researchers believe that a company is just about their invention, the I-Corps
program teaches them that their technology idea alone is not a company.
○ A company is the sum of their technology idea plus customers, distribution channels,
pricing, partners, etc.
○ Therefore, a new startup requires deep understanding of all these other parts to be
successful. (We call the sum of these parts of a company a business model.)
○ The program emphasizes that this deep understanding cannot be found inside research
labs or libraries, but instead the researchers need to get out and talk to potential
customers. (An average team meets at least 100 customers during the class.)
○ The program teaches researchers a methodology called Customer Development, a
process of rapidly and inexpensively testing their business hypotheses.
○ Since hypothesis testing is an integral part of the scientific method, scientists grasp this
concept of testing business hypotheses immediately.
Companies have adopted the customer development process because it consumes less cash,
wastes fewer resources and allows them to bring products to market rapidly.

I-Corps - A Uniquely American Program
One of the unique parts of the class is applying the scientific method to building startups.
Teams start with a hypothesis – in this case about some part of their business (who are
their customers, partners, etc.), they design experiments to test those guesses, get out of the
lab and run the test. With the data in-hand they attempt to derive insight from the data and
either verify or disprove the hypothesis.

But much like in science, in business most experiments fail. Teams pick the wrong
customers, or the wrong pricing, or the wrong partners or even the wrong features for their
product. But the customer development process says failure is an integral part of the
processes. If your hypotheses are incorrect you pivot – that is you make a substantive
change and try something different.

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By running the process of hypothesis testing and pivots at an extraordinarily high rate of
speed, startups rapidly converge on a potential solution to “how do I turn a technology into
a company.”

This process is uniquely American. At its heart it embraces failure. We don’t punish it we
don’t give up when it happens we just simply recognize that Americans understand that
failure is part of the startup (and science) culture. Careers don’t end if the experiment
didn’t work or your company fails – you do another one. This tolerance for risk in our
society is what enables us to fund basic research. It’s why Silicon Valley investors fund
startups when over 90% of startups fail.

We have a special word for failed entrepreneurs in the U.S. that visitors to this country
have a hard time understanding – experienced.

Why is this Program Necessary?
One would think that private investors would be flocking to advanced technology coming
out of our universities. Yet the reality is that proposed technology innovations are just one
part of what makes a fundable company. A mistaken assumption is that it’s the role of
private capital to assess technology and determine whether there exists a viable fundable
company. In fact, it’s the role of the company to investigate the business opportunity of
the technology and present it to potential investors.

The job of the I-Corps program is to teach our top scientists how to develop the many other
essential components that make up an investable business (customers, pricing, sales
channel, partners, marketing, manufacturing, etc.) and present them to private capital in a
form that that articulates how investors can make money. And to do so in weeks, not in
years.

I-Corps is an educational program that is a bridge to private capital - not a replacement for
private capital. Venture capitalists co-teach the class to prepare the teams so they can
become fundable. Almost none of the entrants to the I-Corps cohorts could have attracted
private capital. Upon graduation 92% of the I-Corps graduates stated they were going to go
out and raise money – either from the NSF or with private capital - to build companies and
put Americans to work. Given that most of them didn’t know what a startup was coming in,
this was a bit astonishing. Every new company that gets funded means new jobs are being
created.

Picking Winners and Losers
The I-Corps program does not pick winners and losers. It doesn’t replace private capital
with government funds. Its goal is to get research the country has already paid for to the
point where a team can attract private capital in the shortest period of time. (It’s why we
teach the class with experienced Venture Capitalists.) Every team has volunteered for the
program. The marketplace, not the government, will decide whether their new venture will
win or lose.2

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While many government agencies use the Technology Readiness Levels3 to measure a
project’s technical maturity, there are no standards around business maturity levels. The
output of the NSF I-Corps class provides a proxy for a minimum level of business maturity.

Our goal is get the science out of the labs and into use by U.S. corporations. For the first
time, private capital now can look at “business ready” technology.

Why is a Federal Program Necessary?
The NSF I-Corps class has different goals then the same class taught in a university or
incubator. In a university, the class teaches a methodology the students can use for the rest
of their careers. In an incubator, the class develops angel or venture-funded startups.

When taught for the NSF I-Corps, the goal of the class is to teach NSF-funded researchers
how to move their technologies from university labs into the commercial world. Unlike a
traditional incubator where a successful outcome is an angel or venture-funded startup, for
the I-Corps the expected outcomes for teams include:

New startups funded via:
• an NSF SBIR Phase I grant (over 25% of the teams apply)
• Angel/VC funding (over 90% of the teams intend to seek additional funding)
• Patent or technology license to a U.S. company

If the teams pursue an SBIR Phase I grant ($150K), the NSF looks at the I-Corps projects
and asks: 1) is this team’s product viable? Go/no go? 2) If it’s a go, what’s the transition
plan to do so?, and 3) can this be a technology demonstration for potential partners?

Principal Investigators managing research at their university labs cannot take three months
off to attend a class at Stanford without interrupting their teaching and research. Therefore
the classes need to be offered at multiple sites in the U.S. with the majority of the
coursework performed at the team’s University. Only the Federal government can provide
the funding and logistics for the hundreds of I-Corps teams seeking the opportunity to
commercialize their research.

Innovation
Corps
Status

Beginning in 2011 we taught two I-Corps cohorts: 21 teams ending in December 2011 and
24 teams ending in May 2012. As we speak, in July 2012 we are teaching 54 more teams –
27 at Georgia Tech and 27 at the University of Michigan. We plan to educate another 50
teams in October. Each 3-person team consists of a Principal Investigator, an
Entrepreneurial Lead and a Mentor.

The Principal Investigator (average age of ~45) is a faculty member who runs his or her
own research lab and has had an active NSF grant within the last 5 years. The Principal

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Investigators form their teams by selecting one of his graduate students to be the
Entrepreneurial Lead.

The Entrepreneurial Lead is a graduate student or post doc (average age ~ 28) who works
within the Principal Investigator’s lab. If a commercial venture comes out of the I-Corps,
it’s more than likely that the Entrepreneurial Lead will take an active role in the new
company. (Typically Principal Investigators stay in their academic role and continue as an
advisor to the new venture.)

Mentors (average age ~50) are experienced entrepreneurs who are located near the
academic institution and have experience in transiting technology out of academic labs.
Mentors are recommended by the Principal Investigator (who has worked with them in the
past) or they may be a member of the NSF I-Corps Mentor network. Some mentors may
become an active participant in a startup that comes out of the class.

Teaching Objectives
Few of the Principal Investigators or Entrepreneurial Leads had business startup
experience, and few of the mentors were familiar with either Business Model design or
Customer Development.’

Therefore, the teaching objectives of the I-Corps class are:
1) Help each team understand that a successful company was more than just its
technology/invention by introducing all the parts of a business model (customers,
channel, get/keep/grow, revenue models, partners, resources, activities and costs.)
2) Get the teams out of the building to test their hypotheses with prospective
customers. The teams in the first cohort averaged 80 customer meetings per team;
the second cohort spoke to an average of 100.
3) Motivate the teams to pursue commercialization of their idea. The best indicators of
their future success were whether they a) found a scalable business model, b) had
an interest in starting a company, and c) would pursue additional funding.

My Role in the I-Corps Program
The I-Corps class was derived from my 21 years of startup experience. Those years gave
me the freedom to give back to my country and community to teach entrepreneurship. It
allowed me to explore a totally different way to think about and teach new venture
formation. I’m proud that startups in Silicon Valley and other entrepreneurial clusters in
the U.S. and the world have rapidly adopted the Lean Startup and Customer Development
methods. But its embrace by our country’s leading scientists that make me most proud.
We’ve cracked the code on entrepreneurship. We now know how to make startups fail less.

Scaling the I-Corps Program
I taught the first two I-Corps classes alongside venture capitalists I asked to volunteer their
services to the country. None of us received any compensation for our efforts.

Other regions in the U.S. around research universities have a robust entrepreneurial culture
(what they lack is a robust venture capital culture.) The program was designed from

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inception to scale in those research universities with entrepreneurial curricula. It is built
around a formal methodology of business model design and customer development. The
rigor of the framework allows entrepreneurship faculty in other universities to come up to
speed quickly. In fact, in March we trained the first set of instructors from other
universities. As we speak, the I-Corps is being taught simultaneously in Georgia Tech and
the University of Michigan. And the NSF will be announcing its plans to scale it further to
other universities.

Results
The National Science Foundation worked with NCIIA4 to establish a baseline of what the
students knew before the class and followed it up with a questionnaire after the class.

While my experience teaching students at Stanford, Berkeley and Columbia suggested that
this class was an effective way to teach all the parts that make up a startup, would the same
approach work with academic researchers?

Here’s what we found.

Teams came into the class knowing little about what parts made up a company business
model (customers, channel, get/keep/grow, revenue models, partners, resources, activities
and costs). They left with very deep knowledge.

I-Corps teams spent the class refining their business model and minimum viable product.

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http://nciia.org/

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By the end of the class:
○ Over 74% believed that they found a scalable business model (up from 16% pre-
course).
○ 92% felt that they had found “product/market fit” (up from 30% pre-course).

The class increased everyone’s interest in starting a company. 92% said they were going to
go out and raise money – either from the NSF or with private capital. (This was a bit
astonishing given that most of them didn’t know what a startup was coming in. These are
new jobs being created.)

One of the unexpected consequences of the class was its effect on the Principal
Investigators, (almost all tenured professors.) A surprising number said the ideas for the
class will impact their research, and 98% of all of the attendees said it was going to be used
in their careers.

Another unexpected result was the impact the class had on the professors’ own thinking
about how they would teach their science and engineering students. We got numerous
comments about “I’m going to get my department to teach this.”

The NSF understands that the analysis doesn’t end by just studying the results of each
cohort. We need to measure what happens to the teams and to each individual on the team
(Principal Investigator, Entrepreneurial Lead and Mentor) over time. It’s only after a
longitudinal study that will take years that we’ll understand the final tally on job creation.
But I think we’ve made a start.

Results/Recommendations
Going into the I-Corps program we had a series of our own untested hypotheses:
○ Would this experiential method of teaching impart a deep understanding of what it
takes to build a fundable company? The data from NCIIA says yes.

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○ Could we make 45-year old academics work as hard as entrepreneurs in hoodies and
flip-flops? Watching them get out of their labs and talk to 100 customers in 10 weeks
says yes.
○ Was the I-Corps curriculum scalable? Could we train other educators to teach it? The
courses being taught at Georgia Tech and the University Michigan show that we can.
○ Most importantly could we bridge the missing educational gap between invention and
company building? Here again the results say yes.

If we are correct about the outcome of these classes it seems logical to:
1. Recommend that the National Science Foundation require participation in an
I-Corps class for all teams before receiving a Phase II grant.
2. To support this, scale the I-Corps classes to ~15 universities by the end of 2013.
3. Encourage other government research organizations to offer I-Corps training as
precursor to their Phase II SBIR/STTR grants.
4. Use the NSF organizational experience in building the I-Corps program to be the
cognizant agency for I-Corps across all U.S. research organizations.

In closing, what we’ve just seen is a government program designed, built, tested and scaled
within a year. With just one-quarter of one percent of the NSF budget we’ve leveraged the
country’s commitment to research, its partnership with private capital and its tolerance for
failure in a uniquely American way. It’s an extraordinarily efficient use of taxpayers’
money. It will pay us back with jobs and a competitive edge on a global scale.

In short, we made a dent in the universe.

Thank you.

Acknowledgements
Thanks to the team at NCIIA that provided the analytical and logistical support to run these
NSF classes. And to the team at the National Science Foundation (Errol Arkilic, Babu
DasGupta) who took a chance at changing the status quo.

And thanks to the venture capitalists and entrepreneurs who volunteer their time for their
country; Jon Feiber from MDV, John Burke from True Ventures, Jim Hornthal from
CMEA, Jerry Engel from Monitor Ventures (and the U.C. Berkeley Haas Business
School) Oren Jacob from ToyTalk and Lisa Forssell of Pixar.

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Entrepreneurship Background: Cold War Spin Outs5
In the 1950’s the groundwork for a culture and environment of entrepreneurship were
taking shape on the east and west coasts of the United States. Each region had two of the
finest research universities in the United States, Stanford and MIT, which were building on
the technology breakthroughs of World War II and graduating a generation of engineers
into a consumer and cold war economy that seemed limitless. Each region already had the
beginnings of a high-tech culture, Boston with Raytheon, Silicon Valley with Hewlett
Packard.

However, the majority of engineers graduating from these schools went to work in existing
companies. But in the mid 1950’s the culture around these two universities began to
change.

Stanford – 1950’s Innovation
At Stanford, Dean of Engineering/Provost Fred Terman wanted companies outside of the
university to take Stanford’s prototype microwave tubes and electronic intelligence
systems and build production volumes for the military. While existing companies took
some of the business, often it was a graduate student or professor who started a new
company. The motivation in the mid 1950’s for these new startups was a crisis – we were
in the midst of the cold war, and the United States military and intelligence agencies were
rearming as fast as they could.

In 1956 Hewlett Packard, then a maker of test equipment was the valley’s largest
electronics employer with 900 employees. But startups were rapidly spinning out of
Stanford’s Applied Electronics Lab delivering microwave tubes, components and complete
electronic intelligence and electronic warfare systems for the U.S. military and intelligence
agencies. The future of the valley was clear – microwaves.

1956 – SLBMS and Semiconductors
In 1956 two events would harbor the beginning of a sea-change in innovation and
entrepreneurship. At the time neither appeared earthshaking or momentous. Shockley
Semiconductor Laboratory, the first semiconductor company in the valley, set up shop in
Mountain View. And down the street, Lockheed Missiles Systems Division, which would
become the valley’s most important startup for the next 20 years, moved its new missile
division from Burbank to 275 acres next to the Moffett Naval Air Station in Sunnyvale.

Lockheed, an airplane manufacturer, was getting into the missile business by becoming the
prime contractor to build the Polaris, a submarine launched ballistic missile (SLBM)
developed by the Navy. The Polaris was unique: it would be the first solid-fuel ballistic
missile used by the U.S. Solid fuel solved the safety problem of carrying missiles at sea
and underwater and also allowed for instant launch capability. Polaris launched SLBM’s
would become the third part of the nuclear triad the U.S. built in the cold war – the Polaris,
the B-52 manned bomber, and the Minuteman, and Titan land-based Intercontinental

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Ballistic Missiles (ICBMs.)

10 years after the program started the United States had built and put to sea 41 ballistic
missile submarines carrying 656 Lockheed missiles. Lockheed built close to 1000 of these
missiles in those ten years. That’s 100 missiles a year, 8/month or 2 a week flying out of
Moffett Field in the heart of what would become Silicon Valley.

Zero to 28,000 people – We Become “Defense Valley”
By 1965 Hewlett Packard, the test and instrumentation company, had grown ten-
fold. From 900 people in 1956 it now employed 9,000. Clearly it must have been the
dominant company in the valley? Or perhaps it was Fairchild, the direct descendant of
Shockley Semiconductor, now the dominant semiconductor supplier in the valley (80% of
its first years business coming from military systems) with ~10,000 people?

Nope, it was the Lockheed Missiles Division, which had zero employees in 1956, now in
1965 had 28,000 employees in Sunnyvale. The best and the brightest were coming from
across the country to the valley south of San Francisco.

And they were not only building Polaris missiles.

By 1965 Lockheed factories in Sunnyvale, Stanford and East Palo Alto were building spy
satellites for the CIA, NSA and NRO. While the 1950′s had made the area south of San
Francisco “Microwave Valley,” the growth of Lockheed, Westinghouse and their
suppliers had turned us into “Defense Valley.”

Why It’s “Silicon” Valley
While 1956 was the beginning of massive government funding in what would become
Silicon Valley, entrepreneurship as we now know it began to emerge in a very small and
inconspicuous way. Shockley Semiconductor Laboratory, the first semiconductor company
in the valley, set up shop in Mountain View. Fifteen months later eight of Shockley’s
employees (three physicists, an electrical engineer, an industrial engineer, a mechanical
engineer, a metallurgist and a physical chemist) quit Shockley and founded Fairchild
Semiconductor. (Every chip company in Silicon Valley can trace their lineage from
Fairchild.)

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The history of Fairchild was one of applied experimentation. It wasn’t pure research, but
rather a culture of taking sufficient risks to get to market. It was learning, discovery,
iteration and execution. The goal was commercial products, but as scientists and engineers
the company’s founders realized that at times the cost of experimentation was failure. And
just as they don’t punish failure in a research lab, they didn’t fire scientists whose
experiments didn’t work. Instead the company built a culture where when you hit a wall,
you backed up and tried a different path. (In 21st century parlance we say that innovation in
the early semiconductor business was all about “pivoting” while aiming for salable
products.)

The Fairchild approach would shape Silicon Valley’s entrepreneurial ethos: In startups,
failure was treated as experience (until you ran out of money.)

Scientists and Engineers as Founders
In the late 1950’s Silicon Valley’s first three Initial Public Offerings (IPO’s) were
companies that were founded and run by scientists and engineers: Varian (founded by
Stanford engineering professors and graduate students,) Hewlett Packard (founded by two
Stanford engineering graduate students) and Ampex (founded by a mechanical/electrical
engineer.) While this signaled that investments in technology companies could be very
lucrative, both Shockley and Fairchild could only be funded through corporate partners –
there was no venture capital industry. But by the early 1960′s the tidal wave of
semiconductor startup spinouts from Fairchild would find a valley with a growing number
of U.S. government backed venture firms and limited partnerships.

A wave of innovation was about to meet a pile of risk capital.

For the next two decades venture capital invested in things that ran on electrons: hardware,
software and silicon. Yet the companies were anomalies in the big picture in the U.S. –
there were almost no MBA’s. In 1960’s and ‘70’s few MBA’s would give up a lucrative

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career in management, finance or Wall Street to join a bunch of technical lunatics. So the
engineers taught themselves how to become marketers, sales people and CEO’s. And the
venture capital community became comfortable in funding them.

Medical Researchers Get Entrepreneurial
In the 60’s and 70’s, while engineers were founding companies, medical researchers and
academics were skeptical about the blurring of the lines between academia and commerce.
This all changed in 1980 with the Genentech IPO.

In 1973, two scientists, Stanley Cohen at Stanford and Herbert Boyer at UCSF, discovered
recombinant DNA, and Boyer went on to found Genentech. In 1980 Genentech became the
first IPO of a venture funded biotech company. The fact that serious money could be made
in companies investing in life sciences wasn’t lost on other researchers and the venture
capital community.

Over the next decade, medical graduate students saw their professors start companies,
other professors saw their peers and entrepreneurial colleagues start companies, and VC’s
started calling on academics and researchers and speaking their language.

Scientists
and
Engineers
=
Innovation
and
Entrepreneurship

Yet when venture capital got involved they brought all the processes to administer existing
companies they learned in business school – how to write a business plan, accounting,
organizational behavior, managerial skills, marketing, operations, etc. This set up a conflict
with the learning, discovery and experimentation style of the original valley founders.

Fifty years later we now know the engineers were right. Business plans are fine for large
companies where there is an existing market, product and customers, but in a startup all of
these elements are unknown and the process of discovering them is filled with rapidly
changing assumptions.

Startups are not smaller versions of large companies. Large companies execute known
business models. In the real world a startup is about the search for a business model or
more accurately, startups are a temporary organization designed to search for a scalable
and repeatable business model.

Yet for the last 40 years, while technical founders knew that no business plan survived first
contact with customers, they lacked a management tool set for learning, discovery and
experimentation.

In 2011 we taught a class in the Stanford Technology Ventures Program, (the
entrepreneurship center at Stanford’s School of Engineering), based on my previous
Stanford and U.C. Berkeley courses, to provide scientists and engineers just those tools –
how to think about all the parts of building a business, not just the product. The Stanford
Lean LaunchPad class introduced the first management tools for entrepreneurs built
around the business model / customer development / agile development solution stack.

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With the NSF Innovation Corps, scientists and engineers now have a methodology to
rapidly take commercialize their research.

The Innovation Corps/Lean LaunchPad: Management tools for
entrepreneurs
One of the things startups have lacked is a definition of who they were. For years we’ve
treated startups like they are just smaller versions of large companies However, we now
know that a startup is a temporary organization designed to search for a repeatable and
scalable business model. Within this definition, a startup can be a new venture or it can be
a new division or business unit in an existing company.

If your business model is unknown—that is, just a set of untested hypotheses—you are a
startup searching for a repeatable business model. Once your business model (market,
customers, features, channels, pricing, Get/Keep/Grow strategy, etc.) is known, you will be
executing it. Search versus execution is what differentiates a new venture from an existing
business unit.

Strategy

The term “business model” first appeared around 50 years ago, but the concept didn’t catch
on until the 1990’s. It became common vernacular to discuss business models, but without
a standard framework and vernacular, confusion reigned. In 2010, when Alexander
Osterwalder published his book, Business Model Generation, he provided a visual
ontology and a clear vernacular that was sorely needed, and it became clear that this was
the tool to organize startup hypotheses.

The primary objective of a startup is to validate its business model hypotheses until it finds
one that is repeatable and scalable (it continues to iterate and pivot until it does.) Then it
moves into execution mode. It’s at this point the business needs an operating plan,
financial forecasts and other well-understood management tools.

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Process

Yet as powerful as the Business Model Canvas (a template with the nine blocks of a
business model) is, at the end of the day it was a tool for brainstorming hypotheses without
a formal way of testing them.

The processes used to organize and implement the search for the business model are
Customer Development and Agile Development. A search for a business model can occur
in any new business—in a brand new startup new or in a new division of an existing
company.

The Customer Development model breaks out all the customer-related activities of an
early-stage company into four easy-to-understand steps. The first two steps of the process
outline the “search” for the business model. Steps three and four “execute” the business
model that’s been developed, tested, and proven in steps one and two. The steps:

○ Customer discovery first captures the founders’ vision and turns it into a series of
business model hypotheses. Then it develops a plan to test customer reactions to those
hypotheses and turn them into facts.
○ Customer validation tests whether the resulting business model is repeatable and
scalable. If not, you return to customer discovery.
○ Customer creation is the start of execution. It builds end-user demand and drives it into
the sales channel to scale the business.
○ Company-building transitions the organization from a startup to a company focused on
executing a validated model.

In the “search” steps, you want a process designed to be dynamic, so you work with a
rough business model description knowing it will change. The business model changes
because startups use customer development to run experiments to test the hypotheses that
make up the model. (First testing their understanding of the customer problem and then
solutions.) Most of the time these experiments fail. Search embraces failure as a natural
part of the startup process. Unlike existing companies that fire executives when they fail to
match a plan, we keep the founders and change the model.

Once a company has found a business model (it knows its market, customers,
product/service, channel, pricing, etc.), the organization moves from search to execution.

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The product execution process—managing the lifecycle of existing products and the
launch of follow-on products—is the job of the product management and engineering
organizations. It results in a linear process where you make operating plans and refine
them into detail. The more granularity you add to a plan, the better people can execute it: a
Business Requirement document (BRD) leads to a Market Requirements Document
(MRD) and then gets handed off to engineering as a Functional Specifications Document
(FSD) implemented via Agile or Waterfall development.

Organization

Searching for a business model requires a different organization than the one used to
execute a plan. Searching requires the company to be organized around a customer
development team led by the founders. It’s only the founders who can make the strategic
decisions to iterate and/or pivot the business model, and to do that they need to hear
customer feedback directly. In contrast, execution (which follows search) assumes that the
job specifications for each of the senior roles in the company can be tightly authored.
Execution requires the company to be organized by function (product management, sales,
marketing, business development, etc.)

Companies in execution suffer from a “fear of failure culture,” quite understandable since
they were hired to execute a known job spec. Startups with Customer Development Teams
have a “learning and discovery” culture for search. The fear of making a move before the
last detail is nailed down is one of the biggest problems existing companies have when
they need to learn how to search.

The idea of not having a functional organization until the organization has found a proven
business model is one of the hardest things for new startups to grasp. There are no sales,
marketing or business development departments when you are searching for a business
model. If you’ve organized your startup with those departments, you are not really doing
customer development. (It’s like trying to implement a startup using Waterfall
engineering.)

16

Education

Entrepreneurship curricula are only a few decades old. First taught as electives and now
part of core business school curricula, the field is still struggling to escape from the bounds
of the business plan-centric view that startups are “smaller versions of a large company.”
Venture capitalists who’ve watched as no startup business plan survived first contact with
customers continue to insist that startups write business plans as the price of entry to
venture funding. This continues to be the case even as many of the best VCs understand
that business “planning,” and not the “plan” itself, is what is important.

The trouble is that over time, this key message has gotten lost. As business school
professors, many of whom lack venture experience, studied how VCs made decisions, they
observed the apparently central role of the business plan and proceeded to make the plan,
not the planning, the central framework for teaching entrepreneurship. As new generations
of VCs with MBAs came into the business, they compounded the problem (“that’s how we
always done it” or “that’s what I learned (or the senior partners learned) in business
school.”)

Entrepreneurship educators have realized that a plan-centric curriculum may get by for
teaching incremental innovation but won’t turn out students prepared for the realities of
building new ventures. Educators are now beginning to build their own E-
School curriculum with a new class of management tools built around “search and
discovery.” Business Model Design, Product/Service Development, Customer
Development, Startup Team-Building, Entrepreneurial Finance, Marketing, Founder

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Transition, etc., all provide the startup equivalent of the management tools MBAs learn for
execution.

Instructional
Strategy

Entrepreneurial education is also changing the focus of the class experience from case
method to hands-on experience. Invented at Harvard, the case method approach assumes
that knowledge is gained when students actively participate in a discussion of a situation
that may be faced by decision makers.

But the search for a repeatable business model for a new product or service is not a
predictable pattern. An entrepreneur must start with the belief that all her assumptions are
simply hypotheses that will undoubtedly be challenged by what she learns from customers.
Analyzing a case in the classroom removed from the realities of chaos and conflicting
customer responses adds little to an entrepreneur’s knowledge. Cases can’t be replicated
because the world of a startup too chaotic and complicated. The case method is the
antithesis of how entrepreneurs build startups—it teaches pattern recognition tools for the
wrong patterns—and therefore has limited value as a tool for teaching entrepreneurship.

The replacement for the case method is not better cases written for startups. Instead, it
would be business model design; using the business model canvas as a way to 1) capture
and visualize the evolution of business learning in a company, and 2) see what patterns

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match real world iterations and pivots. It is a tool that better matches the real-world search
for the business model.

In addition, teaching for the Lean LaunchPad class is typically done with a “flipped
classroom.” Here, the lectures are homework (as interactive videos) and the homework
(testing hypotheses in front of customers) is the classroom discussion as all teams present.
To keep track of the students’ customer discovery progress, we use an on-line tool
(LaunchPad Central) to record the week-by-week narrative of their journey.

An entrepreneurial curriculum obviously will have some core classes based on theory,
lecture and mentorship. There’s embarrassing little research on entrepreneurship education
and outcomes, but we do know that students learn best when they can connect with the
material in a hands-on way, personally making the mistakes and learning from them
directly.

As much as possible, the emphasis ought to be on experiential, learner-centric and inquiry-
based classes that help to develop the mindset, reflexes, agility and resilience an
entrepreneur needs to search for certainty in a chaotic world.

I-Corps Lean LaunchPad Pedagogy – Experiential Learning
and a Flipped Classroom
The Lean LaunchPad is a hands-on program that immerses teams in testing their business
model hypotheses outside the classroom. Inside the classroom, it deliberately trades off
lecture time for student/teaching team interaction.

The Lean LaunchPad uses the Customer Development process and the business model
canvas to collapse the infinite possibilities of a startup into a solvable problem.

Experiential Learning
Experiential learning has been around forever. Think of the guilds, apprentices, etc.
Mentors were the master craftsmen. That’s the core idea of this class.

The I-Corps class uses experiential learning as the paradigm for engaging the participants
in discovery and hypotheses testing of their business models. From the first day we meet,
the teams get out of the classroom and learn by doing.

This is very different from how a business school, “how to write a business plan” class
works. There, it assumed a priori a valid business model. In this Lean LaunchPad class, the
teams are not building a business (yet). Information they learn from customers will
validate/invalidate their hypotheses (thesis), and the teams will modify the business model
(iterate or pivot). This results in the teams bringing market needs forward. Then they can
decide if there’s a business to be built.

What this class does not include is execution of the business model. In this course,
implementation is all about discovery outside of the classroom. Once discovery has

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resulted in a high degree of confidence that a viable business model exists, it is time to
create an execution plan. If the teams continue with their companies, they will assemble
the appropriate operating plans (financial models, revenue plans, etc.)

The Flipped Classroom
Rather than classroom lectures by an instructor in the weeks we are remote and online, the
lectures have now become homework. Students will watch a lecture on each component of
the business model canvas, take a short quiz and have access to a class forum for questions.
Their homework for that week assumes they will use that new knowledge to test that
specific part of the business model.

Innovation Corps - Course Logistics
In week 1, students attend 3 days of on-site training at a NSF-designated university. Half
the days are team presentations and critiques plus in-person lectures, and the other half
consists of getting out of the building and talking to customers.

For the next 5 weeks, back at their universities, teams spend 10-15 hours a week talking to
customers.

In addition, each week, teams spend two hours on-line as they present their findings via
WebEx and hear their peers’ presentations

During the week, they watch an interactive lecture on a portion of the business model
canvas

In Week 8, they reconvene at the same at a NSF-designated university for one day of
presentation training, and another for the final “Lessons Learned” presentations.

Classes
For each weekly class session, there are:
○ Pre-class readings
○ A pre-recorded on-line lecture with quizzes
○ An in-class team 10-minute presentation
○ Weekly assignment to get out of the building and test one of the business model
components with 10+ customers

Each week’s class session is organized around:
○ Team presentations on their “lessons learned” from talking with customers and
iterating or pivoting their business models.
○ Lectures:
 For the first week, three in-person business model lectures;
 Online, in weeks 2-6, lectures are assigned as homework with quizzes

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Week Location Lecture Topic
Week 1 On-site Lecture 1 Intro, Business Models, and Customer
Development
On-site Lecture 2 Value Proposition
On-site Lecture 3 Customers
Week 2 On-line, self paced Lecture 4 Channels
Week 3 On-line, self paced Lecture 5 Customer Relationships Get/Keep/Grow
Week 4 On-line, self paced Lecture 6 Revenue Model
Week 5 On-line, self paced Lecture 7 Partners
Week 6 On-line, self paced Lecture 8 Resources and Costs
Week 8 On-Site Lecture 9 Presentation Skills Training
On-Site Lecture 10 Lessons Learned Presentations

Innovation for the 99%
While we’re excited by the results of the NSF Innovation Corps, we’ve realized that this
program just solves the problem for the 1% of new ventures that are technology startups.
The reality is that the United States is still a nation of small businesses. 99.7% of the ~6
million companies in the U.S. have less than 500 people and they employ 50% of the 121
million workers getting a paycheck. They accounted for 65 percent (or 9.8 million) of the
15 million net new jobs created between 1993 and 2009. And while they increasingly
use technology as a platform and/or a way of reaching and managing customers, most are
in non-tech businesses (construction, retail, health care, lodging, food services, etc.)

While we were figuring out how to be incredibly more efficient in building new
technology startups, three out of 10 new small businesses will fail in 2 years, half fail
within 5 years. The tools and techniques available to small businesses on Main Street are
the same ones that were being used for the last 75 years.

Therefore, our remaining challenges are how to make them fail less – and how can we
make the Lean LaunchPad approach relevant to the rest of the 99% of startups.

Business plans are obsolete for Main Street
Our first insight was that the traditional “how to write a business plan” was as obsolete for
Main Street as it is for Silicon Valley.

In most communities building a successful venture that generated nice cash flows – not
IPO’s – were the big win. To his students these were not “small businesses”, but ‘their
businesses’, their livelihoods and their opportunities to create wealth and independence for
themselves and their families.

While the teachings of the Lean LaunchPad directly applicable and effective to small
businesses, there is a mismatch in the size of the end goal (a great living versus a billion
dollar IPO) and the details of the implementation of the business model (franchise and
multilevel marketing versus direct sales, profit sharing versus equity for all, family and

21

SBA loans versus venture capital, etc.)

We can easily adjust the NSF Innovation Corps class to bring 21st century
entrepreneurship techniques to ‘Main Street’. To do this we needed to do is change the end
goals and implementation details to match the aspirations and realities that these new small
businesses face.

We called this Mainstream Entrepreneurship.

Mainstream Entrepreneurship
Mainstream Entrepreneurship recognizes that with the Lean LaunchPad class we now have
a methodology of making small businesses fail less. That accelerating business model
search and discovery and using guided customer engagement as a learning process, we
could help founders of mainstream businesses just like those starting technology ventures.
For the rest of the afternoon, Steve and I brainstormed with Alex about how he could take
his 20 years of entrepreneurial small business experience and use the Business Model
Canvas and Customer Development to create a university entrepreneurship curriculum and
vocabulary for the mainstream of American Business.

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