Steve Blank gave a thought provoking talk at the Startup Lessons Learned Conference on “Customer Development 2.0: Why Accountants Don’t Run Startups” (slides here and related blog post “Why Accountants Don’t Run Startups” which is part of a category of blog posts on “Durant vs. Sloan“). He also referenced Robert Shedd‘s list of startup accelerators “Help for Startups! – A semi-complete list of startup accelerator programs” and noted that many of them were now offering entrepreneurial education: “most startup accelerators have great coaching but minimal methodology.”
Blank then noted the disconnect between what entrepreneurs need to know for an early stage firm and the skills they need for a mature business.
- The skills needed to run an early stage startup which is still looking to settle on a first product in a target market with a viable business model: hypothesis testing, business model testing, customer development, agile development, metrics, venture finance, and hands on leadership.
- What business schools offer are the skills needed by a mature business: managerial finance, managing groups and teams, financial accounting, modeling for optimization, and global value chain strategy.
Steve predicted that E-Schools for entrepreneurs would emerge, the counterpart of B-Schools for managers in established firms, and asked the attendees to help build them: “E-School–Let’s Help Build It.”
New Venture Capital Models
I think that there may not be good reasons why things are the way that they are, but there are strong reasons. There have been a number of critiques of the VC funding (and seed funding) process which are relevant to the E-School concept:
- Adeo Ressi‘s “The Canarie is Dead” which led him to start both TheFunded and the Founders Institute
- Mike Maples “Super Angel Model”
- Right Side Capital‘s Philosophy and Target
- Coming in the second half of 2010. 100-200 seed investments per year. Investment decisions in 2-weeks
Other Models For E-Schools
A number of organizations have also identified and attempted to address this issue. Earlier efforts have tended to focus on providing office space, small business management skills, and introductions to potential funding sources. Blank’s E-School model, with it’s customer development, focus represents a welcome innovation. Here is a representative set of older and emerging E-Schools:
- Founders Institute Courses
- Force For The Future Post Incubator Education
- Venture Hacks: Bible & Angel List
- University programs like Babson, Clark
- Kauffman Foundation’s FastTrac
- older: Garage Ventures Revenue Bootcamp 2009 & “Art of the Start (2006)“
- older: National Business Incubator Association
- older: Service Core of Retired Executives (SCORE)
Part of the challenge with a new methodology is that funded firms are very risk averse to adopting a new methodology once they have raised venture financing. For the most part funding convinces them of the correctness of their plan and, given that they were able to raise a round, their default strategy is more fund raising instead of focusing on customer revenue if they hit a speed bump. I think it may be difficult to trigger much of a change, at least initially, in venture backed firms.
There is probably an opportunity for Angel education (and aggregation) in that requiring customer development techniques will act as a multiplier on most investments (or at least in many markets). This seems to be what the Venture Hacks Angel List and Floodgate are already executing.
Start With a Dashboard for Early / Angel Investors
In his talk Blank was clear that early stage firms need a different dashboard than the standard revenue pipeline, balance sheet, and income statement. Providing instrumentation and operational guidance for what board level review should look like in an early stage firm that’s been Angel funded might be a good insertion point for an E-School methodology.
Why Angels? They are investing their own money and don’t have recourse to management fees from Limited Partners for compensation, so they are more likely to adopt techniques that increase the chance of success and wring more value out of their seed investment. E-Schools probably stand the best chance of disrupting the VC ecosystem “from the bottom” and that would be the Angels and seed funds. One measure of success would be to specify a “lessons learned” format to substitute for the “demo day” that incubators run to help startups generate follow on investment.