Every startup is in a race to earn customer revenue before investor cash runs out. Rookie entrepreneurs think that is simply a sales challenge. Experienced entrepreneurs know that successful customer development begins by listening, not selling.
This customer development by listening is called customer discovery. We believe it is the most important step in launching innovation-driven ventures. It is a core part of a revolution in new venture creation known as the lean startup. The goal is to learn by getting out of the building rather than attempting to create the perfect, abstract plan.
The lean startup concept gained awareness with the 2011 publication of The Lean Startup by entrepreneur Eric Ries. The Harvard Business Review published Steve Blank’s “Why the Lean Start-Up Changes Everything” in May 2013, validating its broad applicability to new ventures.
This powerful new model is a response to the failure of the traditional business plan approach. At Ventureprise, UNC Charlotte’s innovation and entrepreneurship center, we have read hundreds of business plans written by smart, highly motivated founders who invested considerable effort. With rare exception, they have shared a common flaw: These elaborate plans are based on opinions about the venture’s prospective customers and their presumed likelihood to purchase the proposed product or service.
Most startups fail. In fact, a recent study from Harvard Business School found that 75 percent of venture-backed startups won’t survive long-term. We believe the traditional business plan approach often contributes to that failure. Consider the traditional process as described by Steve Blank: “You write a business plan, pitch it to investors, assemble a team, introduce a product, and start selling as hard as you can.”
The lean startup method is designed to reduce failure risk by favoring experimentation over detailed plans and, importantly, by emphasizing customer feedback over founder belief. It recognizes that the startup process must be iterative. There is no immaculate conception in new venture creation.
The Ventureprise team has decades of experience with business plans. We wrote them for companies we started. We used them in courses we taught, and we’ve reviewed hundreds in business plan contests across multiple states.
However, by 2012, our Charlotte Venture Challenge abandoned the flawed business plan methodology in favor of the business model. Since then, we have experienced the power of customer discovery and lean startup in the 100-plus teams that have completed our Ventureprise Launch programs. The approach aligns with, and is expected by, startup resources such as NC IDEA Seed Grant, Pitch Breakfast, Charlotte Venture Challenge and investor due diligence.
In the coming weeks, Ventureprise will introduce StartCharlotte readers to lean startup, business model generation and customer discovery. We describe this new way of starting companies as evidence-based entrepreneurship. Despite all of the new thinking and new tools, this is simply what every successful entrepreneur does-understand and serve customer needs.
Join us next time as we “get out of the building.”
To learn more, explore this video resource.
Paul Wetenhall is the executive director of Ventureprise, UNC Charlotte’s innovation and entrepreneurship center serving the UNC Charlotte campus and Charlotte region.