How to Fail Less: Steve Blank on the Secrets of Start-Ups

"We've cracked the code. We can say that we know how to make start-ups fail less."

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Suddenly, innovation, creativity, and entrepreneurship are the most powerful ideas in not just the business world, but also on the New York Times best-seller list and in Congress, that infamous dungeon of inspiration, where good ideas go to die. These are distinct, if overlapping terms. Not all creativity leads to innovation and not all innovation is done by entrepreneurs. But you can learn a lot about the first two terms by studying the third.

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And so, for The Atlantic's week-long special report on innovation, I wanted to talk to one of the smartest and most commonsense thinkers I know on starting a company and harnessing creativity for start-ups. That's Steve Blank, a teacher, blogger, Atlantic contributor, and serial entrepreneur whose breakthrough ideas about customers and epiphanies have inspired both entrepreneurs I know personally and the U.S. government. We spoke yesterday about Steve Jobs, the character of Silicon Valley, and why Steve believes entrepreneurship is teachable.

Here's a lightly edited transcript:

It seems to me that enthusiasm for start-ups lags behind a clear understanding of how start-ups work and why some are successful. What have we learned recently about the character of successful start-ups?

The modern corporation can be traced back to the East India Company in 1600. The corporation evolved to its modern form over 300 years. Business men learned on the job about accounting, and human resources, and team building.

It wasn't until 1908 that some people at Harvard University realized that nobody was teaching an advanced course on how to teach a manager. Harvard came up with a Masters in Business Administration, an MBA. It was a two-year course on how to execute existing companies.

For the next 50 years, the MBA dominated the American Century. It became the gold standard. There's nothing wrong with an MBA. It just teaches you execution. When the first investors came out to Silicon Valley they looked at these tech companies and said, "We'll take everything we know from business school about how to organize companies." But they didn't understand the big idea: Start-ups aren't smaller version of large companies. You can't put execution strategy on top of a start-up and expect to succeed.

Learning to manage a company seems categorically different from learning to come up with ideas that grow into companies. That skill feels more elusive. Can you really teach entrepreneurship?

Many people say you can't. They're ignorant. But it was true that we didn't know how to teach entrepreneurship for decades, because we didn't understand how start-ups were different from large companies.

Large companies execute. Start-ups in their early stage don't execute. They search. And for a long time, we had no tools for search. But in the last few years, we've started to build the equivalent of an execution plan for start-ups. We've cracked the code for early stage ventures. We can say that we know how to make start-ups fail less.

Tell me how you teach entrepreneurship. What does it mean to learn how to search?

The old entrepreneurship class was: Let's write a business plan do a PowerPoint presentation for the investors. But that plan is a static item. It says, "Here's my idea. Here's the opportunity. Here's the team. Here's the forecast." It has no learning. I teach at Stanford and Berkley. Let me tell you, the smartest kids in the world can put together a great plan with no bearing on reality.

So I came up with the idea of a "Lean Launchpad." It's been picked up by various universities and the US government. The Lean Launchpad says: We don't care about your initial hypotheses. The hypothesis is just a thought. The safest bets are probably all wrong. Your initial guess about customer and price are going to be wrong. About 950 of the 1000 best start-ups don't execute their first plan.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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