Steve Blank: Acting on Customer Discovery

TL;DR

Founders must speak directly with customers because the people who can change strategy need to hear both positive and negative feedback firsthand. Alan Michaels turned demand for only a few circuit boards into an order for 10,000 computers by listening and expanding the product, while his later company failed after he stayed in the office and rejected customer evidence.

Transcript

When I first started at Convergent Technologies, the founder, Alan Michaels, had left Intel and he believed he was going to be making a single board computer. Computer that fit on one circuit board back in the early 1980's was a radical notion. And what Alan did was he went around to computer companies and said, "Look at what I got. How many would ... Read More

Key Insights

• • Customer discovery is a founder responsibility because the people capable of changing company strategy must personally hear both encouraging and unfavorable evidence from customers.
• • Early interest in the single-board computer was limited to research quantities, with prospective buyers offering to take three, five, or ten boards rather than thousands.
• • The product became commercially compelling when customer questions revealed the need for an enclosure, an operating system, a word processor, and other applications.
• • Listening during discovery converted a possible first-year outcome of 25 board sales into a Burrows order for 10,000 complete computers.
• • Fulfilling the new order required organizational change because the seven-person company lacked the operating system and application software that customers expected.
• • Convergent acquired missing capabilities by hiring the head of Xerox PARC's Advanced System Division, who brought an operating system and people who had written the Bravo word processor.
• • Ardent's customers showed excitement about a product roughly 20% different from the graphics supercomputer being built, including changes involving the server and vector unit.
• • Secondhand feedback is easy for leaders to dismiss because they can blame the messenger, the explanation, or an outside consultant instead of reconsidering strategy.

Questions & Answers

Q: Why must founders conduct customer discovery themselves?

Founders must conduct customer discovery because they are usually among the people capable of changing product and company strategy. Hearing positive and negative reactions firsthand makes the evidence harder to dismiss as poor reporting or weak salesmanship. Steve Blank argues that customer feedback is the most valuable information entrepreneurs receive and cannot be delegated entirely to salespeople, executives, consultants, or agencies.

Q: How did customer feedback change the Convergent product?

Alan Michaels began by offering a single-board computer, but prospective customers viewed it mainly as a building block and wanted only a few boards for research. During his conversation with Burrows, questions about an enclosure, operating system, word processor, and other applications revealed what a complete purchase required. Michaels responded by committing to provide those elements as part of a computer.

Q: How did Alan Michaels turn small orders into 10,000 computers?

Michaels listened closely when Burrows described what was missing from the board. Instead of limiting the discussion to the existing design, he proposed a boxed computer and agreed that it would include an operating system, a word processor, and other needed functions. That willingness to reshape the offering produced an order for 10,000 computers rather than another single-digit board purchase.

Q: What challenge followed the order for 10,000 computers?

The order created an immediate execution problem for a company with only seven people. Convergent had promised a complete computer, but it still needed an operating system and a set of applications. Michaels asked where those capabilities could be obtained, then hired the head of Xerox PARC's Advanced System Division, who arrived with an operating system and people associated with the Bravo word processor.

Q: What business result followed Convergent's customer discovery?

Before adapting the offering, Convergent might have sold only 25 boards during its first year because prospective buyers wanted small research quantities. After Michaels listened to customer requirements and committed to a complete computer, the company obtained an order for 10,000 machines from Burrows. Four years later, Convergent sold the company to Burrows for $400 million.

Q: Why did customer discovery fail at Ardent?

Customer discovery failed at Ardent because Alan Michaels, then a successful chief executive, stayed in the office and spoke with investors instead of meeting customers. His executives gathered evidence that customers disliked the planned feature combination and preferred a product roughly 20% different. Michaels rejected that feedback, never listened to the market evidence, and the company eventually went out of business.

Q: What changes did customers want from Ardent?

Customers told Steve Blank that Ardent's planned combination of product features was extremely poor. However, they expressed substantial interest in a modified offering. They wanted the company to separate out the server because its price and performance were attractive, and they also requested a change to the vector unit. Blank characterized the desired product as about 20% different from what Ardent was building.

Q: Why is hiring a salesperson not enough for customer discovery?

A professional salesperson can present and sell a product, but that does not replace a founder's direct exposure to customer reactions. When feedback arrives through another person, a founder can claim the messenger misunderstood the customer or failed to explain the product strongly enough. Technical founders therefore still need to leave the building, hear objections directly, and use that evidence to reconsider strategy.

Summary

In this video, the speaker shares two stories about the importance of customer discovery in entrepreneurship. The first story is about how Alan Michaels, the founder of Convergent Technologies, realized the potential of his single board computer by listening to customer feedback and making necessary improvements. The second story is about the speaker's experience at Ardent, where he discovered that founders themselves need to be actively involved in customer discovery rather than outsourcing it to others.

Questions & Answers

Q: What were the initial reactions of computer companies to Alan Michaels' single board computer?

The initial reactions of computer companies to Alan Michaels' single board computer were positive, but they were only interested in purchasing a few boards for their R&D labs. They were hesitant because the computer didn't have a case, operating system, or applications.

Q: How did Alan Michaels convince companies to buy his single board computer in larger quantities?

Alan Michaels convinced companies to buy his single board computer in larger quantities by addressing their concerns and making improvements. When one company expressed interest in purchasing 10 boards, Alan realized that he needed to provide additional features such as a case, operating system, and word processor.

Q: How did Convergent Technologies' success change after securing an order for 10,000 computers from Burrows?

Convergent Technologies' success changed dramatically after securing an order for 10,000 computers from Burrows. The company went from potentially selling only 25 boards in the first year to eventually being acquired by Burrows for $400 million. This success was a result of listening to customer feedback and making necessary changes to meet their requirements.

Q: What challenges did Alan Michaels face when starting his next company, Ardent?

When starting Ardent, Alan Michaels faced the challenge of building a graphics supercomputer that combined features from a Cray and a Silicon Graphics machine. However, instead of personally engaging with customers, Alan focused on talking to investors, leaving the VP of Marketing to interact with customers.

Q: What kind of feedback did the speaker receive from customers about Ardent's product features?

Customers provided feedback that Ardent's product features were not well received, but they saw potential in certain aspects if they were modified. They suggested removing certain elements and focusing on providing a server with improved price performance.

Q: How did the speaker feel after gathering feedback from customers and visiting various organizations?

The speaker felt confident and smart after gathering feedback from customers and visiting various organizations. He believed he had discovered what customers wanted and was excited to share his findings with Alan Michaels.

Q: How did Alan Michaels react when the speaker informed him about customers' negative feedback?

When the speaker informed Alan Michaels about customers' negative feedback, Alan fired the speaker three times. Alan did not value or listen to the feedback, which ultimately led to the company's downfall.

Q: Why does the speaker emphasize the importance of founders being involved in customer discovery?

The speaker emphasizes the importance of founders being involved in customer discovery because it is not an outsourceable problem. Founders need to hear both positive and negative feedback firsthand in order to make informed decisions and be able to change strategies effectively.

Q: What does the speaker say is the most valuable thing entrepreneurs can do?

The speaker states that getting feedback from customers is the most valuable thing entrepreneurs can do. It is not something that should be outsourced, and even technical founders should not rely solely on professional salespeople to sell their product without ever interacting with customers.

Q: What is the main takeaway from the speaker's stories about customer discovery?

The main takeaway from the speaker's stories about customer discovery is that founders themselves need to be actively involved in listening to customer feedback and making necessary improvements. Outsourcing customer discovery or ignoring customer feedback can lead to failure in the business. Take the time to personally understand and adapt to the needs and preferences of the target customers.

Takeaways

The main takeaways from the video are that customer discovery is crucial for the success of a business and should not be outsourced. Founders need to personally engage with customers, listen to their feedback, and be willing to make necessary changes to meet their needs. Investing time and effort into understanding and adapting to customer preferences can greatly improve the chances of success in entrepreneurship.

Summary & Key Takeaways

• Alan Michaels initially offered computer companies a single-board computer, but prospective buyers wanted only a few units for research. Conversations revealed that a complete computer with an enclosure, operating system, and applications could attract a much larger order. By responding during discovery, Michaels secured an order for 10,000 computers from Burrows.

• Fulfilling the order required capabilities that Michaels' seven-person company did not possess, including an operating system and applications. He responded by hiring the head of Xerox PARC's Advanced System Division, along with people connected to the Bravo word processor. Convergent later sold to Burrows for $400 million after four years.

• At Ardent, Michaels remained in the office and relied on executives such as Steve Blank to meet customers. Customers consistently wanted a product about 20% different from the planned graphics supercomputer, but Michaels rejected the feedback. Blank concludes that founders and other strategy makers must personally conduct customer discovery because it cannot be outsourced.