You mean you never heard of Billy Durant, the real founder of General Motors? Durant was an early 20th century entrepreneur, whose series of pivots, board firings, and general insane greatness reminds me of another more recent incarnation of this spirit. Steve Bank, last night’s speaker at NYU’s Berkeley Center for Entrepreneurship and Innovation, has had a storied career in the Valley, and his presentation managed to encompass Durant, clueless VCs, maniacal VP of Sales, useless board meetings, nonsensical business plans, and what a startup is really about.
It was the kind of chat that the MBA students in attendance don’t hear much of in B-school lecture halls.
Along with Billy Durant, Blank told the packed house at the Paulson Auditorium that there are a lot of other unsung entrepreneurs, a list that includes his immigrant parents whose startup was a grocery store and the surfers who live near him in California selling surf lessons from a shack on the beach.
Add to this electricians, carpenters, and say independent UI consultants, and you begin to see why Blank’s ideas are not necessarily shared by everybody.
But as he put, it’s a Silicon Valley view of entrepreneurship: self-employed and working for their passion. The key difference between this entrepreneurial sub-species and the founders of Twitter, Facebook, and archetypical two developers who met at a hackathon with big plans is, in a word, scale.
A startup, unlike a small business, is designed to scale from the get-go and ultimately conquer galactic-size markets, or at least something large enough to attract venture money supplied by investors, who, as Blank put, are the equally insane partners of the insane entrepreneurs.
Because a startup must achieve a hockey-stick growth curve without known customers or products, it must go on a quest, an almost mythic search for a business model.
Not surprisingly, Blank’s definition of a startup uses the search word, or as he puts it: “a startup is a temporary organization designed to search for a repeatable, and scalable business model.”
If you’re on a quest, standard business metrics just don’t fit with what you’re trying to accomplish. Blank has been at the center of many epic tech innovations–chips, super computers, video games, CRM software–so his interactions with investors over the years have led him to see that most don’t grok the basics of scalable businesses.
Because he would be routinely asked for status reports during his entrepreneurial career, Blank would hand his VC partners at board meetings perfectly formatted profit-loss statements with lots of zeros in it. Which is crazy. This is the kind of accounting you see at big companies.
What a good VC should be looking for are business model search metrics: customer acquisition costs, lifetime value, average selling price, or something else that shows you as an entrepreneur are out exploring and collecting data points to figure out where the business is.
And business plans? That’s pointless paperwork that only makes sense in large companies where there are known products and customers. Startups instead deal with evolving business models as they iterate and pivot in their chase for a limitless revenue model. One piece of advice to startup entrepreneurs: if your board asks you for a P-L sheet, walk out of the meeting since it’s a blinking red alarm signal they don’t know what they’re doing.
And by the way, by all means explore Steve’s blog, where computer greats Gordon Bell and Fred “Mythical Man-Month” Brooks, and Apple’s legendary hardware hacker Burrell Smith all make appearances in his posts about the early days.
So what’s Blank doing these days? He’s teaching entrepreneurship classes at Stanford’s Haas Business School. Blank gave us a taste of what his class was like when he told the story of how he prodded a few machine vision grad students, who had plans to build an autonomous, robotic lawn mower and weed whacker for golf courses, to adjust their own vision.
Insisting these PhDs get out of the building and discover actual customers, Blank got them to see that the real money was in weed removal for California’s organic farmers. Executing a pivot, his students agilely engineered a weed remover bot in one week (no sleep). It was quite a success with the farmers, and this group has since left Stanford and has received funding for their company. I think they got an A for the class.
And Billy Durant? After the new owners of GM –that would be the DuPont family–came in and kicked Durant out, they installed a guy named Alfred Sloan–you have heard of him, right?–who succeeded in inventing the modern business organization that’s beloved by accountants, financial officers, division heads,and sales VPs.
Durant ended his career by managing a bowling alley.