blank_1 copyGiven the huge popularity of our Q&A with lean startup evangelist Eric Ries a few weeks ago, I decided to take one step backwards and interview the man who helped inspire Ries: Steve Blank.

Like Ries, Blank is a serial entrepreneur who left company building to help create a science and discipline around entrepreneurship. The goal? To reduce the mortality rate of startups.

With many of the lean startup concepts now common place, Blank has since moved onto tackling two far thornier challenges: How to instill a culture of continuous disruption in big publicly traded companies and how to make the US government more innovative.

“Yeah, good luck with all that,” you are probably thinking. Both are problems that most people in the startup ecosystem believe are unsolvable. But Blank is a blunt optimist who’s unafraid to call things as he sees them and push powerful people for change.

In the Q&A below, we talk about his journey from entrepreneur to teacher, how companies and governments can be more like the Valley, and what still hasn’t stuck with startups despite his, Ries’s, and others’ best efforts.

Sarah Lacy: How’d you go from entrepreneur to entrepreneurship guru?

Steve Blank: I did eight startups in 21 years. My next to last company was a video game company. I lost complete judgement and went way outside my domain expertise. The same same week I was on the cover of Wired, I realized I was going to lose $34 million.

I called my mother who is a Russian immigrant and said, “I lost $34 million.” She couldn’t totally understand with the language barrier and said, “In money? Where’d you put it?” We went through three languages before I said, “I’m calling you to tell you that I lost all this money, and investors just gave me another $12 million to start my next company.”

Whenever I meet foreign visitors, I ask them what they call a failed entrepreneur. In America there’s only one name for it: “experienced.”

The punchline to the story was I took that next $12 million and did E.piphany and returned $1 billion to each of my investors. Only in the Valley do you get multiple chances at that goal.

I started to think, “How much is enough?” after that. I had kids who were 7 and 8, and I’d seen enough world class entrepreneurs have kids who grow up to hate them, and I didn’t want to do that.

I had no idea what to do next, so I went to write my memoirs. I got to about page 80 and realized I’d have to pay my kids and family to read it, but I also realized all the lessons I’d learned that I’d never noticed before. They were common not only to my startups, but others I’d advised.

Around that time, I met a young entrepreneur who asked me to invest in his company, and I told him as a condition he and his young co-founder had to come to my class at Berkeley. That company was IMVU, and that young co-founder was Eric Ries, who got it immediately. He was my first acolyte and the first practitioner of what I was teaching.

What were your initial goals with teaching?

Schools were teaching these bullshit entrepreneurship courses, and people were investing like idiots. After decades we know how to make startups fail less but not succeed more. I wanted to reduce infant mortality.

What we know now is that what startups were doing is trying to execute a plan investors wanted. No startups end up at liquidity based on an initial plan. They were getting their teeth knocked in. We saw companies succeeding by not doing this and iterating over 50 years, but we thought those were one-offs.

What I’ve put together, and what Eric has been proselytising even better, is that you need a framework to know what you are searching for. A way of keeping score. You need to get out and test hypotheses. People always thought a founders’ vision was carved in a stone tablet. It’s just a founders’ opinion stated passionately. Mostly, it’s just a hallucination.

You need a formal process for getting out of the building and iterating based on what you find. You will understand more, and you will fail less. It’s essentially the scientific method of entrepreneurship.

What’s the goal here? Just creating another degree?

Between Eric and me, I believe some of what we’re doing is building a management stack for founders similar to what MBAs did for 100 years ago.

But something else is happening here. We’re catching up inside universities, but these theories are exploding outside of universities. There’s a whole ecosystem of teaching that didn’t exist five years ago. We’ve taught these Startup Weekends in the last three years that have reached 100,000 entrepreneurs. It’s the same class. You can learn in five weeks for $300 what I teach at Stanford and Berkeley and save $50,000.

And my stuff isn’t the only stuff. There’s what General Assembly and the Lean Startup Machine are doing too. They are all filling a crying need outside of universities and outside of the typical clusters. That, to me, is really exciting.

I believe this is going to lead to a century of entrepreneurship.

“A century of entrepreneurship” is a nice catchphrase, but what does that actually mean? 

The boards of Fortune 500 companies all understand we’re being disrupted. They get globalization and China, Inc. and all that. But they are sitting in a board room giving lip service about how to deal with continuous innovation.

We’re going to propose new structure for innovation in the 21st century. It’s not solved by pasting in incubators or anything else. That’s all clearly moving deck chairs around on the Titanic. We can’t keep going on like this, trying to satisfy Wall Street by efficiency and outsourcing and having the best margins. We will end up only with companies with 10- to 15-year life cycles.

We have to change the structure and be like Amazon or Apple and obsolete our own products.

So you don’t think it’s a law of nature that big companies just can’t innovate? You think this can be fixed?

Look at Apple; look at Amazon. Amazon powers the entire world. Amazon Web Services is more important than the telephone company right now.

My friend, Jon Rubenstein talks about his first job at Apple when Jobs came back was to fire 1,000 engineers.

But when a CEO becomes “chief execution officer,” you lose the ability to do continuous disruption.

The question is how do we make it so these aren’t one offs? Much like I’ve figured out the lean startup thing, I’m pretty close to figuring out what we need to do. It’s going to be a shock to the system, and we’re going to have fun.

The other thing I’m thinking about is that the United States has a far reaching science policy, but we refuse to have a national industrial policy. Everyone says, “That’s the free market; that’s the third rail.” But in the last 30 years it’s been the VC industry who gets the ultimate say in what new industries get developed. And it’s a fad-based business. How’s that working for us? It’s not, really.

I’ll redact the name of this VC firm, but they recently announced they are shutting down life sciences to invest in social media. Is that good for country? Fuck no. Is it good for VCs? Yes. There are no incentives in place to change that. The government needs to stop trying to pick winners and losers rather than having a policy that incentivizes innovation.

The problem is no one making the policies have run a lemonade stand let alone a startup.

You strike me as incredibly optimistic to think you can make big companies more innovative and fix US industrial policy.

I guess I am optimistic because of who this country is. I am a big believer that we are pretty goddamn lucky. I owe something to country and community and industry that certainly made me rich. Goddamn it, I’m never going to be happy with the status quo.

I talk about the “pay it forward” culture in Silicon Valley, and my foreign visitors’ jaws drop when they hear it. This and the US military are the two best meritocracies in the US. How can you not be optimistic when your see that entrepreneurship is the best export the US has? People over 40 don’t get what we’ve been exporting over the last five years is capitalism in its purest form.

What a great time to be alive.

Let’s bring this back to startups. What are you surprised about that hasn’t caught on from your teachings?

The big thing is it catches on in theory, and it is much harder to catch on in practice.

The hard part is getting out of the building. It is counter to every great instinct an entreprenuer has and will be forever. Wait a minute, I have this vision, and I have this passion, and now you are asking me to think that maybe I’m wrong?

[Image courtesy wikimedia]