I always walk away smarter after speaking with Steve Blank. In addition to being a thought leader within the Lean Startup Movement, Steve is also a professor at Stanford and Berkley. However, many people are not aware that prior to entering academia, Steve was a wily and creative marketing entrepreneur.
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You can watch / listen to my 12-minute conversation with Steve below or on YouTube HERE:
From Perennial Loser To Successful IPO
During the late 1980's, Steve accepted a senior executive role at SuperMac, a Macintosh graphics card company that Steve jokes was, “Fifth in a group of three."
As the VP of Marketing, Steve inherited a department of 14people that was burning $4M annually. Despite these abundant resources, the team's ineffectiveness was reflected by the company's dismal 11% market share. Steve's first question was, “Who are our customers?" He was disappointed to hear "17 answers" from "14 people."
Eventually, someone volunteered, 'We have a ton of registration cards.' Somebody (then) wheeled in a cart of 15,000 unprocessed, untouched, unloved registration cards. I locked myself in my office for the first three weeks... (I) took the 300 latest cards, personally wrote a questionnaire and called 300 customers. I very quickly discovered that... SuperMac's main customer base were color desktop professionals. I also found out they only cared about four applications... and they only read three publications that mattered. All of a sudden I now had customers telling what market, how to reach them and what applications are important.
And then they said one thing that most marketers go their whole career never hearing, 'Listen Steve, price is irrelevant, it is speed that matters.' We had been pricing our graphics cards to be a low-cost provider. These people were telling us we had permission, if we made the fastest board around, we can charge anything. The first thing I did was raise our prices."
Good News Bad News
After repositioning the company as a developer of high-end, premium products, Steve was excited to execute a marketing campaign. However, he stopped in his tracks when he learned that the engineers had only created a single product, rather than a family of graphics cards.
"Armed with this notion that customers love fastest performance, (I asked the engineers), 'Can you slow the board down 10%?' Although the engineers were a bit miffed, having spent over a year developing the fastest board on the market, they indicated that they could slow the board down 10%.
"They thought I was done, but (then) I said, 'Can you slow it down 20%?' We discovered that we could (create) a family of boards, (from) the same board, with a slower ROM. We repackaged them and branded them as different products. I used the same product to... bracket (my competitor's products) with higher performance products using the same physical board in different marketing packages."
11% To 68% Market Share
Everyone who successfully navigated high school knows that a sure way to be one of the cool kids is to define "cool." Steve took a similar approach with respect to defining the benchmarking specs of the graphics card industry.
He met with the editors of the three Mac magazines that his customers read and showed them metrics that confirmed that SuperMac's boards were the fastest on the market."I let them talk me into giving them my internal benchmark suite, which was being written by a group called The Potrero Benchmark Organization. For 3 1/2 years, neither the magazines nor my competitors realized that our company was on Potrero Street and that the address of thePotrero Benchmark Organization was the identical address of SuperMac.
For the next 3 1/2 years, every magazine in the Mac industry was benchmarking all the graphics boards with SuperMac's own internal benchmarks. After that date, (we) never lost a benchmark (comparison) and by the time I left, (we) had won 21 in a row. We went from 11to 68% market share in 2 1/2 years and took the company public."
Steve realized that the reason the company had not taken advantage of the customer data contained in the registration cards was because the marketing team equated its function as the creation of marketing work products.
The team failed to understand that marketing's primary role at a startup is to drive sales. Per Steve, “Marketing is not marcom (marketing communications) and it's not product management. Marketing's job is to make... the VP of Sales the richest person in the company. How does marketing do that? Well, marketing's job number one was to understand customers' needs, desires, etc. and make sure engineering understood those (as well). Number two (was) to create end-user demand and drive it into our sales channel. Number three (was) to make our products understood by our sales force and channels."
A Conflict Mitigated By A Common Enemy
Once Steve identified his customer segment, repositioned the company, created a product family and encouraged the Mac magazines to use his internal benchmarking results, he then tackled the age-old conflict between sales and marketing professionals.
In Steve's words, "I inherited the classic cats and dogs, marketing versus sales (conflict). I realize we had to stop this. One of our competitors at the time was Radius. (They were) slick and well-done... and their marketing appeared to be 14 feet tall. I got a PR photo (of Radius' CEO) and painted a dartboard around it and hung it in my office. To talk to me... before you opened your mouth, you had to throw darts. If the words 'let me tell you about sales' came out of your mouth, you were fired.
We got the marketing organization oriented outside the building, understanding that the game was winning share, not figuring out how to screw up our own sales department."
By creating an external enemy, Steve was able to focus his team on their customers and not their sales department peers.
"This is a real mistake many marketers make. Marketing, number one, is a service function. It's not the sharp end of the spear... it might be the spear, but the tip are the people who are trying to sell stuff."
Lean Startup Lessons - For Free
I highly recommend Steve's How To Build A Startup online courses. At no charge, you can ingest the same content used by Steve's university students.
The videos are watched outside of class, while class time is focused on discussing each student group's progress from the prior week. You can deploy a similar approach by watching the videos and then putting the lessons into practice as you push your lean startup forward. In also strongly encourage emerging entrepreneurs to check out Steve's latest book, The Startup Owner’s Manual.
Follow my startup-oriented Twitter feed here: @johngreathouse. I promise I will never tweet about sports, politics or religion - just startup stuff.