How Scientists and Engineers Got It Right, and VCs Got It Wrong


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become marketers, sales people and CEO’s. And the venture capital community became comfortable in funding them.

Medical Researchers Get Entrepreneurial

In the 60s and 70s, while engineers were founding companies, medical researchers and academics were skeptical about the blurring of the lines between academia and commerce. This all changed in 1980 with the Genentech IPO.

In 1973, two scientists, Stanley Cohen at Stanford and Herbert Boyer at UCSF, discovered recombinant DNA, and Boyer went on to found Genentech. In 1980 Genentech became the first IPO of a venture funded biotech company. The fact that serious money could be made in companies investing in life sciences wasn’t lost on other researchers and the venture capital community.

Over the next decade, medical graduate students saw their professors start companies, other professors saw their peers and entrepreneurial colleagues start companies, and VCs started calling on academics and researchers and speaking their language.

Scientists and Engineers = Innovation and Entrepreneurship

Yet when venture capital got involved they brought all the processes to administer existing companies they learned in business school—how to write a business plan, accounting, organizational behavior, managerial skills, marketing, operations, etc. This set up a conflict with the learning, discovery and experimentation style of the original valley founders.

Yet because of the Golden Rule (those who have the gold set the rules), the VCs got to set how startups were built and managed.

Fifty years later we now know the engineers were right. Business plans are fine for large companies where there is an existing market, product and customers, but in a startup all of these elements are unknown and the process of discovering them is filled with rapidly changing assumptions.

Startups are not smaller versions of large companies. Large companies execute known business models. In the real world a startup is about the search for a business model or more accurately, startups are temporary organizations designed to search for a scalable and repeatable business model.

Yet for the last 40 years, while technical founders knew that no business plan survived first contact with customers, they lacked a management tool set for learning, discovery and experimentation.

Earlier this year we developed a class in the Stanford Technology Ventures Program (the entrepreneurship center at Stanford’s School of Engineering), to provide scientists and engineers just those tools—how to think about all the parts of building a business, not just the product. The Stanford class introduced the first management tools for entrepreneurs built around the business model / customer development / agile development solution stack. (You can read about the class here.)

So what?

Starting this Thursday, scientists and engineers across the United States will once again set the rules.

Stay tuned for the next post.

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Steve Blank is the co-author of The Startup Owner's Manual and author of the Four Steps to the Epiphany, which details his Customer Development process for minimizing risk and optimizing chances for startup success. A retired serial entrepreneur, Steve teaches at Stanford University Engineering School and at U.C. Berkeley's Haas Business School. He blogs at Follow @sgblank

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