Steve Blank’s bubble heresy

by greg on March 13, 2011

Albert Camus once said “Every revolutionary ends up becoming either an oppressor or a heretic.” From his recent presentation at SxSW, it looks like Steve Blank’s selected the heretic route.

Lightning recap: Steve Blank codified the ‘customer development’ methodology for startups, which emphasizes iterative business model discovery during a period of low cash burn. This has become the favored methodology for bootstrappers everywhere as they seek profitability. But in his presentation yesterday, titled “New Rules for the New Bubble”, profitability is set aside.

The meat of the presentation starts on slide 118 and runs through slide 127. Here Steve writes that because we’re in a bubble, the best route to liquidity requires customer development, but with user adoption taking priority over profitability. It’s possible to engineer a financial transaction with an acquirer from the beginning by getting as much adoption as possible, focusing on visibility and PR (in other words, hype) and worrying about monetization later.

I’m a long way from Chicago, but I can still hear Jason Fried’s head exploding.

I suspect the rules have changed, and Steve’s strategy is correct, although only for a short period of time. Steve suggests in his slides that the bubble period ends in 2014, which if true makes me wonder if his advice is even actionable – it takes at least a couple of years to blow up a business into something huge, so that’s less than a year to figure out the model.

I would very much like to know why Steve thinks the bubble period is so short. I suspect the only reason we’ve got a bubble in tech is because of the Fed’s zero-interest-rate policy and pumping of money into the market through bond purchases. All that goosing of the economy has created a whole lot of money looking for higher returns, pushing up valuations as it tries to get in on the action.

This bubbly goodness goes away the second foreign investors decide they want better returns on government debt – which might not take too long, considering the rapid increase in our debt-to-GDP ratio. At that time, having a bootstrapped startup with sustainable cashflow will look pretty good – not as good as selling during a bubble, but a hell of a lot better than not selling after a bubble.

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