Steve Blank: The "Lean Startup" Movement has Finally Reached Health Care

Silicon Valley entrepreneur Steve Blank is addicted to starting companies. So far, he's founded or worked at eight startups that run the gamut from video games to supercomputers.

Until recently, there was only one sector that he wouldn't touch: Health care. Blank said he did not see a way to apply his entrepreneurial methods to medicine, a sector that he viewed as slow to innovate.

Blank's ideas about startups and entrepreneurship are known around the world. Along with his former student from UC Berkeley Eric Ries, Blank is a leading proponent of the "Lean Startup" movement, which directs new companies to allocate their resources as sparingly as possible -- a challenging feat for many health care companies.

Blank has shared this approach with thousands of would-be entrepreneurs at top universities like Stanford,  New York University, University of California, San Francisco and Imperial College London.

He teaches students to take a customer-centric approach by interviewing people about their needs, developing a basic prototype, testing it in the market, and then returning to the drawing board. Rinse and repeat.

In the wake of the Affordable Care Act and other health reforms, Blank has now changed his tune about health care. He now envisions a way for clinicians, doctors and researchers to bring new medical technologies to market using lean startup methods. This interview has been condensed and edited for brevity.

What was your turning point in thinking that your approach was  relevant for health care?

I wrote in several books that the lean startup methods would work everywhere -- except for Life Sciences. As I saw it, there was this notion among scientists that there's no need to leave the building until the product works for everyone and everything. But I got a call from UCSF a few years ago. They said, 'Steve, we need you to put on a class. Whether it's digital health or therapeutics -- all of our students could benefit from a customer development process.' I decided to give it a shot.

How did you decide to structure the class?

We had about 70 teams apply for about 20 spots. These student 'principal investigators,' who are typically researchers or surgeons, took the class and they picked a grad student and an industry mentor. We ended up splitting the class up into four categories: digital health, therapeutics, diagnostics and medical devices. We talked about everything from making improvements to existing products to innovations that had never existed before. The class itself was a prototype of sorts.

What did you learn along the way? 

By week four, I realized two things: Clinicians and researchers are actually better at lean startups than almost any other field. In medicine, you know what you don't know. No one believes that they've got everything figured out. I also learned that not only will it work, but the National Institutes of Health might be interested. The NIH came back and decided they wanted to run a version of the class inside their own organization. We were running 25 teams through the NIH six months later.

Today, some 40 universities are teaching a version of our program. And both the National Science Foundation and NIH have a training program for educators.

Did any of the students go on to start successful companies?

Yes, about half of the UCSF teams did go on to start companies. They also already had some small amount of funding at the start of class. The big challenge was to teach them that although they had money for idea X, perhaps idea X wasn't where they would end up. Some of the teams totally changed their core product by the end -- all based on the customer feedback they had gathered.

But who is the customer? Is it the organization that foots the bill or the patient? Or is it the doctor, who prescribes or recommends the product? 

That's the challenge of turning the science into a company. In some cases, it's not clear whether the customer is the grandma that's going to put this product in her hip, the doctor, the hospital, or the insurance provider. The entrepreneur needs to consider all of these customers and think about regulation and reimbursement options too. They also need to check intellectual property or hire someone to do so.

Did many of your teams find that although they developed a useful product, it simply couldn't be commercialized?

Yes. And some learned that no one really wants the product. Or that there are barriers they didn't understand. In some cases, they learned that it would require 10 times more money to commercialize than expected. Almost 100 percent of the teams realized they needed to 'pivot' at least once, which means a substantive change to one or more business model assumptions.

Did you recommend to some of the clinicians and researchers in the class that they hire a technical or business person to lead the company? 

One of the biggest mistakes that entrepreneurs make (and venture capitalists) is to only keep on the founding CEO for a year or two. I think the founder's vision and passion drives these things at an unparalleled speed and urgency.

What are some of the biggest lessons that you teach students in the class? 

Some of the founding CEOs learn through the class how to communicate the complex science. What I tell them on day one is that the difference between the introvert and extrovert is whether they're looking at their shoes or my shoes. But either way, they figure out how to describe their projects in effective ways within three days. We teach them how to communicate to insurance companies, patients, regulators -- and not just to their peers.

You've learned a lot about health care through the class. What were your major takeaways? 

Outside of life sciences, finding product / market fit is the number one thing you do. In the life sciences, that’s important but understanding if you have the freedom to operate [from an intellectual property standpoint] and who’s going to pay for it is equally important.

On a big picture level, it's clear that we're at an intersection of multiple crises in health care: electronic health record challenges, inflated costs, the price of getting a drug to market, the FDA bottleneck... But entrepreneurs need to see every crisis as an opportunity. Entrepreneurship is not a job; it's a calling.

You experienced the dotcom bubble and burst in the 1990s, having arrived to Silicon Valley in the late 70s. And now, the more recent wave of fervor for technology. What's changed?

In the 90s, no one made money until there was a liquidity event [like an acquisition or initial public offering]. Nowadays, most of the liquidity is in later-stage funds putting money in at exorbitant prices. These companies are worth something but not at that price -- and it inflates everything underneath it.

Venture capitalists are so desperate for deals they are allowing their entrepreneurs to do things that aren't necessarily the right thing. In my opinion, until social media, what venture capitalists invested in and what was good for the country was fairly aligned. What we did with social media is we took all the things people use to do face to face and now mediate that by a computer. That giant sucking sound is Facebook dragging money away from where money used to go: Green energy, education, health. Fortunately, that's starting to change.