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“Entrepreneurs are crazy” and that’s a good thing

By Kurt Wagner, reporter

FORTUNE — In a crowded seminar room in Silicon Valley recently, author Steve Blank asked the audience who among them wished to start their own company. A few dozen hands shot up. “The good news,” said Blank, whose second book, The Startup Owner’s Manual, hit shelves in March, “is that one of you will be worth $100 million in 10 years. The bad news: the rest of you would have been better off working at Walmart.”

Blank has never been shy about his opinions. His first book, The Four Steps to the Epiphany, unintentionally vilified both venture capitalists and business school scholars. (It is now widely credited for helping to kick off the lean startup movement). Blank has since established credibility in other areas of entrepreneurial importance, most notably his work on customer development, and teaches business classes at Stanford, U.C. Berkeley and Columbia. Fortune caught up with the eight-time serial entrepreneur. What follows is a lightly edited transcript.

You’ve said that entrepreneurs are “crazy.” Why do you think that?
As it turns out most of the time, (founders) are actually hallucinating, and every once in a while they’re actually visionaries. They are insanely driven to bring that thing they see to fruition. And they need to be because of the amount of travails they go through in making something out of nothing. Founders create on a blank canvas; founders are closer to artists than they are to engineers or business people. They make things happen. And they need this perseverance and tenacity and resilience to drive them through those obstacles, because rationally, it would make a lot more sense to just exchange your labor for money.

What is the biggest mistake that young entrepreneurs make?
Wanting to become an entrepreneur because it’s cool. ‘Gee, my friends are doing it,’ or ‘look at Mark Zuckerberg.’ It’s like wanting to play the lottery or wanting to become an NBA basketball star because you think it’s cool. With all due respect, this is a press problem. Being an entrepreneur is a dirty, finger nail-breaking, hard, backbreaking, exhausting job. It looks good on paper, but the biggest mistake young entrepreneurs make is confusing it with a job. It’s not.

Epiphanies can have a powerful impact on an entrepreneur. How can you tell the difference between an epiphany and a daydream?
A daydream is (when) you have ideas, but you simply don’t test them or figure out whether they’re nothing more than guesses. One of the things that make entrepreneurs successful is they not only have a vision, they actually know how to get out and create. This act of creation is what separates the winners and losers. An epiphany is what happens when you’ve been working and collecting an enormous amount of data, but you haven’t approached the problem in some analytical way. It just kind of came to you one day in a flash. Epiphanies are extremely rare; you don’t get them by locking yourself in the building. It’s usually because your head has been processing a (large) amount of data and it finally all snaps together one day. You can’t engineer one, but you can certainly provide the right kind of circumstances for it.

How important is it for young companies to remain flexible and understand what it means to ‘pivot’?
We used to change strategy in startups by firing executives. It’s a big idea. You fire the VP of Sales. You fire the VP of Marketing. And then you finally fire the CEO, and each one of those would be a pivot because the replacement wouldn’t be stupid and they wouldn’t do the same strategy – they’d do another one. Once we began to articulate what was going on, pivot then made it easy to understand, ‘Oh actually what we’re doing in the search for a business model is changing strategy.’ But I think we’ve made it a little too easy. A pivot does not mean giving up when things get tough. You only pivot after you’ve exhausted the series of possibilities. A pivot doesn’t mean ‘I’ve changed my mind.’ A pivot isn’t a symptom of a founder with an attention deficit disorder. If that’s what you’re doing, you’re not pivoting; you’re actually confused.

Do entrepreneurs put enough focus on customer relationships?
No. It’s really easy when you get stuck if you are an entrepreneur to say, ‘let me add another feature,’ or ‘I’ll talk to customers when I’m done.’ Getting out of the building to talk to people is kind of an unnatural act. This part of entrepreneurship called customer development is extremely difficult, not because it’s physically hard, though it is, but because it’s mentally hard. If you’re a founder, you’re driven by your vision from day one. Why on earth would I want anybody to challenge my version of reality? It’s a big idea. Why would I want to go and have somebody tell me my faith-based enterprise is wrong? It’s depressing. But it turns out it’s that yin and yang of ‘I believe’ and ‘I need to test that belief’ (that) makes successful entrepreneurs.

The Startup Owner’s Manual is your second book. How was it different than your first book in 2005?
When I wrote the “The Four Steps to the Epiphany,” it was heretical. I mean, I was the only guy who could talk about this – I can’t tell you how lonely it was. Think about it, I basically said that every VC and business school professor who teaches entrepreneurship is wrong. Implicitly, I was calling out two industries, and not on purpose. The first book truly made my head hurt.

The second book was very funny because ten years later I would say these things and people would look at me like, ‘well of course.’ What do you mean, ‘well of course’? (laughs) No one believed us (back then). I was just kind of surprised when I was writing the second book that it was a refinement and concatenation of everything we learned in the last ten years. Where as the first one was truly – I would say groundbreaking and badly written – but it was truly a series of insights at the time that changed the way we do business.

If you could work for a startup today, which one would it be?
SpaceX or Tesla. If you think of both of them, first of all they’re hardware, and I still tend to be nostalgic for people who build things. Second is they’re a single individual (Elon Musk) who envisioned an industry that completely upended an incumbent – not by simply making something better, but by rethinking the entire industry top to bottom. One entrepreneur is (running) two of the most innovative hardware companies in the world. (Tesla is) taking on the entire automotive industry and saying we can make electric cars, not some niche, but actually mainstream and profitable. I found those amazing. And by the way, raising not tens of millions, but billions of dollars to bring those to fruition. Where else in the world can we pull that off?