The lean start-up methodology has helped entrepreneurs establish new businesses. Eric Ries’ 2011 book The Lean Startup: How Today’s Entrepreneurs Use Coordinated Innovation was an important milestone in the methodology’s cultural popularisation, even though its roots can be traced to the early 1950s and Taiichi Ohno’ lean manufacturing principles. The methodology gradually evolved overtime, with Steve Blank’s 2005 book The Four Steps to the Epiphany: Successful Strategies for Products that Win applying customer development techniques honed in Silicon Valley.
Today, lean start-up is firmly part of business school and entrepreneur canon.
Lean start-up’s popularity is its use across small, medium and large enterprise, a level of flexibility that that traditional business plans do not necessarily offer. In 2013, Blank himself said that according to conventional wisdom, every founder should create a business plan, a “static document that describes the size of an opportunity, the problem to be solved, and the solution that the new venture will provide”, with a five-year forecast included for good measure.
While an important research exercise, Blank believes business plans “rarely survive first contact with the enemy”, five-year plans are incapable of forecasting the unknown and start-ups are not best suited to use plans that normally apply to large companies.
“One of the critical differences is that while existing companies execute a business model, start-ups look for one. This distinction is at the heart of the lean start-up approach,” Blank says. “It shapes the lean definition of a start-up: a temporary organization designed to search for a repeatable and scalable business model.”
Blank breaks down the three key principles of the lean start-up method:
- Entrepreneurs accept that all they have on day one is a series of untested hypotheses, summarised in a framework called a business model canvas, a diagram of how an organisation creates value for its customers and itself
- Lean start-ups use customer development to test their hypotheses, asking potential users, purchasers, and partners for feedback on all elements of the business model, product features, pricing, distribution channels, and affordable customer acquisition strategies, with the emphasis on nimbleness and speed. Minimum viable products are quickly created, customer feedback elicited and based on that feedback, assumptions are updated accordingly. The cycle then repeats, making incremental iterations or more substantive ones – pivots – to ideas that are not working
- Lean start-ups apply agile development, which works in partnership with customer development. Unlike typical yearlong product development cycles that assume to know customers’ problems and product needs, agile development eliminates wasted time and resources by developing the product iteratively and incrementally.
Lean methods place customer feedback at the centre of the development process, eliminating the attitude that new organisations needed to operate to some degree of stealth as to not alert competitors to their target market opportunity.
Lean start-up helps eliminate growth constraints
Start-ups face several problems not familiar to large organisations due to their inherent size and access to resources, restraining growth. Blank highlights five factors that constrain start-up growth and which if left unchecked, lead to the increased risk of failure:
1. High cost of attain first customer, and calamitous consequences of product failure
2. Long technology development cycles, driving up costs
3. Limited risk appetite from potential investors and other key stakeholders, an appetite not shared by the start-up’s founders
4. The structure of the venture capital industry, where a limited number of firms invest large sums in a handful of start-ups to have a chance at significant returns.
5. Concentration of expertise in building start-ups, where often this talent is concentrated in major economic hubs, making life more difficult for entrepreneurs to access such skills
The lean approach seeks to reduce the first two constraints by helping new ventures launch products customers want far quicker and cheaper than traditional, waterfall methods. The third constraint leads to start-ups being a less-risky prospect, positively spreading the net wide for investment by venture capitalists. The concentration of skills is no longer the constraint it was due to technological changes and advancements, where geological location is no longer a barrier to building key relationships that advance the interests of a promising start-up. As Blank asserts, the combination of all these forces is changing the entrepreneurial landscape.
The lean start-up methodology offers entrepreneurs a process-driven and tested way of founding a business at a lower cost. While it is not a guarantee to success – with success lying with the founder and the founding team as much as the product, plus other factors beyond their control – the lean start-up methodology, if applied across a wide portfolio of start-ups, will lead to “fewer failures than traditional business methods”.
If your business is seeking ways to apply the lean start-up methodology, contact Letsema at info@letsema.co.za so our team of skilled consultants can help your organisation maximise its chances of success.
