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Lean startup’ concepts reduce risk, produce better products and apply to enterprises as much as entrepreneurs.
Most of us know the age-old formula for launching a new enterprise. Whether it’s a small business or a new product line within a large corporation, someone with a vision writes a business plan, pitches the idea to investors (external or internal), puts together a team, launches a product and then it’s sell, sell, sell.
While this method has a long history, it has always been characterised by a high rate of failure. For example, Harvard Business School’s Shikhar Ghosh’s recent research shows that 75 per cent of all venture-capital-funded startups crash and burn.
But what if you could improve on that dismal statistic? What if you could reduce the upfront investment so that even when a new idea failed, it didn’t cost as much to start with? There is a way – a methodology known as the ‘lean startup’ – and it’s not just for startups, with more and more large companies utilising its concepts to bring their projects to life.
Junking the perfect business plan
While the lean startup movement hasn’t gone completely mainstream yet, its tenets are being taught in many business schools.
To start off with, lean startup concepts junk the idea of the perfect business plan. Conventional wisdom has it that anyone with an idea needs to sit down and crunch out a business plan. It’s a document that maps out the size of an opportunity, the problem that needs to be solved and how the new venture will provide that solution.
Typically including five-year forecasts for income, profits and cash flow, a business plan is essentially an academic exercise, quarantined from any real-world experience with a prototype product. Conventional wisdom holds that an entrepreneur can figure out most of the unknowns of a business in advance, and if the idea and plan are good enough they will raise the money and eventually start to ship the product.
The map is not the territory
There are a few problems with this approach. Firstly, the map is not the territory. No matter how well developed the business plan, there will always be unknowns that can derail it. Secondly, a five-year plan for a product that no one has built yet is almost a complete fiction and a waste of time. Lastly, successful startups are the ones that fail fast while continuing to adapt, learn and improve on the original idea, until they have a saleable product.
By throwing out the business plan, the lean startup accepts that right from the get-go they have an idea that is backed by little more than intuition and good guesses.
Instead of spending time on a detailed business plan, the founders sketch out their idea, backed by their guesses, in a framework called a business model canvas. It’s basically a flowchart of how the company will build value for itself and its customers.
Outsourcing testing to the customer
Lean startups also upend the traditional business model by getting customers involved early on.
The customer-development stage gets the founders out of the building to ask potential users, purchasers and partners for feedback. Product features, pricing, distribution channels and affordable customer-acquisition strategies are all on the table. Agility and speed are key.
The lean startup reaches ‘minimum viable product’ rapidly so it can get customer feedback. If the idea is just not working, the lean startup quickly ‘pivots’ to something else. If the idea is working, the feedback starts the cycle all over again.
Lean and agile
Reminiscent of Michael Masterson’s idea of Ready, Fire, Aim, lean startups use the agile development concept to develop a product iteratively and incrementally.
Instead of beginning with a business plan, the lean startup searches for a business model and it’s only after a rapid-fire sequence of experimentation and feedback that the founders begin to focus on execution.
While this approach may seem the antithesis to modern business practices, enterprises prepared to adopt may find they avoid major product fails like those of Crystal Pepsi, Joost and HD-DVD.
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