Eric Ries, a young American entrepreneur and ex-software engineer published “The Lean Startup” in 2011. The book is the collective wisdom of the valley and smart folks like Ries and Steve Blank about the purpose of a startup and the methods that help with it most efficiently. It’s because of the explosion of interest in the lean-startup methods that today concepts like “fail-fast”, “MVP”, “pivot” are commonplace. Coupled with lean-concepts and the experimentation afforded by agile methods, the lean-startup techniques improves the chances of success of a startup.
Following the dot-com bubble and subsequent crash (1995 - 2000), easy money dried up and most startups folded. Risk appetite was negligible and investors wanted to be sure that revenue and profits would follow the rosy business-plans/forecasts of founders. (We saw this for a while after the 2008 downturn.) There was a search for new methods and also to understand what went wrong with the dot-com startups. Steve Blank identified this as the missing process to manage what he called as the customer development process in his 2005 book “The Four Steps of Epiphany”. With the move to cloud computing and the availability of more open-source scalable application development stacks (LAMP/MEAN*) and distributed version control systems (Git/ github …), it was becoming much easier and cheaper to experiment and test hypotheses while building minimal viable products (MVP). Based on his own experience at startups which burnt-through capital (e.g. Catalyst Recruiting), and reading up on lean-manufacturing, Eric Ries experimented with the lean-startup methods at his next startup IMVU. The book launched him into the entrepreneurship space, and is now a business bestseller in the startup / technology sectors.
Lean startup has five principles:
- Defining entrepreneurship as a human endeavor to create new products/services in conditions of extreme uncertainty. It’s an art, not a science and the lean-startup provides key concepts of the startup process.
- Separating entrepreneurship management as a new discipline from product management.
- Validated learning - Startups search for new business models with frequent experiments to test their learnings on how to build a sustainable business and find the right “product-market fit”.
- Build-measure-learn - accelerate feedback loop to incorporate customer response to products based on ideas and decision on pivot-vs-persevere.
- Innovation accounting - turn leap-of-faith assumptions into quantitative financial model while measuring progress with actionable metrics as against vanity metrics, and prioritizing work or setting milestones.
Lean thinking permeates the lean-startup methods:
- Entrepreneurs summarize their untested hypotheses in a business model canvas.
- They use a “get out of the building” approach to test these hypotheses with feedback from users / potential customers. The focus remains on being nimble. This is the “customer development” which allows testing all elements of the business model: product features, pricing, customer acquisition strategies etc.
- Agile development is another pillar of the lean-startup. Iterative and incremental agile approaches allow testing “minimum viable products” and respond to change, including pivots. The process starts again with a pivot, and innovation accounting helps measure if the new experiments are more productive.
It’s close to a decade now since the 2008 financial crisis, and capital is not scarce anymore. Since then we’ve had huge public offerings like those of Facebook or Alibaba and staid corporates have joined the innovation ecosystem contributing seed capital. Some of these innovation efforts still follow the lean-startup, while others couldn’t care less. But that - corporate innovation theatre - is another story/post.
Ref: * LAMP: Web service stack based on Linux, Apache, Mysql and Php
MEAN: Javascript stack for web applications based on Mongodb, Express.js, Angularjs and Node.js