Creating a business, new product or enterprise has always been hit & miss. In the past when a business was created a business plan was created, finance raised, a team formed, a product or service created. Voila, another company opened for business! Unfortunately – the odds are against creating a business in this traditional way. According to research 8/10 businesses fail and 8/10 products fail if you create a business in a traditional way. However, thought leaders like Steve Blank, John Mullins, Alex Osterwalder and Eric Ries have shifted perspective & thinking as to how we make new businesses less risky using a methodology and philosophy called “The Lean Startup”.
What is Lean Startup?
“Lean Startup” is a term coined by Eric Ries. Eric was a student of Steve Blank who is the author of the book ‘The Startup Owner’s Manual’. He is credited as the father of the lean movement which originated in ‘silicon valley’. This movement is transforming how new ideas and products are built and launched, offering ways to save time, energy & money. The inspiration for the ‘lean movement’ came from the ‘lean manufacturing’ process, “fine-tuned in Japanese factories decades ago and focused on eliminating any work or investment that doesn’t produce value for customers”. Lean Startup principles are nothing new. What has changed is how we use Lean tools to build business. Building products/ services that nobody wants is a waste of time, energy and money. Life’s too short!
How Lean Startup has evolved – Steve Blank articulates the difference between big and small businesses. He says that start-ups are in SEARCH mode as there are many unknowns. They are looking for answers, trying to create a REPEATBALE and SCALABLE business. Larger companies are in EXECUTE mode as they operate with proven facts.
The Business Plan
According to the “standard” regime and conventional wisdom, the first thing business founder must do is create a business plan. A static document that describes vision statement; description of the company, the product or service, market analysis, the management team, cash flow, revenue projections and so on. A business plan is an exercise written before any product is built. The assumption is that it’s possible to work out most of the unknowns of a business in advance before you execute the idea. The problem with a business plan is that it’s static with a pile of assumptions. With early stage ideas if you freeze an idea too quickly, you fall in love with it, you start to defend it, you become attached to it. As the idea is in SEARCH mode we want to do the opposite. We want to explore it, understand the customer’s problem, iterate it and search for better options.
What have we have learned from business plans created over the past 50 years;
- Business plans rarely survive the FIRST contact with customers.
“Most business plans attract no customers and the product they document is not the product they go to market with.” John Mullins author of “Getting to Plan B”.
- Most business plans don’t deliver. This is an audacious statement but unfortunately it’s true. There are dozens of books, courses, software on how to create them. However why do they fail to deliver? The business plan articulates in a hopefully convincing way words, graphs, hockey-stick projections why the idea (“plan A”) will work & how much money will be made. What the cold hard facts of the plans written over the past decades tells us is that … it’s not Plan A that works but Plan E, F or G. Simply put, most business plans are written too soon with many untested assumptions. I regularly read sentences like “We believe ….” which really means “We haven’t a shred of evidence about this because we have been so busy writing the business plan to actually talk to customers & gather the evidence.
- Start-ups are NOT smaller versions of large companies. They do not unfold in accordance with master plans. The ones that succeed are the ones who are agile, learn from their mistakes, can adapt quickly, iterate and improve their initial ideas as they continually learn from customers.
Some principles of the Lean Startup Methodology?
- Create a Business Model Canvas (a framework developed by Alex Osterwalder) which describes in one page how to create, deliver & capture value for companies.
- 2. Customer development success begins with buy-in. Steve Blank’s mantra is “Get out of the Building” and talk to potential users, purchasers and partners. Interview your customers about the problems they face and learn from this. It’s not just about the data, it’s about having INSIGHTS into the data and making connections. Sometimes customers don’t know what they want so judgement is required. As Henry Ford “supposedly” said “If I had asked people what they wanted, they would have said faster horses”. Companies get into trouble when they fail to understand what customers want.
- Build-Measure-Learn – Make continuous iterations and pivots. The emphasis is on agility, fast decision-making and cycle time. Pull together a “Minimum Viable Product” i.e. a mockup, prototype or a short video and get feedback from the customers. Customers will validate or invalidate assumptions – until then they are just guesses.
- On each cycle – adjustments are made, which are called “Iterations”. Based on data if substantial changes are made these are called “Pivots”.
- Failure is an integral part of the SEARCH.
- Preserve all cash until needed. Then spend.
Lean startup is NOT just for start-ups.
As companies are facing continuous disruption, “business as usual” is NOT a credible response. Corporations have spent 30 years increasing their efficiency by driving down costs. However this is no longer enough. Businesses and organisations from all sectors are facing extraordinary demands for innovation and change to improve their offerings and differentiation. To ensure their survival & growth corporations need to keep inventing new business models. This challenge requires new organisational thinking and structures. Lean startup methodologies are now being used in larger organisations including General Electric, QualComm and Intuit.
Building an Entrepreneurial Based Economy – What does this mean?
Governments don’t create jobs, they foster the environment that helps individuals. Entrepreneurs will create jobs.
“Using Lean methods across a portfolio of start-ups will result in fewer failures than using traditional methods”. Steve Blank
I believe by reducing the start-up and business failure rate, it could have profound economic consequences. If we had major uptake from smaller and medium sized businesses applying Lean principles, this would have a direct impact on GDP and employment. The good news is Lean Startup is a process that can be learned and can be taught.
If you would like to know more email me on email@example.com or keep in touch through twitter @marylcronin @thousandseeds.