The Lean Startup and the Changes that Happens
You always have that 50:50 chance of hit or miss when you launch a new enterprise, be it a tech startup, a business venture, or a small shop. The process of a startup is as always write a business plan, pitch it to investors, assemble a team, introduce a product, and start selling as hard as you can. You may suffer a fatal setback somewhere in between this process. You are not alone, a study has proved that 75% of all startups fail.
The “lean startup” is a recent methodology that can make the process of starting a company less risky. This methodology favors experimentation over elaborate planning, customer feedback over intuition, and iterative design over traditional “big design up front” development. Even though the methodology is just a few years old, its concepts like “minimum viable product” and “pivoting” have become popular in the startup world. Its curricula have been adopted by business schools too for teaching purpose.
I cannot say that the lean startup movement has gone mainstream. Its full impact is yet to be felt. It is still where it was five years ago and many of its buzzwords are still to be understood and companies are just beginning to grasp. But, the conventional wisdom about entrepreneurship will have changes once it is on practice. By following its principles of failing fast and continually learning, new ventures of all kinds are attempting to improve their chances of success. Some of its biggest payoffs may be gained by the large companies that embrace it in the long term.
This article will give you a brief overview of lean start-up techniques and how they’ve evolved. You can also learn about how they could ignite a new entrepreneurial economy in combination with other business trends. So here we go.
The Misunderstanding on the Perfect Business Plan
The first thing every founder must do is create a business plan — this is what conventional wisdom says. The plan will be a static document that describes the size of an opportunity, the problem to be solved, and the solution that the new venture will provide. There will also be a five-year forecast for income, profits, and cash flow in the plan. You can define a business plan as a research exercise written in isolation at a desk before an entrepreneur has even begun to build a product. It is believed that a business plan will make it possible to figure out most of the unknowns of a business in advance before you raise money and actually execute the idea.
An entrepreneur begins developing the product in a similarly insular fashion once he/she, who has a convincing business plan, obtains money from investors. To get it ready for launch, developers invest thousands of man-hours. But, there won’t be any customer input in this. The venture gets substantial feedback from customers only after building and launching the product. That is when the sales force attempts to sell it. Mostly, entrepreneurs learn the hard way that customers do not need or want most of the product’s features will be after months or even years of development.
These are the three things we have learned after decades of watching thousands of start-ups follow this standard regimen:
- Business plans rarely survive first contact with customers.
- There is no need for any five-year plans to forecast complete unknowns. The fact is that these plans are generally fiction and dreaming them up is almost always a waste of time.
- It is a myth that startups are smaller versions of large companies. They might not go in accordance with master plans. It is only when the startups go quickly from failure to failure, all the while adapting, iterating on, and improving their initial ideas as they continually learn from customers, they succeed.
The main difference is that while existing companies execute a business model, startups look for one. The distinction comes at the heart of the lean startup approach. So, the lean definition of a startup can be a temporary organization designed to search for a repeatable and scalable business model.
There are three key principles for a lean method.
The first one is that entrepreneurs accept that all they have on day one is a series of untested hypotheses rather than engaging in months of planning and research. Basically, these will be good guesses. Therefore, founders summarize their hypotheses in a framework called a business model canvas, instead of writing an intricate business plan. Mostly, this is a diagram of how a company creates value for itself and its customers.
The second principle is that lean startups use a “get out of the building” approach called customer development to test their hypotheses. This will be by going out and asking potential users, purchasers, and partners for feedback on all elements of the business model, including product features, pricing, distribution channels, and affordable customer acquisition strategies. Nimbleness and speed will be the two things that are more emphasized. New ventures rapidly assemble minimum viable products and immediately elicit customer feedback. After that, they start the cycle over again using customers’ input to revise their assumptions. It will be by testing redesigned offerings and making further small adjustments (iterations) or more substantive ones (pivots) to ideas that aren’t working.
The last one is that lean startups practice something called agile development, which originated in the software industry. Customer development and agile development go hand-in-hand. Agile development eliminates wasted time and resources by developing the product iteratively and incrementally, unlike typical yearlong product development cycles that presuppose knowledge of customers’ problems and product needs. It’s the process by which start-ups create the minimum viable products they test.
Stealth Mode’s Declining Popularity
There are changes in the language startups use to describe their work because of the use of lean methods. Startups often operated in “stealth mode” during the dot-com boom, exposing prototypes to customers only during highly orchestrated “beta” tests. Those concepts are made obsolete by lean startup methodology because it holds that in most industries customer feedback matters more than secrecy and that constant feedback yields better results than cadenced unveilings.
More than 25 universities teach the lean startup method now and many online courses are also available. Also, there are many organizations in every city introducing the lean method to hundreds of prospective entrepreneurs at a time. A roomful of startup teams can cycle through half a dozen potential product ideas in a matter of hours at such gatherings. There are cases where some businesses are formed on a Friday evening and are generating actual revenue by Sunday afternoon.
Creating an Entrepreneurial, Innovation-Based Economy
Success is predicated on too many factors for one methodology to guarantee that any single start-up will be a winner. But, through my research and what I have seen all these years, I have found that using lean methods across a portfolio of start-ups will result in fewer failures than using traditional methods.
There will be profound economic consequences for a lower startup failure rate. The forces of disruption, globalization, and regulation are buffeting the economies of every country today. Many of the established industries are rapidly shedding jobs and most of them will never return. New ventures have to bring employment growth in the 21st century. So, we all have a vested interest in fostering an environment that helps them succeed, grow, and hire more workers. So it is very crucial to create an innovation economy that’s driven by the rapid expansion of startups.
Growth in the number of start-ups was constrained by five factors in the past in addition to the failure rate. These are:
- The increased cost of getting the first customer and the even higher cost of getting the product wrong.
- Long technology development cycles
- The limitation in the number of people with an appetite for the risks inherent in founding or working at a startup.
- The structure of the venture capital industry. In this, a small number of firms each needed to invest big sums in a handful of startups to have a chance at significant returns.
- The concentration of real expertise in how to build startups.
The first two constraints can be reduced by the lean approach by helping new ventures launch products that customers actually want far more quickly and cheaply than traditional methods. The third will be reduced by making startups less risky. Another thing is that this has emerged at a time when other business and technology trends are likewise breaking down the barriers to startup formation. The entrepreneurial landscape is altered by the combination of all these forces.
Open source software has slashed the cost of software development from millions of dollars to thousands these days. There is no need of own factories for hardware startups as offshore manufacturers are so easily accessible. Also, young tech companies that practice the lean startup methodology offer software products that are simply “bits” delivered over the web or hardware that’s built in China within weeks of being formed.
Decentralization of access to financing is another important trend. Venture capital used to be a tight club of formal firms clustered near Silicon Valley, Boston, and New York. But now, new super angel funds, that are smaller than the traditional hundred-million-dollar-sized VC fund, are able to make early-stage investments. Hundreds of accelerators have begun to formalize seed investments worldwide. More democratic method of financing startups are provided by crowdsourcing sites.
Today’s new ventures are also blessed with the instantaneous availability of information. New company founders got advice only as often as they could have coffee with experienced investors or entrepreneurs, before the internet. Sorting through the overwhelming amount of startup advice they get is the biggest challenge today. The lean concepts provide a framework that helps you differentiate the good from the bad.
Initially, lean startups were designed to create fast-growing tech ventures. But, the concepts are equally valid for creating the Main Street small businesses that make up the bulk of the economy. They can increase growth and efficiency, and have a direct and immediate impact on GDP and employment.
This may happen very soon because a few signs are appearing. The U.S. National Science Foundation began using lean methods to commercialize basic science research in a program called the Innovation Corps in 2011. Also, now, 11 universities teach the methods to hundreds of teams of senior research scientists across the United States.
These techniques are adopted by MBA programs too. Now business schools are realizing that new ventures need their own management tools. Business schools are abandoning the business plan as the template for entrepreneurial education as they embrace the distinction between management execution and searching for a business model. The business plan competition is being replaced by business model competitions. These were a celebrated part of the MBA experience for over a decade.
A New Strategy for the 21st-Century Corporation
Lean startup practices are not just for young tech ventures. By driving down costs, corporations have spent the past 20 years increasing their efficiency. But, it is not enough to simply focusing on improving existing business models. Every large company also needs to deal with ever-increasing external threats by continually innovating. Corporations need to keep inventing new business models to ensure their survival and growth. Entirely new organizational structures and skills for this challenge.
You can read my article here : https://oyestartups.com/blogs/the-lean-startup-and-the-changes-that-happens