Lean and mean: the thinking that is changing start-ups

1. THE GODFATHERS OF LEAN THINKING

The view that start-ups are about learning and discovery, in search of a business model, was pioneered by Steve Blank, a serial entrepreneur in the United States and consulting professor at Stanford University, and Eric Ries, author of The Lean Start-up: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses, and an entrepreneur-in-residence at Harvard Business School.

2. ENTREPRENEURS ARE BUILT, NOT BORN

Blank and Ries believe any determined entrepreneur can learn the steps needed to establish a great start-up, while reducing the risk of costly failures. Entrepreneurs don’t need some sort of genetic pre-disposition to fast-growth business in order to succeed.

3. START-UPS ARE UNIQUE

Ries’s key insight in lean entrepreneurship is that start-ups are not small versions of larger companies. This might seem obvious, but traditional business thinking tends to apply management concepts designed for large organisations to start-ups. Most business schools, for example, teach students how to spend months researching ideas, forming business plans and raising capital, when that may be the wrong approach for ventures with an uncertain business model and target market.

4. THE SEARCH FOR A BUSINESS MODEL

Under the lean entrepreneurship approach, the start-up’s founders search for repeatable and scalable business models, rather than settling on one when the venture is launched. Investors in the start-up bet on its chief executive being able to adapt quickly enough as new business models are tested. This approach does not apply to all ventures; those with high fixed costs require more traditional business planning. It works best with disruptive innovations, such as insurgent web-based companies that terrify slow-moving industry incumbents.

5. RUN FAST

Successful start-up founders observe when their business model is struggling, respond to new facts, decide which parts of the business model require urgent change, and act. They acknowledge their business model could be wrong and need to change several times in the start-up’s early years, and that detailed business planning is a time-waster when the business model is unsettled. Academics such as Alexander Osterwalder and Yves Pigneur, who have done pioneering work on business-model generation, talk about a business model canvas that needs to be tested in the market, rather than full-blown business plans.

6. PIVOT AND TURN

The concept of pivoting could be as simple as an entrepreneur recognising they have priced a product incorrectly, chosen the wrong target market or focused on too narrow a niche – then changing, or pivoting, quickly. The founder recognises the start-up is about iteration, testing and validation, and that several pivots may be required in the early years to reinvent the venture. They ensure the organisation’s culture and staff are flexible enough to turn on a dime, if required.

7. LEAN AND LEARN

Lean entrepreneurship thinking says start-ups exist as a source of learning to build a sustainable venture, and that the only true learning comes from testing aspects of their business-model hypothesis in the market and responding quickly. Rather than spending months researching an idea and hoping it works, they get their minimum viable product (MVP) to market quickly and let customers inform them. Their most precious asset is speed.

8. FEEDBACK LOOPS

The start-up entrepreneur creates a feedback loop to measure how customers respond to new products, at least at the start, and decide whether to “pivot or persevere” with their business model. The main insight is how successful start-ups constantly source and adapt to customer feedback and let it shape their business model.

9. THE CRITICAL FORMULA

Under lean entrepreneurship thinking, chaos + speed + pivots = success. Put another way, the start-up founder recognises he or she must work in an environment of extreme unpredictability (chaos). Their great skill is being able to change quickly as circumstances dictate (speed) and reinvent aspects of their business model (pivot) to respond to emerging threats and opportunities.

10. ENTREPRENEURSHIP IS MANAGEMENT

As Ries notes, entrepreneurship is essentially another form of management. That is, the start-up founder applies a different type of management style that recognises the uncertainty of entrepreneurship, and the need to adapt and develop a stream of constant innovation with the start-up. This view is at odds with many entrepreneurs who see themselves more as creators and innovators rather than business managers.

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