Lean Startup Misconceptions

LeanStartupLike many young entrepreneurs as well as veterans of the technology industry, I’m a huge fan of the Lean Startup approach as described by Eric Ries in his famous book. For readers not familiar with this approach, see Wikipedia for a quick summary or Eric’s website for the principles.

But recently, I’m seeing articles that are a little more critical, for example GigaOm reporting from the Lean Startup Conference in December 2012 where Marc Andreessen weighed in:

Marc stated that not all startups should be lean startups – and that investors should not automatically reject a company that is not using  this popular approach.

Because there are ventures where the Lean Startup methodology just doesn’t make much sense, for example “…the ones with the really audacious goals. Sometimes they start audacious because otherwise the product will never get to market.” For these companies, starting with a very much stripped down minimum viable product (MVP) is just not possible.

Using the Lean Startup Label as an Excuse

Marc continues discussing an entirely different situation – where startups implement the Lean Startup approach plain wrong: using it either as an excuse to skimp on sales and marketing, or (ab-)using the pivot concept as an excuse to give up too fast, and as Marc calls it, even developing a “fetish for failure”.

Both are gross mis-uses of the Lean Startup concept. To skimp on sales and marketing and to believe “if only we get the product right, it will sell itself through viral marketing (or so)” is just the old “If we build it, they will come” belief in new clothes. Lean Startup is about efficiently developing a winning product and the corresponding marketing strategy in parallel! How one can claim to use Lean Startup and then skimp and sales and marketing is really puzzling me.

Same for the pivot: yes, the Lean Startup approach embraces the idea of changing the strategy, the product, and the engine of growth, as soon as it becomes evident that the currently chosen path does not lead to success. And it warns against misguided perseverance – because continuing on a course that is evidently not working is just waste, and Lean Startup seeks to eliminate waste. So, while pivoting might often be necessary, it is certainly not a goal in itself to pivot frequently.

Furthermore, pivoting is not about arbitrarily zig-zagging and changing direction on a whim. The decision to pivot and the choice of the new course should build on what has been learned so far through the systematic Build-Measure-Learn approach. In that case, it should be possible to complete the next cycle of learning more quickly than the previous one by leveraging the “validated learning” from earlier cycles, e.g. regarding customer needs, customer behavior, and engines of growth.

Misunderstanding “Lean” and “Startup”

There are other Lean Startup misconceptions that I frequently encounter – and which I believe are at least partially due to a misunderstanding of the terms “lean” and “startup” themselves.

Misconception 1: Lean Means Bootstrapped

Lean Startup is often viewed as synonymous with bootstrapped startup, i.e. a startup using little external investment. Even on Amazon, if you look up the Lean Startup book, you get a special offer to buy it together with “The 100$ Startup”, which is indeed a book on bootstrapping a business.

While many of the examples in the Lean Startup book are from companies that utilized little or no external investment, Eric himself emphasizes that this is not what he means by lean. Just like in the long established concept of Lean Production, the “lean” in Lean Startup is about eliminating waste where ever possible. Toyota, the poster child of Lean Production, runs large-scale, capital-intensive production lines that nobody would expect to be bootstrapped.

Misconception 2: Startup Means Startups Only

That’s the even more common misconception. However, Eric Ries offers the following definition of a startup:

“A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.” (Eric Ries: The Lean Startup; chapter 2, Define)

While the majority of Lean Startup experience reports indeed are from startups, we do have case studies from non-profits and from enterprises, and the recent Lean Startup Conference had a half-day track on Lean Startup in the enterprise.

Lean Startup Represents a Huge Opportunity for Innovation-Minded Enterprises

Based on my own experience of developing new business opportunities from inside a large enterprise software organization, I see a huge potential for Lean Startup in the enterprise.

Enterprise product organizations in fast-moving industries are well aware of the need to innovate – but due to their size and what’s at stake for them in their established product businesses, they have a strong need for planning and milestones and predictable outcomes. That’s incompatible with the loose “trial and error” approach that startups and new product teams often used in the past.

The Lean Startup approach helps bridge those two cultures: it defines a rigorous process for validated learning – with learning milestones along the way. So just like a team working on an established product, the new venture team is following a plan, it works towards defined milestones, and it can demonstrate its progress towards the defined milestones using the actionable metrics that are a key element of the Lean Startup approach.

It’s just that the milestones for the new venture team are related to validated learning, and one possible outcome at a milestone is the conclusion – backed up by hard data – that hypotheses underlying the current strategy are not true and therefore, the strategy will not work. This is a valid, and indeed highly valuable, outcome of a learning cycle.

Even with the Lean Startup approach,  market success of a new product is still not guaranteed, but this approach helps new ventures to survive and even prosper in a large enterprise environment.

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