How Dangerous are Lean Start-ups?
The term, lean start-ups, is new for me. After reading two articles, looking at a web
page, and reviewing a couple of case studies, I am certainly not an expert on
the subject. I have, however, learned
enough to believe that the lean start-up process has brought developing a
product and starting a company to support that product from the way it has been
done for the last one hundred years into the 21st century. If you are an old company starting a new
business using traditional methodology and competing with a new company using
lean start-up principles, the chances are you will not be first to market or
best to market. In fact, research
indicates there is a seventy-five percent chance you will fail (Blank,
2013).
Discuss
the implications of lean start-ups and why they can be so disruptive to
well-established, older, industry giants.
The well-established, older, industry giants still follow the
traditional methods when starting a new business. They start by writing a business plan (usually
in isolation) that describes the hole in the market and the solution to fill
that hole. It includes financial
forecasts years into the future before money is raised, a product is developed,
or the idea is put in motion. Once a
good business plan gets the interest of and money from investors, the
entrepreneur begins product development (again, in isolation). It is not until the product is developed and
launched that any real customer feedback is received. If that feedback is negative and the product
does not sell, then all of the time, effort, and money invested in the product
is lost and the venture fails. This is
the process upon which companies have been created for decades.
Lean start-ups have turned the entire process upside down and
pose a significant threat to anyone using the traditional start-up method. Lean start-up is just now beginning to have
an impact, but it is significant. It is
easier, faster, cheaper, and far less risky than traditional start-up
methods (Blank, 2013). Understanding both processes a
little better, I am not surprised that the traditional start-up method has such
a high failure rate. The implications to
the industry giants are significant. If
they have an idea upon which they want to create a new business unit, the
process they use is ineffective, if not obsolete. Even if it can be used internally, any external
competition will beat them to market with a tested and in-demand product, not a
prototype. This is what makes lean
start-up disruptive to the industry giants.
Lean start-ups will eventually begin out-innovating these established
giants product by product.
The good news is the industry giants did not get to be
industry giants by being dumb.
Corporations like General Electric, Qualcomm, and Intuit have already
begun practicing lean start-up methodology (Blank, 2013). I suspect this has sent a strong message and
the others will soon follow.
Identify
in detail, the elements that provide a unique competitive position and how to
combat such an adversary
There are many differences between lean start-up and
traditional methodology. Lean start-up
is defined as “a temporary organization designed to search for a repeatable and
scalable business model” (Blank, 2013, p. 67).
Lean start-up follows three principles. These principles or elements create a unique
competitive position for lean start-ups.
First, they do not assume or write a business plan. They begin with their untested ideas
summarized on a one-page business model canvas.
Then they go out and search for a business model that works. Second, lean start-up does not assume it knows
what the customer needs or wants, lean start-up meets with potential users,
purchasers, and partners and ask for feedback on product features, pricing,
distribution, and acquisition. The intent
is to test the idea and get feedback as quickly as possible. From the feedback, lean start-up immediately
begins to build a minimum viable product (MVP) (Blank, 2014). As soon as the MVP is done, the lean start-up
immediately seeks feedback. The feedback
is used to revise the MVP. The modified
MVP goes back for feedback again. In
this iterative manner, a product is developed that already has an interested
customer base. If for any reason the
product is simply not working, lean start-up will pivot to a different
idea. Third, lean start-up uses agile
development to iteratively and incrementally create the product. In concert with customer development, agile
development is used to create the MVP and each iterative revision (Blank,
2014).
The real advantage of lean start-up is achieved through
customer interaction and feedback. This
feedback takes much of the uncertainty out of the startup process and is used
to create the business model and develop the product. In the traditional start-up, these items are
created in ‘stealth mode’ and shrouded in secrecy to protect the idea from
being discovered by the competition (Blank, 2013). When the business plan and product emerge, they
are guess work based on assumptions about the customer that have traditionally been
wrong seventy-five percent of the time.
That is no longer an acceptable statistic. Lean start-up follows the notion that
customer feedback is more important than secrecy and produces far better
results.
To combat the advantages of lean start-up, the
industry giants must come to understand the importance of customer feedback and
adopt lean start-up methodology (or develop something similar) as their core practice. The one thing I see that is preventing the
giants from making the change is their aversion to transparency. Remove the shroud and the options will open for
change and with that change will come the opportunity to remain viable among
the competition.
~Pete
Reference:
Blank, S. (2013). Why the lean start-up changes everything. Harvard Business Review, 91(5), 63-72.
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