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Welcome to Week 2!
This week we will learn what is a Lean Startup, how to capture your business model with the Lean Canvas, and what process should an entrepreneur follow in order to minimize the chance of failure.
what is a Lean Startup concept?
Lean Startup is a method for developing businesses and products first proposed in 2008 by Eric Ries and claims that startup success can be learnt, by following the right process.
Ries developed the idea for the lean startup from his experiences as a startup advisor, employee, and founder. While at Yale, Eric Ries began his entrepreneurial career as the co-founder of Catalyst Recruiting, a startup that failed because they did not understand the wants of their target customers, and because they focused too much time and energy on the initial product launch.
After Catalyst, Ries was a senior software engineer with There, Inc. Ries describes There Inc. as a classic example of a Silicon Valley startup with five years of stealth R&D, $40 million in financing, and nearly 200 employees at the time of product launch. In 2003, There, Inc. launched its product, There.com, but they were unable to garner popularity beyond the initial early adopters.
According to Ries, the biggest mistake was that the company’s vision was almost too concrete, making it impossible to see that their product did not accurately represent consumer demand.
After the failure of There.com, Ries started another company, IMVU Inc., a social network, in 2004, along with one of the founders of There.com, Will Harvey.
Ries met IMVU investor Steve Blank, who insisted that IMVU executives audit his class on entrepreneurship at UC Berkeley. There he picked up Blank’s method of fast customer feedback, which Blank called “Customer Development”, and applied it at IMVU, testing alternate versions of the product and measuring download rates. IMVU deployed code to production nearly 50 times a day, an unusually rapid development cycle.
So, what was fundamentally wrong about the traditional vision?
We can explain that by the lack of a dedicated framework for startups, facing high uncertainty. The framework used for new business was the same as the one taught in MBAs for existing validated businesses.
Therefore, the stack of tools for administering big businesses is not valid for STARTING a business.
The lean startup philosophy is based on lean manufacturing, the streamlined production philosophy pioneered by Taiichi Ohno by combining flow principles used by Henry Ford starting in 1906 and the TWI (Training Within Industry) programs introduced to Japan in 1951.
Lean manufacturing is a management philosophy derived itself mostly from the Toyota Production System (TPS). The steady growth of Toyota, from a small company to the world’s largest automaker, has focused attention on how it has achieved this success.
Similar to the precepts of lean management, the Lean Startup philosophy seeks to eliminate wasteful practices and increase value-producing practices during the product development phase so that startups can have a better chance of success without requiring large amounts of outside funding, elaborate business plans, or the perfect product.
In order to avoid designing features or services customers do not want, the entrepreneur must “get out of the building” to receive feedback before and during the whole development process, based on cycles as short as possible. This is done primarily through two processes, using key performance indicators and a continuous deployment.
Lean Startup is about speed, learning and focus.
The alternative is a 1-page Canvas that describes the entire business model:
– Business Model Canvas was invented by Alexander Osterwalder and Yves Pigneur.
– Lean Canvas is an equally popular template, and is an adapted version of the Business Model Canvas by Ash Maurya.
You don’t have to work in a garage to be a startup. Ries’ definition of a startup is the following:“a human institution designed to create new products and services under conditions of extreme uncertainty”
A startup is an institution, not just a product, and requires a new kind of management geared towards its context of extreme uncertainty.
The ultimate goal of a startup is to build a sustainable business. Learning should be validated by running frequent experiments that allow entrepreneurs to test the assumptions that they made in their business model.
The fundamental activity of a startup is to turn ideas into products, measure how customers respond and then learn whether to pivot or persevere. All successful startup processes should be aimed at accelerating that feedback loop.
To improve entrepreneurial outcomes and hold investors accountable, we need to focus on the boring stuff: how to measure progress, how to set up milestones, and how to prioritize work. This requires a new kind of accounting designed for startups and the people who hold them accountable.7