Lean Startup: The Right Strategy or Fool's Gold

 

Lean Startup: The Right Strategy or Fool's Gold? (Part 2 of 4) by SmartDraw

In this series of four articles, we are examining the Lean Startup philosophy, how it aims to overcome three huge obstacles to startups, some drawbacks cited by critics of the Lean Startup, and finally, what we believe to be the answer to the question, "Is a Lean Startup the right strategy or fool's gold?"

In Part 1, we looked at the Lean Startup philosophy, which focuses on customer satisfaction through continuous product and service innovation.

In Part 2, we'll examine the three business obstacles that the Lean Startup aims to overcome.  

Obstacle 1: Incomplete Business Plan

A recent article, "Why the Lean Start-Up Changes Everything" by Steve Blank, appeared in the Harvard Business Review. (Blank is an associate professor at Stanford University; Eric Reis is one of his former students.) It discusses the "fallacy of the perfect business plan." Blank likens the futility of trying to accurately predict a five-year business forecast to a comment Mike Tyson once made about his opponents' prefight strategies: "Everybody has a plan until they get punched in the mouth."

According to Blank, most businesses don't survive their first contact with customers. So while existing companies execute a business model, startups look for one. The Lean Startup is "designed to search for a repeatable and scalable business model."

The Lean Startup philosophy is more interested in getting a product into the hands of potential customers quickly than spending a lot of time on hypothetical business forecasting.

Obstacle 2: Untested Market Demand for the Company's Product

Developing a finished product is often a time-consuming and capital-intensive undertaking. Worst of all, a traditional approach may produce an untested product that misses the mark and results in failure of the enterprise. The Lean Startup works around this issue through the MVP and a concept known as the "pivot."

The MVP, or minimum viable product, is a product that has just enough features to be deployed for testing to early adopters. This is a group of prospective customers who are savvy enough to understand the company's vision through an early prototype model, and willing to offer feedback. The idea is for the company to avoid, as early as possible, building a product that customers don't want. Developing an MVP is the first step in the build-measure-learn feedback loop.

In a pivot, a business hypothesis about the product, business model, or engine of growth is tested. If it fails, then a corrective course of action is taken.

Creating a product in this manner becomes an iterative process between the business and its prospective customers.

Obstacle No. 3: Lack of Adequate Funding

It's no secret that most startups fail due to under-capitalization. But is it just a capitalization problem? Or is the real issue that all too frequently, startup capital is depleted during the development of an end product that customers simply don't want.

The Lean Startup approach is intentionally geared to reduce the need for heavy upfront capital investment. This is done by quickly (a) building a basic product (the MVP) for launch, (b) testing the market's acceptance of it, and then (c) iterating the product or service through innovation and customer feedback.

In Part 3 of this series we'll look at the counterpoint view: drawbacks to the Lean Startup.