Demystifying the lean startup methodology

There has been a lot of momentum around the lean startup methodology that has its origins in Silicon Valley.  The momentum is starting to create a flavour of the month backlash.  Much of this backlash, as with some other developments in the past, is the result of misunderstanding what it is and how to adopt it.  I wanted to offer some thoughts that might help demystify this lean startup thing.

The lean methodology incorporates all of the considerations that should be in any traditional business plan.  A company has to understand the need it is addressing, the solution to address the need, who the customer is, how they will interact with those customers, resources they will need, pricing and cost structures and key activities.  What is different is how a start-up considers all of these factors.

Traditionally a start-up takes a book or software application and prepares a complete business model with exact details on how the plan will be executed.  There is no explicit acknowledgement that the plan is full of assumptions and not known facts.  The start-up team might even go beyond the plan and start spending time and money building the solution.  It is only when the team has its first interaction with customers that it finds out that many of their assumptions were wrong.  Compounding this oversight is that, with a plan, there is a tendency to forge ahead despite negative market response.  The team decides that the customers just don’t get it and flounder around constantly revising their message in an attempt to convince them that they want something they don’t.

The lean approach in contrast is based on the premise that everything in the initial business concept is an assumption.  Rather than building a detailed plan the lean approach starts with a short form description of the business model as the start-up team envisions it.  Each of the elements of the business model will be tested with customers as early as possible starting with the need being addressed.  As the team learns from its customer interactions it is able to make course corrections before it has committed a lot of time or resources.  Effectively the start-up team is building a business plan but is doing it in partnership with its customers.

What the lean approach does that the traditional approach doesn’t is allows for a business concept to be abandoned or adjusted at any time it becomes apparent that the market has no need.  The team can then move on to another idea that may have more market acceptance while they still have resources and time to do so.

I don’t mean to trivialize the difficulty in implementing the lean approach.  It requires a new way of thinking than we have been taught or continue to be taught.  I will discuss implementation challenges in future posts.  My objective in this post was to point out that we are not being asked to throw out the fundamentals of business building and start from the ground up.  We are just being encouraged to take a different approach to planning and executing these fundamentals.

 

Published by Vince Bulbrook

Vince has spent over twenty five years working with entrepreneurs providing financial and strategic advice. Much of this advice has centered on business model design and product development. Issues such as determining how to invest product development resources, pricing options, features, distribution and client requests all come in to play. For much of the past fifteen years Vince has operated a business providing CFO and strategy services to small businesses. In this period he spent three years in the product development group of a software company that had a $26-million development budget. Along with overseeing the development of a product he also worked with senior management and the other product teams to determine how to manage the product portfolio. He has advised clients in software, entertainment, digital media, publishing, retail and distribution on product pricing, feature selection, distribution strategy. Prior to founding the advisory business Vince worked with Price Waterhouse and Ernst and Young. Vince graduated from the Ivey School of Business with an HBA and is a Chartered Accountant.

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