The Lean Start Up

THE LEAN START-UP

G.T. Viki(2011)

The Lean Thinkers

Steve Blank (http://steveblank.com/)

Eric Ries (http://www.startuplessonslearned.com)

Ash Maurya http://www.ashmaurya.com/

Brant Copper(http://market-by-numbers.com/)

Alexander Osterwalder(http://

www.businessmodelgeneration.com/)

Your Business Idea Sucks!

LET ME SAVE YOU FUTURE PAIN AND JUST TELL YOU

NOW….Your Business Idea SUCKSYour Start-Up Will Probably

Fail


Most start-ups fail. Over 90% of start-ups fail early (1-5 years). Of the successful ones, over two thirds report

changing their initial idea to another one.

Why do start-ups fail? Most people cite things like, bad leadership,

bad teamwork, poor marketing. While this might be true, the answer to this

question can come as surprise to some.


Most start-up actually fail because they built something nobody wants!!! There is no amount of leadership, team work and

marketing that can save a start-up selling stuff that nobody wants!

Not because of bad technology (only 10%), but because there in no sustainable business model (over 90%).

Most entrepreneurs have great vision. Most of us get sucked into this reality distortion field. This is great, and is responsible for a lot of

innovation.

Start-up Vs. Established Company

But there is a difference between a start-up and an established business A Start-up is:

Unknown problem, Unknown Solution, Unknown Customer.

An Established Business is: Know Problem, Known Customer,

Known/Unknown Solution. Also important to distinguish between

start-ups going into established markets. Versus those creating a new market or

selling a radical innovation.

A Start-up Is An Experiment

The effectively means a start-up is an experiment: The founders’ vision is the hypothesis. Validating this hypothesis is the task for a

start-up. i.e. Is what we are proposing to build/sell what

people want? Only when this hypothesis is validated,

should money be invested in scaling the start-up.


This means that start-ups need different management principles from established businesses.

Interestingly, most start-ups follow the canonical model: Build in stealth, alpha test, beta test, launch

party!


If the start-up has VC money, they hire staff (marketing, sales, managers, etc etc… ). May be even move into new premises!

Everybody wants to be Facebook or Google… The ratio of companies like FB and Google

to other start-ups is 1/1000.


The business plan, in its conventional form is not a good idea for start-ups. Remember, A Start-up is:

Unknown problem, Unknown Solution, Unknown Customer.

So lets just call it what it is… A Business Guess!


Heresy: Business plan competitions (LOL!!)

Heresy: Business idea competitions (LOL!!) Why would you give money to people on

the basis of their guesses? Winner of these competitions are people

who are best at selling their sucky ideas! In year one, I will make £300K. In year two, I will

make £1 million (LOL!!!!!!!!!!!!)

Is there a better way?

What if we made explicit it that your business idea is a guess. Then developed a rigorous methodology for

testing this.

This is what a Lean Start-up is. It is a method for iterating from Plan A, to a plan that works. The speed with which a company can do this

is critical for success.

Customer Development

Document your Plan A This is NOT a Business Plan. It is a way to capture your businesses

hypotheses. Who are the customers, what problems do they

have, what solution are you proposing. What is the path to your customers, marketing

channels, what is your revenue model and cost structure.

What key metrics are you going to use to measure success.

All these are hypotheses that will need to be tested and validated.

The Lean Canvas


Then systematically test this plan…

You have to leave the building. The founders have to do this! 1) Problem/Solution Fit Do you have a problem worth solving?

Before you build, first find out if there is sufficient pain in your customer base to make your business viable.

This is where you find out if people are going to want what you are proposing to build.

It is also a chance to discover a minimal feature set.


2) Product/Market Fit Have you built something people want?

Once you have a problem worth solving, you can start building a minimum viable product (MVP).

You have to take this product, as you are building it, to customers for their feedback.

This is the time to also test whether your path to customers is scalable.

This is also the point to test pricing, and actually ask customer to pay for the product.

Problems

Remember that at any point in customer development you might run into problems. People don’t have the problem you were

hypothesising. People don’t like the solution you built. People don’t want to pay for the solution you

develop. People use the product once and don’t come

back.

The Pivot

If you run into any of these problems you don’t quit!

You also don’t just persevere “the plane into the ground”.

You have to do a PIVOT. Keep one foot in what you have learnt and then

change one other thing and test again! This is why the companies that can run these

tests quickly and get to a plan that works quickly, are more likely to succeed.

After Customer Development After you have problem/solution fit and

product/market fit, you are ready to scale. This is the point at which the typical

business plan makes sense. It is also the point when companies should

now put in money to hire sales people, marketing people, hr managers, etc etc.

This is also the best time to seek press attention.

After Customer Development

What About Vision?

So are we saying vision is unnecessary? Vision in actually critical… customer often

don’t know what they what. They will ask for a faster horse. This is the reason I don’t like focus groups so

much. Entrepreneurship should be based on vision. But this vision has to be validate, before

vast resources are poured into the enterprise.

What About Vision?

Methods of validation should be business relevant. Find out what problems customers have and

then use vision to develop solutions. Get customers to use the product and see what

they struggle with. The number one test is get customers to start

paying you for the solution. This is when you find out if you really have a

business!

An Incubator Idea

We are already giving students money when they win business plan competitions.

But imagine a different approach. Students win a business model competition instead. They attend one or two seminars on the lean

method. They then go out there and apply these methods as

much as they can in two weeks. They come back and present their business models

to a panel of judges who then pick the winners.

An Incubator Idea

These winners then get the initial funding (£2-£3K).

We then incubate these three or four start-ups here at Kent over the summer.

In those three months they have to spend all their time on the start-ups.

They get mentoring and support from various people (we also already do some of this). Investors, business support, lecturers, invited

guests.

An Incubator Idea

At the end of the summer, they have to be ready for launch at the scale/company building phase.

They then do a demo day for investors. The university gets a small non-dilutable

share holding in all these companies. Currently, the university is giving money

for free. This makes sense if the companies are

going to fail anyway.

An Incubator Idea

But the lean method increases chances of success. So this might be more viable…

Check out Y-Combinator for a similar model… http://ycombinator.com/Check out also FBFund for a similar model… http://fbfund.com/

THANK YOU!

twitter: @gtviki

Education

The Lean Start Up