Why the Lean Start-up Changes Everything

by Danny Ackerman

Why the Lean Start-up Changes Everything, an article in the Harvard Business Review by Steve Blank makes the compelling argument that mainstream adoption of the lean start-up is not only attainable, but would provide the basis for a newer innovation based economy.

He begins by comparing prevailing start-up management techniques of the past 40 years to the lean start-up and how the lean start-up would change the economy:

Using lean methods across a portfolio of start-ups will result in fewer failures than using traditional methods. A lower start-up failure rate could have profound economic consequences. Today the forces of disruption, globalization, and regulation are buffeting the economies of every country. Established industries are rapidly shedding jobs, many of which will never return. Employment growth in the 21^st century will have to come from new ventures, so we all have a vested interest in fostering an environment that helps them succeed, grow, and hire more workers. The creation of an innovation economy that’s driven by the rapid expansion of start-ups has never been more imperative.

By transitioning lean start-up concepts from the traditional technology start-up to the mainstream small businesses, Blank asserts that GDP and employment would grow. Moreover, the article mentions several reasons that hindered start-up growth and how this methodology breaks these barriers down:

1. The high cost of getting the first customer and the even higher cost of getting the product wrong.

2. Long technology development cycles.

3. The limited number of people with an appetite for the risks inherent in founding or working at a start-up.

4. The structure of the venture capital industry, in which a small number of firms each needed to invest big sums in a handful of start-ups to have a chance at significant returns.

5. The concentration of real expertise in how to build start-ups, which in the United States was mostly found in pockets on the East and West coasts.

The lean approach reduces the first two constraints by helping new ventures launch products that customers actually want, far more quickly and cheaply than traditional methods, and the third by making start-ups less risky. And it has emerged at a time when other business and technology trends are likewise breaking down the barriers to start-up formation. The combination of all these forces is altering the entrepreneurial landscape.

The reduced number of failures combined with the reduced barriers would have an impact on the entire business landscape; however, the bigger question remaining is: how does the lean start-up successfully transition to traditional small businesses? Blank gives a few examples of technology start-ups using the lean start-up methodology, and then goes on to show how business schools are leading the way on the path toward embracing this philosophy. Small Business Labs shows how the recent food truck craze is using the lean start-up:

Lean start-up approaches and methods have mostly been applied to software and internet businesses. But it's interesting to look at food trucks through the lean start-up lens:

1. Food trucks are much cheaper to start and can get to market much faster than brick and mortar restaurants. In many ways, food trucks fit the Lean concept of the minimally viable product.

2. Food trucks can quickly and easily test new concepts, menus and recipes. In many cases food trucks are being used as lean start-up-like laboratories to test potential brick and mortar restaurant ideas.

3. Food trucks take an iterative approach to their menus and even location based on customer feedback. "Build-measure-learn" is a daily occurrence with food trucks.

4. Food trucks are tightly focused on their customers and interact with them every day.

This may work for certain industries with high customer availability, but what about small businesses where they do not have high customer availability or the ability to fail fast? Other ventures may not be able to have a Minimal Viable Product as Mark Andreesen stated in a talk at the lean start-up conference as noted by GigaOM,

I would serve this as a challenge for the Lean Start-up community. Especially the ones with the really audacious goals. Sometimes they start audacious because otherwise the product will never get to market. The Macintosh, that product had to exist in its entirety for people to wrap their heads around it, he said, pointing to modern entrepreneurs like Elon Musk’s ventures as ones that can’t be done on a small scale at first. You got to get the rocket into space.

Blank does acknowledge that the lean startup is going up against the traditional business management techniques of the past 100 years; however, he concludes that the rate of disruption and rapid change in the 21^st century will be felt by all types of businesses and the lean start-up approach will allow rapid innovation and tranform business as we know it.