4 myths about the Lean Startup that need to be dispelled
I notice that people are still confused about what a ‘Lean Startup’ really is. I was interviewed about this recently by Up To Wine, and I thought the points were important enough to present them here as a blog post.
Essentially, Lean Startup is a about adopting an evolutionary approach to business development. As we all know from Darwin, it is not the strongest that will succeeds in evolution, but it is the most adaptable. Lean Startup is about the best way to adapt your business model to the market demand as the key for finding the product-market fit.
Unfortunately, there are a few myths that people have about Lean Startup that prevent it from being used right.
1. Lean Startup gives you a permission to waste resources on “experiments”
This is not true. It is correct that the Lean Startup approach has a different notion of waste than a traditional business approach. For most managers and business people, if you throw away any work that you have already done, then you have wasted resources.
The Lean Startup on the other considers resources wasted if they fail to generate useful, actionable knowledge. If the work done allows the startup to discover a dead end in the business development, this is not wasted work at all.
Knowing exactly what doesn’t work is precious knowledge that will avoid future bigger and maybe deadly mistakes. Because of the cost of mistakes later on, Lean Startup suggests validating the riskiest assumptions first (i.e. at early development stages).
Since there is a big chance that your assumptions will be invalidated by the experiments, it’s better to rule out unpromising paths soon and with minimal effort.
2. Lean Startup negates the importance of a business plan
Wrong. You’ll still need a business plan. But the Lean Startup is about what comes before that.
Business plans are just not very useful in an early stage where the company is still looking for the product-market fit and for a repeatable, profitable and scalable business model. This is simply because a business plans assumes that the product-market fit has already been found.
Also, business plans are great if you have a proven scalable, repeatable and profitable business model. In fact, a business plan IS a plan for scaling. So once product-market fit is achieved through validated learning, the company loses its “startup” state and needs a rock-solid plan for scaling and becoming a full-fledged business.
Everything you ever learned about business plans will be deployed at this stage. What’s more, the quality of your business plan should be extremely high after the Lean Startup process has been successfully completed, because it will provide answers to all the questions investors might ask, especially those related to market risk and projected returns.
Investors use a business plan for a double purpose:
- to assess your business opportunity and
- to assess the feasibility of its implementation
The Lean Startup suggests to clearly separate these two elements and to focus first on the opportunity assessment by adopting a scientific methodology. In other words, Lean Startup suggests that the due diligence being done before writing a business plan, and not after.
3. Lean Startup is for “small” businesses, which do not usually require large investments
This might be due to the word ‘lean’ in Lean Startup. It causes people to assume that a “serious” business cannot rely on the Lean Startup model because it “does not scale”.
Or worse, that running small scale experiments equals a startup. For some wannabe Lean Startup founders, the first and only experiment they run is considered to be the business, which leads to a reluctance to pivot. Even when the reality shows them that there is no traction and therefore no business at all.
But what Lean Startup really says is that scaling is not the first concern for startups. A startup needs to find the Product-Market Fit first. But after they find it, they WILL need to scale.
A startup is about innovation and high-growth potential. A startup a business is not a business that wants to remain small – on the contrary, it is sometimes defined by its potential to become a big business fast. Therefore, soon or later, it will need the adequate amount of resources for achieving that.
For some categories of businesses you will actually need a considerable amount of resources. If you’re developing very complex technology, even running a learning experiment might be expensive. That’s fine. Lean Startup has nothing against raising large amount of seed funds and these resources must absolutely be found if they are needed to set up learning experiments.
The fundamental point is that you should use all this money to maximize learning – and not for premature scaling.
4. Lean Startup leads to lack of focus
This myth is also related to another misconception: that Lean Startup leads to lack of perseverance (or focus).
In Lean Startup perseverance is seen from a different (and more valuable) perspective: do not persevere on directions that are proven to lead to failure, but persevere in exploring new directions with new experiments.
Let me know your comments!
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