#OpenCoffeeLou 26: Lean Startup experts say business models are replacing the 40-page business plan

Tendai Charasika, Vik Chadha and Suzanne Bergmeiser at Open Coffee 26

“Build. Measure. Learn.”

That’s the core of the Lean Startup methodology says Tendai Charasika, Director of Innovation & Commercialization Center (ICC) with Greater Louisville, Inc’s Enterprise Corp.

Charasika, Suzanne Bergmeister and Vik Chadha served as an informational panel on the successes and failures of Lean Startup methodology at today’s #OpenCoffeeLou.

Bergmeister is the entrepreneur-in-residence at the University of Louisville and is the founder of Sunflower Business VenturesChadha is Co-Founder of Backupify, GlowTouch Technologies and Scalable Ventures. He is also on the management team of the iHub.

Investor Greg Langdon was today’s moderator. There were about 26 people in attendance.

Agility is a core value of Lean Startups: the ability to change, to iterate and to pivot. Flickr started off as an online gaming platform, according to Bergmeister.  But it turned out that the customers liked the site’s photo-sharing function.

Customer validation– literally face-to-face discussions with human beings, finding out what their needs and priorities are before you create your minimum viable product–  is key. People who are in sales, said Charasika, understand this. “That’s intuitive to them. But engineers, not so much.”

Engineers typically  build solutions looking for problems, said Chadha. “We love to build stuff.”

According to Bergmeister, the key questions to ask are: What’s your pain? How many people have that pain? How much will you pay to get rid of that pain?

Too often, people skip that last question. But it’s critical. “I’m not going to spend $4 a minute to talk on the phone,” said Richard Meadows of Louisville Tech Tutor.

“If I’m buying a gas station, do I need this?” asked Langdon.

The consensus seemed to be yes. Almost all business models could benefit from this methodology. Sometimes customers don’t even know that they want something or have a pain until you ask them about it.

Lean Startup isn’t the only methodology to embrace these ideals. Six Sigma does too, explained Nick Roberts of SpeedDemon 2 Photography. “Every business is full of wasted effort.”

“Where have you seen Lean Startup fail? Where have you seen it not work?” asked Langdon.

Pharma, said Charasika. FDA regulated products. Anything that requires complicated experimentation.

“Where have you seen people stumble?” asked Langdon.

“Surveys,” said Bergmeister immediately. “Nothing beats face-to-face. No one’s ever excited by a survey.”

“It’s the next level of questioning that gives you the critical information,” said Chadha. That’s the heart of customer discovery.

Don’t ask leading questions. Don’t ask questions that ask your subject to be “nice.” Don’t be afraid to ask what they’d be willing to pay to solve their problems.

Rooibee Red Tea is an example of a business that embraced this model after a lot of investors were already on board. They put their product in front of people– at music festivals, in grocery stores, at street fairs. Asked customers directly what they liked and didn’t like about the product and about the products they were already buying.

Backupify used this methodology from the start, says Chadha. The company started a service that could back up your life streams– Twitter, Facebook, Gmail, etc– but it pivoted (slightly) and became something larger companies would use. Once they had 150 paying customers on board, Backupify dropped down the paywall and 15,000 people signed on.  This paved the way for big companies to adopt and pay. Now more than 5,000 big companies use the service, including universities, PC Magazine, the Museum of Modern Art in NYC and Tumblr.

Is the business plan dead?

“Business plans are good down the road,” said Charasika. “They’re a good exercise. But it’s mostly assumptions.”

According to Bergmeister, the University of Louisville is teaching using the Lean model with business plan writing. Harvard has scrapped business plans entirely.

More and more we’re seeing business model contests instead of business plan contests.

Chrysalis Ventures gets from 800 to 1.000 pitches a year, says Elizabeth Rounsavall, but they don’t receive many business plans any more.

From the investor’s viewpoint, when you’re practicing Lean Startup methodology you’re taking risk out of the venture. “Companies fail from lack of customers not lack of product,” said Rounsavall.

Lean doesn’t mean cheap, said Charasika. When you’re creating your “minimum viable product,” viable is key. It needs to solve the problem it promises to solve, otherwise you’ve lost a potential customer and early adopter.

But minimum means that you break it down to the smallest possible answer.

In the case of New2Lou, the problem was newcomers to the city feeling left out and finding it hard to connect to Louisville. The answer was an online community and regular meetups.

Final thought: Build it into the culture of your company.

Lean Startup Resources include:

Open Coffee Announcements:

  • This Wednesday, May 8 is the next meeting of Open Lunch Louisville.  We will meet at That Place On Goss, 946 Goss Ave. from 11 a.m. til 12:15 p.m.  The meeting is open to everyone with an interest to build the tech community here in Louisville, build up the interaction of the entrepreneur community with funding sources, connect with those who can help with solutions to problems and further grow out the entrepreneur community in Louisville. This week Delene Taylor, CPA, Marketing Director for DMLO will be our guest.
  • Chrysalis Ventures has Open Office hours every Friday. Sign up online. They are considering relocating Office Hours to iHub. We’ll keep you posted.
  • Next weekend is the GLI sponsored Code Red White and Blue in Washington, DC, a daylong hackathon/recruitment event. So if you know any hackers in DC…. (Not hacks. Hackers. Big difference.)
  • Cara Silletto, founder of Crescendo Strategies, will be the guest speaker on May 8 at the next meeting of Network of Entrepreneurial Women. She will be speaking about multigenerational workspaces. Men are welcome. Wine is provided. The event is at 6 p.m. at the Small Business and Entrepreneurship Center at JCTC at 620 S. Third St.
  • New2Lou’s monthly social is also this Wednesday, May 8 at 6 p.m. at the Down One Bourbon Bar underneath the Galt House on Main Street.
  • Also in New2Lou news, Red Bull has asked them to submit a vehicle for September’s Flutag in Chicago. Stacey Servo is looking for volunteers to help build, sponsor, shove or ride. What the heck is a Flutag? Well, it’s like the Derby bed races. Only with flying. Or not flying. And water. Just watch the video:
  • Thank you to Greg Langdon for providing information on regional accelerator programs that have upcoming deadlines.

Kentucky FoundersLab
Target: Kentucky student entrepreneurs and recent college graduates
Funding Provided: Up to $11,000 in seed funding for student-led businesses
Application Deadline: May 17
For More Information: www.KfoundersLab.com

Village Capital VentureWell – Louisville
Target: Innovation in energy or agriculture that can change the world
Funding Provided: $100,000 pre-committed funding, with investment selection made by the entrepreneurs in the program
Application Deadline: May 20
For More Information: www.vilcap.com/portfolio/louisville

Vogt Awards
Target: Early-stage companies that are creating tangible, manufactured products
Funding Provided: $20,000 each for five initial recipients, plus a $100,000 final grant for the winning finalist at the conclusion of the program
Application Deadline: May 17
For More Information: www.vogtawards.com

Target: Early-stage companies with technologies that can solve a real problem within the healthcare delivery and wellness continuum
Funding Provided: $20,000 plus donated services and office space
Application Deadline: May 17
For More Information: www.xleratehealth.com