Start-up coach and successful entrepreneur Greg Langdon believes the Lean Startup philosophy is the perfect fit for Louisville. Here’s why.
Louisville startup community standout Aaron Marshall created his Over photo personalization app for the iPhone with a tiny development budget of about $32,000 – think the cost of a new car. Marshall continues to experiment constantly with new features and marketing campaigns without investing the time or money more established companies spend even on the most banal initiatives.
Marshall’s initial product idea wasn’t where he found success. But he was smart enough to let his customers guide his thinking as his business grew.
The Over app story is a case study in the emerging Lean Startup movement, which bypasses intensive business modeling and prototyping in favor of getting a product to market, clinically monitoring customer behavior, and then reacting quickly.
Everyone who’s started a business knows that the detailed market, competition and revenue projections in a classic business plan turn out to be wrong. Always. Often it’s so wrong that the successful business looks nothing like what was projected in the original plan.
Lean Startup calls on entrepreneurs to embrace that uncertainty. You know, like a startup.
Lean Startup is not for every venture, but it’s especially well-suited for tech, software and service businesses.
Web-based and app-based software enables rapid deployment of features and direct communication with customers about features and pricing. Even traditional businesses can benefit from online surveys or advertising to gain an understanding of their customers.
And this is more than just the latest business fad.
Lean Startup has several local evangelists, including Tendai Charasika of GLI’s EnterpriseCorp, who presented recently at the Lean Startup Conference in California and is a member of Louisville’s Lean Startup Circle. Charasika been a nonstop advocate for the Lean methodology with the dozens of entrepreneurs he comes into contact with through EnterpriseCorp and as a business coach in the Nucleus FastTrac program.
The recently announced Velocity SI accelerator program in Southern Indiana (under managing director Tony Schy) will guide their client companies through a Lean methodology, iterating rapidly over the course of a few months to develop a product-market fit. Even Startup Weekend Louisville, a 54-hour hands-on program for would-be entrepreneurs, employs a Lean process of customer development and product development between a Friday night and a Sunday night.
Lean has particular impact for Louisville startups. In the largest tech centers seed funding can be measured in millions of dollars, and venture funds can be raised in the hundreds of millions of dollars. That’s not Louisville. We have an active angel and venture investment community, but we can’t match Silicon Valley. (On the other hand, one-bedroom apartments don’t rent for $2,500 here).
By using a Lean Startup process instead of a traditional build-it-then-sell-it approach, risk is reduced. Because decisions are driven by data from customers, investors can gain confidence that an entrepreneur is on track and making progress. Risk is never eliminated, but by demonstrating that a startup is rapidly pursuing a product-market fit, investors see that they’re funding measurable progress, not an extended leap of faith. Lean makes sense for Louisville startups.
The Lean Startup Movement: A Brief History
The Lean Startup approach begins with the recognition that it’s impossible to create an accurate plan for a new business, particularly if it’s in a new or changing industry or if it’s promoting a unique product for which customers will simply have no existing reference points. It’s no longer acceptable to spend large amounts of time and money on business planning and product development, only to discover later that customers don’t want to buy what you created.
Some say that the Lean Startup movement was inspired by Toyota’s Lean production system, which emphasizes efficiency and continuous improvement in manufacturing. Others point to Agile Development, a software methodology that employs rapid release cycles and direct feedback from users or customers, with an expectation that product requirements may change continuously.
Lean Startup is built on the premise that most new businesses need to discover their business model through direct, iterative interaction with customers, avoiding the traditional “waterfall development” that’s characterized by lengthy product development in a vacuum, followed by an attempt to identify customers and sales techniques. Lean emphasizes figuring out how to sell your product before you build your product, and insists that the riskiest assumptions must be tested first.
Core Tenets of Lean
Based on the recognition that startups aren’t just smaller versions of larger companies, Lean presumes that a new company isn’t in search of a great idea or an untapped market, but rather an entire business model that will result in a profit. While the Lean Startup movement has an evangelical following, it’s essentially a data-driven, fact-based system. Some of the key elements of Lean are:
Validated Learning: The Lean methodology asserts that everything is testable and measurable: pricing, advertising effectiveness, feature demand, acceptable quality levels, etc. Decisions are made by developing hypotheses, then creating experiments that validate or invalidate them. Meaningful metrics are identified, and vanity metrics (e.g., Facebook fans, blog post views) are avoided.
Perhaps the most difficult aspect of this is the “get out of the building” ethic, which says that you and your colleagues can’t sit in your office, dreaming up features, pricing or marketing campaigns in the absence of customer feedback. As Steve Blank, a Lean Startup advocate and blogger says, “In a startup no facts exist inside the building, only opinions.”
Minimum Viable Product: It’s tempting to work day after day, getting your product perfect before you launch. Lean assumes that you’ll most likely be off-target no matter what, and the sooner you get in front of customers the better. By getting a Minimum Viable Product (MVP) in the customers’ hands and then collecting their feedback, you begin the continuous development cycle that characterizes a successful business. An MVP exists to test a core business hypothesis, not to completely solve a customer’s problem.
The founder of Zappos famously proved customers’ willingness to buy shoes online by taking photos of shoes in a retail store, then posting them on a website offering them for sale. After an online customer placed an order, he bought the shoes from the retailer at full price to ship to customers. Obviously the Zappos supply chain evolved, but the hypothesis was proven quickly, and with little risk.
Customer Development : The search for a profitable, repeatable business model is complete when a new business has identified its product-market fit. Ongoing change is inevitable, but until you’ve found the first category of customers whose needs you can fill, you can’t grow as a business. The Customer Development process involves first attempting to discover potential customers or categories of customers. Next, these potential customers are validated – sometimes by selling them your MVP, or perhaps with interviews or surveys. Finally, you begin to create actual customers by selling to them. Along the way you’ve discovered what features matter, what price customers will pay, which sales and distribution channels are effective, and other key aspects of your business model.
Pivot If You Have To: As you gather data about your customers and their reaction to your product, you often discover that your initial idea isn’t as brilliant as you thought. Maybe it’s the features that need to change, maybe the customers you intended aren’t the ones who will buy it, or maybe you need a partner for sales, distribution or support. By starting with an understanding that you’re conducting a series of measured experiments to identify a business model, a product-market fit, it becomes second nature to pivot, and to close in on a strategy that allows your company to grow.
For More Information
On a national level there are several thought leaders, along with books, blogs and online tools that help entrepreneurs adopt a Lean approach to their business. Here are some people and resources:
- Eric Reis’ great book (remember those?), The Lean Startup
- Steve Blank’s The Startup Owner’s Manual
- The Lean Startup Conference
- Lean Canvas, a tool for testing assumptions
- The Lean Startup Validation Board
Of course, there’s a lot more information on Lean Startups available with just a Google search.
The Lean Startup process is just common sense, but it’s that type of common sense that’s not always easy to adopt. But, the results can be dramatic, and success is hard to argue against.