If you believe that lean startup methods lead to cheap products and companies, or that lean startup companies don't think big, think again. The digital revolution, globalization and technology platforms have forced companies to bring products to market faster than ever to stay alive, and even behemoths such as Experian are benefiting from a lean startup philosophy.
In light of the numerous misconceptions about lean startups, I thought it would be useful to clarify a few things for entrepreneurs and innovators. That's how I came to talk about the subject with Eric Ries, consultant, and author of The Lean Startup, during Lean Startup Week in November.
Flush with fallacies
The lean startup methodology is an approach for getting new products -- and startups -- to market using the fundamentals we learned in science class. Many hear the term "lean" and assume it means a startup that frequently cuts corners to save time and money. That's incorrect. Instead, a lean startup creates efficiency by minimizing wasted resources.
The ultimate goal? Streamlining the process for bringing a big idea to market.
Ries is one of the true champions of the approach and is a goldmine of information for anyone interested in avoiding the costly pitfalls that occur in the critical early stages of product development. This was actually the third time I’d had the opportunity to interview him; our last discussion covered marketing’s role in the lean startup process.
Our most recent discussion focused on what "lean startup" means in today’s business climate and how most entrepreneurs and corporate leaders have a faulty understanding of the approach. Here are a few of the misconceptions Ries described to me about how entrepreneurs still view lean startups.
Misconception 1: "Lean" means you’re cheap or not thinking big.
Customers often perceive early iterations of products as "cheap" or, at best, inadequate. In reality, the first iteration of a product -- the minimum viable product -- is a practical way to test an innovation with the consumer before fine-tuning the process.
Measuring and learning early in the development process ultimately saves startups time and resources. With my own organization’s venture companies, for example, we define an MVP (minimum viable product) as the smallest amount of design and code necessary to conduct the first product or market experiment while maintaining a positive user experience.
Customers might not know what they want, Ries said, but hypothesis-testing with your audience is still valuable.
Let’s assume the problem you’re trying to solve is how to make it easier for people to get from point A to point B. The MVP isn’t a broken car, an ugly car or a Lamborghini without an engine; it’s a simple, sleek scooter. Testing acceptance of the scooter can help you confirm whether people will use a vehicle to get from point to point, and validate core assumptions without investing the time or money to create an entire car.
Once you know customers are willing to pay for an alternative to walking, you can use their scooter feedback to shape your next product.
Uber is an example of a company that started with a lean MVP. Uber is now the highest-valued unicorn startup in the world, and it's worth as much as Goldman Sachs.
Misconception 2: Venture capital is unnecessary in the lean world.
Lean startup methodology still confuses some venture capitalists. Those VCs reserve their funding for companies that can return 10 times their capital investment within seven to 10 years or for firms with an exit potential of at least nine figures.
Ries said there has been pushback from a few VC leaders against the lean approach because they believe it eliminates the need for funding to grow a business. He insisted that this isn’t the case, as scaling still requires capital. Just look at Airbnb’s funding rounds, even though the company’s MVP was a simple landing page.
The lean process can drastically reduce capital waste in the early startup stage, but capital is still necessary. Ultimately, the lean process is a win-win for startup founders and VCs alike because it reduces investment risk and burn rates while shortening the path to results.
Misconception 3: Lean startups embrace failure.
Some consider a lean startup as a license to fail. But it’s not about embracing a culture of failure; it’s about understanding that you might stumble and a fall in a race, even as you get back up and make up for lost time.
“I hate the idea of ‘fail fast,’” Ries said. “It’s like I’m trying to run a sprint, and you’re like, ‘OK. Breathe fast.’ The breathing is not the purpose; the sprint is the purpose.”
The scientific method -- largely the basis for the lean startup process -- encourages practitioners to try a new hypothesis after another is rejected. As long as you’re learning from you're results, you’re allowed to get the hypothesis wrong.
The goal is to learn as much as possible from any failures and accelerate the entire process, to achieve a more successful outcome. Even Mark Zuckerberg changed his philosophy to ensure that Facebook would remain stable as it evolved. The company nixed the culture of "fail fast," but it still has a strong grounding in experimentation and iteration.
Misconception 4: Established companies have nothing to gain from a lean approach.
The leaders of established companies often have a faulty perception of lean startup techniques; they assume the approach becomes pointless once a company is mature and established.
“They think startups are all about kids eating ramen noodles and wearing a black turtleneck,” Ries said. These executives think the methodology no longer applies to them because their employees have gained health insurance, and “Everyone wears a suit to work.”
In reality, any project or innovation can benefit from lean startup techniques. GE FastWorks is using lean startup methodologies and has launched more than 100 projects globally, including disruptive healthcare solutions and new gas turbines.
In sum, a lean startup approach might not be right in every context, but it’s clear that the “third wave” -- an imminent revolution characterized by machine intelligence, robotics and the internet of things -- is dawning. That technological transformation will completely change our economy and society.
So, because that shift won't be solely about startups, established and emerging companies alike will need to embrace the lean way of thinking, or risk failure.