Armed with an ‘awakened Giant within’ to guide them towards entrepreneurial and personal victory, the New Ventures Studio ‘First Class of 2016’ has just embarked upon the next phase of their 8-week ‘heroes journey’. Weeks 2 & 3 of the course is all about getting to grips with the Lean Start-up Model.
The first challenge for the class was to understand the key principles of the Lean Start-up model. To this end, they participated in four half-day training sessions, facilitated by Annu Augustine whose background is in supporting technology start-ups; Next, they had to apply this knowledge, in groups, to two hypothetical start-up scenarios.
After the group work, each student was required to apply these concepts to their individual business ideas and develop a set of questions to test key assumptions about selected customer segments. This was the first opportunity the class had to hear, in some detail, about each other’s business ideas. One-by-one they verbally sketched the fundamentals of their business ideas using lean start-up terminology.
This exercise caused such a buzz of excitement in the room, and brought with it a barrage of peer-to-peer questions. It was as if we had touched the collective ‘nerve ending’ of the class, and uncovered the real reason why people had foregone other opportunities to be on the course.
The Essence of Lean
At the heart of the lean Start-up model is finding out, first-hand, what customers really need before building something that nobody wants. Too often, entrepreneurs build their businesses around untested guesses about solutions to problems they think customers might have. This could typically be followed up with expensive product development without first testing how seriously customers perceive these problems, what they are currently doing to solve them, and whether they would pay for the entrepreneur’s solution.
Such oversight is tantamount to committing entrepreneurial suicide. It is a well-documented fact that most start-ups fail, not because of lack of product development or technology, but rather because of insufficient customers. While a whopping 90% of starts-up may fail, we also know that 66% drastically change their original plans.
With this in mind, the Lean Start-up model offers a scientific methodology for building start-ups that allows entrepreneurs to rigorously test their assumptions and use widespread customer feedback to ‘pivot’ and ‘iterate’ towards a business model that actually works. The outlook is therefore, not all doom and gloom for those brave enough to consider starting up a new venture.
Differently put, if ‘Plan A’ turns out to be a non-starter after talking to customers, entrepreneurs are taught to ‘fail fast and cheaply’. But it doesn’t end there: The process helps them find a path towards another plan that works before running out of resources. Herein lies the beauty of the Lean Start-up model: Failures are just temporary and - thankfully not necessarily debilitating - learning points along the path to entrepreneurial success.
From Lean Manufacturing to Lean Start-up
The Lean Start-up model has its roots in the Lean Manufacturing process which aims to reduce waste and excess capacity at every stage of the production process. More recently, it has been applied to lessons learned from technology start-ups in the Silicon Valley region and to the well-publicised teachings of professor Steve Blank at Stanford University.
Steve Blank makes the point that traditional approaches to educating entrepreneurs, which includes most conventional MBA programmes, have often failed to build successful start-ups because they do not make critical distinctions between start-ups and established organisations:
"No business plan survives first contact with customers."
- Steve Blank.
For one, Start-ups are temporary organisations existing solely to search for a workable business model that can be replicated and scaled. The tools that work in planning and operating large companies simply do not work for start-ups. Moreover, according to Blank, no business plan survives first contact with customers. This means that writing a lengthy business plan for start-ups and then simply trying to implement it is a lesson in futility!
Customer Discovery & Customer Validation
In his much-cited work, “The Four Steps to the Epiphany”, Blank describes the four stages of growth that any start-up goes through. He defines these critical stages as:
Customer Discovery: trying to figure out if there are any customers who might want your product
Customer Validation: making revenue by selling your early product
Customer Creation: the traditional launch of the start-up
Company Building: gearing up to ‘cross the chasm’
Stage one (customer discovery) is important because it forces the founders of the business to ‘get out of the building’ and literally place themselves in the shoes of their potential customers. Stage two (customer validation) involves validating whether or not there are customers who value your solution and are willing to pay for it. Importantly, this provides a roadmap for obtaining product/market fit. Customer validation is where the business starts generating revenue from its initial sales.
For our existing class, our current focus will not go beyond stages 1 & 2, as most of their businesses fall into these earlier categories.
Key Benefits of Customer Discovery
Another Lean Start-up guru, Eric Ries, describes three important benefits of Customer Discovery. Getting out of the building and learning from our customers helps us to:
Minimise the risk of total failure by checking assumptions against customer realities.
Enable one to hone an initially flawed idea into one that customers do actually want.
Generate new start-up ideas simply by asking the right questions and listening effectively.
So what now?
The class is now at the exciting stage of Customer Discovery: Eighteen brave explorers, ‘out of the building’ for six days, equipped with only a notebook, a bunch of assumptions, some newly adopted lean start-up principles, and an unquenchable desire to find the right business model.
At this stage in the process, each student has been coached not to pitch but rather to learn; Not to flinch over the occasional ‘punch in the face’ from prospective customers, but rather to see it as a necessary part of building a customer-orientated solution; To avoid offering solutions prematurely and to withhold their exuberance about their business ideas until later in the process; To continue looking for that critical gap in the market; And, most of all, to practise ‘active listening skills’ in all customer interviews so as to find the archetypal customer and early adopters.
The last ten days at New Ventures Studio have certainly challenged the “build it and they will come” philosophies of the past. Instead, we must consider the steps we take now as part of an acclimatisation process as we intimately get to know the enormity of the unchartered problem we are trying to conquer, discovering and setting up routes that others will one day follow. And for that, we need a lean travel plan.
Only then will our business ideas stand any chance of outliving us.