Have you heard of the Lean Startup movement? Have you engaged with the most powerful force in small innovative enterprise creation —ever? If not, why not? It could be the answer to generating a high-growth innovative enterprise, the sort governments and regional development agencies have sought since David Birch told them economies were driven by SMEs.[i]
Birch said only 3-5% of new starts were likely to be high-growth. More recent UK research by the UK’s NESTA confirms just 6% of all new firms employing 10 or more people, were high growth.[ii] Despite the huge volumes of enterprise research, little has changed. Encouraging the development of high-growth businesses remains the Holy Grail of economic development. So could the Lean Startup model be the answer? Is it merely a passing fad, or is it FAB?
The movement began in Silicon Valley and takes its name from a book by technology entrepreneur Eric Ries. He describes Lean Startup as a fundamental re-examination of how to work in our complicated, faster-moving world. It’s not about starting a business, but a philosophy. It’s not about searching for the natural entrepreneur: it is about nurturing entrepreneurship. Learning by doing is an imperative, not an option. It’s by entrepreneurs for nascent and establishing entrepreneurs. Universities are welcome as equal partners.
The movement first gained traction amongst new technology startups following Ries’s blog (startuplessonslearned.com), now there are Meetups all around the world. In 2012 an estimated 20,000 people were involved in city based Meetups, when 100s get together for a couple of days of intense business creation, and to learn from each other. Lean Startup Machine (http://leanstartupmachine.com) organises Meetups in major world cities with the aim of creating new businesses in 3 days. In mid 2012 it claimed to have helped start over 600 new businesses. Internet courses are abundant, of good quality, offered by highly reputable U.S. universities, often free. Ries and his fellow travellers appear to have done something that regional and central governments all around the world have been trying to do—create an entrepreneurial culture.
The two other stars of the movement are Steve Blank and Alex Osterwalder (steveblank.com and alexosterwalder.com). Blank, like Ries, is a successful technology entrepreneur, and a radical. He says a startup is not a company, but a temporary organisation formed to search for a repeatable and scalable business model around which a true company might then form. A company is an outcome of implementing the business model, which is how value is created, captured, and delivered. Value is expressed in the form of the value proposition, the central element of an exciting alternative to the business plan, at least until the company stage, called the Business Model Canvas (BMC). The BMC is Osterwalder’s contribution to the movement, A graphical approach to capturing and expressing a business prototype,[iii] the BMC is conceived by Lean Starters as the alternative to the business plan, but it’s not, neither is it a strategy for competing. However, to my mind, business modelling is less important in driving the movement than the emotioning collective spontaneity of creating a canvas during a Meetup. Key to the BMC is the value proposition. It reflects the benefits to the customer, the way in which the existence of a product-enterprise entity transforms the manner of living of its customers. Incidentally, the emergence of the Business Model Canvas comes at a time when the value of business plans are being critically examined by ISBE members Simon Bridge and Cecilia Hegarty.[iv]
In my practical experience, the canvas approach helps the unwary would-be entrepreneur to understand the process of starting up in an holistic way. Embodied in the canvas development experience is the truth of starting up—its more than a product. It requires true competence in the technical aspects of solution development (e.g., software engineering or product design and making), the confidence and interpersonal skills to engage with and develop customers, and another competence often forgotten, designing and bringing together the organizational entity we call the enterprise. Lean Startup emphasises one should learn to be competent in each of these areas. To maximize one’s learning, the starting up process is approached as a series of small experiments through which ideas are tested. Each element of the canvas is developed through hypotheses. Learning by doing, getting out of the building and engaging with those you wish to benefit (says Blank), are essential to ensure the quality of the learning, and, hence, the company and the solution it delivers and supports.
Hopefully, by now you’ll think Lean Startup is FAB, but could it be a FAD? A fad is a practice or interest followed for a time with exaggerated zeal, which would certainly describe the Lean Startup movement. Managers and policy makers are susceptible to fads because they constantly demand new approaches, and are unduly influenced by the enthusiasm of big consulting firms which put untested ‘organisational science’ into immediate practice. In Lean Startup, companies such as Lean Startup Machine, and countless others consultants and bloggers, play this role. A movement becomes a fad because its basic tenets remain uncorroborated against accepted standards of research. This might ring true for the work of Ries and Blank, but not for Osterwalder and colleagues from university of Lausanne. Their research is rigorous and documented. Regrettably, there has been much tinkering with the original Canvas by would-be consultants and bloggers in a way that reveals a lack of understanding of the research underpinning it. This threatens its credibility. In 2005, Osterwalder and Pigneur said business model making was in its infancy and required further research, but they provide something for researchers and Lean Startup practitioners alike to build on with the aim of increasing the quantity and quality of high-growth companies in the UK.
[i] Birch, D. (1987) Job Creation in America: How our Smallest Companies Put the Most People to Work, New York, Free Press.
[ii] Bravo-Biosca, A, and Westlake, S. (2010). The Vital 6%. NESTA Publishing, London.
[iii] Osterwalder, A. Pigneur, Y. and Smith, A (2010). Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. Hoboken, NJ: John Wiley and Sons Inc
[iv] Bridge, S. and Hegarty, C. (2011). An alternative to business plan-based advice for start-ups? Proceedings of the 34th ISBE Conference Sustainable Futures: Enterprising Landscapes and Communities. London: ISBE.