11 Apr 2011  Lessons from the Classroom

Teaching a ‘Lean Startup’ Strategy

Most startups fail because they waste too much time and money building the wrong product before realizing too late what the right product should have been, says HBS entrepreneurial management professor Thomas R. Eisenmann. In his new MBA course, Launching Technology Ventures, Eisenmann introduces students to the idea of the lean startup—a methodology that has proven successful for many young high-tech companies. Key concepts include:

  • Rather than spending months in stealth mode, a lean startup launches as quickly as possible with a "minimum viable product" (MVP), a bare-bones product that includes just enough features to allow useful feedback from early adopters. The company then continues hypothesis testing with a succession of incrementally refined product versions.
  • Lean startup executives do not invest in scaling the company until they have achieved product market fit (PMF); that is, the knowledge that they have developed a solution that matches the problem.
  • In lean startup lingo, "pivoting" refers to a major change in a company's direction based on user feedback. Eisenmann's students discuss how entrepreneurs can stay true to their vision while still maintaining the flexibility to pivot.
  • Adhering to a lean startup strategy is especially challenging for companies that require a great deal of time to launch a workable product, such as clean-tech or biotech companies.

 

A dozen years ago, it seemed like all it took to launch a successful technology company was a vague idea, a PowerPoint presentation, a trade-show booth with a sexy spokesmodel, and a URL. Then the dot-com bubble burst and investors got wiser and warier. Gone are the days when entrepreneurs could spend years burning through venture capital while they figured out their strategy. These are the days of the lean startup.

"Most startups fail not because they can't build the product they set out to build, but because they build the wrong product, take too long to do that, waste a lot of money doing that, and waste a lot of money on sales and marketing trying to sell that wrong product," says Tom Eisenmann, a professor in the Entrepreneurial Management Unit at Harvard Business School. "It takes a lot of time, time equals money, the money runs out, and the startup fails painfully."

"Lean startups don't try to scale up the business until they have product market fit, a magical event-more easily recognized in retrospect than in the moment-when they finally have a solution that matches the problem."

Eisenmann has developed a new MBA elective course called Launching Technology Ventures (LTV), offered as a half-course at the beginning of the term, with some students continuing on to work on a field-based project during the second half. The course focuses on the "lean startup" methodology, created by HBS Entrepreneur-in-Residence Eric Ries and serial entrepreneur and Stanford/UC Berkeley lecturer Steve Blank. The "lean" in lean startup has its roots in the Toyota Production System ; hence, the lean startup methodology is all about avoiding waste, in terms of both time and money.

For starters, it nixes the traditional idea of a company spending several months in stealth mode while perfecting a full-featured product and planning an expensive launch party at a Las Vegas trade show. Rather, the lean startup launches as quickly as possible with what Ries calls a "minimum viable product" (MVP), a product that includes just enough features to allow useful feedback from early adopters. This makes it easier for the company to speed to market with subsequent customer-driven versions of the product. And it mitigates the likelihood of a company wasting time on features that nobody wants.

"The MVP is a controversial idea because it can be perceived as something thrown together with shoestring and bubblegum," Eisenmann says. "But through a series of MVPs, a lean startup can validate a specific and comprehensive set of hypotheses about what the business is, where it's going, and what it has to do."

In the LTV course, Eisenmann teaches cases on cloud storage company Dropbox and the social search service Aardvark. Both firms' founders were early practitioners of the lean startup method.

The Dropbox team initially announced a bare-bones version of its service on the website Hacker News. The company collected reams of immediate feedback from site readers, and continued to incorporate feedback into several successive product launches-each of which added only a couple of new features. While the feature additions were gradual, they were rapid, as was company growth: Dropbox increased its user base from 100,000 to 4 million in the course of 15 months.

Aardvark, which enables users to garner answers to questions via an extended network of friends' friends, used a Wizard-of-Oz-inspired method in its early days. Rather than building out the technology infrastructure to make their idea a reality, the team launched the service with humans routing users' questions "behind the curtain" instead of computers. This allowed the company to observe how and what users were asking—and then spend time and money on a technology backbone that would best meet their needs.

"Lean startups don't try to scale up the business until they have product market fit [PMF], a magical event—more easily recognized in retrospect than in the moment—when they finally have a solution that matches the problem," Eisenmann says. "And after you have that solution you can step on the gas pedal."

"What we're learning in the course is that pivoting is really hard."

Of course, in carving a path to the PMF, startups may find that they have to shift the company in a completely new direction. In lean startup lingo, it's a process known as "pivoting."

"Pivoting simply means making a major change of some sort," Eisenmann explains. "In lean startup logic, it's something you do, ideally, after you've run some decisive test to disprove a hypothesis. It can be changing the target customer segments by narrowing or broadening them. It can be changing the product itself, either by adding features or by taking features away. It can be a dramatic change: 'We were going business-to-consumer, but we should be going business-to-business.' Or it can be a change in business model: 'We were doing transaction-based pricing, but we've realized we should be doing subscription-based pricing.' The notion of a pivot is to make a change, and ideally, after you pivot, you have a new set of assumptions and hypotheses that you're going to test. And what we're learning in the course is that pivoting is really hard."

There's a core problem inherent in pivoting—the risk of looking disloyal to the company vision. A startup's founders have worked so hard to sell employees, investors, customers, and partners on an idea that switching gears can feel almost like a betrayal.

"So much of what a CEO has to do is talk people into things," Eisenmann says. "If you have to take people away from what you sold them on, that's hard. A fascinating issue for the students has been, how do you square the need to do that with the need to be flexible and pivot?"

Eisenmann was surprised by students' fascination with this issue, and modified class discussions accordingly.

"In many ways I'm using the lean startup strategy. A lot of the course is cobbled together—it's an MVP in itself," he says. "When you teach a case for the first time you're often surprised at what does and doesn't work. So this issue of the tension between vision and feedback is something I had thought about a little. But the students really seized on the question: When is the product shaped by the founder's vision, and when is it shaped by market feedback?"

Eisenmann acknowledges that the lean startup methodology is easier to apply in the field of web-based startups than in the clean tech and biotech fields, both of which often require a great deal of time and capital to create any workable product. The same is true of the transportation industry—inventor Dean Kamen's Segway, for example, or startup Terrafugia's flying car. "It's the nature of some products that you have to spend a whole lot of money before you know if the product is going to work," he says.

To that end, Eisenmann teaches the cases "Predictive Biosciences" and "Aquion Energy." In studying Predictive, a venture-backed, "pee-in-a-cup," cancer diagnostic testing company, students ask themselves whether lean startup principles are applicable at all. With Aquion , they talk about the "clean-tech valley of death"—meaning that a firm is able to raise enough money to fund the bench science, but not enough money to build a workable prototype.

Eisenmann hopes to sell students on the idea of first working as high-tech product managers before jumping into CEO roles.

"I would love Harvard Business School to crank out a 100 high-tech product managers per year," he says. "Nobody reports to the product manager, so there's very little direct authority. But there's lots of responsibility. It's their job to figure out what the product should look like. It's their job to persuade the engineers that this is what they need to build, and to persuade the sales team that this is what they need to sell. It's a wonderful job—perfect for an MBA who wants an early general management role."

For a more complete description of Launching Technology Ventures and a course syllabus, please see http://bit.ly/ffx4jN

About the author

Carmen Nobel is senior editor of HBS Working Knowledge.

Comments

    • Jay Wiinburn
    • CEO, Prognition Corp

    Prognition has unknowingly followed a lot of what this article proposes. We built a knowledge engine that suggests best practices to health care workers. We have been testing this in our first commercial release called Mavenlive which is aimed at physiotherapist. We have learned a lot from our initial customers and have made a couple of "pivots." The concept of launching with a MVP is right on. Assumptions about what customers will want can be way off and expensive; there is also less heartbreak in a pivot if the company isn't throwing away a lot of development that not only was expensive but to which there was emotional commitment.

     
     
     
    • Fred Winegust
    • CEO, Valanim

    I agree with the central thought of the article, but would have like to have seen what role if any that marketing can play in "pivoting".

    There is an overall marketing message that is being shaped and communicated by the lean organization, usually coming from the CEO / visionary.

    The marketplace feedback and the overall market intelligence interpretation is something that shapes both the offering and the message.

    Was any thought given to where non-traditional marketing fits in this space?

     
     
     
    • William H. Franklin, Ph.D.
    • Vice Chairman of the Board, Jackson Healthcare

    We have been doing "lean start-ups" throughout the history of Jackson Healthcare -- initially because we didn't have the money to do otherwise. But even though we now have the money, our start ups (one or more are usually in process) are headed by the venture's president who may not hire another employee for many months while the venture concept, business model, and business strategy are proved out in the market. The start-up cost is little more than the president's salary and modest expenses. The initial product, business model, and strategy are provisional. They rarely survive and are revised as we learn. A product is developed with minimal functionality until we learn how prospective customers will use it.

    Can't imagine doing it any other way. Why hire a lot of people who have to be managed and kept busy while the venture leader is learning the business?

     
     
     
    • Rafael Vesga
    • Professor of Entrepreneurship, Universidad de Los Andes, Bogota, Colombia

    We are very interested in this topic at Los Andes. I have been following Ries and Blank´s ideas for a while (The Four Steps to the Epiphany book and the MVP idea).

    I did not Thomas Einsenman is working on this track too. I will follow his work.

    I think these ideas are quite powerful - carefully outlining the assumptions, understanding the concrete details of the customer's job to be done that need to be addressed to have a successful MVP, and figuring out a business model where the focus is on attaining partial milestones, designed to brig the project gradually into reality. All this is more important, and a better use of time, than configuring detailed business plans and going into exhausting financial projections, at least at the outset, when the idea is being generated and potential entrepreneurs can easily lose motivation. These principles help entrepreneurs realize quickly if they have a true potential opportunity in their hands. We used some of this ideas in the preparation of a Los Andes team that came up sencond in the Life Sciences Track at the McGinnis Venture Competition, in Pittsburgh, in March this year.

    We are working with professors in the Design school at our university to think about more ways to prototype and test ideas quickly, not only about the product itself but also about the different components of the business model.

    We are very interested in discussing these ideas with other professors of entrepreneurship around the world. If anybody is interested in a dialogue about this (how to increase chances of success, how to measure effectiveness of this approach as a teaching methodology, and so on) please contact me at rav@adm.uniandes.edu.co.

     
     
     
    • Jeff Shuman
    • Professor of Management, Bentley University

    I find it interesting that the iterative process of building a company is just now gaining interest and attraction at HBS. At Bentley we've been teaching that approach for the past 15 years based on a book I wrote -- The Rhythm of Business: The Key to Building and Running Successful Companies. How else would you teach entrepreneurship?

     
     
     
    • Mike Ash
    • Sr Engagement Manager, IBM - Strategy & Transformation

    These concepts are right on and I think they blend with the entrepreneurship class quite nicely. As a strategy consultant, I work with companies on their growth, innovation, and operations strategies. I agree with Dr. Eisenmann's concepts and see them in practice today with one of my clients that I've been working with. They are taking a lean approach for several reasons. It gets interesting in how you manage the lean mechanisms when the product/service falls in the virtuous vortex of the network effects or multi-sided markets.

     
     
     
    • Alexandre Lazari
    • Global Business Director, Buntech Ltd - Brazil

    The concepts presented are very interesting. We have been applying these concepts, intuitively, for a number of years, and have been able to score a nice number of hits in different markets. The article talks more on high-tech industries, but my experience with Lean Startup has been in the very traditional chemical industry. This proves the power and the applicability of the concepts.

    In my experience, the key issue is to build your MVP in such a way that you do not spend too little. Going to market with a "bad MVP" - something that is not really at the stage of being a minimally viable product - can kill the whole startup initiative. Making sure the MVP is really MVP is critical.

    Another issue is to be able to learn from the market and incorporate the market feedback into the product. It takes knowledge and discipline.

    Overall, the concepts presented are key to any enterpreneur that wants to effectively take innovation to market.

     
     
     
    • Christopher Murray
    • Business Development Director, JABA

    There is no better graphic representation of these concepts than an aerial view of a college campus. It would be far more effective to build the buildings; wait one year; then pave the paths.

     
     
     
    • Don Li
    • Founder, Knowledge NoteBook, LLC

    I'm a fan of lean start-up. In the meantime, Christensen's theory of / insights into disruptive technology is powerful as well...

    As I observe from practice, zone of reach / influence, perception and timing (to certain vertical) are all important...

    Interestingly this model is exactly what I've been expecting, half of time to teach the theory and half to let students to practice to validate learning... probably I wrote about this as well somewhere a while ago...

    Thanks.

     
     
     
    • Steve Kelley
    • CEO, Specialty Casings Designs, Inc.

    I'm not sure I understand the model proposed but I'll attempt to capture it here and extrapolate a connection with sales which produces some questions to follow. (Minimum Viable Product) MVP is the shortest line to PMF (Product Market Fit) which I'm sensing is being used or asked to be a guide to predicting sales while intersecting with ROI (concerns about return on investment). Is it possible that this design process can help project a successful product/business path? We are currently stretching ourselves into this concept with DoubleSnap(tm) Trim, an innovative patent-pending method to trim off windows and doors with thin-wall extruded vinyl. As we produce differing prototypes to accomplish the reasonably simple task of covering mouldings, we find ourselves answering many masters. Healthy conflict regarding direction from multiple chiefs, (even with wonderful, proactive and engaged Indians) makes the process of dealing with th e engineering concerns of best production vs. existing technology difficult even as those concerns compete strongly with market adaptation, budget constraints, and end-user ease of use; all of which is constantly being strained by in-the-market and boardroom concerns of saleability and market distribution choices. Even the perfect mouse trap might not sell if it costs too much or doesn't reach enough mice. We are listening and hope to hear more. Steve Kelley, CEO Specialty Casings Desings Inc. "Creators of DoubleSnap(tm) Trim" - "Doublesnaptrim.com"

     
     
     
    • Eric Martin
    • Co-Faculty Director, Galant Center for Entrpreneurship, McIntire School of Commerce, The University of Virginia

    The approach being described in Mr. Eisenmann's article and being taught in his course are a terrific example of a "fast action research" approach to innovation. Well done!

    Of course, identifying the MVP in real world environments is no easy task.

    In our courses, we focus first on the identification of a Unique Value Proposition ("UVP") developed through creative ideation and rapid (and inexpensive) primary and secondary research. I am interested to learn how this initial phase (in which the "pitch" for hiring and funding is often grounded) can influence the number and severity of "pivots" in Lean Startup environments.

    My hypothesis is that one can, in fact, improve the Lean Startup process through insightful UVP development and a strong, initial analysis of venture viability.

    Thoughts on this subject are welcome.

    Thank you,

     
     
     
    • V. Reddy
    • Director, Synergic

    My personal experience as a serial entreprenuer has always been lean startup. I learned this at my first job where the client funded the development, we provided the muscle and infrastructure. This soon became a practice and I had used this numerous times in launching new products. The lean in this comes from the fact we have very shortened deadlines and the need was already a necessity.

    I applaud the idea of crystallizing the norm in the entreprenueral world which has always been Need based and very lean. And contrast that with the modern world in your professors experience where Angel, VC, Seed are the lubricant of the MBA entreprenuer.

    V.R.

     
     
     
    • Pankaj Sahai
    • Author, Smooth Ride to Venture Capital

    MVP makes a lot of sense especially in today's globalized world with rapidly changing technology and ever-evolving business models.

    Quite a few entrepreneurs during the course of their product development get caught in seeking intellectual satisfaction by developing complex set of features in their products, missing out on the fact that the market may not value the said features in terms of higher pricing, quicker adoption etc. It is a fine balance though requiring thinking from different perspectives, awareness of the market as well as sound judgement.

    Involvement of senior and experienced advisers who can provide diverse perspectives and keep the entrepreneurial team grounded and focused is, I believe, an essential requirement for any successful MVP launch.

    Thanks for the article. It is thought provoking and an interesting read.

     
     
     
    • Laura Rudoe
    • Founder, Good Ventures

    We're applying this concept in the consumer products sector - I think it can actually translate quite widely. Someone asked me recently if our brand would have grown more rapidly if we had raised investment, rather than bootstrapping in the first 18 months. I said "no, we would just have made more expensive mistakes". We have refined our product, packaging and pricing using insights only available from being on the market.

     
     
     
    • Siva Ramamoorthy
    • Vice President, Genband

    Very Interesting article! The article in summary espouses the need for a Lean Startup focussed on creating a Minimum Viable Product, until a scale up call through a Product Market fit (PMF) event or a revectoring through a pivoting event.

    I believe this process is intuitively used by Services companies in almost all domains; not just the technology sector.

    Many Services companies acquire a minimum expetise in an particular field, enter that field throwing resources and gaining expertise. This is analogous to the concept of MVP, perhaps it could be called as Minimum Serviceable Competencies.

    Once they acquire a certain critical mass, a PMF like event occurs. At this point Services firms focus on building a Practise function- such as IBM's Health Care function. Perhaps we can call this as a Solution Segment fit (SSF).

    Sometimes Services firms re pivot their strategy just as your talk about Pivoting.

    I believe these concepts are intuitively followed by such companies. However when such intuitive thoughts are brought out into the open through research with path breaking work such as of the authors of this article, more focus can be brought into such an approach often yielding much better results.

     
     
     
    • Barry Berman '77
    • Founder, NexPet & Affiliated Companies

    Eisenman is describing what many of who have started successful businesses have been doing all along. Without masses of venture money to burn, many start-ups have to launch some features of their business model as a combination test-market/real market. It is sometimes a challenge to do this without giving away first-mover advantages, but not impossible.

     
     
     
    • Michelle Crames
    • CEO, Giiv, Inc.

    Thanks! So glad to hear you will be teaching this class. I took Managing Networked Businesses from Tom Eisenmann back in 2003 and believe this will be a great addition to the curriculum. I very much enjoyed Blank's book (and try to apply it to Giiv!), and am curious how you think the founding team is ideally configured, particularly for freshly minted MBAs with or without product management/programming experience.

     
     
     
    • Kevin Johnson
    • Director, Connected Devices/New Business Development, Intel Corporation

    I have worked both corporate and independent start-up ventures, the idea of lean is not new for anyone that has common sense. Having the discipline to be wise about implementing a listen-learn-apply approach to your differential value of your product towards the customer is were either type of start-up will excel. I also will challenge any entrepreneur and investor in todays market not to be lean. Long gone are the days where management or investors lay out money to tinker on the job. You either hit it with rapid product introduction or you fold and move on.

    Twiddling bits in a web start-up is significantly different then tangible hard-goods development. The idea to add-change-delete instantly is a fundamental given of web products, with a lot less liability - web means lean. But even today with all the innovation, web is only a small fraction of a countries economic value. Once you go into hard-goods development the dedication to careful investment is pronounced. In either, the best ideas are built around increasing elegance as new features are found to be valuable - with fast execution.

    If you combine common-sense ideas of rapid and lean, with discovery-based planning (HBR article), an innovator has the right approach towards success.

     
     
     
    • Thomas Blekman
    • Partner, De Beukelaar Groep

    Being both a lecturer of Corporate Effectuation and Strategy at RSM Erasmus University and an active entrepreneur I am pretty familiar with Lean start-up. It's great stuff. A pity though, that the link wasn't made with the astonishing theory of effectuation by Saras Sarasvathy.

    Effectuation theory offers path bending insights in the effectiveness of expert entrepreneurs in uncertain circumstances/markets. I would really recommend to incorporate effectuation theory when trying to launch a new venture using Lean Start-up.

    For example: why try to figure the product market fit when markets are constantly changing. Sure scalability is important but effectuation theory shows us that expert entrepreneurs/companies that keep co-creating with pre-committed stakeholders are always on top of the game. They are in control as a result of the application of effectuation principles.

    If you want to know more just Google Saras Sarasvathy (and check out her TEDX talk on youtube), search for Corsendonk College and Corporate Effectuation at Youtube or just send me an e-mail.

    Regards, Thomas Blekman

     
     
     
    • Tim Gieseke
    • President, Ag Resource Strategies, LLC

    I appreciate the perspective as I have had to find that path in the process of developing an ecocommerce model. Too much money at the front end is a scourge to innovation. We must be careful what we wish for.

     
     
     
    • Schalk Jacobs
    • Investment Specialist, GroFin

    This sounds very similar to the DSDM Atern project management approach (http://www.dsdm.org/). Scope, develop barebones solution with user involvement, rolll-out, refine and extend, refine and extend. DSDM Atern is part of the Agile family of project management, and is aimed at speeding up software development. It's scope has broadened beyond pure software development to project management in general.

    There may be some synergy between the two approaches, for example using the DSDM Atern project management approach to manage the Lean Start-up approach

     
     
     
    • Rogene Chiweshe
    • Sales and Marketing Director, Tenders in Africa

    Exceptionally interesting article and comments. Wehave embarked on a lean subscription-based web application, tendersinafrica.com. Whilst I agree that the Lean Start-Up paradigm might be common sense, simple mistakes however, often creep into the most acute sense-abilities. We are navigating this path carefully and have found much success in keeping it simple with measured upward scalability and diversification based on the MVP model.

    What we are finding is that the market not only wants the initial product created and live a few months ago but wants related services - now! Though very much apart of our long term architecture, we are employing a gradual, measured approach.

    One aspect which I would like thoughts on is the effect of not meeting demand for related services fast enough. How does one measure what the window period is before either frustration or product anticipation fatigue (waiting for a new/upgraded service or product) sets in? Is it even a factor looking at for example mobile handsets such as ipod II and certain blackberry stock delivery delays, particularly in our neck of the woods? Granted these are established product and service offerings with a trusted global market who are prepared to wait months. What of a lean start up?

    The listen-learn-apply formulae must have, we believe, a review-reapply add on, precisely because markets are dynamic and the technology sector more so. We are therefore soberly tip-toeing into the MVP or PMF sensibilities with tendersinafrica.com and looking forward to your work Prof. Eisenman

    Rogene Chiweshe Director tendersinafrica.com

     
     
     
    • Joe Dager
    • Lean Marketer, Business901

    It is great to see the positive comments and that the Lean startup seems to be hitting mainstream. I can hardly add to the great comments above but wanted to add a suggestion to the word "Lean" and how that reflects to the Lean Startup as described by Thomas R. Eisenmann.

    The "Lean Startup" I do not believe is about the removal of waste just as that is an understatement of what Lean is about. Waste may be a by-product but not the mission. Though the founders have a slightly different take on this answer (you can listen to a podcast on the Lean Blog with Eric Ries for his interpretation) the power of the Lean Startup is taking your action and validating it with a customer along the way of development.

    This has it roots in PDCA and more specifically the Check phase of the continuous improvement cycle developed by Shewart and Deming. Lean is firmly rooted in PDCA and I see the Lean Startup and Lean for that matter is more about the iterative cycles of PDCA versus the removal of waste.

     
     
     
    • inder sharma
    • CEO, Serial entrepreneur

    MVP concept and strategy is good especially when time is not on your side. However other factors such as revenue model, market size, potential, market sector, competition matrix and sweat resources on hand are important ones to consider in determining strategy to go to market. One has to be lean and mean irrespective of resources available any way -common sense.

     
     
     
    • Craig Wortmann
    • CEO Sales Engine, Professor at Chicago Booth, Sales Engine

    Tom -

    You have nailed it. As you know, we use these same principles in my course on Entrepreneurial Selling. The layer on top of the minimum viable product is "communications." That is, how does the CEO/Founding Team communicate what this product is and does even as it's changing based on user feedback? Our Sales Trailer and Story Matrix tools help them through these pivots and sell customers and investors as the ground is firming up beneath them. Sounds like a fantastic course!

     
     
     
    • Deepa Ramamoorthy

    The concept of creating an MVP would be pretty relevant and a key success factor for a start-up when there is a high dependence on various parameters and factors specific to its deployment, calling for customization on a customer-wise basis.

     
     
     
    • Tom Dolembo
    • Director, NewNorth Institute

    I strongly agree with the lean startup. Frequently all the startup games and analysis ask the wrong questions and stop the moementum. One failure syndrome I have seen more than once is a company that succeeds too well, outruns its cash and capital, and falls in the hole between recap and expectations (I'd guess the classic is Faultless Starch).

     
     
     
    • Dominic Isunuoya
    • CIO, Assetswise Capital Ltd

    This is quite an interesting topic, my firm has been woking on a VC investment for quite some time now - Mobile payment platform deployment in Nigeria and it has been a story of twists and turns. Issues of what the product is, what technology to deploy, when to rollout and the additional need for capital has impacted so much on the Venture. The good news however is that with the recently approved AIP from the Central Bank, we are nearing roll out, with some of the products. Promoters need to understand "lean startup" which the MVP addresses. Although as Investment practitioners that understand how critical cashflows and burn rate are for success of startups, communicating this this to the promoters had been the major challenge. We are reviewing our position on VCs and tending more towards Growth Capital investments.

     
     
     
    • Camilo Acosta
    • co-founder, GeoSkipper.com

    I think it's about time business schools started teaching lean startup methodology. With the increased focus on high-tech entrepreneurship in the last 15 years, I've wondered why business schools still cater primarily to the finance and consulting crowd.

    Keep up the good work! I hope to see HBS leading the way in teaching sales as well, the most critical element of any business but that remains unaddressed by business schools.

    Camilo Acosta co-founder, GeoSkipper.com

     
     
     
    • Harlon J. Wilson
    • Founder, President & CEO, Medical Animatics

    As a former dot.com era exec and first time (soon to be 2nd) startup entrepreneur, this thread echoes my experience as the founder and chief innovator of tech ventures for the health care market.

    From the start, we experienced a bit of a different scenario as a 3D animation / custom content producer in that we launched parallel activities that allowed the firm to realize revenues from contract opportunities with business to business clients while we also were busy building innovative technologies for a subscription based B2B products. Our patient education program (MyInformedChoice.com) has helped hospitals across the nation to empower their patients who are considering weight loss surgery to gain valuable knowledge about bariatric surgery options. This parallel approach that leveraged B2B revenues that enabled the company to self-fund early startup activities was also instrumental in our ability to launch an early stage MVP web-application.

    Within our first two years, we closed two separate angel raises (prior to the economic recession) which helped us to grow the firm. We then faced many of the same challenges that most small business startups endured in the rough economy thus making it necessary for us to re-evaluate our strategy for further development and growth.

    Unfortunately, given our focus has previously been laser sharp in the health care industry, the unexpected setbacks of the economic recession was but only one of our challenges as we subsequently faced the mounting uncertainties of health care reform. Thus we've returned to our original roots where we're currently building new products under the self funded MVP approach which we actually discovered rather holistically.

    Today we're in the early stage development of new products that will launch to existing client base via the slow but rapid launch process of MVP. Such an approach has enabled us to open interesting dialog with some of our largest hospital clients to partner with us. We've also found many hospitals and health care organizations have their own innovative ideas for future technology ventures thus we're replicating the MVP process as we're assisting our clients to build transformational technologies.

    The MVP process we discovered by the unexpected forces of the economic recession and regulatory circumstances in health care reform has served as a new "LTV" process that is opening doors might not have been possible in the past. As a high-end media production and technology service provider, we're now in a place of launching several new technology ventures that hold great promise for changing health care. The MVP process is a leaner and more controlled approach in this day of "hyper technology ventures."

    Thanks for the very enlightening thread. Harlon J. Wilson Founder, President & CEO medicalanimatics.com

     
     
     
    • Ron Seide
    • President, Summit Data Communications

    Underlying the notion of an MVP is the difference between a customer focus and a market focus. That is, a product that is minimally viable for a market as a whole may be fully viable for a single customer or set of customers. By building an offering for a market subset a company can drive toward revenue while at the same time begin to build a feature set that represents the basis for an offering that appeals to a market as a whole. Moreover, in initial focus on a small set of customers, albeit a set that presents a more modest set of requirements than an entire market, provides a start up with the discipline of serving the needs of an actual paying customer or customers.

    This approach also better provides for bootstrap financing insofar as it allows for relatively early cash flow. In an era where VCs are more selective and as such demand greater degrees of equity for funding, the model outlined in this piece is an attractive one. One could argue that this "new" approach is essentially the approach taken in the days prior to the advent of VCs.

    Back to the future!

     
     
     
    • George
    • President, Pleora Technologies

    I think it is great that Harvard is teaching this model in the MBA program. I co-founded my company in late 2000, just as the tech market was collapsing. We made some fortunate early choices which gave us a runway through 2001 and into 2002, but we quickly realized that especially in an environment where venture capital virtually non-existent, we had to make a choice between devoting all our time to raising money or devoting what little money we had to creating an MVP. We chose to focus on the latter and have enjoyed healthy success ever since. During that time we have evolved our products and offerings based on customer needs and added new offerings. From my experience, I'd like to share two points:

    1. It is important to understand that this model is best applied when the company is bringing something to market that delivers a truly unique benefit. Entrepreneurs all believe their innovations to be unique, but if the customer isn't receiving a unique benefit they will preferentially choose a fully-featured substitute rather than live with the limitations of an MVP. The level of "completeness" required for the MVP increases as the uniqueness of the benefit decreases.

    2. After a company has delivered its first MVP, the systems and the culture in the company become tuned to providing enhancements to existing products. Each enhancement brings a new customer or set of customers and a cycle of positive reinforcement ensues. This is great for one product companies (especially software), but for companies trying to deliver a portfolio of products new innovation can become difficult. Not all products have truly unique benefits and as such could be met with limited success or even failure should they be introduced using an MVP methodology. Companies need to be willing to use different strategies for different products.

     
     
     
    • Narendar Singh
    • Prof, Free Lancer

    There can be nothing more sad then not finding the correct product. Companies have started projects and lost their way in between. The promoters have to firstly identify the product and then only go about other things.

     
     
     
    • Landon Swan
    • fundyourself.com

    Great article.

    Too often the goal is to get funded, as if burning cash can be sustained inevitably as long as there's more of it.

    Being lean and profitable is a great way to force yourself to keep it simple and to keep equity.

     
     
     
    • Kapil Kumar Sopory
    • Company Secretary, SMEC(India) Private Limited

    Depending on the nature of the activities referred by the author, Lean Setup Strategies (LSS) would lead to better results as lot of time and expense would be saved and the desired results achieved. However, there are activities where this strategy may not be the right one as detailed basework would be very necessary. LSS, to my mind would be very relevant where new products are being developed.

     
     
     
    • Anonymous

    Product Development Cycle itself is becoming complicated process in modern scenario of business.It is a difficult task to identify what a customer need on initial phase of this cycle before the product enter into the market. May this approach of LTV can help top level management in identifying the need of product(not customers) on initial phase and can save future investment.It may prove fruitful in new startups but the only problem is of applications of concepts involved to practical situations which differs on random basis.

     
     
     
    • Josh Grotstein

    The "lean startup" approach has certainly received a lot of attention in entrepreneurial and venture circles as of late, as both the article and the myriad of supportive comments attest. Steve Blank seems to have led the way here: I've encountered numerous early-stage CEO's who swear by his "Four Epiphanies," and will produce underlined and dog-eared copies on command to lend support to that claim.

    What intrigues me is the question of why is this shift occurring now? Presumably, and I can't validate this with any quantifiable study, the set of enabling technologies which have come to be known as "Web 2.0" conspired to enable a new paradigm not just for online development but also for company creation, with the latter borrowing real-time, iterative processes from the former.

    Asked another way, would business theory have evolved to recognize this new iterative paradigm without the development of Web 2.0?

    If not, then my follow-up question, which some of the other comments seem to hint at, is how universal is this phenomenon? Can it be applied to non-web-based businesses? How about capital-intensive businesses like Cleantech or Life Sciences or Retail or Manufacturing? Are there limitations to how "lean" an entrepreneur can be?

    If so, then we circle back to the question of "why now?" Why wasn't the academy preaching iteration back when I was at HBS? Or were they doing so under another guise? I.e., is the concept of the "lean" startup a new packaging of an older concept (as some have claimed the "Long Tail" to be)?

    As excited as I am as both an investor and entrepreneur about the prospect of seeing more and more companies utilizing this efficient approach to company creation, I'm equally eager to learn the limitations and parameters bounding this novel approach.

    Seems like we're just beginning to dig in, and I applaud Harvard for taking on this field of study.

     
     
     
    • Ganesh
    • Director, Pinaki Labs

    The "lean start-up" is an approach which we debated for a long time to be taken when we started. As the product was developed and it took time to get into the market. We realized later that "lean start-up" approach would have been better where in we could have saved a lot of time and money and our go to market could have been positioned earlier. We have now started thinking about this approach as a way forward. I agree with Dr. Eisenmann's concepts which will help start-ups to scale gradually and not fail.

     
     
     
    • Mathews Daniel Kapito
    • Director, Notebook Solutions

    Mention has been said about having a dream and dreaming big. We all want to be the most successful entrepreneur of the century. We all want to achieve beyond expectations. What makes the difference is when and how we start. Many times we have been taught that to succeed in business, you must have a business plan and follow it accordingly. Take a step by step approach. I must admit, I have problems preparing a business plan and have little time to evaluate my performance. The idea of having a lean startup strategy is the only way to revive my business. I'm facing problems like any other business and I almost lost hope. When I read the article I said to myself, I'm going to apply this in my business and surelly its promising that I'm going to get back in business full time. In times like these, we need lessons that help build appropriate strategies that consider the environment (especially turbulent economic crisis) . Lean start up strategies are the best strategies a firm must apply to all their new products as they can be supported by cost leadership, differentiation and Focus. Taking a step bu step approach, and evaluating each step can help to build good customer relations and modify the product based on customer response. This is a practical topic in todays environment. Thax a lot to HBS for investing in such a topic

     
     
     
    • Jeff Shuman
    • Professor, Bentley University

    In Peter Drucker's 1985 book Innovation and Entrepreneurship, he noted that "When a new venture does succeed, more often than not it is in a market other than the one it was originally intended to serve, with products or services not quite those with which it had set out, bought in large part by customers it did not even think of when started, and used for a host of purposes besides the ones for which the products were first designed."

    In light of Peter's observation, starting with a pushcart version of your business and iterating based on a series of customer interaction cycles that enable you to convert your assumptions into knowledge is the only logical way to start and grow a business.

    What is intersting is not the putting forth of a lean startup strategy but rather the fact that the majority of would-be entrepreneurs fail to heed the wisdom of Drucker's observation and go forth believing that they can get it right the first time.

     
     
     
    • Thuha Nguyen
    • Partner, www.marketingzone.com

    Lean Startup "MVP" Strategy is especially effective for online businesses. The success of an online business depends so much on its ability to generate online traffic and play the SEO/SEM game. It makes much more sense to start out small and learn how customers respond to your business via search analytics. Based on your learnings, you can quickly adjust your online products or even change your business model. Once you find a 'formula' for success, then you can turn up the dial to grow your business.

    It may sound simple. But it takes a lot of time, effort and perseverance between the time you launch your "Minimal Variable Product" and the time you enter the 'growth' phase of your business.

     
     
     
    • Patrick Lanthier
    • Chairman, eCLIC at Carnegie Mellon University Silicon Valley

    There is no better example of the Lean Startup Strategy than the Open Source community, as discussed in Dr. Eric Von Hippel's (MIT) little book, "Democratizing Innovation". A central thesis is that Lead Users are key to product innovation. Von Hippel's product examples range from Linux to sailboards and mountain bikes. The book is a free download.

     
     
     
    • Sachin Joshi
    • Manager, Washington Technical Resources

    I am a Computer Engineer and a Software Developer. For the last decade or so the old ways of doing software development has been challenged by Agile Development processes.

    [1] These processes emphasize following a complex adaptive process and using lean thinking to reduce unnecessary documentation (bureaucracy). The "agile manifesto" defines the value system of these methodologies very concisely
    -Individuals and interactions over processes and tools -Working software over comprehensive documentation -Customer collaboration over contract negotiation -Responding to change over following a plan -That is, while there is value in the items on the right, we value the items on the left more.

    Especially methods like "SCRUM" and "extreme Programming" have been popular and widely used. Although extreme programming is way of producing software, SCRUM is product agnostic and based on lean thinking.

    [2] Personally I also like the concept Software Product Line where emphasis is on building reusable components and assembling them to produce different software products.

    [3] In the field like software where combination of creative thinking and rigorous engineering are important, the people and their potential becomes the number one asset the company has. People focused management is a requirement. In startup environment it is not only important to come up with great idea it is essential to develop capacity, assets and frameworks to implement those. It is not effective to give a team a fish to eat but instead teach them to fish so that they can continue feeding themselves (in changing market conditions and shifting priority.)

    If you happen to be interested in these topics I invite to visit blogs.watechresources.com

     
     
     
    • Anonymous

    Trust me, I have been there, seen it many times and got the T-Shirt. Lean start up is the best strategy for a start up. It is common sense. Problem is, entrepreneurs are difficult people to convince and very often believe that their idea is a winner, attract and burn loads and loads of cash and then ooops.

     
     
     
    • Yasir Saeed
    • CEO, Design2Express

    As a Start up you will never feel ease at anytime. Facing many hardships on the up. The thinking would be broad to view the world as a whole. I remember when i was new in the industry i felt like all the heavy mountains fell on my shoulder but it the will of the GOD to help me out difficult situations.

    I loved your post to be very energizing.

    Best Regards Yasir

     
     
     
    • Christopher Hanlon
    • CEO, www.christopherhanlon.com

    If they have a brain they can do it with no money. And have no debt. Things fizzle out because there was nothing on fire to begin with. People invested in the smoke-screen.

    Christopher Hanlon PhD Australia

     
     
     
    • MBT
    • http://www.qashoes.com, CEO

    Can't imagine doing it any other way. Why hire a lot of people who have to be managed and kept busy while the venture leader is learning the business?

     
     
     
    • Sam White
    • Co-founder, Promethean Power

    We have been designing and building several iterations of our solar-powered refrigeration systems.
    The following quote is what resonates with me most: "If you have to take people away from what you sold them on, that's hard. How do you square the need to do that with the need to be flexible and pivot?"

    At what point do you start selling the concept to customers? When I look back, I wish we had built cardboard boxes of our prototypes to demonstrate the concept to customers. We can't get any leaner than we are but it's hard to avoid the expense of physical prototypes.

     
     
     
    • Sam White
    • Co-founder, Promethean Power

    We have been designing and building several iterations of our solar-powered refrigeration systems.
    The following quote is what resonates with me most: "If you have to take people away from what you sold them on, that's hard. How do you square the need to do that with the need to be flexible and pivot?"

    At what point do you start selling the concept to customers? When I look back, I wish we had built cardboard boxes of our prototypes to demonstrate the concept to customers. We can't get any leaner than we are but it's hard to avoid the expense of physical prototypes.

     
     
     
    • Josh Rosenthrope
    • Co-Founder, http://www.samsunggalaxysii.org/

    The "lean start-up" is an approach which we debated for a long time to be taken when we started. As the product was developed and it took time to get into the market. We realized later that "lean start-up" approach would have been better where in we could have saved a lot of time and money and our go to market could have been positioned earlier as was seen with Samsung Co. Ltd. and their launch of the Samsung Galaxy S II. We have now started thinking about this approach as a way forward. I agree with Dr. Eisenmann's concepts which will help start-ups to scale gradually and not fail.

     
     
     
    • birthday gifts
    • CEO, birthday gifts for her

    Prognition has unknowingly followed a lot of what this article proposes. We built a knowledge engine that suggests best practices to health care workers. We have been testing this in our first commercial release called Mavenlive which is aimed at physiotherapist. We have learned a lot from our initial customers and have made a couple of "pivots." The concept of launching with a MVP is right on. Assumptions about what customers will want can be way off and expensive; there is also less heartbreak in a pivot if the company isn't throwing away a lot of development that not only was expensive but to which there was emotional commitment.

     
     
     
    • Ramesh Raghavan
    • Lead Solution Architect, Wipro Limited

    The concepts of "Pivoting" are definitely stages that most organizations would follow when they are pursuing a new product or line of business which is usually the "ideation" process and "crowd sourcing" that one would do. Having said that the concept of launching with a MVP is spot on.

    I would have like to see Dr. Eisenmann touching upon the areas of "concept selling" in conjunction with "pivoting". We all know about the story of three blind men and an elephant.

     
     
     
    • Anonymous

    This article was indeed very interesting, as were the rich and numerous comments that followed. I believe the pivoting issue to be key. The article touched a point when saying that it can be challenging for the CEO to explain to the stakeholders these changes ("If you have to take people away from what you sold them on, that's hard"). But many times the entrepreneur is himself involved emotionally in his project and may lack some objectivity to integrate fully and effectively the feedback harnessed in the MVP phase. It may not be obvious to be totally rational when facing the possibility of altering the initial idea and pivoting into very different paths. It would be interesting to see how one can maximize the use of the lean process to really take the best decisions, even if it means great changes to the initial plan. On this point, I believe that for example business angels financing projects with seed capital can give much needed input as they usually have the experience and the proper emotional distance to be able to look at the MPV evolution and provide valuable guidance.

     
     
     
    • Onyeizu Chinedu
    • CEO, Rhino Group of Companies

    I am fascinated with the article and concept of lean start-up.It helps sharpen assumptions and supports decision making during the early stages of a business start up.Rhino Group of companies started with this concept unknowingly without any documented principles to follow.But its quite interesting to see Dr.Eisenmann put together modules to develop the concept.

     
     
     
    • Dmitry Amarandos
    • CEO, petmypet.ru

    Agree. 'Lean Startup' Strategy allows you to test ideas on the market without spending a lot of money. I used this approach building pet lovers social network www.petmypet.ru. 2300 users in several month. After 20 000 we may consider to upgrade platform.

     
     
     
    • Simon
    • The Boss, Purple Turtle Productions

    Agree.. and Disagree..

    I see many companies pass through our doors with all types of ideas from the cutting edge,. to .. well .. the very weak.

    Fortunately, from the burst comes all the great technology at such a low cost that the capital needed can now be related directly to advertising and media, costs for materials have also been slashed from pre 90's prices

    The shipping and logistics areas have also taken a great hit as far as end-user pricing,. based now on volume.. instead of individual sales.

    I would say that the costs for a start-up these days are actually a fraction of the costs seen only a decade ago.. It's just the apprehension of investors that one needs to worry about..

    "Pivoting" or "Re-Branding" or whatever the metaphor the "Exec's" uses .. has become much easier as a whole simply regurgitating the above statements.

    great blog btw..

    Simon http://www.purpleturtleproductions.ca