Entrepreneurial

Top 5 myths about the lean startup

By Reuters Staff
April 27, 2010

- Eric Ries is a serial entrepreneur and author of the entrepreneurship blog Startup Lessons Learned. The original version of this blog was posted here. The opinions expressed are his own. -

Most phenomenal startup teams create businesses that ultimately fail.

Why? They built something that nobody wanted. That sounds like a beginner’s mistake, but in the conditions of extreme uncertainty under which entrepreneurs operate, it’s challenging to innovate and find a market, to take risks and mitigate risk.

Almost two years ago, I left my operating role as the co-founder of a startup, out of an interest to help the entrepreneurship industry develop a more effective, data-driven way of building companies. During that time, I’ve worked with hundreds of entrepreneurs around the world and created a methodology for innovation now known as The Lean Startup.

The Lean Startup has evolved into a movement that is having a significant impact on how companies are built, funded and scaled. As with any new idea, with popularity comes misinterpretation.

Here are the top five myths about The Lean Startup, and the truth behind each misconception:

Myth 1: Lean means cheap. Lean startups try to spend as little money as possible.

The reality is the Lean Startup method is not about cost, it is about speed.  Lean startups waste less money, because they use a disciplined approach to testing new products and ideas. Lean, when used in the context of lean startup, refers to a process of building companies and products based on lean manufacturing principles, but applied to innovation. That process involves rapid hypothesis testing, learning about customers, and a disciplined approach to product development.

Myth 2: The Lean Startup methodology is only for Web 2.0, Internet and consumer software companies

Actually, the Lean Startup methodology applies to all companies that face uncertainty about what customers will want. This is true regardless of industry or even scale of company: many established companies depend on their ability to create disruptive innovation. Those general managers are entrepreneurs, too. And they can benefit from increased speed and discipline.

Myth 3: Lean Startups are bootstrapped startups

There’s nothing wrong with raising venture capital. Many lean startups are ambitious and are able to deploy large amounts of capital. What differentiates them is their disciplined approach to determining when to spend money: after the fundamental elements of the business model have been empirically validated. Because lean startups focus on validating their riskiest assumptions first, they sometimes charge money for their product from day one – but not always.

Myth 4: Lean Startups are very small companies

This focus on size also obscures another truth: that many entrepreneurs live inside of much larger organizations. As I’ve written elsewhere, I believe the proper definition of a startup is: a human institution creating a new product or service under conditions of extreme uncertainty. In other words, any organization striving to create disruptive innovation is a startup, whether they know it or not. Established companies have as much to gain from lean startup techniques as the mythical “two guys in a garage” (and, as I’ve witnessed in my consulting practice, sometimes even more).

Myth 5: Lean Startups replace vision with data or customer feedback

Truth: Lean startups are driven by a compelling vision, and they are rigorous about testing each element of this vision against reality. They use customer development, split-testing, and in-depth analytics as vehicles for learning about how to make their vision successful. Along the way, they pivot away from the elements of the vision that are delusional and double down on the elements that show promise.

The old model of entrepreneurship was dominated by an over-emphasis on the magical powers of startup founders. Usually, the stories we hear about successful startups describe a brilliant visionary, fighting valiantly against the odds to create a new reality. As employees gradually fall under his or her spell, they execute his or her master plan, which leads, in the end, to world domination.

Anyone who has spent time around real startup successes knows this story is usually wildly untrue. Founders benefit from historical revisionism and survivor’s bias: we rarely hear the stories of the thousands of visionaries who failed utterly.

The Lean Startup moves our industry past this mythological entrepreneurship story and towards a methodology that is more scientifically grounded and accessible.

People who are truly committed to a vision of changing the world in a significant way can’t afford the luxury of staying in that cozy, comfortable place of building in stealth mode without outside feedback. If you really believe your vision needs to become a reality, you owe it to yourself to test that vision with every tool available.

Comments
3 comments so far | RSS Comments RSS

This approach is a great way to go, not new really, I wrote a column on Faling Fast which was about testing performance against KPI’s concurrent with the beginning of alpha or when possible, actual sales.

Taking the money you need is another thing that people have learned, both out of need but also restraint.

Don’t forget that ten years ago Internet CEO’s were in the news for crazy behavior before the bankers came along and showed them how insane greed really works.

Posted by jstaf | Report as abusive
 

I agree that speed is very important in today’s world of Web 2.0.Today’s new business plan is history unless start ups execute immediately. What’s also very important for any start up is to be able to be able to plan and to manage their cash flow. In order to stay lean business must be able to monitor their profitability and cash flow from inception in real time. Otherwise they will loose the ability to quickly navigate as circumstances change.

Sandor Lenner
http://www.SL-cpa.net

Posted by slenner | Report as abusive
 

One more myth to add-Lean startups rely on feedback from surveys,questionnaires and analytics to make informed decisions on their assumptions about customer development. This is a good start, getting out from behind you computer and talking to real people will reward you with unresolved problems you may not of thought of to help you get to a product-market fit sooner.
Brian Mcfarlane
http://www.productlaunches.co

Posted by brian-mcfarlane | Report as abusive
 

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