Why the Lean Start-Up Changes Everything by Steve Blank
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HBR.ORG MAy 2013 REPRINT R1305C SPOTLIGHT ON ENTREPRENEURSHIP Why the Lean Start-Up Changes Everything by Steve Blank This article is made available to you compliments of Mr. Steven Blank. Further posting, copying, or distributing is copyright infringement. SPOTLIGHT ON ENTREPRENEURSHIP Spotlight This article is made available to you compliments of Mr. Steven Blank. Further posting, copying, or distributing is copyright infringement. FOR ARTICLE REPRINTS Call 800-988-0886 or 617-783-7500, OR VISIT HBR.ORG A RTWORK Sara Hughes, Download, 2005 Acrylic on linen, 1.5 m x 1.5 m Wallace Trust Collection Steve Blank is a consulting associate professor at Stanford University and a lecturer and National Science Foundation principal investigator at the University of California at Berkeley and Columbia University. He has participated in eight high-tech start-ups as either a cofounder or an early employee. Why the Lean Start-Up Changes Everything by Steve Blank May 2013 Harvard Business Review 3 This article is made available to you compliments of Mr. Steven Blank. Further posting, copying, or distributing is copyright infringement. SPOTLIGHT ON ENTREPRENEURSHIP aunching a new enterprise— as “minimum viable product” and “pivoting”—have whether it’s a tech start-up, a quickly taken root in the start-up world, and busi- small business, or an initiative ness schools have already begun adapting their cur- within a large corporation— ricula to teach them. has always been a hit-or-miss The lean start-up movement hasn’t gone totally proposition. According to the mainstream, however, and we have yet to feel its full decades-old formula, you impact. In many ways it is roughly where the big data write a business plan, pitch it movement was five years ago—consisting mainly of to investors, assemble a team, a buzzword that’s not yet widely understood, whose introduce a product, and start implications companies are just beginning to grasp. selling as hard as you can. And somewhere in this But as its practices spread, they’re turning the con- sequence of events, you’ll probably suffer a fatal ventional wisdom about entrepreneurship on its setback. The odds are not with you: As new research head. New ventures of all kinds are attempting to Lby Harvard Business School’s Shikhar Ghosh shows, improve their chances of success by following its 75% of all start-ups fail. principles of failing fast and continually learning. But recently an important countervailing force And despite the methodology’s name, in the long has emerged, one that can make the process of start- term some of its biggest payoffs may be gained by the ing a company less risky. It’s a methodology called large companies that embrace it. the “lean start-up,” and it favors experimentation In this article I’ll offer a brief overview of lean over elaborate planning, customer feedback over start-up techniques and how they’ve evolved. Most intuition, and iterative design over traditional “big important, I’ll explain how, in combination with design up front” development. Although the meth- other business trends, they could ignite a new entre- odology is just a few years old, its concepts—such preneurial economy. Sketch Out Your Hypotheses The business KEY ParTNERS KEY ACTIVITIES VaLUE PROPOSITIONS CusTOMER CusTOMER RELATIONSHIPS SEGMENTS model canvas lets Who are our key partners? What key activities do our What value do we deliver to the value propositions require? customer? How do we get, keep, and grow For whom are we Who are our key customers? suppliers? Our distribution channels? Which one of our customers’ creating value? you look at all nine Which customer relationships Which key resources are Customer relationships? problems are we helping to Who are our most solve? have we established? building blocks of we acquiring from our Revenue streams? important customers? partners? What bundles of products and How are they integrated with What are the customer the rest of our business model? your business on Which key activities do services are we offering to each archetypes? partners perform? segment? How costly are they? Which customer needs are we one page. Each rust satisfying? T What is the minimum viable component of the ace product? LL business model KEY RESOURCES CHANNELS A W What key resources do our Through which channels do our contains a series THE value propositions require? customer segments want to be reached? ND A of hypotheses that Our distribution channels? Customer relationships? How do other companies reach you need to test. them now? Revenue streams? artist Which ones work best? THE Which ones are most cost-efficient? F How are we integrating them Y O with customer routines? urtes O C : E G pa COST STruCTURE REVENUE STREAMS us O What are the most important costs inherent to our business model? For what value are our customers really willing to pay? I V Which key resources are most expensive? For what do they currently pay? PRE Which key activities are most expensive? What is the revenue model? Y What are the pricing tactics? RAPH OG T SOURCE WWW.busiNESSMODELGENeratiON.Com/CANVAS. CANVAS CONCEPT DEVELOPED BY ALEXANDER OsterwaLDER AND YVES PIGNEUR. O H P 4 Harvard Business Review May 2013 COPYRIGHT © 2013 HARVARD BusiNESS SCHOOL PUBLISHING CORPOratiON. ALL RIGHTS RESERVED. This article is made available to you compliments of Mr. Steven Blank. Further posting, copying, or distributing is copyright infringement. FOR ARTICLE REPRINTS Call 800-988-0886 or 617-783-7500, OR VISIT HBR.ORG Idea in Brief Over the past few years, Instead of executing busi- up) is entirely different from with other trends taking hold a new methodology ness plans, operating in stealth executing against that model in the business world, launch for launching compa- mode, and releasing fully func- (which is what established a new, more entrepreneurial nies, called the “lean tional prototypes, young ven- firms do). economy. start-up,” has begun to tures are testing hypotheses, Recently, business schools replace the old regimen. gathering early and frequent have begun to teach the customer feedback, and show- methodology, which can also ing “minimum viable products” be learned at events such as to prospects. This new process Startup Weekend. Over time, recognizes that searching for a lean start-up techniques could business model (which is the reduce the failure rate of new primary task facing a start- ventures and, in combination The Fallacy of the ter plans. The ones that ultimately succeed go quickly Perfect Business Plan from failure to failure, all the while adapting, iterat- According to conventional wisdom, the first thing ing on, and improving their initial ideas as they con- every founder must do is create a business plan—a tinually learn from customers. static document that describes the size of an oppor- One of the critical differences is that while exist- tunity, the problem to be solved, and the solution that ing companies execute a business model, start-ups the new venture will provide. Typically it includes a look for one. This distinction is at the heart of the five-year forecast for income, profits, and cash flow. lean start-up approach. It shapes the lean definition A business plan is essentially a research exercise writ- of a start-up: a temporary organization designed to ten in isolation at a desk before an entrepreneur has search for a repeatable and scalable business model. even begun to build a product. The assumption is The lean method has three key principles: that it’s possible to figure out most of the unknowns First, rather than engaging in months of planning of a business in advance, before you raise money and and research, entrepreneurs accept that all they have actually execute the idea. on day one is a series of untested hypotheses—basi- ND A L Once an entrepreneur with a convincing business cally, good guesses. So instead of writing an intricate EA Z plan obtains money from investors, he or she begins business plan, founders summarize their hypotheses NEW developing the product in a similarly insular fashion. in a framework called a business model canvas. Es- ND, ND, A Developers invest thousands of man-hours to get it sentially, this is a diagram of how a company creates KL UC ready for launch, with little if any customer input. value for itself and its customers. (See the exhibit , A Y Only after building and launching the product does “Sketch Out Your Hypotheses.”) ER LL the venture get substantial feedback from custom- Second, lean start-ups use a “get out of the build- GA D R ers—when the sales force attempts to sell it. And too ing” approach called customer development to test O SF often, after months or even years of development, their hypotheses. They go out and ask potential us- NG LA entrepreneurs learn the hard way that customers do ers, purchasers, and partners for feedback on all ele- W O G not need or want most of the product’s features. ments of the business model, including product fea- 2011, 2011, After decades of watching thousands of start-ups tures, pricing, distribution channels, and affordable follow this standard regimen, we’ve now learned at customer acquisition strategies. The emphasis is on least three things: nimbleness and speed: New ventures rapidly assem- 1. Business plans rarely survive first contact with ble minimum viable products and immediately elicit COLOUR CODES, COLOUR K, R customers. As the boxer Mike Tyson once said about customer feedback. Then, using customers’ input to O W his opponents’ prefight strategies: “Everybody has a revise their assumptions, they start the cycle over HER plan until they get punched in the mouth.” again, testing redesigned offerings and making fur- WITH 2.