The Case for Running Lean
When the lean startup movement kicked off around 2009, it was all the rage. However, lately, I have been seeing articles (like this one from Entrepreneur) questioning the value of running lean and advising against using the lean startup methodology. While many of the arguments have merit, I think the main problem is in how people implement the lean startup methodology rather than issues with the methodology itself. Let's unpack some of those arguments and explore what they mean for entrepreneurs and how they can use lean startup methods successfully.
Testing Your Vision
Author Nishta Tripathi mentions the co-founder of Like a Little, Prasanna Sankar, who used lean principles to start up but ultimate shut down after four years. Over the course of those years, Sankar applied the lean approach by continually switching "ideas until a small group of users showed interest." Essentially, he was chasing success without any particular vision for what that success looks like. In reflecting on his experiences, Sankar concluded that you need deep knowledge and commitment to your idea (e.g. an overarching vision) and to your market in order to persevere through the tough times and build a successful business. For him, the lean startup approach lacked this focus on vision, knowledge, and perseverance.
I agree with Sankar's contention that a deep commitment to what you are doing is essential and I also believe it is compatible with lean startup methods. While switching strategies to find the one that resonates with customers is central to lean startup methods, those changes must be constrained within an overarching vision. If you have a broad vision for your product and it is aligned with your passion and your domain knowledge, you can use the lean startup methods to test various strategies within the scope of that vision in order to optimize the resulting product.
Pivoting vs. Persevering
Another criticism of the lean startup methodology is that it can be prone to false negatives, causing entrepreneurs to abandon ideas when they really need to persevere through the down times. However, at its core, lean startup methodologies are about learning and putting yourself in the best position to make the best decisions in the face of extreme uncertainty.
Tripathi asks when facing a hurdle, "How do you know whether its a problem worth solving if you pivot away every time you stumble?" To me, when a product is stumbling, the key is to understand why. One of the core tenets of the lean startup methodology is getting out and talking to customers. So, a company's metrics should tell them where they are struggling. Then discussions with customers or potential customers should help them understand why. It is only with that understanding that an entrepreneur can make an informed decision between pivoting and persevering.
Using the Right Test at the Right Time
Another sticking point is A/B testing. Tripathi notes that A/B testing "doesn’t produce significant results unless your traffic is meaningful." I certainly agree. A/B testing can be a powerful tool, particularly as a product scales up. However, when a startup is just starting, I find that the process outlined in Ash Maurya's book Running Lean is more effective. Maurya's process relies on customer interviews to verify that the problems you aim to solve are actually problems worth solving, that your solution is resonating with your target customers, and that your message is convincing people to buy.
During this initial startup time, there is an extremely heavy emphasis on talking to potential customers, listening to them, and learning from them. All qualitative feedback. It is not until very late in the process, when you begin testing product-market fit, that you start collecting any sizable quantitative metrics. Additionally, Maurya specifically separates the initial startup (from idea to proven product-market fit) from the scale up that follows. During scale-up, optimization is the name of the game. This is when A/B testing and other methods that rely on much higher levels of traffic become effective and useful. So, once again, success with the lean startup methodologies relies on applying its principles appropriately based on the stage of your company's growth.
What about Physical Products?
Physical products present a unique challenge to the lean startup methods. With software, rapid iteration and changes are fairly inexpensive. Iterating physical products can be much more difficult given the increased expense and time required to produce them. Additionally, many larger physical products are significantly more capital intensive to manufacture. That said, advances in rapid prototyping, 3D printing, and on-demand production are reducing these difficulties.
In addition, while the challenges of rapidly iterating a physical product are clearly present, there is more to the product than just the physical piece being sold. As Maurya notes, "Your price is part of your product." So too is your marketing message and how you support and interact with your customers. These are all candidates for iteration and testing following the principles of lean startup methods. You should still be talking with your customers about their problems, measuring how customers are interacting with your website, and how your value proposition is resonating.
Tripathi uses Tesla as an example of a company that could not use lean startup methods, but I disagree. Certainly, the pace of iteration is slower than for a software startup, but there is clear evidence of lean startup principles at play. Elon Musk had a vision for an electric car company that would change the nature of cars. However, he did not launch an electric car for the masses from the start. Instead, Tesla developed the Roadster, an expensive electric sports car aimed squarely at people who had extra money for a car that was a toy. These were early adopters, and through them, Tesla was able to develop and refine its technology and marketing before expanding to a premium luxury sedan, a premium luxury SUV, and only just recently a nearly mass-market sedan. Tesla also makes use of constant improvements to the software in its vehicles, allowing it to continually refine its product as it gets feedback from its customers. These are all examples of lean startup principles applied to a very capital intensive business.