Wednesday, September 11, 2013

Getting Cut Without Getting Huge in Startups

   By: Paul Chen

You wake up at Seatac, SFO, LAX. You wake up at O'Hare, Dallas-Fort Worth, BWI. Pacific, mountain, central. Lose an hour, gain an hour. This is your life, and it's ending one minute at a time. You wake up at Air Harbor International. If you wake up at a different time, in a different place, could you wake up as a different person? 

Narrator, Fight Club

Like Fight Club the Lean Startup method is coming to a city near you.  It also wants you to change the way you have been thinking about how to well.."startup".  Some of the versions of this might be the Lean Startup Machine, Lean Startup Circle, or simply The Lean Startup.  What is this Lean Startup any way?

"Lean Startup" is a method for developing businesses and products first proposed in 2011 by Eric Ries. Based on his previous experience working in several US startups, Ries claims that startups can shorten their product development cycles by adopting a combination of business-hypothesis-driven experimentation, iterative product releases, and what he calls "validated learning". Ries' overall claim is that if startups invest their time into iteratively building products or services to meet the needs of early customers, they can reduce the market risks and sidestep the need for large amounts of initial project funding and expensive product launches and failures

Wikipedia entry

The "Lean" part of the name means that you build your company, product, or service using very little starting capital.  Most of the work done during the initial stage of product development is done on customer discovery.  What the startup needs to do is to develop a comprehensive understanding of their customers: behavior, needs, habits, relationships, problems. To do this, one conducts customer discovery surveys to gain a better understanding of the needs of a particular market.  

Such data is then transferred on to a business model canvas which is a one page questionnaire where the scientific method is used to help develop a product or service.  One comes up with a hypothesis. This product or service for your hypothesis is then your MVP.  I don't mean most valuable player, it means minimum viable product. It is a"version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort." Then you conduct further surveys with different groups of people to test the hypothesis. The rational is to build a firm customer base by starting small and solving simple problems but doing it very well.  Basically taking the "if you build it, they will come", approach. 

By using this MVP, one doesn't need to have a large amount of startup capital and because the product might be simple the startup can make the pivot easily. This is done by the simple fact that since not too much money and resource had been invested in the solution, making the pivot will not be so painful.  It allows the startup to be more nimble and adopt quickly to the ever-changing needs of the market.   It is not about doing things cheaply, it is about doing it efficiently.   Another rational is that since you have a MVP that you can monetize quickly, the investors will come looking for you.  That is when you will have an opportunity to scale quickly and take off.  

One local "Lean Startup" practitioner is Ian Scarffe.  He is an entrepreneur from Australia with many years of experience.  (Linkedin Profile)  Recently, he has been providing mentoring to BaseConnect.  The idea is that it will provide a platform for students and student groups to connect with each other much like what LinkedIn is doing with professionals.   I would call it the missing link between Facebook and LinkedIn.  It presents a nice professional profile of a student or student group but does it in a fun way.    Ian is always on the hunt for new interesting ideas.  If you mention my blog, he has a special gift for you.

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