- A new research by Harvard Business School’s Shikhar Ghosh shows, 75% of all start-ups fail
- However, “lean start-up” has emerged as a countervailing force which makes the process of starting a company less risky
What is “Lean start-up”?
Lean Start-up is a new way of looking at the development of innovative new products that emphasizes fast iteration and customer insight, a huge vision, and great ambition.
It favors experimentation over elaborate planning, customer feedback over intuition, and iterative design over traditional “big design up front” development.
If you want to know more about it, check out WITS Zen’ s series of articles on “ The Lean Start-up”
And why it is less risky?
Although the methodology is just a few years old, its concepts—such as “minimum viable product” and “pivoting”—have quickly taken root in the start-up world, and business schools have already begun adapting their curricula to teach them.
Steve Blank, 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, offers a brief overview of lean start-up techniques and how they’ve evolved:
“Everybody has a plan until they get punched in the mouth” — Mike Tyson
Every entrepreneur is supposed to have a business plan before starting his venture. An ideal business plan must describe the size of an opportunity, the problem to be solved, and the solution that the new venture will provide. It should also chalk out a five-year forecast for income, profits, and cash flow.
- Does this business plan, which is often prepared in isolation at a desk, work?
- Is it possible to figure out most of the unknowns of a business in advance?
- Or, is it an invitation to get punched in the mouth, once you start executing your idea?
The truth is:
Business plans rarely survive first contact with customers. As Steve Bank says, “No one besides venture capitalists and the late Soviet Union requires five-year plans to forecast complete unknowns”.
Why start-ups must shun the idea of having a business plan, because, “they are not smaller versions of large companies, they do not unfold in accordance with master plans.
One of the critical differences is that while existing companies execute a business model, start-ups look for one. This distinction is at the heart of the lean start-up approach.
The lean method has three key principles:
- Entrepreneurs must accept that all they have on day one is a series of untested hypotheses
- Lean start-ups use a “get out of the building” approach called customer development to test their hypotheses
- Lean start-ups practice something called agile development, which originated in the software industry. Agile development eliminates wasted time and resources by developing the product iteratively and incrementally
When it comes to choosing between ‘business plan’ and ‘business model canvas’, start-ups should opt for the latter. Have a look at the Business Model Canvas:
Source: www.businessmodelgeneration.com/canvas. Canvas concept developed by Alexander Osterwalder and Yves Pigneur.
The business model canvas lets you look at all nine building blocks of your business on one page. Each component of the business model contains a series of hypotheses that you need to test: