The Lean Startup is a popular methodology for bootstrapping a tech company. It’s based on experimentation and building products that are stripped down to core elements, shared with customers, and rapidly iterated, based on customer feedback. The goal is to quickly and inexpensively define a product that leads to a scalable, profitable, and sustainable business.
According to the Harvard Business Review, “The founders of lean start-ups don’t begin with a business plan; they begin with the search for a business model. Only after quick rounds of experimentation and feedback reveal a model that works do lean founders focus on execution.”
Lean startup principles were popularized by tech entrepreneurs Eric Ries and Steve Blank in the mid-to-late 2000s. In 2011, Ries wrote his book The Lean Startup and it’s become a de facto starting point for many tech founders. More than ten years later, the tech community is still debating the concept’s merits.
Hal Koss, associate editor at Built In, published the article: The Tech World Fell for Lean Startup. Was that a mistake?Koss includes commentary from both sides of the debate and some of these perspectives are summarized below. The entire article is available here.
Helen Walton believes that use of the Lean Startup Model almost killed her mobile casino game business (Gamevy, now g,games) she and her team developed in 2014. The first option was to carefully take their time, address every detail, secure a gambling license, and hit the market with a robust launch. The second option was to quickly build a stripped-down, freemium version of the game to test out and iterate upon until they had a product that resonated with customers.
Walton and team chose the second option but eventually realized they were burning through all their cash making incremental tweaks before ever having the chance to overcome regulatory hurdles. According to Walton, “We wasted a couple of years … learning totally useless lessons, when we should have spent money on getting our U.K. Gaming Commission gambling license.”
Origins of Lean Startup
The lean startup concept is often viewed as a reaction to the startup craze of the late 1990s that imploded in the early 2000s. Venture capital for ambitious startups was hard to find and investors were more interested in pitches that emphasized cost efficiency and reduced burn rates.
Technology had changed too and what had previously cost millions of dollars to bring to market only a few years before now only required hundreds of thousands to get up and running.
Startup founders like Eric Ries changed their perspectives on starting a tech business. They balked at the traditional approach – write a business plan, raise lots of upfront capital, build the product, launch it, and then sell it to customers – in favor of a business model that reduced fat, moved fast, and cost less.
In 2014 Ries co-founded a new company called IMVU which made a virtual avatar world Determined not to make the same mistakes his previous company had made; he and his team took a bootstrap approach. IMVU built minimum viable products (MVPs) and shipped them constantly. It ran experiments, talked to customers, measured what worked and what didn’t, and incorporated those findings back into its product development.
The company rode those principles to great success and by the next decade, lean startup principles were published in entrepreneurship books and taught in entrepreneurship classes and startup accelerator programs worldwide.
Critics and Fans of Lean Startup
Despite its widespread popularity, not everyone is onboard with lean startup principles. One example is Keith Rabois, who has held executive positions in companies like PayPal and Square and led investments for startups like DoorDash and Stripe. “The lean startup is a dumb and bankrupt philosophy for mediocre people with mediocre vision and ambition,” Rabois told Kunal Mehta for his book Finding Genius.
Rabois believes that lean startup puts an artificial ceiling on ambition. People don’t know what’s possible when you ask them what their pain points are. Also, nobody is going to change the world by showing customers an MVP and tweaking it based on their feedback. The thing founders should really do, Rabois tweeted, is “start with a vision and you WILL it into reality.”
Ben Horowitz, tech entrepreneur and co-founder of venture capital firm Andreessen Horowitz, is also not a fan of the lean startup approach. He argued in a 2010 blog post titled “The Case for the Fat Startup,” that the job of any startup is to win the market and not run out of cash. And following lean startup principles is no guarantee of achieving either. In fact, it’s likely to land founders in what Horowitz calls “startup purgatory,” where companies have conservative burn rates but are forever small. “Thin is in,” Horowitz said, “but sometimes you gotta eat.”
Ethan Mollick, an entrepreneurship professor at the University of Pennsylvania’s Wharton Business School and author of the book Unicorn’s Shadow: Combatting the Dangerous Myths That Hold Back Startups, Founders, and Investors, is supportive of the lean startup but has identified a few of the model’s shortcomings.
“What lean did was help us switch to an idea that experimentation and quick development is the key and I think there’s really valuable insights there,” Mollick said. “But I also think that the pendulum has probably swung too far one way.” The danger, Mollick told Built In, is in treating lean startup as a one-size-fits-all method. Because in reality, there are some industries and contexts in which it shouldn’t be applied. In biotech, for example, you can’t give customers prototyped medical devices for experimentation. And in general, Mollick said, “the more disruptive you’re trying to be, the less useful it is to talk to customers about things.”
Mollick was also concerned that getting fast feedback from customers might lead to incremental improvements, not radical innovations. Since people often distrust novelty, seeking early validation from them might tamp down ideas that sound weird at first but could actually change the world.
Geoff Wilson, president and founder of growth agency Three Five Two, has experienced firsthand the power of the lean startup. He founded a startup that provided a sports-themed virtual world for kids. He raised millions of dollars of funding, partnering with big-name football coaches, spending two years building the platform’s technology. However, when he brought it to market, “it completely missed the mark,” Wilson said, “It was an absolute failure.”
It turned out the end users were ambivalent about the features that Wilson and his team spent months building, instead, they liked the last-minute throw-ins. And the amount of time it took the company to get to market allowed competitors with technical advances to come along and control the market. Ultimately, the startup failed.
Wilson also doesn’t believe that the lean startup method necessarily caps ambition or curbs the generation of paradigm-changing ideas. “It can certainly produce big unicorns,” he said, citing Facebook as a prime example of a massively disruptive company that got off the ground using lean startup principles.
Clearly, there are many different perceptions of the utility and effectiveness of the lean startup approach to product development and its merits are still being debated. However, many of today’s entrepreneurs have embraced the lean startup strategy as the optimum way to create something new under conditions of extreme uncertainty.
The key element — start! Talk to potential customers and keep a learning mindset.