Lean Thinking in New Startups

When the venture capital market changed in the late 2008, it meant that entrepreneurs with innovative product ideas could no longer create a powerpoint deck, assemble a team of all-stars, and pitch hard to secure a significant first round of funding to build a company and prove their idea could translate into a profitable business. Investors, intent on reducing risk, needed more proof points before making large-scale investment.
Flash forward a couple of years and now we find Angels and Incubators are largely responsible for initial rounds of funding - organizations like MassChallenge, TechStars, and Y-Combinator - not traditional venture capital firms. Now, Internet startups see funding in hundreds of thousands, not tens of millions. But, even these drastic changes have not stopped successful innovation. And some of the most successful of these entrepreneurs, people like Eric Ries, Steve Blank, Sean Ellis, and Dave McClure, have learned what it takes to successfully evolve from product idea to a profitable growing company. They’ve codified their experiences into what’s become “The Lean Startup” and if you’re thinking of starting a technology company, you need to be aware of it.
A core tenant of a Lean Startup is what Eric Ries, it’s chief practitioner, calls “Low Burn by Design, not Crisis.” But, a Lean Startup is not just about preserving capital. A Lean Startup is also about a focus on rigorous testing of hypotheses around the business model, and making constant informed decisions to change, or pivot, based on metrics gleaned from the customer interactions found in the real world.
By being relentlessly focused on asking customers for feedback and measuring what they do, a Lean Startup is focused on producing knowledge – not necessarily revenue. In other words, the most important result of the early efforts of a Lean Startup is answers to the questions – why would someone use this product? How much would they pay?
The best Lean Startups can quickly and repeatedly come up with ideas about ways to improve their product or user experience, test these hypotheses by implementing them into a “minimum viable” version of their product, measure actual activity, and generate a verified learning. This is what Ries calls “minimizing time through the loop.” Successfully get through enough of these cycles results and you just might end up with a product that people want to buy – and in large numbers. A company with such a product now becomes much more appealing to a traditional venture capital organization – they’ve worked out their business model and mitigated risk.
If you’re an entrepreneur interested in learning more about the Lean Startup Methodology, come join the Boston Lean Startup Circle on Thursday May 27th for free food, free drinks and quality networking with other entrepreneurs, founders, technologists, venture capitalists, and company advisors who are actually practicing Lean concepts right now.
By Matthew Mamet. Matthew is an organizer of the Lean Startup Circle Boston, and responsible for customer development at EditMe http://www.EditMe.com, the easiest way to create a collaborative website. Prior to EditMe, Matthew was Director of Product Marketing at PermissionTV, a SaaS-based online video product, and President of Embarc an Interactive Marketing Agency that was eventually sold to Garfield Group of Pennsylvania