The cult of Lean start-ups

Entrepreneurs should be naturally wary of fads and trends. They need to be analysed to determine whether they are genuine, sustainable or even useful. Plenty of start-ups have rushed into “the next big thing”, only to promptly fall on their faces.

But sometimes a new way of working emerges that provides tangible results.

Increasing numbers of Australian start-ups are becoming adherents to the Lean Start-up principle, embodied by a book of the same name  written by entrepreneur Eric Ries, which was released in September.

Although the book has only been available for three months, Silicon Valley-dweller Ries has written, blogged and lectured about the Lean Start-up model since 2008.

Ries’ theory has been seized upon by countless start-ups in the US, ranging from Dropbox to Google-acquired Aardvark, and now the model is being embraced Down Under.

There are even Lean Startup events in Sydney  and Melbourne, with another one set to launch in Brisbane. The meet-ups allow Ries’ disciples to congregate and enthuse about their leanness.

So, what exactly is a Lean Start-up? Ries defines it as not “about being cheap [but is about] being less wasteful and still doing things that are big.”

“Using the Lean Start-up approach, companies can create order not chaos by providing tools to test a vision continuously.”

There are five main principles to this:

1. Entrepreneurs are everywhere – as Ries says, you don’t have to be in a garage to be an entrepreneur. A good idea can come from anywhere. It’s how you apply it that matters.
2. Entrepreneurship is management – Ries explains:  “A start-up is an institution, not just a product, so it requires management, a new kind of management specifically geared to its context.”
3. Validated learning – this principle forbids entrepreneurs from hiding their product away and not testing it. “Start-ups exist not to make stuff, make money, or serve customers,” says Ries. “They exist to learn how to build a sustainable business. This learning can be validated scientifically, by running experiments that allow us to test each element of our vision.”
4. Innovation accounting – the Lean Start-up model requires new ventures to get their ducks in a row. “To improve entrepreneurial outcomes, and to hold entrepreneurs accountable, we need to focus on the boring stuff: how to measure progress, how to setup milestones, how to prioritize work,” says Ries. “This requires a new kind of accounting, specific to start-ups.”
5. Build-measure-learn – Ries advocates a ‘feedback loop’ that ensures a new business doesn’t veer wildly off course.  As he puts it: “The fundamental activity of a start-up is to turn ideas into products, measure how customers respond, and then learn whether to pivot or persevere.”

So, the premise is quite simple. When starting up, you keep costs to a bare minimum. You then test your concept in the market in a cheap way, so that you’re able to tweak it if needs be, without sinking your business. Repeat to fade.

But isn’t this just common sense? Mick Liubinskas, co-founder of Sydney incubator Pollenizer, which played host to Ries last year, says that the Lean Start-up model is ideally suited to modern start-ups, especially tech-based ones.

“It’s about focusing on your product before buying Superbowl ads,” he says. “It’s the perfect time to do this as the cost of development tools is coming down and you can get a really high granularity with your testing.”

“It’s about getting in front of your customer quickly and finding out if they like your business. The danger now isn’t that you won’t be able to build it, but that people won’t want it. We always say here ‘why would anyone care about your business, other than you and your mum?’”

Liubinskas says that what may seem obvious entrepreneurial processes are only apparent after a failure.