Lean, smart and agile - the rise of the lean start-up

In my time as a Banking Director during the dotcom crash, it wasn't difficult to identify some common features of those start-ups that failed to transition into growth:  ambitious and over-engineered business plans, high running costs, and an inability to react to changing market conditions.  Later experiences as an operational excellence practitioner, deploying lean six sigma, helped me appreciate the need for start-ups to to treasure their cash and harness their enthusiasm in a more informed way.  
 

In 2011, Eric Ries' book "The Lean Start-Up" helped coin a phrase that has become a global phenomenon, prompting entrepreneurs to think about the way they start businesses differently.  

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So why do we need to do anything differently?

The traditional approach to market has been based upon:

• Having a unambiguous vision and strategy - one that anticipates what clients wants without detailed testing of the market.
• In depth planning to execute the strategy - often with planning assumptions stretching far ahead.
• Upfront development to create products, services or a technology platform to deliver the business plan - absorbing a large proportion of the start-up's cash and resources.

Approximately 75% of start-ups fail and the difficulty with the traditional approach is that it is inflexible, unresponsive to changing customer requirements and builds unnecessary cost into the business, ultimately making it more vulnerable to absolute failure. These weaknesses have become exacerbated by the speed of the market which can make a sensible assumption look like a ridiculous vanity in only a few days.  

So what's the alternative?

The lean start-up approach has adopted many of the concepts that underpin lean process improvement.  Crucial elements include:

• Plan to act. Moving away from lengthy business plans, the approach works around a business model canvas that crystallises on one page the key determinants that influence success: the value proposition, key activities, target market, delivery channels and resources.

• Minimise waste.  Aiming for minimal cost, the approach aims to avoid deployment of resources non-value adding activities, for example: transport, duplication, inventory, over-production, and defects.   
• Listen to the customer.  Emphasis is placed on developing a "minimum viable product" where the maximum of amount of learning can be extracted from customer feedback.
• Continuous development. Through a build-measure-learn approach, working assumptions are customer tested iteratively with resultant amendments acted upon.  Strategic shifts ("pivots") are made throughout this process if the data supports it.
• Measurement to improve. Moving away from vanity metrics, the approach assesses data that informs the ultimate product or service (for example cost per customer acquired).  Each cycle time of development is monitored carefully with batch sizes of products kept small so that maximum learning can occur.

So will this work for me?

The lean start-up approach won't work for every start-up business and I wouldn't encourage anyone to use it without really understanding how the concept can be used "in contact with the enemy". However, key aspects should be considered, especially when you are faced with the prospect of, for example, creating a magnum opus of a business plan, investing heavily upfront in a technology platform, or launching an idea on gut feel.

Chris Lorimer is a management consultant with a background in operational excellence and helping businesses to grow. He has an MBA with distinction from Warwick Business School and lectures on the Cardiff Business School Expert Lean Course.

To contact Chris, email chris@lorimerconsulting.co.uk

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