Skip to 0 minutes and 7 secondsWelcome to the topic of the Lean Startup. The Lean Startup Method is a toolset that helps you to start your venture in a structured way. To use it effectively, you need to know its principles and where it comes from. In this video, I will highlight the four components of this toolset. These are hypothesis, design, test, and insight. Why is this apparently simple setup so important? Many ventures fail, and a key reason for failure is that entrepreneurs create their venture based on wrong assumptions. When entrepreneurs envision their venture, they create a world where everything falls into place. For example, they have a product or service that satisfies a strong and urgent customer need.

Skip to 0 minutes and 53 secondsThe business idea is a mental representation of a desirable future. But what if your mental representation is built on sand and not on facts? You might start to invest time and money in a venture that is based on wrong assumptions. This, then, can lead to failure. But what if you can learn about whether your assumptions are true before you invest heavily? In fact, much of this information can be acquired at low cost and early on. If you get this information, you can continue with your venture based on a validated understanding of, for example, customer needs, the fit of your solution to those customer needs, and other valuable information.

Skip to 1 minute and 35 secondsThe Lean Startup methodology is based on the idea that you should make your implicit assumptions explicit. You can then test these explicit assumptions in the real world. The goal of these tests is to check your assumptions. Hypothesising, designing and doing research, and learning from your findings is a continuous process that entrepreneurs go through. Assume you would have a business idea around a fitness watch. You may have a technology that is much better at reading the pulse, and you want to build a venture around it. You assume that the key customer problem is the accuracy of the pulse readings. You then make this assumption explicit and build a hypothesis on it.

Skip to 2 minutes and 19 secondsYou would formulate something like, eight out of 10 users find the accuracy of the readings as a key problem. You would then design the research to find support or lack of support for this assumption. Options include observations, qualitative interviews, or surveys. You would carry out the research. There is a proverb that says, get out of the building. The evidence is out there, not in the entrepreneur's head. Should the results support the assumption, you would build a prototype of a fitness watch that delivers great accuracy. Should the results show that accuracy is not a key concern, you would not waste time and money on building a venture on something that users do not want.

Skip to 3 minutes and 6 secondsThis cyclic process of Hypothesising, designing, testing, and getting insight is a learning process. When there is a radical change based on this learning process, it's called pivot. For example, YouTube started as a video dating site, and Groupon started as a social activism website.

Skip to 3 minutes and 27 secondsDoes the Lean Startup always work? We argue that Lean Startup works best when there's a potentially large customer base for empirical tests, and when the product is easy to modify. In business-to-business markets or intangible products, this may not be the case. Other limits of the Lean Startup method include ventures where failure may be fatal, such as fintech or pharma; ventures where information quality is low, such as when respondents are likely to respond social desirably or strategic answers; situations where technology uncertainty is high, such as with technologies with low levels of technology readiness. We looked at the basic steps in the structured approach of hypothesise, design, test, and insight of the Lean Startup.

Skip to 4 minutes and 20 secondsThis helps to understand and works with the Lean Startup toolset for better opportunity recognition and creation. Using this approach, an entrepreneur can build a venture based on empirically-validated insight, and this is likely to reduce the chance of failure.

What is Lean Startup?

Lean Startup became popular with Eric Ries’ book, but it also has earlier intellectual roots.

Ries mentioned Frederick Taylor, whose scientific management emphasized the use of scientifically generated insights to improve work methods. In entrepreneurship, Block and MacMillan (1985, p. 184) argue that “starting a new business is essentially an experiment. Implicit in the experiment are a number of hypotheses (commonly called assumptions) that can be tested only by experience.” Sull (2004) emphasized that these hypotheses should be made explicit, and submitted to empirical tests. Generally, entrepreneurs can be seen as theorists (Felin and Zenger, 2009) that combine imagined possibilities into models and hypotheses and submit them to logical reasoning, social experimentation, and rigorous empirical tests.

We argue that explicit experimentation can help the entrepreneur to focus attention on the most impactful questions to address, helps to eliminate decision making-biases, helps to generate speedy and specific feedback, and invites the entrepreneur to use different modes of learning. Evidence on the effectiveness of Lean Startup is largely anecdotal and qualitative, but quantitative evidence is emerging.

References

Block, Z., MacMillan, I.C., (1985). Milestones for successful venture planning. Harvard Business Review, 85, 184-188.

Felin, T., Zenger, T.R., (2009). Entrepreneurs as theorists: on the origins of collective beliefs and novel strategies. Strategic Entrepreneurship Journal, 3, 127-146.

Ries, E., (2011). The Lean Startup. Crown Publishing, New York.

Sull, D.N., (2004). Disciplined entrepreneurship. MIT Sloan Management Review, 46, 71-77.

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Technology Entrepreneurship: How to Start a New Venture

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