Launching a start-up is risky, regardless of industry. 75% of all start-ups fail. Period. Faint of heart need not apply.
The collateral damage of time, money, personal sweat and equity often leaves a dramatic trail of failure. So often preceding that eventual failure were several key milestones: write a business plan, pitch to investors, raise funds, assemble a team, develop a product and sell as hard and fast as you can before your “burn rate” or net cash outflows burn or deplete your cash reserves.
However, there is a new methodology called the “lean start-up” that is departing from this traditional business plan based approach that holds much better promise and success rates than how we’ve historically launched start-ups. The methodology has been recently chronicled in a great book called “Business Model Generation” by Alexander Osterwalder & Yves Pigneur, again in the May 2013 Harvard Business Review article “Why the Lean Start-Up Changes Everything” by Stanford and University of California Berkeley lecturer Steve Blank and now is being taught by over 250 college and university business school professors.
Why depart from the traditional build a business plan, raise funding, assemble a team, build a product, launch and sell product life cycle? Well for starters, this approach historically has shown only a 25% success rate among start-ups. Business plans, even the best thought out business plans rarely survive first contact with customers. Five-year plans are way too theoretical given the unknowns and uncertainty of today’s marketplace. Start-ups unlike large companies do not unfold in accordance with master plans. Blank says that successful start-ups go from failure to failure, iterating and improving on their initial ideas as they continually learn from their customers.
So what exactly is the lean start-up method? According to Steve Blank in HBR, there are three key principles:
1. Entrepreneurs on day one have a series of untested hypotheses. Rather than writing an intricate business plan around these guesses over months and months, the hypotheses are summarized into a simple framework called the business model canvas (as per “Business Model Generation” by Osterwalder & Pigneur).
2. With these hypotheses in hand, the entrepreneurs go to potential customers immediately (i.e. not after months and months of R&D) to test the hypotheses. Go to market is immediate with what is considered a minimum viable product.
3. The minimum viable product is improved iteratively and incrementally rather than through yearlong product development cycles.
What does any of this have to do with education & Matchbook Learning? I’ll answer how we applied these principles in my next update.
