New Research on Problems with the Lean Start-up Methodology

The lean start-up method has become a very popular and well-used approach for entrepreneurs building new businesses. The Lean Start-Up method, which has close links to agile product development and manufacturing, may not be as suitable for most start-ups as it first appears. A recent is calling in to question whether this and the business canvas model which is allied to the lean start-up method is actually that suitable for many foundling enterprises.

The lean start-up method gained global popularity and notoriety in the 1990s when it was discussed in a book about how Toyota successfully incorporated ‘lean’ into their manufacturing processes. This was then followed by Eric Ries’s famous book “The Lean Start Up” which has sold over 200,000 copies world wide.

• The Lean methodology was originally developed to improve an organisation’s existing products incrementally and reduce waste.
• It emphasises experimentation and creating hypotheses based on customer feedback.
• For start-ups incorporating lean requires that the fledgling business needs to include a tool or process that highlights the important, relevant data to act as a guide for developing products and the business.

Recent research has found that:

• When organisations use the lean method, it tends to create an attitude of suspicion towards academic expertise and research findings as an aid for making business decisions and pushes entrepreneurs to rely solely on customer feedback to design or improve their product.
• There are measurable differences between the lean methodology guidelines and outcomes on paper and the actual practice in the field when entrepreneurs use the method.
• Entrepreneurs tend to learn in two different ways whilst using the lean start-up method:
  • Vicarious learning, or received learning, from other entrepreneurs and their own customers
  • Experiential learning from their own understanding and perceptions about what does and doesn’t work.

Lean Start-up method

The aim of the lean start-up method is to provide a way for entrepreneurs to formulate hypotheses and create structured experiments about product development and fit and then incorporate the results into fast iterations or versions of a product. The approach was originally designed to allow leaders to brainstorm more productively, so that they could solve operational issues in manufacturing organisations.

Principles of lean start-up

The four principles of lean start-up are:

1. Waste reduction
2. Quality management
3. Continuous product improvement
4. Learning

Proponents of lean start-up believe it leads to radically prosperous organisations, because of Toyota’s successful revision of their production systems. However, researchers have been more critical of the method, as they are finding drawbacks to relying on lean start-up as the sole method for product and business development.

A new study

Recent research from the University of Oxford in the UK, Bocconi University in Italy, MIT and the University of Utah in the USA has examined the potential drawbacks and problems with using the lean start-up method as the sole process for product and business development.

Findings

The study found that there are three main issues when using the lean start-up method as the sole process for product and business development:

1. Applying lean manufacturing techniques to a start-up.
2. Relying on customer validation.
3. Using the business model canvas tool to general entrepreneurial hypotheses.

1. The problem of applying lean manufacturing techniques to a start-up

The researchers found that:

• Many of the methods of continual improvement used in large manufacturing like Toyota were not designed and not are oriented towards products that were still being conceptualised. Lean methods are largely optimised for use on existing successful products, rather than new products with no track record.
• Lean start-up as a method was also found not to be an effective process for entrepreneurs who were trying to find ways to generate radically new ideas or find out if new ideas will develop into a marketable product or service.

2. The problem of relying on customer validation for product development

In terms of the potential drawbacks that entrepreneurs experience from utilising customer validation for experiment design, the researchers found that:

• Customers were found to be poor evaluators of the potential value or market reach of a new product or service.
• Customer imagination tends to be limited and bounded by the current iteration of the product they get to see.
• Feedback from customers using the current iteration of the product in a specific environment was found to frequently give entrepreneurs the wrong context clues that sent them in the wrong developmental direction.

3. The problem with using the business model canvas tool to generate entrepreneurial hypotheses

The business model canvas, a common tool that entrepreneurs use to develop their business was also found to have a number of flaws for start-ups.

The business model canvas is a single workspace divided into a number of separate focus areas. It is designed to enable an entrepreneur to create a business model around a product, suite of products or services and typically includes elements like:

a. Key partners
b. Key activities
c. Key resources
d. Value proposition
e. Customer relationships
f. Market channels
g. Customer segments
h. Cost structures
i. Revenue streams

However, the researchers found that:

• Mapping out the organisation’s structure into nine category boxes is supposed to stimulate creativity and allow entrepreneurs to form valuable hypotheses to improve products or processes. However, the model tends only to catalogue the available data, instead of helping the entrepreneur decide what types of experiments to create. These are very different things.
• Its effectiveness depends on unique knowledge or realisations emerging from the mapped-out data to provide new insights, and this rarely occurs spontaneously.
• Even if entrepreneurs can learn something, it rarely provides enough guidance about how to create a unique strategy for their specific business that fits the current and future market place. The study found that most entrepreneurs often just go with existing, known models to design their business around, rather than creating something with a unique fit.

Reference

Felin, T., Gambardella, A., Stern, S., & Zenger, T. (2019). Lean startup and the business model: Experimentation revisited. Forthcoming in Long Range Planning (Open Access).

The Key to Lean Management, and a lesson for any manager