Lean Strategy: The greatest growth hack in Silicon Valley

The rate of failure in startup ventures, while different in every report, is terrifyingly high for any prospective entrepreneur. I remember how often I was told by those around me, and by the articles I read, of how many companies tank in their first 2 years. Worse, it’s not just the founders who suffer, think of the effect on economies; low salaried skilled workers, state subsidisation, wasted public and private capital. When startups fail, we all suffer. Enterprise Ireland -just one of several state bodies in Ireland offering finance for startups- gave €30 million to startups in 2017; if 9 in 10 startups fail we may have lost €27 million last year, not including other state, banking and private investments that were available.

We need to revise the way we approach startups as the culture surrounding their failure is misplaced and costly. Failure is great if we’re learning from our mistakes but it’s not a barometer for future success.

"Only humans cause mistakes"

Looking back on personal failures a pattern is obvious; only humans cause mistakes. When I first made the leap of faith into self-employment a mentor of mine told me repeatedly, once the plan was in place, the finance there, the necessary team assembled, that “only people can fuck it up now”. Every year this becomes more ingrained.

Starting a business we make several assumptions; people will want what we sell, people will buy what we sell, market X is where our product will sell. We create a business plan, forecast revenue, project growth, design a product, build a website, construct a marketing and communications plan, debug, debug, and debug, we silo our business so no competitors get wind of us before we’re ready to launch and then, poof, we launch. We surround ourselves with assumptions because we don’t have any data available to offer direction for development. You can see how much room this leaves to seriously bad judgement and terrible luck.

"build a sustainable business, that can adapt and adjust fast before it’s too late"

Lean is a system developed by Eric Ries (expanded on in his International bestseller ‘The Lean Startup’, published October 2011) to remove much of the room for error by testing our assumptions constantly and learning as much as we can about our customers, market, and industry as quickly as possible, so as to build a sustainable business, that can adapt and adjust fast, before it’s too late.

Why is the old startup approach failing us?

Let me explain three major problems which occurred within the first 12 months of our company’s incorporation:

1.) We realised (far too slowly) that our business plan needed to be thrown out. The assumptions we’d made about our market were completely wrong; the type of customer who was interested in our products and services did not match any of the personas we created, our pricing model was totally wrong, our design principles didn’t align with customers needs, ad nauseum.

2.)Our forecasts were nothing but figures pulled out of our asses; we completely missed all our initial targets and the direction we ended up going in was so different from what was laid out in our business plan that any projections around sales volume, number of employees, market penetration, and so on, were discarded almost immediately.

3.)We behaved like an established company and this rigidity almost killed us. The adage ‘fake it ‘til you make it’, was something we were told to do, and we stuck to it, even when things were going bad we ploughed on, smiling and waving wondering when everyone would realise we were a commercial failure. Instead of learning from our failures we built more, went bigger until we had to face the truth that this approach wasn’t working.

We were executing a business plan based on untested assumptions and instead of reacting to the data we were receiving, and adapting, we stuck to the model and we almost packed up shop as a result. Lean changed all of this.

There are 3 core steps for startups adopting the Lean strategy:

1.)Qualify your assumptions. It’s day one in the office and you have a model of your business in your head and you want to put it into a document. This is where the business plan usually comes in but instead think of all the assumptions you’re making. The Business Model Canvas is a tool often used to compartmentalise all the various assumptions I mentioned earlier on paper.

2.)Test your assumptions. Don’t wait until you’ve invested all your money into development and launched your product to begin testing. Find ways to test your assumptions immediately. In early 2018 we tested a new product we wanted to launch. We thought it could deliver great impact for our existing customers. We had the idea on a Sunday and by Monday morning we had a landing page live on our site offering this new course which we promoted to a select number of customers who could be interested. The Landing Page described the service, the value it could add to our customers, it gave dates, locations, price, and had a simple call to action: Sign Up. After a week there wasn’t a single inquiry: not one. We tweaked the price first then played around with other variables one by one until we saw inquiries come in. once we had an audience we called them up and asked them a little about themselves and what they wanted from the course. Thus we tweaked the Landing Page further until we had scaled inquiries to viability. All this time we had never spent a cent on development for the new product. Once we knew there was an opportunity we had 2 months to build and execute for these customers and they got exactly what they asked for.

3.)Agile development. The kind of tests described above help develop what Ries describes as the Minimum Viable Product. Your MVP has the bare minimum features and qualities to satisfy your initial customer. Once you’ve reached your MVP and sales are coming in it’s time to start learning from your customers. Make new assumptions and test them out; will new feature X lead to greater sales, will new marketing campaign Y bring in more leads? Don’t wait for the shiny product to be completed six months later; constant iterative developments released, measured, and improved. Essentially go back to step one by creating a new list of assumptions about how to improve your product and marketing and test to see if it leads to greater sales.

"As more and more startups start up so too have more startups stopped"

We’re only touching the tip of the iceberg when it comes to Lean but the point I want to make is this: the growing popularity of Lean isn’t the result of the online culture of ‘trending new productivity tips’, it is an essential response to the forces of constant disruption caused by the rate of change in technology and the way businesses adapt online. The strategy has emerged to help us in a time where the old business model is increasingly less effective, as more and more startups start up so too have more startups stopped; new times need new systems. This isn’t an invitation to a cult either! Take what you want from this model and apply it to an existing business plan; that is the beauty of Lean, you can adapt it to any project or process in your business, whether a simple marketing campaign in an existing company or a ground-up approach to initial product development. It’s not something old-school investors will like but its veracity is further proven by its increasing adoption not only in Silicon Valley but across the world. At the very least this system is extremely rewarding, which I can say from experience, is very important for startups struggling to get off the ground.