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Posted on January 16, 2017 @ 09:08:00 AM by Paul Meagher
This is the third blog in my anticipated 13 blog series dedicated to each chapter of Eric Ries' seminal book The Lean Startup.
The second chapter is simply titled "Define" and the main focus of this chapter is to define what a startup is. Here is Eric's definition:
A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty. ~p. 27
Not all businesses that are started should be considered startups according to this definition. Eric elaborates:
To open up a new business that is an exact clone of an existing business all the way down to the business model, pricing, target customer, and product may be an attractive economic investment, but it is not a startup because its success depends only on execution - so much so that this success can be modeled with high accuracy. (This is why so many small businesses can be financed with simple bank loans; the level of risk and uncertainty is understood well enough that a loan officer can assess
its prospects).
Most tools from general management are not designed to flourish in the hard soil of extreme uncertainty in which startups thrive. The future is unpredictable, customers face a growing array of alternatives, and the pace of change is ever increasing. Yet most startups - in garages and enterprises alike - still are managed by using standard forecasts, product milestones, and detailed business plans.
~ p 28-29.
This is a pretty strict definition of what a startup is. Many people opening a new restaurant or flipping their first house might think of themselves as startups but they could be wrong according to this definition. Ideally, when you decide to flip your first house you have done some reading and acquired some renovation skills so you can carry out a "textbook
execution" of the flip. To acquire the skills and concepts around flipping houses you can watch TV shows and YouTube videos, read blogs, articles, and books, and practice necessary skills in smaller projects. All of these activities will serve to reduce the uncertainty of the venture. To the extent that you have not done so, your execution might be poor because you have not planned things out as well as you could have been.
Eric is not arguing that traditional management textbooks are useless when starting a new business. It depends on the type of business and how much it uncertainty there is around it. If there is alot, then lean startup principles are more useful for managing it. If less, then traditional management strategies might be appropriate (e.g., business plans, forecasts, milestones).
If you are starting a small business is there any value to learning lean
startup theory? Lean startup theory is focused upon techniques for achieving "validated learning" in the context of extreme market uncertainty. It could be argued that learning these techniques is something that all types of businesses can potentially benefit from because we are all dealing with uncertain situations to some extent. Just don't forget that the uncertainty in flipping a house is not as great so you
can achieve "validated learning" in other ways that a startup is not able to (from books, videos, etc...).
If I had to reduce this chapter to a principle it would be to define whether your new venture is a startup or a small business and manage it accordingly.
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