Don’t Let Lean Startup Become a Crutch

We need go back to 2010, during a time when Ben Horowitz and Fred Wilson debated the Fat vs. Lean Startup conundrum, both between their blogs, and on-stage at TechCrunch Disrupt. You can read the series of posts, counterpoints and rebuttals:

• The Case for the Fat Startup (Ben)

• Being Fat Is Not Healthy (Fred's response)

• The Revenge of the Fat Guy (Ben's counterpoint)

• The Fat Vs Lean Debate (The Debate)

Back then; Ben took a more extreme view than Marc did at PreMoney’13. He said, “Not raising a boatload of cash until you achieve product/market fit is a good tactic, but it has been elevated by many as a complete and comprehensive operational theory, and as an operational theory, it has quite a few holes:

1. It presumes that you actually know when you have achieved product/fit, but that’s not often that obvious. E.g. Apple didn’t sell 1 million units until 2 years after it introduced the first iPod, but the iPhone sold 1 million in 3 days. At what point did the iPod reach product/market fit, and at what point should Apple have invested further in the Nano and Mini? By the Lean Startup theory, the answer would have been not for a while, but that would have not been the correct answer. [Because they would have missed the boat on the follow-on iPod models that were very successful]

2. It presumes that once you have product/market fit, you can’t lose it, but that’s not correct. E.g. Netscape lost their product/market fit when Microsoft included the browser inside the OS. Netscape had to regain product/market fit but didn’t have the luxury of doing it on Lean Startup ways. They had to rebuild revenues from $0 to $600 million in 2 years with a new product suite using a fat methodology.

3. It presumes there is no competition [until you achieve product/market fit]. But what happens if, prior to achieving product/market fit, a very scary competitor emerges? They will wipe you out.

Ben continued, “Entrepreneurs are confused, and a lot of them are harming their companies by avoiding things that cost money when they should be spending money, for example like building a sales force. We see entrepreneurs avoid big ideas…and this is tragic. If the inventors of yesteryears took Lean Startup as seriously as the entrepreneurs of today, we wouldn’t have planes, telephones and automobiles and…instead, we’d have panty hoses that fit exactly right and were targeted at our own figures.” Fred Wilson took the opposite approach, arguing that you need to look at it both from an entrepreneur and VC perspectives, namely that it makes more sense to gradually increase the size of the investment and the resulting dilution as a company evolves, and not prematurely. From the entrepreneur’s perspective, “the equation you want to solve is the probability of a meaningful exit, times the amount of ownership you will have at exit, times the value of the expected exit. You can’t double the probability of a successful exit if you double the investment, because that is a function of many things like the quality of the idea, product, team, amount of capital you have, the market and how it develops, and luck. So, cash is only one of these variables.” Fred cited Zynga who became big without using a big money approach. Although they raised a lot of capital, they didn’t really need it or use it. It was there as insurance to allow Mark Pincus to take the risks he ended-up taking, and these risks have paid off. Fred also said that he likes the Lean Startup approach because it’s better for first-time entrepreneurs, noting that it takes some time to grow-up as an entrepreneur, and to learn how to manage at scale. It doesn’t make sense to force a quick scale-up unto an entrepreneur who doesn’t have that kind of experience yet. Ben countered by stating that sometimes it’s the market that dictates what the right approach is, not the Lean Startup method itself. And he cited Workday as an example of a necessary going-to-market approach with a big idea, requiring a big investment in order to disrupt entrenched competitors.

Today, Eric Ries has a post saying that Lean Startup is being used Beyond Tech, citing examples in government, transportation, education, and public health. Recently, two entrepreneurs had cautious thoughts about Lean. Francis Pedraza wrote a long missive Lean Startups fail for these 3 reasons, they didn’t tell you in the book (or at some conference). And two weeks ago, Dan Norris of Informly wrote, Is startup validation bullshit? Both make the point that you can still fail, even with a Lean approach. True, but I would argue that you could hardly succeed without it. And that can be said about any tool or methodology, big or small. Two weeks ago, we had a discussion on AVC in a post related to Matt Blumberg’s upcoming book, The Startup CEO (due out Sept 3 2013). Fred said Matt emailed him about the book, saying: “The Lean Startup movement is great, but this book starts where most of those books end, and takes you through the ‘so you have a product that works in-market – now what'?” And in a comment exchange with me later, Matt said, “All these successful startups courtesy of Lean have to go somewhere!” Matt (CEO of Return Path) is right, and I’m in the process of reading a manuscript copy of his book, and will publish an upcoming review on this blog in a few days.

Fresh out of two lean product development journeys as a founder and CEO for five years, and with close exposure to a few others, my conclusion is that the risks of staying Lean for too long are real. If you have achieved product/market fit, you need to go gunning for revenues and trying to perfect your business model, instead of continuing to drag the Lean process with you. Otherwise, you will only find out what’s under your nose, and you will not appear to be ambitious enough to take a Go Big approach into the market. You will keep serving the needs of your existing customers without creating new demand outside of that segment, and your footprint might shrink over time. If your product is prime from a market fit perspective, and with good market acceptance, but you are still iterating with MVP-like add-on features, then you are wasting valuable time, because you might be afraid to invest in sales and marketing, instead of product development. When you have lots of users, you shouldn’t have to be guessing and iterating anymore. You should be able to deliver product extensions and add-ons out of the park, and delight your customers without releasing half-baked, good enough features. Lean is not a Growth methodology. It’s a methodology to get to product/market fit as quickly and as cost-effectively as possible. Use it, ride it, but get off as soon as you can. Or, as Marc said, it will be a crutch, and it will cap your potential.]]>

We need go back to 2010, during a time when Ben Horowitz and Fred Wilson debated the Fat vs. Lean Startup conundrum, both between their blogs, and on-stage at TechCrunch Disrupt. You can read the series of posts, counterpoints and rebuttals:

• The Case for the Fat Startup (Ben)

• Being Fat Is Not Healthy (Fred's response)

• The Revenge of the Fat Guy (Ben's counterpoint)

• The Fat Vs Lean Debate (The Debate)

Back then; Ben took a more extreme view than Marc did at PreMoney’13. He said, “Not raising a boatload of cash until you achieve product/market fit is a good tactic, but it has been elevated by many as a complete and comprehensive operational theory, and as an operational theory, it has quite a few holes:

1. It presumes that you actually know when you have achieved product/fit, but that’s not often that obvious. E.g. Apple didn’t sell 1 million units until 2 years after it introduced the first iPod, but the iPhone sold 1 million in 3 days. At what point did the iPod reach product/market fit, and at what point should Apple have invested further in the Nano and Mini? By the Lean Startup theory, the answer would have been not for a while, but that would have not been the correct answer. [Because they would have missed the boat on the follow-on iPod models that were very successful]

2. It presumes that once you have product/market fit, you can’t lose it, but that’s not correct. E.g. Netscape lost their product/market fit when Microsoft included the browser inside the OS. Netscape had to regain product/market fit but didn’t have the luxury of doing it on Lean Startup ways. They had to rebuild revenues from $0 to $600 million in 2 years with a new product suite using a fat methodology.

3. It presumes there is no competition [until you achieve product/market fit]. But what happens if, prior to achieving product/market fit, a very scary competitor emerges? They will wipe you out.

Ben continued, “Entrepreneurs are confused, and a lot of them are harming their companies by avoiding things that cost money when they should be spending money, for example like building a sales force. We see entrepreneurs avoid big ideas…and this is tragic. If the inventors of yesteryears took Lean Startup as seriously as the entrepreneurs of today, we wouldn’t have planes, telephones and automobiles and…instead, we’d have panty hoses that fit exactly right and were targeted at our own figures.” Fred Wilson took the opposite approach, arguing that you need to look at it both from an entrepreneur and VC perspectives, namely that it makes more sense to gradually increase the size of the investment and the resulting dilution as a company evolves, and not prematurely. From the entrepreneur’s perspective, “the equation you want to solve is the probability of a meaningful exit, times the amount of ownership you will have at exit, times the value of the expected exit. You can’t double the probability of a successful exit if you double the investment, because that is a function of many things like the quality of the idea, product, team, amount of capital you have, the market and how it develops, and luck. So, cash is only one of these variables.” Fred cited Zynga who became big without using a big money approach. Although they raised a lot of capital, they didn’t really need it or use it. It was there as insurance to allow Mark Pincus to take the risks he ended-up taking, and these risks have paid off. Fred also said that he likes the Lean Startup approach because it’s better for first-time entrepreneurs, noting that it takes some time to grow-up as an entrepreneur, and to learn how to manage at scale. It doesn’t make sense to force a quick scale-up unto an entrepreneur who doesn’t have that kind of experience yet. Ben countered by stating that sometimes it’s the market that dictates what the right approach is, not the Lean Startup method itself. And he cited Workday as an example of a necessary going-to-market approach with a big idea, requiring a big investment in order to disrupt entrenched competitors.

Today, Eric Ries has a post saying that Lean Startup is being used Beyond Tech, citing examples in government, transportation, education, and public health. Recently, two entrepreneurs had cautious thoughts about Lean. Francis Pedraza wrote a long missive Lean Startups fail for these 3 reasons, they didn’t tell you in the book (or at some conference). And two weeks ago, Dan Norris of Informly wrote, Is startup validation bullshit? Both make the point that you can still fail, even with a Lean approach. True, but I would argue that you could hardly succeed without it. And that can be said about any tool or methodology, big or small. Two weeks ago, we had a discussion on AVC in a post related to Matt Blumberg’s upcoming book, The Startup CEO (due out Sept 3 2013). Fred said Matt emailed him about the book, saying: “The Lean Startup movement is great, but this book starts where most of those books end, and takes you through the ‘so you have a product that works in-market – now what'?” And in a comment exchange with me later, Matt said, “All these successful startups courtesy of Lean have to go somewhere!” Matt (CEO of Return Path) is right, and I’m in the process of reading a manuscript copy of his book, and will publish an upcoming review on this blog in a few days.

Fresh out of two lean product development journeys as a founder and CEO for five years, and with close exposure to a few others, my conclusion is that the risks of staying Lean for too long are real. If you have achieved product/market fit, you need to go gunning for revenues and trying to perfect your business model, instead of continuing to drag the Lean process with you. Otherwise, you will only find out what’s under your nose, and you will not appear to be ambitious enough to take a Go Big approach into the market. You will keep serving the needs of your existing customers without creating new demand outside of that segment, and your footprint might shrink over time. If your product is prime from a market fit perspective, and with good market acceptance, but you are still iterating with MVP-like add-on features, then you are wasting valuable time, because you might be afraid to invest in sales and marketing, instead of product development. When you have lots of users, you shouldn’t have to be guessing and iterating anymore. You should be able to deliver product extensions and add-ons out of the park, and delight your customers without releasing half-baked, good enough features. Lean is not a Growth methodology. It’s a methodology to get to product/market fit as quickly and as cost-effectively as possible. Use it, ride it, but get off as soon as you can. Or, as Marc said, it will be a crutch, and it will cap your potential.]]>

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