The 5 biggest mistakes SA entrepreneurs make when applying lean startup
Why applying the method incorrectly is holding you back from startup success, writes Paul Smith
The lean startup has changed the way new companies are being launched. It is a methodology that has been used by the likes of Dropbox, Airbnb and Uber. SpaceX and Google have used it to disrupt industries and large companies like Intuit and General Electric have adopted the approach to get new products to market faster with higher success rates.
In addition, a number of studies have shown that it is one of the best ways to improve a new businesses odds of success. For example, research done by the Startup Genome project showed high growth companies that apply lean startup have been shown to grow 20 times faster than those that don’t. Another study done by the National Science Foundation in the US found companies that apply lean are 300% more likely to raise funding.
As a result, we at Ignitor (a startup accelerator) have over the course of 3-years helped over 500 entrepreneurs apply lean startup to their businesses.
The methodology surmises that companies who are launching products or new businesses will be more successful in reducing market risks by testing and validating their ideas and assumptions in small iterations. Learnings are then applied to the succeeding tests. In addition, the startups are tasked with finding early adopter customers and then try to ensure that the developed product or business specifically meets those early adopter needs. Lean is fast becoming the standard methodology of choice for many entrepreneurs that are attempting to build a startup.
"Nearly all great startups do two things well. They attract customers and they deliver a great product"
At Ignitor, we have seen many talented entrepreneurs apply the Lean methodology thereby building successful and revenue generating businesses. However, we have also seen many entrepreneurs apply the methodology incorrectly. Here are the 5 biggest mistakes companies make when applying lean.
Mistake 1: Treating lean as a once-off event
Many entrepreneurs initially buy-in to the principle of identifying customers, finding early adopters and establishing key customer problems before building the product. Initially, as many as 30 customers could be interviewed to inform the development of the product.
Many of the entrepreneurs we have worked with have initially done some customer interviews, but then stop interacting with their customers as they develop and build the product. The result, is when they launch the product tends to get a "blah" reaction from customers.
A quick question to test if you are really engaging with your customers is: are you talking with 5 to 20 customers every week? During these meetings you should be using customer behaviour to inform product development.
Mistake 2: Not pre-selling their product
The second, big mistake we see founders making when applying lean is that they don’t pre-sell their product. The most common behaviour is to ask customers what they think of their product. This usually gets a very positive response.
However, there is little relationship between customers saying they like a product and them becoming a customer. Hence, the need to pre-sell. Pre-selling does not always mean you need to collect cash, but customers should have to give some form of currency, such as, making them take some action without social pressure. Customers should also exhibit certain behaviours such as being engaged and asking questions that any serious buyer would. Entrepreneurs need to understand the difference between what customers “say” and what they "do".
"If you are not embarrassed by the first version of your product, you have launched too late"
Mistake 3: Doing "fake work"
Nearly all great startups do two things well. They attract customers and they deliver a great product. The key idea of the lean startup is to find out what is the best way to attract customers and to find out how to build a product that customers will love. Successful startups also get customer feedback, improve the product continuously and increase resources to deliver a great product.
The key progress metric is getting better at finding and attracting customers. This means founders should focus on talking to customers, arranging customer meetings, testing new ways to get customers and marketing to them.
Many of the startups we have worked with avoid the difficult work of finding a repeatable and scalable way to find customers, but rather focus on performing "fake" work such as writing business plans, entering competitions, seeking undirected publicity, taking random meetings, speaking at conferences, participating in long discussions and "strategy" talks, planning years ahead, exploring strategic partnerships and managing email fulltime, thereby neglecting getting to customers and improving their product.
Mistake 4: Maximum Viable Product
A minimum viable product is a product you can quickly create that will test if customers want what you are making. They idea it to be able to create a minimum viable product in a few days or weeks.
Many of the companies we have worked with make the mistake of being fixated on the final version of the product and don’t create a simpler version first. As Reid Hoffman, the founder of Linkedin says, "If you are not embarrassed by the first version of your product, you have launched too late".
A simple test to see if there is a high chance you are building a maximum viable product is ask the question: is my product it taking longer than 2 months (ideally 2 weeks) to get into the customer’s hands? If so, there is a high likelihood that you are not building a minimum viable product.
Mistake 5: Not targeting early adopters
The final mistake we see many of the companies that we work with make is not focusing on a single customer segment, but rather trying to target a whole market at the same time. This unfortunately, results in unfocused efforts, little traction and often limited mindshare in the different customer segments.
A simple question to ask if you are really focusing on an early adopter market is: are you piloting your product with 10 (in the case of B-to-B) or 100 (in the case of B-to-C) near identical customers? If you are not, you are probably trying to target too many customer segments at once.
About the author: Paul Smith is a writer and startup scientist. Focusing his research on why entrepreneurs succeed and fail. He currently manages an accelerator, Ignitor, which helps entrepreneurs start and grow their businesses. Ignitor has developed a new model that significantly improves early stage start-ups odds of success. His primary research interests include understanding the behaviors of expert entrepreneurs, as well as, how to most effectively support high potential startups. You can follow him on @ paulshawsmith on Twitter.
- A version of this article first appeared on the Ignitor blog. It is republished here with permission.