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Pros and Cons of a “Lean Startup”

Palm with a plant growng from pile of coins Will you be selling what people will want to buy? Traditionally the roadmap to entrepreneurship follows a fairly standard path of: Write a business plan. Take your business plan to investors and banks. Get funds. Hire a team to build the company with. Create the product or service. Introduce your product to the public, and sell it as loudly and frequently as you can. Sell, sell, sell. But as most of us in the business world know, there are a lot of potholes in the road from beginning to destination, and it’s rare that a slip-up in that process doesn’t lead to derailing the entire production. Research by Harvard Business School’s Shikhar Ghosh shows demonstrably what most of us know as a business old-wive’s tale: that 75% of all startups fail.

In order to counteract some of these pitfalls, there is a business methodology we are seeing more and more infant companies using, that is presumable a less-risky strategy. It’s called the “Lean Startup” and the idea behind it is to use experimentation over detailed planning, relying heavily on customer feedback and focus groups and iterative design rather than launching all at once with a fully-formed, fully-funded, gut instinct-informed idea of what the product should be and if it will sell. The idea of “minimum viable product” has happened frequently in the startup world, and we are seeing it taught in business schools now as well. Using your product to study the product without dumping in all of your resources blind is a very appealing idea, as is the idea of “pivoting”, or being nimble enough a business, and being open enough to feedback, that you can change the direction of your business quickly and cheaply in a direction that might be counter to your initial idea, based on the response of the customer.

This is not always a successful method, however. While we are seeing a lot of tech companies come in at way under valuation and close down or sell off cheaply due to overspending up front based off a belief of what the product is and going for it, the lean startup method is not the solution, either. In studies, which are few, there is no linear relationship between the number of hypotheses and feedback cycles and the subsequent health of the company. More feedback does not always lead to you a better product, and sometimes the lean method can lead to you slowly bleeding funds over time while you parse endless suggestions and theories over immediate action.

Another potential misstep is releasing a product and changing it so many times of the course of refining via feedback that your customers no longer trust your product or know what it actually does. You can lose client confidence you may have otherwise had because you changed your model too many times.

Before you dive into a traditional “big design up front method” or a “lean startup method” be sure to understand what is right for you, and to weigh the pros and cons of each.