It’s time to re-visit the Lean Startup model’s applicability to a startup lifecycle, at a time when more and more companies are emerging out of the product/market fit, and into a growth mode.
How long do you stay Lean, and what happens if you don’t let go of the Lean mentality, once you have achieved product/market fit?
At the 500 Startups PreMoney Conference on June 27 2013, Dave McClure interviewed Marc Andreessen. There was a critical passage when Dave asked Marc what he thought of the Lean Startup methodology. (starts at 11:00)
The essence of Marc’s response was “Don’t let Lean become a crutch to your growth.”
Marc said “Eric Ries & I agree that the Lean Startup philosophy makes a lot of sense at the beginning of the company when you are trying to get to Product/Market fit. I think that the Lean Startup philosophy is essentially to startups what relativity was to physics. It’s a significant advance in the thought process of running a company in the early stages.”
“What we have been observing over the last few years is a lot of entrepreneurs who haven’t worked in a company that has had a large sales & marketing engine, and haven’t actually seen what that means, – basically if left to their own devices, they would never do it…and you get things like “sales is bad”…and the Lean Startup theory can get used as a crutch to not go do all that stuff. And typically what happens is the entrepreneur learns the hard way. They build the better mouse trap and the world doesn’t beat a path to their door, so they learn the hard way that it’s not going to work without going to the market hard at some point, then they have to go through that thought process and get educated. So, one of the things we try to do is we try to work with that kind of entrepreneur and get them through the thought process maybe a little bit faster. They almost always come out on the other side, but it’s just a question of whether they wasted three years or let another competitor to jump on them in the meantime.”
For context, so you understand where Marc is coming from, he prefaced these remarks by saying,“the companies that Andreessen Horowitz tends to work with are the ones that want to change the world. Usually, in order to change the world, you need to hit the market with force, at some point. The world doesn’t beat a path to your door just because you built a better mousetrap. Every once in a while, something goes viral, but for the most part, you have to saddle-up and go to the world, which means doing concepts like sales and marketing- that became dirty words. To do that you need to raise a lot of money.”
Marc ended this segment with “…it’s a timing and staging thing. For entrepreneurs that don’t want to grow big, then they should sell earlier…or it caps what the company can achieve as a standalone company.”
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:
- 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]
- 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.
- 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 sale 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.
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.
But 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.
William Mougayar is a thought leader, 4 times entrepreneur and founder of Startup Management, where startups learn to become grownups. His weekly newsletter is widely read globally. William previously held senior marketing positions at Hewlett-Packard and Cognizant, has published 2 books, and consulted for Fortune 500 companies.