Fail fast, learn fast – four lean model tips for startups
Thursday October 22, 2015,
8 min Read
It is not just leadership, culture and technology that lead to startup success, but also speed, timing and a sense of purpose. It has become easier than ever before to launch prototypes and get feedback, thanks to a range of free online tools, social media, crowdsourcing and crowdfunding. Founders can learn faster and pivot to new options, thus reducing the risk of outright failure.
Drawing on his marketing experience for brands such as Yahoo, Apple and Amazon, entrepreneurship expert Bernhard Schroeder expands on the lean model for startups in his 196-page book, Fail Fast or Win Big: The Startup Plan for Starting Now. Entrepreneurs should be ‘maniacally curious’ about problems, solutions and customers, and be actively involved in trend tracking and testing of ideas.
Here are my key takeaways on the four components of Bernhard’s lean framework: business models, lean resources, rapid prototyping and customer truth. See also my reviews of the related books The Lean Startup, The Lean Entrepreneur, Disciplined Entrepreneurship and Fail Better: Design Smart Mistakes and Succeed Sooner.
A good business plan covers issues such as marketplace analysis, product creation, sales strategy, organisational team and financial projections. It helps chart milestones, grasp budget issues, map the competition, and give employees and investors a sense of the big picture. However, for a product that has yet to be developed in a rapidly evolving market, a business plan may be largely hypothetical and could change drastically as the ecosystem evolves, thus taking away valuable time from more fruitful activities such as actual prototype testing.
Therefore, a more useful tool for founders is the Business Model Canvas (see also Value Proposition Canvas, Design Thinking Framework and Changemaker Story Canvas). Schroeder defines a business model as a ‘design for the successful operation of a business,’ identifying products, revenue sources, customer base, and details of financing. The new product or service should deliver unique and demonstrable benefits and represent an incremental, evolutionary or revolutionary innovation.
While the mobile phone, microwave oven and refrigerator were truly revolutionary innovations, many of today’s market leaders were not the pioneers in their domains. Google was not the first search engine; Facebook was not the first social media company; Amazon was not the first online bookseller; Apple was not the first with a portable music player or smartphone, and Chipotle was not the first Mexican fast-food company. However, these companies have delivered better customer value than many of their competitors and predecessors.
Time as well as timing are crucial; the product or service should be able to catch the ever-shorter ‘marketplace window.’ Organisations that have developed interesting business models and brands include the social enterprise Tom’s Shoes (for each pair of shoes bought, one pair is donated to the poor).
Constraints can bring out the most creativity in an individual or startup. Online tools help find freelance talent, build SaaS-based workflow and infrastructure, and even find funders. In addition to the usual leading social media, the author recommends Survey Monkey, Square, Google Trends and HootSuite as useful tools. Some founders even created a temporary product or company to fund the real big next company.
For physical products, key decisions to make are choice of local or offshore supplier, trade shows, retail chain and distributor or national brand partner. For online distribution, founders can go with their own website or in a larger e-tailer or marketplace site. Interns, local libraries, regional colleges and other entrepreneurs are good resources to harness. The author cites a number of student entrepreneurs who successfully tapped the local campus community to launch their ventures (see also my reviews of the related books Bhaag and Arise, Awake).
Founders should match ‘burn rate’ with ‘earn rate’ to stay ahead of the game. Leverage is key to maximise existing resources and extend the ‘runway’ of cash. “In the early days of a startup, cash flow is king. Never forget that,” Bernhard advises.
A range of crowdfunding sites are emerging with three types of options for founders: reward (Kickstarter, Indiegogo, RocketHub, PeerBackers), debt (Funding Circle, Lending Club, Zidisha, Index Ventures) and equity (AngelList, CircleUp, OurCrowd, MicroVentures). Crowdfunding also helps with PR, risk management, customer acquisition and crowd brainstorming opportunities.
Quantity as well as quality of ideas and experiments keep a startup going. “Embrace and learn from failure; along the edge of failure lies potential greatness,” Bernhard says. Good choice of first customer segment also helps; sometimes a good product is shown to what may turn out to be a secondary audience rather than the primary group.
3D printing, sites such as Etsy and Craig’s List, and local trade shows are a good way to test-market early product prototypes and learn from mistakes. “If you are going to be an entrepreneur, you can’t fear failure. You have to develop a tolerance level of measured risk,” Bernhard advises.
Insights may arise later in life for the accidental entrepreneur as well. “Every now and then, accident meets opportunity and a product is born,” observes Bernhard.
Founders should never get tired of meeting customers. “How many of you make and exceed a customer promise every day? How many of you ask your customers what makes them happy,” asks Bernhard. There is also a danger that complacency may set in after the initial successful launch. Founders should aggressively and relentlessly seek ‘customer truth,’ and serve customers with a five-star concierge mentality.
“It’s critical to know as much as possible about current or prospective customers,” the author emphasises, drawing on his experience of expanding Nikon’s accessories portfolio. He also led the ‘concentric rings’ marketing effort for Amazon’s early days; it began by selling books only in the large coastal US cities, then expanded by geography, product range and its own digital devices.
Surround yourself with customer insight experts, Bernhard says. Always research market trends. Relentlessly visit the customer environment, and understand their lifestyle, work and technology usage. Immerse not just in technology but its application.
Build a great brand which simply cannot be substituted. Brand ‘moments of truth’ occur when customers first encounter your brand, see it, buy it, use it and then comment on it to others. The founders of Instagram first developed an app with a wide range of features, but they pivoted it to the one feature everyone liked: photos.
Entrepreneurs need to master the art of storytelling as well. The author recommends a number of other books as useful reading in this regard: Brand Gap by Marty Neumaier; Positioning by Al Reis and Jack Trout, and Spin Selling by Neil Rackham.
The author ends the book with a number of examples of lean execution. The founders of health food Kashi Cereals firmly believed in their product even though early versions required 30 minutes of cooking time; they targeted smaller segments of health-conscious consumers and eventually rode the wave when the Whole Foods chain took off.
The founder of WebSense security tools actually began with an open marketplace model for developer tools, developed deep expertise in web development, saw an opportunity in filtering solutions, and pivoted to his new security product. EcoATM designed kiosks for recycling phones, entered and won a range of ‘pitchfest’ competitions which got them free PR, and tied up with category leader Coinstars.
The founders of craft beer Stone Brewery developed a creative storytelling campaign along with a range of products and distribution techniques. They differentiated their quality products from the other ‘fizzy pissy yellow beer’ in the market, designed logos with gargoyles, and even branded one of their products ‘Arrogant Bastard Ale!’ They now sell over USD 100 million of craft beers in the US.
Action-sports brand Volcom was among the first to notice the rise of snowboarding, and rode the product and event wave in the US and overseas in countries like Japan. The founder of ProFlowers noticed the market inefficiencies in the flower growing and delivery market, and used the e-commerce model to directly connect flower growers with consumers. He tested and validated the model with rose delivery on Valentine’s Day.
In sum, entrepreneurship is mentality and teamwork, with a blend of emerging trends and customer insights. New trends to watch include IoT (Internet of Things), Big Data, remote monitoring (especially for safety and healthcare), mobility, social causes, health awareness, the sharing economy and e-commerce niches.
“Think lean, be lean,” the author concludes. The book has a number of useful quotes, and it would be fitting to end this review with some of the inspiring ones:
“You don’t learn to walk by following rules. You learn by doing and falling over.” – Richard Branson, Virgin Group
“If you are not embarrassed by the first version of your product, you’ve launched too late.” – Reid Hoffman, LinkedIn
“Right or wrong, the customer is always right.” – Marshall Field
“The only thing worse than starting something and failing, is not starting something.” – Seth Godin
“Design your luck.” – Thom McElroy
About the author: Bernhard Schroeder is Director of Programs at the Lavin Entrepreneurship Centre at San Diego State University. He was earlier with integrated marketing communications agency CKS Partners, and has been a brand expert for Apple, Nike, GM, Amex, Yahoo, ESPN and Amazon.