Don’t Let Lean Startup Become a Crutch
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 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.
Hey, Wm, this is a fabulous discussion and overview. Did you write this yourself? It is great.
Yes, of course! (except for the parts quoted in italics). Thanks.
I did not mean to imply that it was a surprise. But the discussion is excellently presented. Well played.
The issue is less how much funding you have than but when and how you spend it.
It’s really that simple. And that’s not simple at all.
Same with using Lean. It is necessary initially, but not sufficient for later.
Great breakdown of your thesis and we’ll proven out. The big blind spot is knowing when you’ve achieved product market fit, as you point out.
Thanks Jim. As Ben says- it doesn’t happen at a very discreet point in time that you can pinpoint necessarily. That’s why it’s good to go with your guts as well, and push on the pedal. Otherwise you may be missing the larger opportunity ahead.
My biggest take-away as I was analyzing this, is that if you follow Lean too closely, it’s like you’re being led by the nose, and you won’t take leaps to go forward. I think once you’re confident you’ve got traction, the next step might be to take a Leap. It won’t hurt, because your fall-back position is where you were.
Maybe I should write a follow-on, Take a Leap after Lean. Dropbox & Evernote come to mind. They keep taking leaps that aren’t totally linear with their previous offerings.
I think the more important question, and relevant follow up post would be: how do you measure product-market fit and know that you’re there?
Yes, noted. Thanks.
Dave McClure and Marc Andreesen pointing out the already well understood flaws of Lean Startup…not that impressive or earth shattering.
I wonder if they have really understood these methods and the fact that Blank and Ries explicitly acknowledge that customer development and lean startup are for startups searching for product market fit and a repeatable, profitable, scaleable business model and not for companies that have found that and are in growth.
Thanks captains obvious and more obvious!
Part of the problem with the lean methodology is specific to freemium or network-based business models that don’t have a clear monetization strategy. For these companies, it is difficult to figure out when you have a product-market fit because the metrics in many cases are flimsy or to use the other popular term (vanity). However, for companies that have a paid model – it is far easier to determine when you do have a product-market fit because it happens when you have X number of customers paying X number of dollars. Once you hit that then it is time to scale but with a strategy. I definitely agree that when scaling in this latter model – being lean is not a smart model. FYI. We are currently experiencing this type of scale at Influitive and our CEO has made it clear that being lean is not his plan!
Thanks Benson for pointing this out, but what doesn’t seem so obvious is that entrepreneurs are making these mistakes and continuing to apply Lean longer than necessary in their evolution. Marc said he’s been seeing it, and others including me have. That was the main point. Lean is necessary at the beginning, for sure.
The other point which @JimHirshfield:disqus brought up is that companies don’t know when/if they have reached product/market fit, which is a reason why they hold on to Lean as a “crutch”.
Yup. A rule of thumb is about 100 B2B customers for SaaS businesses, and about 100,000 for consumers, if we look at these metrics alone.
I actually agree with the majority of the article and have seen the same things myself. It is very difficult to identify when you have reached product/market fit and too many startups remain Lean Startups for too long.
The problem that I have with this article is that it takes a heavy tone of discounting the value of the Lean Startup…especially by referencing Francis Pedraza and Dan Norris. I’m not saying that the article ENTIRELY discounts that value of Lean Startup but it lays on the negativity pretty thick and does very little to give credit to Blank and Ries for both bringing significant advancement to how we build/run startups and also for seeing that something more is needed beyond product/market fit. Both Blank and Ries explicitly state in their works that once you have identified product/market fit (again, very difficult to do) you should spend, spend, spend through the growth stage (what Customer Development would call Customer Creation and Company Building) of your company.
If that’s the perception you got, that’s fair enough, but by no means I meant to discredit the value of Lean, nor the work of Eric and Steve. Actually, I have used their methods with my previous startups, and even with this one, earlier today in my weekly newsletter, I said “…in true Lean startup spirit, we’re iterating, etc..”.
Regarding the other 2 articles, I said this “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.” So, I’m not agreeing that they failed because of Lean.
My focus with this site is on the startups that are going beyond the Lean stage. The reality is that Steve and Eric have done such a good job at communicating their knowledge that it has totally permeated the startup communities and continues to do so,- perhaps to the point where the nuances of when to shift gears aren’t totally well understood, especially not the timing of it (as you pointed out at the beginning of your comment). That said, I’m going to write a follow-on pertaining to the timing of the product/market fit.
I think the last paragraph sort of sums up one of the problems: Lean is NOT equal to Lean Startup. It is correctly pointed out that “Lean is not a Growth methodology”. It is not, beause it is a management philosophy that tries to minimize waste among some other things. Lean Startup has some great tips and examples how to find product-market fit in a lean way but how to scale and conquer the market after it has been found is another question.
I recommend everybody to read for example ‘This is Lean’ by Modig and Åhlström before starting to use the word Lean too much and especially before making it equal to Lean Startup. Even if the topic of the discussion is start-ups.
if you have a media model 100K is nowhere near enough. Rule of thumb for media based site in any vertical is at a minimum 1M uniques monthly.
An impossible cliff honestly.
I was thinking that if you had 100K users, then you could declare product/market fit and go gunning for the 1M+. I wasn’t thinking of a media model only. It could be a service like Foursquare or Snapchat or Instagram. Then, the trick becomes obviously how to monetize, but that’s another topic in itself, i.e. business model, etc..
with b2c you are either selling stuff or not. you are either touching a transaction or not. there is no subtlety.
if you are not and media in some form is your default model, you don’t have market fit at 100K no way and you don’t have a model. 100K to 1M+ is not even in most cases a good bet.
To carry the analogy, there are vegan bodybuilders. They’re lean, but they sure do need to train & lift weights to compete with the big boys.
That’s a good analogy 🙂
Thanks, I will check that book out & saw there are some YouTube videos from them.
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I think that Marc has definitely a point as to the risk of staying lean for too long.
I wonder what are those (scaling) practices that fat startups mistakenly carry out too early (e.g. hiring) but may turn out to be useful over the longer term.
There are 2 topics here: a) using lean startup too long, b) being fat so you can scale.
Being fat is not necessarily the answer to moving out of lean startup mode. You need to first figure out what will make you grow and scale.
Incidentally, Mark Suster just wrote this a few days ago. See Point #2 as I think it answers your question. http://www.bothsidesofthetable.com/2015/08/20/what-ive-learned-about-venture-funding/ ᐧ
Thank you William! I truly appreciate your response.
However, perhaps my mentioning of fat startups was misleading. Let me rephrase: “do you think there are practices that non-lean startups do all long that, altought costly in the short run, may prove advantageous in the long run?
For example, non-lean startups don’t engage as much as lean ones in testing their value proposition by engaging with potential customers (iterating their MVP based on their feedback, etc.). Rather they spend time building a sales force, crafting a marketing plan (e.g. street marketing, content marketing, ecc), building a huge email database to perform email marketing, etc.
In so doing, they face a higher risk of not finding product market fit.
Nevertheless, if they do, do you think they may have an advantage of lean startups due to the fact they already master these markeitng/sales/hiring practices?
So the questions are two:
1) may non lean startups have an advantage over the long term if they find the product market fit;
2) if yes, what are the practices they masters in the early stage such that they can achieve this advantage?