Overfunding is an existential risk for startups. Scaling a team before finding PMF seems like a blunder in most circumstances.
Instead of setting your best engineers to work creating the best product, they're busy recruiting and dealing with company growing pains from the get-go. The mythical man-month and scarcity of great people combine to diminish your returns on this hiring. Furthermore, battleships don't turn on a dime, and you may be hiring a lot of irrelevant expertise if you have to pivot later. This is why Stripe took 6 months to hire its first 2 people.
Furthermore, huge funding means investors are looking for a huge returns. A $1b sale is now failure?? My gut says this "go big or go bankrupt" pressure encourages tunnel vision among leadership rather than innovation.
Essential Products was overfunded in late 2015 and is already up for sale. I think Magic Leap and Desktop Metal will end up as similar cautionary tales.
I see good arguments for overfunding if (1) there's huge capital costs for development and high probability of large exit regardless of technology success (e.g. biotech) or (2) you're trying to capture a market with a strong network effect. The second case seems dangerous though, e.g. is Uber's popularity really a moat? What if they had spent their billions on developing a product with a real technological advantage instead of scaling to the world first?
As a huge fan of his book, I'm sad to see Steve Blank largely ignore these ideas in his article.
> Furthermore, huge funding means investors are looking for a huge returns. A $1b sale is now failure?? My gut says this "go big or go bankrupt" pressure encourages tunnel vision among leadership rather than innovation.
If you don't take the money, they will go to your competitor, and give it to them instead.
If you're in a space where you can be killed by your competitor selling $1 for 90 cents, that will kill you just as dead.
It doesn't matter if Uber's popularity is a 'real' moat or not, as long as its a moat big enough to drown you.
Sure, a few years later, said competitor will make an announcement on their website about the conclusion of their 'magical journey', but that's not going to matter to you, is it?
Good point, I forgot to mention that "race to IPO and cash out" is a viable business strategy, though a sad product strategy. See A123 Systems, Desktop Metal's founder's previous company that went bankrupt. Also the Energous story: https://liesandstartuppr.blogspot.com/2016/04/those-other-gu...
current business model - $50M (pretty lean by today standards) VC investment with ratchet (it is the key element here) to $150M, do something SaaS-y and hire 50-100 people, in a 1-2 years if it isn't becoming a unicorn then sell it at least for $150M+ (a crowd of 50-100 engineers plus whatever they spent these 1-2 years on) to one of a BigCo with FOMO syndrome wrt. latest tech trend. Tripling money in 1-2 years is not a failure, it is more like SV equivalent of break-even, and it keeps you in the game of unicorn hunting.
Relatedly, and I don't know if this is actually valuable, but if you build a strong engineering or product team, I could see that itself being a valuable asset (not unicorn valuable, but perhaps recoup some or all investments valuable). Esp. selling to a company that does have products but not enough talent. Not the hand I'd want to play, but maybe its a thing people do?
Did you read the article? Blank is saying that the lean approach is still highly relevant unless you have a huge amount of risk capital available to essentially throw away on mistakes.
I don’t disagree with the article, I believe Blank accurately describes the current vc mindset. I just think he missed an opportunity to point out its pitfalls and in doing so implicitly endorsed overfunding.
My argument is that even as a vc with unlimited funds, overfunding a startup may be suboptimal. You paradoxically decrease its probability of success by misaligning the startup leadership’s incentives at a crucial pre product-market fit development stage.
Steve Blank basically spent the whole article destroying Lean startup and dropped in the conclusion that it's still relevant to avoid rubbing Eric Ries the wrong way.
His article is for 1% of entrepreneurs. For 99%, lean startups still works. And let's not act like investors spray and pray that they hit a unicorn. Of course it's good for their track record, but it's not like they don't ask questions before investing when you have the track record of Jeff Katzenberg.
There are a lot of MVPs out there to know the Netflix for mobile will work. Lean startup never said that the MVP had to be your own. Read my Medium article, I develop on the subject : https://bit.ly/2CxeT9z
Combating overfunding seems difficult to do. I imagine VC type companies are ones that experience rapid uncontrolled growth. So how do you limit investors in that situation without running the risk of a future scenario where you run out of capital? Do you set up a waiting list of funders that you can take money from as you need it?
Limiting and controlling growth seems like a difficult and dangerous proposition, particularly in an environment where there are competitors just waiting to perfect the idea and take it to market before you.
PMF is when the startup has i) identified which users are desperate for the product, ii) made a product that customers can’t get enough of (demand feels exponential), and iii) found a business model that works
A movement fueled by a book promoter with no notable track record of success for what he is preaching? Yeah, it was a fad.
To be fair, Ries stole a lot of nice bits from different schools of thought. There's stuff his books that actually works.
But you would have to be soft in the head to think that his book represented wisdom. In fact, wisdom does not come from a book – it comes from reading a lot of books, making a lot of mistakes, working with a lot of people, building a lot of stuff, and still understanding that this does not necessarily represent something that can be distilled into bullet proof heuristics. There's always unseen and uncounted factors that you will miss.
In contact with large, established organisations this book tends to produce cargo cults. Simplistic management self-help literature combined with institutional mediocrity, stupidity, fear of change, and hard-shelled delusion is a horrible mix.
The good thing is that these cargo cults tend to die after a few years. The bad thing is that anything associated with them then gets tainted.
The Lean Startup was a management fad and it didn't make people any smarter. It just gave them different ceremonies to perform in order to feel good about themselves. And as all fads, it has now passed. It is okay to move around the cabin and think for yourself again.
I would recommend "Functional Stupidity" by Mats Alvesson as a form of inocculation against this type of self-pleasuring heuristic-seeking.
I'm well aware of that and, to be quite honest, it isn't particularly impressive.
But there is a piece of perspective that is perhaps missing. I've seen him preach to companies that have orders of magnitude more active users and orders of magnitude as much profit as he had revenue. And making people there believe that he somehow knows something about what it takes to make a company successful. To make a successful product.
I've seen companies who had brilliant people who built more business for their company than this guy ever built for himself be told that "why can't you be more like that". Because it is always more attractive for some types of companies to listen to some outside hack than to actually pay attention to unglamorous people with far more potential. It is easier to admire something that comes with a book, ceremonies and eloquent salesmanship. And sadly, it is easier to take what they say seriously.
I've worked on products that had an order of magnitude more users (products you might well have used) and wondered "why am I doing this again?" because at the company I was working, that wasn't really numbers indicative of a successful product.
IMVU is 23 people. It is the equivalent of a mom and pop shop in this context. I'm sure his story is compelling to someone hacking together a product in their spare time and dreaming of doing a startup. But you do need to understand that he has very little to offer to the kinds of companies this cult does real damage to.
Using the numbers you quote (they tend to vary) IMVU has an order of magnitude fewer users than MySpace. MySpace. The graveyard. That's 4 users for every copy of "The Lean Startup" book sold (well, probably fewer since I haven't kept up with his book sales).
IMVU has fewer users than people who've seen Ries talk - live or online.
IMVU is not a notable success.
He is a successful seller of self help books. No doubt about that.
"In contact with large, established organisations this book tends to produce cargo cults. Simplistic management self-help literature combined with institutional mediocrity, stupidity, fear of change, and hard-shelled delusion is a horrible mix."
This has been my experience as well with lean in the enterprise SaaS world. We are currently toying with "design sprints" from Google [1] which is basically a faster version of lean to get to an MVP. I feel that design sprints are tangible and can get a group of people to creatively solve a problem in a short amount of time, however it seems you run into the local maxima hill climbing problem.
Ries did co-found a company in 2004 and that company is still around (14 years later). It’s not a unicorn, but it’s not dead either: https://www.crunchbase.com/organization/imvu
Many good methodologies can develop a cult-like following, not just in tech. The “Innovator's Dilemma” was largely that for business schools and MBAs. It doesn’t mean that you cannot apply the ideas postulated, but nothing is a panacea.
I wouldn't know what role Christensen played for MBAs back when "Innovator's Dilemma" was published since I was strongly disinterested in business back then. But I don't think the two books and the two authors compare.
Having read it and having dealt with a lot of MBAs in "large businesses in areas under disruption pressure"-settings in the last decade I'm not under the impression that it is a book that had much of an effect.
Then again, the average MBA in big business isn't exactly a reader.
Almost a decade working in a large firm where the top 2 to 4 layers of the company (depending on where you are) are almost exclusively people with business degrees. It is no joke. Most don’t keep up.
Comments like yours make me react because I feel sorry to see people fall for this kind of manipulations.
Don't be deterred from applying advices that have helped thousands of companies because of an unsubstantiated rant by some guy on HN. His comments (assuming poster is male, apologies if I'm mistaken) are light in arguments and sound more like personal attacks directed specifically at Eric Ries, they don't really address the value of the Lean Startup methodology. The language is strong and bullish in an attempt to sound smart and to rally people to some point. What that point is is left to the reader to figure out.
X is not as successful as Y, therefore X cannot give advice to Y. What kind of logic is that? Counter examples abound, Nick Bollettieri never played tennis professionally but is one of the most acclaimed coaches in the sport. Closer to home, Patrick McKenzie had built a bingo card creator (profitable, while admittedly not an earth shattering success if you go by unicorn standards) when he started giving valuable advices to people and companies "orders of magnitude" more successful.
Also, pinning IMVU, a well established company, against other "orders of magnitude" more popular, more affluent, and also well established companies is not only a fallacious metric for success, but it's not even relevant to discredit the book or the methodology, since we're not even talking about startups anymore. IMVU is 14 years old, it has long outgrown the advices in the book. Most founders know that one of the first biggest challenges for a startup is to survive and grow (fast) the first year, then the next 3, then the following 5. Over the course of those objectives you'll make mistakes. Methodologies such as "Lean Startup" are meant to provide you with some tools and guidelines to navigate those shallow waters and to prevent you from knocking yourself out of the game permanently. If you're looking for real metrics to evaluate its worth as a guideline, survival rate or financial loss of startups would be more apt indicators. What's the survival rate of startups following patterns laid out by the Lean Startup (or some derivative adaptation, since there are many now) vs survival rate of startups doing things pre-Lean-Startup style?
"Orders of magnitude" are not indicative of success, objectives are. If your goal is to generate $10k of monthly passive income because you want more lifestyle autonomy, I think reaching those numbers qualifies.
As for your question, I think my main criticism regarding the Lean Startup is that much time is spent telling you to "talk to customers", but very little on teaching you how to actually do it. Therefore, I believe that investing some time to learn a proper approach to leads generation, cold outreach, and sales as it's done in the context of a startup would unlock a major achievement in your pursuit of growth (and success).
I wish it wasn't so but I do think to the degree you can declare something dead the lean startup is. The problem is that lean startups requires a number of things that aren't accessible anymore.
A) Maybe the most important is time. You need time in a good environment to actually develop something. Which has become a lot more costly.
B) Large companies are controlling more areas than ever. People often wary of regulation as a barrier, but as time goes by the market participants creates their own barriers. Many areas are just harder to have an impact in than it used to be.
C) And then there is just competition, especially for things like talent.
I guess it isn't the lean startup that is dead so much as the environment for it. You can say the same thing about co-operatives, non-profits, community establishments and a lot of other things that are good ideas (probably more so than ever) but not able to flourish because of other interests.
>A) Maybe the most important is time. You need time in a good environment to actually develop something. Which has become a lot more costly.
Why do you think that is? I'm not sure what you're referring to exactly.
>B) Large companies are controlling more areas than ever. People often wary of regulation as a barrier, but as time goes by the market participants creates their own barriers. Many areas are just harder to have an impact in than it used to be.
That one definitely sounds true to me, the complexity of modern software definitely makes it harder to be competitive with big shops. You can be the smartest coder on earth, if you want to write a complex application today (say, video editing software, smartphone interface, a kernel, a web browser etc...) you're looking at man-years of work if you want to start from scratch. And if you don't start from scratch it'll be harder to differentiate yourself from the competition and "disrupt" the status quo.
I'm always amused when I read stories from the 70's and 80's about lone hackers writing a cool hack for a computer or application of the time and managing to sell it for a lot of money. Like this story I remember reading on HN of the hacker who managed to write a task switching application for some Apple computer of the time and managed to sell it to Steve Jobs (I don't remember all the details and I can't find the article at the moment). It was a clever and completely non-portable use of the hardware resources, in the end it was probably a few kilobytes of (very clever) code. It's hard to imagine something like that today.
> That one definitely sounds true to me, the complexity of modern software definitely makes it harder to be competitive with big shops.
As software professionals, this is a problem of our own making. Nobody is asking for software to be complex. Users don’t want complexity. Development companies don’t want costly complexity. Software developers don’t even want complexity. Who has sat down at the start of a project and said, “you know, this software needs to be as complex as possible!”
Yet we keep building complex software. Layer after layer of libraries and APIs. Frameworks and more frameworks. Containers. Multiple languages. Front end and back end. Machine learning. Problems that used to be solved on a PC now require a 150 node cluster.
It’s fashionable to throw huge teams, hardware and middleware at problems these days.
There is still opportunity for the lone coder and the lean startup. You need the competence to stop writing all these bullshit layers and code simply.
Users absolutely want complexity. Obviously most people would never say it in those words but lots of things they do ask for come with a lot of inherent complexity. Things like "it should just work", or remembering a preference for later, or automatically linking to some related data, or streamlining a workflow because in this situation you should know my intent so you should just default to the thing I probably want to do and save me a few clicks, etc.
Sure, there are lots of times where you're better off ignoring these user requests, and where scope creep or bureaucracy or tech debt or just sloppy coding introduce unnecessary complexity. But even if we could always build exactly what users want and always build things cleanly starting from a blank slate, software would still be complex.
In many companies, big complex software is desirable, because of poor incentive structures. I've seen many projects ballon into vastly over-complex nightmares, because engineers are often rewarded for solving "hard" and "complex" problems. So with complicit management (who are also rewarded when their engineers are promoted), they invent complexity and then "solve" it.
Venture capital has corrupted the tech industry to its core.
The VC cash machine has brought us nothing except short term thinking, get-rich-quick schemes, social manipulation, herd mentality, idol-worship, media corruption and corporate growth.
I look forward to the next tech bubble. I hope they all get wiped out.
If they all get wiped out, it will be very good for me personally.
Firstly, I will enjoy watching them fail. It will make me happy intrinsically.
If I lose my software engineer job and have to work as a janitor for a while, it would be totally worth it.
Secondly, the subsequent failure of their portfolio companies will free up a huge amount of marketshare in many industries; some of which I will be able to capture with my own side project until I can afford quit my janitor day job.
The reason complexity exists is because everyone wants a different simple thing. Then, having attained the simple thing, they want another simple thing.
Complex systems evolve from simple systems. One reason we keep winding up with new complex systems is because of folks saying "it's too complex, let's start over without all these bullshit layers and code simply", where "bullshit layers" and "simply" are variables set by the prevailing environment.
A lot of these abstractions, for good or for ill, make it easier for "large" organizations (where "large" here means > 10 people) to iterate quickly. Users do not need the abstraction, but it makes the organization as a whole quicker and more agile. It is an interesting question whether startups can enter a market served by a larger organization and disrupt it by offering lean products built by lean teams.
Exactly my thoughts. Had a chance to experience it first-hand recently (as explained in my other comment).
Edit:
> It’s fashionable to throw huge teams, hardware and middleware at problems these days.
My theory is that it comes down to :
- Clients and managers thinking that the UX/visual look has something to do with the front-end framework, forgetting that in the end any web app is just HTML, CSS and JS, and frameworks having more to do with maintenance.
- Shops lacking seniors, and young engineers (legitimately) more interested by the tech than solving the business problem in a boring way.
So here we are with the "fashion" that any business app must be done as a SPA "because it needs to look modern". You can see the opportunity.
While I get what you are saying, I mostly disagree. You have to differentiate between if the problem exists and whether the solution is any good. When computing became really mainstream we were standing on the shoulder of giants. A lot things had trickled down from things like research and were really good for the time. But they also lacked in a lot of things we care about today like encryption, automation, design, cross-platform and security. Today these things aren't coming out of research, nor necessarily large companies, but some random person who can see the problem. It would be a lot better if something like authentication was included in HTTP, but that isn't happening for various reasons, so it is going to be a job for a framework. That isn't necessarily a good solution, but it a solution to a problem that exists.
It really seems like things like PARC was an anomaly. Companies eventually figured that it was just better to "be part of the problem" and make a lot of money like in many other industries.
Nothing is stopping you from learning ColdFusion. Websites built in it will still work just fine. The fact that everyone else is doing complicated stuff doesn't mean that you have to.
This! Haha, this is such a good no-bullshit-description of the state of the art of software development. It can be a real a merry-go-round of: Premature problem solving, premature abstractions, and premature optimizations.
> Like this story I remember reading on HN of the hacker who managed to write a task switching application for some Apple computer of the time and managed to sell it to Steve Jobs (I don't remember all the details and I can't find the article at the moment).
> That one definitely sounds true to me, the complexity of modern software definitely makes it harder to be competitive with big shops.
I disagree. If you want to make a competitive product to the products made by big shops, then that is true. However true innovation is often making something in a category that is new or not well served.
When Jobs/Wozniak made the Apple 1, they weren't competing with big shops mass producing other desktops, they were competing with the likes of MITS producing build-your-own computer kits.
Also the prevalence of on-demand services and APIs now mean you rarely have to make lots of complex software from the ground up. The secret is to find some value your software can deliver which competitors don't exist for, or don't do well.
If you look at the boom in solopreneurship and side projects it's self-evident to me it's never been easier.
Aside: the reason the 'cool hack' stories don't exist now is that they were often about using limited resources to do things that were seemingly difficult/impossible on the available platforms. So they were still examples of new software delivering value. But now as we are far less resource-constrained, and software as a whole is a lot more mature, these opportunities are a lot more scarce.
> Why do you think that is? I'm not sure what you're referring to exactly.
There are a lot of stories of people falling into technology entrepreneurship by showing up. I guess you could say that it was less competitive (which it was), but I also think that society was more lenient. We hadn't figured out yet how to charge a lot for everything. If some landlord was 'greedy' you could move to some adjacent area. Today with information spreading so fast everyone knows not only what something is worth but what it could potentially be worth and price accordingly.
Like this story from Max Levchin starting with "I didn't really make any arrangements, so I just crashed on Scott's floor" [0].
Disruption doesn't come from direct competition. Writing another web browser isn't going to disrupt the market for web browsers. You need a new concept in how we access web-type material. That would disrupt, and wouldn't need much code. Look at Napster et al. They weren't massive but still disrupted the music industry.
The gaming industry still has room for lone coders to make a difference. Many of the top indi games are/were written by individuals (KSP, Minecraft) or by very small groups (Factorio). Sometimes being able to do something leaner, with less code, means you can win ground against the biggest of big guys (City Skylines over SimCity).
> Disruption doesn't come from direct competition. Writing another web browser isn't going to disrupt the market for web browsers. You need a new concept in how we access web-type material. That would disrupt, and wouldn't need much code. Look at Napster et al. They weren't massive but still disrupted the music industry.
Sure but my point is more general: if I create a new lean web-like protocol and client and it can't display videos, feature interactive content, arbitrary styles etc... How do I drive adoption?
I can convince the suckless folks that "less is more" and that it's "the unix way" but outside of that circle I'm not sure who's going to use my software.
All software seems to be going in the opposite direction. For instance I'm a heavy user of IRC, these days the type of communities you could find on QuakeNet 15 years ago are on Discord, a super heavy webchat client that manages to slow down my beefy desktop computer when run on pre-quantom Firefox. The Discord client is probably several times heavier on resource usage than the Quake game itself!
Disruption wont come from yet-another-browser, and of course surely it won't come from yet-another-browser-with-less-features
It might come from a piece of software that solves a problem for some group of people that a browser can't, and then evolving towards the mainstream replacing the role that browsers have right now making them obsolete
> Writing another web browser isn't going to disrupt the market for web browsers
It depends. You could say the same to Igor Sysoev when he started to write Nginx, for example.
So, e.g. web browser with all the main Chrome or Firefox functions but working 2x faster on mobile and eating 3x less memory would disrupt the browser market indeed.
Love both gaming examples, but you’re proving OP’s point. Those are very specifically technologically limited games (ie not requiring the same resources as AAA games). Disruption is possible, but the complexity argument stands.
There are small startups born out of targeted smart application of code today that are similar to a lone hacker and sold to Google. eg Graphics Fuzz with it's intelligent code reducer which Google bought to use with Android.
It depends of the space you're operating in. From what I've seen in line of business software, the quality is mediocre at best, and Excel is still everywhere. Here a Lean approach on targeted business processes is still viable and can make wonders.
Also sometimes we self-impose complexity with our tools. For example I recently displaced a competitor with a full team having a hard time delivering because of the disproportionate complexity of their stack regarding the problem (full SPA for a simple CRUD app), where I could do it as a solo effort costing ten times less.
I could well find out I'm wrong in retrospect, but I think part of that is that the low hanging fruit is just gone.
It means once you've made it there's a barrier to entry that keeps you protected, so you may as well go big or go home.
I pitched a startup idea today to an accelerator judging panel. There were three distinct software components to it, each quite complex in the detail and I had three minutes to cover the lot because they're flooded with candidates even after the first sift throwing 80% away. Yet, comparatively it feels quite simple - no AI or ML involved or highly regulated areas.
I might go and find a pong clone to play to cheer myself up.
> A) Maybe the most important is time. You need time in a good environment to actually develop something. Which has become a lot more costly.
I think another way to say this is that the value of time has fallen as the amount of funding available has risen. The prototypical hacker working nights and weekends was a _response_ to the lack of available capital: work harder if you can't hire.
Its like an arms race. Two hackers of equal aptitude start working 120 hours weeks on identical startups targeting similar markets. The one who stops doing that and instead raises a few million to hire a large team and spend lots of marketing dollars is going to win that market (though it may be less profitable).
As more funding chases fewer projects, that point moves earlier and earlier in the process until only a fool would spend 120 hours a week instead of raising money right from the beginning.
B is really important. For all the lovely American paranoia about oppressive government killing business opportunity, the power of massive but still fast-moving companies in the same industry is far harder on innovation.
"C) And then there is just competition, especially for things like talent."
I feel startups did this to themselves. It used to be that you'd work for a startup and the equity was supposed to pay off if the startup was acquired or took off. Now, even though a startup may sell for several billion or go public, most employee's equity has been diluted to hell and back, barely making up for the lower salary.
That's not what I'm talking about, here. The number of shares isn't necessarily going down. Its the crappy way that most startups handle the awards and the outstanding shares, making it so that the only people who actually get anything out of them are the founders and the investors.
I would say B is right on the money. But, A and C. I don't see it. There's a vast oversupply of time and talent. Just look at producthunt. The ratio of attempts to successes is enormously staggering. This indicates a huge vast amount of talent and time. The biggest problem is lack of opportunity: due partially to incumbents, regulation, etc.
I don't know. I think things like producthunt is the long tail. It is the people who don't have time in a good environment or access to talent so they do whatever they can instead.
And I don't intend that to be an elitist statement. It is like the difference between playing an instrument and being in a band. You might be better by yourself, but it really the ecosystem that is going to take you to another level in terms of success. I think that sort of ecosystem is harder than ever to access. Especially with the rise in cost of education and housing. It is hard to start a software band these days.
Plenty of cheap talent in the US as well, if so many startups weren't so delusional as to think they need Google-level talent.
Oh, and the thing about making them move to San Francisco. Not even just the greater Bay Area, which is bad enough, but to the most expensive part of it.
You may have misunderstood the article and the Lean methodology.
From the article: "Still, unless your startup has access to large pools of capital or have a brand name like Katzenberg, Lean still makes sense."
Side projects, solo entrepreneurship are not mutually exclusive and can actually be complementary. Lean is a methodology to validate demand for a product. Solo entrepreneurs can and do benefit greatly from employing it.
I believe Steve is talking about traditional startups (high growth entities with full teams, capital, boards/advisors, etc).
Solo entrepreneurs, side-projects, 'lifestyle businesses', ISVs, and other small businesses in tech don't really fit into that category. Although while many of them still call themselves startups (which is fine) the distinction is quite clear.
Lean Startups has fundamental business advice that is good for any company. But Steve's analysis here is clearly targeted as a specific group of traditional high-growth startups which angels/VCs invest in, from which the original idea for Lean was spawned and designed for (and later found wider applications outside of startups - for better or worse).
Solo entrepreneurs are not starting a startup, not as I (and most people) understand the term. After all, those thousands of "solo entrepreneurs" are starting things like coffee-shops, restaurants, garages, etc. They're examples of entrepreneurship, sure, but not startups.
Startups are specifically organizations that are trying to grow very big, or that are looking to try a new business model. The reason the spotlight shines on them is because starting something new is interesting (from a "news" perspective, at least). Getting big is interesting. Starting a new restaurant - not really interesting, except for people who live in that area.
By that definition many unicorns that are seen as prototypes of successful startups would never have been startups.
I think you have been tricked by YC and other VCs to accept this definition of 'built from the start for hyper-growth'. That's how they get their share of young promising companies.
To me and most people I know, a startup is a project or company in the growth phase.
> By that definition many unicorns that are seen as prototypes of successful startups would never have been startups.
I don't think that's true? Which unicorns are not companies that were pursuing high-growth, or that were trying to build a unique product<>business model?
> I think you have been tricked by YC and other VCs to accept this definition of 'built from the start for hyper-growth'.
I haven't been tricked into anything. We are commenting on an article written by Steve Blank, one of the "founders" of the lean startup movement. His definition of a startup is "a startup is an organization formed to search for a repeatable and scalable business model." [1]
Of course this is all just semantics, so feel free to use the word in a different way. Where I disagree with you is this:
> To me and most people I know, a startup is a project or company in the growth phase.
I simply don't think that's true. I think most people would not consider e.g. a new law office to be a startup, definitely not in the context of talking about things like the "lean startup" movement.
That's why I love Steve Blank's definition - I think it does what every good definition does - it gives more understanding. It helps give a simple answer to "when does a company stop being a 'startup' and become a regular company". The answer is - when it has found a scalable business model, and is now executing on that.
For the record, I'm a big fan of bootstrapping, I ran a successful bootstrapped development agency in the past (which was acquired), and am now back to running a (bootstrapped) consultancy. I just don't think that people would include my company when thinking of startups - and that's fine! Entrepreneurship takes many forms.
Silicon Valley holds very dear the romantic Jobsian definition of "startup" - two individuals bootstrapping a company from their garage (though Woz has stated "We did no designs there, no breadboarding, no prototyping, no planning of products. We did no manufacturing there.”).
English being what it is, it is fine for "lean startup" to have a different definition of startup from the word "startup", confusing as that may be.
> Apple? HP? Pretty much every Silicon Valley company that started with one or two guys in in a garage?
I mean, Steve Blank's definition as semi-quoted by me included "or were trying to build a unique product <> business model". I think it's safe to say that Apple was trying to build a unique product <> business model, as was HP.
In any case, a new law firm is a new company. So were Apple and Facebook. I think it makes sense to differentiate between them, and Steve Blank's definition seems to be the best to me (it focuses on what actually makes all the difference - the amount of foreknowledge you have on the market fit of your product).
> The definitions of "startup" and "unicorn" seem to be forever evolving.
Unicorn is actually a pretty well-defined term in this context. And it's really new, too, something like 5-8 years old if I remember correctly. A private company with a valuation of more than 1 billion dollars..
I think you both are arguing two different things.
You seem to be saying that there are a lot of businesses, which will never be startups.
While that's true, they seem to be saying that being a startup is not an immutable trait of a company, but rather a phase, and that any side project or solo business could enter the startup phase at any time.
Sure, most people wouldn't consider a law office to be a startup. Most people also wouldn't consider a consultancy like 37Signals a startup. Most people wouldn't consider a novel URL-ranking algorithm like Google's a startup, or any number of other projects or businesses that didn't begin as startups.
That's not to say that a restaurant is likely to turn into a bootstrapped startup or anything. I think their main point was that not all startups started out with intentions of high growth. Your initial response was that "Solo entrepreneurs are not starting a startup, not as I (and most people) understand the term." To that, I think what they are saying is, "they could be."
You could then argue that startups which aren't yet startups are outside the scope of the OP's original statement that, "For every Startup raising $X million in funding there are probably a thousand solo entrepreneurs bootstrapping their way into profitability." Because, when they do become a startup, then they'll be raising money just like everyone else.
However, even that rebuttal would ignore all the startups that became startups aimed at high growth driven by profitability instead of raising millions at the outset. [1]
Honestly, I think the reason funded startups get more media coverage than bootstrapped startups comes down to simple numbers. There is a large but finite amount of demand for news on successful startups. There aren't enough successful acquisitions, IPOs, or openly successful companies to fill the demand, so we have to dip into indicators of future success, such as funding, to satisfy the demand for news on interesting new businesses. However, as many startups as there are getting funding, there are even more side projects and small businesses being started. Most aren't successful yet, and if they are, they're too busy being successful to proactively reach out to the media with an interesting story.
In other words, I think funding rounds are just an easy source/filter for journalists to publish on, and which require little effort editorializing to be considered interesting by the masses.
> While that's true, they seem to be saying that being a startup is not an immutable trait of a company, but rather a phase, and that any side project or solo business could enter the startup phase at any time.
I mostly agree with you, but I don't really agree with this idea. I mean, theoretically, yes, it's true - but I still think it makes sense to differentiate between a new restaurant, and someone trying to create a new technology product/company with billion dollar potential.
And this is what investors are looking for, too, which is why only this kind of startup gets VC money.
Agreed, but I don't think we're arguing that small businesses, like restaurants, want VC money and don't get it. I also don't think we're necessarily talking about the fact that small businesses don't get media attention. Instead, we're just talking about the fact that the media focuses on the companies taking VC money, while the growth-oriented, profitable startups (i.e. not restaurants) build companies with much less attention from the media.
It looks like you are mismatching popular meaning of the word with it meaning in professional slang.
Yes, for most people I know, a "startup" is just new word for a new company, or even new pizzeria or barbershop. For entrepreneur I know, startup is "built from the start for hyper-growth", as he explained it for me.
I think it is clear that "startup" is a word defined differently by different people. Sure, there is the YC/SV/VC definition that it is about grow big and fast or fail. And maybe that is the crowd you run with, which is why you think most people define it that way. But to many other people, including most of my community, it is about starting something new, whether that is a slow bootstrap or a fast funding, and whether or not it is interesting.
Solo entrepreneurs are not starting a startup, not as I (and most people) understand the term. After all, those thousands of "solo entrepreneurs" are starting things like coffee-shops, restaurants, garages, etc. They're examples of entrepreneurship, sure, but not startups.
Solo entrepreneurs absolutely start things besides coffee shops, restaurants, garages, etc. There is nothing inherent in the definition of "startup" that precludes solo founders. Especially when you think in terms of "you're solo until you aren't". Just like "you're bootstrapped, until you aren't".
Taking on co-founders, raising external capital, etc., are all things you do when you get to the point that they are necessary.
I absolutely didn't mean to single out solo entrepreneurs here - the comment I was replying to talked about solo etnrepreneurs starting thousands of businesses, I was just making the point that most of these are not "startups" the way I think of them (as per the rest of the discussion).
I may have given the mistaken impression that I was bumping on the solo founders bit, but that has nothing to do with it - I just reused the phrase.
Pretty interesting how much argument there is against this view on HN. I guess most people coming here now are not familiar with Paul Graham's essay (maybe most HN posters don't even know who Paul Graham is any more)
> A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth.
Interesting how you assume that because Paul Graham wrote that, it is true, and that everyone who thinks differently must not be familiar with what he wrote because surely nobody could disagree with him!
He's not assuming that. He's assuming a large fraction of the HN community agrees with Graham's definition. This certainly used to be the case a few years ago, hence his point.
I think you're mixing some things. To me, entrepreneurs are people starting new businesses. Some new businesses are trying out new business models or other major innovations; we call those startups.
I agree that somebody making another burger joint or corner store is an entrepreneur, but is not doing a startup. But that doesn't mean that solo entrepreneurs can't do something new. It doesn't have to be big, just exploratory.
It’s not the amount of money, it’s the amount of money, relative to costs. A restaurant buildout can cost $1 million pretty easily, so raising $1.5 million isn’t really “big” money in that context. But for a SaaS, $1.5 is “big” relative to the startup cost. Thus more of that $1.5 goes towards growth rather than just opening the door for business.
“Big” money is relative to the costs of getting the business started.
> But you're still left with a lot of people building something they hope gets bigger. That fits your definition.
Like you said, this is just arguing semantics. That's why I like Steve Blank's definition, which is not about growth (see my other comment on this thread for more).
I would say that "hoping it gets bigger" is not enough - every business owner hopes their business gets bigger. Most of them don't realistically hope it will become the next Amazon, nor do they strive to make that happen, and so many ideas/lessons from the startup world don't really apply to them (while others do still apply, of course).
Well the obvious example is anything related to VC fundraising. Almost all startups (as per Steve Blank / pg) will at some point require venture capital. Most other businesses have no way of raising venture capital, instead having to to rely on other means of fundraising, like a bank loan.
Other things are more domain-specific - I know lots of lessons in my own field (professional services), some of which apply equally to startups, some of which don't at all.
Yes and no. IMHO Lean has generated a lot of startups that had too much of a narrow focus and optimized away all the potentially interesting parts of their products because they were focusing on a MVP that turned out to be lacking in the V part because they were focusing on the M part.
Which is a perfectly valid way to fix some of the worst offenses of the original Lean movement, which were to throw out the baby with the bathwater by focusing on only doing things that had low option value and low risk. Sort of the opposite of what you need to do in a startup, which is to do something genuinely new and creating value while taking calculated risks.
Don does a great job of providing some nice economic rationalizations of how deal with things that are risky but valuable, planning and estimating these things, etc. He also makes a great argument for shipping value fast, which is to maximize the economic life span of your product and prioritize getting revenue earlier vs. getting revenue later with a potentially better product. Many tech startups get sucked into building the perfect thing and missing their window of opportunity for both raising funding and monetizing their product.
Unless of course your startup is not about the tech, in which case definitely avoid taking risks on the tech front and focus on shipping a product fast. If you are building a market place, the last thing you want to do is reinventing how those work. You instead want to focus on whatever the hell it is you are selling. Lean was always popular with those type of startups. I tend to think of them as no-tech startups. You get a bunch of MBAs, marketing and other non techies and then bring in the full stack hipsters to copy paste a bunch of crappy js files together to fake it until you can afford to hire a proper team.
What Lean says and how people commonly used it are distinct, which is what the OP is talking about. Some people took some parts of Lean too far and didn't focus enough on delivering a high level of value. That takes risk and vision, but you build better products.
As opposed to obsessing over managing risk and keeping things lean, without properly investing in the hypothesis to really test them out. Which means in practice a bunch of small half-hearted plays that get abandoned too early - or were inherently a minor incremental value proposition that wasn't valuable enough to build a sustainable business around.
This is the same problem suffered by most Capital-N Named Things (Lean, Agile, etc.). By becoming capitalized, they become specific practices. Some of the practices are good, some are good in context, some are bad out of context. But people fail to make the proper value judgements about what's worth it and what's not, and often pick which practices to do by the visibility of the practice.
Is a kanban board useful? Immensely. Is it useful if you don't know what it represents? Nope. But it's highly visible so people adopt it. They may get some value, but only limited, if they fail to comprehend it. Or, worse, they get negative value because it becomes a set-in-stone "process" "(We can only handle 4 of X at a time! Scrap everything over that." "Wait, why was it 4?" "Oh, because we had half the staff before. I guess we can actually handle 6 now."). If that question isn't asked, it's fixed in time and the organization isn't a learning organization, it's actually dying but hasn't realized it yet.
That's a very educational video. The use of the queuing theory for capacity utilization and the asymmetric payout for increased variability are really insightful.
The problem I see with the Lean Startup is that Eric Ries isn’t actively promoting, defending and explaining it.
On Mixergy, I interview founders who try to make their bones or get attention for their messages by disagreeing with the Lean approach.
Eric doesn’t debate, correct or engage with them. So they get to make statements without anyone credible taking them on.
Listen to my latest interview it’s Rand Fishkin and you’ll see what I mean. He’s not anti-Lean, but he’s disagreeing with it his book to make get attention for his message. With a bit of pushback from me, he admits as much.
Each one of these mini-attacks from accomplished entrepreneurs hurts Lean’s credibility.
Only Eric has the credibility and social grace to disagree and explain in a way that builds up The Lean Startup.
I’d love to see him step into the conversation more. He and pg defined how to run a successful startup more than any two people I know.
I think the core problem here is (lack of) consulting dollars.
The Agile movement got huge in part because a lot of its proponents could make good money promoting it. E.g., the MLM scheme that is Scrum certification. Or the many consultants, some good and some bad, who made bank teaching it to people. (I did that for a while.) This was also the death of what I think of as "real Agile" because the great bulk of consulting money on offer was selling watered-down Scrum to giant companies who wanted the feeling of change without hard work or actual change.
But there's no money in startup consulting. Startups don't have much money, and startup founders a) think they know things better than everybody else, and b) think they can ignore most of what matters to other businesses. (I'm a former startup founder, so that's not knocking anybody; it's just what's required by circumstance.) I know people who have started great startup-focused consulting businesses, and they've all gone elsewhere because it's impossible to make a living doing it.
From what I know of Ries's consulting it was at places like GE [1]. GE is definitely not a startup, but really wanted to be innovative and presumably paid him a bundle. And now he's moved on to the Long Term Stock Exchange. [2] This all strikes me as reasonable. He did his bit and set the ideas free into the world. Although I'd love it if he spent more time promoting the Lean Startup approach, I totally get why he's focused on doing what he wants, not what I want.
Hey William. I also think one of the big mistakes is that Eric trademarked Lean Startup. Check out the book, Starfish and the Spider. The way to kill a grassroots movement is to centralize the power and then it dies with the center.
I get that concern. But the Agile movement didn't trademark anything and came to regret it as the word got more and more watered down. All things considered, I prefer this outcome; at least the term still has meaning. If I had to pick next time, though, it would be making the trademark but building up enough of a community to carry the flame and then handing over the trademark.
Thanks for pointing this out Andrew. I founded Lean Startup Machine, the first training/bootcamp on Lean Startup in 2010 which since held events in over 100 cities around the world.
I like Eric, but I think your comment is very true and it's too bad.
This is a common pattern with all good ideas. You start with some hard-won ideas and principles that make a lot of sense. The ideas resonate and so they get picked up by a broader and broader set of people. Before long you have second and third tier advocates who are heavy on the Dunning-Kruger effect and short on actual insight. Now you have tons of straw-men for wannabe thought-leaders to rip apart mercilessly.
I don't blame Eric Ries for staying out of this fray, there's little to be gained by battling the tidal wave diluting the core idea.
A related issue are some of the other high-profile proponents of Lean are unwilling to acknowledge Lean faults or limitations. Good frameworks are flexible, but a dogmatic approach turns potential converts away.
2. For most organizations, Lean is now essential to deliver innovation at speed, and the Innovation Pipeline is more relevant than ever.
3. But when capital is readily available at scale, it makes more sense to go big, fast, and make mistakes than it does to search for product/market fit.
"All this is driven by corporate funds, sovereign funds and even VC funds with capital pools of tens of billions of dollars dwarfing any of the dollars in the first Dot Com bubble – and all looking for the next Tesla, Uber, Airbnb, or Alibaba."
Yes, but this is the other reality of today, from Calculated Risk:
"CR Note: Currently the target range for the federal funds rate is 1.75% to 2%. With inflation running close to 2% by most measures, the real Fed Funds rate is still negative."
In other words, investors still can't find enough investment opportunities that they find attractive, so they are still willing to give huge amounts of money to the government for free. Some of this can possibly be attributed to the Great Stagnation, the slowdown in innovation, growth, productivity and technology which began in 1973. Some of this can certainly be attributed to rising pools of savings all over the world. But it remains a fact that there are not enough software startups (nor enough manufacturing startups, nor enough legal startups, nor enough medical startups, nor enough of any kind of startup) to absorb enough capital to bring the world's capital markets back to "normal", if we can agree that "normal" means most investors expect to make at least a small profit on their investments, including their bond investments.
I thought the wealthy were job creators, captains of innovation, stewards of the future...
We'd be better off taxing these folks who can't find anything to invest in and redistributing the funds to the worst-off. The economic activity would inevitably be captured by these same ineffectual investors but at least the material situation of the poorest among us would be slightly better.
This problem is not new, but arguably getting worse. So much capital out there, in the hands of so few people, and they have no idea how to deploy it productively. Their trillions could be used to start whole industries, build critical infrastructure, and pull millions out of joblessness. Instead, they unimaginarively loan it to the government or a bank for a negative real return.
The rich of the past built the modern world. Today’s rich seem to just sit on their wealth while inflation and missed opportunity erode all the value away.
I don't think you hurt anyone's feelings, but your comment is entirely beside the point. To say that there are too many startups imitating Uber is simply to repeat the point that savings continue to exceed the investment opportunities that investors find interesting, and therefore investors continue to give money to the government for free, or even in the face of the risk that they will suffer a small loss.
$1 billion for a video streaming service?? Are these people actually insane? I don't see any way they will make back that much money with a service in a completely oversaturated part of the internet where YouTube, Netflix and other streaming services are pretty much meeting every desire any customer would have.
I mean, power to the people that have invested, but this looks like an investment graveyard.
Youtube wasn't even close to first -- it started in 2005. They were more like third or fourth. Youtube (and later google) got the formula and right -- they learned from the mistake the first movers made.
Sort of like Facebook, Dropbox, Salesforce, Instagram, Google, etc. None of them were first. Being first is dangerous.
I'm not sure I understand this. You can't skip finding product/market fit. No matter how much money you have, if you have no product/market fit you're toast. If you're not desperate to find product/market fit (as Lean startups are) because you have tons of money -- you may never find it.
To me, Lean startup is not about money. It's about building the most efficient process of finding product/market fit. Once you've found something that really works, then it's time to look for big money and scale up. In most cases, what you need in the beginning is $50K-500K which can come from savings/FFF/consulting/seed round.
Too much money in the world now. A result of the decade of near-zero interest rates.
You can definitely skip product market fit. It takes some startups years to find true product market fit.
The price of admission of product market fit is a great product and a great team. Hard to do these things on a budget, especially as the space of "cheap" startups that can be built with a few 100k becomes more crowded.
>It takes some startups years to find true product market fit.
I can think of only 3 reasons (not mutually exclusive) why it happened:
1. They had too much money which made their PMF search process inefficient.
2. They had to educate themselves about the market from scratch. Which means that the original idea was a wrong/uneducated guess.
3. They didn't find product/market fit. The same team had to restart with another idea (possibly several times) and it took them much less time than several years to find PMF.
Sometimes a visionary founder with an instinctive understanding of the target customers can skip product market fit. Those people are rare, though, and it's not a skill that can be taught or written down in a book.
How much equity do you need to give away to get VC money for an unproven business idea? Is there a ballpark figure? I heard like $100k for 20% or something but I guess that's more like angel investing? What's the minimum amount of work you need to do before getting money with no track record as a founder?
Until a startup is obviously a billion-dollar entity (reasonably on track towards $100M+ ARR), it varies greatly based upon;
- Growth metrics (MoM, YoY)
- Following, absolute metrics
- How these metrics compare to others in your vertical
- Business thesis
- Total market size (needs to be gigantic)
- Strength of vision, ability to execute
- Ability to convince others of said vision
- Ability to attract, recruit and retain talent (investors, employees)
- Many more magical and unspoken factors that influence an investor's perception of you, individually
There are many, many different ways to optimize any specific signal here but realistically you're going to have to throw half of 'em away. With the exception being you can't really budge on market size or you're not VC-fundable. Some of the factors can be leveraged off of one another to improve the other. (Strength of vision -> ability to recruit, etc.)
$100k for 20% is a nightmarish Shark Tank deal for a lifestyle business that's generating sustainable revenue. As another poster mentioned, you're looking at $5k - $50k checks in the Angel stage. If you're on to something, with a product in market a reasonable hypothesis as to how it becomes a $B company, you're looking at starting to raise on SAFEs at a ~$4M Cap. At least, AFAIK, that's pretty standard absolute lower bound out of an accelerator or incubator (which will give you some credibility -- I might optimize towards that path first). Meaning you're assuming pre-money capitalization at a priced round of $4M or greater. You can go lower if investors really want to deal chase or it'll get the right person in. So, if you raise $500k on SAFEs and pull in $1M in total investment for a seed round at a $4M pre-money valuation (+$500k from a MicroVC or small VC check), you get diluted 20% in exchange for $1M (post-money of $5M).
Edit: should mention, YC's standard deal is $120k for 7% [1]. Other accelerators are more aggressive on the capital they provide / equity they ask for in exchange. I've skipped a step here and assumed you've been through an accelerator to raise at a $4M+ Cap, though it's not absolutely necessary to have gone through one -- but the accelerator deals are more in line with what you're asking about.
Pre-seed/seed VC is primarily about team pedigree and familiarity. If you want to do the minimum work in order to fundraise for a new startup, you and/or your co-founders need to be somewhat successful already (career, past ventures) or be personally close to people with money. This, in addition to having a good idea and plausible large market story. But the main thing to know is team comes first. And then you could maybe do $1M for 20%.
I'm not sure how a 100K-for-20% situation could happen. Maybe a friend or family member acting as an angel. Any VC that trusts the team would invest more and/or tolerate higher valuations.
It's not some sort of goal-oriented nefarious plot to keep poor people out of the rich people's club by alienating them through language choice. It's a realist description of how early stage startups actually work empirically, irrespective of whether we approve of the nature of this socioeconomic phenomenon.
When you have no proof at all that your concept can actually become a profitable business, no commercial investors will touch it. It's far too risky compared to their many other options. The only people who get investment in such an extremely high risk scenario are those who happen to have rich friends and family. These investors will take a punt on them just because they like them personally and they can afford to lose the money, which is overwhelmingly likely.
It's not the name that gatekeeps, it's the necessity of having the network in order to access capital. The name is honest. These days, at least you can try kickstarter.
> It (Lean) is a response to scarce capital, and when that constraint is loosened, it’s worth considering whether other approaches are superior
Definitely worth looking at both approaches objectively.
1. Lean Approach: Stay lean, build MVPs, find PMF, then go big.
2. Big bang approach: Have conviction in your idea, use capital to launch big from get go.
Given capital is not a constraint, the next most important thing is time i.e. which approach would help us build a thriving business fastest.
Big bangs take up extra time/energy in ancillary tasks like hiring, PR and so on. Pivots take time, even to communicate internally. Lean let's you operate the whole thing as a series of cheap experiments to validate your assumptions. Pivots are natural and cheap.
Big bang would be beneficial over lean only when your first set of assumptions were on the mark and the company required almost no major pivots. That's rare, maybe Katzenberg can pull it off.
Maybe Big Bang is more effective for iterative companies, those whose business model and PMF is well established. like a second wave of ride-share businesses who copy the Uber/Lyft paradigm but with enough of a personalized twist to secure substantial capital upfront.
> Even if you have raised $2 billion, shouldn't you know if people want short form content?
This has already been proven with Youtube.
The bigger question is whether there is a ~$100 billion market for a Netflix style service selling 10min videos, which justify a $1-2 billion investment. And whether this company can recruit the talent in a sustainable business model, where they can produce enough good content to keep users happy.
Even if there is a $100 million dollar business here, that would be a failure scenario for this startup right out of the gate. As it won't return the investor money anytime soon.
I don't disagree with most of what you said, I was using "short form content" as shorthand for the business model, however:
But Hollywood has remained skeptical in the year since he announced his venture. Several executives have argued that there is little evidence to support the notion that viewers are craving short programming. And beyond the initial hype, Mr. Katzenberg has been short on specifics.
and
Higher production values will distinguish NewTV’s programming from the majority of video shorts that gain traction on YouTube, Mr. Katzenberg said. And he trusts that viewers will appreciate the difference.
One of the interesting differences between Jeff Katzenberg's new startup, and the type of startup's that existed when the Lean Startup was invented is the number of variables which are unknown. This new media startup isn't starting at an unknown. In fact, virtually everything about this business model has been tested before somewhere.
Lean is about experimentally approaching hypothesis about business models. Then scaling up when you find something that works. Short videos targeting mobile isn't new. If I allowed him too, my son would watch dumb youtube videos all day on my phone. This is a gamble that consumers might want better quality content. Not a huge gamble :\
Calling a popular term "dead" is certainly a good way to attract clicks. And sure, when money is cheap and you have $2B to spend, you can afford to throw much bigger Spaghetti at the wall. But Lean defines a startup as a project under extreme uncertainty. Commercial video streaming sites exist, the only thing that seems to be new about the example in the article is the video length. I would not consider this an environment of extreme uncertainty. So imho, while cheap money does change the equation, 99% of the article's punch lies in its clickbaity headline.
Eric invented the term for Lean. Steve invented Customer Development. Both have different definitions of what a startup is. Extreme uncertainty is part of Eric's definition, not Steve's.
I think it's saturated. Lean goes best with the easy to execute ideas--where a viable product is possible in days or months.
Take an animation software program designed for professional artists: it's not possible with only a few features, because it wouldn't be competitive with existing products. You need such a large array of polished features to have any staying power. Let's also say you want to make a product with better core functionality which can't be done with 3rd party add-ons or working with existing software.
There's still a lot of opportunity for people willing to work on something for several years before releasing, as long as they aren't taking gambles with their primary value proposition. (Would hate to be wrong after spending that much time)
There are still untapped niches where lean works, though, I bet, if that's your calling.
My backup, if I'm making a product that people don't use, is to be my own customer, and open an animation shop which uses the software to make animations to sell to people. So if you're not going lean, go for a product you will use (and obviously a product that is useable by only one person[not a social network]) to make money, if people don't buy the product itself.
(Ie, if you're making software that makes it easier to host websites, make sure it's software that you would personally use in the case that you can't sell the software, but can still sell the hosting)
So Blanks thesis seems to be go lean when money is hard to come by, otherwise take the cash and go big because there is more out there if you fail. I’m not sure this is much different than what has been talked about for a while, but it puts a nice point in what most people just talk around.
The capital is there, there’s a very good chance you’re going to fail anyway, you might as well fail while eating something other than ramen.
As a bootstrapper, I see the point of what this article is trying to say. It's been increasingly difficult to create products that can find product market fit/validation and reach a scale where the income justifies the effort. And to top it off, the MVPs are becoming much more full product than simple landing page MVPs of years past -- and all of this requires a lot of capital (time, money, connections, volunteers, etc).
As more entrepreneurs enter the space, competition will only become more fierce. Even selling the tools to the gold rush has become commoditized with the choices available.
You still need to pay for marketing, sales, some administrative work (accounting, legal...) Maybe you need help outside of your expertise (graphic design, UX...) There is a lot that goes into a startup on top of just building the product.
I was delivering reliable SaaS applications in 1999, and by that time I was already behind the pioneers by 5+ years. So that's not anything new, and on balance I don't think the demands are any higher. Some things have become harder, others easier.
Osterwalder's business model canvas lives on in its original form and variations of it. Use it to organize important ideas on paper.
Get "out of the office" early in the process and speak with prospective customers.
Create a product that does the minimum required to achieve your goals.
How could these ideas possibly be dead? Maybe "Lean Startup" as a turn-key solution to entrepreneurship has died and it has become more difficult for the Ries and Blank to monetize. However, they promoted many valuable ideas and practices that live on.
"It’s a response to scarce capital, and when that constraint is loosened, it’s worth considering whether other approaches are superior. With enough cash in the bank, Katzenberg can afford to create content, sign distribution deals, and see if consumers watch."
There are two main thoughts from this that occurred to me:
1. There are very few Katzenbergs out there, so him personally raising that money is not surprising. If Spielberg or Lucas wanted to create a short form video company I am certain that they would be able to raise similar amounts. I am not him; therefore the lean rules still apply to me
2. the times that I have had enough money to buy my way out of problems has not yielded the best results. In my 30 years of doing this the clever answers have always come when my resources have been restricted, with often the best results from the most constriction. Extra money can bring bad results sometimes, the beauty is in the restraints.
For what I see, it seems to me that hard STEM startups tackling industrial problems can’t work through the lean paradigm, that’s why too much too often their projects are shut down or internalized as soon as a nice acqui-hiring happens. In other words, bigger firms just scoop applied r&d teams in their field before they actually become a commercial threat.
I think it's cyclical: there are periods of lots of funding available and less of funding available. There's still market economics at play. So the Lean Startup is not permanently dead simply because we see articles of startups getting $XX million funding or have $X billion valuations.
A company that is restricted on cash and "lean" is more inclined to be risk-averse and calculated in their business model decisions because they have to 'do more with less'. Whereas a company pumped full of cash has a greater 'trial and error' risk-tolerance because their goal is to overpower a target market to become the dominant player as quickly as possible. Investors still want to see a pleasing return either way.
To what extent does user trust factor into how lean a startup can be?
A small company can't afford to spend a lot of resources on data integrity and protection, encryption and retention best practices, keeping up with laws like the GDPR, and they're that much closer to going bankrupt and having the data they've collected become part of asset liquidation and auction. It seems like these days, the discerning consumer ought to put more trust in a larger company's offerings in a given space than a smaller company, and even be wary of a smaller company that's offering something truly novel if that novelty isn't worth the price of private data being at-risk.
Theoretically you're right. In practice not enough customers think about that risk for it to have a material impact on the startup's financial viability.
Investors aren't stupid - they won't fund millions of dollars (series A and above) unless they see a working product that customers are raving about, a large market opportunity, and a clear go-to-market - general indications of product-market-fit (although the definition of PMF depends on the space and product). We have seen rare cases of outsized seed rounds w/o a product, but they are extremely rare (even today). So this notion of "go big or go home" isn't vaporware - most founders cannot get that kind of investments, and few that can (reputed, second time founders for example) think 100 times before they jump in.
I think the problem with Lean today is that everybody knows about it.
Starting a startup in 2002-2005 was hard, just the mechanics of it. Incorporating took several thousand dollars of lawyer time; there was no Clerky, and online LLC-generators were largely unknown. Accepting payments meant getting a merchant account with a CC; no Stripe, Square, or other payment processors. Payroll meant dealing with ADP or PayChex; benefits meant hiring a person to manage those relationships. There was no YC, generally no seed funding ecosystem other than angels, no AngelList, no gigantic startup blogging scene where everybody gives advice on everything.
As a result, there were plenty of unfilled pain points, and potential customers were overjoyed when someone would actually come talk to them about it rather than assuming they knew what was best, a la big companies or massively VC-funded startups.
Now, everybody and their brother is founding startups, which means that if you do happen across a genuine pain point, there are already 2 dozen startups working on it. Customers get weary of even talking to prospective entrepreneurs because they've had that conversation so many times before. I've done the Lean Startup methodology, and have several friends that have tried it; the most likely outcome today is that you'll talk to a 100 customers (after trying to talk to several hundred more who don't respond), and then discover that there's no actual market need addressable with current technology and you should keep your day job.
Like most knowledge related to markets, once everyone believes it's true, it ceases to be true.
Yep, you could argue that finding out after 2 months that an idea won't work is preferable to wasting 2 years on it. 'Course, then I went and repeated the process 8 more times, then decided that if there are no untapped market areas that can be filled by existing technology, it's time to spend 2 years inventing new technology. It remains to be seen whether that's a waste or not.
At some point you also have to apply the same logic to methodologies that you apply to ideas, though. The point of the Lean Startup methodology is to avoid wasting time implementing ideas that won't work so you can find a scalable, sustainable business model quicker. If your goal is to found a startup and all experience is that the Lean Startup methodology, in 2018, does not provide a scalable, sustainable way to do that, then you should ditch the methodology. Chances are you'll have to do your own methodology invention, though, because once a scalable, sustainable way to get rich becomes commonly known, it ceases to be sustainable.
(See also Bitcoin, which was a great way to get rich when nobody considered it a way to get rich, and then became a great way to become poor when everybody was certain it would make them rich.)
You are thinking to big. Look for a niche. If there are 2 dozen startups already competing in that space, it's not very niche.
There are plenty of opportunities out there big enough to make a founder very wealthy, but not big enough to attract the least bit of interest from a VC.
Consumables. The big players are brain dead in terms of product innovation which means you get successful small companies entering all the time. Greek yogurt, deodorant, energy bars (Hi! I'm the cofounder of Mealsquares!), coffee, you name it. Tech founders don't want to touch this stuff.
That's because those things are flooded with competitors and margins don't scale nearly as well as pure tech. Every time I walk through my local farmers market I see a new brand of Kumbucha or Flat Tummy Tea.
But, there is competition everywhere, and it gets fiercer by the day. So pick something you're truly interested in and roll with it until the wheels fall off. That's really your only chance ( if you have one at all ).
The idea for short subject videos is actually pretty good but here is what I don’t like: Netflix, HBO, and Amazon rock because they spend a ton of money making their own material. I don’t see getting the same quality by farming out production to contractors.
Regarding the main point of the article: I always liked the idea of lean and sometimes bootstrapped startups. The current trend of mega financing perhaps comes from all of the money slushing around in markets looking for investments. Part of the effect of increasing wealth disparity is the the very rich have much more capital than they need to live and want to invest.
Is there a single example in business of someone taking a huge amount of money, and plopping a famous CEO in charge of a dozen people and saying "go" and generating a successful business? (Let's set aside investment funds, obviously. I guess Meg Whitman could just hire some iconoclastic traders and tell them to manage the $2B while her 10 staff clone YouTube.)
There are quasi-legendary cases in history (think Spartan and Byzantine super-soldiers) of a tiny band with no resources executing ludicrously successful military campaigns, so I guess it's not completely impossible.
The low hanging fruit has been picked and we’re waiting for the next technology trigger. My friend said to me recently, not only are all the good ideas taken, but so are all the bad ideas.
I don't believe that at all. Maybe the low hanging fruit in San Francisco has been taken, but the future is not evenly distributed... opportunities everywhere (read a headline about a Nigerian startup getting funded, that's the kind of stuff I'm talking about).
As an aside to the discussion about lean, I don't understand why these guys got 2 billion, even if it is Katzenberg. Netflix already has short content specific to mobile. They're subtle about it, but if you browse on mobile you'll get presented with shorter bits of content in your recommendations.
I guess the idea is that they are starting a studio to create short content, and hope to make billions selling the content?
It has always been dead or near dead. That's the point of a lean startup. It's a recession business operating in a surplus market. They're trying to make it successful despite market evaluation. (Can be a good thing or a bad thing.. mostly it's a bad thing for the long term economy, bad for customer value and solving customer needs)
Lean Startup may or may not be dead but my Boss is going to continue to misuse the term MVP regardless. It pains me to think that this term isn't going away. I believe it will be used by managers for a long time to make developers forgo good development practices in lieu of getting that minimal ~viable~ product out.
If there's no product/market fit, too much capital is a death sentence. If they don't go out of business in a giant explosion, NewTV surely won't build anything innovative or disrupt anyone. Too much pressure and too many expectations at the wrong time/place.
Product is all that matters. And I'm not talking about the app. If they spend that cash generating quality video content, it is proven people will talk about it and will pay a subscription. So I think this investment speaks to the confidence that this guy can execute on this vision and that the market is receptive to this format, which it will be if done right. Also, if modestly successful there are plenty of Big's who would acquire. Knowing nothing of the players and how they execute, this actually passes the sniff test more than most and I'd say it sounds like it could be a winner.
Uber changed the game by growing globally at an breakneck pace. Now, if you have a successful product, you need to globalize as quickly as possible otherwise people in Europe, China, India, Indonesia, Brazil, etc will all copy your idea and you will be left flat-footed.
The lean startup is alive in well in most entrepreneurial ventures. Starting a food truck? Grocery store? Custom t-shirts? Indie video game? Small focused SaaS?
The echo chamber is real. "I looked outside and saw no lean startups, its dead!"
The article (and most of HN) refer to the local Silicon Valley jargon definiton of the word "startup": a company that is meant to grow extremely fast through the use of new technology. It's not a synonym for any entreprenurial venture.
What you're talking about is locally called a "lifestyle business" (not a "startup") -- a small business that can provide a comfortable living for the founder and a few employees, but which has essentially zero longer term growth prospects.
This point seems to be the source of much confusion in the comments here.
Those aren't "lean" either! "Lean" means starting your business before you have a product, marketing-driven development, and fumbling around chasing customers until you find something they want to buy, and then building it.
Katzenberg's business idea cannot be explored without lots of capital. I bet you could find startups like it (i.e. raising lots of money before product-market fit) even when investment money is scarce, just fewer of them.
I should also point out why the "Lean Startup" is more relevant than ever: Theranos. (The other story trending in hacker news).
After reading Bad Blood, I am not convinced that Holmes (at least initially) intended to perpetrate a fraud. She may have believed it was possible to produce the machine she dreamed off, and it was a question of putting in the R&D. (It still might be possible).
If this is the case, the "lean" methodology would have saved her if she had just started out small and focused on developing the tech first.
Saved in the sense of convincing her it did not work and that it was best to return the rest of the money.
There was a time when the distribution deals were signed and the tech wasn't read and the deals were used to raise cash that really must have felt like things have gone too far.
Theranos's problem seems to be that they (especially Holmes) would not bend on technical issues that would have allowed them to build a functioning product.
It sounds like if they had allowed the machine to be a little bigger, and if they had compromised on being able to take a little more blood (instead of the one drop they had been marketing), they could have had a real machine that would produce reliable results.
Then they could have iterated and continued the push to miniaturize what they already had commercialized.
Instead, Holmes insisted on a sample size that technically they couldn't achieve reliable results with, and when faced with the decision of compromising on spec to get something to work, or release something that didn't work and then lie about it, she chose the latter.
If anything, a "lean" approach (to the extent possible with medical testing hardware) would have benefited them.
It would be crazy -- I mean in a cosmic way, not talking about any particular person -- if it were possible to get a decent MVP if it were slightly larger and took in slightly more blood.
The book implied this might have been possible, but it was not clear to me.
It's hard to find investors who will invest in just "the tech". Even in cases where it's clear to basically everyone that the structure of the market, the profile of the customer, and the size or depth of the problem necessitate pursuing a technology strategy and not a product strategy out of the gate (and possibly for a long, long time).
Even at early-stage investment, if you don't have a really specific product narrative doing a sound-bite sized thing, you'll get a lot of feedback about how it all needs to be very simple and you need to have a specific product definition.
This is not a defense if Theranos, but rather just some insight into the ways that VC preferences, pattern-matching, and fairly simplistic capacity to vet anything through a "pitch" tend to distort how one goes about raising money and what one can reasonably raise money for. There probably needs to be some increased diversity in funding sources for "hard tech" problems.
The issue I've always had with the concept of "MVP" is that it trivializes the problem space you can reasonably pursue, and collapses all the solutions into something you can throw together quickly, which also seriously distorts the incentives for rigor around making anything.
It probably works fine for another Daily-Lifestyle-Thing-as-a-Service/App, but it seems less likely to work for something like creating a new sensor for an avionics system.
I don’t know what to think about Holmes. At this point she thinks she just did what every other (male) startup founder did, and that she’s getting singled out for punishment when plenty of other startups over promised and under delivered. She doesn’t seem to grasp that flopping on some shitty social media site is far lower stakes than lying about medical issues, which makes me question her ethics and grasp on reality.
I have not seen her current response to the situation.
Does she hold out examples? I don't know of any under delivery of this magnitude. (I think even webvan peaked at $4.8 Billion in value. It eventually had peak sales of $178million).
I don’t have the exact quote in front of me, I’m recalling this from Preet Bharara’s podcast.
You’d have to inflation adjust those numbers to be fair, but I suspect that you’re right in calling this one of the biggest under deliveries in a while.
> After reading Bad Blood, I am not convinced that Holmes (at least initially) intended to perpetrate a fraud. She may have believed it was possible to produce the machine she dreamed off, and it was a question of putting in the R&D. (It still might be possible).
I suspect that's the case too. Especially considering she didn't take money off the table.
It seems she was completely invested in the idea of fake it till you make it. Dangerously so.
Instead of setting your best engineers to work creating the best product, they're busy recruiting and dealing with company growing pains from the get-go. The mythical man-month and scarcity of great people combine to diminish your returns on this hiring. Furthermore, battleships don't turn on a dime, and you may be hiring a lot of irrelevant expertise if you have to pivot later. This is why Stripe took 6 months to hire its first 2 people.
Furthermore, huge funding means investors are looking for a huge returns. A $1b sale is now failure?? My gut says this "go big or go bankrupt" pressure encourages tunnel vision among leadership rather than innovation.
Essential Products was overfunded in late 2015 and is already up for sale. I think Magic Leap and Desktop Metal will end up as similar cautionary tales.
I see good arguments for overfunding if (1) there's huge capital costs for development and high probability of large exit regardless of technology success (e.g. biotech) or (2) you're trying to capture a market with a strong network effect. The second case seems dangerous though, e.g. is Uber's popularity really a moat? What if they had spent their billions on developing a product with a real technological advantage instead of scaling to the world first?
As a huge fan of his book, I'm sad to see Steve Blank largely ignore these ideas in his article.