Another Look at the “Lean Start-Up”

Recently, the Harvard Business Review published an article by entrepreneurship guru Steve Blank titled “Why the Lean Start up Changes Everything”.  Blank discusses the concept of the ‘lean start-up’ (see “Three Principles of the Lean Start-Up Method”), and how the notion of a traditional business plan is out of step with the modern start-up.

LeanStartup

While Blank’s article does an excellent job of providing an overview of the lean start-up method to new entrepreneurs, it glosses over several fundamental questions any start-up would be wise to answer.  A key statement made early in the article claims that the standard business plan is dead, and that projected financial statements and a long planning process are only slightly better than worthless for lean start-ups. By not relying on a traditional business plan, Blank argues, start-ups are better positioned to pivot following failure and move to a more successful position.  But what about the costs and risks of failure?  Are we to just assume those away as a possible conclusion of any business strategy?

 

Start-Ups and Failure

It is accepted that new start-ups face an imposing failure rate (placed at roughly 75% by a recent Wall Street Journal article, available here).  If this is true, then an overall risk of failure is the single largest threat facing a new business.  While this conclusion is not exactly a revelation, it underscores the risk inherent in the business of entrepreneurship.  So, what can entrepreneurs do to minimize their risk of failure?  Have a plan – sit down and think of some of the things that could possibly cause your business to fail.  What can you do about each of those critical threats?  Some will be entirely out of your control, but by at least having a plan on paper to deal with as many as possible, when the time comes you will be more prepared than you might expect.

Although a lean approach certainly allows for a more agile and customer-driven operation, it can also lower the barriers to entry for entrepreneurship; in some ways, the lean start-up actually has the potential to increase the risk of a start-up failing.  While traditional business planning methods may be slow, plodding, inaccurate behemoths by the time they are presented to potential investors, they have forced the entrepreneur to think long and hard about her venture, to analyze the possible revenues and competitive forces at work in that market space; maybe even to dramatically shift the business idea before opening the doors.  Under a lean start-up, this careful planning process is foregone for speed and agility – both accurately identified by Blank as critical attributes of the modern start-up.

The Importance of Planning

In his article, Blank proposes that “a start-up will probably fail several times before finding the right approach”.  However, that statement should force the question, ‘what if one of those times is a critical failure?’  Are entrepreneurs just to assume that risk as part of doing business – or should they try and anticipate them?

The lean start-up is forward focused, though anchored in the present.  Fixating on ideas and pivoting when they don’t work is far too reactionary a response for the modern business climate.  Prospective management is required to be successful.

Even the modern lean start-up would be foolish to eschew a developed, thought out business plan; but not one full of estimates and projected statements of income and cash flow.  The modern business plan is about foresight, strategy development, implementation and risk management.  An important tactic in developing strategic foresight is to be constantly asking ‘what if…’  What if a key customer doesn’t pay?  If a lender calls a loan, or your product shipment is delayed?

In support of his point, Mr. Blank quoted multiple-champion boxer Mike Tyson, “Everyone has a plan until they get punched in the mouth.” If that’s true, why do fighters train?  When you’re hit; stunned, vision blurred and ears ringing, it is precisely your training that allows you to continue.  You’ve planned for it, trained for it, and rehearsed it a hundred times.  Your body knows what to do before your conscious mind can focus: move, cover, counter.  The same is true in business.  If your start-up has game planned for failure; has measured the risks of scenarios both likely and improbable, then when an event takes you by surprise the groundwork to react strategically has already been laid.

Alex Monk leads Abacus Data’s Business Strategy and Implementation practice and manages the development and testing of all online surveys and panels. He is also responsible for managing the day-to-day operations of Abacus Data and overseeing the company’s accounting department. Alex earned his BA (honours) in Political Science and Economics from Carleton University, and is a Certified Management Accountant.

Contact Alex Monk, CMA:

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