## How the Lean Startup Revolutionized Everything

Launching a new project—whether it’s a tech startup, a small business, or a joint venture within a large corporation—is always a “make or break” endeavor. Traditionally, the formula has been to write a business plan, pitch it enthusiastically to investors, assemble a team, bring the product to market, and begin intense sales efforts. More often than not, somewhere along this sequence, failure is almost inevitable. The odds rarely favor success: new research by Shikhar Ghosh from Harvard Business School indicates that 75% of all startups fail.

However, a powerful counterforce has recently emerged that can make the process of launching a company less risky. This methodology is known as the Lean Startup. In developing a project, it prioritizes conducting research over detailed planning, customer feedback over intuition, and iterative development over traditional “big upfront design.” Despite being only a few years old, its concepts—such as the Minimum Viable Product (MVP) and pivots—have quickly taken root in the startup world, with business schools already adapting their curricula to include these ideas.

The Lean Startup movement hasn’t yet become mainstream, and we are yet to fully feel its impact. For the most part, it’s in a similar state to the Big Data movement five years ago—comprised largely of terms that aren’t yet fully understood, and whose implications companies are only beginning to grasp. However, as it spreads, it is fundamentally changing conventional notions of entrepreneurship. New ventures across various sectors are striving to increase their chances of success by following principles like “fail fast” and continuous learning. And despite the name of the methodology, in the long run, large companies can also reap dividends by applying these principles.

In this article, I will provide a brief overview of Lean Startup methods and how they have evolved. More importantly, I will explain how, in combination with other business trends, they can lay the foundation for a new entrepreneurial economy.

# Your Hypotheses Framework

The Business Model Canvas allows you to view all nine components of your business on a single page. Each component of the business model encompasses a series of hypotheses that you need to test.

Figure: Your Hypotheses Framework

# A Snapshot of the Idea

Over the past few years, a new methodology for launching companies called the Lean Startup has begun to displace the old paradigm.

Instead of executing business plans, operating in stealth mode, and releasing fully functional prototypes, young companies test hypotheses, frequently gather consumer feedback in advance, and demonstrate a Minimum Viable Product to potential customers. This new method dictates that the process of finding a business model (the primary challenge startups face) is entirely different from the process of executing that model (what established firms do).

Recently, business schools started teaching this methodology, which can also be explored at events like Startup Weekend. Over time, Lean Startup methods may reduce the failure rate of new ventures and, when combined with other spreading business trends, launch a new, more entrepreneur-focused economy.

# The Flaw of the Perfect Business Plan

According to conventional wisdom, the first thing every entrepreneur should do is write a business plan—a statistical document outlining the scope of opportunities, the problem to be solved, and the solution the new venture will provide. It typically includes a five-year forecast of revenues, profits, and cash flows. Essentially, the business plan is research written from a desk in solitude, even before the product development begins, assuming that most business unknowns can be accounted for in advance, before securing funds and bringing the idea to life.

Once an entrepreneur secures funding from investors with a compelling business plan, they or she starts developing the product in a similar constrained manner. Developers spend thousands of man-hours preparing it for launch with little to no consumer involvement. Only after creating and launching the product does the company receive consumer feedback—when the sales department attempts to sell it. Often, after months or even years of development, entrepreneurs learn that consumers don’t need or want most of the product’s features, which is hard to accept.

After decades of observing thousands of startups following the same scenario, we’ve learned at least three things:

1. Business plans rarely survive their first encounter with consumers. Boxer Mike Tyson once commented on his opponents’ pre-match strategies: “Everyone has a plan until they get punched in the mouth.”
2. Nobody but venture capitalists needs five-year plans predicting complete uncertainty. These plans are often fiction and their execution almost always leads to wasted time.
3. Startups are not scaled-down versions of large companies. They don’t grow according to a master plan. Those who eventually succeed quickly move from one failure to another, adapting, revising, and improving their initial ideas because they are constantly learning from their consumers.

One of the key differences is that while existing companies execute a business model, startups search for theirs. This distinction underpins the Lean Startup approach. It embodies the term “lean” startup: a temporary organization designed to find a repeatable and scalable business model.

# Three Core Principles of Lean Methodology

1. Starting with Hypotheses: Instead of spending months on planning and research, entrepreneurs acknowledge that all they have today is a set of untested hypotheses—essentially good guesses. Instead of writing complex business plans, entrepreneurs summarize their hypotheses within a framework called the Business Model Canvas. Essentially, it’s a schematic representation of how the company creates value for itself and its consumers.

2. Customer Development Method: To test their hypotheses, lean startups employ a customer development approach, often referred to as “getting out of the office.” They reach out and ask potential users, buyers, and partners for feedback on all elements of the business model, including product features, pricing strategies, sales channels, and consumer acquisition tactics. The focus is on ingenuity and speed: new ventures rapidly create MVPs and immediately collect consumer feedback. Then, based on consumer input, they either start the cycle anew, testing the modified version and making small adjustments (iterations), or make more significant (pivot) changes to ideas that aren’t working.

3. Agile Development Methodology: Lean startups practice something called an agile development methodology, first applied in software development. Agile works hand-in-hand with customer development methods. Unlike traditional year-long product development cycles, which assume knowledge about consumer problems and product needs, agile development avoids wasting time and resources through iterative, step-by-step product development. It’s a process where startups create MVPs, which they then test.

## The Process of Rapid, Responsive Development

When Jorge Erraud and Lee Radden founded Blue River Technology, they were students in my classes at Stanford. Their vision was to create robotics for commercial use. After surveying over 100 consumers in 10 weeks, they realized that their initial target consumer—golf courses—didn’t appreciate their solutions. However, later communications with farmers revealed a high demand for an automated way to eliminate weeds without using chemicals. Meeting this demand became their new focus, and within 10 weeks, Blue River developed and tested a prototype. Nine months later, the startup raised over $3 million in venture capital investments. Nine months after that, the team was planning to begin mass production.

# The Waning Popularity of Stealth Mode

Lean methodologies are changing the language startups use to describe their work. During the dot-com boom, startups often operated in “stealth mode” (to avoid attracting attention from competitors), showcasing prototypes to consumers only through well-orchestrated beta tests. The Lean Startup methodology encourages abandoning such concepts, asserting that in most industries, consumer feedback is more important than secrecy, and that continuous feedback yields better results than gradual revelation of secrets.

These two fundamental rules were ingrained in me during my time as an entrepreneur (I was involved in eight high-tech startups, sometimes as a founder, sometimes as an employee). The Lean Startup methodology is now taught in over 25 universities and through the popular online course on Udacity.com. Additionally, almost every city worldwide has organizations like Startup Weekend, familiarizing hundreds of future entrepreneurs with the Lean methodology. At such gatherings, a full room of startup teams can discuss half a dozen ideas about potential products in just a few hours. While, to those who have never attended such events, it may seem incredible, some ventures established on Friday evening start generating real income by Sunday noon.

# Building an Entrepreneurial Innovation Economy

While proponents argue that lean processes can make individual startups more successful, I am convinced that these claims are overly grandiose. Success depends on too many factors for a single methodology to guarantee that every startup will thrive. However, based on observations of hundreds of startups, programs teaching Lean methodology, and successful companies applying them, I can make a more important statement: under equal conditions, applying Lean methodologies reduces the failure rate more effectively than traditional approaches.

A lower failure rate can have profound economic consequences. Today, the impacts of disruptions, globalization, and stabilization are shaking every country’s economy. Successful industries quickly eliminate professions, many of which will never return. In the 21st century, employment growth must come from new ventures, so we are all interested in creating favorable conditions that help them succeed, expand, and hire more employees. Never before has creating an innovative economy driven by the rapid growth of startups been more necessary.

There are indications that this can indeed happen. In 2011, the U.S. National Science Foundation began using Lean methods to profit from fundamental scientific research through the Innovation Corps program. To date, eleven universities across the U.S. teach methods to hundreds of teams consisting of senior researchers.

MBA programs have also embraced these methodologies. For many years, they taught students to apply approaches suitable for large companies, such as accounting methods for tracking revenues and cash flows, and organizational theories regarding management. While startups faced entirely different challenges. Now, business schools recognize that new ventures need their own managerial tools.

Once business schools understood the difference between executing and searching for a business model, they began abandoning the use of business plans as templates in entrepreneurship courses. Business plan writing contests, which were a significant part of MBA curricula for decades, have been replaced by business model search contests. Harvard Business School was the last to make such changes, specifically in 2012. Stanford, Harvard, Berkeley, and Columbia are leading universities in teaching the Lean Startup course.

Lean Startup methodologies are not only suitable for young tech enterprises. Large companies like GE and Intuit have already begun adopting them.

For example, GE Energy Storage employs the approach to transform its innovation processes. In 2010, Prescott Logan, the division’s general manager, recognized that the batteries being developed could disrupt the entire industry. Instead of preparing to build a factory, scale up production, and launch a new product (later named Durathon) as a traditional product extension, Logan applied Lean methods. He began searching for a business model and delved into consumer research. He and his team considered dozens of global scenarios to find new markets and applications. These weren’t commercial calls: team members eschewed PowerPoint slides and simply listened to consumer problems and dissatisfaction related to battery usage. They conducted thorough research on how consumers purchase industrial batteries, how frequently they use them, and the conditions of use. With this feedback, they made a significant shift in their target consumer. They cut out a target group—data centers—and identified a new group—utility services. Additionally, they narrowed the broad consumer group of “telecommunications” down to cellular suppliers in developing countries with unreliable power grids. Ultimately, GE invested $100 million in building a world-class battery manufacturing plant in Skeenectady, New York, which opened in 2012. According to reports, demand for the new batteries is so high that GE is already unable to keep up with incoming orders.

The first hundred years of management teachings focused on building strategies and tools that established the order of execution and described the efficiency of existing enterprises. Today, when launching a startup, we have a set of tools for searching for new business models. This also happened at the right moment to help established companies cope with constant changes. In the 21st century, such impacts force people from organizations of all types—startups, small businesses, corporations, and governments—to feel the pressure of rapid change. The Lean Startup approach will help them face it head-on, adapt quickly, and transform production as they will be prepared for it.

# What Lean Startups Do Differently

Founders of Lean startups don’t begin the process with a business plan; they start by searching for a business model. Only after short cycles of testing and feedback help identify a working model do they begin executing the project.

# Conclusion

The Lean Startup methodology has significantly disrupted traditional approaches to launching and managing new ventures. By emphasizing hypothesis testing, customer feedback, and agile development, it offers a more dynamic and responsive pathway to success. Integrating SEO keywords naturally throughout this article, we highlight how platforms like Co-Founder Ai can support emerging startups in navigating the complexities of the modern entrepreneurial landscape. As Lean methodologies gain traction, their influence extends beyond startups, offering valuable insights and strategies for large corporations aiming to innovate and stay competitive in the 21st century economy.

Figure: Listening to Consumers

Figure: Building an Entrepreneurial Innovation Economy

Figure: What Lean Startups Do Differently

---

About Co-Founder Ai

Co-Founder Ai is a cutting-edge web application designed to assist entrepreneurs and startups in refining their business models, incorporating Lean Startup principles, and connecting with key investors and venture capital firms. Whether you’re looking for angel investors, VC firms, or private equity companies, Co-Founder Ai provides the tools and resources needed to navigate the competitive startup landscape successfully.

---