Subtitle: Great Technology in Search of a Business Problem Rarely Gets Funded
This post is about a (relatively) new movement that's been dramatically changing the start-up world - Lean Startup Principles. Since my world is mostly scientists, I know that many of you may roll your eyes and say, “Lean” is for those Internet guys. We're very different, in that we're making new materials or chemicals -- and that costs millions of $ of investment." If that’s what you’re thinking, then this column is intended for YOU. The others who are already on-board with "Lean" - no need to read any further as I'm preaching to the choir.
I'll start with the punch line. When the NSF (National Science Foundation) formed the iCorps 2 years ago and hired Steve Blank to evangelize and proliferate the ‘Lean’ methodology, it's a big deal. And there's a simple reason – R&D commercialization metrics, measured by Govt. research IP that crosses the chasm over to the commercial marketplace is, let's just say, under-performing. The NSF wants to get more out of its R&D investments.
Steve Blank, the pioneer in this area, recently wrote about this in LinkedIn and was celebrated by a Harvard Business Review article: http://hbr.org/2013/05/why-the-lean-start-up-changes-everything/ar/1. While I was writing this, Blank just published another great post on Linked In on why Lean applies to drug discovery and medical devices: Reinventing Life Science Startups – Evidence-based Entrepreneurship http://www.linkedin.com/influencers/20130821141757-95015-reinventing-life-science-startups-evidence-based-entrepreneurship?trk=vsrp_people_res_infl_post.
Steve Blank is a serial entrepreneur and now educator at Stanford. Eric Ries must also be mentioned, another pioneer in this area, entrepreneurship author (The Lean Startup), who learned under Steve Blank. They both wanted to know why is it that certain ventures made it and so any others don’t. They studied thousands of tech ventures and discovered an important sequence of events to follow - a methodology - all based on DATA, that strongly suggests WHY certain ventures make it, and HOW they execute the process of making it.
"Lean Startup Principles" was born from their books, and it's now taught by virtually every accelerator in the county (now 200+), most entrepreneurship University curricula, and now the NSF. The NSF is using it as a gate-keeping step entrepreneurs must pass through to win later-phase SBIRs. What the Lean Process does is force the entrepreneur to discover real business problems and potential customers BEFORE their solution is presented. Enough about the WHY. Let's explore the WHAT .... What is "Lean" and how is it different?
The Business Model Canvas is the tool or framework that you use to work through taking your innovation to the market. It’s non-proprietary and several versions are out there. It's the Cliff's Notes to the sequence of events that you are following to get some traction with customers and partners. They all accomplish the same thing - VALIDATION, without spending a lot of money. Fail fast, pivot, adapt. The variation which I prefer is different than Steve Blank’s (www.steveblank.com) and based on Ash Maurya’s canvas (www.practicetrumpstheory.com)
Lean also requires a deep understanding of market segmentation, and how the value chain of that industry works. Focusing on one segment is a key part to the Canvas - because each segment articulates a problem differently …. And those differences ripple all the way through the 9 elements of the canvas. Here are the 9 elements of the canvas:
1 – Segment 2 – Problem 3 – Unique Value Proposition
4 – Unique Solution 5 – Channels 6 – Revenue Model
7 – Cost Structure 8 – Key Metrics 9 – Unfair Advantage
A start-up is a temporary organization that goes out on a Customer Discovery expedition. And it’s searching for a repeatable and scalable model. The canvas forces constant testing of your key elements (assumptions) in the real world. Once you find (believe you have found) your Customer, the next step - Customer Execution - involves scaling processes - bringing on more people, putting processes in place, developing better metrics.
Bottom line: It is a ton of work to go through the 2 major steps of Lean as Blank details in The Startup Owners Manual. But you can’t ask for money until you’ve done the work. Most investors know about this process and follow it for their portfolio companies. So when they ask about traction, you should describe how far into the Lean Customer Discovery or Customer Execution phase you are. Your venture’s Valuation maps directly onto these stages.
I can vouch for the process as someone who has been bringing complex technologies to many markets for many years. I have way too many scars with "technology in search of a business problem". With the ones that struggled (and are struggling), we were not clear about the problem we were solving. They all ended badly. I'm a super-convert - this process works.