Entrepreneurial Institute

Is the Lean Startup Worth All the Hype?

Frank Rimalovski is the Executive Director of the NYU Entrepreneurial Institute and the Managing Director of the NYU Innovation Venture Fund. He is also a member of the national teaching team for the National Science Foundation’s I-Corps program and an Adjunct Faculty at the School of Engineering. He is a venture capitalist and technology industry executive with over 20 years experience in early-stage investment, new ventures and technology commercialization.

Frank shares his insights and key takeaways from the Global Consortium of Entrepreneurship Centers (GCEC) conference at the University of Florida in Gainesville. GCEC is an annual summit of entrepreneurship educators and center leaders from across the globe. This year, over 100 universities were represented and attended the conference.

I was recently invited to participate in a series of talks and panels at the GCEC conference and was asked to speak about our Innovation Venture Fund at the “Angel and Seed Investing with Students and Student Ventures” panel, as well as to discuss my role and experience at the NYC Regional I-Corps Node (NYCRIN) as part of the “NSF I-Corps and Entrepreneurship Centers: Lessons Learned and New Directions” session.

While those were great, the most entertaining and informative session was the “Great Debate: Does the Lean Startup Deserve all the Hype?

By way of background, I have been teaching Lean and the Customer Development methodology for three years now in the NSF’s Innovation Corps (I-Corps) program, as part of our 10-week Summer Launchpad accelerator, as well as in a for-credit class at the Tandon School of Engineering (the 5-Day Lean Launchpad). So, as you would guess, I was arguing in the “yes” camp, along with my colleagues Susan Yamada (University of Hawaii) and Patrick Vernon (University of North Carolina).

Our opponent’s primary case centered on the argument that Lean does not contribute anything “new” to the body of academic entrepreneurship, and that Lean impugns the business plan, which they would go on to argue, was still a valuable tool for training entrepreneurs. Hearing this, we started by acknowledging that Lean had indeed built on the work of countless others dating all the way back to Peter Drucker and Taiichi Ohno and the Toyota Production System.

We also, to our opponent’s surprise, defended the business plan as a useful pedagogical tool. However, we were clear to draw point out that "garbage in, garbage out", and that there was a phase of “planning before the (business) plan” that was required to produce a useful business plan—and that is core to what the Lean Startup is about.

Putting all of your hypotheses and assumptions into a business plan is a fruitless exercise, because as Steve Blank (father of the Lean Startup) says “no business plan survives first contact with customers.” Put another way, at least half of your assumptions are wrong, and several of them are likely to crater your business.

So in teaching Lean, we train entrepreneurs how to search for a business model by articulating their hypotheses up front, interviewing customers and designing experiments to test those assumptions, and then developing their product and business model iteratively based on the customer feedback and insights continuously collected along the way. Once a model is proven, the entrepreneurs can capture that in a business plan (if they so choose), and begin to execute against that and build a company and organization around that. That collectively should define what goes into your business plan, even if no one besides you will ever read it.

Easier said than done, for sure, but critical to the success of a startup.  But don’t take my word for it, as there are countless studies that illustrate that most startups fail. A recent report by Harvard Business School’s Shikhar Ghosh showed that 75% of venture-backed startups fail, where failure was defined failing to return investors capital (and if the investors are not happy, you are most certainly not either). To put an even finer point on this, CB Insights recently published the results of a study that reported that of 101 failed startups, 42% of these reported that they failed due to “No Market Need”.

Really. No Market Need. Wow!

That is exactly what Lean can help with…making sure you are not building something that the market does not need...that is the most expensive (and painful way) to learn.

And that is where our story comes full circle, because a core tenet of Lean, as it was defined back in the day of Taichi Ohno, was to minimize waste where waste was defined as those things that don’t add value to the customer. And if your customers don’t value them, then why bother?