The Tech World Fell for Lean Startup. Was That a Mistake?

It’s been 10 years since Eric Ries wrote “The Lean Startup" — and we’re still debating the concept’s merits.
Hal Koss
August 10, 2021
Updated: August 11, 2021
Hal Koss
August 10, 2021
Updated: August 11, 2021

In 2014, Helen Walton and her co-founders faced two options. One was to draw up a business plan for their mobile casino game business in which players wagered real money. They’d take their time, get all their ducks in a row, secure a gambling license and hit the market with a robust launch.

The second was to quickly and cheaply build a stripped-down, freemium version of a game to test out and iterate upon until they had a product they felt really resonated with users.

It’s this latter option that was ripped from the pages of the lean startup playbook, a concept that had been in vogue among tech startups for several years. It’s the option they chose. And it’s the option that almost killed their company.

What Is Lean Startup?

Lean startup is a popular methodology for bootstrapping a tech company. It involves experimentation — by building a product that’s stripped down to its essential elements, put in the hands of customers, and rapidly tweaked based on customer feedback. The goal is to quickly and inexpensively discover a product that leads to a scalable, profitable business.

After testing their game for several months — and seeing some improvements — Walton and her team eventually realized they were going to burn through all their cash making incremental tweak after tweak before even having a chance to overcome regulatory hurdles.

“That was a terrible idea,” Walton said of her decision to apply lean startup principles to her fledgling company Gamevy (now g.games).

“We wasted a couple of years … learning totally useless lessons, when we should have spent [money] on getting our [U.K. Gaming Commission] gambling license.”

The company went back to square one. Walton insists it was nearly snuffed out, though, because of the initial decision to apply lean startup principles.

“Rather than focusing on the product, we should have focused on the particular market we wanted to be in,” she later reflected in an opinion piece. “Interestingly, a traditional business plan might have helped us focus on that far better than lean startup.”

Lean startup principles, which tech entrepreneurs Eric Ries and Steve Blank popularized in the mid-to-late 2000s, were codified in book form in 2011 when Ries wrote The Lean Startup. Since then, the methodology has functioned as a kind of de facto starting point for many tech founders.

With a decade of hindsight — and stories from entrepreneurs like Walton — it’s worth asking: should it be?

RelatedHow Do You Know When You Have Product-Market Fit?

 

What Lean Startup Actually Means

In his book, Ries explains that the lean startup approach borrows and builds off of several previous management and product development concepts, including:

  • Lean manufacturing: A set of operational principles developed by Toyota that emphasizes things like a culture of continuous improvement and product development with little to no waste or interruption.

  • Design thinking: A process that applies empathy to end users, identifying their pain points and testing possible solutions.

  • Customer development: A framework taught by Steve Blank that focuses on understanding customer needs and testing products to see if they satisfy customer needs.

  • Agile development: A software product development framework that prioritizes the continuous, iterative, incremental development of products, even after they go to market.

For Steve Blank, the entrepreneur and educator who advised and invested in Ries’ startup IMVU, those last two concepts — customer development and agile development — are the twin pillars on which the lean startup framework is built.

In an article published in the Harvard Business Review, Blank summarized the three key principles of the method:

  1. Lean startups start with a series of untested “good guesses” instead of lengthy planning and research. They summarize their hypotheses using a business model canvas instead of writing a detailed business plan.

  2. Lean startups quickly build minimum viable products (MVP) — barebones versions of products with limited features — and go out and ask potential customers for feedback, using the input to revise their assumptions, test again, and adjust or pivot.

  3. Lean startups develop the product iteratively and incrementally instead of spending months or years building something that presupposes knowledge of the customers’ needs.

By applying these principles, startups can get up and running quickly and affordably — with the nimbleness and speed to make adjustments where necessary. With lean startup, managing a new technology company is supposed to feel more like riding a motorcycle than steering a cruise liner.

 

When Lean Startup Became Popular

The lean startup concept can be thought of, in part, as a reaction to a particular moment — the startup craze of the late 1990s that came crashing down in the early 2000s. At that point, venture capital funding for startups with world-changing ambitions cooled and risk-averse investors wanted to hear pitches for ideas that didn’t sound like a pile of burning cash.

Not only that, but as the web matured, and software services became more sophisticated and widespread, it became cheaper to develop new products and services. What had cost millions of dollars to bring to market just a few years earlier now only required hundreds of thousands to get up and running.

This recipe led some startup founders to eschew the traditional course of action — write a business plan, raise gobs of upfront capital, build the product, launch it and then sell it to customers — in favor of a business model that cut fat, moved fast and cost less.

Eric Ries was one such founder.

In 2003, he was a senior engineer for There.com, a company that had raised tens of millions of dollars and built its technology in stealth mode, but that was so beefy out of the gate it couldn’t adapt to a changing market.

So in 2004, Ries co-founded a new company called IMVU, which made a virtual avatar world. Determined not to make the same mistakes his previous company had made, he and his team took a bootstrap approach.

IMVU built MVPs and shipped them constantly. It ran experiments, talked to customers, measured what worked and what didn’t, and folded those findings back into its product development.

The company rode these principles to tremendous success, while There.com shuttered just a few years later.

By the next decade, lean startup principles were being published in entrepreneurship books and taught in entrepreneurship classes and startup accelerator programs across the world.

And not just because it was trendy. But because it seemed to work.

In 2018, a group of academics from Bocconi University in Italy conducted an experiment to verify a core idea of the lean startup approach — the emphasis on rigorous experimentation and quick pivoting.

They split 116 startups into two groups, teaching the first group how to generate and rigorously test ideas, and essentially letting the second group follow their guts.

The researchers found that entrepreneurs in the first group “perform better, are more likely to pivot to a different idea, and are not more likely to drop out.

In short, startups that rapidly generate ideas, experiment on them and adjust have a greater chance of surviving. And in the wreckage of the dot-com crash, survival looked awfully appealing.

 

How Lean Startup Looks in Action

Geoff Wilson, president and founder of growth agency Three Five Two, has experienced firsthand the power of the lean startup method. Unfortunately, he had to discover it the hard way.

In 2008, Wilson founded a startup that provided a sports-themed virtual world for kids. He took the “fat startup” approach, raising millions of dollars of funding, partnering with big-name football coaches, spending two years building the platform’s technology.

But when he brought it to market, “it completely missed the mark,” Wilson told Built In. “It was an absolute failure.”

It turned out that the end users didn’t care much for the features that Wilson and his team spent months building; rather, they liked the last-minute throw-ins. Plus, the amount of time it took the company to get to market allowed for competitors to come along and technology to advance too quickly. Ultimately, the startup failed.

“For an entrepreneur who has limited resources, [lean startup is] really the only way to start and to become successful.”

So, soon after, when Wilson had the chance to advise his wife Kim Wilson’s startup, Social News Desk, he suggested it take the opposite approach.

It did. The product — a social media dashboard for newsrooms — began as a $50,000 MVP built in three months. It was iterated upon again and again based on early customer input. And a few years later, it was acquired by a Fortune 500 company for an eight-figure exit.

That was before Wilson ever read The Lean Startup book. But when he finally did, he saw that Ries’ framework “paralleled what [his] experience was.”

Wilson has founded a handful of companies — and advised many more — in the years since, always taking a lean startup approach.

“For an entrepreneur who has limited resources,” he said, “it’s really the only way to start and to become successful.”

 

Why Lean Startup Has Haters

Not everyone is enchanted by lean startup’s charms. And you’d be hard-pressed to find someone more skeptical of it than Keith Rabois.

“The lean startup is a dumb and bankrupt philosophy for mediocre people with mediocre vision and ambition,” Rabois told Kunal Mehta for his book Finding Genius.

Rabois, who has held executive positions at companies like PayPal and Square and led investments for startups like DoorDash and Stripe, explained that a tech founder’s job isn’t to ask users what they want, it’s to “paint a picture of a better world and then deliver that.”

In other words, lean startup puts an artificial ceiling on ambition. People don’t know what’s possible when you ask them what their pain points are. And nobody is going to change the world by showing customers an MVP and tweaking it based on their feedback. The thing founders should really do, Rabois tweeted, is “start with a vision and you WILL it into reality.”

Ben Horowitz, tech entrepreneur and co-founder of venture capital firm Andreessen Horowitz, has also pushed back against the popularity of lean startup.

In his 2010 blog post titled “The Case for the Fat Startup,” Horowitz argued that the job of any startup is to win the market and not run out of cash. And following lean startup principles is no guarantee of achieving either. In fact, it’s likely to land founders in what Horowitz calls “startup purgatory,” where companies have conservative burn rates but are forever small.

“Thin is in,” Horowitz said, “but sometimes you gotta eat.”

Ethan Mollick, an entrepreneurship professor at the University of Pennsylvania’s Wharton business school and author of the book Unicorn’s Shadow: Combating the Dangerous Myths That Hold Back Startups, Founders, and Investors, is by no means a lean startup hater. But, in the course of his teaching and learning, he has come across a few of the model’s shortcomings.

“What lean did was help us switch to an idea that experimentation and quick development is the key, and I think there’s really valuable insights there,” Mollick said. “But I also think the pendulum [has] probably swung too far one way.”

The danger, Mollick told Built In, is in treating lean startup as a one-size-fits-all method. Because in reality, there are some industries and contexts in which it shouldn’t be applied. In biotech, for example, you can’t give customers prototyped medical devices for experimentation. And in the case of Helen Walton’s real-money gaming company, there are necessary regulatory processes to slog through first.

And in general, Mollick said, “the more disruptive you’re trying to be, the less useful it is to talk to customers about things.”

“The more disruptive you’re trying to be, the less useful it is to talk to customers about things.”

Mollick referenced a couple of papers echoing the concern that getting fast feedback from customers might lead to incremental improvements, not radical innovations. Because people often distrust novelty, seeking early validation from them might tamp down ideas that sound weird at first but could actually change the world.

For his part, Wilson, the tech entrepreneur and growth agency founder, doesn’t buy the idea that the lean startup method necessarily caps ambition or curbs the generation of paradigm-changing ideas.

“It can certainly produce big unicorns,” he said, offering Facebook as a prime example of a massively disruptive company that got off the ground using lean startup principles.

Contrast the fate of Facebook with that of Quibi, the short-form video streaming service — which Steve Blank called “the antithesis of a lean startup,” and that went to market with a business plan and a $2 billion war chest before going belly up about six months later — and you’ll get a sense of why the argument regarding lean startup’s efficacy is still going strong.

ReadWhy ‘Build It and They Will Come’ Is a Lie

 

Where Lean Startup Goes From Here

For startup founders, choosing a business model doesn’t have to be a binary decision between lean or fat startups. (In fact, some are arguing for alternative approaches.)

But for Helen Walton, she’s confident leaving lean startup in the dust is the right move for her company g.games’ next chapter.

She and her team are about to go to market with multiplayer slot machine games, an idea they hatched a year ago. They’ve taken it slow — registering for patents, lining up partners, building out 12 games to launch at once.

“Slight overclaim here, forgive me,” Walton said, knowingly, before explaining her rationale. “I feel like we’re trying to be Edison. We’ve gone, ‘Hey, we’ve got this idea, we’ve got a light bulb.’ And rather than plugging it in, going, ‘Look everyone, isn't it cool? Wouldn’t you all like it?’ We’ve gone, ‘No, don’t show anybody, let’s go and build an infrastructure of power stations, and let’s cable the whole of a state before we switch on the first bulb.’”

It doesn’t sound like there’s much margin to iterate or pivot.

“No, there really isn’t,” Walton said. “But if we get it really right, we’ll be so successful.”

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