Lean methodology: an approach to venture building

“If I had asked them what they wanted, they would have asked for faster horses.”

This quote is famously attributed to Henry Ford. Putting aside the contentious issue of whether Ford ever uttered these words, the quote itself raises two interesting questions – firstly, what role does the customer play in innovation? Secondly, when it comes to venture building, should startups build in stealth mode - relying on the founders vision, or in public - using market feedback to make iterations to the product/service/strategy? Is it true that 'real' innovation comes about without involvement from the customer? The purists in this debate seem to believe so. On the other hand, does the Ford quote oversimplify the issue?

Before I begin, it is worth noting that this topic could be (and has been) discussed at length. For the sake of brevity, I have simplified things for a quick read - to give you something to reflect on. This piece is not exhaustive. I will be more than happy to discuss any questions in the comments (or my inbox if you'd prefer to speak privately).

Let’s use the automobile as an example of true, radical innovation to determine whether - or not - the customer has any meaningful role to play. For arguments sake, we have two sides to this debate. One side passionately argues the merits of innovating vis-à-vis customer feedback; the other side - the purists - argue that radical innovation is created by singularly gifted visionaries who ignore customer input and innovate based solely on their vision for a better tomorrow. The aforementioned quote commonly attributed to Ford implies that, had Ford asked consumers for their input on improving modes of transportation, they would have requested incremental innovation – merely an improvement on the status quo rather than a new-normal: “faster horses.”

I won’t patronise you by listing all the problem’s people faced with horse-driven transportation as I am sure you are able to deduce them yourself. However, it is necessary to highlight the two key problems – speed and distance. A horse-driven carriage is move at walking pace for the majority of its travels, although capable of reaching around 8-10mph for short durations. As for distance, it is likely that the maximum one could travel by horse-driven carriage in a single day would be around 10-30 miles. Ignoring the other challenges and problems that arise with horses, let's assume that these were the two key problems that Ford needed to address with his innovation in transportation.

So, let us return to the question at hand. Had Ford asked consumers to be involved in his design-thinking process, would they have in fact asked for faster horses? Possibly. However, focusing on the explicit request: ‘faster horses’ ignores the implicit statement of a fundamental problem: lack of speed. In the hypothetical situation that Ford sat down with various focus groups of consumers that travelled by horse and asked one simple question: ‘what improvements in travel would you like to see?’ and every participant in the study said ‘faster horses,’ Ford would be mistaken to dismiss this input as unhelpful. This insight had to play a role in the process of innovating. A new mode of transportation that could travel longer distances than a horse yet at slower speeds, might lack market-demand. As we stated, the two key problems were distance and speed. The customer feedback in this particular focus group suggests that the latter is of great importance and this insight should not be dismissed.

In reality, consumers would probably have told Ford exactly what they wanted - a faster mode of transportation. Yes, it is unlikely they would have referenced a combustion engine, but this merely highlights the key issue at hand: interpreting customer feedback. The customer is the expert with regards to their problems. They are not an expert in the potential ‘solutions’ - that is your challenge as an innovator. Thus, from this crude example, it appears the purist interpretation of Fords quote oversimplifies the problem and the key role of the customer in innovation. Fords awareness of the customers fundamental problem-state played a central role in his design-thinking process to innovate a solution. The art of interpreting customer feedback is not implementing exactly what the customer asks for, but reading between the lines and deducing the fundamental insights that you can utilise in your design thinking process. This approach is central to the Lean-startup methodology discussed below.

I am often asked by founders for reading suggestions. One book that is always included in this list is ‘The Lean Startup’ by Eric Ries. In summary, the Lean Startup methodology is all about learning what your customers really want — and learning it as quickly as possible. It’s about continuously testing what you think your customers might want and adapting based on the results. The key to success is doing this quickly enough that you learn enough to create a solution the market wants before you run out of funds.

Most founders think their startup journey will be the graph on the left. Unfortunately, the reality is often far from this. Most startups fail. Most businesses fail. Most ideas are bad ideas. Startups that are lucky will experience a journey similar to the graph on the right. They will continue to receive feedback, adapt, pivot and grow. Unfortunately, most startups will run out of capital before coming up with a value proposition strong enough to reach maturity. By utilising the Lean Startup methodology, start-ups can maximise chances of success.

There are two key ideas central to this methodology:

1.??????Validated learning: The job of your startup is to learn what your customers want in such a way that you can build a sustainable business. You conduct this learning in as scientific a way as possible. Data matters. Everyone talks of being ‘data-driven’ yet very few utilise data insights with any great effect.

2.??????Build-Measure-Learn: This loop is the fundamental activity of a startup. Iterating through this loop helps you learn. The faster you iterate through it, the faster you’ll learn and make progress.

As you can see, the B-M-L approach has a few more steps than the crude, purist ‘B-S’ approach: Build –> Success. Whilst most startup founders would like to be the next Ford, Jobs or Musk, the reality is that most of the ventures that are being built are not truly ground-breaking. They are producing incremental value. Given this, startups can (and potentially should) follow this B-M-L approach to validate an idea and minimise wastage.

I will now provide a succinct summary of the Lean approach to startups: Lean argues that every founder must begin with the fundamental question: ‘what problem am I solving?’ Once the founder has has identified a key problem, the next stage is to innovate a plausible solution and Build a Minimum Viable Product (MVP). This MVP allows you to test your hypothesis with the minimum amount of time and effort. It is the minimum you need to build to enable you to test your hypothesis by taking it to market. Next, you enter the Measure part of the loop by running your experiment. This means exposing customers to your product and collecting data on their behaviour. Finally, you enter the Learn part of the loop. You analyse the data you have collected and reflect on the following questions:

Was your hypothesis correct? Did your solution fully address your target customers problems?

If it was off, by how much? Did your solution completely miss the mark?

What have we learned? Is there even any demand for your initial concept?

Do we need to change the strategy? Do you need to return to the drawing board and come up with an entirely new strategy?

As Ries highlights, the faster you can get through the entire loop, the faster you’ll learn. This is what the counter-intuitive notion of ‘failing-fast’ means. It doesn’t mean go out of business fast. It means applying an almost-scientific approach to entrepreneurship and actively trying to disprove your hypothesis rather than prove it. By using the Build-Measure-Learn feedback loop, you’ll not only learn more, but you’ll learn faster and have a greater chance of landing on a solution that the customer not only wants but needs. Customer behaviour and customer data provide you with insights that cannot be ignored.

If you don’t understand what your customers wants or demands, then you’ll likely waste a lot of time and capital blindly building something that nobody is going to buy. The result is that your venture will lack product-market fit. Innovation isn’t always plain sailing. Most innovations fail. For every founder, inventor and visionary that succeeds, there are thousands of unknown failures in the shadows. Yet, in the business world we love to focus on success and often ignore the role of survivorship bias. One of the key reason’s startups fail is that founders mistakenly assume that their venture or product is like the automobile, or the iPhone - an example of radical innovation – when in fact, they are only innovating incrementally – building faster horses. For these ventures, the customer should be involved in the innovation process. Ignoring the customer entirely and spending months or years working on a solipsistic venture will (not always, but) likely result in a lack of product-market fit. Lean methodology is one approach that can be taken to minimise waste and establish market demand. This is not to say that it is the only way, nor is it the best way. It is simply one approach that you can take to apply some structure and process to the venture building process.

In my next article, I will explore several limitations with Lean methodology and provide an alternative framework that may be more appropriate for your venture. ?