Is ‘Lean’ the Secret to Startup Success?

Mike Peña, Stanford University October 10, 2016

Today, the cool factor of entrepreneurship has spread around the world as technology startups have grown from fledgling ventures into global forces that can redefine our times. The founders of Facebook, Google, Tesla and Uber are practically celebrities.

For better or worse, all this entrepreneur worship has given rise to the “wantrapreneur,” someone who seeks to launch a startup just for the money and acclaim. Never mind that they don’t have a great product idea — or more importantly, the business skills to spend capital wisely or responsibly lead a team of hardworking early employees.

So, if there were a step-by-step process that any aspiring entrepreneur could follow, would that be a good or bad thing? In the tech sector, some say such a formula is being taught: the lean-startup methodology, an approach to entrepreneurship that consists of clearly defined steps for discovering customers and developing a product or service.

Over the past five years, the lean movement has spread beyond the traditional tech sector to being taught within the government to publicly funded scientists so they can better translate their research into commercial innovations. At the National Science Foundation and the National Institutes of Health, this entrepreneurship-training program is called I-Corps (Innovation Corps).

Now the Lean LaunchPad is being used to address national-security and foreign-policy concerns. After a successful pilot class at Stanford University last spring, the course “Hacking for Defense” will be taught to college students around the country as a way to develop solutions to critical national security problems for the national-defense and intelligence communities. And this fall, another lean-startup course at Stanford debuts, called “Hacking for Diplomacy,” where students will work on challenges faced by the U.S. State Department.

From tech startups to government-funded research and now national defense and international diplomacy – are there no limits to the lean approach? Devotees say its widespread adoption and track record of success are proof that it works. Others say the methodology doesn’t make sense for certain sectors. So, who’s right?

A ‘lean’ history lesson

In 2005, retired Silicon Valley entrepreneur Steve Blank came out with The Four Steps to the Epiphany, which first stated that startups are not smaller versions of large companies, but nascent ventures in search of a business model. Four years later, a Swiss business theorist, Alexander Osterwalder, introduced the world to a new tool to help startups design their business model, called the “business model canvas.”

By then, Blank had become an educator, teaching entrepreneurship at Stanford. He combined Osterwalder’s business-model canvas with the customer-development process he defined in Four Steps and began teaching what he called the “Lean LaunchPad” methodology in 2011.

Today, countless students and entrepreneurs who have come across his books, including the 2012 bestseller The Startup Owner’s Manual, credit their success to Blank’s insights. The movement was also advanced by the 2011 book The Lean Startup, by Eric Ries, and continues to grow as the federal government now teaches the lean-startup methodology to scientists at its national labs using the curriculum Blank developed.

An eight-time serial entrepreneur, Blank is the first to admit there is no rule book in Silicon Valley. What his Lean LaunchPad approach does is help entrepreneurs avoid some of the most egregious failures, which he explains are often caused by hubris.

“It’s all the attributes of a world-class founder — passion, resilience, velocity, urgency — that make most of them fail because they end up confusing a faith-based enterprise with a fact-based enterprise,” Blank said. “You need faith to start, against all odds. But what you rapidly need to do is replace the faith with facts.”

The cornerstones of the lean methodology include:

  • proposing a business opportunity in the form of a “hypothesis” about a need in the market
  • defining the essential building blocks for the proposed business (key partners and resources, customer segments, revenue streams, etc.)
  • quickly testing the assumptions about the market and customer needs by getting out and talking to lots of people
  • using “agile development” to adjust the product or service based on all the feedback, and then launching a “minimum viable product” to find product/market fit.

From there, continued feedback intake drives product improvement and, if necessary, any changes in the direction of the business — otherwise known as a “pivot.”

Government goes lean

The approach worked for Jason Oberg, who, in 2013, was working on a Ph.D. in computer science at UC San Diego. Along with a post-doc at UC Santa Barbara and professors from both campuses, Oberg was researching a basic technology that would help computer-chip makers find vulnerabilities that could result in data leaks and other security issues.

That year, they received a research grant from the National Science Foundation and went through NSF’s I-Corps training program. They followed Blank’s core mandate to “get out of the building” and talk to at least 10 people per week — potential customers and other stakeholders. For Oberg’s team, this meant venturing off campus and chatting up chip makers, chip buyers, potential partners and more. By the end of the 10-week I-Corps program, Oberg realized that his team could indeed build software that finds chip vulnerabilities, and that customers would pay good money for it.

Oberg is now CEO of San Diego-based Tortuga Logic, a startup founded by the members of his I-Corps team. They now have nine employees, secured phase two of the NSF grant and are bringing in both early investment money and revenue from clients.

“If we had not gone through I-Corps, it would not have pushed us over the edge to build a product and become entrepreneurs,” Oberg said. “I probably would’ve ended up working at one of the big software companies.”

The NSF offered the first I-Corps training in 2011 and has since grown into a huge success: Over 800 teams from 192 universities in 44 states have completed the NSF training, according to Tom Kalil, deputy director for technology and innovation in the White House Office of Science and Technology Policy. Each I-Corps team includes a university faculty member who is a research scientist and acts as the principal investigator (PI), a graduate student (entrepreneurial lead) working in the PI’s lab, and a mentor from their local area with domain expertise.

More than 320 companies have been created by those I-Corps alumni, Kalil said. “It’s taught scientists and engineers about this similarity between the scientific method and the entrepreneurial process,” Kalil said. “So I see this playing a really important role in providing some entrepreneurial as well as experiential learning that provides a clear and logical framework.”

Limits to lean?

However, some feel that would-be entrepreneurs are becoming overly concerned with following the formula, while losing sight of more practical business matters. Mike Pozmantier, a technology-transfer expert who managed the U.S. Department of Homeland Security’s Transition to Practice program, says he has seen a number of dabblers over the years adhere to the process in lieu of actually solving the issues they encounter.

From his time in government, Pozmantier is well aware of its enormous efforts to understand and adopt the mindset of the private sector. And he acknowledges that I-Corps does a good job of pushing researchers to get out and speak to people — and of teaching one of the few well-defined methodologies for putting people on an entrepreneurial path.

“Process is clearly helpful, but I’ve seen too many people rely on it to the detriment of actually doing what they need to do,” Pozmantier said. “There is a place for lean, but entrepreneurs should look at it as a tool in their toolbox — and not as the toolbox.”

Perhaps the biggest critique skeptics voice about the lean-startup approach is that it threatens to change the entire trajectory of entrepreneurship. No longer is it about developing a profoundly novel and complex technology over several years, remaining focused on a specific idea for a product that can actually live up to a cliché mission statement about “changing lives” or “making the world better.”

Instead, critics say the lean approach is increasingly skewing entrepreneurship toward the creation of products and services that lend themselves to rapid market releases, iterations and exits. Why embark on the daunting journey of developing some heavy technology that could take years and many millions of dollars just to prototype, when you could design the next Pokemon Go? The smartphone and app ecosystems have already been built, and thumbs are literally twitching for that next digital distraction.

“When the technology is deep and new, you do not start with those advantages,” said Mike Lyons, a longtime lecturer on entrepreneurship at Stanford and veteran of the Silicon Valley tech scene. “The companies that drive GDP in the valley, including Facebook and Google, were not built that way.”

One field that seems to defy the lean methodology is med-tech. Setting aside biometric-tracking devices, wellness apps and the like, much more time and capital are needed to build a product or service that will diagnose or treat a medical condition, says Gordon Saul, executive director of the Stanford Byers Center for Biodesign.

He acknowledges the value of the customer-development process’s mandate to walk out of the lab and talk to as many people as possible — especially when it comes to academic research, which Saul says can be “very inward looking.” But in the case of, say, a Class 3 medical device — a category that includes the highest-risk products such as surgical implants — the wide array of stakeholders, regulatory issues and immense development costs don’t fit into rapid iteration and pivot cycles.

“Developing medical technology is enormously expensive,” said Saul, adding that costs to get a Class 3 medical device to market can soar as high as $80 million. He notes that a significant proportion of those costs are spent clearing regulatory hurdles, some of which arise early in the development cycle, such as the documentation of design controls and decisions.

“Many of these very specific regulatory hurdles don’t exist in other industries, especially consumer products where the lean methodology got its start,” Saul continued. “Similarly, with medical devices, there’s not just one end user to target. Patients, doctors, healthcare facilities and insurance companies all have a say in whether a new technology will be adopted.”

The result is that it’s just not that simple to build, test and iterate a minimally viable product in the med-tech field, Saul says.

In fact, the center teaches its own proven, repeatable process for health-technology innovation – a step-by-step approach for identifying and evaluating important unmet healthcare needs, inventing new technologies to address the most compelling ones, and then helping innovators prepare to bring those technologies into patient care.

Since 2001, the center’s trainees have founded 41 health-tech companies from projects originated within the program, and treated over half-a-million patients with technologies invented at Stanford Biodesign. The innovations range from a neonatal resuscitation device to solutions for arrhythmia, enlarged prostate and post-menopausal challenges in women.

“We do adapt some of the lean methodology’s focus on outward discussions and disciplined gathering of input to help drive decisions, but in a more typical framework that we would see in medical-technology development,” Saul said.

A flexible framework

Adaptation has also been key in teaching the lean approach to publicly funded researchers working in the life sciences. Tom Kalil at the White House Office of Science and Technology Policy said the National Institutes of Health have successfully tailored the NSF’s I-Corps program in order to train teams that receive NIH grants to develop therapeutics, diagnostics and medical devices. But it wasn’t a simple copy-paste.

“The FDA is involved. Medicare is involved,” explained Kalil, who also serves as Senior Advisor for Science, Technology and Innovation for the National Economic Council. “In fact, it’s going to be different depending on — within the life sciences — whether you are talking about a diagnostic, a medical device, a drug, a vaccine or a health IT solution.”

Blank blogged about prototyping I-Corps for life-science innovators. The 10-week class was held in 2014 at the University of California, San Francisco, and in his post, Blank includes video of a physician who described how valuable the customer-development process was for his team’s medical-device startup.

But again, Blank says the Lean LaunchPad does not guarantee a successful startup. He points to outliers like Steve Jobs and Elon Musk, whose achievements resulted more from their unique talents than any formal education. What made the lean methodology stand out, Blank explains, is that it wasn’t a better version of something else — but a radical shift in thinking described as never before.

“It’s not the methodology, it’s a methodology,” Blank said, “and like most things, hopefully something better and more efficient will come out of it.”