Do Lean Startup Principles Work in Enterprise?

by Amit Jain

“What I love about the marketplace is that we do our products, we tell people about them, and if they like them, we get to come to work tomorrow. It’s not like that in enterprise . . . the people who make those decisions are sometimes confused.”  -- Steve Jobs 

As usual, Steve’s on to something -- enterprises generally are not as quick to adopt disruptive technologies, largely because it is more complicated for a person to make a decision (and consequently be held responsible) for a change that impacts multiple persons rather than to make a decision that impacts just one. 

So how should startups approach the enterprise space? Does it make sense for startups to use lean startup principles that have been successful with many B2C companies? 

Lean startup principles that work in enterprise: 

Agile Product Development: Gone are the days where the sales team of enterprises dictate the product roadmap.  Lots of enterprise startups are gaining traction (e.g. Yammer, Zuora, SuccessFactors) by taking a consumer approach of rapid product development cycles.  Agile product development forces companies to be in constant contact with its customers -- this is a habit that should be universally adopted by both consumer and enterprise startups. 

Get Out of the Office -- Talk to Customers: It is difficult to communicate the value proposition of your product  in the enterprise world via a forum or webinars (with the exception of obvious low-cost value propositions like Google Apps).  People who make technology decisions on behalf of companies are busy, hard-to-reach, and need to be convinced a startup will reliably serve a need - this level persuasion generally requires in-person interaction, especially for initial customers. 

Lean startup elements that DO NOT ALWAYS work in enterprise: 

Fail Fast: The idea of failing fast and iterating fast works great for analytics driven industries like social gaming where iterations are a matter of A/B tests that can be done daily.  However, enterprise world is different.  Not only is it a long decision cycle to close a sale, but its often a long cycle find the right person in the target customer’s organization to even test a product. Therefore, enterprise startups need to be more careful with their product releases than those in the consumer space because they have less room for error after each failure due to the large opportunity cost of time it takes to engage the next customer (this also partially explains why enterprise startups tend to pivot less than consumer companies). 

Chasm Will Protect your Failures: Moore’s Chasm argues that startups are protected from the fallout of early product failures with initial testers because this group does not associate with the eventual product’s target customer segment.  However, many enterprise startups that have a niche product offering inherently have a small world of customers.  So when an enterprise startup ‘fails’ with an initial customer, not only do you need to fix your product, but the startup needs to proactively support the product with this initial customer post-failures and preserve the relationship since this customer’s referral will be the best lead for the next customer. 

So does lean startup work in enterprise? Lean startup principles do make sense for improving product development in enterprise.  However, the jury is still out on whether the principles are conducive for the long sales and decision cycles of the enterprise world, especially for enterprise startups with niche product offerings.


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