Lean: Why Now?

by Christophe Mandy

Class cases on Aquion Energy and Predictive Biosciences were chosen specifically to illustrate that the lean concepts don’t just apply to the web-based consumer facing startups that the paradigm is usually associated with. In both cases, running lean involved the same kind of hypothesis testing, pivoting and search for product-market fit, just on a different timescale and with a different context. But if the lean principles aren’t enabled by the sort of economics that underlie internet companies, why did the concept only arise now? The “eliminating waste” Toyota-Production-System-like ideas in manufacturing are more than 40 years old and were all the rage almost 20 years ago.

One possible answer would be to suggest that ideas in management theory for startups hadn’t evolved enough until the last ten years, and that nobody had thought of generalizing success stories into the key lean principles. This implies that applying lean principles would have always led to higher successes rates for startups. My sample set of startups to study is small and biased, but when I go through our first year TEM cases, it usually requires an uncomfortable stretch of lean-principles to try to discern lean startups in any pre-1995 case.

Another answer would be that the extrinsic conditions that surround startups have changed and evolved, and give lean startups an edge now and only for a limited amount of time (in the same way, for instance, that American conglomerates created value in the 60s in a way they no longer do, or that relentless pursuit of learning curves gave an edge to companies in the 70s). A startup has to expend resources for a limited set of activities such as product/service development, order fulfillment, hiring and training human capital, marketing, etc…  Basically, scaling only when a startup has proof that it has achieved product-market fit, and religiously refusing to spend resources on any activities that don’t increase the chance of product-market fit is only possible because the set of activities around customer interactions have become cheap relative to other activities. Lean works on web-based consumer facing startups in part because when the product is code-based (very cheap to change), or meets simple needs of consumers (making a mistake with one customer won’t cause memorable ripple effects),  it’s possible to market to a set of a target customers, integrate learnings from small-scale experiments and adjust features in a product with much fewer resources.  All of this is also possible because a very small marketing budget spent judiciously on Google ad-words and clever blogging can create traction in a market. If these activities were expensive relative to, say, hiring and firing employees, then getting to product-market fit by taking risks, making mistakes and correcting them would take a background role to trying hiring and firing as many employees as possible and until the right team is formed.

Trying to understand why lean only appeared now is more than an academic exercise. If it really is all about the relative costs of startup activities, then lean will have to adapt in the coming years. When creating high quality original content on a blog will no longer be sufficient to generate buzz because readers are overloaded with information, or when bidding on ad-words drives the prices on any sensible online advertising too high for startups, being “lean” will no longer be tied to getting to product-market fit fast. What will come next? My guess is that SaaS will make the activities around scaling relatively cheaper than others: a company of size will have access to the same kind of highly automated high quality ERP/CRM/SCM software that only large enterprises use now. And as much as it may sound anathema now, maybe the emphasis will shift to achieving scale first, and fixing the product later?

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