Mean + Lean: What NYC Entrepreneurs Need?

By Maxine Botesazan

This past week in LTV we did a business model exercise where “Dr. Lean” and “Dr. Mean,” worked with a student entrepreneur to analyze his/her proposed venture. Beyond the immediate takeaway – an agreed upon set of experiments to efficiently test falsifiable hypotheses about the model – this exercise illuminated the broader value that can come from the lean methodology.

During this exercise, my very own Dr. Mean probed me, the entrepreneur, to acknowledge the key assumptions underlying my business model for a matchmaking website. He shined a light through the cracks in my proposed model – many of which I had overlooked by considering them truths rather than hypotheses. (ex: “Do friends actually enjoy matchmaking for their friends?”). Dr. Lean instead pushed me to get creative about cheap and quick ways to test these assumptions (. We worked together to create experiments around falsifiable hypotheses – a key tenet of the lean methodology. After several iterations we designed tests that, if passed, would better support the model.

In retrospect, much of the value from this exercise came from receiving pushback from Drs. Lean and Mean in tandem. As the entrepreneur, my unrelenting belief in my business had blinded me to some important assumptions. If I would have only confronted a Dr. Mean, I’d likely reject the Doctor as a naysayer; with a Dr. Mean + a Dr. Lean, we designed tests that offered renewed hope for my idea and a less risky chance at success.

This newfound appreciation for mean + lean reminded me of the incredible value an early venture capitalist, Tom Perkins, brought to the groundbreaking Genentech deal. In 1976, when the co-founders of Genentech, Robert Swanson and Herbert Boyer, originally asked Perkins for $500,000 to fund set-up costs, Perkins countered in a very mean + lean way. He insisted on only contributing 1/5 of that amount, but offered to supply staged capital at increasing valuations to encourage if not force Swanson and Boyer to run lean experiments[1]. Instead of giving the duo money to purchase machinery and hire scientists, Perkins coached them to subcontract the majority of their initial testing. Instead of trying to clone human insulin – their target opportunity – they allocated their money to more cost-effective attempt to clone a simpler protein (somatostatin) with no commercial usage, simply to prove the biggest underlying assumption to their business model: the potential for DNA-based therapeutics. Perkins’ funding model and active coaching enforced a mean and lean mentality that helped create one of the most successful and rewarding venture deals in history.

The lesson I’d like to take from our business model exercise and Perkins’ style in the Genentech deal is the need for venture capitalists to provide and reinforce mean and lean feedback to the entrepreneurs they fund. Particularly in a relatively new and unproven venture market like New York, we need VCs to offer more systematic funding tied to milestones, so as to reinforce lean testing, derisk venture funding, and produce rewarding returns to prove an attractive venture market. The approach should be less about publicly “drinking the kool-aid” in this media- and PR-obsessed community, and more about administering a private dose of lean methodology.

  

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[1] Details from the Genentech deal taken from Harvard Business School case, “Kleiner-Perkins and Genentech: When Venture Capital Met Science,” (9-813-102) written by Felda Hardymon and Tom Nicholas.