How to scale a Lean Startup.
Entrepreneurs are known for their desire to always search for new ideas, customers and business models. Over the last years a number of methodologies have been developed to help and support this search. In this article, we discuss how to apply Lean Startup principles for a purpose they were not initially designed for: moving a company out of startup mode and scaling into full execution.
THE LEAN START-UP IN A NUTSHELL
The Lean Startup methodology has captured and documented the essence of the entrepreneurial search for a sustainable business model. It is rigorous, works in practice, and its principles can be applied in a broad context. Here is a summary (for a more detailed description please see the article by Steve Blank on HBR):
business model search Instead of detailing a Business Plan, entrepreneurs use a Business Model Canvas to document their hypotheses and assumptions on how the company creates value in a sustainable manner.
customer development Instead of a building a product and then testing it with customers, entrepreneurs "get out of the building" and test their hypotheses and assumptions with potential customers. The focus is to reliably identify customer needs and pivot / change direction before costly investments are made.
minimum viable product Hand in hand with Customer Development, entrepreneurs use agile development techniques to incrementally create "light" prototypes and solutions that can be used to verify their assumptions with customers. The result is an incrementally developed product, that contains only the critical (validated) features.
Figure 1. Lean Startup Lifecycle
"During customer development, a startup searches for a business model that works. If customer feedback reveals that its business hypotheses are wrong, it either revises them or pivots to new hypotheses. Once a model is proven, the startup starts executing, building a formal organization. Each stage of customer development is iterative: a startup will probably fail several times before finding the right approach" - Steve Blank
SCALING A LEAN START-UP
According to Steve Blank, while there is plenty of literature to help entrepreneurs figure out how to search for a business model (as well as Incubators and Accelerators to give practice), there are few resources from which an entrepreneur can learn how to guide a company through the execution phase. Thankfully, this is no reason to despair. In the following sections we will show how entrepreneurs can re-purpose and use Lean Startup principles to help moving a company out of startup mode and scaling into full execution:
from business model search to operating model search Entrepreneurs use a Customer Experience & Lifecycle Definition to capture the assumptions and hypotheses on how the company delivers the pre-, in- and post-sales customer experience, as enabled by the Minimum Viable Product (an example of such a Definition can be provided on request).
from customer development to customer-driven organisational development Entrepreneurs "get out of the building" and test their hypotheses and assumptions on Customer Experience & Lifecycle delivery with potential customers. Based on validated feedback, they create an organisational structure that is optimised to deliver on each part of the Customer Experience & Lifecycle. It is important to note that creating an appropriate organisational structure requires specific organisational skills that might be not available among the founding team. Therefore, this phase is often used as an inflection point by startup boards to re-assess and strengthen the founding team with any missing organisational competence. Finally, successful companies view Customer-Driven Organisational Development as a continuous process to adjust and improve the company's organisational structure.
from minimum viable product to minimum viable organisational blueprint Using appropriate techniques (e.g. Analytics) entrepreneurs review and refine each part of the delivery of the Customer Experience & Lifecycle, and incrementally create a blueprint of an organisation that can scale predictably (by replication, or expansion of each functional unit) to deliver against a given sales volume. The key challenge hereby is that with increasing organisational size it is difficult to maintain focus: clarity of the common purpose, understanding of business model and dedication to customer needs. Experience shows that fewer functional units, a flat organisational hierarchy, ... can help address these issues by promoting speed, simplicity and trust.
Figure 2. Scaling a Lean Startup
"In parallel to customer development, a startup searches for an operating model that can scale predictably to deliver against a given sales volume. Starting from an initial organisation setup, the startup seeks to continuously adjust its structure to deliver optimally against the Customer Experience & Lifecycle Definition. Once an operating model is proven, the startup is ready to scale its organisation at a higher speed. This is a continuous process: a startup will probably adjust its operating model several times over its lifetime to address changing Customer Experience & Lifecycle Definitions" - Neos Chronos
In this insights article we described how Lean Startup principles can be re-purposed and applied for moving a company out of startup mode and scaling into full execution. The application of the method presented may require specific organisational skills that might be not available among the founding team. In such case, it is advisable to acquire missing organisational competence.