“After the crash, venture capital was scarce to non-existent. (Most of the funds that started in the late part of the boom would be underwater). Angel investment, which was small to start with, disappeared, and most corporate VCs shut down. VC’s were no longer insisting that startups spend faster, and “swing for the fences”. In fact, they were screaming at them to dramatically reduce their burn rates. It was a nuclear winter for startup capital.”
Steve Blank, “Is the lean startup dead?”
The Lean Startup movement started out of necessity. In a capital scarce environment following the Dot Com crash, startups needed to do more with less and survive long enough to generate revenue. Most of the Lean Startup principles remain true, as described by Steve Blank in The Lean Startup Changes Everything:
- Business Plans are dead: Startups are a series of hypothesis that need to be tested. Ditch the business plan and when assumptions are proven wrong, pivot.
- Customer Development: Build a product your customers want (vs. what you think they might need) by talking to customers and testing every aspect of the product features, pricing, etc. Start by focusing on the users who’s need you solve the most, they will be your early adopters.
- Agile Development: launch an MVP early and iterate quickly. Every startup has limited time to find product-market fit before running out of cash and speed is an important element in survival.
Maximum Viable Product
An MVP was supposed to be launched as early as possible. “If you’re not embarrassed by the first version of your product, you’ve launched too late”, was Reid Hoffman’s advice.
But when it comes to launching a Minimum Viable Product (MVP) these days, as incremental and iterative prototypes, things have changed significantly:
- Capital abundance: There’s never been more seed capital in the market. Startups that had to be cash constrained before can afford to raise capital in a number of ways and acquire resources pre-launch
- Improved infrastructure:
- Better tools – The rise of no-code and improved cloud infrastructure across every aspect of software development, marketing and design, make possible to launch prototypes much quicker, reducing the barriers to entry for competitors
- Better targeting – Advances in adtech, the proliferation of social media and lookalike tech make it easier to target users
- Bigger markets / higher stakes:
- B2C – Nearly everyone on the planet is connected to the Internet via smartphones increasing the potential audience for technology massively
- B2B – ‘Digital transformation’ is accelerating Enterprise adoption of tech. Single users can test enterprise software using a credit card.
In 2020, there is no second chance to make a first impression. With a growing number of new startups, first mover advantage quickly fades away. Brand loyalty is low, as it takes time to build a brand, and creating emotional attachment to a product is especially hard if the product is half baked.
The MVP needs to be more viable than minimal. It may not need all the bells and whistles, but it needs to look good, feel good (UI/UX) and do what it promises on the tin. If you can afford to make an MVP look and feel great, even at the expense of time to market or cost, why compromise?
Cash (alone) isn’t king
Capital resources alone don’t do the trick. In 2018, Quibi (back then called NewTV), raised $750 million in seed capital pre-launch (the service went on to raise an additional $1 billion ahead of the product launch in March 2020). Quibi didn’t stop to test the hypothesis with a lean startup approach. Well capitalised, Quibi could afford to hire the best talent, outspend the competition and launch a ‘Maximum Viable Product’ worthy of having the potential to beat Netflix, Amazon Prime Video and a number of other streaming wars competitors (NBC’s Peacock, Hulu, HBO Max, Disney+ and Youtube). The jury is still out on Quibi, and one has to keep in mind that producing quality content is expensive and takes time, but money alone didn’t drive adoption. To be fair, it’s also highly unlikely that a minimum viable product approach would have worked here either. It had to be good enough to begin with.
How Covid-19 changed things
It’s hard to predict the true shape of the recovery. Some might claim that the world economy saw its shortest recession in March, and others claim we’ll experience a “W” shape recovery with peaks and troughs or a long U shape recovery. In the endless survey results published, results often contradict one another, but one stat that got stuck in my mind is a survey of Fortune 500 CEOs by Forbes, where the large majority of respondents expected things to go back to pre-Covid-19 levels only in Q1 2022.
At the risk of sounding too conservative, what matters for startups now, as venture capital becomes less available and consumer spending tightens, is adaptation and survival. If things aren’t going the way you planned, consider what hypothesis needs to change. I was reminded recently that in the jungle it’s not the strongest that survive, but those who adapt the best.
In conclusion, I believe most of the Lean Startup isn’t fully dead. The core principles remain true, but I’d argue that the standards for the MVP have gone up. The fundamentals (unit economics/ margins, CAC>LTV, the importance of retention) are even more important now. Growth is necessary, but so is efficiency in spending and reducing churn. In addition, startups need to take more things in consideration when going to market with a new product. Perhaps the next thing that needs to be born out of necessity is ‘Lean Marketing’, but that’s for another story.
I'm a former general partner at google ventures, head of Google for Entrepreneurs in Europe and founding head of Campus London, Google's first physical hub for startups.
I'm also the founder of Techbikers, a non-profit bringing together the startup ecosystem on cycling challenges in support of Room to Read. Since inception in 2012 we've built 11 schools and 50 libraries in the developing world.
