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Did you know that the average lifespan of a large corporation is now only 18 years?
As technology continues to flip the world of business on its head and disrupt established industries, can large corporations learn from emerging startups to embrace innovation in an increasingly competitive marketplace?
Join us as we explore corporate innovation, why it’s important to remain competitive, and how your business can embrace lean entrepreneurship to experiment with cutting-edge ideas.
The Rise Of Technology
Before we get into the nitty-gritty of lean entrepreneurship, it’s important to understand the backdrop of how technology has revolutionised the world of business over the last decade.
While starting a business was traditionally a very time-consuming and costly exercise, the rise of technology means modern businesses can launch new products and enter established markets for a fraction of the cost.
Three important technological innovations have streamlined the process of starting a business and accelerated the rapid growth of disruptive tech startups.
- Open-source computer networks allowed businesses to scale horizontally and dramatically increase their computing capacity, without investing in expensive supercomputers. Between 2000 and 2005, the average cost of launching a tech company fell from $5 million to $500,000.
- Between 2005 and 2009, the development of cloud computing technologies and Amazon Web Services (AWS) meant businesses could outsource their computing function to third-party hosts. This saw the average startup cost drop to just $50,000 in 2009.
- As developers began to start their own companies between 2009 and 2011, the starting costs for the average tech company fell by a factor of ten to just $5,000.
The phenomenal reduction in costs means today’s marketplace is flooded with lean and aggressive tech startups — all looking to undercut their competitors through reduced prices and enhanced user experiences.
Technology-enabled business models are eating every industry. In 2011, four of the top five publicly traded companies (by market capitalisation) were either banks or oil companies. Five years down the line, all five are now technology companies who have thrown the rulebook out the window.
What Is Lean Business?
Lean startups refer to agile and stripped-back businesses that can enter the market with a minimum viable product (MVP). MVP’s are a highly-simplistic version of a product or service that can be used to test a hypothesis, without investing tonnes of time or money.
Lean entrepreneurship is all about using MVPs to embrace experimentation and fuel innovation. MVPs give businesses the flexibility to make mistakes and learn from failures to make low-cost iterative improvements. Each iteration seeks to enhance the user experience and find unique ways to out-compete established market leaders.
Most tech startups will identify a very specific problem and work tirelessly to find the best solution. Former CEO of Disney, Bob Iger explains that “technological advancements will ultimately make older business models obsolete. You can either bemoan and try to protect the status quo, or work hard to embrace it with more enthusiasm and creativity than your competitors.”
Want to learn more? Check out this video for a quick-fire summary of Eric Ries’ bestseller, The Lean Startup.
Four Key Principles of Lean Entrepreneurship
As lean startups continue to rock the boat, large corporations must readdress their own approach if they are to keep pace with the disruptors and embrace technology to fuel innovation.
There are four guiding principles to help corporations embrace lean entrepreneurship:
1. Don’t Fall In Love With Your First Idea
While it’s all too easy to get carried away with an off-the-wall idea, it’s important to contain your excitement and accept that your first idea might not be your best.
Successful entrepreneurs will listen to the market, ask their customers what they want and adapt their ideas to meet consumer demand. If you focus on fulfilling your own vision but fail to create something people actually want, you’re unlikely to succeed. Some of the best innovations in the last decade were a result of entrepreneurs pivoting away from their first idea and making iterative improvements to fill a gap in the market.
For example, Instagram was formerly known as Burbn — an app where users could check-in at pubs and clubs. After testing how people used the app and listening to their customers, the plucky startup changed direction completely to become a $120 billion photo-sharing platform.
Instagram focused on the bits that were working and deviated away from the bits that weren’t.
Love the problem, not the idea.
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2. Don’t Fall Into The Build Trap
While the traditional product development cycle involves coming up with an idea and developing it, the lean startup approach involves adding an extra step — search.
Instead of jumping straight from ideation to creation, the best entrepreneurs will include a discovery phase where they can experiment with ideas, spot potential errors and revisit the drawing board if something needs changing. Don’t blindly continue with an idea if you could pivot your attention and resources elsewhere.
For example, Transferwise made it’s $3.5 billion fortune by creating a very basic MVP where over $1 million worth of payments were processed manually using a simple spreadsheet. Instead of jumping in with investment from day one, the money transfer company experimented with a test from this library and refined their product before seeking their first round of seed funding in 2012.
Provide the outcome without building it.
3. Commit Resources As Uncertainty Decreases
One of the biggest mistakes an entrepreneur can make is trying to run before they can walk. It’s important to find your rhythm and scale your expenditure as the risk of your venture falls.
Lean entrepreneurship involves keeping costs to a minimum during the search phase and slowly investing more money when you know you’re onto something. For example, Nick Swinmurn from Zappos.com built a multi-million shoe empire by taking photos of trainers in competitor stores and posting them online. If someone placed an order, he would buy the trainers from the store and post them to the customer.
During this discovery phase, Nick wanted to test his hypothesis that people would buy trainers online, without investing in costly inventories or setting up an expensive distribution infrastructure for a service he didn’t know customers wanted.
Systematically reduce risk with a proven process.
4. Apply The Scientific Approach To Entrepreneurship
The backbone to lean entrepreneurship is systematically de-risking your idea by identifying your riskiest assumptions and validate them as soon as possible through experimentation. We can break this process down into four key steps:
- Hypothesis. Identify what is the riskiest assumption in your lean canvas which needs evidence to be validated.
- Test. Select an experiment to test your hypothesis. Define what success would look like.
- Measure. Collect metrics to assess whether your test showed positive results.
- Learn. Use insights from your experiment to make an informed decision and validate or un-validate your hypothesis.
Look for market evidence by doing experiments all the time.