examine lean startup methodology
DESCRIPTION
Thesis - Zenon NowakTRANSCRIPT
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Examining the Lean Startup
Methodology
Zenon Nowak
Submitted in partial fulfilment of requirements for the
Bachelor of Business (Honours)
Wexford Campus
Institute of Technology, Carlow
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DECLARATION
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thesis/essay/project/assignment is entirely my/our own work except where duly
acknowledged.
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tables, diagrams or other material; including software and other electronic media in
which intellectual property rights may reside.
*I have provided a complete bibliography of all works and sources used in the
preparation of this submission.
*I understand that failure to comply with the Institutes regulations governing plagiarism constitutes a serious offence.
Student Name: (Printed) __________________________________
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Date: __________________________________
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Acknowledgments
I would like to dedicate this thesis to my
mother Bronislawa Krafczyk who has
inspired and encourage me through my
life long education process.
A sincere thank you, I love you
I would also like to acknowledge my supervisor and
lecturer Tomas Dwayer for his endless and invaluable
encouragement and support while completing my
dissertation.
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Abstract
Title of the Thesis
Examining the Lean Startup Methodology.
The Main Objectives
1) How efficient is the Business Model Canvas for planning and developing a Business Model and how does it compare with the traditional Business Plan?
2) How efficient is the lean startup methodology of conducting small experiments to validate the business assumptions of the new start-ups?
3) How effective is the lean startup methodology of conducting experiments to validate the business assumptions of new start-ups?
Literature
The Lean Start is new methodology introduced by Silicon Valley entrepreneurs.
Today, Lean Startup have many followers and multiple of research was conducted by
many researchers as Steve Blank, Eric Ries or Ash Maurya.
Methodology
In order to answer the research objectives, personal semi-structured interviews were
conducted with; Darren Heaphy, the product manager from Scurri Web Service,
Claudio Perrone a lean-agile management consultant and Tom Banville, the CEO of
Wexford County Enterprise Board. The use of qualitative data to explore research
topic has support (Tull & Hawkins, 1993)
. Conclusions
The conclusion highlight there are many common patterns between the respondents
regarding Business Model Canvas efficiency. It is a great tool for planning the
business but there are some limitations that need to be considered such as influence of
the environment which in business exists or details of company financial data etc. The
involvement of customers in new business development is a fundamental principle of
Lean Startup Methodology and there is as much risk in development in "stealth mode"
as in the more open Lean approach. Interviewees argue that, the collection of valid
data may be an issue but well-designed experiments are key to reduce bias. Finally, the
Lean Startup methodology increases the odds for business success by the elimination
of risk through validation of hypothesis and assumptions and assist business to not
focus on development of products that nobody wants. However, the Minimum Vitae
Product (MVP) and all experiments need to well-designed in order to collect true
feedback from customers.
Recommendations
The author would recommend to use of the Lean Canvas as the replacement of
Business Model Canvas in early days of startup. Also, the experiments, assumptions
and MVP needs to be well designed to show true and fair view of researched issue.
The author is recommend to use Lean Startup methodology to reduce risk in new
business ventures.
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Table of Contents
DECLARATION ......................................................................................... 1
Acknowledgments ..................................................................................... 2
Abstract ..................................................................................................... 3
Table of Figures ..................................................................................... 7
List of Tables ......................................................................................... 7
Chapter 1 Introduction ............................................................................ 9
1.1 Problem Statement ..................................................................... 9
1.2 Rationale for research ................................................................. 9
1.3 The Structure of the Thesis ....................................................... 11
Chapter 2 - The Research Context .......................................................... 14
2.1 Introduction ............................................................................... 14
2.2 Scurri ........................................................................................ 14
2.2.1 Early days of Scurri................................................................ 14
2.2.2 Scurri Technology and Global Competition ........................... 16
2.2.3 Scurri team ............................................................................ 17
2.2.4 Scurri - go to market strategy. ............................................... 18
2.3 Entrepreneurship in Ireland ....................................................... 19
2.4 Conclusion ................................................................................ 22
Chapter 3 - Literature Review .................................................................. 24
3.1 Lean Manufacturing The Origin of Lean Startup .................... 24
3.2 What Is Lean Startup ................................................................ 26
3.3 Business Model Canvas ........................................................... 29
3.4 Customer Development ............................................................ 33
3.5 Minimum Vitae Product ............................................................. 35
3.6 Criticism of Lean Startup ........................................................... 37
3.7 Conclusion ................................................................................ 38
Chapter 4 Methodology ........................................................................ 40
4.1 Aim of Research ....................................................................... 40
4.2 Research methods .................................................................... 41
4.3 Data Analysis ............................................................................ 44
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4.4 Details of interviewees .............................................................. 45
4.5 Limitations ................................................................................. 46
4.6 Conclusion ................................................................................ 47
Chapter 5 - Findings ................................................................................ 49
5.1 Introduction to findings .............................................................. 49
5.2 Profile of respondents ............................................................... 49
5.3 Research question 1 ................................................................. 51
5.4 Research question 2 ................................................................. 54
5.5 Research question 3 ................................................................. 57
5.6 Conclusion ................................................................................ 58
Chapter 6 - Analysis ................................................................................ 61
6.1 Introduction to Analysis ............................................................. 61
6.2 Research Question 1 ................................................................ 61
6.3 Research Question 2 ................................................................ 64
6.4 Research Question 3 ................................................................ 67
6.5 Conclusion ................................................................................ 69
Chapter 7- Conclusions and Recommendations ..................................... 71
7.1 Introduction ............................................................................... 71
7.2 Research Question 1 ................................................................ 71
7.3 Research Question 2 ................................................................ 73
7.4 Research Question 3 ................................................................ 74
References .............................................................................................. 76
Appendices ............................................................................................. 81
Appendix 1 ........................................................................................... 82
List of interviews questions ................................................................. 82
Appendix 2 ........................................................................................... 85
In-Depth Interview with Claudio Perrone .............................................. 85
Research Question 1 ........................................................................... 86
Research Question 2 ........................................................................... 92
Research Question 3 ........................................................................... 97
Appendix 2 ......................................................................................... 100
In-Depth Interview with Darren Heaphy ............................................. 100
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Research Question 1 ......................................................................... 101
Research Question 2 ......................................................................... 105
Research Question 3 ......................................................................... 108
Appendix 3 ......................................................................................... 111
Interview with Tom Banville ............................................................... 111
Appendix 4 ......................................................................................... 118
Interview with Darren Heaphy - Data Reduction ................................ 118
Appendix 5 ......................................................................................... 123
Interview with Claudio Perrone - Data Reduction .............................. 123
Appendix 6 ......................................................................................... 128
Interviews Context Data Display ........................................................ 128
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Table of Figures
Figure 1 Lit Motors ................................................................................. 10
Figure 2- The Lean Startup Loop ........................................................... 27
Figure 3 - The Business Model Canvas .................................................. 30
Figure 4 Customer Development Process .............................................. 33
Figure 5 - Scurri Business Model Canvas .............................................. 51
List of Tables
Table 1 Interview with Darren Heaphy Data Reduction .............................. 119
Table 2 Interview with Claudio Perrone Data Reduction ............................. 124
Table 3 Data Display........................................................................................ 129
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Chapter 1
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Chapter 1 Introduction
1.1 Problem Statement
The Lean Startup approach proposes early interaction with customers, collecting
feedback in the early stage of development and allowing customers to be more
involved in the development process. Sometime businesses already know that a plan is
not right and there is a need to change the business strategy but this can be very time
consuming process. To implement the new concepts into a business model, often a
plan needs to be re-written. The author believes traditional business planning methods
limit the flexibility of the companies for dynamic change.
When starting a business, everyone wants to reduce the initial costs and reduce the
risks related with the startup. The central question of this thesis asks is the Lean
startup a solution to reduce uncertainty and improve success odds?
1.2 Rationale for research
The Lean Startup approach proposes early interaction with customers, collecting
feedback in the early stage of development and allowing customers to be more
involved in the development process. Sometime businesses already know that a plan is
not right and there is a need to change the strategy but this is a very time consuming
process. To implement the new concepts into a business model, often a plan needs to
be re-written. I personal believe traditional business planning methods limit the
flexibility of the companies for dynamic change.
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When starting a business, everyone want to reduce the initial costs and reduce
the risks related with startup. Is the Lean startup a solution to reduce uncertainty and
improve success odds?
Lean startup, while still in its infancy as an entrepreneurial approach, has been
proven successful for companies including Dropbox and Lit Motors. Dropbox CEO
Drew Houston stated that, the lean startup approach helped in in the process of the
development of Dropbox in the early days. After implementing the lean startup
principles, the company started iterating their product much faster in order to test the
business assumptions and discover the need of Dropbox customers. Dropbox went
from 100,000 registered users to over 4 million, just in 15 months of time (Ries,
2013). Lit Motors is an example of successful implementation of the Lean Startup
methodology in the automotive industry. Danny Kim, the founder of Lit Motors, used
the lean startup principles to prototype the Model-T of the 21st century, the concept
of a merger between the motorcycle and car. Danny Kim argues that the Lean Startup
concept of the
Figure 1 Lit Motors (Motal, 2011)
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Minimum Vitae Product helped in a big way with de-risking the concept and
supported the quick development of a product that satisfied the customers (Ries,
2013).
Today The Lean Startup methodology have many followers across the globe. There
are multiple startups that are successfully implement the new entrepreneurial
methodology practices into their business models.
1.3 The Structure of the Thesis
Chapter 2 - The Research Context
The purpose of this chapter is to present the entrepreneurship climate in Ireland and to
present one of successful Irish startup that practically use the Lean Startup
methodology in business development Scurri Web Service.
Chapter 3 - Literature Review
The purpose of this chapter is to present literature related to Lean Startup.
Chapter 4 - Methodology
The purpose of this chapter is to outline the research methodology. The author will
present the aims of the research, the research method and the limitations.
Chapter 5 - Findings
This chapter will present and discuss the research findings from the interviews
conducted.
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Chapter 6 - Analysis
This chapter will provide analyse of the research questions findings. The structure of
that chapter will discuss each of the research objectives findings and how it links into
existing literature.
Chapter 7 - Conclusions/recommendations
The main purpose of this chapter is to provide the conclusions and recommendations on
the findings and analysis of the research objectives presented in chapters five and six.
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Chapter 2
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Chapter 2 - The Research Context
2.1 Introduction
The purpose of this chapter is to present the context of the research project by
providing an outline of Scurri.com and to present the entrepreneurship climate in
Ireland.
2.2 Scurri
Scurri is an Irish technological startup, with headquarters in Duncannon. Scurri
technology optimises the customer delivery experience, allowing merchants to
effectively deliver on brand promises and drive customer loyalty.
2.2.1 Early days of Scurri
You really need to find a problem that is worth solving
Rory OConnor, CEO of Scurri
(yhponline.com, 2013)
Scurri Web Service was founded in 2010 by Rory OConnor. The initial idea
of the business came when Rory was trying to order online a new set of alloys for his
car. Second hand alloys are relatively cheap in comparison to brand new ones but after
searching for a delivery supplier the total cost grew above the cost of the new wheels.
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That was the beginning of a new startup vision, the online company that connects
delivery companies, e-commerce and their customers (yhponline.com, 2013).
The initial Idea was based on creating a website that would allow customers to
pick from multiple choice of transport companies, an option that is best suited to the
customer. Connecting through the Scurri software, the transport service companies
will quote the price for each order based on their own pricing policy. In the first year
of business the company focused on searching for the correct business model to
deliver a new product. Scurri conducted multiple of experiments to test the business
model hypothesis but most of them failed. It was a very difficult period for the startup
because of limited amount of resources available. (yhponline.com, 2013).
The initial concept of Scurri business model was rapidly changing. The website
traffic metrics indicated a big interest in the product however the Scurri team noticed
that the time needed for the customer service was not acceptable and it would be a
huge problem after scaling the product. Scurri needed to pivot the business model and
look for an alternative solution (yhponline.com, 2013).
Scurri is given great support from Enterprise Ireland by participating in iGAP
accelerator programme. The Scurri team was trained on how to use the Lean Startup
methodology to increase the odds for success in a difficult software development
market. The training was provided by the author of Lean Startup movement, Eric Ries,
and also Sean Ellis the founder of Dropbox and Eventbrite (Fitzpatrick, 2012).
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Finally, Scurri spot an opportunity to provide a service for e-commerce
merchants offering a platform that effectively manages high volumes of online orders
by choosing the best delivery service, according to business-customers requirements.
The Scurri team discovered that the improved performance in the area of
delivery had an effect on reducing the amount of the online cart abandonment
(yhponline.com, 2013) and significantly increased customer satisfaction in their online
shopping experience. The concept of Scurri software was to match the best suitable
delivery service for each order by using business rules set by online retailers and allow
to manage the delivery process in the most cost-efficient way. After validation of the
new business model Scurri was ready to raise more funds. They used multiple of
government grants and raised additional funds from private investors (Kennedy,
2014).
2.2.2 Scurri Technology and Global Competition
In the delivery management software market we can distinguish few
companies that are in direct competition to Scurri with similar offer and already a
well-established brand name. In the United States, the market leader position has
ShipStation and the United Kingdom market is dominated by Metapack that is focused
on large and medium size businesses. Scurris market strategy is to focus on delivering
a maximum quality service and a careful analysis of competitive products with a aim
to find aspects where Scurri could add extra value and differentiate from competition.
As a result, Scurri found the first early adopters of new the software from dissatisfied
customers of competition that were able to risk the transfer of part of the orders to the
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new platform. After analysing the feedback from these customers, Scurri quickly
found the value proposition that would be a good alternative for competition products.
From technological perspective, using the cloud computing and python
development language in the Scurri platform greatly increased the speed of software
performance in comparison to already existing products.
2.2.3 Scurri team
One of the most important company assets is a great management team.
Chief Executive Officer Rory OConnor - Prior to founding Scurri he performed
various roles in Waterford Wedgwood, spending time in various sales, marketing and
strategic project roles. Rory subsequently worked as a change management consultant
with clients such as Heineken, Intel, Ogilvy and Siemens and as a project manager
with AOL broadband. Rory has a number of business qualification including holding
an MBA from Henley Management College.
The Product Manager - Darren Heaphy, was previously working in AOL Broadband
and TalkTalk where he held the role of head of consumer operational communications.
Darren graduated from WIT where he holds a BA in IT and a higher Diploma in
Business Management.
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Chief Technological Officer Sonya Hogan. She previously worked with Baush and
Lomb, TSSG in WIT and with another successful start-up Muzu.tv. Sonya graduated
from WIT where she earned her BA and Masters in Software Development.
Customer Support Manager Pamela Keane. Pamela worked within the hospitality
industry where she set up and managed a hotel and gained much of her customer
service experience. Pamela maintains most of office duties such as customer service,
preparing legal and revising agreements and managing the company cash. Pamela
graduated from Law School.
Development team - The initial development of the product was outsourced to the
external development company. By using the agile development and Lean Startup
practices there was ongoing communication on daily basis with outsourced developers
and every week Scurri was able to deploy next parts of the product features.
Today, Scurri employees few software developers that coding in-house in
Duncannon headquarter.
2.2.4 Scurri - go to market strategy.
Today, Scurri has few customers on board and by adding additional functionality
to the platform they constantly introduce new customers together with quickly
growing volume of process orders. The management strategy is to focus now mostly
on implementing new curriers service to the platform and scaling of the product
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worldwide with the main focus on the UK market. Scurri opened an office in Google
campus in London. Rory OConnor cited in siliconrepublic.com said:
Delivery remains a huge priority for both customers and merchants,
ecommerce is accelerating and customers now expect Amazon-level service
as standard Our technology gives growing online merchants the power to fulfil this need quickly and affordably. As one of the first purpose built
cloud-based solutions in Europe Scurri has found a better way to serve the
market, reducing the cost and resource draining complexity of current
shipping solutions (Kennedy, 2014).
Because of the aspiration to become global player on the delivery management
software and willing to entry in 2014 to the United States market, Scurri wants to
establish a representative office in Silicon Valley, California.
2.3 Entrepreneurship in Ireland
In the recent years Ireland entrepreneurs needed to challenge the effects of the last
recession that enforce many entrepreneurs to finish business operations due to
negative changes in the global business environment. Recession is a difficult time for
many businesses that need to challenge verification of their business models in very
difficult macro environment.
The last CPA Entrepreneurship Report (McCall, 2013) indicate that the climate for
entrepreneurship in Ireland starts to improve due to reduced cost of doing the business,
lower prices of labours and materials that lowered barriers to entry or opportunities in
new technologies such as cloud computing. Tom Banville from Wexford County
Enterprise Board, who conducted an interview with the author (transcript from
interview could be found in appendix 3), noted that the recession forces many people
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to start thinking about developing their own business because of the consequences of
losing their jobs and the difficult employment market. Tom stated that:
the majority of people who are attending the start to run business programme at the moment are unemployed people who are looking for other
options, you know, rather than looking to get a job they are looking to start
their own business so I think the recessions has created necessity
entrepreneurs, new people who have lost their jobs or been made redundant
and who feel there are not opportunitys for them in terms of employment so they are looking at self-employment as an option
Enterprise Ireland offers lots of support and assistance for Irish entrepreneurs,
they offer multiple of workshops, trainings, grants and giving advice to people that
want to start their business. Unfortunately, there is a small percentage of start-ups that
survive the first three years of business operations. Tom also explain:
there will be people that would want to start the business or just about to start the business or thinking about starting the business in the future once
they will find out the information. So, out of that 300, my guess would be
that, maybe 30% would go on to actually start the business. And then if you
will look out of that 30%, year later maybe half are still in business and
maybe two, three years later it would be half of that again would be still in
business. It is risky, starting the business is: I always say it is easy to start
the business but it is hard to keep it going.
Despite of the unfavourable environment some entrepreneurs recognise that this
is the best moment to enter the market because of low barriers to entry and lower
competition. Start-ups which are able to survive challenges in difficult time of
economic downturn may become very successful after global economy will recover
because of the business models that was created in that difficult time for some
entrepreneurs. In opinion of Laura Erskine from MumterprenurClub.ie cited in CPA
Entrepreneurship Report (McCall, 2013), the difficult environment is the best moment
to establish a new business. Laura stating that:
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Recessionary or difficult economic times are the ideal time to establish a
new business. In the last year alone, I have seen more small businesses than ever
set up and even more importantly, they are all helping in supporting one another
to succeed
(McCall, 2013)
Comparing to data from time before recession, in year 2007 almost half Irish
population 46% saw business opportunities in their local area. In recent years these
numbers fell down to 26%. In terms of early-stage entrepreneurs Ireland achieved 14
position in Europe with 6% of population that was involved in starting new business
ventures (McCabe, 2013).
In global entrepreneurship the researcher found the two common trends:
increasing number of female entrepreneurs and increasing influence of globalisation.
In Ireland entrepreneurship is still mostly dominated by men starting up business. Irish
female entrepreneurs represent just third part of all self-employed or new start-ups.
This is a common pattern in other European countries. In sense of globalisation,
Ireland noted an increase in new business customers base outside the country and
almost a quarter of new ventures possess quarter of customers based internationally.
Specific Ireland characteristic of small population and peripheral location contribute to
the increase of that trend (McCabe, 2013).
Ireland offers great support for entrepreneurship. The Forbes magazine ranked
Ireland as The best place for business stating that Ireland has a very high level of
direct foreign investment, very attractive tax system, a good investors protection and
also personal freedom (Badenhausen, 2013).
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2.4 Conclusion
Irish entrepreneurs need to challenge increasing global competition and
sometimes operate in a very difficult economic environment. The use of Lean Start-up
methodology may help to increase the chances of start-ups to survive on the market.
The next chapter will outline the available literature that was previously published
about The Lean Start-up methodology.
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Chapter 3
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Chapter 3 - Literature Review
The purpose of this chapter is to present information which has previously been
presented by a mixture of authors and researchers. All of the material used was
collected from journals, online resources and various publications. The information is
specifically relevant to core elements of the Lean Startup methodology.
3.1 Lean Manufacturing The Origin of Lean Startup
The origins of Lean, which is one of the core elements of the Lean Startup, comes
the from Japanese manufacturing industry, introduced by Toyota known as Toyota
Production System & Just-In-Time (JIT) (Slack, et al., 2010).
The term Lean was introduced for the first time by John Kafcik (1988) in an
article, Triumph of the Lean Production System published in Sloan Management
Review. The lean approach quickly gained many followers who continued their
research on the Japanese production system. James Womack et al., (1990) published a
bestseller about the lean production system called The machine that changed the
world. The authors describe one of the characteristics of lean as a process of waste
elimination by operation management; focusing on product quality, supply chain
efficiency and the continuous improvement of processes in manufacturing and
engineering, known as Kaizen.
Masaaki Imai cited in Slack et al. (2010) notes that Kaizen is not only the
improvement of the work environment but it is also the improvement in our personal
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lives, both the home and social life. Kaizen includes the involvement of everyone in
the process, managers and workers alike.
Masaaki Imai also points out the importance of commitment and self-discipline
order to maintain everyday improvement. Masaaki suggests that the implementation of
Kaizen should begin at the top level of management, who show the employee
guidance, commitment and determination, passing the values of Kaizen to the lower
level management and finally to the line staff employees. Kaizen means
improvement, both in everyone and everywhere (KAIZEN963, 2013).
Philip Atkinson (2010) suggests that the implementation of Lean cannot be
successful in an organisation where the culture opposes it. Lean requires such a high
degree of cross functional working that any culture which counter acts this will fail.
He argues that the organisational culture can evolve and could become the driver of
organisational change.
Taiichi Ohno (1988) formally known as father of lean due to his commitment in
development from early years, wrote in his book, Toyota Production System: Beyond
Large-Scale Production, and described all of his personal life experiences in relation
to the Toyota Production System and supply chain management (JIT) Just-In-Time,
which is also a very important part of Lean Manufacturing.
Womack et al. (2006) published an important book about Lean Manufacturing
Lean Thinking, where we can read about the importance of the Lean Culture and
implications of the main concepts of lean with specific manufacturing examples of the
concepts in action in a variety of industries. The authors also explain in that
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publication the importance of producing small batches in the Lean Manufacturing
production process, arguing that, this will have an effect on the identification and
resolution of problems in relation to quality if they arise as with small batches it is
much quicker to reconfigure the small machines to the production demand.
3.2 What Is Lean Startup
The term Lean Startup was first introduced by Eric Ries (2008) on his personal
entrepreneurial blog - Startup Lesson Learned. Ries explained that term Lean Startup
derives from a connotation of Lean, in the sense of low-burn by using available open
source software and iterative development, the minimising of waste in startup
operations. Ries also argues that Lean startup is an application of Lean Thinking,
defined by Womack et al. (2006) in their book Lean Thinking
Ries created five principles that are characteristic to the Lean Startup:
1. Entrepreneurs are everywhere Eric Ries (2011, p. 8) suggests that you
dont need to work in a garage to be a startup. A Startup has nothing to do with
the size of the company, sector of the economy, or industry but is the specific
stage and place that a company has whilst in their early business development
searching for product-market fit. Ries describes startup as ...a human
institution designed to deliver a new product or service under conditions of
extreme uncertainty (Ries, 2010) .
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2. Entrepreneurship is management - A startup is an institution, not just a product,
so it requires management, a new kind of management specifically geared to its
context (Ries, 2011, p. 8).
3. Validate Learning - Startups exist not to make money or to serve customers. They
exist in order to learn how to build a sustainable business. This learning can be
validated scientifically, by running experiments that allow us to test each element
of our vision (Ries, 2009), (Ries, 2008) (Ries, 2011, p. 8).
Build Measure Learn (known as Lean Startup Cycle/Loop) - The fundamental
activity of a startup is to turn ideas into products, measure how customers respond,
learn about your customers behaviour and needs. After analysing the metrics,
entrepreneurs need to make decisions on whether to pivot (change direction) or
persevere. All successful startup processes should be geared to accelerate this
feedback loop (Ries, 2012), (Ries, 2008), (Croll & Yoskovitz, 2013) (Ries, 2011,
p. 9)
Figure 2- The Lean Startup Loop (Ries, 2011)
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4. Innovation Accounting - To improve entrepreneurial outcomes, and to hold
entrepreneurs accountable, we need to focus on the boring stuff: how to measure
progress, how to setup milestones, how to prioritize work. This requires a new kind
of accounting, specific to the startups (Ries, 2011, p. 9).
Womack et al. (2006), notes that, in Lean Manufacturing the indicator of
efficiency is the improvement of value-creating activities such as waste elimination
and focusing on building the highest quality of products. Eric Ries (2013) stated that,
the Lean startup adapted this idea into the context of entrepreneurship and this is why
efficiency and progress are measured, not on the quality of products, but by validated
learning. Ries argues that if 9 out of 10 startups fail the only one outcome from these
business startup failures is the lesson to be learned from failure. For this reason the
focus of lean startup is on the reduction of time needed in order to learn more about
our assumptions using a scientific method of testing Lean Startup Loop. The author
also points out, the life time of a startup is related with access to funding and cash
burning. If startups reduce time needed to pivot, the odds for success will immediately
increase.
Because the startup often builds products which nobody wants, the purpose of
Lean Startup is to figure out what is the right product to build. This is carried out by
engaging customers whilst in the development process and including their feedback
into the product development process from the early stage of the startup (Blank, 2013)
(Ries, 2008).
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Lean Startup leading researchers argue that the startup is not about the
successful execution of the Business Plan, that leads no nowhere, but the startup is
about searching for a problem worth solving and product market fit through validate
learning (Ries, 2008) (Blank, 2013) (Maurya, 2012).
Eric Ries (2008) defined three drivers in Lean Startup with the following
characteristics:
Use of Cloud computing and Open Source software to minimise operation costs.
Application of the practice of agile software development.
Application of customer-development process.
In an article Why the Lean Start-up Changes Everything, published in Harvard
Business Review, Steve Blank (2013) stated that the time startups spend operating in
stealth mode is not efficient. The dot.com bubble gives the evidence showing how
important it is have involvement with customers whilst in the development process to
avoid building products that no one wants.
3.3 Business Model Canvas
As stated previously, a very important factor for startups is searching for problems
that are worth solving, searching for product-market fit and the creation of new
business models which could make the enterprise successful on the market.
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Alexander Osterwalder (2004) found a new way of approaching the business
model planning process which would eliminate the necessity of writing time
consuming business plans and is much more flexible regarding change, innovation and
also to test business assumptions. Osterwalder wrote The Business Model Ontology -
A Proposition in a Design Science Approach, where he introduced for the first time
the concept of Business Model Canvas, a tool used as a replacement for the traditional
business plan which very quickly gained many followers. Business Model Canvas
offers powerful, simple tested tools for understanding, designing, reworking, and
implementing business models. Osterwalder distinguished nine blocks on the Canvas
that contain a series of hypothesis which need to be tested and by analysing the
outcomes of these tests will help in business model prototyping.
Figure 3 - The Business Model Canvas (Kromer, 2013)
Many entrepreneurs and business researchers quickly adapted the new idea into
new business development processes. Steve Blank, author of Customer Development
concept, stated at Stanford University Entrepreneurship Corner, the Business Model
Canvas is an excellent tool in the Customer Development process due to its
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transparency, flexibility and ease of use when entrepreneurs need to test their business
hypothesis (econer, 2012).
Steve Blank (2012) also noted that the Business Model Canvas could be used to
test business assumptions before their implementation and in the book The Startup
Owner's Manual Blanks explains how we can use the scientific approach while
testing our business model assumptions.
Alexander Osterwalder (2010) also published an article on his personal blog that
summarising the fit of Business Model prototyping, customer development process
and social entrepreneurship. Osterwalder believes that a business model should consist
of three phases:
Designing a starting model
Iteratively adapting your starting model in response to market feedback (Customer
Development process)
Scaling it when you nailed it
Osterwalder suggests that all three phases can be supported by the use of the
Customer Development process and Business Model Canvas in order to map and
discuss the business model, suggesting using Canvas as a tool in the testing process
then, scaling the Business Model once business assumptions have been scientifically
proved.
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Eric Ries (2011) found the Business Model Canvas to be a very valuable tool for
every startup and included the concept as a core element of the Lean Startup
methodology. Ries found that the Business Model tool fit very well with the Lean-
Startup-Cycle (build-measure-learn) and it is very well designed for use as a tool with
the purpose of measuring metrics from our business experiments.
Ash Maurya (2012) noted that the use of the Business Model Canvas is better in
comparison to the traditional Business Plan in three important ways:
Speed Business Plans are a very time consuming process which usually take a few
months and it is difficult to adjust when changes have a significant impact on business
models. In compression, writing multiple Business Model Canvas, will take no more
than one afternoon.
Concise The Business Model Canvas is very concise as the words used need to be
very specific and entrepreneurs have 30 seconds to grab the attention of potential
investors and just 8 seconds to grab the attention of customers which visit your
website.
Portable Single page Business Model Canvas is much easier to share with
everybody and, in effect more people have a chance to read all of it. Also, as
mentioned before, it is much quicker to update and introduce changes.
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3.4 Customer Development
Customer Development methodology was described for the first time by Steve
Blank (2013) in his publication The Four Steps to the Epiphany in 2005. Blanks
outlined his views regarding entrepreneurship practices and the process of searching
for market fit between products and market argues that no business plan survives the
first contact with customers. The author describes startups as temporary organisations
with the purpose of searching for repeatable and scalable business models and also
points out that startups are not a smaller version of companies as the size of the
business is irrelevant.
Steve Blank (2013) explain that the startups are not about execution of the plan but
searching for scalable business model. The founders should go outside the buildings
and talk to their customers to test their business hypothesis and start search for the
facts behind their guesses.
Figure 4 Customer Development Process (Blank, 2013)
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Steve Blanks (2013) puts the startup life-time in four phases; discovery,
validation, creation and finally the creation of the company. If our business hypothesis
is not validated, it is time for pivot and Blanks suggests using the Alexander
Osterwalder Business Model Canvas tool to play around with business models until
the desired product-market fit is archived. After customer validation is achieved, the
next step customer creation, is the time when we finally heavily invest in marketing
the product. The Last stage of the Customer Development process is Company
Creation, the time when the Startup becomes a company which knows their customers.
Pivot in Lean Startup was introduced by Eric Ries (2010) in the book Startup
Lesson Learned. Ries explain Pivot as the moment when the startup needs to change
direction after previous validation of hypothesis that proved untrue. For the startup,
Pivot means that we are learn something about our customers and Ries argues that
startups should pivot in the shortest possible time in order to reduce costs related with
the learning process and speed up learning regarding the customers. If a company
pivots too late this will have a significant effect on capital resources that are usually
very limited at this stage of the startup.
Steve Blanks explain Pivot as a change of one or more Business Model Canvas
components and also argue that the pivot cycle time matter, because startup is mostly
go from failure to failure and by reducing time between them we increasing our odds
for the success (LeanStartupCircleLA, 2012).
A decade on from his first publication, Steve Blanks on speech at UCLA Anderson
School of Management, updated his Customer Development concept with new
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aspects. Blanks explained how over the last decade todays market has changed;
products can now be divided into products we can touch and virtual products. He also
distinguished six different types of startups and suggests they all should be treated in a
different manner and each type of startup will require different entrepreneurship skills.
Blanks suggests that startups which are owned by big corporations that know the
customers of their existing markets, will differ much in comparison to small
enterprises that need to discover their customers first. In big corporations, managers
know the changes and their actions will be more about the execution of the plan. In
the small startups, everything is unknown and you need to search for the business
model first (LeanStartupCircleLA, 2012).
3.5 Minimum Vitae Product
To avoid building products that nobody wants, Eric Ries (2009) suggests the use of
the Minimum Vitae Product (MVP) minimum version of a new product which
allows a team to collect the maximum amount of validated learning about customers
with the least effort. Through involving the customers in the early process of
development, entrepreneurs reduce the risks and speed up the learning process. The
main purpose of MVP is to collect the metrics from our early adopters.
Ash Maurya (2012) points out the importance of baseline metrics which are used
in our experiments and points out they need to be chosen and measured carefully.
Metrics will help us to identify the problems around the product, where things go
wrong, but they will not tell you why it is going wrong. To get an answer to the
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reasons for failure we need to talk with the customers again. Maurya distinguish three
stages in startup:
Problem/Solution fit first stage of the startup when entrepreneurs search for
problems that are worth solving by talking with the customers and using observation
techniques. At that stage the identification of product features which are most
important to customers can be ascertained which gives the knowledge regarding
features of Minimum Vitae Product that will be used in the next stage of the
development process.
Product/Market fit The stage of testing the product and analysing the metrics.
Product/Market fit is a process of optimisation of the product to best market
performance. In internet space the metrics used could be: sing up rate, activation rate
or rate of getting paid.
Scale of the product Last stage of product development where, based on the
outcome of MVP experiments, we know how to build the product which satisfies the
needs of customers with a small risk of failure.
Lean Analytics publication focuses on how to analyse the metrics which are used
in experiments. The authors argue that not all the metrics are relevant and suggest, in
each case the importance of metrics are different and entrepreneurs should focus only
on the most important, defining them as One Metrics That Matter (Croll & Yoskovitz,
2013).
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Eric Ries (2011) suggests, the collected metrics are the base for the engine of
growth. The use of the Minimum Vitae Product and by analysing of our experimental
outcome, we can decide when the product is ready to proceed to the next stage of
development and how quickly the product will evolve in the market.
3.6 Criticism of Lean Startup
There is some criticisms regarding the Lean Startup. Sasmito Adibowo (2013)
suggests that entrepreneurs should not have blind trust on it. Adibowo argues that the
use of the MVP in online space (landing page) could not guarantee that you are talking
to your target customers caused by the fact they cannot locate the website, you want
them to reach. Also, collecting customer feedback based on e-mails, could be
misleading as people sometimes have no trust in providing their email addresses in
fear of the spam that is often the result of giving e-mail addresses to untrusted sources.
John Finneran (2013) argues that the Minimum Vitae Product has some
limitations, he note that customers are not interested in the companys learning process
but only want reliable software which consistently delivers value. Finneran also critics
the concept of testing the product with early adopters, arguing that the customers are
not interested in the Lean Startup adventure, they just want reasonably priced software
that does to the job.
Jared White (2013) critics the Lean Startup methodology based on the experience
of Steve Jobs and the history of Apple. The author suggests that the failures of Steve
Jobs never made him drop the ideas but always pushed him to try harder until he
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reached the desired target. White suggested that the metrics from MVP do not always
give the true view of the situation and could be misleading and as a result this could
cause you to pivot your good ideas in other directions which you should not follow.
3.7 Conclusion
Lean Startup methodology changes a hundred years of research in
entrepreneurship into science, based on validated learning in startup management. The
importance of the Lean Startup movement is growing every day.
Tom Eisenman, a professor in the Entrepreneurial Management Unit in Harvard
Business School introduced new MBA courses called Launching Technology
Ventures which focus on the Lean Startup Methodology. Eisenman argues that the
Lean Startup is easier to apply in the field of web-based startups than that of clean tech
or biotech fields (Nobel, 2011).
Eric Ries (2013) argue that the Lean startup is not only about technological
startups but it can be applied into various industries. Many researchers and
entrepreneurs commit to the development of the new entrepreneurship methodology
and we can read different Lean Startup stories on Eric Ries entrepreneurial blog
Startup Lesson Learned.
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Chapter 4
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Chapter 4 Methodology
The purpose of this chapter is to outline the research methodology. The author
will present the aims of the research, the research method and the limitations.
4.1 Aim of Research
The aim of this research is to investigate how efficient is Lean Startup principles
of using Business Model Canvas as a tool for developing the business model and how
is that compare with traditional approach of business planning. Also the examination
of efficiency and effectiveness of the Lean Startup principle of use of the experiments
as a tool for validation of a business hypothesis/assumptions.
The research objectives which the author is seeking answers for are as follows:
4) How efficient is the Business Model Canvas for planning and developing a
Business Model and how does it compare with the traditional Business Plan?
5) How efficient is the lean startup methodology of conducting small experiments
to validate the business assumptions of the new start-ups?
6) How effective is the lean startup methodology of conducting experiments to
validate the business assumptions of new start-ups?
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The result of the research may be of some benefit in the future where entrepreneurs
consider using the Lean Startup approach when creating new business ventures.
4.2 Research methods
This section will outline the advantage and limitations of primary and secondary
methods of data collection.
Secondary research
Secondary data are data that were developed for some purpose other than
helping to solve the problem in hand.
(Tull & Hawkins, 1993)
Before conducting primary research, the secondary research should be conducted
in order to gain a deeper insight into the research topic. Secondary data are data
collected by another person for reasons other than our research objectives and could be
used to support our primary data collected.
There are a number of advantages of secondary data. They are relatively
inexpensive and much less time consuming in comparison to primary data collection.
Secondary data may be gathered from multiple sources such as; Central Statistics
Office, online journals articles or college databases.
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The limitations of secondary data research are that it is not always sufficient to
answer the research objectives that the research is seeking to answer and therefore
primary research is required in order to pursue specific research objectives.
The revision of the secondary data regarding the Lean Startup Methodology
which was conducted by other researchers can be found in the Literature review
section.
Primary research
Primary data are originated by the researcher for the specific purpose of
addressing the problem at hand.
(Shukla, 2007)
Primary research is research that is conducted by the author to answer research
objectives. Primary research is conducted after researching secondary sources of data
and having recognition in the chosen topic. There are two types of data that could be
collected by the researcher to answer specific research objectives.
Qualitative or Quantitative
The type of data that is collected by the researcher depends on the nature of the
topic being researched. Descriptive and Casual research focuses on quantitative type
of data that is used to examine areas of study that is already well known and is based
on mathematics, statistics and probability theory. (Domegan & Fleming, 2007)
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Exploratory research is the only way to generate the Qualitative data. Qualitative data
could be defined as a data open for interpretation; it includes gaining an insight into
peoples opinions and attitudes or to research their expectations or impressions.
Qualitative data is often called soft data and does not provide statistical answers
(Domegan & Fleming, 2007).
Qualitative research is predominantly a diagnostic tool to find out what the
issues are and what respondents feel about them.
(Domegan & Fleming, 2007)
For the purpose of the dissertation and to answer the research objectives, the
author chose qualitative data type as the objectives are to research the opinions and
attitudes relating with the practical use of Lean Startup Methodology.
Interviews
In-Depth interviews are a very good method to collect Qualitative type of data.
They typically take around 40 minutes. The Interviewer does not have a prepared pre-
specified set of questions but has the freedom to create the questions whilst conducting
the interview. This type of Interview gives the researcher a chance to get a greater
insight into the answers and allows for the development of best answers for purpose of
the study. There is a risk that the interviewer will affect the answers during the
interviews and there is a need to carefully conduct the interview in such a way that
the interviewee will feel free to reply without giving directions (Tull & Hawkins,
1993).
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The Interview could also be conducted in a semi-structured way. The researcher
will have prepared a set of questions but, if there is a need to expand on the answers
the interviewer will create another question that will support the answer that he is
looking for.
4.3 Data Analysis
To analyse the qualitative data, the author applied three step framework approach
of Miles and Huberman (1984). The three step are:
Interim Data reduction post data collection reduction method - Data collected from
interviews was analysed and the answers context reduced as per table 1 & 2 in the
appendix 4 & 5.
Data Display Descriptive Matrices After reduction of interview data, the summary
of the answers context will be displayed in the table 3 in the appendix 6 section. This
method will help the researcher with future analysis and conclusion of findings.
Conclusion-Drawing and Verification. After the stage of analysing existing patterns
in the researched topic, the researcher will draft the conclusion by analysing the
difference in data sets.
See appendix section for evidence of data analysis. The next section will provide
detailed description of interviews conducted for purpose of that dissertation.
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4.4 Details of interviewees
In order to answer the research objectives, the author choose the personal semi-
structured interview method due to the exploratory and qualitative type of research
questions. Semi-structures interviews will give the author a good insight into practical
use of the Lean Startup Methodology and it will also assure researcher to feel free of
creating new questions if the answer dont meet the objectives.
Personal interviews are used to gather from responded informations about them
motivations, beliefs, attitudes and feeling in the researched areas. The main advantage
of interviews is the ability to uncover more complete answers to the research questions
during the survey research. (Domegan & Fleming, 2007)
Three personal interviews will be conducted to answer the research questions
objectives. To obtain a high quality of answers from the different perspectives, the
interviews will include an interview with the Lean Startup business coach, product
manager of Irish Lean startup practitioners Scurri and entrepreneurship expert from
Wexford county Enterprise Board. All interviews will be scheduled by appointment.
Claudio Perrone - The interview with Claudio Perrone, lean-agile management
consultant will be conducted through Skype video call. The interview will take place
on 12th April 2014 which has been prearranged with the interviewee. A set of twelve
structured questions will provide answers to all three research objectives.
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Darren Heaphy- The interview will be conducted with Scurris product manager
Darren Heaphy. The interview will be conducted face to face at Scurri Headquarters
on 17th April 2014 in Duncannon. A set of twelve structured questions will provide
answers to all three research objectives.
Tom Banville The interview will be conducted with the Chief Executive Officer of
Wexford County Enterprise Board, Tom Banville. The interview will be conducted
face to face at Enterprise Ireland Wexford Office after a previous appointment. A set
of twelve structured questions will provide answers to all three research objectives.
All interviews where recorded and the transcripts of the interviews are included in the
appendixes section.
4.5 Limitations
There are certain limitations regarding this research and interview methods.
Time and cost to conduct Personal interviews, we need to take into consideration
the costs in relation to travel and appointment time with interviewee. There is a risk of
running into difficulties regarding the time availability of the interviewee and
additional costs related with travel if we fail to meet the appointed person (Domegan
& Fleming, 2007).
Interview Bias When conducting personal interviews, it is important to take into
consideration the interview bias. The context of the questions could be wrongly
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understand by the interviewee or the answers could be influenced by certain factors
such as lack of interviewee time, personal influence of interviewer or insufficient
knowledge in order to be adequate to research objectives. Lack of Anonymity in
personal interviews could also be a cause of interview bias. The interviewer may not
be willing to answer the questions due to confidentiality or the sensitive nature of the
questions (Tull & Hawkins, 1993).
4.6 Conclusion
This chapter outlines the type of research undertaken for purpose of this thesis. It
explains the reasons for conducting the research and examines the primary methods
which could be used to obtain answers for the research objectives. The limitations of
the chosen Research Methodology are also examined. The next chapter will outline the
findings of the research conducted.
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Chapter 5
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Chapter 5 - Findings
5.1 Introduction to findings
This chapter will present and discuss the research findings from the interviews
conducted.
The structure of that chapter is as follows:
Profile of respondents: In this section, the researcher will outline the
professional profiles of the interviewees.
Research questions findings In this section, the findings of the research
objectives will be provided.
Conclusion of findings A conclusion of the research objective findings.
5.2 Profile of respondents
The following section will provide a profile of the interview respondents.
Claudio Perrone is a well-known lean-agile management
consultant. Claudio advises and coaches companies which use the Lean
Startup Methodology practically both in Ireland and globally. He helps
teams and managers rapidly improve their performance. Lean, Agile consultant,
startup strategist, award-winning speaker and entrepreneur, Claudio has played key
roles in Lean & Agile transformations for global organisations as well as for some of
the fastest-growing technology startups in the world. Claudio released a suite of
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innovative solutions around A3 Thinking, a Lean management approach to
systematically solve problems, improve and mentor. Hundreds of companies
worldwide use his Lean thinking tools including Toyota, Spotify, Honeywell, Carl
Zeiss Microscopes, Nissan North America, McKinsey, Skype, BearingPoint, J.P.
Morgan, and many others. In June 2013, Claudio was selected to become a Fellow of
the Lean Systems Society, mainly with thanks to his contribution to revitalize and
clarify the role of A3 Thinking as one of the most powerful points of contact
between Lean, Systems Thinking, and the Scientific Method. The LSS further added
that Claudio made A3 Thinking accessible to the point that it is a major force again
for systems work. (Perrone, 2014)
Darren Heaphy is the product manager of Scurri. Scurri has the largest
practical experience in Ireland regarding implementation of this new
Entrepreneurship approach. Darren hast vast experience as a product
manager and is responsible for new product development process in Scurri and
graduated from WIT where he holds a BA in IT and a higher Diploma in Business
Management. Prior to this position Darren worked for AOL and TalkTalk as head of
consumer operational communications for both companies, managing a team of project
managers delivering customer service solutions. (LinkedIn, 2014)
Tom Banville is Chief Executive Officer of Wexford County Enterprise
Board. Tom has great experience regarding advising startups, new
product development and creating new ventures. The author chose to
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interview Tom as he is an entrepreneurship expert of a government body which assists
entrepreneurs with expanding their business locally and globally. (Wexford County
Enterprise Board, 2014)
5.3 Research question 1
How efficient is the Business Model Canvas for planning and developing a
Business Model and how does it compare with the traditional Business Plan?
In this section, five findings to the research question will be provided.
Figure 5 - Scurri Business Model Canvas (2013)
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The first finding to the research question was outlined by both Darren and Claudio
state that, the Business model Canvas is a great tool to quickly draw the business
model. It is both quick to draw the Business Model Canvas and it is also possible to
draw a few versions in the one afternoon. Use of the BMC is very efficient which
could save valuable time normally spent during the planning process.
The second finding to the research question was explained by Claudio and Darren,
both recommend that the BMC should be updated and revised often so as not to
become a dead paper which is no longer used. Scurri revises the Canvas on a weekly
basis to ensure that the model is still valid as startups changes very quickly. The
complete process involved in the update and revision of BMC take on average, around
an hour. See figure 5 for Scurri Business Model Canvas.
With regard to the research question, the third finding shows that, should a situation
arise where a business makes significant changes to the business model such as,
adding new customer segments or new products, both respondents indicate that the
original canvas could be used. Claudio states that the new components could be coded
with colours or numbers. There could be a limitation in the transparency and
convenience of use of BMC if there are too many different layers. Claudio and Darren
recommend using the original canvas for planning but should you want to expand the
business model with new customer target, it is recommended to draw a separate
canvas. Due to the different needs of different customers, the value proposition could
vary and sometimes that is the best way to do it.
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The fourth finding with respect to the research question, according to Claudio the
Business Model Canvas is great tool to talk with the Investors. There is a common
pattern indicating that there is some groups of investors that prefer/require more
detailed information about the business, then, you will need to prepare a classical 30-
50 pages business plan. Darren states that, the Scurri investors were delighted with the
use of the business model canvas and therefore do not require a detailed business plan.
They were delighted but, there is a need for some financial calculations or information
about our customer life time value and that is why Scurri used the Investor
Memorandum, a short-light version of the business plan. Darren Heaphy explains this:
business model lends itself well to that kind of conversation. You can sit and if you are the investor, and said: Well, I show you my core components
of my business model and here is what I done to validate that those
components are correct. And the investors that you find, who brought into
that process, they really like it. Because is systematic de-risking from the
perspective.
In Claudios opinion, the BMC is a great tool to begin talks with investors in order to
show what the business is about and to get their attention but, at some stage the full
version of the business plan will most probably be demanded although it is not the
most important thing that entrepreneurs need to focus on.
The last finding to first research question indicate, there are some limitations of BMC
in comparison with the full version of the traditional Business Plan. Both Darren and
Claudio indicate that, there are some limitations in describing some business aspects
on the BMC. There is a common pattern regarding recommended replacement of the
BMC at the early stages when starting the business and both of the respondents
recommended use of the Lean Canvas as a replacement, (more information about lean
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canvas could be found in literature review chapter) as the company needs to focus on
problem/solution fit before they are able to draw Business Model Canvas Components.
Darren Heaphy from Scurri, also mentions the limitations of scope in describing the
business environment. Darren argues that the business is shown in isolation on the
canvas and does not involve environmental factors.
To summarise the findings of this research question, the author found that,
there are many common patterns between the respondents regarding Business Model
Canvas efficiency. It is a great tool for planning the business but there are some
limitations that need to be considered carefully.
5.4 Research question 2
In this section, six findings to the research question will be provided.
How efficient is the lean startup methodology of conducting small experiments to
validate the business assumptions of the new start-ups?
The first finding for second research question, the author found that, in Lean Startup
methodology customers play a very important role. Both of the respondents, Darren
and Claudio, indicate that involvement of the customers is fundamental. As the Lean
Startup focuses on improvement during the learning process stage of business startup,
customers insight will give necessary information in order to validate our assumption
as soon as possible.
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With regards to the research question, the second finding shows that, in order to gain
insight from customers regarding our product or service, Lean Startup uses the concept
of Minimum Vitae Product. Claudio states that, customers could lie to you because of
interview bias. He gives as the example asking your mom:
If you went to you mam and you ask her, I have idea for a business, what you think? And your mom of course will say: its great idea! And that what
is very often had whit customers, they will tell you, ohh its great idea. But
they dont do it because... They want you to succeed in many ways.
Claudio also points out; there are some limitations which often arise during the
interview process. The customers may be led by the interviewer and it is sometimes
very difficult to understand the customer right. Claudio summarised MVP usability as
a great tool to gain insight into customer behaviour and to know about their opinions
more. Claudio gives as an example of his own experience with A3 Thinker Action
Deck, a product which he himself created using Lean Startup principles. Claudios
MVP that he used before the actual product was good enough to collect all relevant,
important information and validate the product assumptions. All was done in a very
short time, using a printer, paper and some glue. The purpose of MVP is to validate
and learn as quickly as possible and he was able to get the required information
successfully.
The third finding to that research question, Darren points out that the core purpose of
the MVP is to achieve a solution for the problem that we are looking to solve. If MVP
will not deliver a solution to the core problem it will cause dissatisfaction of our
customers. Everything which makes your product beautiful but, does not necessary
solve the problem, should not be part of the focus at the product assumption validation
stage.
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The forth finding with respect to the research question, there is a common pattern
between Claudio and Darren in the scope of lean startup experiment timing and
collection of feedback. Darren and Claudio both state that it could be difficult at times
to collect feedback in a specific period of time and it is sometimes difficult to
recognise when we have sufficient data to validate the experiment assumption
correctly.
The fifth finding to the research question indicates that, the duration of the experiment
could vary from minutes to days or weeks. Both of the respondents indicate that
timing of the experiment will depend on the assumption you would like to validate.
Claudio recommends conducting smaller experiments, as they are easier to comply.
He states that:
experiment may last from few minutes to weeks but the problem sometimes is to collect feedback that they are actually depends from the others So the goal is always to shrink. If you can shrink it is better
Darren also states that it is not important how many experiments fail but, the lesson
that is learned from the experiments.
In the last sixth finding to that research question, the author found that, the
development of the business in stealth mode is not an issue from the perspective of
competition. In Darrens opinion competition is inevitable and is a good indicator that
the market is there and that the problem we are trying to solve is big enough. Claudio
also argues that, the stealth mode is not applicable with Lean startup principles and
it is not a risk for company, because data which is available to the public gives only a
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snapshot of company business progress and not the learning process which was
conducted in order to get to that point.
To summarise the findings of this research question; the respondents indicate that the
involvement of customers in new business development is as fundamental principle of
Lean Startup Methodology and there is very much risk in development in "stealth
mode". Both of the respondents also argue that, the collection of data may be an issue
and, well designed experiments are key to reduce bias.
5.5 Research question 3
In this section, two findings to the research question will be provided.
How effective is the lean startup methodology of conducting experiments to
validate the business assumptions of new start-ups?
The first finding to the research question was outlined by Darren and Claudio, in both
opinions the Lean Startup reduces waste in the company. Darren points out that the
Lean methodology itself focuses on just in time, waste reduction etc. Both of the
respondents indicated the same pattern, stating that, The Lean Startup definitely
reduces the risk in business due to the process of validation business assumption and
in that way saves on time and resources.
In second finding to that research question, Claudio and Darren also have the same
opinion regarding misleading data from the MVP. They both argue that the reason of
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misleading data could be in wrong structure of experiment. Claudio also mentions
there is a risk in MVP if its wrong constructed.
To summarise the findings of this research question; both of the respondents state that
the Lean Startup increases the odds for business success by elimination of risk through
validation of our hypothesis and not doing the wrong things. The Minimum Vitae
Product and all experiments need to well-designed in order to collect true feedback
from customers.
5.6 Conclusion
In summary, all of the objectives were achieved with support of the findings from the
conducted interviews.
The findings from the first research objective indicate that, the Business Model
Canvas is well applicable in the new business development planning process. It is
great tool to get investors attention but there are some limitations that need to be
taken into consideration.
The findings from second research objective indicate that, the involvement of
customers in the new business development is essential to validate the business
assumptions and it is not good practice to develop products in stealth mode. Also,
the Lean Startup experiment could sometimes become a challenge to collect valid
feedback.
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The findings from third research objectives indicate that, the Lean Startup practices
reduce the risk and uncertainty in the business startup stage, but, it is important that
Minimum Vitae Product and business experiments are well designed to collect valid
data from customers.
The next chapter will provide the analysis of the above findings.
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Chapter 6
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Chapter 6 - Analysis
6.1 Introduction to Analysis
This chapter will provide an analysis of the findings to research questions. The
chapter will discuss the findings to the questions in relation to the existing literature.
6.2 Research Question 1
The author found that, there are many common patterns in findings between
respondents related with efficiency of the business model canvas and analysis of five
findings to that research question will be provided.
Using the business model canvas as a tool for planning our business activities
saves a lot of time in comparison to the traditional business planning approach.
Claudio and Darren both state that, it is quick to draw multiple versions of the business
model and it could be completed in one afternoon. Claudio argues that the business
plan is not the first thing that entrepreneurs should focus on in the early stage of
startups. Claudio and Daren also state that, the Business Model Canvas should be
regularly revised to ensure that the Business Model is still valid. Steve Blank (2012)
argues that, the business model should be validated first, before we move to writing a
full business plan and until the business assumptions are validated, the business plan is
just creative writing. Thus in the summary, the focus of the entrepreneurs in the early
days of the startup, should be on searching for the product-market fit and the customer
development, before entrepreneurs start writing a business plan. The right time for
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writing the full business plan, should take place after the validation of the business
assumptions or when required by the investors or financial institutions.
Claudio and Darren both state that, the Business Model Canvas needs to be
regularly revised as the business environment is changing quickly and revision of the
components is necessary to assure they are still valid. Osterwalder (ecorner, 2012)
recommends mapping and revising the business canvas components and also how the
components influence and impact each other. Therefore, to assure that the business
model canvas is updated and the components are still valid, it is recommended that the
BMC needs to be revised systematically.
Darren and Claudio both state that, the introducing of a new target market or
any additional product into the business model canvas, could sometimes require use of
a separate board, as the needs of the new target market could be different and will
require different canvas components. The separate canvas will help with clarity and
keep transparency on the board. Claudio also states that, the same canvas can be used,
but coded with numbers or different colours with the new components. Osterwalder
(2010, p. 223) states that, the use of separate canvas is recommended if there are
significant differences between new business model components. Sometimes changes
in the business model will create conflict with other components and in this situation,
the use of a separate independent canvas is necessary. Therefore, if the business model
is not complicated and introducing new components will not be in conflict with other
canvas sections, entrepreneurs could use one canvas and if required, code the new
components to keep transparency on board. Otherwise, separate canvases should be
created.
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Darren and Claudio note that, its very quick to adjust the changes on the
business model canvas and does not require much work to apply changes in
comparison to the business plan. Claudio argues that, at some stage of the startup, after
entrepreneurs validate their business model, the investors could require more detailed
information about business. Osterwalder (2010) recommends using the Business
Model Canvas, as its a great tool to grab the attention of the investors before we move
on to the full business planning. It can be argued, the Business Model Canvas, could
save a lot of time in situations when entrepreneurs change their business model. The
Business Model Canvas is more efficient for planning the business in comparison to
the traditional business plan approach and its great as a tool to quickly explain to the
investors how the business operates. Quite often, entrepreneurs have a limited time
frame to capture the investors attention and the business model canvas is a perfect
tool for doing so.
Claudio and Darren also recommend using the Lean Canvas in the very early
stage of the startup. Ash Maurya (2012) suggests that, the Lean Canvas should be used
when startups are in the stage of searching for problem-solution fit, arguing that, the
problem that the company is focused on, needs to be worth solving. After
entrepreneurs find the right problem, Maurya recommends replacement of lean canvas
with the Business Model Canvas that focuses on product-market fit. It appears that the
use of the Lean Canvas is recommended in the process of the Customer Discovery.
The Lean Canvas focuses on searching for the right problem to solve and the solution
to that problem before moving to the business model canvas which focuses on the
product and market fit.
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Darren and Claudio both point out that there are some limitations that need to be
taken into consideration such as details of the financial operations or the environment
in which business exist. Alexander Osterwalder (2010) included environmental forces
outside the business model canvas and recommends continuous mapping of the
business model environment, arguing that a good understanding of the environment
will help with evolution of the business model in correct directions. It is recommended
that the business model canvas needs to included links to the environment because that
is an essential aspect of the business to be able quickly react to environmental changes
or spot the new opportunities and threats in business environment.
In the summary, the author found that, the use of the business model canvas could
be very supportive for the purpose of planning and development of startup business
model but there are some limitations that need to be taken in consideration such as the
environment or financial details.
6.3 Research Question 2
In the summary, the author found four findings to the second research question.
Claudio and Darren both indicate the same opinion about importance of the
involvement of the customers in business development and careful design of the Lean
Startup experiments. There are four findings to the research question that the author
analysis in following section.
Perrone and Heaphy, both state that, the involvement of the customers in new
product development as essential and it is not recommended to develop the product in
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the stealth mode. Eric Ries (2013) argue that, many startups fail because startups
dont know their customer. Ries also argues, is doesnt matter if the plan was done in
time and on budget, if we build something that nobody wants. The goal of the startup
is to figure out, what is the right thing to build, a product that a customer wants and is