Traditional vs. Lean Startups
In traditional startup practice, a founder writes a lengthy business plan, pitches it to investors, assembles a team, builds out necessary infrastructure, and then works hard to sell his or her product. In the uncertainty and pace of the modern marketplace, startups operating in this way often struggle to keep up. According to research out of Harvard Business School, 75 percent of all venture-funded startups fail. Lean methodology, articulated mostly by Steve Blank and Eric Reis, seeks to help more startups succeed through a number of fundamental changes to the traditional model.
Lean startups anticipate failure and learn from it. From the beginning, they take a “minimum viable product”, essentially an early prototype, directly to their customers, receive feedback, and immediately begin shaping their product based on what the customer wants. Instead of a long, concrete business plan, lean startups employ an easily adaptable business model that lays out an overall vision and a series of hypotheses to test. The business model enables a startup to “pivot” when a strategy is not working and products are continually altered and improved based on customer feedback. By anticipating uncertainty and remaining agile, lean startups hope to maximize their chances at eventual success.
Business Model Competitions
With startups increasingly employing lean methods, traditional funding avenues like banks, investors, and business competitions need to expand to support them. As part of their methodology, lean startups tend to deemphasize traditional metrics like cost projections and rigid business plans. Because of this trend, business competitions, many of which require full business plans, may also need to evolve to efficiently serve lean startups.
One entrepreneur, who found his lean startup struggling to compete at business competitions, felt that the judges didn’t understand how to assess the merits of a lean startup. “Asking for traditional metrics like year-four projected sales is just ridiculous,” he lamented. His grievance is not unwarranted; creating long-term business plans and projections is time consuming and may be a superfluous exercise for many startups. Founders who find themselves in this category are in luck: A growing number of business model competitions are popping up that are specifically geared towards lean startups. The Chicago Lean Startup Challenge, Harvard’s New Venture Competition, and the University of Iowa’s Business Model Competition are three examples of recently opened business model competitions, reflecting a growing desire among institutions to support startups using lean methods. Competitions like these should add to the allure of lean methodology and make the advantages of business competitions more accessible to lean startups.
Lean Startups in Business Plan Competitions
Despite the advantages of participating in competitions designed to accommodate lean methodology, lean startups needn’t restrict themselves to business model competitions. Diana Kander, a senior fellow with the Kauffman Foundation, believes that lean startups are capable of competing at business plan competitions as well:
“Business plans and cost projections have always been exercises, largely to show banks and investors.” Kander explained, “The difference with lean is that you’re validating your product ideas with customers beforehand. If anything, lean startups are more viable at competitions. Would you rather vote for a startup that has an untested business plan or one that has gone out and shaped its product based on actual customer sales?”
After conceiving of a product, validating it with customers, and writing a business plan, lean startups can be competitive in business plan competitions, perhaps even more so than traditional startups. The problem with business plan competitions is not so much that lean startups are unable to be competitive against traditional startups, but that going through the motions of creating a complete business plan for a competition requires a significant investment of time and energy into a single solution, which runs counter to the lean approach. For this reason, the increasingly popular business model competitions will likely fit lean startups better. Though if lean startups do choose to compete in traditional business plan competitions, preparing their materials based on the judging rubric and the judges’ backgrounds is crucial to success.
Written by Jake Spertus