
Wednesday, 7.20pm
Sheffield, U.K.
Man is an artifact designed for space travel. He is not designed to remain in his present biologic state any more than a tadpole is designed to remain a tadpole. — William S. Burroughs
A startup is like a tadpole. It’s a stage in the life cycle of an organisation. One approach is to see a startup as a period when an entrepreneur searches for a scalable business model. The dictionary definition is related to starting something up – from a small business to a drama group. Legally it might be a recently started company with little or no capital. Paul Graham of YCombinator fame defines it more narrowly – “A startup is a company designed to grow fast” – growth is what distinguishes a REAL startup, specifically its growth rate.
A popular tool for startup founders is the Lean Startup by Eric Ries. I first came across this concept in 2013 when I attended a Startup Weekend event. The Lean Startup built on Steve Blank’s Customer Development Process. It was an eye-opening idea, and the most valuable insight in there was “Get out of the building”. Go and talk to customers. It completely changed the way I looked at developing products and services for my customers. Rather than building something and presenting them with it I simply talked to them and started to build things that solved the problems they described.
That’s not all there is to the Lean Startup, however. Eric Ries suggested that what was needed was examining the components of a business plan and coming up with hypotheses about customer behaviour that could be carefully tested through experiments. It’s an approach that tries to be scientific. As a founder you come up with hypotheses. You design experiments to test your hypotheses. And if your hypotheses are valid, you go ahead and build your product.
I really liked the idea of the Lean Startup, but the principles didn’t really work that well for me. I created a number of business models, dutifully filled in the templates. But the hypothesis building just seemed like hard work. I don’t think I’d go as far as to say it doesn’t work, because the response would be that I just wasn’t applying it correctly. Instead, I put the theory on the back burner and moved onto other things, like Soft Systems Methodology.
For a long time, the only model I was aware of out there for a founder was that of the Lean Startup.
Until now…
Recently, I came across a special issue of the Journal of Management focused on the Lean Startup.
In their contextualising article, Zahra et al., (2024) introduce three alternative startup approaches : effectuation, creation theory and the theory-based view.
As described above, the Lean startup is about making a prediction and then testing if it’s right.
Effectuation is about: working with anyone willing to work with you; on what you can control; ensuring a low risk of loss; coping with surprises; and overcoming obstacles. These five principles were derived from conversations with 27 entrepreneurs and are described below:
- Bird-in-hand: Build immediately using resources you control. These include identify (who you are), knowledge (what you know), and network (who you know).
- Affordable loss: Invest very little and keep the downside risk low and affordable.
- Crazy quilt: Work with anyone willing to make real commitments, which means willing to pay or get involved and do the work.
- Lemonade: Turn failures into new opportunities.
- Pilot in the plane: Cocreate with partners who have made real commitments.
No 4 seems like an aspiration. The other four seem like very useful ideas.
Creation theory says that hypotheses are nonsense. We don’t know what’s going to work so we have “conversational experiments”. We talk to others about our ideas, most ideas die, some ideas survive and those are the ones where there is more certainty, eventually enough to build a business.
A theory-based view sounds similar to the lean startup, it starts with a theory of the business and is followed by using scientific methods in practice to collect and analyse data to validate the theory. But the creators argue it’s better.
Another idea that I hadn’t realised but which is obvious in retrospect is that startup theories mostly come from Western settings. Non-Western settings have fewer resources and more constraints. They may use strategies such as: seeing and copying what works; growing incrementally; leveraging family networks; having a number of options (bricolage); focus on making money with sales rather than gathering information; and changing what their families work on.
All the startup theories are predicated on the idea that business plans don’t work. Trying to predict and plan for the future is difficult. In practice, people shape and build their futures.
I think my approach in practice is a combination of effectuation and creation theory. I might dig into that more in future posts.
References
Zahra, S. A., Gruber, M., & Combs, J. G. (2024). Contextualizing Lean Startup and Alternative Approaches for New Venture Creation: Introducing the Special Issue. Journal of Management, 50(8), 2997-3007. https://doi-org.hull.idm.oclc.org/10.1177/01492063241264228
