How to lower the startup failure rate

Leading entrepreneurship proponent suggests that 'lean startup' principles can increase a startup's chances of surviving the first crucial years.

"Too many startups begin with an idea for a product that they think people want. They then spend months, sometimes years, perfecting that product without ever showing the product, even in a very rudimentary form, to the prospective customer."

- Eric Reiss, author of The Lean Startup

Photo credit: Joe McKendrick

New statistics issued by the Kauffman Foundation and the National Venture Capital Association point to less startup activity as of late. It could be that many new startups are so small that they're flying under the radar, but a dearth of startup activity may have negative consequences for economic growth.

That's why Steve Blank, a startup guru and professor at University of California Berkeley, has become a huge proponent of the "Lean" startup methodology. In a new post at Harvard Business Review, he suggests that lean principles can increase a startup's chances of surviving the first crucial years.

One of the keys to being lean -- and agile -- is to keep customers engaged with the development of new products at all iterations.

The most powerful lean startup principle is likely to seem counter-intuitive to many entrepreneurs. That is, a startup should open-source its plans, versus keeping things under wraps. Typically, startups have preferred to operate in "stealth" mode, keeping design and trade secrets confined to only a few insiders. As Blank describes it:

"The lean start-up methodology makes those concepts obsolete because it holds that in most industries customer feedback matters more than secrecy and that constant feedback yields better results than cadenced unveilings."

Lean startup methodologies enable startups to produce products more quickly and cheaply, with less risk, Blank believes.

The five principles of lean startup include the following:

  1. Entrepreneurs are everywhere.
  2. Entrepreneurship is management.
  3. Validated learning.
  4. Innovation accounting.
  5. Build-measure-learn.

This post was originally published on Smartplanet.com

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