The Lean Startup for big firms doesn’t work. Here is why
Small companies that use lean startup methodology tend to do very well, but what about lean startup for big firms? Find out more about big corporations vs small businesses and why the lean startup might not always be the best option.
At You are launched, we think lean startup methodology is fantastic for small startups. Used correctly, it can get your product or service to market quickly and increase your chances of succeeding.
One of the questions we are often asked by our blog fans is if the lean startup works for all businesses regardless of size. Our honest answer? Not all the time, especially when it comes to lean startups for big firms.
In this article, we’re going to look at companies that use lean startup, why lean startup for big firms isn’t always the best approach, and what to use in its place.
Want to find out more about the disadvantages of lean startup methodology? Check out our blog.
Table of contents
What is a Lean Startup?
The lean startup method was devised by Eric Ries in the 2000s and 2010s; however, it was being used much earlier than that! Lean startup methodology is all about launching your startup as quickly as possible to get an edge over your competitors.
With 90% of startups ultimately failing, you need to do what you can to get your name out there as soon as possible.
Key concepts associated with lean startup methodology include:
- Lean Canvas: A way for startups to identify their unique selling point as well as any potential risks
- Proof of concept: A quick check that is carried out to ensure a product or service is a viable idea and will be a success
- Minimum viable product (MVP): A no-frills version of your product or service that means you can launch sooner rather than later
- There are also lots of other ideas you can use, such as Gannt charts and story points. The significant advantage of the lean startup is that you can mix and match concepts to suit your startup’s requirements!
Many well-known businesses wouldn’t be where they are today without using lean startups when they were starting out, including Dropbox, Zappos, Slack, and Buffer.
Let’s dig deeper
Joel Gascoigne, the CEO of Buffer, stated on his blog that he was (and still is) a keen fan of the lean startup method. When they were launching Buffer, the team created a simple MVP by asking prospective customers for feedback. This allowed them not only to see if their idea was viable but get an idea of what features customers would ultimately like to see.
However, would Buffer and other advocates of the lean startup can use the methodology now as a big company?
Probably not. Let’s look at why this is the case in more detail.
Before we move on – want to know more about lean startup methodology and how you can apply its teachings to your brand new business? These articles are a great place to start.
- The lean startup mobile development app checklist;
- Top ten lean startup circle tips to stay on track;
- Traditional business plan or lean startup plan – which is right for you?;
- Validating your lean startup;
- What materials do you need in the lean startup?
Why lean startup for big firms isn’t the best option
The lean startup methodology is excellent for small businesses that are just starting out. Many larger companies have capitalized on this and have tried to use the same methods to launch new products or inspire innovation.
Studies have shown that over four out of five large companies say they have tried some elements of lean startup, with varying degrees of success. However, just because the lean startup works for new businesses doesn’t mean it will work for larger organizations.
Here are just some of the reasons why lean startup for big firms doesn’t work as it does for smaller startups.
1. Big corporations don’t want to show unfinished concepts to customers
When you’re a large business, reputation is everything. You don’t want to do anything that could cause customers to lose trust in you or move away from a competitor. In fact, corporate reputation can account for up to 5% of a business’s sales.
When you’re a startup, it’s easier to get away with an unfinished MVP as you don’t have a reputation to uphold. With a more established business, you have a lot more at stake.
2. The potential losses for larger businesses are greater
A large part of the lean startup methodology is failing quickly and failing often. As Eric Ries famously said: ‘The only way to win is to learn faster than anyone else.’
When you’re starting out, it’s easier to cut your losses and move on if something goes wrong. Worst case scenario, you lose some money and time while you go back to the drawing board.
With a big corporation, losses have more severe ramifications. You could lose customers, you could lose significant profits, you could even lose staff.
Take for example, when Coca-Cola launched New Coke in 1985. The new product was a complete flop and was only on the market for a couple of months. Not only did the business lose $4 million in development, but it had to throw away over $30 million of unused stock.
3. There are more hoops for big businesses to jump through
As startups are small, it’s easy to make decisions quickly. However, it’s been noted that once a company hits about 150 employees, it becomes significantly harder to agree on crucial issues.
With lean methodology, time is of the essence. The sooner you can validate, refine and launch your product or service, the higher the odds of success. When there is more red tape and it takes longer to agree on decisions, the less effective the lean startup becomes.
When HR, legal, marketing, operations, finance, and the leadership team all have to sign off on an innovative idea, it’s likely to not be innovative for very long.
4. Change is typically seen as a bad thing in large corporations
When a corporation has been in operation for decades, perhaps even centuries, change is generally frowned upon and is rarely successful. Over half of change initiatives across businesses fail.
Large established businesses and smaller, newer startups often have different attitudes toward change. While startups see it as a good thing and a chance to evolve, larger enterprises often only do it when they absolutely have to.
After all, if it’s not broken, why fix it… right?
So, what can big companies use instead of the Lean Startup?
As you can see, larger businesses are often too big, too bureaucratic, and too afraid of change to make the most of lean methods.
However, all is not lost. Here are three different options for big businesses that want the benefits that lean startup methodology can bring:
1. Use an adapted version of the lean startup methodology
While lean startup as it is doesn’t benefit big businesses, it can work with some modifications. Take, for example, GE. With a turnover of nearly $75 billion and 205,000 employees across the world, it’s about as far away from a startup as you can get.
In 2012, GE created Fast Works, its own approach to applying the lean startup methodology across its business. The company worked with Eric Ries to create an employee culture that meant staff could innovate more quickly.
The principles led the company to design and launch a refrigerator the following year at half the time and half the cost.
2. Use an alternative business methodology like Blue Ocean Strategy
There are many other business methodologies out there that work well for big companies. As an example, take the Blue Ocean Strategy – a method created by economists W. Chan Kim and Renee Mauborgne.
With the Blue Ocean Strategy, businesses need to find new and growing markets (blue oceans) rather than competitive and overdeveloped ones (red oceans). It’s not about beating the competition but instead finding new spaces to sell in. Spaces that aren’t driven by value will yield significant profits.
The advantage of the Blue Ocean Strategy for large businesses is that it lets them work on innovative ideas while minimizing risk. As it originated from a study that took place over ten years and analyzed data from over 30 different industries, this methodology has been tried and tested.
As an example of the Blue Ocean Strategy in play, take Meta, formerly known as Facebook. When Facebook was initially launched in 2004, it was the first social media platform of its kind. However, new platforms came into being over the years, crowding the market and creating a red ocean.
In 2021, Facebook announced it was rebranding as Meta and moving into new markets, including virtual reality and digital meeting places. This was something that other social media platforms weren’t doing and meant Meta could move into a completely new industry where competition was less prevalent.
Find out more about Blue Ocean Strategy.
3. Work with smaller businesses that use lean startup
There’s also nothing stopping big companies from hiring smaller businesses that use the lean startup approach. This can be a great way of getting all the advantages of lean startup methodology without experiencing any of the pain points.
For example, a big company can outsource its R&D to a smaller company that uses the lean startup to quickly assess the viability of products.
In summary: Is lean startup a major bust for large businesses?
In this article, we’ve looked at why the lean startup isn’t necessarily the best approach for big firms. While applying the lean startup principles directly to large businesses doesn’t work, we’ve found that they can be useful when adapted like they were for GE.
Alternatively, there are other methodologies like the Blue Ocean Strategy that work well and have been designed especially for use by large and established businesses.
The thing to bear in mind is that while applying lean startup measure-for-measure might not be the best idea, some of the tenets of lean startup methodology can still help large businesses.
For example, over two-thirds of large companies have said lean startup learnings have helped them make decisions on evidence and data rather than opinion. Similarly, nearly half say lean startup methodology has inspired them to be more flexible in the workplace.
What does this mean? It means that while MVPs, proof of concepts, and lean canvases might not work for bigger organizations, the broad principles can make for a more empowered workplace.
And that can only be a good thing at the end of the day.
FAQ
The Lean Startup Methodology is an approach to launching and managing startups, emphasizing rapid product development and iterative adjustments based on customer feedback. It was developed by Eric Ries in the 2000s and 2010s.
The key concepts include Lean Canvas (identifying unique selling points and potential risks), Proof of Concept (quick checks to validate a product or service idea), and Minimum Viable Product (MVP – launching a basic version of a product or service to enter the market quickly).
Yes, well-known companies like Dropbox, Zappos, Slack, and Buffer used the Lean Startup Methodology when they were starting out to validate their ideas and iterate their products based on customer feedback.
The Lean Startup Methodology is better suited for smaller businesses because:Small businesses can afford to show unfinished concepts to customers, while larger corporations prioritize reputation.
Smaller businesses can handle potential losses better, whereas large corporations face more significant financial consequences.
Decision-making is faster in startups, while larger corporations have more bureaucratic processes.
Smaller businesses are more open to change, while established corporations often resist it.
Large companies can consider these alternatives:
– Adapting the Lean Startup Methodology to their specific needs, as demonstrated by GE’s Fast Works approach.
– Implementing alternative business methodologies like the Blue Ocean Strategy, which focuses on finding new markets.
– Collaborating with smaller businesses that follow the Lean Startup approach to leverage their agility and innovation.
Yes, some aspects of Lean Startup principles, such as data-driven decision-making and workplace flexibility, can benefit larger organizations by promoting evidence-based decision-making and a more adaptable work culture.
Large companies can adapt Lean Startup principles by simplifying decision-making processes, fostering a culture of innovation, and using Lean principles selectively in specific projects or departments.
While the Lean Startup Methodology can improve the odds of success for small businesses, success is not guaranteed. It depends on various factors, including market conditions and the execution of the methodology.
Yes, the Lean Startup Methodology can be applied to a wide range of industries beyond technology and software, including manufacturing, healthcare, and service industries.
A successful transition requires commitment from leadership, a willingness to embrace change, and a phased approach to implementing Lean Startup principles throughout the organization. Collaboration with experts in Lean methodology can also be beneficial.
Whether your startup is big or small, You are launched is here to help
Here at You are launched, we appreciate that all businesses are different. This means each one needs a different strategy to bring long-term success.
We have experience in launching a wide range of different startup ideas, from marketplaces where you can rent tools to mobile apps that help you track your investments. Each startup we worked with required a unique strategy to ensure it had the best advantage.
When you work with us, you’re not just a number. You’re a unique business venture.
Contact us today to find out how we can help you launch, no matter what size and stage your business is at.
