Lean Start-up:Silver Bullet To Successful Business in Africa

Many entrepreneurs always sight the lack of capital as the reasons why their businesses fail. Starting a new venture whether it’s a tech start-up or a small business has always been a hit-or-miss proposition.

Common sense dictates that you write a business plan, pitch it to investors, assemble a team, introduce a product, and start selling as hard as you can.

In all this the entrepreneur hopes for the best. Unfortunately this a very risky way of starting business thus supporting research that indicates that more than half of start up business in the African continent fail within the first 2 years or 80% of all starts-ups fail.

We believe that there is a better approach to starting and running a new business that can make the process of starting a company less risky.

It’s a methodology called the “lean start-up,” and it favors:

• Experimentation over elaborate planning
• Customer feedback over intuition
• Iterative design over traditional “big design up front” development.

The Fallacy of the Perfect Business Plan

The Rule of thumb in business is that the first thing every founder must do is create a business plan—a static document that describes the size of an opportunity, the problem to be solved, and the solution that the new venture will provide.

Typically it includes a five-year forecast for income, profits, and cash flow. A business plan is essentially a research exercise written in isolation at a desk before an entrepreneur has even begun to build a product.

The assumption is that it’s possible to figure out most of the unknowns of a business in advance, before you raise money and actually execute the idea.

Once an entrepreneur with a convincing business plan obtains money from investors, he or she begins developing the product again with little or no consultation with potential customers.

Developers invest thousands of man-hours to get it ready for launch, with little if any customer input. Only after building and launching the product does the venture get substantial feedback from customers—when the sales force attempts to sell it. And too often, after months or even years of development, entrepreneurs learn the hard way that customers do not need or want most of the product’s features.

Lessons Learnt

Now that we know the traditional method doesn’t really work, what lessons can draw:

1. Business plans rarely survive first contact with customers. As the boxer Mike Tyson once said about his opponents’ prefight strategies: “Everybody has a plan until they get punched in the mouth.”

2. No one besides venture capitalists requires five-year plans to forecast complete unknowns. These plans are generally fiction, and dreaming them up is almost always a waste of time.

3. Start-ups are not smaller versions of large companies. They do not unfold in accordance with master plans. The ones that ultimately succeed go quickly from failure to failure, all the while adapting, iterating on, and improving their initial ideas as they continually learn from customers.

One of the critical differences is that while existing companies execute a business model, start-ups look for one.

This distinction is at the heart of the lean start-up approach. It shapes the lean definition of a start-up: a temporary organization designed to search for a repeatable and scalable business model.

Principle of the lean method

1. Rather than engaging in months of planning and research, entrepreneurs accept that all they have on day one is a series of untested hypotheses—basically, good guesses. So instead of writing an intricate business plan, founders summarize their hypotheses in a framework called a business model canvas.  Essentially, this is a diagram of how a company creates value for itself and its customers.

2. Lean start-ups use a “get out of the building” approach called customer development to test their hypotheses.

They go out and ask potential users, purchasers, and partners for feedback on all elements of the business model, including product features, pricing, distribution channels, and affordable customer acquisition strategies.

The emphasis is on nimbleness and speed: New ventures rapidly assemble minimum viable products and immediately elicit customer feedback.

Then, using customers’ input to revise their assumptions, they start the cycle over again, testing redesigned offerings and making further small adjustments (iterations) or more substantive ones (pivots) to ideas that aren’t working.

3. Lean start-ups practice something called agile development, which originated in the software industry.

Agile development works hand-in-hand with customer development. Unlike typical yearlong product development cycles that presuppose knowledge of customers’ problems and product needs, agile development eliminates wasted time and resources by developing the product iteratively and incrementally.

It’s the process by which start-ups create the minimum viable products they test.

Stealth Mode’s Declining Popularity

Lean methods are changing the language start-ups use to describe their work. During the dot-com boom, start-ups often operated in “stealth mode” (to avoid alerting potential competitors to a market opportunity), exposing prototypes to customers only during highly orchestrated “beta” tests.

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.

Creating an Entrepreneurial, Innovation-Based Economy

While some adherents claim that the lean process can make individual start-ups more successful, we believe that claim may not be entirely true.

Success is predicated on too many factors for one methodology to guarantee that any single start-up will be a winner.

What is probable based on research is that using lean methods across a number of start-ups will result in fewer failures than using traditional methods.

A lower start-up failure rate could have profound economic consequences.

Today the forces of disruption, globalization, and regulation are buffeting the economies of every country.

Established industries are rapidly shedding jobs, many of which will never return.

Employment growth in African countries will have to come from new ventures, so we all have a vested interest in fostering an environment that helps them succeed, grow, and hire more workers.

The creation of an innovation economy that’s driven by the rapid expansion of start-ups has never been more important.

In the past, growth in the number of start-ups was constrained by five factors in addition to the failure rate:

1. The high cost of getting the first customer and the even higher cost of getting the product wrong.

2. Long technology development cycles.

3. The limited number of people with an appetite for the risks inherent in founding or working at a start-up.

4. The structure of the venture capital industry, in which a small number of firms each needed to invest big sums in a handful of start-ups to have a chance at significant returns.

5. The concentration of real expertise in how to build start-ups, which in the most African countries is either lacking or the few that are there such as consultancy firms such as Viffa Consult and incubation firms such as i-hub, Nai-lab are sparely populated.

The lean approach reduces the first two constraints by helping new ventures launch products that customers actually want, far more quickly and cheaply than traditional methods and the third by making start-ups less risky.

And it has emerged at a time when other business and technology trends are likewise breaking down the barriers to start-up formation. The combination of all these forces is altering the entrepreneurial landscape.

For example hardware start-ups no longer have to build their own factories, since offshore manufacturers are so easily accessible.

The instantaneous availability of information is also a boon to today’s new ventures. Before the internet, new company founders got advice only as often as they could have coffee with experienced investors or entrepreneurs. Today the biggest challenge is sorting through the overwhelming amount of start-up advice they get. The lean concepts provide a framework that helps you differentiate the good from the bad.

Lean start-up techniques were initially designed to create fast-growing tech ventures. But we believe the concepts are equally valid for creating the SME’s that forms the spine of the African economy.

If the African entrepreneurs who run SME’s embraced such a model we believe that it would increase growth and efficiency, and have a direct and immediate impact on GDP and employment.

Many MBA programs in African are lacking behind in adopting these techniques. They still teach students how to apply large-company approaches—such as accounting methods for tracking revenue and cash flow, and organizational theories about managing—to start-ups.

Yet start-ups face completely different issues. Business schools must realize that new ventures need their own management tools.

Business schools need to embrace the distinction between management execution and searching for a business model.

They need to abandon the business plan as the template for entrepreneurial education.

And the business plan competitions that have been a celebrated part of the MBA experience for over a decade should be replaced by business model competitions.

A New Strategy for the African SME

It’s already becoming clear that lean start-up practices are not just for young tech ventures.

Companies have spent the past 20 years increasing their efficiency by driving down costs.

But simply focusing on improving existing business models is not enough anymore. Almost every company understands that it also needs to deal with ever-increasing external threats by continually innovating.

To ensure their survival and growth, corporations need to keep inventing new business models. This challenge requires entirely new organizational structures and skills.

The lean start-up approach can be a useful tool to help both big and small companies to meet the challenges of a rapidly changing business environment through rapid innovation and eventually transform businesses in Africa as we know it.