Embracing Failure Using the Lean Startup Philosophy
New companies and new ventures within existing companies—both of which can be considered “startups” according to Eric Ries—emerge on the cutting edge of external environments characterized by volatility, uncertainty, complexity, and ambiguity. The term VUCA, coined by Bob Johansen (2007), describes these conditions. Bennett and Lemoine (2014) delineated each component as such:
Volatility involves unexpected and unstable challenges that are not hard to understand but may last for an indefinite amount of time. Knowledge about the topic is often available.
Uncertainty occurs when an event's general cause and effect are known, but other information may be lacking. Change is possible but not automatic and may be influenced by other variables.
Complexity describes a situation with "many interconnected parts and variables." Large amounts of pertinent information are likely available and predictable, but the nature and volume of the information can make it difficult to process.
Ambiguity obscures cause and effect relationships; the situation has no precedent and poses "unknown unknowns."
New ventures operating in a VUCA context rarely succeed when operating under the same assumptions as established businesses (Blank, 2013). Thus, startup entrepreneurs have fired the traditional business plan in favor of business model experiments (Blank & Euchner, 2018). Because "the defining characteristic of a start-up is its environment of extreme uncertainty," successful startups quickly learn to harness the VUCA conditions to create a sustainable business (Ries & Euchner, 2013). Johansen (2007) proposed addressing volatility with vision, uncertainty with understanding, complexity with clarity, and ambiguity with agility.
Eric Ries (2011) designed the Lean Startup Methodology to help entrepreneurial businesses to thrive by leaning into VUCA conditions. This approach teaches entrepreneurs "how to drive a startup" (p.22) using the Build-Measure-Learn Feedback Loop (see Figure 1). A founder builds the feedback loop as a "steering wheel" to navigate the startup on its journey through its VUCA environment. Ideally, the entrepreneur's goal is to minimize the total travel time through the loop, which extends the startup's runway (Ries, 2011). The founders and leading practitioners within the Lean Startup Movement demonstrate ways new ventures can leverage VUCA conditions to identify, create, and seize growth opportunities through value creation.
With a name derived from the lean manufacturing revolution, the Lean Startup teaches entrepreneurs how to start measuring their products by converting learning into a tangible metric (Ries, 2011, p.20). Ries explained, "the Lean Startup is a new way of looking at the development of innovative new products that emphasizes fast iteration and customer insight, a huge vision, and great ambition, all at the same time" (p.20).
Steve Blank (2013) provided the following three fundamental principles of the Lean Startup. First, the Business Model Canvas (Osterwalder & Pigneur, 2010) and Value Proposition Canvas (Osterwalder et al., 2014) afford entrepreneurs a framework to summarize and test hypotheses around the way it creates value for the company and its customers. The second principle, customer development, centers on four steps: customer discovery, customer validation, customer creation, and company-building (Blank & Dorf, 2020). Finally, agile development practices (Ries, 2011) work in tandem with customer development to achieve market-product fit (Blank & Dorf, 2020). Agile practices leverage shorter product development cycles and customer feedback to "eliminate wasted time and resources by developing the product iteratively and incrementally" (Blank, 2013, p.6). For instance, the agile practice of building product iterations works best when addressing ambiguous situations where the problem is known, but the solution is unknown (Talks at Google, 2011).
Startups use agile practices to create minimum viable products or MVPs: versions of the product that enable "a full turn of the Build-Measure-Learn loop with a minimum amount of effort and the least amount of development time" (Ries, 2011, p. 77). Customers provide feedback on the MVP that entrepreneurs incorporate into future designs. Iterative design and customer feedback inputs result in risk mitigation and a reduced failure rate (Blank, 2013). Through validated learning, startups build quantitative data about which practices to adopt and avoid (Ries, 2011). To minimize risk, startups should test "leap of faith assumptions" at the outset. The value hypothesis tests how a company will create value for its clients, and the growth hypothesis tests how a company will generate value for itself.
Startups are experiments that can partially or completely fail. Leaders who ignore the early signposts commit the biggest gaffe of all: failure to learn from their mistakes.