Bill Olivier is Professor of Educational Technology at the University of Bolton and explores what the co-operative sector could learn from the lean startup model in this blog written for Co-operatives UK.
The lean startup approach (Eric Ries: The Lean Startup
), which has been growing steadily in the United States for the past few years, with activity now also in the UK, is a radical departure from previous approaches to starting new ventures.
Gone are the two years of building the next great thing to find that nobody actually wants it. Gone too is the 60-page business plan which nobody reads, least of all venture capitalists - as they know it's all guesswork. And along with that, gone is the round of seeking venture capital to get going.
In their place is a lightweight initial business model whose guesswork (grandly called hypotheses) is to be verified (Ash Maurya: Running Lean
). 'Customer development' (Steve Blank: Startup Owner's Manual
), where first a clear understanding of customers’ problems is gained, then ‘minimal viable products’ iteratively tested with them, and adapted as needed until enough data has been gathered for all the updated assumptions on the business model to have been confidently validated.
As a result of this rapid learning phase, a business plan that works can then be produced. In the meantime, core customers have been asked to upfront their purchases both to test pricing and to bring in early revenue to help the start-up through this difficult stage, similar in principle to crowd sourcing.
As they say, 90 per cent of start-ups fail, and the aim is to reduce start-up risk and find out as early as possible if the initial proposal is heading in that direction, so that it can be either adapted, or stopped before too much time and money has been expended. Life is too short to build something that nobody wants.
So how does this apply to co-operatives? Here are some initial suggestions, mainly put forward to open further discussion.
First, it has been developed for start-ups with an innovative product or service that, by definition, cannot produce evidence of demand. So it would mainly be applicable to innovative co-op startups, for example those attempting to address sustainability issues. Can it be applied directly to these kinds of co-op startups, or does it need to be adapted?
Second, it has a big focus on establishing who customers are and their needs. So can it be adapted to work for innovative customer-led co-op start-ups? If so how?
Third, the model focuses on the individual start-up, but increasingly innovation involves a number of different smaller players with complementary skills. So how could it be adapted where a group of existing and/or new co-ops seek to collaboratively create a new product or service?
Fourth, in the United States larger companies are increasingly using the lean startup model for new internal ventures. This is often with opposition, as there tends to be a clash with existing company culture. However, co-ops generally seem more prepared to allow and support spin-outs and maintain good relations with them. So how can existing co-ops use lean start-up thinking internally, both for innovative new products and services, or to help launch new co-op spinouts?.
Fifth, rather than seeking investment or early payment for yet to be made products, the co-operative model opens up new possibilities for developing a closer and more attractive relationship with customers as members. This is based not just on funding but on co-creation, with dialogue on needs and proposed solutions and continuing iterative product/service development into the future, building a strong 'prosumer' community. How can the lean startup customer-focused development cycle be harnessed for co-operative startups that go beyond current crowdfunding models?
Bill Olivier, Professor of Educational Technology at the University of Bolton