Is the Lean Startup dead?

Lean startup approach. Photo credit: Goyello blog.

Reading this article, I realized it was time for a new startup heuristic: the amount of customer discovery and product-market fit you need to find is inversely proportional to the amount and availability of risk capital.

And while the “first mover advantage” was the rallying cry of the last bubble, today’s is: “Massive capital infusion can own the entire market.”

Fire, ready, aim

Jeff Katzenberg has a great track record — head of the studio at Paramount, chairman of Disney Studios, co-founder of DreamWorks, and now chairman of NewTV. The billion dollars he just raised is on top of the US$750 million NewTV’s parent company, WndrCo, has raised for the venture. He just hired Meg Whitman, the ex-CEO of HP and eBay, as CEO of NewTV.

Their idea is that consumers will want a subscription service for short-form entertainment (10-minute programs) for mobile rather than full-length movies. Think YouTube-meets-Netflix.

It’s nearly a US$2 billion bet based on a set of hypotheses. Will consumers want to watch short-form mobile entertainment? Since NewTV won’t be making the content, they will be licensing from and partnering with traditional entertainment producers. Will these third parties produce something people will watch?

But NewTV doesn’t plan on testing these hypotheses. With fewer than 10 employees but almost US$2 billion dollars in the bank, they plan on jumping right in.

It’s the antithesis of the Lean Startup, and it may work. Why?

Dot-com boom to bust

Most entrepreneurs today don’t remember the dot-com bubble of 1995, the five-year period starting from the Netscape IPO when there was a massive wave of experiments on the then-new internet.

When VCs realized how eager the public markets were for anything related to the internet, they pushed startups with little revenue and no profits into IPOs as fast as they could. The unprecedented size and scale of their returns transformed VC from a financial asset backwater into full-fledged player in the financial markets.

One day, it was over. IPOs dried up. Startups with huge burn rates — building leases, staff, PR, and advertising — ran out of money. Most startups born in the bubble died in the bubble.

The rise of the Lean Startup

The idea of the Lean Startup was built on top of the rubble of the 2000 dot-com crash. With risk capital at a premium and the public markets closed, startups and their investors now needed a methodology to preserve capital and survive long enough to generate revenue and profits.

To do that, they needed to be sure that they were building something customers wanted and needed. If their initial guesses were wrong, they needed a process that would permit them to change early on, when the cost of changes was small — the famed “pivot.”

Lean started from the observation that you cannot ask a question that you have no words for. At the time, we had no language to describe that startups were not smaller versions of large companies; the first insight was that large companies executed known business models, while startups searched for them.

Carpe diem — seize the cash

One more thing

Lessons learned