The Use of the “Lean Start-up Methodology” in Start-up Companies

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The Use of the “Lean Start-up Methodology” in Start-up Companies

 

 

SUBMITTED IN PARTIAL FULLFILLMENT FOR THE DEGREE OF MASTER OF SCIENCE

S

ANDER

O

ERLEMANS

10676333

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ASTER

I

NFORMATION

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TUDIES

 

B

UISNESS

I

NFORMATION

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YSTEMS

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ACULTY OF

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CIENCE

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NIVERSITY OF

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MSTERDAM

November, 2015

Supervisor

dr.

Erik J. de Vries

Supervisor

Geert Berkvens

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Abstract

This thesis project is initiated by the start-up called ’MyHomeServices’ and provides insight in the ’Lean Start-up Methodology’ (LSM) and its working in practice. In this project the LSM is presented as a new dynamic state approach of growth for (small) businesses. The importance of the LSM has been proven in this research based on recent entrepreneurial literature in the literature study, with critical comments from the perspective of relevant management fashion lit-erature. The research focuses on the important elements that belong to the stage of achieving product/market fit within the framework of the LSM. Achieving product market/fit is an important part of the LSM. MyHomeServices currently is trying to achieve product/market fit, therefore the focus lies in this research on this stage of the LSM. After the exploration of the nature of the important elements of LSM, this research investigates on the execution of the LSM by look-ing at 3 best practices and 12 start-ups linked to accelerator Startupbootcamp HighTechXL in Eindhoven and incubator Services Valley in Venlo. The pres-ence of the execution was measured by classifying the 3 best practices and 12 start-ups. The 3 best practices have been classified by analyzing different sorts of sources and the 12 start-ups have been classified by doing semi-structured interviews. The classification of the best practices and 12 start-ups took place on the basis of the important elements of the stage of achieving product/market fit within the framework of the LSM found in the literature study. This directly showed the actual working of the LSM in practice. The presence of execution of the LSM was best visible in the 3 best practices and the start-ups linked to Services Valley. Overall, the start-ups of Startupbootcamp HighTechXL lacked this presence. Future research is needed to determine to what extent the LSM is actual efficacious, extensive empirical research is needed in order to prove or disapprove the actual efficacy of the LSM.

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Contents

1 Introduction 4

1.1 Problem Statement and research question . . . 4

1.2 Research objective . . . 6

1.3 Context . . . 6

2 Research methodology 8 2.1 Data collection, classification and analysis . . . 8

3 Literature study 11 3.1 Methodological approach to entrepreneurship . . . 11

3.2 LSM as a new type of growth model . . . 12

3.3 LSM and excess entry . . . 15

3.4 Build-Measure-Learn . . . 15

3.5 Three ’fits’ of LSM . . . 17

3.6 Product/market fit . . . 18

3.7 The important elements of achieving product/market fit within the framework of the LSM . . . 19

3.7.1 Plan and build MVP . . . 19

3.7.2 Qualitative validation and quantitative verification . . . . 19

3.7.3 Pivots or persevere . . . 20

3.8 Criticism and reflection on LSM . . . 21

3.9 Sub-conclusion . . . 22

4 Data collection and classification 23 4.1 Introduction Best Practices . . . 23

4.2 Classification Best Practices . . . 24

4.2.1 Best Practices: Plan and Build MVP . . . 24

4.2.2 Best Practices: qualitative validation and quantitative verification . . . 25

4.2.3 Best Practices: pivots or persevere . . . 27

4.3 Classification 12 start-ups linked to HighTechXL and Services Valley . . . 27

4.4 Analysis start-ups Services Valley . . . 28

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4.6 Sub-conclusion . . . 30 5 Recommendations and limitations 31

5.1 Recommendations: Startupbootcamp HighTechXL and Services Valley . . . 31 5.2 Limitations and recommendations of this research and methodology 32

6 Conclusion 33

A A format of interview questions for questioning the cases 40 B An example of the interview’s coding 42

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Acknowledgements

I would like to thank my two supervisors for the support, Erik J. de Vries of University of Amsterdam and Geert Berkvens of MyHomeServices. They gave me a lot of insights on how to organize my research and provided a lot of substantive information and useful contacts. I would also like to thank Broos Bakens from Ernst and Young and Rob Pijpers from the Services Valley who both gave me the opportunity and access to their pool of start-ups to interview for this research. Finally I want to thank Maarten van Kroonenburg for his support by giving me a lot of substantive information and a lot of time where we thoroughly discussed the topic in relation to this research.

Disclaimer

I certify that this report is my own work and that all sources of information used in this report have been fully acknowledged.

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Chapter 1

Introduction

Entrepreneurs always strive to let their enterprise meet its goals as soon as possible. Unfortunately, this endeavor often can’t be achieved. Business owners face a lot of uncertainty while operating their businesses. This uncertainty can directly result in an unstable business, because the uncertainty can result in making wrong decisions that can have fatal consequences. It is desirable that businesses are as stable as possible because eventually it are the businesses that are determining whether an economic climate in general is good or bad. The better the businesses, the better the economic climate will become[13]. Ideally, a targeted methodology that could deal with uncertainty for entrepreneurs would be very helpful in order to get a higher chance of success. There are a number of models that address that purport to increase the chance of success. One of the recent most influential ones will play a central role in this research: the ’Lean Start-up methodology’ (LSM).

1.1

Problem Statement and research question

Big new software ventures such as Facebook, Linkedin, Spotify, Pinterest, In-stagram and Dropbox, are good examples of start-ups that evolved into radical successful businesses [31]. Despite these big success stories, the success is not for everyone. Currently, according to research conducted by Shikhar Ghosh, 75 percent of all start-ups fail [7] and most of the time it is said that they fail within two years from their creation [31]. A clear definition of a start-up is given in the book ’The Lean Startup’ (2011) by Eric Ries and is as follows: ’A start-up is a human institution designed to deliver a new product or ser-vice under conditions of extreme uncertainty.’ [32]. The high failure rate of 75 percent seems to have a relation with the conditions of high uncertainty which start-ups are facing. The decision makers within businesses fail to account for the uncertainty in their predictive judgments while making decisions [22][36]. It is to say, that the existence of uncertainties for entrepreneurs therefore are playing a big role in the fact that there is a low success rate for new companies.

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This has not gone unnoticed in the history of entrepreneurial literature. As one of the answers to the many attention a new theory emerged called the ’Lean Start-up Methodology’ (LSM), introduced by Eric Ries. He states that start-up success can be engineered by following the right process, which means it can be learned, which means it can be taught [32]. It is a new method for developing businesses and products while it is able to deal with uncertainty and therefore potentially decreases the high failure rate of start-up companies and increases the chance of success for start-up companies.

The introduction of LSM resulted in a global movement of entrepreneurs and innovators who are changing the way new products and businesses are built, by making a methodological framework for start-up owners. At the moment the movement is becoming very popular, in more than 90 cities worldwide there are Lean Start-up meetings taking place on a regular basis. In short, accord-ing to Gustafsson and Qvillberg, LSM emphasizes two important thaccord-ings. First, the importance of learning from the customers to produce a solution based on customer needs and wishes is emphasized. This is done by developing and vali-dating a problem, a product and customer hypotheses. Second, the theory puts emphasis on building prototypes of important features to minimize waste, thus resulting in less time and money spent, which further enables more iterations [17]. A more elaborative explanation of LSM can be found in Chapter 3, in this chapter the innovative aspect of the LSM as well why the LSM should be studied and the LSM itself will be further explained.

Even though LSM has had a lot of attention recent years, there is still a very shortage of research on the actual execution of LSM in start-ups [17] [9]. It is not clear how the actual execution of LSM should take shape and currently takes shape in start-up companies. By filling this gap in current research, this thesis project provides an exploration of important elements of the execution of LSM. The literature study will clarify the fact that LSM consists of three stages, where achieving product/market fit is one of the three stages. The focus in this thesis project will be on the important categories of achieving product/market fit as being part of the LSM. This is because MyHomeServices, the initiator of this research currently is trying to achieve product/market fit within the framework of the LSM. Every time this research quotes ”the important elements of the LSM” it is always focused to only the stage of achieving product/market fit within the framework of LSM. After the exploration of the important elements, 12 start-ups will be classified based on these elements that have been identified and this will result in some general recommendations.

This thesis project from here is organized as follows: in the rest of this chapter the research question, the research objective and the context of this thesis project will be described. Chapter 2 will elaborate on all the methods used in this research. Chapter 3 contains the description of LSM and its important elements by doing a thorough literature study. Moreover, the literature study places the LSM in a wider range of entrepreneurial and management fashion literature to underscore the importance of this research. In chapter 4 the data collection and classification of the best practices and the selected start-ups can be found based on the identified important elements of the LSM. In chapter 5

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all the recommendations and limitations will be given based on the findings of the previous chapters and in chapter 6 this thesis project a conclusion of the research will be presented.

Research question

This thesis project will answer the following research question: To what extent are the selected start-ups linked to Startupbootcamp HighTechXL and Services Valley executing the stage of achieving product/market fit within the framework of the ’Lean Start-up Methodology’ ?

1.2

Research objective

The primary objective of this research is identifying the key elements of achiev-ing product/market fit within the LSM and showachiev-ing the methodology’s workachiev-ing in practice in the selected start-ups. This requires an objective definition of the LSM, whereupon the important elements of achieving product/market fit that will be identified can be based. The definition of the LSM presented in this research is derived from a literature study. Besides this definition, the literature study will place the LSM in a historical context of entrepreneurial literature together with critical comments from management fashion literature. This will prove the importance of the investigation of the LSM. The important elements of achieving product/market fit within the framework of the LSM form the basis of the ability to classify 3 best practices and 12 start-ups. They will be classified depending on whether the identified elements are applicable to the correspond-ing best practice or start-up, or not. This directly shows the workcorrespond-ing of the LSM in practice and answers the research question of this research. Starting from this point, the definition of the LSM presented in the literature study can help start measuring the impact on start-ups and its product development in future research. However, it is recommended to look at all the important ele-ments of the LSM in the future, because achieving product/market fit is only one though an important part or stage within the framework of the LSM. A clear understanding of the execution of the LSM can possibly contribute to a possible higher chance of success for start-ups eventually.

1.3

Context

This research was performed in collaboration between the University of Am-sterdam and a start-up called ’MyHomeServices’. This organization initiated the research and provided access to its resources whenever it was necessary. It also provided good supervision during the research period. During this research the team of MyHomeServices became more acquainted with the LSM and the important elements that play a role by achieving product/market fit within the framework of the LSM. Before the research started, the team of MyHomeSer-vices was already enthusiastic about the method and was executing parts of the

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LSM, but they executed it by touch and lacked the insight on what the most important elements of the method were and how it worked in practice. Next to MyHomeServices, several other companies, experts and incubators/accelerators shared their knowledge with this project in order to eventually learn from the project. The research itself could unfortunately not become too comprehensive due to time and budget limitations. The University of Amsterdam provided an appropriate academic supervision to ensure research accuracy and to keep it in the scientific framework. The data needed was collected through an analysis of various sorts of documentation for the best practices and taking interviews from the owners of the selected 12 start-ups. This data collection was used to classify the execution of the LSM based on the applicability of the identified important elements of achieving product/market fit within the framework of the LSM for each corresponding best practice and interviewed start-up.

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Chapter 2

Research methodology

This research is an investigation of discovering hidden truths that can lead to a contribution to the existing knowledge. The methodology used during a re-search offers a framework which provides guidance about all facets of the study. From assessing the general philosophical ideas behind the inquiry to the de-tailed data collection and analysis procedures. Using an extant framework also allows researchers to lodge their plans and ideas well grounded in the literature and recognized by audiences that read and support proposals for research[29]. Mainstream approaches are quantitative and qualitative in nature. A mix of both approaches is also considered to be mainstream. According to Natasha Mack et al. the key difference between quantitative and qualitative methods is their flexibility. Qualitative methods are typically more flexible, it allows greater spontaneity and adaptation of the interaction between the researcher and the study participant[25].

2.1

Data collection, classification and analysis

In this study the qualitative research is chosen to get an understanding of the working of the LSM in practice. The literature analysis has been a main driver, since the interviews that were held with managers or owners of the selected 12 start-ups of incubator Services Valley (4) and accelerator HighTechXL (8) were based on the findings of this literature study. The start-ups linked to the accelerator (HighTechXL) were mostly high tech start-ups, while the start-ups of the incubator (Services Valley) were mostly developing SaaS products. The type of start-ups however, was not taken into consideration by selecting the start-ups for the interviews. The interviewed start-ups were selected based on the fact that both Services Valley’s and HighTechXL’s so called start-up supervisors stated that they actively give consideration to the LSM while supervising their start-ups. The start-up supervisor of Services Valley stated that the LSM is deeply embedded in their PADSI program, which every start-up linked to Services Valley is obliged to follow. The start-up supervisor of HighTechXL explained

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Figure 2.1: Visualization of the research methodology of this research.

that while supervising their start-ups the LSM always is demonstrated and recommended very thoroughly. Both Services Valley and HighTechXL expect a high visibility of execution of LSM in each start-up linked to their organization. A variety of blog entries and experience reports, analyzes, opinions and state-ments mostly originated from the Internet were used to get an understanding of the working of the LSM in practice in the case of the 3 selected best practices: Airbnb, Dropbox and Slack. The literature study here has been a main driver as well, since the working of the LSM in the case of these 3 best practices was described on the basis of the important concepts of the LSM derived from the literature study.

To receive the acquired data from the interviews, semi-structured interviews have been held on the basis of important considerations derived from Cindy Al-varez. According to Alvarez, doing an interview in pairs is one of the most effec-tive practices to conduct interviews, because the interview is better allowed to be improved along the way and the interview will deliver more comprehensive and useful notes[4]. All interviews have been held together with Maarten van Kroo-nenburg, who is currently writing a book on the ’Lean Start-up Methodology’. There has been chosen for unrecorded interviews. Instead, there has been chosen to directly write down important notes that describe the answers of the inter-viewee. According to Alvarez, interviewees may be more cautious when they know they are being recorded and it creates an uncomfortable atmosphere[4]. Directly and one week after each interview, the field notes made by both inter-viewers have been evaluated and merged to a final version of field notes of each particular interview. The field notes did never differ much from each other, but merely complemented each other. On the basis of each first evaluation of every

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interview, the questions of the interviews to come had been slightly improved each time in order to be able to receive better and more relevant answers from interviewees in the interviews to come.

After conducting all the interviews, the final version of field notes of each interview have been coded based on the found important elements of the LSM in the literature study. For each interview is examined whether the identified important elements derived from the literature study were visible in the notes or not. Every interview lasted around 20 minutes. Out of the 12 interviews, 6 were conducted in English and 6 interviews were conducted in Dutch. Af-ter every inAf-terview the field notes were sent to the inAf-terviewee, in order to give the interviewee the possibility to give remarks on the things said during the interview. During the interviews different interviewing strategies have been used. The interview always started with an informal conversation where the interviewers and the interviewee introduced themselves. Next to that the in-terviewers gave a brief explanation of the purpose of the interview. Each time, the foresight had been given that the topic of the research would be revealed after the interview, in order to not influence the answers of the interviewee. An interview guide ensured that every interviewee would approximately be inter-viewed the same way[12]. Moreover, the use of an interview guide made sure that the limited time available would be used in the best possible way[12]. The interview guide can be found in Appendix A. The terms used in the questions during the interviews were not used directly, in order to not give the impression to the respondent that the research is about the LSM. All interviews have been conducted face-to-face at Services Valley in Venlo and at the HighTech Campus in Eindhoven. The field notes and its coding of the interviews can be provided upon request. An example of the used coding table can be found in Appendix B.

All field notes have been written in the initial language of the interview. Since the coding process is very dependant on the researchers’ opinion and previous knowledge, it is done in the most objective way as possible. The coding of the field notes took place on the basis of the derived important concepts of the literature study. Similar incidents and phenomena were categorized into the conceptual elements derived from the literature study. This made it possible to classify each start-up according to these conceptual elements. The conceptual elements are the following:

1. Plan and Build a Minimum Viable Product (MVP) 2. Qualitative validation and quantitative verification 3. Pivots or Persevere

How these conceptual elements relate to the questions of the interview is explained in Appendix A. The exact meaning of these elements will become clear in the literature study of this research, which can be found in the next chapter.

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Chapter 3

Literature study

A thorough literature study about the LSM will be given in this chapter. The literature study will provide the theoretical framework of this thesis project. This framework provides a description of the LSM in a wider historical context. It proves the innovative and important aspects of the LSM and justifies the initiation of this research on the basis of relevant entrepreneurial and manage-ment fashion literature. In addition, the most important elemanage-ments of LSM are described, with a focus on achieving product/market fit within the framework of the LSM. These elements are necessary to base the interview questions for the selected start-ups in the next chapter.

3.1

Methodological approach to

entrepreneur-ship

The question what entrepreneurship is rather than how to be an entrepreneur is slightly easier to answer. Since decades researches are trying to get an answer to the question what the nature of entrepreneurship is. Back in 1934, Schumpeter was the first researcher that gave a definition of an entrepreneur: ’an innovative individual who disrupts markets’ [34]. This definition is still often used in the literature and thus still very influential. A more difficult question is how you can be an entrepreneur in a successful way? Is it even possible to approach en-trepreneurship in a methodological way, like science is approached? According to Saras D. Sarasvathy and Sankaran Venkataraman this is certainly possible. They formulate entrepreneurship as a method of human action, comparable to social forces such as democracy and the scientific method. They are convinced that entrepreneurship is a powerful way of tackling large and abiding problems concerning the enhancement of our species [33]. In Figure 3.1 the similarities in historical development and differences in content between the scientific and the entrepreneurial method are presented according to Sarasvathy and Venkatara-man. Key objective of this figure is that entrepreneurial method is very similar to the scientific method in terms of historical development. In terms of content,

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Figure 3.1: Comparing the Entrepreneurial Method with the Scientific Method [33].

the big difference is that the scientific method has a bigger scope than the en-trepreneurial method. The most important insight in relation to this research is the similarity between both methods in terms of being able to learn it and do it well. Bot the entrepreneurial and scientific method can be taught and learned. The LSM can be seen as a concrete example of an entrepreneurial method focused on start-ups. Before a detailed description of the LSM and its important elements will be presented, LSM will be placed in the recent history of a relevant selection of entrepreneurial literature on growth models for businesses. This will show the importance of this research and the need for further research on the LSM.

3.2

LSM as a new type of growth model

In 2010, Jonathan Levie and Benyamin B. Lichtenstein published an analysis of a period of 40 years in stages of growth models. They find that there is absolutely no agreement about model features and nor has any stage model become dominant in the field. Even worse, they find that two of the principal propositions shared by these stage models do not have empirical validity after testing with large samples. They conclude that stages of growth modelling has hit a dead end, but despite the dis-confirming evidence new stage models continue to appear in management literature and textbooks[23].

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Figure 3.2: An example of a General Growth Model by Larry E. Greiner[16].

According to Mel Scott and Richard Bruce, growth models can roughly be categorized in 4 groups[35]:

1. Industry Growth Models 2. Large Business Growth Models 3. Small Business Growth Models 4. General Growth Models

Since the focus in this research is on start-ups, only the Small Business Growth Models and the General Growth Models are relevant. For both groups one example will be described, this is important to get a clear understanding on what is meant by the stages of growth models which are criticized by Levie and LichtenStein.

An important example of a General Growth Model is the growth model of Larry E. Greiner (Figure 3.2). Greiner’s growth model states that a business goes through a minimum of 5 stages and that every stage is strongly influenced by the previous stage. In addition, he states that the growth of a business is more dependant on its history than external factors. To realise business growth it is necessary to overcome the crisis every stage knows, only then the business can evolve by entering a new stage and is eventually able to survive[16].

One of the many examples of Small Business Growth Models is the growth model of Virginia L. Lewis and Neil C. Churchill (Figure 3.3). Like Greiner’s model of growth, this growth model consists of 5 stages. In contrast to Greiner’s model, this model focuses more on the start of the company and its correspond-ing life cycle[24]. Furthermore, the cycle is similar to Greiner’s model in terms

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Figure 3.3: An example of a Small Business Growth Model by Virginia L. Lewis and Neil C. Churchill[24].

of overcoming problems in a certain stage to be able to enter the next stage of the model. Going through the stages is necessary for the business to be able to grow, evolve and to survive long term.

After the detailed demonstration of the inadequate stages of growth models by Levie and Lichtenstein, they present an alternative. They state that using a dynamic growth model instead of a stages of growth model is a better approach for business growth[23]. Levie and Lichtenstein explain that a dynamic state approach is better because of the fact that organizations are not growing or developing like organisms. They are even opposites, organizations don’t have a genetic code that is controlling their development. They are able to antici-pate and co-create their environments. The researchers replace the biological assumptions of the stages models with the view that a dynamic state is ’a net-work of beliefs, relationships, systems and structures that convert opportunity tension into tangible value for an organization’s customers/clients, generating new resources that maintain the dynamic state’[23]. Seeing the generality of the dynamic states approach they also state that further research on this approach is required in order to develop a more accurate and relevant understanding of small businesses growth and entrepreneurship. Steve Blank and Eric Ries gave the new dynamic state approach a face by introducing the LSM.

Blank and Ries both state that every company and product is different, whereby a dynamic model is needed[32][8]. The LSM no longer uses the tradi-tional linear approach, but a non-linear approach to success. In relation to this research, the biggest concern of the traditional linear stage models is that the models are hardly taking the fact that companies and products vary much into account, while this actually is a very important issue. When not taking this fact into account, a lot of uncertainties around the quality of the company and

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product arise for the particular business. The LSM, as being part of the new dynamic state approach potentially deals with this problem because the theory takes the company, the product and its demand as a starting point. The fast to market approach of the LSM ensures that this approach can deal with un-certainties in a better way. How the LSM exactly deals with these unun-certainties with this fast to market approach will become clear in the coming sections.

3.3

LSM and excess entry

The previous section provided an explanation why the LSM has value from the history of growth model’s perspective. It will now be explained what value the LSM has from the entrepreneur’s perspective. As mentioned in the introduction, entrepreneurs face a lot uncertainty while operating their businesses. The un-certainty can result in making wrong decisions that can have fatal consequences. Especially for entrepreneurs of small businesses who are trying to enter the mar-ket, the uncertainty is very high. Robin M. Hogarth and Natalia Karelaia call the high failure rate of market entry decisions ”excess entry”[20]. According to them, the existence of excess entry has economic and psychological reasons. The most important economic reason is the fact that high profits attracts entry, a lot of entrepreneurs want to enter the market to get a share of these profits[20]. The psychological reasons for excess entry however, are most important for this research, because these reasons strengthen the negative risks of the existence of uncertainty. All psychological explanations for excess entry are based on the notion of overconfidence. Overconfidence makes individuals overestimate their chances of success and erroneously expect to succeed where others will fail[20]. The psychological reasons for excess entry and the existence of uncertainties for entrepreneurs are not a good match. The LSM can be seen as a method that better enables entrepreneurs to deal with the uncertainty and takes away the risks of overconfidence. This given the fact that the LSM forces start-ups to act as demand-based as possible, rather than try to push a finished product into the market. What is meant by the LSM forcing start-ups to be demand-based will be made clear in the next section on the basis of the Build-Measure-Learn feedback loop.

3.4

Build-Measure-Learn

The Build-Measure-Learn feedback loop (Figure 3.4) embodies the new dynamic state approach, as it is seen as the heart of the LSM. It forces entrepreneurs to present their unfinished products to the market right away, therefore it can deal with the risks of entrepreneurs’ overconfidence and uncertainties they are fac-ing. Before a detailed description of the feedback loop will be given, first a brief introduction of important concepts of the LSM in general will be given. These concepts are necessary in order to understand the Build-Measure-Learn feedback loop better. According to Eric Ries, the Lean Start-up movement takes its name

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Figure 3.4: Feedback loop: Build - Measure - Learn.

from the lean manufacturing revolution initiated by Taiichi Ohno and Shigeo Shingo while working at Toyota. Lean manufacturing is about learning what the difference is between value-creating activities and waste and it showed how to build quality into products from the inside out. The Lean Start-up method-ology adapts these ideas to the context of entrepreneurship[32]. Steve Blank’s principles of customer development resound in the LSM, all these principles are related to the following concepts that he uses: learning-by-doing, customer centricity and value, continuous flow and improvisation [38] [6] [19]. These con-cepts will now be further elucidated based on the Build-Measure-Learn loop in the next section. The Build-Measure-Learn feedback loop is present throughout the whole practice of the LSM. The LSM uses scientific learning as a yard-stick, in order to discover and eliminate the sources of waste that are plaguing entrepreneurship[32]. This can be realised when the product development team of a start-up accelerates through this loop as fast as possible. Build a product with the most important features, measure how well the product is received, learn from it and build the product again. Sooner or later the fastest team will outrun the slower team. Learning by doing as fast as possible is therefore very essential for a start-up. Eric Ries calls this type of learning validated learn-ing[32]. Everything the team is examining should be in light of the added value for the customer. This relates to the customer centricity and value. Further-more, it is of importance that the team is learning-by-doing in a continuous flow using improvisation whenever needed. Improvisation enables the team to adapt to unforeseen circumstances while going through the loop. The quicker the team goes through the loop, the quicker the team can adapt to the cus-tomer’s wishes and the sooner the product will improve in favor of the business and the customers.

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Roland Mueller and Katja Thoring note that LSM is not only a process but it also consists of tacit elements that you can’t reduce to just process descrip-tions [28]. However, this doesn’t mean that LSM is not useful. LSM as an entrepreneurial method, may be not complete as such, but is still very useful. Scientific methods are never complete as well, but are necessary in order to do science. Furthermore, the Build-Measure-Learn loop as being the heart of the LSM confirms that the LSM is part of a new dynamic state approach and that it provides a model that is no longer traceable over a line like in the stages of growth models.

For a good understanding what ’lean’ exactly is the definition of Beverly May [27] is very helpful: ”Based on the work of both Eric Ries and Steve Blank, the ’Lean’ applies Agile and UX best practices and approaches to the business[6][32][8]. Lean encompasses: searching for and validating a viable, sus-tainable and repeatable business model; performing customer development by ’getting out of the building’ (GOOB); creating products customers will use and pay for; validating the business type and growth hypotheses, amongst other hy-potheses, through the build-measure-learn feedback loop; creating a Mininimum Viable Product (MVP) [...]; emphasizing resource efficiency in learning; and di-rectly validating the business by the business leads themselves, rather than by consultants.”[27]

The idea is that the fast-to-market approach of the LSM easily and quickly creates valuable feedback to learn from. A positive effect is that this way of working doesn’t have to be costly at all and can deal with uncertainties very well. It prevents the situation in which start-ups build their products for months and then find out that no one is interested in the product. In addition, it prevents the loss of financial resources, which are very scarce for beginning businesses.

3.5

Three ’fits’ of LSM

Generally speaking, the LSM goes through 3 stages[30][26]: 1. Achieving problem/solution fit

2. Achieving product/market fit 3. Achieving business/model fit

The stages of the LSM can be confused with the traditional stages of growth models, but it is clearly not meant as such. However the LSM is going through these stages, in every stage the guidelines of the Build-Measure-Learn loop ap-plies which is the clear non-linear main attribute of the method.

Since this thesis project focuses on the stage of achieving product/market fit within the framework of the LSM, which is the most substantial stage of the LSM, the two other ’fits’ will be omitted. This stage is most interesting for this research because the initiator of this project, MyHomeServices currently is trying to achieve product/market fit. Moreover, due to time and budget

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Figure 3.5: Before and after product/market fit[26].

constraints it is necessary to narrow down to the product/market fit stage of the LSM. In the next section all the important elements of the product/market fit stage will be described.

3.6

Product/market fit

According to Ash Maurya the key question of the product/market fit stage is as follows: ’Have I built something people want?’. As soon as the customer’s problem that has to be solved is clear and the first MVP has been built it is time to then test how well the solution is solving the actual problem. In other words, it is time to measure whether you have built something people want. Both quantitative and qualitative metrics have to be used in order to be able to thoroughly measure the value of your first MVP[26].

Both strategy and tactics are heavily influenced by the trail towards prod-uct/market fit, it can be seen as the first significant milestone of a start-up. Since achieving product/market fit can be seen as a big milestone for a start-up, Ash Maurya delineates the stages of a startup further as ’before product/market fit’ and ’after product/market fit’. (Figure 3.5) Before the product/market fit the focus should be validated learning and making pivots based on the outcomes of experiments. After the product/market fit the focus should be on growth and making optimizations based on experiments[26]. The importance here lies on validated learning and making pivots based on experiments, because this project wants to get a better understanding in the important elements of how product/market fit within the framework of the LSM can be achieved. Experi-ments are here defined as iterations continuously going through the steps of the Build-Measure-Learn feedback loop earlier shown in Figure 3.4.

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3.7

The important elements of achieving

prod-uct/market fit within the framework of the

LSM

In order to create the possibility to classify the 3 best practices and the 12 selected start-ups, it is now time to clearly dissect the important elements of achieving product/market fit within the framework of the LSM. In each following subsection one element will be described and explained. The elements that are going to described are the following:

1. Plan and Build a Minimum Viable Product (MVP) 2. Qualitative validation and quantitative verification 3. Pivots or Persevere

The 3 important elements are synchronized with the Build-Measure-Learn loop (earlier shown in figure 3.4). The building phase of the loop equals number 1, the planning and building of an MVP. The measuring phase of the loop equals number 2, qualitative validation and quantitative verification. This is what Eric Ries means with validated learning. And finally, the learning phase of the loop equals number 3, making pivots or persevere. The classification of the 3 best practices and the selected 12 start-ups will take place in the next chapter.

3.7.1

Plan and build MVP

Once a start-up starts building the first prototype of the idea, the first min-imum viable product (MVP) is present. The MVP helps entrepreneurs start the process of learning as quickly as possible, because the MVP is immediately shown to customers. It is important that the minimum requirements will be developed with the minimum amount of effort, by doing this the team won’t waste too much money and time when the first prototype turns out to not meet the customer’s wishes [32]. Often entrepreneurs focus too much on releasing the first product, after months of building the first prototype they find out that no one is willing to use the product. If they had developed an MVP and showed it to customers right away instead, they would possibly have found out already that no one would be interested in their product.

3.7.2

Qualitative validation and quantitative verification

Until the measure part of the Build-Measure-Learn feedback loop, several prod-uct decisions have been made based on what customers have did tell. If all is well, that happened during the problem/solution fit which is not thoroughly addressed in this research. In the product/market fit it is time to start measur-ing the outcomes of how the MVP is received by its customers. Ash Maurya distinguishes two types of measuring: qualitative validation and quantitative

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Figure 3.6: The three important elements of achieving product/market fit within the framework of the LSM.

verification[26]. Qualitative validation means talking to your customers face to face, for example conducting interviews with your customers about your MVP in order to get an understanding of the issues regarding the product. Quantita-tive verification is measuring the outcomes of how your product is received on a higher level. This means that you measure the usage of the product of a bigger amount of users over a certain period of time. It can help you understand what parts of your products are received well and what parts are not received well based on data of how your customer base is using the product. Ash Maurya describes a lot of interesting analysis techniques for both qualitative validation and quantitative verification, an in depth description of all these techniques will be omitted here, because it is not relevant for this research. Being able to rec-ognize forms of qualitative validation and quantitative verification based on the given definitions only is essential for this research.

3.7.3

Pivots or persevere

There are two ways for a product strategy that is aiming to go from a MVP to an ideal. In case of a good progress towards the ideal, it means the start-up is learning appropriately and it is properly learning through validation and verification. In this case it makes sense to continue and persevere. If not, the management of the company has to conclude that that its current strategy is insufficient and needs a big change. When a company pivots according to

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Eric Ries, it is starting the process all over again. The company can identify a successful pivot whenever its product strategy after the pivot is more productive than before [32]. It is important to say that there are bigger and smaller pivots, sometimes a company pivots in something totally different and sometimes a small feature of the product or strategy of the product development has to pivot. In that the latter it is fair to say that the company is persevering, because small changes of the product does not totally change the whole product or vision of the start-up. They continue to stay on the path chosen. The presence of big pivots in the light of the LSM nicely illustrates that the start-up is aiming to let the product be as most demand-oriented as possible because it decides to make big pivots based on certain customer’s feedback.

3.8

Criticism and reflection on LSM

Like every other popular approach or movement, LSM has its fair share of crit-ics. Some critics state that there is a lack of successful exponents of the LSM, other critics focus on the dangers of bringing an inferior product to the mar-ket, introduced by Eric Ries as the MVP [15]. Other important criticism lies in the analogy made with lean manufacturing. Jan Heitmann notes that lean manufacturing and LSM do have oppositely different outcomes. Making mis-takes, pivots and continuously making iterations are common, even crucial for the LSM. These are exact the things that lean manufacturing wants to elimi-nate, because lean manufacturing happens in an established, linear production chain while a start-up is continuously looking for the right way to run their business[19]. He also states that executing the LSM can be problematic for a start-up. The continuous improvement and building of new prototypes costs a lot of money, while LSM wants to be cheap at failure and iteration. When focusing too much on learning than rather on the quality when testing a MVP, the product’s overall quality could suffer too much [19].

The criticism gives awareness to the fact that there are a lot of concerns regarding the efficacy of LSM. There is too little scientific research that prove the efficacy or inefficacy of LSM. The evidence about the efficacy of LSM that exists these days, is primarily based on a variety of blog entries and experience reports, analyzes and opinions, interviews and statements. Yet, the fact that LSM is so popular somehow illustrates the efficacy of LSM, but if the LSM is truly efficacious still has to be proven scientifically. In view of the popularity of the LSM in a short time, the LSM can be seen as an example of a management fashion. According to Eric Abrahamson management fashions are ’relatively transitory collective beliefs, disseminated by management fashion setters, that a management technique leads rational management progress’ [3]. Researchers often belief and are concerned that academics may be lose out to other members of the fashion setting community, such as consultants and gurus, in terms of their ability to influence practice[3][5]. Julian Birkinshaw and Gary Hamel therefore state that it is expedient for academics to become more creative in the development of new ideas that organizations might put in practice. They

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should become more engaged in the activity they call ’idea testing’, whereby academics engage very closely with the focal organizations and brings his or her insight to bear on the particular problem the organization is struggling with[5]. Theoretical frameworks of the important elements of the LSM, like the one presented in this thesis project, could catalyze further engagement of academics into this example of a management fashion. One the one hand it helps organizations to execute the theory as it was meant by the creators and on the other hand it helps academics to examine the theory scientifically. It could eventually lead to the scientific acceptance or rejection of the LSM. In any case, it will lead to a more accurate and relevant understanding of small business growth and entrepreneurship in general. It is most important to not to hype the LSM, but to address the method as scientific as possible and help organizations to execute the LSM in a good way.

3.9

Sub-conclusion

The LSM is considered as a dynamic state approach and is set against the stages of growth model approach. This research is important, because there is a lack of research on models with a dynamic state approach. Moreover, the LSM is an example of a management fashion seen its obtained popularity in a short time. Researchers are often concerned that they might lose out to other members of the fashion-setting community. That is the reason why getting involved into the investigation of ideas like the LSM is so important. The exploration of important categories of the LSM and its working in practice can eventually lead to the scientific acceptance or rejection of the LSM.

Besides an understanding of the scientific relevance and understanding the place of the LSM in a wider range of entrepreneurial literature, the exploration of the LSM resulted in the following important elements of the stage of achieving product/market fit within the framework of the LSM:

1. Plan and build MVP

2. Qualitative validation and Quantitative verification 3. Pivot or Persevere

By investigating 3 best practices and doing semi-structured interviews with the other 12 cases, every start-up will be classified based on whether the execu-tion of each category is taking or did take place or not. This classificaexecu-tion will show the working of the LSM in practice. The reports on the data collection and the classification can be found in the next chapter of this research.

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Chapter 4

Data collection and

classification

4.1

Introduction Best Practices

There are numerous best practices out there which are good examples of a good compliance of the LSM. For this research 10 best practices have been examined in order to realise more understanding the execution of the LSM. The 10 best practices are the following: Airbnb, Dropbox, Slack, Groupon, Twitter, Google, Facebook, Zappos, DuckDuckGo and Pinterest. Only 3 best practices will be used in this report as descriptive examples of the important elements of achieving product/market fit within the framework of the LSM. These 3 best practices are:

1. Airbnb 2. Dropbox 3. Slack

A brief description of the selected best practices will first be given. Ex-amples of the application of the corresponding important element of achieving product/market fit through the LSM for each best practice will be given after the introduction of each best practice The examples are derived from various blog posts and interviews on the Internet. The examples make it possible to classify the best practices based on the applicability of the identified important elements of the LSM. It will become clearly visible that the LSM is present in the growth history of each best practice. This visibility of the LSM in the best practices does not prove the efficacy of the LSM, but it does provide good insight in the actual execution of the LSM in practice in the form of examples.

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Introduction Airbnb

Founded in August 2008 and located in San Francisco, California Airbnb calls itself a thrust worthy community-market where people over the whole world can advertise, discover and book unique accommodations. All this happens online, from a mobile telephone or tablet. Airbnb brings people together for a unique travel experience in every price range and in more than 34.000 cities and 190 countries. With a first class customer service and a growing users community Airbnb is the easiest way for people to make money from their extra space by presenting and renting it out to millions of possible customers[1].

Introduction Dropbox

Dropbox calls itself a service which helps you save and share all you photo’s, documents and video’s. Every file you store on Dropbox, is being synced auto-matically with all your computers, your phone, tablet and the Dropbox-website. Because of Dropbox it becomes very easy to share your files with others. When your computer dies, you can get back all your files on your new computer with just a few clicks. Wherever you are, carefree sharing, safe and reliable[2]. Introduction Slack

Slack is a communication platform that is worth over a billion dollar within less than 2 years. Slack is founded in August 2013 and had 8000 customers within 24 hours of its launch. Slack brings all the communication of a company together at one place, which is clear and searchable. It can be seen as a modern version of mIRC, which was very successful as well in the 80’s[37].

4.2

Classification Best Practices

In this section the 3 best practices will be classified based on the important elements of achieving product/market fit within the framework of the LSM. A summary of the classification is illustrated in figure 4.1.

4.2.1

Best Practices: Plan and Build MVP

Airbnb

Airbnb has made explicit use of an MVP. In the early days of Airbnb, then named Airbed and breakfast, the founders couldn’t afford their rent anymore and wanted to turn their apartment into a lodging space. Instead of posting it on craigslist they made their own site, to make it more personal and attractive for future tenants. The site was made in several hours and offered only their apartment[10]. It is a good example of the practice of an MVP. This first version of their product contained their own apartment only. Making this first version of the site turned out to be a good move, because there was a demand for their offer inmediately[10].

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Figure 4.1: Summary of the mapping of the presence or non-presence of impor-tant elements of achieving product/market fit through the LSM in the 3 best practices.

Dropbox

Like Airbnb, Dropbox made use of an MVP as well. The founders of Dropbox launched a simple landing page to capture the interest of the future users of Dropbox. Those who were interested could enter their email address to stay up to date. Based on this site with information about Dropbox, Dropbox was able to collect a lot of high quality feedback which was very helpful during the actual development of the cross-platform cloud storage architecture. All of this was possible by a simple website that was made in just several hours[21]. Slack

The founders of Slack, who first worked on a Flash-based online game called Glitch for close to four years, found out that they should focus on another prod-uct than Glitch to solve their own communication struggle. They experienced their struggle because they collaborated over long distances and long periods of time. Along the way they became less interested in games and more fascinated with the ’80s era communication tool they were using to collaborate over long periods of time. Starting from their early product they aimed that they’re solu-tion should solve their own and other company’s communicasolu-tion problems[11] [18].

4.2.2

Best Practices: qualitative validation and

quantita-tive verification

Airbnb

Along the way to Airbnb’s worldwide success the founders used a lot of analysis techniques to improve their product. Analysis techniques which can be seen

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as qualitative validation and quantitative verification. The founders decided to visit 24 hosts in New York, to gather first hand data about their service. Based on these visits it turned out that the hosts often used low quality photo’s of their accommodations. Because of this reason customers couldn’t see what they were paying for. They started to hire a professional photographer to photograph the accommodations professionally[10]. This is a good example of qualitative valida-tion, because this example illustrates a face to face contact with the customer which directly lead to improvements in the service. This particular feedback both validated the usefulness of a professional photographer for the host and customer. After some time that the professional photographer did his work, the founders noticed that it immediately led to two or three times more bookings[10]. Therefore, they could conclude that this improvement really payed off. This is a good example of quantitative verification, because the founders verified the usefulness of the service based on data that is quantifiable. In this case, the amount of bookings was the quantified data.

Dropbox

The Dropbox story also has a lot of examples of the use of analysis techniques which can be seen as qualitative validation and quantitative verification. One example is the captured interest as soon as the first landing page of Dropbox was launched. Soon after the launch there was already a lot of interest, more than 5000 people subscribed to the beta waiting list of Dropbox by giving their email address. This beta waiting list enabled Dropbox to start talking to future customers about their specific needs and wishes[21]. The fact that 5000 people subscribed to the waiting list is an example of quantitative verification, because it means that 5000 people are interested in the product. Having all the email addresses of the future customer enabled Dropbox to start talking to customers about their needs and wishes. This means that they were able to qualitatively validate the customers needs, because they contacted the customers randomly to ask what functions they would like to see in Dropbox[21].

Slack

Soon after the launch of the first MVP Slack started to beg to other compa-nies like Cozy and Rdio to try their early product in order to obtain useful feedback[14]. This face to face contact with first customers illustrates a form of qualitative validation, because for Slack this validated the usefulness of the product. Of course this feedback contained some improvement points but over-all the product was received well to its first customers. In August 2013, seven months after they started, Slack polished the service based on the high quality feedback into something that could be shared more widely. They announced their preview release and welcomed people to request an invitation to try Slack. On the first day, 8000 people requested an invitation and that number had grown to 15000 two weeks later[14]. These numbers are illustrating a form of quantitative verification, because these increasing numbers mean that 15000

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people are interested in the product as it is presented at that moment.

4.2.3

Best Practices: pivots or persevere

Airbnb

Airbnb is a company that literally started with two guys who couldn’t afford their rent anymore and therefore put their own apartment on the internet[10]. The goal was to turn this small site into a worldwide thrust worthy community-market where people over the whole world can advertise, discover and book unique accommodations and this is what they are now[1]. The company made use of small pivots based on the many qualitative validation and quantitative verification, but persevered along the way.

Dropbox

Just as Airbnb, Dropbox only made use of small pivots on the many qualitative validation and quantitative verification and persevered along the way. They aimed to be an online service which helps you save and share all you photo’s, documents and video’s, and they eventually indeed became one[21] [2].

Slack

As mentioned in the previous chapter, the Slack team did make use of a big pivot. For close to four years the Slack team worked on a Flash-based online game called Glitch, but they found out that they should focus on another product than Glitch to solve their own communication struggle. Glitch did not turn out well, whereby they decided to pivot to another product: Slack, a professional communication platform for companies[37]. Glitch turned out to be too supply-oriented, Slack obviously was more demand-oriented because it immediately solved a problem, while Glitch didn’t. After pivoting to Slack, they still made use of small pivots based on the many qualitative validation and quantitative verification, but persevered along the way just as Airbnb and Dropbox.

4.3

Classification 12 start-ups linked to

High-TechXL and Services Valley

In this section the selected 12 start-ups will be classified based on the presence and non-presence of the important elements while achieving product/market fit within the framework of the LSM. Semi-structured interviews have been taken place with a selection of start-ups of the business accelerator Startupbootcamp HighTechXL, co-founded by Ernst and Young (EY), and a selection of start-ups of the open innovation incubator Services Valley. The goal of these interviews is to classify each start-up whether the identified elements of achieving prod-uct/market fit within the framework the LSM are applicable or not. In total 12 start-ups were interviewed (Figure 4.2).

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Figure 4.2: The selection of start-ups of Startupbootcamp HightechXL and Services Valley.

The interviews gave a clear insight in whether each corresponding start-up applied the identified elements of achieving product/market fit within the framework of the LSM or not. In Figure 4.3 there is an overview of which el-ements were applicable to a certain start-up and which were not. In addition, the figure shows which start-ups are applying the LSM and which are not. At least ’Plan and build MVP’ and ’Qualitative validation and quantitative verifi-cation’ should be visible in the operations of the start-up in order to conclude that the particular start-up is applying the LSM. As you can see in the figure, in every start-up the element of ’persevering’ is marked as applicable. This is remarkable, but logical seen the fact that every start-up that is interviewed is still up and running, not a single start-up that has been interviewed ’failed’ or had gone bankrupt. A general finding is that the start-ups of Startupbootcamp HighTechXL are much less executing the LSM than the start-ups of Services Valley. For this reason this research analyzes the two groups separately.

4.4

Analysis start-ups Services Valley

The interviewed start-ups of Services Valley are very well aware of LSM. All of them make use of MVP’s and use several analysis techniques which are part of qualitative validation and quantitative verification. None of them made a big pivot, but since the examples of the best practices showed that the presence of big pivots is not necessary for a good execution of the LSM it does not affect the classification of the cases of Services Valley. It would only have additionally confirmed the presence of the LSM in their product development. The reason why all the interviewed start-ups of Services Valley are so well executing the LSM propably lies in the fact that Services Valley actively gives consideration to LSM. The so called PADSI program of Services Valley contains several

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work-Figure 4.3: Summary of the classification of 12 start-ups linked to Startup-bootcamp HighTechXL and Services Valley based on the identified important elements of achieving product/market fit within the framework of the LSM.

shops on LSM and the program is more or less structured based on the LSM. There is not only awareness of the LSM, but also actual execution of the LSM.

4.5

Analysis start-ups Startupbootcamp

High-TechXL

The interviewed start-ups of Startupbootcamp HighTechXL in general are not aware of the LSM at all. In most cases it is not possible to speak of an MVP, but mostly about a prototype based on assumptions that does not correspond to future customer’s wishes or needs. They are mostly too focused on the product and they do not pay attention to what customers wanted. In most cases they are planning to develop a product in the long term and are not going to throw the product to the market in an early stage. In some cases they gather some feedback to improve their prototype but only gather feedback from experts on certain techniques the product contains. They are barely or not in contact with the actual customers of the product they are developing at all. These findings are remarkable, because Startupbootcamp HighTechXL states that it actively gives consideration to the LSM. There is awareness of the LSM, but there is a lack of the actual execution of the LSM.

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4.6

Sub-conclusion

Based on the interviews with the selected start-ups it is now clear whether the identified elements of achieving product/market fit within the framework of the LSM are applicable to the 12 start-ups or not. It was clear that the start-ups of Services Valley scored much better than the start-ups of Startupbootcamp HighTechXL. Both groups are or at least should be aware of the LSM, seen the fact that both Services Valley and HighTechXL are actively giving consideration to the LSM while supervising their start-ups. However, only the start-ups linked to Services Valley scored well on the visibility of the actual execution of the LSM. There is still much improvement necessary in the program of Startupbootcamp HighTechXL. In the next chapter the recommendations will be presented based on the findings in this research thus far. Also, the reactions of HighTechXL to the bad results will be presented. In conclusion, the limitations of this research will be discussed in this chapter.

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Chapter 5

Recommendations and

limitations

In this chapter the limitations and recommendations of this research will be addressed, both on methodological level towards the research as on organiza-tional level towards the operations of HighTechXl, Services Valley and the linked start-ups. First the recommendations will be addressed, the limitations of this research will follow.

5.1

Recommendations: Startupbootcamp

High-TechXL and Services Valley

This research aimed to discover whether the selected start-ups applied or did not apply the identified important elements of achieving product/market fit within the framework of the LSM. It became clear that the selection of start-ups of Startupbootcamp HighTechXL did not score well in this research. This means that there are some concerns regarding the way this organization is applying the LSM to the start-ups. This given the fact that this organization does have much awareness of the LSM, but the results of this research show that the actual execution is lacking. After sharing the results of this research with HighTechXL, EY decided to hire two more people who have to improve the actual execution of the LSM in the future in their accelerator’s program for start-up along with Startupbootcamp. In addition, these two new employees are going to coach employees of EY internally too. It is thereby intended to effect a cultural change within the business of EY, because they believe knowledge and the execution of the LSM will result in better business operations.

The selection of start-ups of Services Valley did score very well in this re-search. It is therefore recommended to the incubator to keep mentoring their start-ups according to the LSM through their PADSI program as they currently are doing it. It is important to continuously repeat the importance of the LSM

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while guiding their start-ups to success, because among other things the LSM offers great guidelines to improve the chance of success, however the efficacy still has to be proven scientifically.

5.2

Limitations and recommendations of this

re-search and methodology

Despite the fact that this research presents the LSM as a promising method for entrepreneurs, this research lacks strong evidence whether LSM is efficacious. The evidence that the LSM indeed increases the chances of success for start-ups requires a more substantial research and more time. Extensive research is needed to prove the efficacy of LSM, but as long as organizations are not executing the LSM as it was meant by the creators it is not possible to prove or dissaprove the method scientifically. This implicates that it won’t be possible to give science-based advice regarding the efficacy of the LSM yet, until the moment that this situation will change. This is typical for management fashions, because the fashion setting community predominantly operates independent from academics while the involvement of academics is very much needed to accept or reject theories. As soon as numerous organizations execute the LSM in a good way, it will become possible for academics to do multiple case studies to see what the effects of the LSM on organizations are. For this kind of research and this thesis project in particular, a more complete research on the presence and efficacy of important elements of the LSM will become present as soon as the three ’fits’ of the LSM will be involved. In this research only the product/market fit of the LSM has been taken into account, while the problem/solution fit and business/model fit are important as well. Next to that, it is recommended to broaden the amount of the examined start-ups and to make the pool of examined start-ups more diverse and as diverse as possible, this would increase the accuracy of the visibility of LSM in the investigated start-ups. For this research in particular it applies for both the best practices and the start-ups linked to the accelerator and incubator. The start-ups linked to the accelerator (HighTechXL) were mostly high tech start-ups, while the cases of the incubator (Services Valley) were mostly developing SaaS products.

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Chapter 6

Conclusion

The innovative aspect of the ’Lean Start-up Methodology’ (LSM) lies in the fact that the LSM uses the new dynamic state of growth opproach. The literature showed that the traditional stages of growth modeling has hit a dead end and that the dynamic stage approach is a better alternative. Biological assumptions underlying these traditional stages of growth models, which are wrong assump-tions because organizaassump-tions are not growing like organisms do. Unlike organism, organizations are able to anticipate and co-create their environments, whereby a dynamic state approach is needed. A dynamic state is here seen as a network of beliefs, relationships, systems and strucures that convert oppurtunity into tangible value for an organization’s customers/clients, generating new resources that maintain the dynamic state. The LSM gave the new dynamic state ap-proach a face. The Build-Measure-Learn feedback loop embodies this non-linear approach, as it is seen as the heart of the methodology. The LSM takes the va-riety of different products and companies into account, which is characteristic for the dynamic state approach. The LSM is better able to overcome problems caused by the uncertainties for entrepreneurs, because it eliminates the negative risks of the entrepreneur’s overconfidence. Overconfidence is the driving factor of the high failure rate for beginning organizations. By forcing entrepreneurs to be as demand-based as possible and putting the added value for the customer on the first place, the LSM makes sure that entrepreneurs don’t overestimate their chances of success. The LSM puts emphasis on the importance of learning from customers to produce a solution, based on customer needs and wishes. This is done by developing and validating a problem, a product and customer hypotheses.

There is too little scientific research that proves the efficacy or inefficacy of LSM. Yet, the fact that the LSM is so popular somehow illustrates the efficacy of LSM, but if the LSM is truly efficacious still has to be proven scientifically. The LSM is an example of a management fashion. Since the LSM is a huge hype at the moment, the LSM should be thoroughly examined in further research, in order to accept or reject the LSM in a science perspective. However, in order to do so organizations should execute the LSM as it is meant by its

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creators. The fact that organizations are often executing management fashions by touch is typical for management fashions as such. This causes problems for the scientific examination of management fashions. Theoretical frameworks of the important elements of the LSM, like the one presented in this research, could help organizations to execute the LSM as it is meant by its creators. Once numerous organizations execute the LSM in a good way, it will become possible for academics to investigate on the effects of the LSM on organizations.

According to the LSM, a business goes through 3 stages: 1. The problem/solution fit

2. The product/market fit 3. The business/model fit

The theoretical framework of the important elements of the LSM in this re-search focused only on the product/market fit stage of the LSM, in order to make sure that the research would not become too broad. In addition, the initiator of this thesis project, the start-up called ’MyHomeServices’ is currently trying to achieve product/market fit. The identified important elements of the prod-uct/market fit within the framework of the LSM made it possible to investigate the execution of the LSM in the case of the selected 12 start-ups linked to High-TechXL and Services Valley. By doing this the research question of this research, ’To what extent are the selected start-ups linked to Startupbootcamp HighTechXL and Services Valley executing the stage of achieving product/market fit within the framework of the LSM?’, could be answered accurately.

There are 3 important elements in the stage of achieving product/market fit within the framework of the LSM. The elements are synchronized with the Build-Measure-Learn feedback loop. The first element consists of planning and building an MVP. The MVP helps entrepreneurs to start the process of learning as quickly as possible, because according to the LSM the MVP immediately has to be shown to customers. This avoids a waste of too much money and time, by doing this an entrepreneur can easily see whether there is a demand for the product. The second important element consists of qualitative validation and quantitative verification which both know a variety of analysis techniques. These analysis techniques are able to measure the outcomes of how the MVP is received by its customers. The third element is the learning phase of the loop, this is the phase where an entrepreneur will pivot or persevere. In case the start-up is learning appropriately through validation and verification, the company is not in need of a big change and is able to persevere. If not, the company should pivot towards a different product or idea. It is important to make clear that there are bigger and smaller pivots, sometimes a company pivots in something totally different and sometimes a small feature of the product has to pivot. Smaller and bigger pivots both result in a new iteration through the Build-Measure-Learn feedback loop.

After the identification of the important elements of achieving product/market fit within the framework of the LSM, 3 best practices (Airbnb, Dropbox and

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