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July 10, 2012

Big Idea vs. Lean Idea

“Seems niche.  How many people want to tell everyone randomly what they’re doing and how many really want to look at it?” 

- My entry for Twitter, as recorded in early 2007.

This entry in my "deal flow" journal records my first, inauspicious impressions of Twitter when I initially heard about it.  Today, It is obvious that I totally missed the power of the service, which I now adore and admire.  But what is less obvious to me, and therefore I assume many others, is how to distinguish between a Big Idea that simply starts small -- consistent with Lean Startup methodology -- as compared to a Small Idea that will always remain a Small Idea.

This question has been on my mind because recently, when I talk to entrepreneurs, I’m seeing too many Small Ideas.  In the last few weeks, I’ve spent time at Techstars, MassChallenge and ER Roundtable.  I love the passion the entrepreneurs are exhibiting in all of the venues and the education they’re getting by being a part of these programs.  And I love that the toolkit for startups is getting sharper and that techniques like the Lean Start Up methodology and terms like "hypothesis testing" and "MVP" are becoming common place.  To be clear, I am a lean startup acolyte.  The class I teach at Harvard Business School, Launching Technology Ventures, dedicates a large portion of time applying the lean methodlogy that Eric Riess so ably outlines in his book to start-ups. 

Yet, I fear that the success of the Lean Start Up movement risks leading entrepreneurs to pursue Lean Ideas rather than Big Ideas.  I'd like to see that trend reversed, by pushing entrepreneurs to distinguish more carefully the differences between Lean Ideas and Lean Start Ups.

First, a few definitions.  Lean Start Up methodology teaches that young companies should view the start-up as a laboratory for experiments, where a minimum viable product (MVP) is created to test the most critical initial hypotheses in order to inform the direction of the company, and whether the value proposition will be compelling enough to build a compelling product, and therefore compelling company.  A “lean idea” is a concept that is small, niche, incremental.  It might be better served as a feature in someone else's product.  Or a point solution in someone else's product suite.  But it is not substantial enough to form the core of an entire company, never mind start-up nirvana, which is to become a platform on top of which other companies seek to build (see chart below, which should have "Platform" as the rightmost point of nirvana for the inventor). 

Today, Facebook is a platform.  The Facebook API set is one of the hottest areas of development on the Web and some even equate Facebook with an operating system, in hushed tones of awe that previously were reserved for Microsoft (oh, how the mighty have fallen...).  But the initial service that was formed and launched in the Harvard dorm room, coded up in a few weeks, was simply a minimum viable product that allowed students to look each other up.

So as an entrepreneur, never mind an investor, how do you know whether you are working on a lean idea will never be anything more than a feature, or a Lean Idea that will evolve into a Big Idea over time, just as Facebook and Twitter did?  I don't have a definitive point of view here, but a few rules of thumb have begun to take shape in my mind:

  1. Don't Settle For Anything Less Than "The Wow".  Declaring something a Big Idea, or a Big Vision, is a lofty moniker.  Set the bar high when you consider whether your idea really is as massive, disruptive and game-changing as you think it is.  When you bounce the Big Idea off your friends and colleagues, do they nod politely and use words like "interesting", "cool", "neat" as opposed to widening their eyes and declaring, simply, "wow".  When I first heard about Square (also a Jack Dorsey production), I thought "wow".  Turning every mobile device into a payment acceptance platform - that's game changing.  Look for the wow.  Don't settle for anything less.
  2. Swim in the Ocean, Not a Pool.  If your company is operating in a massive, massive market area, with plenty of interesting adjacent markets, then you know you are pursuing something that could be really big.  DataXu, a Flybridge portfolio company, initially started focused solely on bringing real-time bidding and machine learning techniques to display advertising, at the time a $10 billion market - large, but not wow, particularly because the solution only worked if the advertising inventory was available to bid on through one of the exchanges.  So let's call that market pool-sized - or perhaps even lake-sized, but not ocean-sized.  The ocean-sized market was the bigger vision that CEO Mike Baker had - that all advertising (display, video, mobile, social) would be addressable through real-time, digital techniques.  And that a system could be built that was so fast, that thousands of data points could be poured in to inform the decision as to which ad to put in front of the consumer in real-time.  That was the wow that is driving that company to be as successful as it is today.
  3. Great Teams Find the Wow.  For decades, VCs have debated whether to focus on great teams or huge markets.  Will great teams operating in a small market outperform mediocre teams operating in a huge market?  Although there are case studies that cut both ways, to transform a Lean Idea into a Big Vision, I would submit you need a great team.  Benchmark's Andy Rachleff's bias, as reported in a Marc Andreessen post, is that the #1 company-killer is a lack of market.  Therefore, he concludes, in the debate between team vs. market, markets rule.  That said, I would submit that in order to transform a Lean Idea into a Big Idea, you need both.  A great team will find a way to expand that initial MVP into a huge market opportunity.

Company-building is never neat and linear.  Did Mark Zuckerburg or Jack Dorsey imagine at the point of creation that Facebook and Twitter could become veritable movements (that most transcendent state for a service - where it is beyond a platform but instead a cultural institution)?  Probably not.  Sometimes a Big Idea grows organically out of a Lean Idea.  But often, that combination of big vision, big market and great team can be seen in the DNA of any idea that morphs into a Big Idea that leads to a Big Platform.

So, when you are formulating your own start-up idea, make sure to distinguish between a Big Vision that begins with a Lean Implementation, and a Lean Implementation that is a reflection of a Lean Idea.  As Jordan Cooper recently wrote in his provocative blog post "Rise Strange Thinkers...We Need You", we need more Big Visions, as strange and outlandish as they may initially sound, to drive this ecosystem forward.  Just because you want to embrace the Lean methodology, doesn't mean you should settle for a Lean Idea.

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I agree with your premise and might add that the 'lean idea' might not be defensible in the market. Make no small plans, and all that. There is also a related tangent in that there are many underserved markets that may not yield billion dollar babies but can provide great returns for founders and their investors. This, in a way, supports your contentions above, in that these big ideas for smaller markets rely on IaaS platforms to build their business. Without the platform they couldn't exist and it would be cost prohibitive to build the back end to service niche markets. The disconnect I find is that many of these niche businesses are barking up the wrong tree when it comes to sourcing capital. Instead of pursuing VCs they should be seeking Angel investors and crowd sourced funding. They can also benefit from the lean startup methods to bootstrap their business. In so doing, as their business grows, they may hit upon that big idea that takes them to nirvana.

What's better for the entrepreneur? Going after a monster success targeted towards the masses, or developing a niche product that solves a real problem? With a little luck, The monster success could make you extremely wealthy. With a niche product you have a better chance of making a healthy living, and it just may provide a better lifestyle as well.

Jeff,

This is a great post - Much of this speaks to the idea that entrepreneurs are looking to justify their existence quicker than before and therefore tend to pick up a smaller market where they can potentially win easily.

For my own start-up, we quickly narrowed down our market to SMB businesses - our idea is very big, we want to change enterprise reporting - but telling investors that we were going after SMB's allowed us to rationalize how we were going to win. Now having seen our customers use our product we realize that we were short-selling ourselves- every customer, particularly larger ones love our product.

We realize that we got caught up in trying to be lean.In picking a market and a few tests to run we were going to miss our market. Now we just know that we want to change enterprise reporting and we are build an awesome product that will make it happen.

You say: "Yet, I fear that the success of the Lean Start Up movement risks leading entrepreneurs to pursue Lean Ideas rather than Big Ideas."

The fear is right.

Disclaimer: I am just an observer of the VC/startup scene, not a participant!

Most practices labeled as 'lean' are what smart entrepreneurs were already practising - the lean movement now assigns keyword phrases to these practices (MVP! Custdev! pivot!) making these practices easier to refer to.

What causes fear in me though, is that, people who CAN do non-lean are choosing to go the lean way because lean is the latest 'buzzword'. Come on people, lean is a SECOND CHOICE if you think you cant gather enough resources to gain minimum traction for sustainability and growth. Non-lean should be the standard, FIRST CHOICE. Lean is only an alternative, to be used only when needed...

As for characterising ideas into lean and big, What is lean today, may get big tomorrow. I think it is just a transition path every idea goes through.

Jeff,

I couldn't agree with your concern more. So far, I've been very fortunate to mentor, advise, counsel and invest in startups that 'get' both a Big Idea that they validate/experiment leanly (new word!). I am a partner in an early-stage VC firm and also own of my own business as well as teach business model innovation to seniors applying for a big fellowship/grant at Oberlin College and mentor/advise the startup/entrepreneur programs and the startups that come out of my alma mater, Brown University, I've seen a lot of the Big Idea tested with Lean Methodology a lot - which is great - so perhaps its starting to gain traction! It is an important, and for some, subtle distinction - gets to teaching people to love and live with paradox....

Deb

Indeed - it does not make sense for all businesses to seek out VC investment. The vast majority of young companies are funded by angels, not VCs. According to the University of New Hampshire's Center for Venture Research, over 66,000 ventures received angel funding in 2011. According to the NVCA, there were approximately 1,000 companies received venture funding for the first time. A 66:1 ratio!

Yes, although it's important to distinguish between lifestyle businesses and smaller, niche businesses that are simply not going to be billion dollar companies. There are plenty of $10-100 million companies where the entrepreneurs are working their tail off!

Saqib - I love that phrase - "we were short-selling ourselves". It hits exactly on the point I wanted to make - that lean acolytes can sometimes short sell themselves by following the principles too far.

I'm not sure I would agree that lean is simply a buzzword. I think it is a very valid, very appropriate way to pursue business ideas. I just want to be sure folks understand that "lean" when applied to start-ups is all about minimizing waste. Not "small" ideas.

Thanks, Deb. That's a great objective - "get" the importance of having a Big Idea while learning the lean methodology to validate it while minimizing waste.

Hi, Jeff

Thanks for the post. For my start-up, I've been following the lean methodology, as in a tango dance where my partner is "the voice of the customer" and demand-driven-build.
What often surprises me when I follow lean founder discussions is how easily founders discard their ideas - presumably "little" ideas- and move on to the next. In some cases, there's no deep commitment to making an idea work, to toughing it out and figuring it out. I'm not advocating banging your head against a wall, uselessly, but if the founder won't stick to his/her concept, who will? There's so little passion in some start-ups, they're like testing ingredients for a recipe. If I add this, this, and that, will it work? Will it taste good? What if I add a little more of that?

Which brings me to point 2. My start-up is deeply meaningful to me and now, to the people who have been using it for a year. It really does solve problems and needs that they encounter and makes their life better.
I would add another determinant to the Big Idea. It is not just the Wow Factor. Sometimes, new tools just fit naturally into your life. It's more a "Yes, of course!" criterion. They settle in there, people make space for them, start using them, and once that new tool has become a habit, for enough people, then you can get the Wow factor. So, I would say 'natural fit', with as few hurdles as possible, or enough social pull or compelling benefits to overcome the hurdles, is important. Google search and the iPad are natural fits. LinkedIn and Facebook took more social pull & critical mass, because you have to invest your time & social networks to benefit from them. Pinterest is in between: immediately obvious benefits, nice & easy to have, medium boost in functionality.

Jeff, nice article. When you say you are "seeing too many Small Ideas," I wonder if that's actually true? I wonder if entrepreneurs are just not messaging their startup ideas as well as before, because they are so heads-down in their experiments/lean startup methodology?

Seems like Andrew's suggestion: http://andrewchen.co/2012/07/18/pitch-the-future-while-building-for-now/ is a good way to bridge this?

Spot on Jeff.

As Vinod Khosla said recently in the NYT, "You want missionaries, not mercenaries" /@VKhosla https://twitter.com/AAinslie/status/224879351668289536

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Thanks for sharing your perspective, Reem.  I really like the “natural
fit” test and hope you don’t mind if I borrow it!
 
 


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