Fred Wilson posted a blog last week regarding the "Two Venture Capital Industries" — observing that the Internet/software industry, where he invests, has undergone great change due to the lower-cost model (commonly known as the "lean start-up" movement) but the more capital-intensive industries, such as life sciences and cleantech, where the fundamental economic model has not been altered.
The post is a great one, and it raises something I've been thinking a bit about lately, which is whether the lean start-up approach to building start-ups can be applied to industries beyond Internet/software.
HBS Professor Tom Eisenmann is creating a course next spring on "Launching Technology Ventures" where he is going to delve into lean start-ups, finding product-market fit, what are the key start-up activities before product-market fit and what are the most important activities afterwards, and other salient topics.
In my role as an EIR at HBS this year, I'm teaming with Tom on this course. The case studies will go beyond Internet/software start-ups in exploring how other sectors can apply lean start-up theory. One of the reasons I have so much personal conviction of the breadth of these theories is that there are two companies in our portfolio – one a clean tech and the other a life sciences – that have applied parts of the lean start-up methodology very effectively. Their stories help illuminate the opportunity for others.
The clean tech company is Digital Lumens, recent Innovation award winner at the World Economic Forum. We seeded the company, and founding entrepreneur Jonathan Guerster, with a mere $500,000 to explore a thesis around software-controlled, industrial LED lighting. Jonathan recruited a technical team out of Color Kinetics and built a proof-of-concept. We then raised a $5 million Series A, hired an outstanding CEO (Tom Pincine), and the company built v1.0 of the product. With the success of v1.0 behind it, the company sought out a few customers to work through the kinks. Once that was done, and rapid product iteration cycles, the company raised a Series B and is now scaling sales operations. If you didn't know the company was a demand-side energy technology company, you would think the above description applied to a Web 2.0 company. Digital Lumens may require 10s of millions of dollars end-to-end, but just because it's a capital-intensive business, doesn't mean they couldn't apply lean start-up approaches to change the risk-reward profile for the early investors.
Similarly, Predictive Biosciences has been on a lean start-up path. That sounds odd to say for a company that has raised a total of $56 million to pursue a very big vision for urine-based biomarkers (pee in a cup and Predictive will tell you if you have cancer – and what type). But the initial investment we and Highland made was a mere $500,000 each to spin the IP out of Children's Hospital, hire an initial technical team to build the product/prototype, and figure out which market to target and how. Only then did we raise a $10 million Series A, and even that capital was deployed in a very focused, test and learn fashion until the initial market (bladder cancer) was identified and vetted. Again, many of the same lean start-up processes that Mint.com or Xobni or others have deployed in the Web 2.0 would feel very natural to the dozen PhDs running Predictive.
So, yes, the cost revolution impact to one type of VC investing has been enormous. But the lessons, frameworks and paradigms can be applied successfully to the "other" VC type of investing as well.
Hey, I was just looking for K & M INDUSTRIES us profile and got the point that If you are posted in major search engines with product information than it’s your way to get the business on top. Most of the online buyers first check out company information than profile, but they trust search engine and if you are in there than buyer will buy it without any doubt.
K & M INDUSTRIES us profile
Finding people who will work for little money is hard, especially in this economy.
The elephant in the room about the lean startup model that no one seems to dare talk about is this; you can only have an un-funded (or lean-funded) startup when your employees can work for little or no money. This therefore limits your employee pool to (a) people just out of school who have no expenses (but also no experience) and (b) people who are wealthy. The result is that these startups do not get the wisdom and experience of the large pool of people who have lots of experience and success.
Yes, under the “lean” model investors are reducing their risk by putting less money into the venture. But investors are increasing their risks by excluding this pool of workers.
Des Pieri http://www.ChangeAgentDes.com
Thanks, Andy. They're an amazing company and worth rooting for!
Thanks Jeff – we’ve been exploring implementing lean into our professional services business and many elements have helped us tremendously. It’s interesting to learn about businesses outside of software that are implementing these processes as they are definitely useful. It will be exciting to see these applications continue to get refined and move beyond the software space.
On another note, it’s amazing to hear about Predictive Biosciences and the work they are doing. I had not heard of this company, but have been personally affected by bladder cancer and the inefficiencies around testing. It is nice to know that Flybridge and the team at Predictive are working hard to help solve this problem.
Relationships drive angels. People invest in and alongside people they know and trust. I've seen that successfully across all sectors.
Take this question with a grain of salt, as my team and I are working on a web startup, so we clearly fit into the “software VC” world that Fred Wilson was referring to…
But for the sake of others who are working on biotech or other capital intensive businesses, it seems like there still may be a gap in the earliest stages (e.g. where an unfunded software company might be sleeping on couches and bootstrapping until they find product market fit), where unless the founder is willing and able to self fund half a million or a million dollars, they need to find investors that are willing to invest primarily on the team and concept (rather than product or traction) to get the initial product in front of customers.
For founders in the position trying to start up a company in that camp, and without the resources to self fund, are there any effective ways that you’ve seen to get from 0-10 mph without having to get investors to put money into the company primarily on faith?
Applying lean to corporate innovation is another great area of exploration. Thanks for sharing.
Nice post and I think that the applications of “lean” go even further than simply other industries. I am playing with the application of Lean concepts to the development and roll out of corporate learning inside companies. The traditional approach is extremely similar to old waterfall development and training has historically often fallen short on finding PM fit. i think that while the concept of being customer focused have been around forever, this specific application (Lean) meets the speed and engagement requirements of the world today. in case your interested here is the post on Lean Learning… http://learninghack.wordpress.com/2010/08/25/here-comes-lean-learning-pt-1/