In addition to the mountains and the mild 4-season climate, a great benefit of living in the New River Valley of Virginia is the NCTC – the technology council of the NRV and Roanoke. Due in part to Virginia Tech, Radford U., and the Carilion Clinic, the area has vibrant technology and startup communities. Last week Doug Juanarena of Rackspace and David Catalano of Modea , both mentors at DayOne Ventures, a local venture seed group, led a discussion of “Lean Start-ups.”
Due to cloud computing and services available from online vendors it is possible for online and web-based firms to keep costs low in their early stages. DayOne will seed a new venture with $16,ooo and help them find cheap space. Ideally the next stage of financing can also be moderate and be done by a seed or angel firm, perhaps using convertible notes. There are two major benefits of avoiding venture capital funding in their early development:
- The founders retain control and avoid dilution of ownership, and
- The firm retains the ability to be flexible and change business model in reaction to market experience.
Not surprisingly both start-up speakers at the event, David Poteet of Nomad Mobile Guides and Frederick Cook of Heyo, described an effectuation process: a small initial investment, rushing a “just good enough” early product to market, and changing the product and business model in response to market lessons. (Both firms seem to be making great strides – check out their links at the end of this article).
For some years Lars Graf, a serial entrepreneur friend, has been advocating what he calls “slow burn” entrepreneurship. Lars is more colorful when stressing the benefits of avoiding VC money: the kindest thing I have heard him say about venture capitalists is to call them “investment bankers without the heart” (ouch!). But the “slow-burn” process and the benefits are identical to what DayOne calls “lean startups.”
His current enterprise, VitalLink, a social media for institutional or elderly access, is gaining traction. VialLink aims to improve the lives of elderly or shut-in people by increasing their Internet access. VitalLink had a small startup cost with outsourced programming and hosting; brought basic versions to market; and has dramatically changed the product and business model due to market experience. VitalLink is getting traction in the marketplace (again see link).
Lean or Slow-burn entrepreneurship should enable entrepreneurs to take advantage of the benefits of the proven effectuation process advocated by Saras Sarasvathy. Small bets, just-good enough products, responding to market input drives these firms. And perhaps as importantly, lean or slow-burn entrepreneurship allows them to continue to employ this process for a longer period of time and continue to change products and business models.
I plan to return to lean or slow-burn entrepreneurship in another post…
Links of interest:
- DayOne Ventures http://www.dayoneventures.com/
- Nomad Mobile Guides http://nomadmobileguides.com/
- Heyo http://heyo.com/
- VitalLink http://www.vitallink.net/
- Modea http://www.modea.com/
- NCTC http://www.thetechnologycouncil.com/
- Rackspace http://www.rackspace.com/index.php
- Early blog post on Lean Startups LeanStartups
It will be great to see perspective on lean start-ups developed beyond what Eric Ries said. Research would benefit from deep evidence from case studies and at least some metrics (yet how do you get entrepreneurs to cooperate here?). Aspiring entrepreneurs very much lack this caring, empathic perspective/thinking that lean/slow-burn startups thinkers can offer. In my humble opinion, this “operational mode philosophy” element — often missing as first-time entrepreneurs would spent energy on planning etc. — is even more of value for user innovators, or those who start ventures out of need for self-employment, rather than by what we so far think is inherited entrepreneurial personality.
You need not over-think the lean/slow-burn start-up effectuation process. Look around Southwest Virginia. 90% of small businesses here used this same process, only the owner didn’t know the terminology of the day and doesn’t have time to read business journals at night. Most start-ups begin with the owner working two full time jobs, the day job that pays the bills, supports the pipe-dream business and the start-up company, whatever form that takes. From personal experience, few of these entrepreneurs have advanced degrees or have taken a class in finance or producing a business plan. If you want entrepreneurs to cooperate, talk to them at their level. Ask questions about how they got to where they are, not questions that you think indicate success. For the past forty years lean/slow burn was called “working out of your pocket”. High tech and low tech employ the same processes when starting a business, regardless of the product. Only the magnitude of costs differs.