October 2, 2012
“The fundamental activity of a startup is to turn ideas into products, measure how customers respond and then learn whether to pivot or persevere.” -Eric Reis
The fundamental activity of a Lean Startup Investor is to invest into a startup for the purpose of creating prosperity, knowing, understanding, and supporting the Lean Startup Methodology. The way these companies are structured speaking to their ability to pivot, to learn and grow, and their sustainability.
I have based the above fundamental activity of a Lean Startup Investor on two factors. First, is the definition of the fundamental activity of a Startup as defined by Eric Reis. Second, is a view which I endorse, that investing’s primary goal is to earn a return on the investment, it’s primary purpose is to create prosperity.
In this post we are going to discuss the first factor. An investor must understand the methodology of a Lean Startup in order to effectively invest in one. The reason for this is simply that the metrics to measure success are different than that of a traditional startup. Lean Startups are focused on customer acquisition, proof, fast moving pivots as necessary. For traditional investors this may make their hearts skip a beat.
A traditional Startup has an idea, develops it in “secret”, and then launches it to the world. If it is successful customers flock to the product or service and success ensues. It’s a model that is slow moving and outdated in the fast paced and ever changing world of high tech startups.
In a Lean Startup, customers are engaged immediately with a product that is only a skeleton, or what is referred to as a Minimal Viable Product (MVP). The startup works closely with it customers driving failure after failure, constantly and rigorously testing the adoption of the product or service by the customer.
As you can imagine this early interaction with customers leaves the startup exposed to everyone, including its investors to seeing its mistakes. Investors are not traditionally accepting of mistakes and see mistakes as steps closer to failure. For Lean Startups failure is not just a viable option, it’s a way of life. These startups are built to fail, but to fail fast and smart and iterate their product offering. As they change course they get closer to the product offering that will resonate strongest with their customer base.
A Lean Startup Investor sees this process as real world testing and learnin’s and steps moving the project closer to success. A Lean Startup Investor passes judgment based on managements understanding discipline, rigor, and logic based on the MVP development approach and the Lean Startup Methodology.
Step one to becoming a Lean Startup Investor: Read The Lean Startup – Eric Reis