Entrepreneurs setting up their first startup may find it difficult to determine the best way to set up shop. Is it best to go with the popular lean startup method of fast-paced prototyping, experimenting, and pivoting? Or is it better to go with the more measured MIT way, calculating the viability of the market according to twenty-four key steps? But then there’s the Babson College method of moving forward with creative actions to inspire the learning journey…is that best?
How to choose?
The fact is, the “right” startup method depends on two particular factors: the nature of a business and the competitive dynamics of the market.
The Nature of Business
Depending on the industry, some businesses may require enormous capital investment. For example, in Japan, life insurance used to be a highly regulated industry. New ventures looking to enter the market required as much as $100 million of capital before launch.
Haruaki Deguchi and Daisuke Iwase launched Lifenet Insurance in 2006. They raised about $100 million before taking the company public in 2012, listing it on the Japanese stock exchange.
Deguchi and Iwase had analyzed the market deeply and logically. As a result, Lifenet identified that there was a market segment in Japan that was highly dissatisfied by the existing life insurance product. These were logical, rational consumers who wanted to decide their policy for themselves. Lifenet designed a product that fit with this unmet market need.
It made sense for Lifenet to spend long months in the planning stage before launch. During this time, the founders made significant investments in market research, as they could neither sell a prototype nor pivot their product in the highly regulated industry.
The chart below illustrates differences in startup cost, including initial investment, barrier to entry, and barrier to pivoting. If you are starting a web service, for example, you should quickly interview prospective customers, test your prototype, and launch. On the contrary, if the cost of starting up is high, then you should analyze the market and profitability more systematically (the MIT way) before taking action.
If you are an entrepreneur or new business development manager, you may question how much time you should spend planning your new business. Should you just start, like Babson suggests, or analyze the market more comprehensively, following the MIT way? Although we know that low-cost industries are suited to a lean start, how much planning is best before starting the cycle?
To answer that question, we need to understand the relationship between development speed and success.
I once facilitated a ten-month course on lean development at an IT company. Three months in, one of the teams presented an excellent business plan. Although the course wasn’t even half over, I encouraged that team to contact the CEO, work through all the office politics and red tape, and get the project launched. The team actually did it. Then, within two months of the launch, a large competitor entered the market. Had the training team not taken their chance, they would have lost their first-mover advantage and a valuable opportunity.
Speed and timing are deadly important in some industry sectors, often restricting the time available for analysis. In such cases, I recommend the Babson model of seizing opportunities head on with continuing efforts to understand customers, as well as profitability, along the way.
Designing the Right Startup Process for You
Depending on the nature of your business and industry, you’ll need to determine which startup process is the most suitable for you. Remember, it may not be a matter of choosing Stanford over MIT. A true master of new business development knows how to combine existing advice and how to ignore the parts that simply don’t apply. To launch your business successfully, consider the right blend of rapid build-measure-learn from the lean startup, disciplined thought from MIT, and action-driven attitude from Babson.
At some point, of course, you’ll have to just go for it—find the courage to stop planning and start your business.