Misplaced Pages

#530469

110-408: Central to the lean startup methodology is the assumption that when startup companies invest their time into iteratively building products or services to meet the needs of early customers, the company can reduce market risks and sidestep the need for large amounts of initial project funding and expensive product launches and financial failures. While the events leading up to the launch can make or break

220-408: A prototype , to develop and validate their business models. The startup process can take a long period of time; hence, sustaining effort is required. Over the long term, sustaining effort is especially challenging because of the high failure rates and uncertain outcomes. Having a business plan in place outlines what to do and how to plan and achieve an idea in the future. Typically, these plans outline

330-664: A Stanford's research park became a veritable startup avalanche... Thus, over the course of just 20 years, a mere eight of Shockley's former employees gave forth 65 new enterprises, which then went on to do the same... Startup advocates are also trying to build a community of tech startups in New York City with organizations like NY Tech Meet Up and Built in NYC. In the early 2000s, the patent assets of failed startup companies were being purchased by people known as patent trolls , who assert those patents against companies that might be infringing

440-507: A balanced "risk/reward" profile (in which high risk due to the untested, disruptive innovations is balanced out by high potential returns) and "scalability" (the likelihood that a startup can expand its operations by serving more markets or more customers). Attractive startups generally have lower " bootstrapping " (self-funding of startups by the founders) costs, higher risk, and higher potential return on investment . Successful startups are typically more scalable than an established business, in

550-410: A billion dollar business based on the model of selling shoes online. Continuous deployment, similar to continuous delivery , is a process "whereby all code that is written for an application is immediately deployed into production," which results in a reduction of cycle times . Ries stated that some of the companies he's worked with deploy new code into production as often as 50 times a day. The phrase

660-423: A business partner) in a market with a dominant design (a clear standard is applied in this market). In contrast to this, profile is the originator which has a management style that is highly entrepreneurial and in which a radical invention or a disruptive innovation (totally new standard) is being developed. This profile is set out to be more successful (in finding a business partner) in a market that does not have

770-424: A company's value is based on its technology, it is often equally important for the business owners to obtain intellectual property protection for their idea. The newsmagazine The Economist estimated that up to 75% of the value of US public companies is now based on their intellectual property (up from 40% in 1980). Often, 100% of a small startup company's value is based on its intellectual property. As such, it

880-441: A dominant design (established standard). New startups should align themselves to one of the profiles when commercializing an invention to be able to find and be attractive to a business partner. By finding a business partner, a startup has greater chances of success. Startups usually need many different partners to realize their business idea. The commercialization process is often a bumpy road with iterations and new insights during

990-456: A dysfunctional founding team, a poor business plan, or just a flawed product-market fit as examples of the primary sources of failure. The lack of human and financial resources or even dedicated patent attorneys in the early stages of a startup makes it difficult to compete with larger companies, and likewise increases the time and reduces the probability of patent applications. Failed entrepreneurs, or restarters, who after some time restart in

1100-772: A form of online investing that has been legalized in several nations, startups did not advertise themselves to the general public as investment opportunities until and unless they first obtained approval from regulators for an initial public offering (IPO) that typically involved a listing of the startup's securities on a stock exchange . Today, there are many alternative forms of IPO commonly employed by startups and startup promoters that do not include an exchange listing, so they may avoid certain regulatory compliance obligations, including mandatory periodic disclosures of financial information and factual discussion of business conditions by management that investors and potential investors routinely receive from registered public companies. Over

1210-420: A group of users one week may see one version of the product while the next week users see another. This undermines the statistical validity of the results, since external events may influence user behavior in one time period but not the other. For example, a split test of two ice cream flavors performed in serial during the summer and winter would see a marked decrease in demand during the winter where that decrease

SECTION 10

#1732855207531

1320-489: A huge speed before running out of resources. Proactive actions (experimentation, searching, etc.) enhance a founder's learning to start a company. To learn effectively, founders often formulate falsifiable hypotheses , build a minimum viable product (MVP), and conduct A/B testing . With the key learnings from market validation, design thinking, and lean startup, founders can design a business model. However it's important not to dive into business models too early before there

1430-812: A key principle for startups is to be agile and flexible. Founders can embed options to design startups in flexible manners, so that the startups can change easily in future. Uncertainty can vary within-person (I feel more uncertain this year than last year) and between-person (he feels more uncertain than she does). A study found that when entrepreneurs feel more uncertain, they identify more opportunities (within-person difference), but entrepreneurs who perceive more uncertainties than others do not identify more opportunities than others do (no between-person difference). Startups may form partnerships with other firms to enable their business model to operate. To become attractive to other businesses, startups need to align their internal features, such as management style and products with

1540-513: A lack of financing or investor interest. These common mistakes and missteps that happen early in the startup journey can result in failure, but there are precautions entrepreneurs can take to help mitigate risk. For example, startup studios offer a buffer against many of the obstacles that solo entrepreneurs face, such as funding and insufficient team structure, making them a good resource for startups in their earliest phases. Another large study of 160.000 failed companies, identified key factors such as

1650-514: A lean startup focuses on a few lean principles: A key principle of startup is to validate the market need before providing a customer-centric product or service to avoid business ideas with weak demand. Market validation can be done in a number of ways, including surveys, cold calling, email responses, word of mouth or through sample research. Design thinking is used to understand the customers' need in an engaged manner. Design thinking and customer development can be biased because they do not remove

1760-454: A new Accelerator investment model was introduced by Y Combinator that combined fixed terms investment model with fixed period intense bootcamp style training program, to streamline the seed/early-stage investment process with training to be more systematic. Zappos Zappos.com is an American online shoe and clothing retailer based in Las Vegas , Nevada , United States. The company

1870-407: A new business, it is important to start with the end in mind, which means thinking about the direction in which you want your business to grow and how to put all the right pieces in place to make this possible. Similar to the precepts of lean manufacturing and lean software development , the lean startup methodology seeks to eliminate wasteful practices and increase value-producing practices during

1980-430: A percentage of monthly revenue. Venture capital firms and angel investors may help startup companies begin operations, exchanging seed money for an equity stake in the firm. Venture capitalists and angel investors provide financing to a range of startups (a portfolio), with the expectation that a very small number of the startups will become viable and make money. In practice though, many startups are initially funded by

2090-434: A powerful team: the product person (e.g. an engineer), a marketing person (for market research , customer interaction, vision) and a finance or operation's person (to handle operations or raise funds). The founder that is responsible for the overall strategy of the startup plays the role of founder-CEOs, much like CEOs in established firms. Startup studios provide an opportunity for founders and team members to grow along with

2200-542: A predetermined budget instead of a goal of raising revenue. It was published in 2016. Earlier publications by Osterwalder and colleagues had suggested how to adapt the Business Model Canvas for nonprofit enterprises that depend on raising revenue. "Mission budget/cost" and "mission achievement/impact factors" blocks replace the "cost structure" and "revenue streams" blocks in the Business Model Canvas, while "beneficiaries", "buy-in/support" and "deployment" blocks replace

2310-785: A sample of 101 unsuccessful startups, companies reported that experiencing one or more of five common factors were the reason for failure; the lack of consumer interest in the product or service (42% of failures), funding or cash problems (29%), personnel or staffing problems (23%), competition from rival companies (19%) and problems with pricing of the product or service (18%). In cases of funding problems, it can leave employees without paychecks. Sometimes, these companies are purchased by other companies if they are deemed to be viable, but oftentimes, they leave employees with very little recourse to recoup lost income for worked time. More than one-third of founders believe that running out of money led to failure. Second to that, founders attribute their failure to

SECTION 20

#1732855207531

2420-559: A separate $ 40 million in cash and restricted stock units. The deal was eventually closed in November 2009 for a reported $ 1.2 billion. On June 22, 2012, Zappos announced it would be handing operations of its Kentucky warehouse to Amazon on September 1, 2012. The outlet housed in the Kentucky warehouse remains open, but the name was changed to 6pm Outlet. On January 16, 2012, Zappos announced that its computer systems were hacked, compromising

2530-593: A significant increase from the previous year. In 2004, Zappos reached $ 184 million in gross sales and received a $ 35 million investment from Sequoia Capital. That same year, they moved their headquarters from San Francisco to Henderson, Nevada . Over the next three years, Zappos doubled their annual revenues, hitting $ 840 million in gross sales. By 2007, the company expanded to include handbags, eyewear, clothing, watches, and kids’ merchandise. In 2008, Zappos hit $ 1 billion in annual sales. One year later, they debuted at No. 23 on Fortune's Top 100 Companies to Work For. In

2640-736: A significant shot in the arm for the economy and for new jobs." On August 24, 2020, Tony Hsieh retired as CEO after 21 years at the helm. COO Kedar Deshpande took over as the new CEO. On November 27, 2020, Tony Hsieh died from smoke inhalation suffered in a house fire. After Deshpande left Zappos, Scott Schaefer, the company's VP of finance, was named Zappos CEO on April 6, 2022. As of 2010, shoes accounted for about 80% of Zappos' business. As of 2007, Zappos had expanded their inventory to include clothing, handbags and other accessories, which accounted for 20% of annual revenues. Zappos executives stated that they expected that clothing and accessories would bring in an additional $ 1 billion worth of revenue, as

2750-471: A startup, there are different types of stages in which the investor can participate. The first round is called seed round . The seed round generally is when the startup is still in the very early phase of execution when their product is still in the prototype phase. There is likely no performance data or positive financials as of yet. Therefore, investors rely on strength of the idea and the team in place. At this level, family friends and angel investors will be

2860-408: A startup. Some of the principles needed are listed below: Lean startup is a clear set of principles to create and design startups under limited resources and tremendous uncertainty to build their ventures more flexibly and at a lower cost. It is based on the idea that entrepreneurs can make their implicit assumptions about how their venture works explicit and empirically testing it. The empirical test

2970-523: A strategic management template invented by Alexander Osterwalder around 2008 for developing new business models or documenting existing ones. It is a visual chart with elements describing a firm's value proposition , infrastructure, customers, and finances. It assists firms in aligning their activities by illustrating potential trade-offs. The template consists of nine blocks: activities, partners, resources, value proposition, customers, customer channels, customer relationships, costs and revenue. Startups use

3080-430: A unique value proposition. "Problem" and "solution" blocks replace the "key partners" and "key activities" blocks in the Business Model Canvas, while "key metrics" and "unfair advantage" blocks replace the "key resources" and "customer relationships" blocks, respectively. The Value Proposition Canvas is a supplement to the Business Model Canvas ("customer segment" and "value proposition" blocks) published in 2012 to address

3190-425: A vanity metric is "the number of new users gained per day". While a high number of users gained per day seems beneficial to any company, if the cost of acquiring each user through expensive advertising campaigns is significantly higher than the revenue gained per user, then gaining more users could quickly lead to bankruptcy. A pivot is a "structured course correction designed to test a new fundamental hypothesis about

3300-480: A video subscription service aimed at Fortune 1 million companies that are looking to improve their company operations and customer service. The service allows participants to ask questions to and receive answers from Zappos employees. Zappos Insights also offers a three-day bootcamp where participants visit the headquarters and have meetings with Zappos executives. In 2007, Zappos acquired 6pm.com from eBags. The site sells shoes and accessories. Zappos sponsors

3410-400: Is a learning cycle of turning ideas into products, measuring customers' reactions and behaviors against built products, and then deciding whether to persevere or pivot the idea; this process repeats as many times as necessary. The process can also be viewed as a test of hypotheses. The phases of the loop are: Ideas → Build → Product → Measure → Data → Learn . The Business Model Canvas is

Lean startup - Misplaced Pages Continue

3520-724: Is considered to be a "strong" startup ecosystem. One of the most famous startup ecosystems is Silicon Valley in California, where major computer and internet firms and top universities such as Stanford University create a stimulating startup environment. Boston (where Massachusetts Institute of Technology is located) and Berlin , home of WISTA (a top research area), also have numerous creative industries , leading entrepreneurs and startup firms. Basically, attempts are being made worldwide, for example in Israel with its Silicon Wadi , in France with

3630-421: Is done primarily through two processes: using key performance indicators and a continuous deployment process. When a startup company cannot afford to have its entire investment depend upon the success of a single product or service, the lean startup methodology proposes that by releasing a minimum viable product that is not yet finalized, the company can then make use of customer feedback to help further tailor

3740-478: Is effective in increasing the entrepreneurial attitudes and perceived behavioral control, helping people and their businesses grow. Most of startup training falls into the mode of experiential learning, in which students are exposed to a large extent to a real-life entrepreneurship context as new venture teams. An example of group-based experiential startup training is the Lean LaunchPad initiative that applies

3850-416: Is important for technology-oriented startup companies to develop a sound strategy for protecting their intellectual capital as early as possible. Startup companies, particularly those associated with new technology, sometimes produce huge returns to their creators and investors—a recent example of such is Google, whose creators became billionaires through their stock ownership and options. When investing in

3960-400: Is mostly related to the weather and not to the flavor offer. Another way to incorrectly A/B test is to assign users to one or another A/B version of the product using any non-random method. Actionable metrics can lead to informed business decisions and subsequent action. These are in contrast to vanity metrics—measurements that give "the rosiest picture possible" but do not accurately reflect

4070-429: Is sufficient learning on market validation. Paul Graham said: "What I tell founders is not to sweat the business model too much at first. The most important task at first is to build something people want. If you don't do that, it won't matter how clever your business model is." Founders or co-founders are people involved in the initial launch of startup companies. Three people are mainly required as co-founders to create

4180-429: Is the "version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort" (similar to a pilot experiment ). The goal of an MVP is to test fundamental business hypotheses (or leap-of-faith assumptions) and to help entrepreneurs begin the learning process as quickly as possible. As an example, Ries noted that Zappos founder Nick Swinmurn wanted to test

4290-456: Is to de/validate these assumptions and to get an engaged understanding of the business model of the new ventures, and in doing so, the new ventures are created iteratively in a build–measure–learn loop. Hence, lean startup is a set of principles for entrepreneurial learning and business model design. More precisely, it is a set of design principles aimed for iteratively experiential learning under uncertainty in an engaged empirical manner. Typically,

4400-870: The Chicago and New York City Lean Startup Meetups attracting over 4,000 members each. The Lean Startup Machine created a new spin on the lean startup meetups by having attendees start a new company in three days. As of 2012, the Lean Startup Machine claimed to have created over 600 new startups this way. Prominent high-tech companies have begun to publicly employ the lean startup methodology, including Intuit , Dropbox , Wealthfront , Votizen , Aardvark , and Grockit . The lean startup principles are also taught in classes at Harvard Business School and UC Berkeley and are implemented in municipal governments through Code for America . Academic researchers in Finland have applied

4510-746: The Great Depression , which was blamed in part on a rise in speculative investments in unregulated small companies, startup investing was primarily a word of mouth activity reserved for the friends and family of a startup's co-founders, business angels, and Venture Capital funds. In the United States, this has been the case ever since the implementation of the Securities Act of 1933 . Many nations implemented similar legislation to prohibit general solicitation and general advertising of unregistered securities, including shares offered by startup companies. In 2005,

Lean startup - Misplaced Pages Continue

4620-682: The Inovallée or in Italy in Trieste with the AREA Science Park , to network basic research, universities and technology parks in order to create a startup-friendly ecosystem. Although there are startups created in all types of businesses, and all over the world, some locations and business sectors are particularly associated with startup companies. The internet bubble of the late 1990s was associated with huge numbers of internet startup companies, some selling

4730-449: The former Las Vegas City Hall building in downtown Las Vegas . CEO Tony Hsieh, at the time stated that he wanted "to be in an area where everyone feels like they can hang out all the time and where there's not a huge distinction between working and playing." The move was lauded by Las Vegas mayor Oscar Goodman who said "This move will bring about a critical mass of creative persons to the inner core of Las Vegas in addition to causing

4840-976: The "customer segments", "customer relationships" and "channels" blocks, respectively. Ries and others created an annual technology conference called Startup Lessons Learned which has subsequently changed its name to the Lean Startup Conference. Lean startup meetups in cities around the world have garnered 20,000 regular participants. The first lean startup meetup named Lean Startup Circle was created by Rich Collins on June 26, 2009 hosting speaking events, workshops, and roundtable discussions. As of 2012, there are lean startup meetups in over 100 cities and 17 countries as well as an online discussion forum with over 5500 members. Third-party organizers have led lean startup meetups in San Francisco , Chicago , Boston , Austin , Beijing , Dublin , and Rio de Janeiro , among others—many of which are personally attended by Ries—with

4950-462: The 2010s wore hoodies , sneakers and other casual clothes to business meetings. Their offices may have recreational facilities in them, such as pool tables, ping pong tables, football tables and pinball machines , which are used to create a fun work environment, stimulate team development and team spirit, and encourage creativity. Some of the casual approaches, such as the use of "flat" organizational structures, in which regular employees can talk with

5060-508: The Internet. Startups can receive funding via more involved stakeholders, such as startup studios. Startup studios provide funding to support the business through a successful launch, but they also provide extensive operational support, such as HR, finance and accounting, marketing, and product development, to increase the probability of success and propel growth. Startup are funded through preset rounds, depending on their funding requirement and

5170-414: The academic literature. Startup companies A startup or start-up is a company or project undertaken by an entrepreneur to seek, develop, and validate a scalable business model . While entrepreneurship includes all new businesses including self-employment and businesses that do not intend to go public , startups are new businesses that intend to grow large beyond the solo-founder. During

5280-426: The application of lean manufacturing principles to startups is highly problematic and only creates incremental outcomes for startups that use the method. Other scholars, including Wharton's Dan Levinthal, argue that many of the insights of lean startup have already been anticipated by the technology evolution, organizational learning and other literatures. The value of lean startup continues to be debated and discussed in

5390-423: The beginning, startups face high uncertainty and have high rates of failure, but a minority of them do go on to become successful and influential, such as unicorns . Startups typically begin by a founder (solo-founder) or co-founders who have a way to solve a problem. The founder of a startup will do the market validation by problem interview, solution interview, and building a minimum viable product (MVP), i.e.

5500-467: The business or enterprise of an issuer; However, not every promoter is a co-founder. In fact, there is no formal, legal definition of what makes somebody a co-founder. The right to call oneself a co-founder can be established through an agreement with one's fellow co-founders or with permission of the board of directors, investors, or shareholders of a startup company. When there is no definitive agreement (like shareholders' agreement ), disputes about who

5610-537: The business they help to build. In order to create forward momentum, founders must ensure that they provide opportunities for their team members to grow and evolve within the company. The language of securities regulation in the United States considers co-founders to be promoters under Regulation D . The U.S. Securities and Exchange Commission definition of promoter includes: (i) Any person who, acting alone or in conjunction with one or more other persons, directly or indirectly takes initiative in founding and organizing

SECTION 50

#1732855207531

5720-612: The case was initially dismissed, plaintiffs appeal was upheld by the Ninth Circuit Court of Appeals. Zappos appealed the decision to the Supreme Court , but this was ultimately rejected. A settlement was reached in October 2019. Customers received a 10% discount on one order. Zappos denied wrongdoing, but is expected to pay $ 1.6 million in court costs. On September 9, 2013, Zappos moved their headquarters from Henderson, Nevada , to

5830-422: The casual dress and playful office environment fool you. New enterprises operate under do-or-die conditions. If you do not roll out a useable product or service in a timely fashion, the company will fail. Bye-bye paycheck, hello eviction. Iman Jalali, chief of staff at ContextMedia Entrepreneurs often feel stressed. They have internal and external pressures. Internally, they need to meet deadlines to develop

5940-535: The clothing market is four times the size of the footwear market. The company sells many different types of footwear, including vegan shoes . In 2004, they launched a second line of shoes called Zappos Couture. CEO Tony Hsieh encouraged his employees to use social media networks to put a human face on the company and engage with customers, following their core value #6: "Build Open and Honest Relationships With Communication". Zappos employees maintain an active presence on: In 2008, Zappos launched Zappos Insights,

6050-521: The co-founders are, can arise. Self-efficacy refers to the confidence an individual has to create a new business or startup. It has a strong relation with startup actions. Entrepreneurs' sense of self-efficacy can play a major role in how they approach goals, tasks, and challenges. Entrepreneurs with high self-efficacy—that is, those who believe they can perform well—are more likely to view difficult tasks as something to be mastered rather than something to be avoided. Startups are pressure cookers. Don't let

6160-617: The company with Tony Hsieh and Alfred Lin , who invested $ 2 million through their investment firm Venture Frogs. The company was officially launched online in 1999 as ShoeSite.com. In July 1999, the company's name was changed from ShoeSite to Zappos after "zapatos", the Spanish word meaning "shoes". In 2000, Venture Frogs invested in the business and Zappos moved into their office space. In 2001, Hsieh came on board as co-CEO with Nick Swinmurn. From 1999 to 2000, Zappos earned $ 1.6 million in gross sales. In 2001, Zappos brought in $ 8.6 million,

6270-499: The company's namesake and founder, Nobel laureate and co-inventor of the transistor William Shockley ... (His employees) formed Fairchild Semiconductor immediately following their departure... After several years, Fairchild gained its footing, becoming a formidable presence in this sector. Its founders began leaving to start companies based on their own latest ideas and were followed on this path by their own former leading employees... The process gained momentum and what had once begun in

6380-402: The courses and encourage them to make them into real startups should they wish to do so. Such mock-up startups, however, may not be enough to accurately simulate real-world startup practice if the challenges typically faced by startups (e.g. lack of funding to keep operating) are not present in the course setting. To date, much of the entrepreneurship training is yet to be personalized to match

6490-511: The customer–product relationship, the perceived value of the product or service, and potential product/market fit . The "value proposition" block is divided into three categories—products and services, gain creators, and pain relievers—that correspond to three categories in the "customer segment" block—customer jobs, gains, and pains. The Mission Model Canvas is a version of the Business Model Canvas developed by Alexander Osterwalder and Steve Blank for entities such as government agencies that have

6600-540: The downside effect of decision biases such as an escalation of commitment, overconfidence, and the illusion of control. Many entrepreneurs seek feedback from mentors in creating their startups. Mentors guide founders and impart entrepreneurial skills and may increase the self-efficacy of nascent entrepreneurs. Mentoring offers direction for entrepreneurs to enhance their knowledge of how to sustain their assets relating to their status and identity and strengthen their real-time skills. There are many principles in creating

6710-408: The earliest phases of a company so that the company can have a better chance of success without requiring large amounts of outside funding, elaborate business plans, or a perfect product. Customer feedback during the development of products or services is integral to the lean startup process, and ensures that the company does not invest time designing features or services that consumers do not want. This

SECTION 60

#1732855207531

6820-403: The early 2000s, Zappos made the decision to move away from its original business model wherein the company does not manage any inventory. Hsieh noted, "Even though it was hard to walk away from sales at a time when nobody is offering you money, we couldn't distinguish ourselves in the eyes of our customers if we weren't going to control the entire experience. We had to give up the easy money, manage

6930-562: The end customer as waste, and they continually seek ways to eliminate such waste. In particular, such systems focus on: Lean manufacturing was later applied to software as lean software development . The lean startup methodology is based on the customer development methodology of Silicon Valley serial entrepreneur-turned-academic Steve Blank . In his book The Four Steps to the Epiphany: Successful Strategies for Products that Win (2005, 5th edition 2013), Blank pointed out

7040-437: The first three to five years of your business strategy. Models behind startups presenting as ventures are usually associated with design science . Design science uses design principles considered to be a coherent set of normative ideas and propositions to design and construct the company's backbone. For example, one of the initial design principles is affordable loss. Because of the lack of information, high uncertainty, and

7150-591: The founders and chief executive officers informally, are done to promote efficiency in the workplace, which is needed to get their business off the ground. In a 1960 study, Douglas McGregor stressed that punishments and rewards for uniformity in the workplace are not necessary because some people are born with the motivation to work without incentives. Some startups do not use a strict command and control hierarchical structure, with executives, managers, supervisors and employees. Some startups offer employees incentives such as stock options , to increase their "buy in" from

7260-491: The founders may close or exit the startups. Sustaining effort is required as the startup process can take a long period of time, by one estimate, three years or longer. Sustaining effort over the long term is especially challenging because of the high failure rates and uncertain outcomes. Some startup founders have a more casual or offbeat attitude in their dress, office space and marketing , as compared to executives in established corporations. For example, startup founders in

7370-542: The founders realized that their idea was significant, and had successfully empowered people to coordinate group action. Three years later, Groupon would grow into a billion dollar business. Steve Blank defines a pivot as "changing (or even firing) the plan instead of the executive (the sales exec, marketing or even the CEO)." This topic focuses on how entrepreneurs can maintain accountability and maximize outcomes by measuring progress, planning milestones, and prioritizing. The topic

7480-452: The founders themselves using "bootstrapping", in which loans or monetary gifts from friends and family are combined with savings and credit card debt to finance the venture. Factoring is another option, though it is not unique to startups. Other funding opportunities include various forms of crowdfunding , for example equity crowdfunding, in which the startup seeks funding from a large number of individuals, typically by pitching their idea on

7590-443: The hypothesis that customers were ready and willing to buy shoes online. Instead of building a website and a large database of footwear, Swinmurn approached local shoe stores, took pictures of their inventory, posted the pictures online, bought the shoes from the stores at full price after he'd made a sale, and then shipped them directly to customers. Swinmurn deduced that customer demand was present, and Zappos would eventually grow into

7700-430: The initial early adopters . Ries claimed that despite the many proximate causes for failure, the most important mistake was that the company's "vision was almost too concrete", making it impossible to see that their product did not accurately represent consumer demand. Although the lost money differed by orders of magnitude, Ries concluded that the failures of There, Inc. and Catalyst Recruiting shared similar origins: "it

7810-560: The inventory, and take the risk." In 2015 Forbes reported Zappos produces "in excess of $ 2 billion in revenues annually". In 2009, Zappos announced an acquisition by Amazon . Within Zappos’ board of directors, two of the five—Hsieh and Alfred Lin—were primarily concerned with maintaining Zappos company culture, whereas the other three wanted to maximize profits in a down economy . Initially, Hsieh and Lin planned to buy out their board of directors, which they estimated would cost $ 200 million. In

7920-480: The key drivers of a business. Vanity metrics for one company may be actionable metrics for another. For example, a company specializing in creating web based dashboards for financial markets might view the number of web page views per person as a vanity metric as their revenue is not based on number of page views. However, an online magazine with advertising would view web page views as a key metric as page views are directly correlated to revenue. A typical example of

8030-519: The last decade, Europe has developed a rapid start-up scene that has given birth to global players, including more than 70 unicorns, and has created more than two million jobs. Investment in European start-ups increased sixfold between 2010 and 2020, reaching approximately €40 billion. Europe does a poorer job of nurturing young companies because of a failure to support their development into industry leaders. Promising European start-ups then struggle to raise

8140-446: The lean startup methodology also drew inspiration from the work of people like Ian C. MacMillan and Rita Gunther McGrath who developed a technique called discovery-driven planning , which was an attempt to bring an entrepreneurial mindset to planning. In his blog and book The Lean Startup , entrepreneur Eric Ries used specific terms to refer to the core lean startup principles, as described below. A minimum viable product (MVP)

8250-448: The lean startup methodology to accelerating research innovation. The United States Government has employed lean startup ideas. The Federal Chief Information Officer of the United States , Steven VanRoekel noted in 2012 that he was taking a "lean-startup approach to government". Ries has worked with the former and current Chief Technology Officers of the United States — Aneesh Chopra and Todd Park respectively—to implement aspects of

8360-513: The lean startup methodology. Ben Horowitz , the co-founder of venture capital firm Andreessen Horowitz , wrote an article in 2010 criticizing the lean startup method for over-emphasizing "running lean" (constantly cutting and reducing non-essential parts of the company to save time and money). He specifically disagreed with portraying "running lean" as an end rather than a means to winning the market without running out of cash. Horowitz gave as an example his startup Loudcloud , which by "running fat"

8470-924: The lean startup model. In particular, Park noted that in order to understand customer demand, the Department of Health and Human Services recognized "the need to rapidly prototype solutions, engage customers in those solutions as soon as possible, and then quickly and repeatedly iterate those solutions based on working with customers". In May 2012, Ries and The White House announced the Presidential Innovation Fellows program, which brings together top citizen innovators and government officials to work on high-level projects and deliver measurable results in six months. Steve Blank , working with retired United States Army colonel Pete Newell and former United States Army Special Forces colonel Joe Felter, adapted lean startup principles for U.S. government innovation under

8580-451: The long run. Venture capital is the money of invention that is invested into young businesses which hold no historic background. Usually, the business of venture capital is highly risky but one can at the same time expect high returns as well. In the United States, the solicitation of funds became easier for startups as result of the JOBS Act . Prior to the advent of equity crowdfunding ,

8690-434: The market situation. In their 2013 study, Kask and Linton develop two ideal profiles, or also known as configurations or archetypes, for startups that are commercializing inventions. The inheritor profile calls for a management style that is not too entrepreneurial (more conservative) and the startup should have an incremental invention (building on a previous standard). This profile is set out to be more successful (in finding

8800-439: The method comes out of a 2011 analysis of the factors of success in growth companies as described in the 2011 book Great by Choice . Lean startup has also been the source of attention in the academic literature. For example, Stanford professor Riitta Katila finds empirical support for lean startup. However, a group of prominent strategy and innovation scholars—Teppo Felin, Alfonso Gambardella, Scott Stern and Todd Zenger—argue that

8910-519: The midst of this, Amazon executives approached Zappos with the proposition of buying the company outright. After an hour-long meeting with Amazon CEO Jeff Bezos , Hsieh sensed that Amazon would be open to letting Zappos continue to operate as an independent entity, and started negotiations. On July 22, 2009, Amazon announced that it would buy Zappos for $ 940 million in a stock and cash deal. Owners of shares of Zappos were set to receive approximately 10 million Amazon.com shares, and employees would receive

9020-769: The moniker "Hacking for Defense", a program in which university students solve problems that the Department of Defense , the United States Armed Forces , and the United States Intelligence Community submit to participating universities. Hacking for Defense and variants like Hacking for Diplomacy have expanded to the United States Department of State , Department of Energy , NASA , and nonprofits. Lean startup principles have been applied to specific competencies within typical startups and larger organizations: The lean startup methodology

9130-507: The necessary capital to expand and mature. They are forced to either relocate to the US's deep capital markets or sell themselves to larger rivals with more financial availability. As a result, start-ups in the United States can typically raise far more money—up to five times as much as in Europe. Investors are generally most attracted to those new companies distinguished by their strong co-founding team,

9240-455: The need to make decisions quickly, founders usually use many heuristics and exhibit biases in their leadership decisions. Entrepreneurs often become overconfident about their startups and their influence on an outcome (case of the illusion of control ). Below are some of the most critical decision biases of entrepreneurs to start up a new business. Startups use several action principles to generate evidence as quickly as possible to reduce

9350-840: The ones participating. At this stage the level of risk and payoff are at their greatest. The next round is called Series A . At this point the company already has traction and may be making revenue. In Series A rounds venture capital firms will be participating alongside angels or super angel investors. The next rounds are Series B , C, and D. These three rounds are the ones leading towards the Initial Public Offering ( IPO ). Venture capital firms and private equity firms will be participating. Series B: Companies are generating consistent revenue but must scale to meet growing demand. Series C & D: Companies with strong financial performance looking to expand to new markets, develop new products, make an acquisition, and/or preparing for IPO. After

9460-761: The participants and the training. The size and maturity of the startup ecosystem is where a startup is launched and where it grows to have an effect on the volume and success of the startups. The startup ecosystem consists of the individuals (entrepreneurs, venture capitalists, angel investors , mentors, advisors); institutions and organizations (top research universities and institutes, business schools and entrepreneurship programs and centres operated by universities and colleges, non-profit entrepreneurship support organizations, government entrepreneurship programs and services, Chambers of commerce ) business incubators and business accelerators and top-performing entrepreneurial firms and startups. A region with all of these elements

9570-456: The personal information of 24 million customers. In response, the company required all of its customers to change their passwords on the site, though it noted that it was highly unlikely that password information was obtained due to encryption. This incident led to a class action suit In re Zappos.com, Inc., Customer Data Security Breach Litigation , with plaintiffs claiming that Zappos did not adequately protect their personal information. After

9680-478: The pitfalls of a narrow emphasis on product development; instead he argued that startups should focus on what he called "customer development", which emphasizes "learning about customers and their problems as early in the development process as possible". Blank's customer development methodology proposed four steps: In an article published in the Harvard Business Review in 2013, Steve Blank described how

9790-594: The principles of customer development and Lean Startup to technology-based startup projects. As startups are typically thought to operate under a notable lack of resources, have little or no operating history, and to consist of individuals with little practical experience, it is possible to simulate startups in a classroom setting with reasonable accuracy. In fact, it is not uncommon for students to actually participate in real startups during and after their studies. Similarly, university courses teaching software startup themes often have students found mock-up startups during

9900-403: The process. Hasche and Linton argue that startups can learn from their relationships with other firms, and even if the relationship ends, the startup will have gained valuable knowledge about how it should move on going forward. When a relationship is failing for a startup it needs to make changes. Three types of changes can be identified according to Hasche and Linton: Startups need to learn at

10010-417: The product or service to the specific needs of its customers. The lean startup methodology asserts that "lean has nothing to do with how much money a company raises"; rather it has everything to do with assessing the specific demands of consumers and how to meet that demand using the least amount of resources possible. Use of the word lean to describe the streamlined production system of lean manufacturing

10120-404: The product, strategy, and engine of growth." A notable example of a company employing the pivot is Groupon ; when the company first started, it was an online activism platform called The Point. After receiving almost no traction, the founders opened a WordPress blog and launched their first coupon promotion for a pizzeria located in their building lobby. Although they only received 20 redemptions,

10230-404: The prototypes and get the product or service ready for market. Externally they are expected to meet milestones of investors and other stakeholders to ensure continued resources from them on the startups. Coping with stress is critical to entrepreneurs because of the stressful nature of starting up a new firm under uncertainty. Coping with stress unsuccessfully could lead to emotional exhaustion, and

10340-400: The risk of bias because the same biases manifest in the sources of information, the type of information sought, and the interpretation of that information. Encouraging people to consider the opposite of whatever decision they are about to make tends to reduce biases such as overconfidence, the hindsight bias , and anchoring. In startups, many decisions are made under uncertainty, and hence

10450-561: The same sector with more or less the same activities, have an increased chance of becoming a better entrepreneur. However, some studies indicate that restarters are more heavily discouraged in Europe than in the US. Many institutions and universities provide training on startups. In the context of universities, some of the courses are entrepreneurship courses that also deal with the topic of startups, while other courses are specifically dedicated to startups. Startup courses are found both in traditional economic or business disciplines as well as

10560-493: The sense that the startup has the potential to grow rapidly with a limited investment of capital, labor or land. Timing has often been the single most important factor for biggest startup successes, while at the same time it's identified to be one of the hardest things to master by many serial entrepreneurs and investors. Startups have several options for funding. Revenue-based financing lenders can help startup companies by providing non-dilutive growth capital in exchange for

10670-428: The side of information technology disciplines. As startups are often focused on software, they are also occasionally taught while focusing on software development alongside the business aspects of a startup. Founders go through a lot to set up a startup. A startup requires patience and resilience, and training programs need to have both the business components and the psychological components. Entrepreneurship education

10780-402: The stage of growth of the company. Startup investing is generally divided into six stage, namely While some (would-be) entrepreneurs believe that they can't start a company without funding from VC, Angel, etc. that is not the case. In fact, many entrepreneurs have founded successful businesses for almost no capital, including the founders of MailChimp , Shopify , and ShutterStock . If

10890-515: The start up (as these employees stand to gain if the company does well). This removal of stressors allows the workers and researchers in the startup to focus less on the work environment around them, and more on achieving the task at hand, giving them the potential to achieve something great for both themselves and their company. The failure rate of startup companies is very high. A 2014 article in Fortune estimated that 90% of startups ultimately fail. In

11000-466: The technology covered by the patents. Startup investing is the action of making an investment in an early-stage company. Beyond founders' own contributions, some startups raise additional investment at some or several stages of their growth. Not all startups trying to raise investments are successful in their fundraising. Venture Capital is a subdivision of Private Equity wherein external investors fund small-scale startups that have high growth potential in

11110-522: The technology to provide internet access, others using the internet to provide services. Most of this startup activity was located in the most well-known startup ecosystem - Silicon Valley , an area of northern California renowned for the high level of startup company activity: The spark that set off the explosive boom of "Silicon startups" in Stanford Industrial Park was a personal dispute in 1957 between employees of Shockley Semiconductor and

11220-405: The template (and/or other templates described below) to formulate hypotheses and change their business model based on the success or failure of tested hypotheses. The Lean Canvas is a version of the Business Model Canvas adapted by Ash Maurya in 2010 specifically for startups. The Lean Canvas focuses on addressing broad customer problems and solutions and delivering them to customer segments through

11330-472: The wants of their target customers, and because they focused too much time and energy on the initial product launch. Next, Ries was a senior software engineer with There, Inc., which Ries described as a classic example of a Silicon Valley startup with five years of stealth R&D , $ 40 million in financing, and nearly 200 employees at the time of product launch. In 2003, There, Inc. launched its product, There.com , but they were unable to garner popularity beyond

11440-525: Was able to outperform 20 direct competitors and after 8 years reach a value of $ 1.6 billion. However, at least since 2008, numerous advocates of lean methods have pointed out that "running lean" does not mean cost cutting . Trey Griffith, the VP of technology at Teleborder, stated in 2012 that the majority of backing for the lean startup methodology was anecdotal and had not been rigorously validated when first presented. However, he went on to note that better support of

11550-439: Was coined by Timothy Fitz, one of Ries's colleagues and an early engineer at IMVU . A split or A/B test is an experiment in which "different versions of a product are offered to customers at the same time." The goal of a split test is to observe differences in behavior between the two groups and to measure the impact of each version on an actionable metric. A/B testing is sometimes incorrectly performed in serial fashion, where

11660-644: Was first proposed in 2008 by Eric Ries , using his personal experiences adapting lean management and customer development principles to high-tech startup companies . The methodology has since been expanded to apply to any individual, team, or company looking to develop new products, services, or systems without unlimited resources. The lean startup's reputation is due in part to the success of Ries' bestselling book, The Lean Startup , published in September 2011. Ries' said that his first company, Catalyst Recruiting, failed because he and his colleagues did not understand

11770-450: Was founded in 1999 by Nick Swinmurn and launched under the domain name Shoesite.com. In July 2009, Amazon acquired Zappos in an all-stock deal worth around $ 1.2 billion at the time. Amazon purchased all of the outstanding shares and warrants from Zappos for 10 million shares of Amazon's common stock and provided $ 40 million in cash and restricted stock for Zappos employees. Zappos was founded in 1999 by Nick Swinmurn . Swinmurn launched

11880-444: Was later expanded upon to include three levels of innovation accounting related to the types of assumptions being validated. The Build–Measure–Learn loop emphasizes speed as a critical ingredient to customer development. A team or company's effectiveness is determined by its ability to ideate, quickly build a minimum viable product of that idea, measure its effectiveness in the market, and learn from that experiment. In other words, it

11990-494: Was popularized by the 1990 book The Machine That Changed the World . The Toyota Production System pioneered by Taiichi Ohno combined flow principles that had been used by Henry Ford since the early 1900s with innovations such as the TWI programs introduced to Japan in 1951. Lean manufacturing systems consider the expenditure of resources for any goal other than the creation of value for

12100-415: Was working forward from the technology instead of working backward from the business results you're trying to achieve." After Ries later co-founded IMVU Inc., IMVU investor Steve Blank insisted that IMVU executives audit Blank's class on entrepreneurship at UC Berkeley . Ries applied Blank's customer development methodology and integrated it with ideas from lean software development and elsewhere to form

#530469