Lean Startups aren’t Cheap Startups

Wednesday, November 4th, 2009

Lean Startups aren’t Cheap Startups, Steve Blank explains:

A Lean Startup is not about the total amount of money you may spend over the life of your startup. It is about when in the life of your company you do the spending.

If venture capital is flowing, you can make mistakes and just get more funding — but when times are tight, you have to avoid an out-of-control burn rate, because you won’t get any do-overs:

The key contributors to an out-of-control burn rate is 1) hiring a sales force too early, 2) turning on the demand creation activities too early, 3) developing something other than the minimum feature set for first customer ship.

Sales people cost money, and when they’re not bringing in revenue, their wandering in the woods is time consuming, cash-draining and demoralizing. Marketing demand creation programs (Search Engine Marketing, Public Relations, Advertising, Lead Generation, Trade Shows, etc.) are all expensive and potentially fatal distractions if done before you have found product-market fit and a repeatable sales model. And most startup code and features end up on the floor as customers never really wanted them.

Blank recommends the Customer Development process:

In Customer Development your goal is not to avoid spending money but to preserve your cash as you search for a repeatable and scalable sales model and then spend like there is no tomorrow when you find one.

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