For a number of reasons, impact enterprises usually take much longer than traditional start-ups to mature. It is inadequate to transpose startup methodologies like lean innovation - which prioritizes agility over stability - into impact entrepreneurship without recognizing this fundamental difference. Impact entrepreneurship needs a complementary methodology that can teach entrepreneurs how build an organization that can survive, thrive and innovate for the decade or more it will take to have meaningful impact
I was going to spend today picking apart The Lean Startup, which is one of those books everyone quotes at you and almost no one has actually read. Silicon Valley has a tendency to adopt one of these books every few years - books which confirm whatever the prevailing wisdom of the time is, reframing it as just contrarian enough to flatter the reader (or, um, would-be-reader). The would-be-reader gets the high-level points from a magazine article or CNBC interview, then heads out into the world, biases confirmed, demanding of all his subordinates, portfolio companies, students, etc, “You have to read it right now, it is completely relevant for what you are working on and it completely changed how I think about this.” Then they state what had previously been opinions as newly-minted capital-F Facts. After all, they are in this book that everyone is quoting. Before The Lean Startup, it was The 4 Hour Workweek, before that The Innovator’s Dilemma, before that Crossing the Chasm. I once had a boss who made us all buy our own copies of Jack Welch’s Straight From the Gut, but in retrospect that may have been an isolated incident as that guy was pretty much a sociopath.
Quick aside: If someone actually read a book, got something out of it and wants you to read it? Nine times out of ten, they will hand you a copy of the book, and most of the time the book they are handing you will be dinged and dented and, you know, read. I give someone my copy of Startup Communities every few months, then I go buy another one. If someone tells you to read a book without giving you that book, and that person isn’t a librarian? Take the recommendation with a grain of salt.
Anyway, back to The Lean Startup. I, like the rest of you, had never read it, but people have been using it to annoy me for three or four years as its influence extended from VC funded tech entrepreneurship into other parts of the world, including social innovation. “Minimum Viable Product!” “Pivot, pivot, pivot!” “Fail fast!” “Continuous innovation!” “Ploughing time doesn't stop at night!” The buzz around lean startup methodology seemed to encapsulate the short-termism of the current bubble - a guide for redlining a team to quickly build something of value that can be sold to someone else before the ground falls out from under it, reflective of a peculiar time when a wide eyed college senior tells you the job they want after graduation is “Startup CEO” Oh, really wide eyed college senior? What does the company do? “Oh, I don’t know yet. I’m just really excited about entrepreneurship.”
My idea for today’s blog was that I would read The Lean Startup and then explain why it was wrong. I read it this past weekend and . . . it’s actually an OK book. For anyone starting a company or developing a new product, it is worth reading and engaging with. The core message - that products should be built in partnership with users rather than labored over in secret then unveiled fully formed - is hard to argue with, and some of the tools are helpful. And of course you want to develop things as cheaply as possible. The contempt with which the author, Eric Ries, talks about customers (in short, you should A/B test everything in small batches because customers usually don’t know or can’t tell you what they want) is exhilarating for anyone who has been across the table from a client who keeps telling you they want something that you know for a fact they won’t actually be able to use. Even the idea of the “pivot,” which for me encapsulates the worrying short attention span our era, makes sense in the contexts in which Ries puts the idea forward. It’s not perfect - there’s a lot of stuff in there I don’t think is particularly useful or applicable as broadly as he seems to think - but my idea to spend this post pointing and laughing fell flat.
Wow, so you just spent almost 700 words telling us what this blog post isn’t about?
Um, yes. I haven’t blogged in almost a month. I thought it would make you less disappointed in me if I made it clear I read a book for you during that time off. Also, I came with a clever title related to what I am writing about, but it’s not clever if you don’t get the Lean Startup reference.
So what are you going to be mad about today, Pat?
Well, I do think the ideas in the book are worth engaging with. I am not going to summarize them because most of you already know them despite never having read the book, and the rest of you can read them here. However, I take issue with the book’s “holy text” status, by which I mean that its mostly good ideas are now being presented as universal truths for all entrepreneurs. It is the dominant methodology at almost every incubator and accelerator I know of, including those that purport to care about social or environmental impact. “Lean innovation” is everywhere. My alma mater just sent me an email stating that they are even going to make lean innovation a core part of their non-profit management courses. And this unquestioning adoption of lean principles in other sectors, I think, is a mistake.
Why? Because, at the risk of oversimplifying, lean innovation is a sprint methodology, one which values speed and agility over stability. This makes sense for a tech firm going after a ready market and which is facing multiple competitors, hence the sprint to market. For the team of four ramen eating engineers that has 9-12 months to hit it big or die, this makes sense but it ignores a fundamental fact of most innovative impact-focused business:
They take a really, really, really long time before you know they’re going to succeed. Like a decade. Or a lifetime.
Look, I don’t want to tell anyone to work with less urgency or tell a new impact entrepreneur to lower their expectations, but I’ve been doing this work for long enough now that I have a reasonable number of data points when I talk about impact-focused businesses. The “Are we going to make a real go of this?” that takes 3-9 months for a tech start up can take 5 to 10 years for an impact entrepreneur, and at least once during that period the answer is most decidedly “No.” And it stays “No” for months. Or years. Categorically telling every company that they should burn energy and relationships agilely revamping their product and strategy during this long period looking for a quick fix is at best counterproductive and at worst teaches people they should quickly pull the plug on projects that could never have been expected to work in a few months.
For impact focused businesses, persistence is at least as important as agility. We need a complimentary set of tools for these businesses that teach them how to stay alive and relevant long enough to get to the point that they can be agile and high growth and all that good stuff. We also need to teach them how to preserve value and continue making progress during the long fallow periods that every one of them will experience. I don’t claim to have all the answers, but I will give it a good first stab. And I am humble calling it The Long Startup methodology. Get it? The Long Startup? Get it? Well, it was funny to me. OK, question one:
Why do most impact-focused enterprises take so long to mature?
As I’ve stated previously, I am not the word police. Social entrepreneur, impact business et al mean different things to different people, and I am a big tent kind of guy. I use the terms interchangeably and here I use them to describe a person or organization that is developing a product or service that will have some demonstrable social or environmental impact, and is doing so in a market or context which purely profit-motivated businesses are rationally ignoring for now. I think this is a fundamentally different context from lean innovation, which is more relevant when you have a bunch of competitors that you need to beat to market and continuously out-innovate.
The rational reasons other companies aren’t interested in what the impact focused company is doing can include:
- Unproven customer ability to pay, often low resource customers
- Long sales cycles and/or need for a lot of customer education
- Inadequate or nonexistent distribution channels
- Separation between payers and beneficiaries
- Dependence on public/private partnerships
- Regulatory complexity
All of these issues take time to address and, as importantly, are often partially or completely outside of the company’s control. More than once I have waited alongside a hungry group of entrepreneurs for more than a year while they wait for the right set of licenses to start operating in a developing country. If you want to do anything innovative in ecosystem services in the US, I guarantee you will have at least one 18-month delay while you wait for a lawsuit to be resolved. Oh, and does your project involve an innovative partnership with a state or federal agency? Prepare for multiple 6 month periods where you are simply waiting for the next thing to happen.
Impact companies also have their own set of common characteristics that stretch out the reasonable time frame for innovation, including:
- Complicated funding models, usually including a mix of investment and grants, many of which have long decision cycles
- Few possibilities for, or limited interest in, exit. So, no going hard and fast for two years then handing the baton off to someone else for you.
Both of these bullets probably deserve their own post at some point, but it’s really important for people entering this space to internalize that first one - that they are almost certainly going to fund their entities through a patchwork of different mechanisms. I can count on two hands the number of ventures I know who did the friends & family to seed funding to venture capital linear march that so much of our start up curriculum assumes. And most of the time, these other funding sources are better (or more available) resources than VC, so the delay is worth putting up with, but you have to be ready to deal with that delay.
The Long Startup
So, this is a first stab at some principles I have gleaned from watching many other people’s long startups. My dream outcome for this blog would be for a few other actual practitioners to pick this apart, improve it and make it something actually, you know, useful.
Rule #1: Don’t die - while you are working on your innovation and you are working on making the world ready for your innovation, don’t forget that you have to still exist when those two things intersect some time in the future
Rule #2: Stay active - What you are doing during those fallow periods to build your organization and to conserve your forward momentum, is still important
Rule #3: Be resilient - Not just emotionally resilient (that is important) but also structurally resilient. How can your people, your finances, your processes survive and thrive over a 5-10 year period that involves multiple accelerations and decelerations?
Rule #4: Be prepared to accelerate quickly when opportunities present themselves - when it’s time to step on the gas, have your people, your partners and your finances ready to accelerate
Rule #5: Be prepared to decelerate just as quickly - And ideally be able to decelerate without damaging your relationship with customers, with employees, with funders and with strategic partners.
Rule #6: Make allies - It’s going to be 10 years, and you are going to need as many friends as you can get. To the extent that I have any issues with lean innovation and the “move fast and break things” ethos we are teaching startups, I guess this is it. Shipping borderline bad products and constantly staying one step ahead of collapse can work for 3, 6 or even 12 months. But eventually, you get a reputation as undependable, and you lose people. Customers, regulators, funders - they all have to be able to trust you.
Underlying these big picture rules, I can think of a few specific recommendations, grouped by functional area. I am heavy on finance as that is where most of my experience is, and I am sure any practitioner could think of more.
- Don’t give someone else the right to shut you down - a loan with a term of two or three years severely limits your options. Many equity investments include terms that allow even a minority investor to force a liquidation of the company after 4 or 5 years. For a lean startup, 5 years is a lifetime from now. For a long startup, 5 years is when you’ll finally be getting it going. Make sure you are the only one who can throw in the towel.
- If at all possible, negotiate flexibility with grant funders and investors in how and when you spend - many grant funders will require you spend all funds according to a specific budget over a specific period of time. Often, part way through a grant, you realize it’s not going to achieve what you wanted. Slowing your spend until you can actually be effective is a great option if you can get it.
- Sometimes small multiyear grants/investments are better than big grants/investments (unless it is time to accelerate) - after all, you’re #1 goal is to stay alive long enough to succeed
- Know what your turtle strategy is - If you had to go two years without meaningful funding or revenue, could you keep this project moving forward or at least not lose ground?
- If at all possible, live off revenue - It feels good to make the pitch for investment or to fill out that grant application, but that money is lumpy, tend to have a short attention span and comes with all sorts of expectations. If you can use some of the relevant principles of lean innovation to support your business off your meager revenues, it gives you more control over how and when you accelerate and decelerate
- Hire resilient people - steady people who don’t get down might actually be better than workaholic geniuses who burn out after a year
- You will lose people. Make sure your alumni matter - every social enterprise I know that has existed for more than 3 or 4 years has lost good team members. People move, they need more money, sometimes they pour their heart into it for 3 years and then need to do something else. The best organizations I know help these people find new roles elsewhere and keep them as allies. It actually helps you to have former team members working in other parts of the ecosystem - with funders, regulators or strategic partners.
- Create allies - You are not just looking for customers, you are looking for long term allies to your cause.
- Build a reputation of competence - In many of the markets that impact entrepreneurs work in, the primary obstacle for a startup is people’s incredulity. You need to demonstrate early and often that you can do the work well. A lean startup can afford to ship buggy products because it has reasonable chance of having a better product before the complaints catch up. A long startup doesn’t have this luxury - early missteps can tarnish your reputation in ways that come back to bite you years later.
- Be of service to others in fallow periods - this gets back to ally building. Invariably, there are multi-month periods that you can’t do much for your own project. Find ways during these periods to help other people and organizations with their projects.
- Every customer matters - This I think is my only other direct objection to lean innovation in the impact context, the idea that you should ship borderline bad products early to small groups of customers. First, I think the reputation issues are just fundamentally different for someone who will be in contact with these customers for the next ten years. As importantly, more often than not you are talking about poor people paying hard earned money for something they think will be of value, and it has been drummed into me by practitioners that you never, ever violate that trust.
So, there you go, a few thoughts by me on the nascent field of Long Innovation, which I think is a complement to, not a refutation of, Lean Innovation. I can think of at least ten people I’d like to run this by, and I’ll probably have a follow up post once I do. In the meantime, feel free to email me or use the comment section to offer thoughts, criticisms or anecdotes.