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Ask HN: What's the role of a business model in a lean startup?

4 points by schmidtc ↗ HN
After reading The Lean Startup by Eric Ries it's not immediately clear what the role of a business model is in a Lean Startup. Is it taken for granted that a business model exists? Or is the business model some that comes with time as the startup tests their ideas?

Chapter 5 of the book has a section titled "Strategy is Based on Assumptions" which while not spelling it out seems to suggest that our "leaps of faith" are derived from the assumptions that are spelled out in our business plan/model. In my understanding the goal the lean startup methodology is to put these leap of faith assumptions to the test. Therefore my best interpretation is that a business model is taken for granted and should be the foundation on which we conduct our experiments.

My business partner disagrees and states "We need baseline numbers. We need to take a jump shot. We need to start without knowing the end, which is the exact opposite of the traditional business plan model. The old way of thinking is not suited for high uncertainty environments."

5 comments

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caw
My interpretation is that the business model is used for at least having some idea of how you will reach your customers and earn money. It may not work, so you may need to pivot or change your strategy, but you could have multiple channels for the same idea that you validated.

I found this link off Steve Blank's site - http://www.businessmodelgeneration.com/canvas

That's the canvas in his book and you can use that to generate some ideas. It's not the formal paper model. You and your partner could be thinking of a "business plan" in two different ways. A formal business plan is much too stuffy, but you want at least some list of ideas on paper. That way when you get stuck and you're stressed out, you can go back and re-visit something you made when cooler heads prevailed.

schmidtc
Thanks, I think you are right about us thinking of the "business plan" to different ways. I'm very much thinking of the business model canvas, and my partner probably thinks I'm talking about a formal plan.

I still think we need to have some kind of model as a foundation on which to build our experiments. Even if that foundation turns to be completely wrong.

GFischer
Steve Blank says that " a startup is an organization formed to search for a repeatable and scalable business model."

http://steveblank.com/2010/01/25/whats-a-startup-first-princ...

Edit: read the above link, he also describes his idea of a business model.

So, the "repeatable and scalable business model" does NOT exist when you start :) , it will come with time. However, I do believe your business partner is also right in that you will start without knowing the end.

Have you seen Osterwalder's slides?:

http://www.slideshare.net/Alex.Osterwalder/successful-entrep...

(these are probably my favourite set of slides)

I believe the function of the business model canvas (and similar tools), is to help you think about the main points to address when trying to create a startup.

It's like a better checklist. I've seen many people stumble because they didn't think about a critical point.

Usually channels or distribution, and revenue generation are the two things many overlook when building a startup - it's nice to have a value proposition, but you need to get it out there and monetize it :)

I've never succeeded at creating a startup, so I hope others that have will help you better :) and YMMV and all that :)

schmidtc
Thanks, Those links were helpful!

I'm on the same page when it comes to starting without knowing the end. The part I'm having trouble with is starting without having any clear model of how we "think" it will end. In other words, I feel like we need to establish a clear set of hypotheses (assumptions) before we start designing our experiments to test them.

Right now we are testing assumptions without any sort of business model or picture of how they fit together, and I'm not sure the assumptions we are testing will be relevant once we do start thinking about our business model.

I will read the Steve Blank book which will hopefully clear up some of our misconceptions.

schmidtc
To follow up, I started reading Steve Blank's book and it clears up most of the confusion. Specifically that the founders start with a product specification derived from their vision (not focus groups). The Customer Discovery phase is designed to test the assumption that customers exist that want the product. Indeed the business model changes through the process.

We've been trying to start without a product or vision, instead we've been trying to search for the product itself.