Why Lean Startups Are The Latest Craze For Venture Capitalists
The Lean Startup process has permeated into some of the most successful startups of our time. Initially created by Eric Ries, this process for building a business that finds real customer traction has resonated well with Venture Capitalists seeking sound investments.
Before delving-into what makes a Lean Startup so popular with Venture Capitalists it's important to understand what the whole Lean Startup Movement is all about. First the common misconceptions, Lean Startups are not broke, do not necessarily work from their homes or save money every chance they get. This would be better described as bootstrapping, which some Lean Startups may do, but this doesn't make them lean.
Lean Startups, instead, focus on building a minimum viable product, and testing that product with customers to get feedback as early as possible. This deviates greatly from the typical software development methodology of building complex software over a longer period of time in hopes of generating a massive user-base.
What the Lean Startup Process has exemplified is that often great ideas are close, but not quite there. In fact, the delta could be so large that while the idea may have incredible potential, it may never receive traction because of poor alignment with customer needs. It all comes down to the assumptions that companies make about their customers. These assumptions are often never proven and instead simply taken as fact, having an invalid assumption could mean spending millions building something that nobody wants to use.
Venture Capitalists love Lean Startups because they can test assumptions and iterate through ideas quickly. Lean Startups have a much better chance of gaining traction because they are constantly working on customer development which most startups only get to after they've burned through their first round of funding. The Lean Startup Movement wouldn't exist without agile development platforms like Ruby on Rails which make it easy to quickly put-together prototypes and working demos that customers can use.
While the tech bubble has burst, many feel that a new bubble is forming led by the likes of Groupon and Dropbox. As Venture Capitalists and Angel Investors decide where to spend their money Lean Startups will continue to have an edge by offering a quicker path to building something that the customer really wants...and that's what we all want, isn't it?
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