The lean startup method: Early‐stage teams and hypothesis‐based probing of business ideas

• Date: 01 December 2020
• DOI: http://doi.org/10.1002/sej.1373
• Author: Riitta Katila,Michael Leatherbee
• Published date: 01 December 2020

RESEARCH ARTICLE

The lean startup method: Early-stage teams and

hypothesis-based probing of business ideas

Michael Leatherbee

1

| Riitta Katila

2

1

Departamento de Ingeniería Industrial y de Sistemas, Pontificia Universidad Católica de Chile, Santiago, Chile

2

Department of Management Science & Engineering, Stanford University, Stanford, California

Correspondence

Michael Leatherbee, Departamento de

Ingeniería Industrial y de Sistemas, Pontificia

Universidad Católica de Chile, Vicuna

Mackenna 4860, Macul Santiago, Chile.

Email: mleatherbee@ing.puc.cl

Funding information

Comisión Nacional de Investigación Científica

y Tecnológica, Grant/Award Number:

NS130028; Fondo de Fomento al Desarrollo

Científico y Tecnológico, Grant/Award

Number: 11170537; National Science

Foundation, Grant/Award Number: 1305078

Abstract

Research Summary: We examine a learning-by-doing meth-

odology for iteration of early-stage business ideas known as

the “lean startup.”The purpose of this article is to lay out

and test the key assumptions of the method, examining one

particularly relevant boundary condition: the composition of

the startup team. Using unique and detailed longitudinal

data on 152 NSF-supported lean-startup (I-Corps) teams,

we find that the key components of the method—

hypothesis formulation, probing, and business idea

convergence—link up as expected. We also find that team

composition is an important boundary condition: business-

educated (MBA) members resist the use of the method, but

appreciate its value ex post. Formal training in learning-by-

thinking methods thus appears to limit the spread of

learning-by-doing methods. In this way, business theory

constrains business practice.

Managerial Summary: Lean startup methodology has rap-

idly become one of the most common and trusted innova-

tion and entrepreneurship methods by corporations, startup

accelerators, and policymakers. Unfortunately, it has largely

been portrayed as a one-size-fits-all solution—its key

assumptions subject to little rigorous empirical testing, and

the possibility of critical boundary conditions ignored. Our

empirical testing supports the key assumptions of the

method, but points to business education of team members

Received: 7 April 2019 Revised: 29 September 2020 Accepted: 2 October 2020 Published on: 3 November 2020

DOI: 10.1002/sej.1373

© 2020 Strategic Management Society

570 Strategic Entrepreneurship Journal. 2020;14:570–593.wileyonlinelibrary.com/journal/sej

as a critical boundary condition. Specifically, MBAs resist

the use of the method despite being in a strong position to

leverage it. Results from a post hoc analysis we conducted

also suggest that more engagement with the method relates

to higher performance of the firm in the 18-month period

following the lean startup intervention.

KEYWORDS

business idea, hypothesis-based probing, lean startup method,

learning-by-doing, learning-by-thinking, MBA education, young-

firm teams

We decided our company was a go! We have enough data to support our hypotheses and some good feed-

back from potential partners.

NSF I-Corps team, 2016.

1|INTRODUCTION

Bounded rationality—finite information, finite minds, and finite time—makes young firms imperfect decision-makers

(Katila & Ahuja, 2002; Schmitt et al., 2018; March & Simon, 1958). Early-stage teams, especially under high levels of

environmental uncertainty and in technology-based industries, are unlikely to decide on an optimal business idea

1

from the very beginning of their ventures (Contigiani & Levinthal, 2019). Too much relevant information is missing,

and capturing it requires time and effort. To address this problem and reduce uncertainty about their businesses' via-

bility, entrepreneurs are encouraged to iterate their business ideas using both “learning-by-thinking”and “learning-

by-doing”methods that are outlined in research (Gans, Stern, & Wu, 2019; Ott, Eisenhardt, & Bingham, 2017).

Understanding these methods is particularly important because getting the business idea “right”early on can have a

high impact in the long run (McDonald & Gao, 2019; Zott & Amit, 2007).

In the past decade or so, a new learning-by-doing methodology known as the “lean startup”has emerged. The

goal is simple: to help early-stage teams iterate business ideas until they are able to make a sound decision about

them (Blank, 2003; Ries, 2011). The method's significant features are (a) formulation of hypotheses in nine pre-

identified areas of the business idea (using a shorthand visualization called canvas) and (b) “getting out of the build-

ing”to probe each hypothesis by interviewing customers and other stakeholders. The expected outcome of this

hypothesis-probing process is to converge on a business idea by “confirming”or “disconfirming”the hypotheses.

2

Lean startup is a blend of previously identified learning-by-doing methods. It draws inspiration from blended

approaches such as discovery-driven planning that similarly urge teams to articulate their underlying assumptions

and to get data to iterate them (McGrath & MacMillan, 1995, 2009), and it builds on some existing principles of

experimentation (i.e., hypotheses and their testing). It is novel, however, in its strong emphasis on interviewing cus-

tomers and in its shorthand visualization of the core components of the business idea (Contigiani & Levinthal, 2019).

Lean startup is curr ently one of the most wi dely embraced entr epreneurship met hods, and it is partic ularly

valuable under environmental uncertainty (Contigiani & Levinthal, 2019; Kerr, Nanda, & Rhodes-Kropf, 2014).

Nevertheless, the method's key assumptions and boundary conditions have not been subject to rigorous empirical

analysis. Addressing this gap will thus be key to improving the method and to improving business idea processes

in general.

LEATHERBEE AND KATILA 571