You’re familiar with “lean start-ups,” no? Travel in certain circles, read certain publications, or simply use a smartphone, and these agile little companies will confront you at every turn, talking to their customers, pivoting, iterating, bringing minimum viable products to market, selling out to Facebook for US$22 billion – all that fun stuff.
Their rise is awesome news for all of us, Steve Blank proclaimed in the Harvard Business Review (HBR) a couple of years ago. Mr Blank, a former serial entrepreneur who now teaches at several universities, is the godfather or grandfather or maybe uncle of the lean start-up (Eric Ries, who came up with the term, was his student and investee). "Using lean methods across a portfolio of start-ups will result in fewer failures than using traditional methods," he wrote in HBR. "A lower start-up failure rate could have profound economic consequences."
Yes for profound economic consequences! At least if they are positive. Mr Blank clearly thinks they are, and most of the evidence points to him being right about that, in theory. New businesses exploiting new technologies drive productivity gains and economic growth.
There are two critiques of the lean-start-ups-will-save-the-economy story that have received a lot of attention lately, though. One was articulated by the philosopher-billionaire, Peter Thiel, in his book Zero to One: "Making small changes to things that already exist might lead you to a local maximum, but it won't help you find the global maximum. You could build the best version of an app that lets people order toilet paper from their iPhone. But iteration without a bold plan won't take you from 0 to 1. … Why should you expect your own business to succeed without a plan to make it happen?'
The other rap is that, so far, the evidence that we are in a start-up-fuelled economic renaissance is still pretty sparse. Despite the incessant talk of disruption and start-ups, most economywide indicators of entrepreneurship and business dynamism have been sliding for years. Productivity growth has been sputtering.
These, according to Mr Blank, are the six different kinds of entrepreneur:
Lifestyle businesses
Mr Blank’s example: a surfer who gives lessons on the side.
Main Street businesses
“My parents ran a grocery store in Queens.”
Scalable start-ups
Super-ambitious dreamers out to “create a billion-dollar business come hell or high water.” Elon Musk’s name came up.
Viable start-ups
“Kids in their 20s create a mobile app.”
Social entrepreneurs
“The 21st century version of the Peace Corps.”
Corporate entrepreneurs
People in big companies, trying to innovate.
Main Street “is still the core when you look at the overall numbers”, Mr Blank says. And Main Street businesses have been in a long decline as bigger, more efficient firms have shoved them aside.
The viable start-ups are Mr Blank’s area of interest. He is certain there are lots more of them than there used to be – certainly in Silicon Valley – and that they will survive and thrive in greater numbers than in the past thanks to the methods he and Ries have been popularising. They are just still a lot less numerous than the Main Streeters.
Then there are the scalable start-ups, those world-changing enterprises that Mr Thiel wants to see more of. Entrepreneurs such as Steve Jobs and Elon Musk are rare, wonderful creatures of a breed impossible to replicate or teach.
The lifestyle entrepreneurs are not of great economic significance, and Mr Blank says he does not know what to make of social entrepreneurship, although he encounters tons of students who want to do that. As for corporate entrepreneurs, he thinks that most of what has been done along those lines so far is “innovation theatre,” but holds great hope for the future.
Justin Fox is a columnist writing about business for Bloomberg News. The former editorial director of the Harvard Business Review is also the author of The Myth of the Rational Market
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