Having too many options can be paralyzing. Consider the cereal aisle. Spend enough time reviewing each product’s ingredients, benefits, and cost and it will make you consider skipping your morning meal in favor of a cup of coffee – if the Starbucks menu wasn’t overwhelming itself.
The discipline of entrepreneurship is no different. As management science took off in the mid-twentieth century, the business plan was the cornerstone of new venture creation. Then, as many innovations began to occur outside of the planning process, a new process was developed as a systematic approach to problem solving – design thinking.
Enter the hyper-growth era of tech startups and soon it became evident that many innovations could not be attributed to design thinking. Where were they coming from?
After observing successes and failures in the tech and venture capital industries, Eric Ries produced his version of how innovations come to be – the Lean Startup method. Similar to other entrepreneurs, he offered his view on what it takes to be successful.
Around the same time, Dr. Saras Sarasvathy of the University of Virginia’s Darden School of Business saw that in academia and many startup related eco-systems, the business plan still reigned supreme. Yet these other approaches were gaining ground. She knew as an entrepreneur herself and based on her interactions with other entrepreneurs that businesses were growing all around the world without even the start of a business plan. And in some cases, these ventures would go on to become IPOs.
Instead of relying on heuristics, she set out to research what successful entrepreneurs really do to start and grow new ventures. This resulted in a method validated by social science research - Effectuation. Effectuation is the process that successful entrepreneurs use to create new ventures.
Today, one of the primary methods of applying Effectuation to a new venture is the Assets to Action Model. So how is the Assets to Action Model aligned with or opposed to the Lean Startup method?
Lean Startup v Assets to Action
- Ideas v Assets Focus
Lean Startup begins with the idea. The entry point is a solution to a problem or a future vision.
The Assets to Action model begins with a person’s assets – who they are, what they know, whom they know, what they have, etc. This is the “Inside” step in the model. The idea is of secondary importance to the process. This allows for innovations that range from ingenious inventions like Apple Computers to simple successes like the Pet Rock craze.
- Build a Product v Build a Team
Lean Startup’s initial step is to build a product based on your starting idea. The emphasis is on creating a minimum viable product (MVP) as quickly as possible. The goal is to get the product in front of possible customers and begin collecting real time data with immediacy so that adjustments can be made to improve the marketability of the product.
The Assets to Action model also encourages getting to market as quickly as possible, but the process differs. In Effectuation, building a team comes first. Priority is given to partnering with others who commit to mutually co-creating the venture. This team is ideally comprised of co-founder(s), suppliers, customers – anyone who can play a role in the success of the venture.
Ultimately, getting stakeholders to participate increases the likelihood of venture success. That’s why the Assets to Action model encourages expanding your stakeholder network by considering “Outside” opportunities. And the Commitments Core of the model drives the concept that feedback isn’t sufficient for building new ventures. It’s commitments that propel venture success.
This can best be illustrated by an example. Say you want to build an app that broadcasts the restaurant specials that each restaurant in town is offering for the night.
If you’re an app developer, Lean Startup’s approach of just build it might work for you, because app development is a skill set you have. If you have the time, building the product might be straightforward and simple for you to execute on, and might not cost you any money. And if it didn’t work out the way you thought, perhaps you could make your own changes to the app, and continue tweaking it until something stuck with possible buyers.
But what if you’re not an app developer? What if you have this idea for a restaurant related app, but don’t have the skills to build a MVP?
In that case, the Assets to Action Model would have you first identify your Inside -- what skills and connections you might have that could contribute to getting this product to market. Do you work in a restaurant? This might give you insight into how specials are determined for the week and when most in the industry come up with their planned specials. And it also possibly gives you connections to potential restaurant customers.
Next you would set your Downside (your Affordable Loss). Perhaps you only want to invest $100 into seeing if this might be a viable business. Rather than hire an app developer, you’re going to have to tap into your network to connect with someone who might have that skillset. This requires tapping into your “Outside” (your Crazy Quilt). When reaching out to others you’re going to have to rely on your ability to co-create to see if you can get them to commit to partnering with you on getting a minimum viable product into the marketplace.
If after approaching a developer you’re unable to get anyone to participate, you might consider adjusting your idea to one that more closely aligns with your existing assets, changing the terms of how you co-create, or opting into a different approach for testing that is more consistent with your “Inside” assets (for example, developing a manual process that tests the fundamentals of the idea).
- Testing a Vision v Creating a Market
Lean Startup is grounded in a test-and-learn philosophy, but the objective of this approach is to uncover the “answer” for a successful business model. At the core, it is a predictive based methodology that assumes that new ventures are to be “found” or “discovered”. Products are built with features that are “predicted” to be of value to assumed customer segments.
Effectuation asserts that the future is not out there to be discovered. It is not predetermined. Instead, the future can be created. Instead of theorizing what a customer group might want, the “Outside” of the Assets to Action Model encourages entrepreneurs to talk to customers before even building the product. This is based on commitments from others, with the view that customers are stakeholders in co-creating a future vision and not just transactional participants. The “Upside” component of the model drives entrepreneurs to action, learning, and iteration with the mindset at each turn that the future is open to being made.
Which to Choose
There is a lot of value in the Lean Startup process, especially its emphasis on action and in-market learnings. Where it falls short is its tech-centric approach. It has an overreliance on product and an under-reliance on people, collaboration, and creating new markets.
Our recommendation is to start with the Assets to Action Model. Use it to build a team of stakeholders committed to creating a market together. Start with the “Inside” – Identifying your Assets. Set your “Downside” by determining your Affordable Loss. Move to the “Outside” by pulling in others to co-create with you. Then push the “Upside” by getting your idea into market and collecting real-time feedback with the mindset that it is within your control to create the future.
As you acquire experience and real time data in market, and develop more certainty in what you’re moving forward with, transition to the Lean Startup approach if desired. Or you might consider bouncing between the two, relying on the Assets to Action Model as you iterate or encounter more uncertainty.
Still having trouble deciding which to use? With the Assets to Action Model you set your “Downside” (Affordable Loss) up front, so you only invest what you can afford to lose. Viewing it through this lens, it’s not such a difficult decision after all.
--Written by Sara Whiffen, Founder & Managing Partner, Insights Ignited LLC
