Int Entrep Manag J

DOI 10.1007/s11365-016-0411-x

How do entrepreneurs think they create value?

A scientific reflection of Eric Ries’ Lean Startup
approach

Dennis Lyth Frederiksen 1 & Alexander Brem 2

# Springer Science+Business Media New York 2016

Abstract The means with which entrepreneurs create and capture value can be difficult to
get a comprehensive picture of. Looking at the tools they use can offer insights, and in this
context, the book “The Lean Startup” by Eric Ries has received a tremendous amount of
attention. Supposedly, many entrepreneurs have read the book and may have followed his
advice. Hence, we investigate the merits and characteristics of the methods detailed by Ries
through a comparison with leading theories and empirical evidence found in the scientific
literature. The results indicate that overall the methods find considerable backing and can in
parts be recognized under already established constructs. Heavy use of effectuation-logic is
evident throughout the book, with a clear and explicit emphasis on experimentation over long-
term planning. The paper closes with a discussion of the possible broader implications of the
methods and effectuation, including the potential impact on corporate strategy.

Keywords Entrepreneurial thinking . Lean startup . Causation . Effectuation

Introduction

How do entrepreneurs create value? The answer to that question will in no doubt be long,
complicated and require enormous amounts of research. Now, how do entrepreneurs think
they create value? That may just be a slightly more straightforward question to answer.
One approach may simply be to ask successful entrepreneurs. Or you could look at the
popular literature that many of them supposedly read, and study the methods they practice.

* Alexander Brem
[email protected]

Dennis Lyth Frederiksen

[email protected]

1
Faculty of Engineering, Aalborg University, Aalborg, Denmark
2
Mads Clausen Institute, University of Southern Denmark, Sonderborg, Denmark
 Int Entrep Manag J

Some entrepreneurs are evidently better at creating value than others. If what they do could
be better understood, communicated, taught and learned, then perhaps the at times question-
able output of entrepreneurship (Nightingale and Coad 2013) could be improved. Even if it
just meant improving survival rates of new ventures or entrepreneurial projects in established
companies by a few percentage points, the impact could be significant on society as a whole.
Frameworks, methods and even philosophies designed to help entrepreneurs develop
products and ventures are a dime a dozen in popular literature these days. Customer
Development (Blank 2003), Lean Startup (Ries 2011), Design Thinking (Brown 2009),
Pivot (Arteaga and Hyland 2013), Business Model Canvas (Osterwalder and Pigneur
2010), Entrepreneurial Operating System (Wickman 2011), The $100 Startup
(Guillebeau 2012), Lean Canvas (Maurya 2012), Value Proposition Design (Osterwalder
et al. 2014), Agile Development (Shore and Warden 2008) and E-Myth (Gerber 2001) are
just some of the many that exist. Most ensure the reader that exactly their strategy will lead
to success and fortune, and that their step-by-step process is what ensures the startup’s long-
term survival. But what happens when these popular business books — and the claims
made therein — meet the rigor of scientific literature? For while their claims are often very
well argued and explained, they find themselves based on subjective experiences and
anecdotal evidence, often limited to a single industry or company type. This of course
makes those experiences difficult, if not impossible, to generalize, but such a cautious
attitude does not sell many books or create a lot of stir in the duck pond. A guaranteed path to
success is just considerably more interesting than an unsure one leading to mediocrity.
Often the bestsellers will tend to put focus on a few key ideas or even a catch phrase
or slogan. Huczynski (1992) Based on a group of books on management theory,
Huczynski (1992) distils 12 ingredients, as he calls them, integral to any popular
management idea. Speaking about the easy path to success, Huczynski argues that
“Management consultants therefore need to explain their ideas to their customers in
terms of a series of basic steps or principles to be followed. This acts to give confidence
to the user that this potentially risky venture will ultimately succeed” (p. 17). In an article
on how these books could be assessed better, Newstrom and Pierce (1993) describe an
analytical framework designed to get around these claims and actually get the still
valuable information they might contain. Almost a decade later Newstrom (2002)
returns to this topic once again in a look back on a particular business book and its
long-term impact. He contemplates whether its greater impact perhaps originated from
the increased skepticism the ultimately lacking evidence in the book was followed by.
The fate of the book’s authors is mentioned too: “Without question, Search skyrocketed
Tom Peters and Bob Waterman to nearly instant fame, and accompanying fortune”
(Newstrom 2002, p. 54). It can be very good business to write a business book and this
incentive is perhaps one of the bigger reasons for the sensationalistic approach taken.
One of the examples of a business book given above and the topic of this paper is “The
Lean Startup” (Ries 2011). In this popular business book 1 on entrepreneurship

1
The Lean Startup reached the New York Times Bestseller list in the autumn of 2011 (The New York Times
2011), and received broad media attention following its release at, among many other outlets, The Washington
Post (Kolawole 2011) and Forbes (Denning 2011) and still gets featured years after, here in The Wall Street
Journal (Silverman 2015). In the spring of 2015 Ries launched a crowdfunding campaign to finance the
successor (Ries 2015) and managed to raise over half a million USD. A complimentary Lean book series has
also been created, although not written by Ries himself (O’Reilly Media 2015). The series at the time of
writing consists of eight books.
Int Entrep Manag J

and startup theory, Eric Ries outlines a simple method for launching new businesses in a well
written manner that cannot help but create just a little bit of excitement in even
the most pessimistic minds. In an effort to offer an objective view of the
method, this paper will take a critical look at the claims made by Ries through
a comparison with empirical evidence and leading theories found in the scien-
tific literature on similar and highly related topics. Further, the general thinking
portrayed regarding innovation and entrepreneurship is discussed and coupled to
research streams in literature in order to address the possible larger implications
of Ries’ ideas in a corporate context.
We hope that our findings further encourage the academic discussion of popular
entrepreneurship.

Claims versus evidence – the Lean Startup under review

An overview of the Lean Startup

“The Lean Startup is a set of practices for helping entrepreneurs increase their
odds of building a successful startup.” (Ries 2015, p. 8)

Much of the thinking behind “The Lean Startup” (hereafter simply TLS) can be
found in its name. Inspired by Lean Manufacturing,2 Ries created TLS in an effort to
weed out the waste often found in product and business development processes in
startups. The tools and concepts described do this by making people better at validating
their assumptions and thus, it is argued, stop activities that add no value (in effect
waste) and encourage those that do. Ries defines a startup as:

“A human institution designed to create new products and services under condi-
tions of extreme uncertainty” (p. 8)

He goes on to emphasize that this too can pertain to established businesses creating
new products and services in markets they — or anyone else for that matter — have not
previously addressed. People engaged in these efforts all go under the term entrepre-
neurs, regardless of whether they are in an established business or not — or whether
they consider themselves as such. This is important as we look to see where and who
Ries’ claims should apply. He sets up five principles to describe the method of TLS
under the following headlines (p. 8–9):

1. Entrepreneurs are everywhere

2. Entrepreneurship is management
3. Validated learning

2
Used in this paper as defined by Bicheno & Holweg (The Lean Toolbox: The Essential Guide to Lean
Transformation, 2008). Ries appears to subscribe to a very similar definition, although it is not specifically
detailed.
 Int Entrep Manag J

4. Build-measure-learn
5. Innovation accounting

The first headline was just addressed above. The 2nd headline addresses the term
“institution” in his definition of a startup. Ries argues that a new type of management is
needed to account for the extreme uncertainty found in a startup, so that innovation can
be managed in the startup institution. Validated learning is the process of capturing the
knowledge a new startup generates. Using the scientific method, the startup shall devise
and run experiments that either prove or reject the hypotheses underlying the business
model. Build-measure-learn is the name of this iterative process that continues in a
loop. Finally, innovation accounting relates to how progress in a startup should be
measured differently from that of an established business to make sure the right signals
are being fed back into the build-measure-learn loop and to correctly validate or reject
hypotheses.
In its essence, TLS can be boiled down to the concept of innovation through
repeated, validated experimentation. TLS acknowledges the great uncertainty found
in a startup and rejects pure analysis and long-term planning in favor of generating data
to minimize uncertainty through learning. The business and product development
processes are extremely iterative and involve substantial user feedback continuously.
The typical stage gate approach is abandoned and instead the product is launched as
soon as possible to begin the experimentation process with customers. This early
version is called the minimum viable product (MVP), and serves to gauge the reaction
of early adopters and further engage them in the development process. This is in many
ways similar to the involvement of lead users in other development schemes, which
Ries also mentions in a footnote. When possible, the MVP is encouraged to be a paid-
for product, and not just a free alpha or beta version, to further qualify the input from
early adopters, since they are now actual paying customers. Key metrics – termed
actionable metrics — are then monitored to see how the business is affected by the
changes made. These metrics are in contrast to vanity metrics, as Ries calls them, which
fail to actually show whether changes are for better or worse. The idea is then to
constantly tune the engine of growth — another concept developed by Ries — to create
a sustainable business in the end. If repeated attempts at improving the key metrics fail,
then you may have to make a pivot — a substantial change in the business model. This
resets everything, and experiments can once again begin to tune the new engine. The
rate of learning should be maximized, while holding running expenses very low, in an
effort to improve the odds of having a sustainable business before the initial sum of
money is gone.

“I’ve come to believe that learning is the essential unit of progress for startups.
The effort that is not absolutely necessary for learning what customers want can
be eliminated. I call this validated learning because it is always demonstrated by
positive improvements in the startup’s core metrics.” (Author’s emphasis) (Ries
2011, p. 49)

Ries deviates from the more traditional thinking of entrepreneurship by labelling the
startup as an institution and by specifically calling it a form of management — two
terms more often associated with bureaucracy than the chaotic world of a startup.
Int Entrep Manag J

Initially this appears to put Ries’ view on entrepreneurship in “The Management

School of Entrepreneurship” as outlined by Cunningham and Lischeron (1991), but
as we shall see later, the methods described in TLS depart from the more strict analysis
and planning-heavy approach this would otherwise suggest. Neither Ries’ lightweight
definition nor TLS as a whole fit just one of the schools Cunningham and Lischeron
describe, instead drawing on parts from all six. Comparing it to the many definitions
covered by Davidsson (2016). and his subsequent discussion, Ries puts significantly
more emphasis on the topic of uncertainty, even extreme uncertainty like in his
definition of a startup, and holds it as the prime determinant of whether a venture is
entrepreneurial or not.

Evidence presented in the book

The evidence presented in TLS comes by a large part from the personal experiences of
Ries during his work as the founder of IMVU, a software company. Here we are
presented with an origin story, detailing the trial and error process that would eventually
lead to a formulated “Lean Startup method”. Aside from Lean Manufacturing, Ries had
primarily been influenced by the work of Steve Blank and his book on “Customer
Development” — see Blank (The Four Steps to the Epiphany, 2003) 3 – who is
mentioned a handful of times in TLS and as such is used as an expert source. Thirteen
testimonials under the headline “Acclaim for The Lean Startup”, including one by
Blank, cover the first four unnumbered pages of the book, further putting reliance on an
apparent expert approval. The foreword is written by GE CEO Jeff Immelt. The book is
filled with personal anecdotes from presented or used the method with various named
sources. A number of books and websites are referenced as well. Industry approval thus
appears to be considerable. See table 1 for a full list of the named companies and
products in the book.
TLS was initially developed through a blog written by Ries and at such had
seen considerable coverage by his peers before becoming the topic of a full
book. This in particular gives the method credibility from a practitioner point of
view and overall Ries delivers a very compelling set of arguments as to why
his “Lean-philosophy” is valuable. The previously mentioned article by
Newstrom & Pierce (1993) talks about the easily given common sense advice
business books often give, but TLS also ventures out and points to less
intuitive approaches, although common sense is of course very dependent on
the eyes looking.

Evidence available in the scientific literature

The task at hand now is to find evidence of the claims presented in TLS in the scientific
literature. The various key elements of TLS have been abstracted out and a selection of
these will be evaluated. The literature has been chosen based on a search through

3
The fifth edition, published by K&S Ranch Press, was read for the purpose of this paper, although Ries
would presumably have used the first. This newest edition also acknowledges the work of Ries by having a
clear banner on the front saying “The book that launched the Lean Startup revolution” and containing an
introduction looking back at the impact of the first and subsequent editions.
 Int Entrep Manag J

Table 1 Named companies in the Lean Startup

Name First mention (page) (Ries 2011)

IMVU 4
Toyota 6
US Army 8
SnapTax (Intuit) 29
Zappo 57
HP 59
Kodak 64
Village LAUNDRY SERVICES 67
Consumer Federal Protection Bureau 69
Facebook 79
Groupon 93
Google 94
Dropbox 97
Food on the table 99
Aardvark 103
Grockit 130
Votizen 150
Path 162
Wealthfront 164
Potbelly sandwich shop 174
SGW DESIGNWORKS 193
School of one 195
Alphabet energy 202
SunPower 203
BrightSource 203
TiVo 208
Paypal 208
PointCast 211
Hotmail 212
Tupperware 212
IGN Entertainment 239
Quickbooks (Intuit) 244
IBM 276

various databases (Google Scholar, 4 Wiley Online Library, SAGE Journals,

ScienceDirect, EBSCO, Emerald, Taylor & Francis Online, JSTOR, ProQuest) using
keywords associated with the selected elements. This search has by no means been
exhaustive, but we, the authors, have confidence in it being large enough in scope to

4
Google Scholar was included to cover a larger breadth of sources (books, magazines, etc.) that could add
additional (practical) perspectives.
Int Entrep Manag J

give the claims of TLS a fair chance. The selected elements range from very concrete to
more abstract to cover both the tools and the more general philosophy of TLS. In
overview these are:

1. User and customer involvement in product and business development

2. An iterative approach to new product development
3. Experimentation in new product development
4. The minimum viable product
5. Entrepreneurial thinking – planning versus doing

As you will see, the first elements easily find considerable backing and thus will be
dealt with in less detail, before the more controversial elements are discussed in depth.

User and customer involvement in product and business development

Multiple directions in the scientific literature handle this topic under various headlines and
perspectives. Some of these are open innovation, co-creation and lead users. Of these, open
innovation is probably the newest one, although as Huizingh (2011) in his State of the Art
on open innovation argues, its origins likely goes further back and in many ways encom-
passes the other two concepts as well. The article states that one of the most often used
definitions of open innovation is “the use of purposive inflows and outflows of knowledge
to accelerate internal innovation, and to expand the markets for external use of innovation,
respectively” (p. 2) and points to Chesbrough et al. (2006) as the origin. This definition
corresponds fairly well with how users and customers are involved in TLS, although TLS
stresses only the importance of inbound knowledge flows, as per Dahlander and Gann
(2010), and takes no stance on the suitability of outbound flows. Co-creation best describes
this inbound flow, as TLS involves users and customers in ways that generate or create new
data, rather than being merely a source for data that existed pre-inquiry.
In general, the view of Huizingh (2011) on open innovation is one of optimism. While
the number of factors outside involvement affects may be large and complex in nature, its
general influence appears to be positive, although a need for more empirical evidence is
voiced. Three years later, the author goes on to answer this call for more empirical
evidence himself. Cheng and Huizingh (2014) study the relation between open innovation
and innovation performance, and find that performing open innovation activities is
significantly and positively related with, among others, financial performance.
To readers with even a cursory knowledge of innovation and product development
strategies, the backing to Ries’ convictions found here likely comes as no surprise and
TLS remains on very safe ground. The research in this area is rather comprehensive.

An iterative approach to new product development

Also uncontroversial is the introduction of an iterative approach to new product

development (NPD). When outside input is acquired during the NPD process — like
with open innovation – it seems reasonable to expect product changes in response.
These may once again prompt new input and we thus begin to see signs of an iterative
process. Sandmeier et al. (2010) deal with this exact topic of integrating user feedback
into NPD and how an iterative approach quickly emerges as the preferred one.
 Int Entrep Manag J

The authors also make a connection to a software development process known as

extreme programming (XP) that features iteration as a core element, and argues for why
its success in that field can be transferred to more general NPD as well. XP is mentioned
as part of the foundation for TLS too (Ries 2011, p. 132–133) and shares many
characteristics with it, perhaps unsurprising given Ries’ background as a software
developer. This connection was also made a few years earlier by Gassmann et al.
(2006). Using a similar starting point, they argue for a more iterative approach using
XP as the ideal with the most important advantage being the frequent “cost and return
control” (p. 56) that essentially makes sure that bad projects fail early and inexpensively.
This is exactly the point Ries makes in relation to a reduction of waste. Both articles
cited here appear well backed by empirical evidence, both presented and referenced.
Salerno et al. (2015) detail eight different innovation processes from an empirical
study of 132 innovation projects. Among these processes is one they label “Process with
parallel activities” and it in many ways describes the iterative approach Ries speaks of.

“The process with parallel activities may be used to create demand, to test
solutions, to obtain suggestions, and to improve the product in a final version.
Development activities may be strongly rearranged, depending on the feedback
from the beta versions.” (Salerno et al. 2015, p. 67–68)

Such parallel and sequential process combinations are also highlighted by other
researchers, like Becker et al. 2015. The strong rearranging the authors speak of can
essentially be seen as the pivot moment in TLS. The number of industries where this
approach was seen is rather diverse, lending some credit to Ries’ claim for the broad
applicability of TLS. The authors unfortunately do not note whether the companies are
startups or not, and do not dig into whether certain processes are more likely to produce
successful products.
Like with user and customer involvement in NPD, the iterative approach is also well
covered in existing literature. The line of reasoning linking it to user involvement is
straightforward too.

Experimentation in new product development

Experimentation is the first area where the amount of available literature is relatively modest.
It is to a large extent interconnected with an iterative approach and multiple articles mention
the two in association. Ries argues for experimentation due to the immense uncertainty a
startup faces. It is simply not possible to analyze and then deduce customer reactions to a new
product through existing facts, Ries says, since such are not likely to exist given the novelty
of the product or service in question. Thus, knowledge must be generated through action —
and experimentation then functions as the structured approach one takes. It is important to
note that Ries specifies an approach involving creation and evaluation of hypotheses in a
fairly rigorous manner, as opposed to simply doing something in the hopes of learning later.

“Unfortunately, if the plan is to see what happens, a team is guaranteed to succeed

— at seeing what happens — but won’t necessarily gain validated learning. This
is one of the most important lessons of the scientific method: if you cannot fail,
you cannot learn.” (Ries 2011, p. 56)
Int Entrep Manag J

Thomke (1998) proposes a framework consisting of four steps in a so-called “Learning

Cycle” that tackles this exact issue. The framework is extremely similar to Ries’ build-
measure-learn loop (see Figs. 1 and 2).
The difference between them can almost be seen from the figures alone and
perhaps the choice of cycle versus loop signifies this too. There is no “done”
marker in Ries’ version, which probably goes along his software background:
At a certain point the specifications of a physical product have to be locked
down and be substantial enough that a form of end is seen. Thomke goes on to
detail a large-scale empirical study, which shows a significant increase in
efficiency when many iterations and experiments are run versus when just a
few are. Based on his and other’s research, Thomke went on to later write a
book on the subject of experimentation (Thomke 2003).
Hauser et al. (2006) point to the exact issue of different NPD strategies, containing
experimentation or not, being appropriate for different circumstances and call for more
research to be done on this issue. Ries perhaps brushes too easily over the various
circumstances TLS may be utilized under, claiming it to be equally valid everywhere
without specifying the adjustments it may need for a particular scenario. He of course
limits it to startups (note his definition) but the exact fields, whether it is physical goods
or services, are not specified. It is not unreasonable to expect experimentation will take
different forms across different industries.
Discussing accelerated learning, Lynn et al. (2003) detail experimenting as an
effective means to achieve such — the activity of learning is here considered absolutely
essential to firm survival. Andries et al. (2013) cover experimentation as a means to
deal with uncertainty, exactly like Ries proposes, and find that it leads to better chances
of long-term survival. Further in line with Ries’ thinking, Kerr et al. (2014) connect
experimentation with entrepreneurship in general, arguing that the two are intrinsically
linked.

Fig. 1 Iterative four-step learning Cycle (Thomke 1998, p. 745)

 Int Entrep Manag J

Fig. 2 Build-measure-learn feedback loop (Ries 2011, p. 75)

“Entrepreneurship is fundamentally about experimentation because the knowl-

edge required to be successful cannot be known in advance or deduced from
some set of first principles.” (Kerr et al. 2014, p. 25)

Still on firm ground, Ries stays consistent with his emphasis on uncertainty and the
associated experiments to minimize it, while the wide applicability is more
questionable.

The minimum viable product

Now we start to enter largely uncharted territory. The MVP has been one of the more
difficult concepts from TLS to find literature about. The term itself yields almost no
results in various databases and the paper, which Ries cites as the origin of the term, has
not been published in a journal. The paper in question is by Junk (2000) and is not
specifically about the MVP concept, but rather focuses on various tradeoffs in software
development processes. It features no citations at all. Although credit is being given
where due, citing this paper does not provide Ries with any evidence for the concept’s
efficacy in the various circumstances he uses it in. This was likely not his intention, but
the reader could probably be tempted to see it as such purely based on the citation.
Yet, the MVP is quite integral to the other parts of TLS covered. User and customer
input tend to be focused around a product or prototype, the part played by the MVP in
the TLS philosophy, and experiments naturally need something to be built around —
the MVP again. As established, an iterative approach is integral to those parts, so this
element is involved as well. Thus, the validity of the MVP concept becomes quite
important for the whole of TLS to remain viable. Ries defines an MVP as:

“The MVP is that version of the product that enables a full turn of the Build-
Measure-Learn loop with a minimum amount of effort and the least amount of
development time.” (Ries 2011, p. 77)
Int Entrep Manag J

This is a rather wide definition, and Ries too acknowledges this, detailing different
incarnations from simple advertisements to full-fledged prototypes under a number of
headlines with real world examples. With such a range, many different topics within the
scientific literature are touched upon, which makes it difficult to say something
conclusive on the concept as a whole. This issue too goes back somewhat to the
subject and papers on experimentation. The authors happily detail the process itself and
argue for its efficacy, but for the most part fail to actually detail what is being
experimented with, the actual item being used, and, more importantly, the reasoning
behind it taking that particular form.
The few articles that feature the MVP concept are either just paraphrasing Ries and
his arguments (Rancic Moogk 2012) or feature it in brief without questioning its
efficacy or use in that setting (Smith 2013) (Chow and Rubin 2013). Coviello and
Joseph (2012) touch on a similar concept in their paper on major innovations in
startups. Through an inductive process method they study six companies launching
new products and characterize the NPD steps that separated the three successful ones.

“The path to successful MI [Major Innovation] seems to be characterized by an

“almost ready, fire, do a bit more, refire” approach. It has no conventional market
assessment and includes very early sales of a not-nearly-ready concept or tech-
nology.” (Coviello and Joseph 2012, p. 101)

This description falls well in line with that given by Ries. These early prototypes are
developed in close collaboration with customers and as such their scope is almost
directly specified by them as well.
In essence, creating an MVP becomes similar to designing an experiment. Design of
experiments (DOE) is a vast and complex field, so perhaps it is not too surprising that
the aforementioned papers left those parts out. Perhaps DOE in relation to entrepre-
neurial efforts is an area that deserves further scientific interest. With the close
connection to other highly covered subjects such as user involvement, open innovation
and iterative NPD processes, it is bound that many important insights are still uncov-
ered. The lack of evidence to support Ries’ use of the MVP concept does not
necessarily make the whole TLS philosophy without merit, but more so points to a
general lack in actual implementation details in the book. And this critique can to some
extent also be levied at the scientific literature when it comes to experimentation related
to NPD and entrepreneurship. So while there are no sources that actively go against the
MVP concept, it is matched by equally lacking evidence for its efficacy.

Entrepreneurial thinking – planning versus doing

Finally we get to the larger theme found in TLS and how it in many ways opposes more
traditional business thinking, a thinking focused around analysis and planning. An
opportunity is recognized, its viability argued for through extensive market analysis and
a plan for the successful exploitation is laid out in a highly detailed business plan,
meticulously describing exactly what will happen in the next few years. All that is left
is execution. The business plan would in all likelihood contain a full marketing strategy,
completed with a “marketing mix”, the “four p’s”, a SWOT analysis and what else we
could stuff in there. Perhaps a Pareto analysis while we are at it. We might as well - If
 Int Entrep Manag J

you fail to plan, you plan to fail! Examples of this thinking can be found in the
“Management School” of Cunningham and Lischeron (1991) mentioned earlier, and
the popular marketing textbook “Principles of Marketing” by Kotler and Armstrong
(2013).
Ries argues against this thinking, saying that the business plan approach may work
in established businesses, where customers, markets and the competitive environment
are well known. But these circumstances never apply to startups – or entrepreneurship
in general. It is also from this angle Ries attacks the typical data collection found in
traditional market research. As mentioned earlier, TLS emphasizes data generation,
since there can be no data to collect on a market that has yet to be created.
In a rather large study, Lange et al. (2007) look at 116 new ventures started between
1985 and 2003 in an effort to gauge whether writing a formal business plan before
launch affected subsequent performance. The authors conclude that unless a business
plan is explicitly needed for funding purposes, there is no compelling reason to write
one. Sommer et al. (2009) continue on the topic of planning in relation to great
uncertainty in their study of 58 startups in Shanghai. They define unforeseeable
uncertainty as the uncertainty that cannot be accounted for by the management team
at venture outset, and link this circumstance with trial-and-error learning and
selectionism in the successful ventures.
In a meta-analysis, Brinckmann et al. (2010) look at 46 studies on planning and
performance covering a total of over 11.000 new and established organizations. They
too find a relationship between greater uncertainty and lower impacts of planning
efforts. While still recognizing that some planning can have a positive effect, it must
be appropriate to the circumstances. They advocate a process where planning and
execution are carried out simultaneously, providing positive feedback-loops. This
feedback-loop bears resemblance to the discussion on the iterative NPD process that
Ries too argues for. And the same applies to the experimental approach where
experiments are planned according to what is known and what still needs to be
validated to take the next step.
Although the idea that excessive planning may be detrimental to startup performance
is perhaps not that well recognized, it is not particularly new. Fresh from the eighties we
have an article by Block and MacMillan (1985) that details a method using milestones
as a guiding tool in startups. Even though the method is more linear than circular in its
form, the authors do focus on validation of assumptions, learning, failing early to fail
inexpensively and retargeting the venture’s efforts should the learning suggest such is
needed. Also focusing on assumption testing, this time in relation to corporate entre-
preneurship, are Sykes and Dunham (1995) with a process titled “Critical Assumption
Planning”. This process is a circular one, focused on finding and stating assumptions,
assessing their criticality, designing and running tests, and finally evaluating the
findings. This method is very akin to Ries’ build-measure-learn loop, here with the
explicit “Funding Request” stage, likely originating from its use in the corporate
setting.
Ries’ arguments very closely mirror those of Sarasvathy (2001) in her research on
causation and effectuation. Perhaps this is to be expected, as the initial research in this
area took starting point in the actions and thought processes of expert entrepreneurs.
Sarasvathy uses a simple analogy to illustrate the differences between causation and
effectuation: An artist asked to paint a specific item (causation) versus an artist asked to
Int Entrep Manag J

paint anything she wants using the colors available (effectuation) (p. 245). The end
result is a painting in both cases, but the path is considerably different. She defines the
two terms formally as:

“Causation processes take a particular effect as given and focus on selecting

between means to create that effect. Effectuation processes take a set of means as
given and focus on selecting between possible effects that can be created with that
set of means.” (Sarasvathy 2001, p. 245)

She lists three propositions and four conjectures that all fall exactly in line with TLS.
The match between the two is so close that it is tempting to regard TLS as the practical
implementation of Sarasvathy’s research. Ries’ discussions on corporate affinity for
what is essentially causation logic and how it can stifle innovation has likewise been
addressed by Sarasvathy. In a follow-up article she coauthors (Read and Sarasvathy
2005) the change in dominant logic, effectual versus causal, is addressed for the
development of a startup into an established business, a process Ries discusses much
in the same way. While TLS is not completely without causation logic (the goal itself of
having a successful business is very much causal), regarding effectuation and causation
as the two ends of a continuum, TLS is heavily skewed towards the former.
Through two sets of field samples, Chandler et al. (2011) provide validating
information for effectuation logic. They specifically show uncertainty being negatively
correlated with causation, and experimentation — shown to be a dimension of effec-
tuation — to be positively correlated with it. Affordable loss and flexibility is also
shown to be dimensions of effectuation — both also play major roles in TLS. A
previously cited study on the discussion of experimentation (Coviello and Joseph 2012)
also saw heavy effectuation-logic among the successful ventures studied and draws
many parallels to the work of Sarasvathy (2001).
A somewhat similar construct is proposed by Baker and Nelson (2005) using
the concept of bricolage. They take the stance, that most entrepreneurial efforts
happen on the basis of resource scarcity, sometimes extreme scarcity, and thus
activities take place based on what is available — much akin to effectuation.
Fisher (2012) connects these two constructs in an effort to provide further
insights into individual behavior and whether such behavior is evident in the
creation and development of new ventures. They find similar behaviors in
effectuation and bricolage, and go on to echo Sarasvathy’s sentiment, that the
causal model may not describe the actual behavior of entrepreneurs. They even
address TLS directly using it as an example of a popular business book,
continuing:

“This research largely supports that advice in these books by highlighting that
entrepreneurs who engage in experimentation and who interact early and often
with customers will be able to overcome many of the hurdles associated with
starting a venture.” (Fisher 2012, p. 1046)

It appears that in many ways the research on bricolage and effectuation both attempt
to explain the successes that have otherwise been difficult to account for and that TLS
is the “How to” guide.
 Int Entrep Manag J

Discussion and conclusion

To further delve into the differences between the effectual and causal approach to
entrepreneurship as they are portrayed by Ries, this final section starts with a discussion
of how the two impact entrepreneurial practice on a conceptual level. We begin with an
illustration of the way an effectual thinker behaves versus a causal one in the search for
a solution to a given innovation challenge (Fig. 3).

TLS and effectuation

Here, a solution can pertain to a variety of goals, be it a finished business proposition or an

established and functioning venture. In Ries’ portrayal, the causal thinker makes a plan
and executes it without regard to further input until arrival at the solution. This is of course
highly efficient if – and that can be a momentous if — the planned solution was indeed the
correct one. In contrast, the effectual thinker will continuously get outside feedback and
make even large adjustments to the course (pivots in TLS vernacular) in order to arrive at a
tested solution. While the path may be longer, the chance of final success should ideally be
higher, since, Ries argues, you fail inexpensively and thus get more attempts at finding the
match between product and customer. As shown, hypothesized solutions will be part of
the effectual thinker’s effort, but only serve as guidance and not as delimiters.
We can also envision a scenario where the solution space may not be all-
encompassing due to limitations that force the entrepreneur to chart a course within
boundaries (Fig. 4). We see how limits determine in what direction the pivots of TLS
can happen.

Fig. 3 Causal vs effectual approach to entrepreneurship mapped over a ‘solution circle’

Int Entrep Manag J

Fig. 4 Limited solution space for the entrepreneur

The foremost reason for a limited solution space is likely limited resources, much
akin to what Baker and Nelson (2005) discuss. This space can in essence be seen as the
extent of Sarasvathy’s three questions – “Who are you? What do you know? Whom do
you know?” (Sarasvathy 2001) – and sets the boundaries of not only the entrepreneur’s
actions, but also the breath of solutions available to him/her. Ries would likely argue
that boundaries are strictly a matter of perspective, and paths that lie outside the
effectual entrepreneur’s current capabilities are simply not desirable anyhow, thereby
nullifying the boundaries altogether. Only that on which we can act is effectual.
As the venture takes form from its initial seed and makes its way toward a viable
business, Sarasvathy (2001) too suggests that an effectual venture is more inclined
towards forming alliances than looking for explicit competition. In terms of the above
model, we can envision this as the broadening of the solution arch by incorporating the
capabilities of other actors in the market, thereby giving the venture more space to
maneuver and make pivots. This could be through lower barriers to foreign markets
(Dana 2001) or access to both firm- and market-specific knowledge (Ratten and Suseno
2006) of partner(s). They will naturally put significant emphasis on the founders’
network and by extension the social capital of the venture itself, more precisely its
external social capital, as defined by Suseno and Ratten (2007). Entrepreneurs also act
in very different environments, some of which may create barriers to entrepreneurial
efforts (Light and Dana 2013) or encourage them (Ratten 2014). Effectuation has
already been considered in the development of networks for born globals and found
to be a viable path (Andersson 2011).
Limitations on the available solution space are also interesting when we look at the
causal entrepreneur. Since the (extreme) causal approach sees the solution agreed upon
from the outset, this too can severely limit the perceived options should changes be
needed later, as they can now only be selected from a narrow solution arch. Taking this
a step further, we can imagine a case where the perceived solution lies outside the span
of available capabilities (Fig. 5), which Ries argues would most likely halt all actions
and see the would-be entrepreneur getting stuck at the idea-stage. In order for such a
pathway to be feasible anyhow, the venture’s capabilities must be expanded to include
 Int Entrep Manag J

Fig. 5 Perceived vs actual solution space

the desired end point. Persevering and trying to arrive at a solution in such an
environment could be immensely difficult as a significant amount of effort most go
to resource gathering rather than resource exploitation.
An effectual approach should hence increase the probability of action, which is
necessary for the later chance of a successful venture, which by extension means that
more successful ventures will have started with an effectual approach (this is the exact
argument by Read and Sarasvathy (2005)). Although effectual entrepreneurs may not
be shielded from a skewed perception of their own capabilities versus their desired
solution, the heavy emphasis on action is assumed to quickly align the two. And that
too is perhaps the most striking characteristic of TLS – the continuous self-examination
by the entrepreneur in order to align perception with reality. The perceived solution
space and the extent of available capabilities inherently overlap for the effectual
entrepreneur, thereby emphasizing actionable ventures. In short: Innovation is change,
and change only happens through action.

TLS in the corporate context

We now get to the integration of TLS with established businesses and the larger
implications found therein. Making a jump back to the beginning of this paper we
are reminded of Ries’ definition of a startup - a human institution designed to create
new products and services under conditions of extreme uncertainty – and how he sees it
equally applied in established companies pursuing significant innovations. Examples of
TLS being applied in these circumstances are also numerous in the book, and with the
established link between TLS and effectuation, it is likewise interesting to look at the
latter’s use in the same environment. It does not seem unreasonable to assume that a
robust TLS implementation would see effectual thinking spread equally in the
organization.
The research on effectuation in the corporate context is still very limited, with a
recent paper by Werhahn et al. (2015) on the subject echoing this sentiment as well.
Specifically applying it to R&D efforts has been investigated by Brettel et al. (2012),
Int Entrep Manag J

finding effectuation to be positively related to success in highly innovative contexts –

the same areas Ries argues for TLS in. Going back to Sarasvathy’s work, she has too,
with co-authors, discussed effectuation in relation to the “innovator’s dilemma” (Dew
et al. 2008). Here the authors argue that markets themselves are mortal — meaning they
can essentially die or be killed off — and thus a company best pursues the continuous
development of completely new ones or risks sharing the coffin with the markets of
yesterday. According to the authors, effectuation is the logic that is able to deal with
markets not pre-existing, but having to be created, for since they cannot be analyzed
into existence, a causal approach will be ineffective. To manage concurrent exploration
and exploitation, the authors suggest creating specialized effectual and causal units.
This suggestion to a large extent mirrors that of O’Reilly III & Tushman (2008) who –
also in a discussion of the “innovator’s dilemma” – describe and advocate for the
ambidextrous organization, not only as a means to stay in business as old markets die,
but also as an alternative to spin-outs and having employees leave to start on their own.

“The raison d’etre for the ambidextrous form as opposed to a spin-out is to allow
an organization to experiment and to leverage organizational assets and capabil-
ities that would not be available if the business were operating independently.”
(O’Reilly III and Tushman, 2008 p. 198)

This all leads to the conjecture that TLS (and effectuation) — when implemented in
a corporate context — promote more agile business strategies, leading to larger
diversification and as a result fewer spin-outs and ultimately lower levels of knowledge
spillover. Such a strategic direction would essentially be the direct opposite to the
concept of knowledge spillover-based strategic entrepreneurship and the accompanying
idea of creative construction as developed by Agarwal et al. (2007). The means of the
organization could broaden the available solution space and make pivots easier to
accomplish, with the effect of giving such a configuration an advantage over the
independent, new venture. The pitfalls of business diversification are in no doubt many
and significant — arguing for or against such a strategy is well outside of the scope of
this paper. Here, we merely point towards larger implications of TLS and its possible
influences.

TLS in conclusion

Summing up on the findings from this investigation of TLS, it is clear that the
philosophy and methods are certainly not without merit. Ries primarily finds backing
to his claims in TLS through anecdotal evidence from his own career and further relies
a great deal on expert sources with apparent credibility as viewed by the reader. Having
been created largely in a public manner through his blog, the general philosophy has
also been vetted by Ries’ peers. Had he gone hunting in the scientific literature for
backing of his ideas, he would not have returned empty handed either. With his
academic background at Yale University in mind, the existence of this literature must
to some extent have been known to him, which again implies that leaving these sources
out of the book was a conscious choice.
There can no doubt be many reasons for choosing anecdotal evidence as the main
source of backing. One may argue that it simply makes for a better book, or at least one
 Int Entrep Manag J

that fits better with the target audience — practitioners. The entertainment value of a
good story likely compares rather favorably to that of a dry passage on statistical
significance or method selection, all things considered. Relying on personal experience
also elevates the position of the narrator, Ries himself. Instead of recounting and
reframing the works of others, the insights arise directly from him and his efforts. This
points back to what was discussed in the introduction: Writing a business book can be
good business — and especially so if one were so lucky as to reach “guru-status” on the
way there. While probably not the sole reason behind Ries ultimate choice of evidence
for his claims, it does surely create something akin of a self-reference feedback loop.
The five examined parts — user and customer involvement, iterative NPD, exper-
imental NPD, the MVP and entrepreneurial thinking — in general find considerable
evidence to support the efficacy claimed. Where lacking, primarily design of experi-
ments in relation to entrepreneurial efforts, the literature happens to be so as well. The
wide applicability of TLS is more questionable, with certain methods appearing
applicable mostly to software development in their current form. The findings have
been summarized in Table 2 and given a rating of support. As the different areas
overlap considerably, the literature is heavily cross-relevant.
As discussed however, a certain area warrants further scientific inquiry. Since
experimentation is so heavily involved throughout the book, further research into
design of experiments in relation to entrepreneurship and NPD could yield a better
understanding of all the discussed methods. In addition, future research should take the
effect of new approaches for user integration and co-creation like crowdsourcing and
netnography into consideration (Brem and Bilgram 2015). Due to the significant effect
the outcome of an experiment can have on the venture — it is after all the primary
instigator of pivots – they must be designed for reliability, yet still be feasible to
conduct in an innovation process inherently fraught with uncertainty. In essence:
How is the conversion of uncertainty into risk best undertaken and managed?

Table 2 Overview of covered areas and their support

Area Support Literature

User and customer involvement Very strong (Chesbrough et al. 2006) (Huizingh 2011)
(Cheng and Huizingh 2014)
Iterative NPD Strong (Gassmann et al. 2006) (Sandmeier et al. 2010)
(Salerno et al. 2015)
Experimentation in NPD Medium (Thomke 1998) (Lynn et al. 2003)
(Hauser et al. 2006) (Andries et al. 2013)
(Kerr et al. 2014)
Early Prototyping for Medium (Block and MacMillan 1985) (Coviello
proof-of-business (MVP) and Joseph 2012)
Effectual Thinking Strong (Block and MacMillan 1985) (Sykes and
Dunham 1995) (Sarasvathy 2001) (Read
and Sarasvathy 2005) (Baker and Nelson 2005)
(Lange et al. 2007) (Sommer et al. 2009)
(Brinckmann et al. 2010) (Chandler et al. 2011)
(Coviello and Joseph 2012) (Fisher 2012)
Int Entrep Manag J

The objective of this paper has been to find evidence for, not against, Ries’ claims.
While there is certainly plenty of evidence for business planning, stage-gate NPD
processes and the like, invalidating them in the case of entrepreneurial efforts would
have been a completely different task altogether. The lacking detail in regards to the
actual implementation also provides TLS with some leeway, as it keeps it from
becoming industry specific — possibly also helping increase readership.
Thus: The key methods and main approach to entrepreneurship introduced in “The
Lean Startup” find substantial evidence for their efficacy in the scientific literature. Not
only does TLS give an indication of how entrepreneurs think they create value, the
evidence suggests it also plays a noteworthy part of actually making it happen.

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