The Science of Business and the Business of Science

by Douglas Romanoff

Eric Ries champions the Lean Start Up Methodology as a means for entrepreneurs to more efficiently manage financial and human resources while increasing their odds of success. At the root of his approach is the idea that entrepreneurs should measure progress in units of validated learning, rapidly iterating through build‐measure‐learn cycles designed to test hypotheses and refine business model elements. By avoiding excessive subjectivity, and instead gathering empirical and measurable evidence, the entrepreneur operates with less risk and more cost effectiveness.

Although Toyota’s management philosophy is credited as the inspiration for lean concepts, the true origins of the approach lie in a discipline outside the realm of business. The Scientific Method has served as the gold standard of systematic inquiry for chemists, biologists, and physicists over many centuries. According to its tenets, researchers should gradually refine elements of a scientific model through a series of structured experiments, obtaining measurable data to validate clearly articulated hypotheses. Sound familiar? The researcher’s scientific model is the entrepreneur’s business model; the researcher’s test tube, the entrepreneur’s Minimum Viable Product (MVP). So Eric Reis’s breakthrough is not in the creation of the Lean Start Up Methodology itself, but rather in borrowing the method from science and applying it to entrepreneurship, reframing its underlying concepts in the nomenclature of business. His insight is that both cutting edge entrepreneurship and cutting edge science are experimental endeavors, and can share techniques to investigate poorly understood phenomena, acquire new knowledge, and integrate that new knowledge to refine previously held beliefs.

If we agree that Lean Start Up Methodology originates in the techniques of science, there is irony in the notion that it does not apply to science‐driven businesses. In his blog, Union Square Ventures partner Fred Wilson argues that there is a growing cleavage in the venture capital industry between businesses such as software and businesses such as clean technology. Many students in Launching Tech Ventures would seem to agree, arguing in class that lean approaches do not apply to startups involving substantial technical risks and manufacturing assets. Fast product development cycles are not practical and customer feedback is less relevant for such business, they might add. In brief, the science of business does not appear to apply to the business of science.

I argue that this view is by and large misguided, though not altogether without its merits. The first fault in such a line of thinking is definitional. Cleantech is not a monolithic and uniform industry of its own, but rather an umbrella term that encompasses energy generation, transportation, telecommunications, and other verticals. Each of these verticals supports an array of business models with very different economics. In fact, there are subsectors and segments of the value chain in cleantech that are more similar to information technology, services, or electronics than not—consider OPower, SunRun, and Enphase. All lean concepts that apply in these more familiar industries apply to related spheres of cleantech. Comments about the applicability of the Lean Start Up Methodology to cleantech businesses therefore err by generalizing to broadly.

In keeping with the underlying spirit of such arguments, however, let’s focus on a subset of cleantech that is driven by science: energy storage. Battery manufacturing involves the technical risks and physical assets described earlier, and as a result does not lend itself to rapid iteration to the same extent as, say, developing brokerage software for real estate agents. Upon closer inspection, however, this line of thinking confuses cheapness with leanness by using an inappropriate benchmark for cleantech. The Lean Start Up Methodology does not promise to level the playing field between Aquion and RentJuice with regards to funding requirements. A new software application is in most cases cheaper (e.g., requires less capital) to develop than a new battery chemistry. Game over.

But being lean is not about being cheap—it’s about being efficient with resources. By applying the concepts of the Lean Start Up Methodology, Aquion has more efficiently used its resources while increasing its odds of success relative to other battery start ups operating under the status quo. Founders Jay Whitacre and Ted Wiley stage technology development through a series of MVPs (e.g., bare bones R&D solutions that are “good enough”) designed to validate key hypotheses (e.g., potential product performance and manufacturability) with the smallest set of product features (e.g., precision only to the degree that is necessary, and no more). The result is rapid iteration by battery development standards and greater capital efficiency relative to peers in the same industry.

Clean technology and leanness to are two concepts that seem to invite misunderstanding and misuse. By applying them both with greater precision, I believe we reveal more clearly where the one relates to the other.