Chapter 2: Defining a Startup Entrepreneur
2.0 Who is an entrepreneur?
In his career, Eric Ries has come across general managers, mostly from large companies, who are tasked with creating new ventures or product innovations as entrepreneurs. They are experts in organizational politics in forming autonomous divisions with separate profit and loss statements and staying away from troublesome teams from corporate meddling. The huge surprise is that these managers are visionaries as they can predict the future of their industries and are willing to take risks bravely to discover innovative solutions to the problems that their companies face. Nevertheless, these general managers require the principles of the Lean Startup as much as traditional entrepreneurs do.
Entrepreneurs responsible for developing an innovative product within a company are known as ‘intrapreneurs’. Therefore, regardless of whether an individual is a classic entrepreneur or an intrapreneur, the principles of the Lean Startup widely apply to all types of entrepreneurs. The Lean Startup is a group of practices for helping entrepreneurs increase their chances of creating a successful startup.
What is a startup anyway? Eric Ries has defined a startup as “a human institution designed to create a new product or service under conditions of extreme uncertainty”. If you notice, this definition doesn’t state anything about company size, industry or the economic sector. A person creating a new product or service under extreme uncertainty is an entrepreneur regardless of whether they know it or not and whether they are working for a government agency, non-profit organization or a profit-oriented company with investors. Let’s consider each piece of this definition. ‘Institution’ implies bureaucracy, process and laziness. You must be wondering how these three implications can be a part of a startup, although startups usually have active activities. We mostly fail to see that a startup isn’t about an innovative product or a brilliant idea, but it’s a human enterprise.
According to Eric Ries, the fact that a startup’s product or service is an innovation also forms an essential part of the definition of a startup, and it’s also a tricky part to understand. He prefers to have an expansive definition of ‘product’ that covers any source of value for the individuals who become customers. Thus, anything these customers experience from interacting with a company should be a part of the company’s product. Regardless of being a supermarket, consulting service or non-profit business, the organization is always committed to discovering a new source of value for customers and cares about its product impact on those customers. Even the term ‘innovation’ needs a broad understanding. There are many types of innovations used by startups like scientific discoveries, reusing an existing technology for a new use, creating a new business model that frees hidden value or introducing a product or service to a new location or to a previously neglected set of customers. In all these scenarios, innovation is fundamental to the company’s success.
Another essential part of the definition is the circumstances in which the innovation takes place. Most large and small businesses are excluded from the circumstances. Startups are made to challenge unpredictable situations. Starting a new business that is the same as an existing business in terms of the business model, pricing, target customer and product can be an excellent economic investment. Still, it’s not a startup, as its success depends on performance.
As Eric Ries stated, most tools from general management are not made to thrive in extreme uncertainty in which startups thrive. The future is uncertain, customers are constantly faced with many choices, and the pace of change is increasing. Nevertheless, most startups in garages and companies are managed using normal predictions, product milestones and detailed business plans.
2.1 The story of Snaptax
Let’s explore how America’s largest producer of tax and accounting tools for individuals and small businesses developed Snaptax. In 2009, Intuit wanted to free taxpayers from expensive tax stores by computerizing the process of collecting information found on W-2 forms (the end-of-year statement that employees receive, which summarizes their taxable wages for the year). Although many taxpayers knew how to use a printer or scanner in their homes or offices, only a few knew how to use them. After having numerous conversations with prospects, the startup had the idea of making customers take photos of the firm directly through their mobiles. While testing this idea, customers asked an unexpected question regarding the possibility of finishing the whole tax return directly through the mobile. This wasn’t an easy task as tax preparation usually required customers to go through numerous questions, forms, and documents. So Intuit started something new by deciding to ship an early version of its product that could do less than a complete tax package. The first version worked only for customers with a simple return to file and only in California.
Rather than having customers fill a complicated form, they allowed customers to take a picture of their W-2 forms through a phone camera and through that picture, the firm built the technology to collect and file most of the 1040 EZ tax return. Its country-wide launch in the USA showed that customers loved it as there were more than 350,000 downloads of the app in the first three weeks. This app is called Snaptax, and a team in Intuit developed it. They didn’t face any constant interference from the senior management. They didn’t have a massive team with a vast budget; they only started with five people. Although innovation is decentralized and uncertain, it doesn’t mean it cannot be managed. It can be managed by management discipline, and this discipline is not only to be practised by entrepreneurs but also by the people who support them, nurture them and hold them responsible. In other words, enhancing entrepreneurship is the senior management’s responsibility. The more startups understand this, the better.
Although innovation is decentralized and uncertain, it doesn’t mean it cannot be managed. It can be managed by management discipline, and this discipline is not only to be practised by entrepreneurs but also by the people who support them, nurture them and hold them responsible.