When Lean startups can be dangerous

When The Lean Startup hit bookstores in 2011, it became a bestseller and created a movement. The book’s principles were straightforward and quickly began to resonate with entrepreneurs and wanna-be entrepreneurs. The message was well timed — the stock market was underperforming, the job market was competitive, and countless people were starting to scratch their entrepreneurship itch. The book’s underlying advice: getting a successful startup off the ground can be relatively simple, reasonably easy, and extremely FAST. No more endless analysis and business plan writing, no more waterfall software development, no more heavy infrastructure, and no more useless business metrics.

Overly simplified, the Lean Startup approach can be described as: build, test, measure, learn, pivot, and scale.

People read the book, attended workshops, and started to religiously read the insightful blog posts and tweets of Eric Ries — the book’s author. Lean Startup contributed to the creation of many venture-backed startups and even a few unicorns. Thus a cult was created. People from all walks of life started to believe that the only way to build a startup was to be Lean. For the vast majority of startups, this belief is reasonable (and even correct). However, in recent months, I’ve started to see the dangers of blind faith in Lean Startup.

If you are building a gaming business, a social app, the Uber of XYZ, etc., by all means go Lean. However, in some industries (healthcare and financial services, in particular), the Lean Startup approach can not only be wrong, it can be dangerous. The stakes are simply too high.

I recently met with senior executives at one of the world’s largest pharmaceutical companies. These smart, highly motivated, and extremely creative executives shared a compelling vision for a disruptive new healthcare business. The venture would leverage the pharmaceutical company’s unique assets (brand, distribution, scale, access to medical community) to deliver a particular type of healthcare in a novel way.  Not long into our first meeting with these executives, we knew they had all read the book — and bought into it completely. They repeatedly talked about getting a minimum viable product (MVP) to market within a few weeks, testing the service with a select population, pivoting as needed, and continually deploying new medical services/features.

The problem with this approach is that you can’t be lean when delivering healthcare. There is no “M” in a healthcare MVP. Healthcare products are binary. You are either delivering successful medical outcomes or you are not. Effectively delivering healthcare to one patient is nearly as complex as delivering it to one million patients. In healthcare, there is no tolerance for mediocrity. Patients are not users who are there to give you feedback, they are human beings in pain who need to be treated effectively and efficiently.

I’m not suggesting that there aren’t ways to apply CERTAIN lean techniques to building healthcare businesses. However, in this industry, some shortcuts cannot be taken. Accreditation, risk, security, and HIPAA compliance cannot be made Lean. Treatment protocols cannot be made Lean. No patient will tolerate a “minimally viable” cancer treatment, nor should they be expected to tolerate a minimally viable healthcare service.

The same principles apply to other industries. In recent months we’ve also seen one of America’s largest broker-dealers wonder why Lean Startup principles can’t apply to a new robo-advisor business they are exploring. It seems they believe building a business using Lean Startup would absolve them of the risk management, security, compliance, and licensing standards their parent company struggles with every day.

I love the principles Ries evangelizes. However, as accomplished and experienced as he may be, he has never tried to launch a startup inside a massive, multi-billion dollar, heavily regulated, “traditional” corporation. He has great perspectives from his experiences working in (and founding) Silicon Valley tech firms. In the world he knows well, Lean makes perfect sense. However, if you are a senior executive in a large pharmaceutical or financial services firm, while Lean is a great theory and aspiration, the reality is far more complex.

Creating a home food delivery business like HelloFresh or Plated can be very complex. If the food is a little late – or a little cold – or just not so tasty – the entrepreneur gets valuable customer feedback and will fix the problems and then test again. Customers might be inclined to stay loyal during the process and might even become more loyal because they see the company taking their feedback. However, when an entrepreneur is bringing to market a healthcare business and a doctor arrives late or is simply not very good, the implications are far greater than just losing a potential customer. A healthcare business may make a patient more ill and most likely increase the total costs of treatment. Similarly, a young financial services business runs the real risk of losing someone’s entire life savings over an insufficiently tested line of code.

Of course, nobody is suggesting that pharmaceutical and financial services companies revert to the tired old methods they have use for decades. After all, if these traditional methods worked, there wouldn’t be such an urgency to innovate and executives wouldn’t be rushing to Lean as a savior for all of their company’s innovation ills. In the absence of alternatives, Lean is better than traditional methods. But effectively using Lean techniques requires not just reading the book but placing the principles in the hands of experienced entrepreneurial executives who can effectively balance the “shoot from the hip” Lean techniques with a thorough knowledge of which “t”s to cross and which “I”s to dot.

Iliya Rybchin is director of the Media & Entertainment Practice at Highnote Foundry — a firm that identifies, funds, and operates startups that are solving complex problems in traditional industries.