‘Lean start-up, economies of scale aren’t what you want’

The concept of lean start-ups has now become firmly embedded in popular business jargon and the preferred way to develop new projects for many businesses. Nevo Hadas, partner at DYDX, explains the difference between a lean and a fat start-up and what is more beneficial. 

Lean start-up is out of the Six Sigma School of Thought. Find the stuff that works quickly, efficiently and minimize unnecessary learning. Most management today is lean and it makes sense when you are maximising your return on capital.

These are about doing one thing better all the time and reducing a certain set of costs because of the asset base you have (customers, factory, experience etc). Economies of scale emerge from doing the thing right, and the more you do it right, the bigger your return. This is fundamentally what lean start-ups are all about. Narrowing options, delivering more efficiently.

Fat start-ups are about discovering. You don’t know what you don’t know and you are willing to go down rabbit holes to learn things which may have no value. These learnings can however deliver significant results and lead to major innovations.

However, just using the term “fat” brings up negative connotations. There was a time when fat was positive (fat of the land), but it seems less so in today’s Instagram abs world. Fat start-ups lend themselves to economies of variety.

Economies of variety are about having a number of things that work well together, but not necessarily create synergies in execution. Economies of variety are based on doing the right things and are often beneficial to allow a company to dominate a category or out innovate competitors.

Businesses usually drive lean product innovation internally, with an innovation or R&D centre for the fat start-up components. This hardly ever works though as most innovation centres struggle to integrate any non-core integration into the business.

The best way to solve the problem is to change the lean start-up methodology to reduce efficiency. Instead of narrowing quickly on one solution for the opportunity, keep the options open for longer to learn what other potential solutions could provide. You will normally end up with a richer product offering and far more insight into what makes your customer buy.

• Nevo Hadas is a partner at DYDX, a Cape Town-based digital transformation practice. The views and opinions expressed in this article are those of the author and do not necessarily reflect the views or positions of Ventureburn.

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