The image of the lean startup is often associated with spending as little as possible to verify your business model. The entrepreneur is living on ramen noodles, making a series of low cost minimal viable products and getting it out in front of potential customers to find out if they are on the right track. Eventually the entrepreneur reaches a moment when they can take on investment because they have reached a proof of concept and now need to scale. This type of business evolution is more likely to happen in the tech world because of the relatively low cost of entry.

Problems arise when we take this startup approach into a nonlean industry. A nonlean industry is one that is heavily regulated and which may require a high level of expenditure before you can even get started. You may need expensive licensing, meet standards that are costly to achieve, buy real estate, build structures, do extensive renovations, etc... You can't do all these things on a shoestring budget.

Take for example the production of wine. To make a good bottle of wine you can make it with inexpensive plastic pails and glass carboys. To be able to get into the marketplace with your wine is not so easy. There are many regulations and standards that you have to meet before you may do so, even though you may be in possession of a product that a customer would like. In a nonlean industry startups need to raise significant startup capital to deal with regulatory compliance and other costs of doing business before they can even begin to do business. The legal cannabis industry, for example, is a nonlean industry as there are high regulatory compliance costs to doing business in that industry. This is offset by the potentially high reward factor, as it is in any nonlean industry.

Vegetable farming is an example of an industry where you can startup in a relatively lean manner and become even leaner over time. You can start simple but in time your lean operation can become heavily invested in efficiency improving tools and systems like this one:

In conclusion, the lean startup movement has a tremendous amount going for it but the image of starting a business on a shoe string budget is not applicable to some industries where other factors (fund raising success, compliance, networking) may have more importance in determining whether you can create a startup in that market.

When companies say they want to "scale up" their existing business, we might ask them to be more precise. If they want to double their business, then that would be a 2x scaling factor. If they they wanted to increase revenues from 1 million to 10 million then that would be a 10x scaling factor for revenues

On Youtube, one of the channels I like to watch is Stefan Sobkowiak's channel. He has a unique take on Permaculture orcharding and life in general. In the video below Stephan talks about a 10x scaling pattern for planting an orchard that involves planting 1/2 an acre, then scaling up to 5 acres (10x), and then scaling up to 50 acres (10x), etc... His discussion of this planting pattern takes place early in the video.

I am discussing this planting pattern because it provides an interesting example of how one might go about scaling up an enterprise. The number 10x was recommended by Stephen if you want to get serious about orcharding. That seems a bit extreme in general, but it is helpful to be as precise as you can be about how much you want to scale up your business.

It is also useful to imagine what you would need to do in order to achieve 10x growth. Perhaps you limit yourself to only imagining what it would take to achieve 2x growth - tweak this, tweak that. You can't tweak your way to 10x growth - some more fundamental changes will be required. These are often points at which a promising venture seeks additional funding (Series A, B, C, etc...).

MICHIGAN INVESTMENT NETWORK

Home

Contact

Entrepreneurs | Investors | About | Our Privacy Policy

© 2015-2024, Dealflow Solutions Ltd. All rights reserved.

Connecting Michigan Entrepreneurs and Investors.