Entrepreneurial Lean Startup: Challenges, Examples, and Recommendations

This article discusses the challenges faced by entrepreneurs in the lean startup process, including financial challenges, human resources, support mechanisms, environmental elements, market, and management team. It also provides examples from the practical world and recommendations to overcome these challenges. The article concludes with a discussion on the lean global startup and the importance of performance indicators.

1Entrepreneurial lean startup
Running head: ENTREPRENEURIAL LEAN STARTUP
Entrepreneurial lean startup
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2Entrepreneurial lean startup
Abstract
The entrepreneurial process of new venture startup, growth and harvesting the venture
face many challenges. Newly emerging concepts include the lean startup, which started to be
globally applied in all types of industries and different companies sizes, is discussed. The
challenges that entrepreneurs face, examples from the practical world and recommendations to
entrepreneurs to overcome the challenges are also analyzed.

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Contents
Introduction......................................................................................................................................4
First: Startups theories.....................................................................................................................5
Second: The lean startup..................................................................................................................5
Third: Challenges of startups...........................................................................................................8
Fourth: Examples from the practical world.....................................................................................9
Fifth: Recommendations................................................................................................................10
Conclusions....................................................................................................................................10
References......................................................................................................................................11

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Introduction
The startup process of new venture involves copulation in activities of idea creation,
product development and the launch of the new business. The business start-up model
represented by Shook et al. (2003) as cited in Drnovšek, Wincent, & Cardon (2010), consists of
four steps. It starts with obtaining information to be able to start his business. Then he identifies
the opportunity to be exploited. Followed by making the decision of exploitation of one or more
opportunity. The final step is to create the venture, as the entrepreneur assembles the resources
and infrastructure required to start his business. This model is developed according to the social
cognitive theory, which assumes that individual success could be achieved at different activities.
Entrepreneurs are able to fulfill their goals through interrelated tasks, including the
environmental scanning, information acquisition, classification and sharing to facilitate the
organizational learning. Entrepreneurs focus on technology development, market research,
communicating with the key stakeholders and testing prototypes. Entrepreneurs who have higher
levels of self- efficiency beliefs for success are more likely to achieve higher levels of
performance on exploiting opportunities (Drnovšek, Wincent, & Cardon, 2010). Short et al.,
(2010), argue that the rate of successful entrepreneurship is low. A substantial number of
entrepreneurs failed to reach a reasonable level of achievement in a study conducted to measure
the entrepreneurial success. Challenges occur in common among the startup ventures. Although,
new approaches started to emerge to facilitate the startup process, including the lean startup. The
following section discusses the startup theories, the emerging concept of lean startup, the
challenges that entrepreneurs face, examples from the practical world and recommendations to
entrepreneurs to overcome the challenges.

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First: Startups theories
The entrepreneurship theories are classified into two categories, the macro level theories
and the micro level theories. These theories analyze the startups, as the entrepreneurship is
related to the creativity, ideas, innovation and the development. The entrepreneurship startups
are complex by nature, as they have their own lifestyle. They could take different shapes,
including, individual effort, family and friends, low investment, angel investors and teamwork.
The entrepreneurship lifecycle could be described according to Kesim & Salamzadeh (2015) and
Mueller, Volery, & Siemens (2012), as follows:
First: Bootstrapping stage
This is the very early stage, in which the entrepreneur starts to implement his activities to
configure them into a profitable business. He considers the level of risk, continues to work on his
new idea, create a team, uses his personal funds and argues his friends and family members to
invest in his idea. Bootstrapping refers to acquiring or using resources without borrowing. This
stage prepares the venture for growth by managing cash, demonstrating the feasibility of the
product, building and managing teams.
Second: Seed stage
This stage is characterized by entry into new markets, teamwork, average investments
and valuation of the venture. This stage involves high uncertainty, the initial capital is used to
produce products or introduce services. A large number of entrepreneurs fail at this stage due to
the lack of support mechanisms. In the best case, the business could turn into a low profit with a
low rate of success. The business that could survive in this stage has a big chance to become a
profitable company.
Third: Creation stage
At this stage, the company starts to sell its products, hire employees and enter new
markets. At the end of this stage, the organization is formed. It is argued by researchers that the
entrepreneurship stops when this stage ends.

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Second: The lean startup
The spread of the lean startup reveals that the new firms are struggling to improve their
opportunity for success by following the guiding principles and continuous learning. Creating a
business plan is the first thing that the business founder have to do. This plan describes the size
of the opportunity and offering a solution to the problem. The business plan is to be done for five
years to forecast the income, cash flow and profits. Obtaining money from investors are required
to start production activities. The feedback from customers is important as it assists in the
product development (Blank, 2013).
The idea of lean startup has started in the global arena. Entrepreneurs started local in-
person groups to discuss and implement the lean startup. The idea of lean startups is applicable
in all types of industries and in companies with different sizes. According to Rise (2011), there
are five principles to the lean startups, as follows:
 Entrepreneurs are everywhere: This means that it includes any employee within the
definition of a startup. The lean startup approach is applicable to any company size.
 Entrepreneurship is management: The startup is an organization, not a product that requires a
new type of management. It is about the way of entrepreneurship management that differs
from the traditional management.
 Validated learning: The startup goes beyond making money, creating a staff or serving
customers. They take place to learn the way of building a sustainable business.
 Build-Measure-Learn: The main activity of a startup is to put ideas into practice by creating
new products, measure the customer response and learn. The successful startups should
accelerate the feedback loop.
 Innovation accounting: The improvement of entrepreneurial outcomes, the management has
to focus on satisfying the staff. Measures as the work progress and work prioritization could
be used to measure the accountability and innovativeness of the staff.
The failure of the startups could happen due to different reasons, including the lack of a
good plan, lack of solid strategy and not conducting market research. The startup does not know
its customers or how its products should be as they did not implement the work activities. Also,
startup operates with a high level of uncertainty which makes the prediction of the future a
difficult process. The traditional management methods are not suitable for the lean startups (Rise
, 2011).

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A field study was conducted by Mansoori (2017) to describe the lean startups. Depending
on an interview-based approach, the researcher explored whether the entrepreneurs could follow
the lean startup methodology. The result of 22 semi-structured interviews with the CEOs and the
founders, revealed that the changes in the way of thinking and actions taken by the entrepreneurs
are the result of interaction between the lean startup and learning either vicarious or experiential.
Both of the two learning methods resulted in the entrepreneurs’ theory of action. This theory
agrees at most with the lean startup methodology. The 'prescriptive accelerators' empirical
phenomenon is utilized to investigate the types of learning. The vicarious learning in
entrepreneurial settings refers to the way of learning through modeling the behaviors of other
people. People learn through observation. Then, they use the coding knowledge as a basis for
their future actions. The learning phenomenon results in direct experience.
The basis of vicarious learning involves the acquisition, development or alteration of the
existing behavior patterns. Accordingly, entrepreneurs can listen and discuss various social
activities with others. This process is influential in what and how activities are learned. They
could participate in workshops to facilitate the process of vicarious learning. On the other hand,
the experiential learning assists in transforming the experience into knowledge, where
knowledge is formed due to the interaction between the entrepreneur prior knowledge and the
new gained experiences. Researchers argue that most of the learning activities are experiential
learning. The entrepreneurs move in a circular process between different learning phases, as
from acting to reflecting and from reflecting to conceptualization. Also, it is experienced by the
entrepreneurs during the business development activities. To facilitate the learning process, the
entrepreneur has to go through a specific process of acquiring and assimilating knowledge. The
highest level of learning is achieved by the entrepreneur when the experience forces him to
review his beliefs and behavioral pattern (Mansoori, 2017). Today, entrepreneurs have access to
tools and methodologies that aims to make the startup movement as a business engineering
activity of learning and experimenting. Different entities offer learning experience to the
entrepreneurs, including the research agencies and educational institutes (Weiblen &
Chesbrough, 2015). Entrepreneurs that adopt the lean startup usually conduct the contingency
approach. They use their own capabilities to develop their course of action. The entrepreneurial
activities could be classified into two groups. The first focuses on controlling and the second
focus on predicting (Honig & Hopp, 2016).

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Some researchers as Rasmussen & Tanev (2015), argue that the lean startups and the
born global firms face the same challenges in the early stages of their life cycle many of these
challenges result from the dealing simultaneously with early internationalization, partnership
relationship management, business modeling, uncertainty conditions and resource allocation. The
integration of the two approaches results in the conceptualization of the "lean global startup" that
merges the two streams and represent a new type of organizations.
The entrepreneurs have to formulate performance indicators to help them in measuring
their performance and align the product and business processes. They are used by the
entrepreneurs to measure the return on investment (ROI) and the results of marketing programs.
Among the top metrics are the sales, website traffic, quality and high rates of conversation
(Mansour & Barandas, 2017).
Third: Challenges of startups
Most of the challenges that could be faced by the entrepreneurs in their startups are
unique and have a varying effect on the business. The main challenges that are common among
entrepreneurs could be addressed according to Kesim & Salamzadeh (2015), Saffer (2011),
Welter (2005), Myers & Chan (2017) and Viinikainen (2013) as follows:
 Financial challenges: finance should be provided in the early stage of the startup process. It
is a common challenge for the entrepreneurs to face financial problems in the different stages
of the business. In the early stages, the business founder needs money to be invested in the
business. Afterward, he wants the money to expand his business. Then, he could search for
an angel investor to convenience him with his idea and the prepared business plan.
 Human resources: The entrepreneur usually starts the business and he might find a co-
founder or some cofounders. As the business grows and time goes by, he will need a staff to
assist him. The entrepreneur starts to select people and employ them. This process is essential
to success, but the founders should have the sufficient knowledge to lead the business to
success. The startup could fail due to the human resource reasons. The best startup is the one
that could hire the best people. Also, that could convince the team to join his business rather
than another startup.
 Support mechanisms: A number of support mechanisms could have a significant effect on the
startup of the business. They could include the angel investors, incubators, accelerators,

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venture capitals, technology and small business development centers. These support
mechanisms reduce the risk.
 Environmental elements: They refer to the existing trends, legal issues, market limitations
and governmental regulations. It represents a challenge in the startup phase more than in the
later stages of the business lifecycle.
 Market: The market size represents an important indicator of the ability of the business in a
startup to attract angel and venture money. As the market size increases, it could supply
returns to the investors.
 Management team led by an entrepreneur: The existence of the entrepreneur as a team
manager provides good knowledge technological knowledge to the business and increases
the skills of the staff. The serial entrepreneur who gained knowledge from past experience is
the best manager. Also, he is willing to take the risk. Accordingly, the traditional way of
management is likely to create obstacles to the business.
Fourth: Examples from the practical world
Empirical examples show that only startups that could succeed are those who could
attract and retain the talented people. The smart entrepreneurs and smart venture capitalists apply
this rule. Jeff Clavier, the managing partner of SoftTech, as cited in Devaney & Stein (2011),
says that he looks for talents and leaders who can attract and retain these talents. Leaders with
charisma and technical experience are the most desirable in their company. This type of leaders
accelerates the business ability to succeed. He adds, that in the current environment, slow
execution is unacceptable.
Another empirical example is the survey made by the Kauffman Foundation and
LegalZoom in 2012. It was conducted in the US and Europe. The survey results revealed that
entrepreneurs faced difficulties in access to credit, high cost and undesirable terms of obtaining
the credit, underperforming sales, falling real estate values, the unpredictability of the business
conditions in general and high rate of delinquent customer debt. The governmental regulations,
in general, did not represent a major challenge, but the tax rates accounted for about the half of
the respondents' answers as a major challenge, followed by the licensing issues (Marion, 2015).
Another survey conducted by the World Bank revealed that the reasons of the failure of
the startup are the overestimating success, misplaced purpose, negative mindset, poor

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organization, Lack of employee motivation, lack of support low rate of knowledge and
technology transfer, lack of appropriate skills and absence of a special government program to
support the entrepreneurship. This survey took place in micro, small and medium companies in
Georgia (Kanchana, Divya, & Beegom, 2013).
Fifth: Recommendations
There are four policy areas, according to that are considered important in the startup stage
entrepreneurship and the types that have the chance to emerge. They are represented in the
availability of skills, financial access, regulations and the fear of failure. The future
entrepreneurship is likely to develop as long as it could obtain the required skills. It has to
maintain innovation and to assure it could select and retain the best capabilities. Also, access to
information is very important and facilitation of knowledge sharing enables the organizational
learning. The support mechanisms are important in fostering the learning process. This could
help the business to grow and maintain its innovative capacity (Braunerhjelm et al., 2016).
Conclusions
The entrepreneurship startups are complex by nature, as they have their own lifestyle.
The spread of the lean startup reveals that the new firms are struggling to improve their
opportunity for success by following the guiding principles and continuous learning. The idea of
lean startup has started in the global arena. Entrepreneurs started local in-person groups to
discuss and implement the lean startup. The idea of lean startups is applicable in all types of
industries and in companies with different sizes.
The entrepreneurs move in a circular process between different learning phases, as from
acting to reflecting and from reflecting to conceptualization. To facilitate the learning process,
the entrepreneur has to go through a specific process of acquiring and assimilating knowledge.
The highest level of learning is achieved by the entrepreneur when the experience forces him to
review his beliefs and behavioral pattern. Entrepreneurs that adopt the lean startup usually
conduct the contingency approach. They use their own capabilities to develop their course of
action. Empirical examples show that only startups that could succeed are those who could
attract and retain the talented people. The future entrepreneurship is likely to develop as long as
it could obtain the required skills. It has to maintain innovation and to assure it could select and
retain the best capabilities.

11Entrepreneurial lean startup
References
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Business Review: http://hbr.org/2013/05/why-the-lean-start-up-changes-everything
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challenge. Sweden: Swedish Entrepreneurship Forum.
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