NewTV Is the Antithesis of a Lean Startup. Can It Work?
Jeffrey Katzenberg’s NewTV, a company focused on short-form video content, is an almost $2 billion bet based on a set of hypotheses. But NewTV doesn’t plan on testing these hypotheses. With fewer than 10 employees but almost $2 billion in the bank, it plans on jumping right in. It’s the antithesis of the lean startup. And it may work. Why? Because the amount of customer discovery and product-market fit you need to find is inversely proportional to the amount and availability of risk capital.
NewTV, a new company focused on short-form video, just raised $1 billion dollars. That’s on top of the $750 million that its parent company, WndrCo, has raised for the venture. NewTV is the creation of Jeffrey Katzenberg, whose track record includes head of production at Paramount, chair of Walt Disney Studios, and cofounder of DreamWorks. Katzenberg recently hired Meg Whitman, the ex-CEO of HP and eBay, as CEO of NewTV. Their idea is that consumers will want a subscription service for short-form entertainment for mobile rather than full-length movies. The plan is to create 10-minute programs; think YouTube meets Netflix.
It’s an almost $2 billion bet based on a set of hypotheses. Will consumers want to watch short-form mobile entertainment? Since NewTV won’t be making the content, it will be licensing from and partnering with traditional entertainment producers. Will these third parties produce something people will watch? NewTV will depend on partners like telcos to distribute the content. (Given Verizon just shut down Go90, its short-form content video service, it will be interesting to see if Verizon distributes Katzenberg’s offerings.)
But NewTV doesn’t plan on testing these hypotheses. With fewer than 10 employees but almost $2 billion dollars in the bank, it plans on jumping right in.
It’s the antithesis of the lean startup. And it may work. Why? Because the amount of customer discovery and product-market fit you need to find is inversely proportional to the amount and availability of risk capital.
Most students entering college today don’t remember the dot-com crash of 2000. In fact, most of them were born that year. As a reminder, the dot-com crash was preceded by the dot-com bubble, a five-year period from August 1995 (the Netscape IPO) to March 2000 when there was massive wave of experiments on the then-new internet, including in commerce, entertainment, nascent social media, and search. All of a sudden risk capital was available at scale via public offerings. Tech IPO prices and subsequent trading prices were disconnected from revenue and profits. Some have labeled this period as irrational exuberance. But as Carlota Perez has so aptly described, all new technology industries go through an eruption and frenzy phase, followed by a crash, and then a golden age and maturity. Then the cycle repeats with a new set of technologies.
Given the stock market was buying “the story and vision” of anything internet, inflated expectations were more important than traditional metrics like customers, growth, revenue, or, heaven forbid, profits. Startups wrote business plans, generated expansive five-year forecasts and executed (hired, spent, and built) to the plan. The mantra of “first-mover advantage,” the idea that winners are the ones who are the first entrants in their markets, became the conventional wisdom in Silicon Valley. First movers didn’t understand customer problems or the product features that solved those problems (what we now call product-market fit). These bubble startups were actually guessing at their business model and did premature and aggressive hype and early company launches and had extremely high burn rates — all predicated on the idea that they would IPO to raise more cash. To be fair, in the 20th century there really wasn’t any other model for how to build startups other than write a plan, raise money, and execute — and the bubble put this method on steroids.
Then one day it was over. IPOs dried up. Startups with huge burn rates — building leases, staff, PR and advertising — ran out of money. Most startups born in the bubble died in the bubble.
After the crash, venture capital was scarce to nonexistent. (Most of the funds that started in the late part of the boom would be underwater.) Angel investment, which was small to start with, disappeared, and most corporate VCs shut down. VCs were no longer insisting that startups swing for the fences. In fact, they were screaming at them to dramatically reduce their burn rates. It was a nuclear winter for startup capital.
The idea of the lean startup was built on top of the rubble of the dot-com crash.
With risk capital at a premium and the public markets closed, startups needed a methodology to preserve capital and survive long enough to generate revenue and profits. And to do that they needed a different method than just “build it and they will come.” They needed to be sure that what they were building was what customers wanted and needed. And if their initial guesses were wrong, they needed a process that would permit them to change early on in the product development process when the cost of changes were small — the famed “pivot.”
Lean started from the observation that startups were not smaller versions of large companies; large companies executed known business models, while startups searched for them. Yet while we had plenty of tools for execution, we had none for search. So we built them. It helped that, in the nuclear winter that followed the crash, startups and VCs were amenable to new ideas.
As described in my HBR article “Why the Lean Start-Up Changes Everything,” we developed lean as the business model/customer development/agile development solution stack where entrepreneurs first map their hypotheses about their business model and then test these hypotheses with customers in the field (customer development) and use an iterative and incremental development methodology (agile development) to build the product. This allowed startups to build minimal viable products — incremental and iterative prototypes — and put them in front of a large number of customers to get immediate feedback. When founders discovered their assumptions were wrong, as they inevitably did, the result wasn’t a crisis; it was a learning event called a pivot — and an opportunity to change the business model.
The result? Startups now had tools that sped up the search for customers, reduced time to market, and slashed the cost of development.
Every startup is in a race against time. It has to find product-market fit before running out of cash. Lean makes sense when capital is scarce and when you need to keep burn rates low. Lean was designed to inform the founder’s vision to operate at speed, not as a focus group for consensus for those without deep convictions.
Today, memories of frugal VCs have faded, and the structure of risk capital is radically different. The explosion of seed funding means tens of thousands of companies are getting funding, likely two orders of magnitude more than received Series A funding during the dot-com bubble. Mobile devices offer a platform of several billion eyeballs. And corporate funds, sovereign funds, and even VC funds have capital pools of tens of billions of dollars — all looking for the next Tesla, Uber, Airbnb, or Alibaba. Most of them are willing to bet on someone with a successful track record like Katzenberg, who has a vision of disrupting an entire industry.
In short, lean was an answer to a specific problem, one that most entrepreneurs still face and that ebbs and flows depending on capital markets. It’s a response to scarce capital, and when that constraint is loosened, it’s worth considering whether other approaches are superior. With enough cash in the bank, Katzenberg can afford to create content, sign distribution deals, and see if consumers watch. And if not, he still has the option to pivot. And if he’s right, the payoff will be huge.
Steve Blank is an adjunct professor at Stanford University, a senior fellow at Columbia University, and a lecturer at the University of California, Berkeley. He has been either a cofounder or an early employee at eight high-tech start-ups, and he helped start the National Science Foundation Innovation Corps and the Hacking for Defense and Hacking for Diplomacy programs. He blogs at www.steveblank.com.
NewTV Is the Antithesis of a Lean Startup. Can It Work?
Research & References of NewTV Is the Antithesis of a Lean Startup. Can It Work?|A&C Accounting And Tax Services
Source
0 Comments
Trackbacks/Pingbacks