Starting a business is not an easy endeavor. According to National Business and Capital Services,
90% of online startups fail to ever make it past year one.
Entrepreneurs don’t have access to the level of resources that big businesses do. Thus, if a new venture fails for a big business, the costs are typically absorbed by other areas and life goes on.
But for an entrepreneur, the failure of a new venture usually leads to its demise. The Lean Startup methodology is designed to help reduce an entrepreneur’s exposure to risk.
Let’s talk about what the Lean Startup methodology is, how to use it, and much more.
What is the Lean Startup Method?
The Lean Startup methodology is a strategy that helps businesses determine if they have a practical business model and will help with developing the products or services. It is a scientific approach to launching a startup that focuses on using customer feedback to guide and speed up the product’s development.
The lean startup focuses on innovations rather than using an established business model that traditional businesses use. It uses the Lean Startup cycle, which is known as Build-Measure-Learn to bring about faster ideas, build a minimally viable product, measure its effectiveness, and learn from experience.
Where does Lean Startup come from?
Eric Ries wrote the book, The Lean Startup, which was released in 2008. The basis of this book was to help startups navigate and minimize risk. Out of the types of businesses, the risk is the characteristic that distinguishes a startup. Entrepreneurs leave the stability of a job to venture out into the unknown.
The Lean Startup method uses minimum viable products (MVP’s), rigorous experimentation, and learning to minimize these risks. The core of the lead startup methodology is centered around creating a sustainable business that wastes a minimum of time and money.
Ries created the concept based on two failed businesses in his portfolio and the streamlined process that the Japanese developed to create cars after World War II. Regarding the failure of two of Rie’s businesses, he had spent a lot of time and money to build those products. However, there was no confirmation that these products solved a real problem that lead to their failures.
The model that Japanese car companies used to build cars revolved around reducing and eliminating waste. The purpose was to get the end product to the customer for the highest value and the lowest costs.
Impact of Lean Startup on Product
The traditional way to start a new business and create a product starts with creating a business plan. This statistical document goes into detail on describing the size of an opportunity, what problem it solves, and the solution the business will provide.
Business plans often include five-year forecasts of income, profits, and cash flow. A business plan is written before an entrepreneur has even started to build the product itself. It is assumed that you can figure out the unknown aspects of a business before raising money or executing the idea.
The entrepreneur uses the business plan to generate money from investors. With this investment, the entrepreneur starts to develop the product in a similar, narrow way. The development team puts tons of time to launch the product, without any input from the customer.
The only time the team gets feedback from customers is after its launch. Through this resource-intensive approach, entrepreneurs will learn whether or not customers actually want the product. All too often, they find out that customers don’t.
The lead method tears this approach to product development apart. Instead of spending months researching and planning a product or service, the entrepreneur comes up with a set of hypotheses they wish to test.
These hypotheses are put into a framework called a business model canva, instead of writing a detailed business plan. This diagram depicts how the company will create value for itself and its customers. Lean development creates an MVP initially to allow the business to test, learn, and iterate in fast cycles. This occurs all while the product team is continually gathering feedback from end-users.
How does Lean Startup Work?
The Lean Startup cycle generates innovation by using fast iterations to enable product teams to identify a viable product, optimize it, and improve the business model. The Build-Measure-Learn cycle is explained below.
Build
The creation of a minimum viable product is the start of the Lean Startup methodology. A minimum viable product is a product or service with enough features to appease your customers while providing time to test the success of the product in the market.
The questions that you should be asking yourself at this stage include “Should this product be built?” and “Can we build a sustainable business around this set of products and services?”. Your MVP is built around helping you answer these questions.
An MVP is not a product or service that’s intended for all of your customers. It should be targeted at a small subset of customers. The build component is the first aspect of the lean startup methodology. Therefore it is recommended to create a basic product or service during the beginning of your startup.
Measure
The next part of the Lean Startup cycle is to effectively measure the results of your minimum variable product. This happens as you continue with the development of the product. The process of using feedback to make changes to your product is called agile development.
Using the feedback that customers provide enables you to enhance the product with richer features. If the MVP isn’t gaining traction with customers, getting rid of the basic product can happen without using too many resources.
Measuring feedback can be done in different ways. For example, let us say that your startup business exists online only. You could gather feedback by using surveys and reviewing your website’s analytics. These pieces of feedback will help determine if you’re product is doing well and areas of improvement.
Learn
The most challenging part of the Lean Startup cycle is learning from the data and feedback that you’ve received. But it is a critical process if you intend to eventually launch your product or service to the market.
Some feedback that you may receive won’t help with creating a successful product. The best way to use customer feedback oftentimes is to identify what’s not working and refine the product or service. Based on your learnings, you’ll decide if you should build out your business idea or pivot to something else.
Principles of the Lean Product Development Process
There are five key principles of the Lean Startup Methodology. Below, we’ll explain each of these principles in greater detail:
Entrepreneurs are Everywhere
The lean startup principles can apply to anyone who has a startup. Whether you work out of your bedroom, rent a co-working space, or have a huge office downtown, you’re an entrepreneur. It doesn’t matter if you’re the only worker, have 10 employees, or more than 50. The lean product development process is beneficial if your goal is to save time and resources.
Entrepreneurship is a Management Role
Just like any other type of business, startups need management. The type of management that a startup has is slightly different from a traditional business. For example, established businesses typically have many set protocols. Entrepreneurs must react quickly to risky situations, empower employees to experiment, and do other activities that can’t foster in a set operational model.
Validated Learning
Validated learning includes conducting experiments, gathering results, and making decisions based on relevant data. That’s how lean startups can build a sustainable, practical business model. If the product doesn’t solve a problem from customers based on the learnings, you must pivot or adapt your product accordingly.
Innovation Accounting
Entrepreneurs must use data appropriately to make the right decisions and create a sustainable business. Prioritizing work, setting up milestones, and monitoring processes objectively are among the competencies an entrepreneur must be proficient at.
Build, Measure, Learn
The loop called “Build, Measure, Learn” uses minimum viable products and experimentations to decide if a product or service will work. If not, an entrepreneur may pivot to another idea or work on adapting the product so that it solves customer problems. The loop is also used to learn what features need to be upgraded, added, or scrapped.
Advantages of Lean Startup
The benefits of the Lean Startup Methodology are why many businesses use its principles to drive new ventures. It’s important to remember that it is not a guaranteed way to success. But using the lean approach will enable a company to test ideas in a faster, inexpensive way with its target audience.
The benefits of using the Lean Startup Methodology include:
- Reduces costs – Eliminating waste leads to reduced costs. The Lean Startup approach removes any step that doesn’t lead to sustainable development. That means expenses are minimized while profiting increases.
- Improves responsiveness and flexibility – A streamlined production process allows your business to meet customer demands more effectively. Your product is available to customers that want or need it at the right time.
- Lower uncertainty – New ventures go into the unknown where you don’t have a history of past performance to guide you. The lean startup method provides a framework to create certainty. You create goals and hypotheses, experiment, test, and receive feedback to give you a process to navigate.
- Higher product quality – Using the Lean Startup Methodology, businesses have a set of techniques and tools to help them find the root cause of problems. This strengthens the process and avoids the problem from happening again, thereby improving its quality.
- Increased productivity – The focus of the business is on what really matters so that allows it to develop faster. Money and time are saved, while productivity grows.
- More intimacy with customers – When applying the Build-Measure-Learn approach appropriately, it is easier to understand the customer’s needs and expectations. With greater proximity to customers, it’s easier to build loyalty.
- Fewer defects – When a product has defects, money and time go wasted. It also increases the risk of not being able to deliver a final product on time. Lead methodology eliminates defects so they are made right to start with.
- Better chances of success – Using the Lean Startup Methodology isn’t going to necessarily lead to success, but the chances do improve. Roughly 50% of new U.S. businesses fail within the first five years. Lean Startup creates structure, reduces waste, and increases productivity to provide tactics to survive.
Who uses the Lean Method?
The inspiration behind the lean startup methodology was startups. However, that doesn’t mean the method only works for them. Organizations and companies of any size can leverage the methods and techniques of lean startup. It’s not about the size of the business. Utilizing the process is the important part of using the method.
Let’s look at a couple of examples of businesses that used the lean startup methodology to build a successful, sustainable business model.
Slack
The online messaging platform, Slack started out as an internal office tool for a gaming startup. The company called TinySpeck tried to launch a game called Glitch. However, it wasn’t successful.
So they pivoted their business to develop a messaging tool that was popular with its staff. Slack used feedback to help refine and review its product, gradually releasing it to more external users. It’s estimated that the number of monthly active Slack users will reach 79 million by 2025.
Dropbox
Arguably the best-known success story of using the lean startup methodology is Dropbox. This online service is sharing platform that allows users to send files that are too big to send as email attachments. Drew Houston, the founder, and CEO of Dropbox launched it initially as a video.
Using this MVP, the company was able to show others how their product was needed and unique. The screencast dove subscriber growth that allowed Dropbox’s product team to refine and align its product with customer needs. Registered users of Dropbox grew from 100,000 to over 4 million in less than 18 months.
General Electric
Working closely with Eric Ries, General Electric developed FastWorks. This is a program design that brings together its approach to product development and lean startup principles. The center of FastWorks revolves around Rie’s approach of testing prototypes with customers and iterating based on feedback. The French door fridge was one of the products that were developed using this program design.
Over 40,000 General Electric employees have been trained on the lean startup methodology which is used to develop products from lightbulbs to gas turbines. Using the lean startup approach, General Electric reduced the cost of developing gas turbines by 40, according to Bloomberg.
Buffer
This social medic content management platform helps users schedule and share content. Instead of launching an app, the founder of Buffer designed an MVP. This came in the form of a landing page that included a call to action button with plans and pricing.
The purpose of this strategy was to help assess the demand for the app and validate the form of the product to a user base. Customers that were interested in the product clicked on the button and clicked again to add different package details. Buffer is now a multi-million dollar startup success story.
