Did you know that about 90% of startups fail? And about 10% of them fail within the first year itself?
Why do you think so many startups fail? Bad luck? Lack of money? Or lack of experience? Well, maybe in some cases, but generally, it lacks a proper approach or methodology towards launching a startup most of the time.
This gap is where the lean startup method comes in.
You have learned quite a lot from the previous article about managing and running a business using lean manufacturing practices. But even successful businesses were once a startup. Now, this article will tell you all about lean startups.
Table of Contents
What is a lean startup?
Lean startup is a methodology or an organized approach for developing businesses and products quickly to determine if the business model is viable or not. This scientific approach involves iterative product development, testing, and validated learning based on feedback From Customers.
Eric Ries first proposed the lean startup methodology in his 2008 book The Lean Startup. Both startups and established businesses use this methodology when developing a new product.
The lean startup approach focuses on designing the products or services with the potential customer in mind, adding only the features they want. It usually involves releasing an MVP (Minimum Viable Product) to the market or to a small target customer base to get feedback later used to develop the product on a larger scale.
What is the difference between a lean startup and a normal startup?
You are probably wondering what’s the difference between a lean startup and a normal one. The traditional startup approach involves creating a business plan for a couple of years and then raising funds to achieve the plan. Here, you first develop products or services and release them to the market, hoping that demand will rise.
But lean startup takes a very different approach. You first make sure that there is a demand for specific products on the market, develop and release a limited but scalable version, get honest user feedback, and then further develop it into a full-fledged product.
If you take the traditional approach, only your employees and investors know about the product during its release. And your customers may or may not need or like such a product. So your business plan has a rigid structure for a few years based on the early projections. And it’s no secret that these projects will continually change.
But the lean startup is adaptable. It uses validated learning, experimentation, and customer feedback to develop a product. Then, you release your product to the market when you know for a fact that the demand exists. And your business plan is flexible enough to change with the market changes.
What is the difference between lean manufacturing and lean startup?
Now, the question arises if lean manufacturing and lean startup are the same. The simple answer is no. As you already know, lean manufacturing is a set of practices to eliminate waste while manufacturing the product. In comparison, lean startup combines agile methodologies to develop the products that the customer wants.
Lean manufacturing is used by established businesses and large enterprises for mass manufacturing of their products. It focuses on continuous improvement by eliminating waste in every stage.
Lean startup is mainly used by startups, entrepreneurs, and established businesses to design new products. It focuses on building, testing, experimenting, receiving feedback, and learning through iterations.
While lean manufacturing is all about building and developing a product, lean startup is about what kind of product to create. The former involves improving an existing product, while the latter is more about designing a product.
What are the principles of lean startup methodology?
Eric Ries, the author of The Lean Startup movement, has explained the five fundamental lean startup principles. Let’s see them in detail.
Entrepreneurs are everywhere
“I started my company in a garage.” You might have heard this story from many successful entrepreneurs and business people. To start a business or a company, you can create it from your garage, bedroom, cafe, or nice rented office space. It doesn’t matter where you are. All that matters is that you have a startup.
Anyone who owns or has a massive role in a startup is an entrepreneur. And if you do, you can apply lean startup methodology irrespective of your company’s size. Also, you need to understand that you will have massive competition as the number of entrepreneurs keeps increasing day by day. So competition exists, and you need to stay ahead in the game.
Entrepreneurship is management
You need to understand that being an entrepreneur does not mean you don’t have to worry about management because a startup is a company. And what do you need to run a company successfully? Good management.
A startup will need a different approach than a typical company when it comes to developing new products. The same goes for management as well. You cannot have the traditional management approach in a startup.
Lean startups need flexible, adaptable, learning-oriented management, handle risky situations, and allow employees to experiment and be creative. In addition, you need to implement practices like agile and lean manufacturing.
Validated learning
The only way a startup can grow is by learning. So even though you do serve customers, make money, sell products, manufacture more goods, and all that, you cannot grow without improving your business in all aspects. And you cannot improve anything without learning.
It would be best if you validated your learning scientifically. It would be best to run experiments with various combinations to determine which version or feature works best. You must base your further plans and your decisions on these results and the data that you obtained.
The main reason why startups exist is to learn how to build a viable business. You need to validate every aspect of your business and not just your products and services.
Innovation accounting
It’s not enough if you run a business. As an entrepreneur, you need to be accountable for the outcomes too. To do that, you need to measure your progress. And the traditional approaches where your ROI (Return On Investments), number of sales, and profits are measured don’t play a significant role with startups.
Innovation accounting is a different approach to measure your progress. It involves measuring your growth through product innovation, setting new milestones, and prioritizing specific tasks and projects.
Build-measure-learn
Build-measure-learn is the core principle of the lean startup model. It is a feedback loop. It means that you, as a startup, need to build products or services, measure your performance according to your customer responses and learn whether to preserve or improve your products.
A startup can be successful if all its processes implement this feedback loop. And the loop always starts with building a minimum viable product because the main activity of a startup is to turn the ideas into products.
What are the three(3) steps in the lean startup?
Now that you know quite a lot about lean startup methodology and its principles, let’s understand how you implement it. There are mainly three steps:
Find
The very first step is to find the business idea. According to Eric Riles, “The big question of our time is not Can it be built? But Should it be made? So, it’s not just about having an idea. You should know if it will be beneficial for your customers and if it solves their problems.
In the lean startup method, your focus should be on the usefulness of your product and if you can scale it to build a sustainable and profitable business around it. Once you have found the answer, you can move on to the next step.
Execute
Now it’s time to execute your idea. And this is where you build a minimum viable product, a miniature version of your product that you can scale. You do that if your MVP gets good feedback from your small set of customers.
It would be best if you remembered to add only those features that will provide value to your customers during this stage. And never ignore their valuable feedback. It’s the customer responses to your MVP that will help you to improve your product.
Validate
Now that you have enough customer feedback and responses for your minimum viable product, it’s time to validate your product, i.e., your business idea. You test your product in the real market, experiment with it, and gather information to validate it.
With all the results and other information, you analyze it to decide whether to continue with the same version or improve it. These data also help you to build your business strategy.
Even though it seems like a 3-step process, it is a loop. You go through the whole process if you need any changes to your product.
Examples of companies who successfully adopted Lean Startup methods
Enough of theory. Let’s look at some of the companies that successfully implemented Lean startup methods.
Dropbox
Dropbox is a well-known cloud file hosting service. It started with an MVP, a video that demonstrated what the product does and immediately attracted thousands of users just for the beta version. Finally, after seven months, Dropbox launched its validated product that got a million users, and today, it has over 700 million users.
Zappos
Zappos, a pioneer in online shoe retailers, started with an essential website. The founder Nick Swinmurn uploaded pictures of the inventory and shoes from the local stores and began selling them online. Once he realized the demand, he scaled it into a billion-dollar business.
Slack
Slack, the popular messaging platform loved by the developers, was first created as an internal office tool. The company TinySpeck wanted to launch a game called Glitch, which found no success. But as their staff loved the messaging tool, they decided to scale and launch the app into the market.
Buffer
Buffer is an app that social media lovers use to schedule their posts on multiple social media platforms. Joel Gascoigne first created a landing page with a ‘Plans and Pricing” button with various packages to check how many people click on it. Once he realized that people are willing to pay for such an app, he developed it.
Criticism of Lean Startups
Like all other valuable methodologies out there, even Lean startup is not devoid of some drawbacks.
- Even though you do build a minimum viable product, chances are it might end up being an incomplete product with a handful of features.
- Not all teams are willing to indulge in continuous improvement. Some want to build a product and move on to the next one.
- You might end up building an architecture targeted to a specific number of cases or users – an MVP. This limited architecture might cause a problem to scale for more numbers.
- Your customers may not enjoy constant changes to a product with too many upgrades. They might stop using your product altogether.
Conclusion
The lean startup methodology is all about building a product, measuring its viability, and learning from its performance to create a better one. This is the build-measure-learn loop and all other principles in a nutshell. As Eric Ries beautifully puts it,
“Startups exist not just to make stuff, make money, or even serve customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision.”
