All startups are experiments in the first place, without any certainty of what’s going to happen. What is the business model? Is there a proof of concept or minimum viable product? Do you have a prototype, a plan for commercialisation? Is there a market for your product or solution? Do you have, or plan to raise, enough seed funding needed to get through the early stage?
What should be done to find out the answers to all these questions? Until you find the right path forward, it’s preferable to be a lean startup. Let’s start by learning what is lean methodology, what are the benefits or advantages, and what you need to do as a startup.
Definition of lean startup
A lean startup can be defined as an organized approach to start a business that relies on validated learning and testing and constant product or service version releases to shorten development cycles, measure process and also gain valuable real customer feedback.
Professor Parameshwar P Iyer, Head of Placement and Industrial Liaison at the Department of Management Studies, IISc, calls it the Fail Fast methodology – if you must fail, better to fail in the first 3 months than put in 3 years of time, money and effort to build a product, protect the IP and then find that nobody wants it.
So when you have POC or MVP, that’s your lean startup. You find an initial paying customer or two with a problem that your product or solution can tackle. That is enough funding to help you develop the product and solve their problems. Now that you have a product demonstration, you go to an angel investor to take you further ahead, get more customers and start generating revenue.
This is where you go to a VC for growth funding, and then you have a choice to get past the lean startup phase.
The Lean Startup – a book by Eric Ries
This methodology was first proposed by Eric Ries in 2008 in his book The Lean Startup, which is based on his personal experiences.
The book explains the lean methodology to develop your product / service based on Validated learning, by getting feedback from real customers often and quickly. It’s a method that values capability of businesses to change at a fast pace.
The lean startup methodology is important for new as well as established companies. It helps entrepreneurs, product builders and managers to eliminate delays by making better and faster business decisions.
Build-measure-learn loop
The aim is to minimize the effort, resources and time needed to figure out whether your product/ service should be built, to start with.
This is done by building a minimum viable product (MVP) to be used by a handful of customers, take their feedback, and learn from the experience to make the necessary changes and improvements.
More MVPs means more tests, more data and more validation. This cycle of Build – Measure – Learn continues to Improve the product/service continuously.
Build-Measure-Learn can be followed in anything – a customer service idea, website offers, new features added to product, and so on. The goal here is to get MVPs tested and collect the data in a manner that’s fast and easy.
This is why Eric Ries advocates this methodology. Each cycle of MPVs, testing and Real Customer Feedback brings your startup or business closer to the final product or solution that can be commercialised and marketed effectively.
Lean startup principles, as per Eric Ries
These are the 4 Lean Startup principles outlined by Eric Ries:
- Entrepreneurship is management – Anyone trying to create a new product without knowing what’s going to happen is an entrepreneur and the venture is a startup. As an entrepreneur, you must know how to take the venture through the various stages, from concept to MVP to a funded startup and commercialisation. It is easier to avoid mistakes when you can check the data and determine the next steps.
- Validated learning – As per definition quoted, “Each test of an idea is a single iteration in a larger process of many iterations whereby something is learnt and then applied to succeeding tests. The term coined in the lean startup scene, but it can be applied universally.” With validation, you can identify the risks involved and make changes accordingly for a successful launch.
- Innovation accounting – This is a necessary analysis for entrepreneurs to maintain accountability and maximize outcome. It involves measuring growth, setting milestones and prioritizing.
- Build-measure-learn loop – This feedback loop enables the lean startup model to work. It means that the main action of a startup is to transform ideas into products / services, measure metrics by collecting real customers feedback, and determine the need to Pivot Or Preserve.
- Pivot – Pivot decision is made once the company gets through a Build Measure learn feedback. It is a structured course correction in product / service designed to test the basic assumption about the product.
- Preserve – The original MVP has positive feedback, so the plan should be to continue using the same business process, and product or service.
Misconceptions about lean startups
There are many misconceptions about the Lean Startup theory.
- Lean startup is only for internet companies.
- Lean means cheap and small.
- Pivot means changing business model or product completely.
But they are not at all true. Startup applies to all types of micro and small businesses, in any industry and field. Lean means a smaller team with less spending. The pivot is determined by clear collection of data or customer feedback and learning derived from it. It is about speed of learning and changes made accordingly.
Examples of lean startups
- Product Hunt – Started from an email list experiment turned into venture-funded startup community with thousands of users. By collecting positive feedback, the email list was transformed into a website. Today that MVP has evolved into a blooming online community with more than $7 million funding.
- Dropbox – Made file sharing extremely easy to use.Using Lean Startup principles, in just 15 months, Dropbox went from 100,000 registered users to over 4,000,000.
- IMVU – World’s largest 3D chat and dress-up community. IMVU uses testing to develop new product features and processes to develop those features. It has reached 50 million registered users and a $40+ million annualized revenue run rate.
- Grockit – Enables social learning, specifically test research and preparation (SAT, LSAT, etc). The company uses agile development to create product quickly, and follows this even now. On any given day, Grockit’s online learning platform hosts 1,000 cross national border communications and supports users across 150 countries.
Advantages of lean methodology
- Eliminates waste
- Minimizes inventory
- Designed for rapid pivots in your product development
- Creates a culture of constant improvement
Brief Pointers:
Product / service market fit matters.
Test everything, whether you think you know or not.
More real customer feedback means more data and more successful product / service outcome.
Maximize validated learning.
The goal at the end is to create a measurable result in proficient, minimum and lean way.