“The Lean Startup method is not about cost, it’s about speed” – Eric Ries
More than 50 percent of small businesses fail in the first four years.
This fact is not to hinder you from carrying out your dream venture but a reminder that not every idea that shapes into a business model will succeed. And apparently, most of them don’t!
So, an entrepreneur must not take a leap of faith into a certain business idea and before venturing into a business, they must have a contingency plan for what if the business fails. When the business fails, an entrepreneur might not have lost all their finances and resources, but they lose their willpower to work on a new idea.
To avoid this issue, a solution to it is a methodology to make and execute a strategy to accelerate the go to the market time and the feasibility of business. Such methodology is called Lean Startup.
Lean Startup: What does it mean?
Lean Startup is a methodology of deriving the shortest possible way of developing a product by reducing the time and fund invested in development cycles and it is also used to undertake a feasibility test of whether it is viable to carry out a certain business or not.
But, most of the entrepreneurs and corporate leaders have misconceptions and faulty understanding about this approach.
Myths about Lean Startup
- Lean means you’re not thinking big
- The first thing is to validate a solution
- Lean startup focuses on Failure
- Lean approach is not for the large enterprise; it’s only for startup
- Lean startup replaces vision with data and customer feedback
However, in reality, any company big or small can benefit from Lean Startup techniques. GE FastWorks launched 100 projects globally by using the Lean Startup approach. The other supporter includes QUALCOMM, Intuit to the name of few.
Lean has nothing to do with how much money a company makes or invest rather it’s all about meeting the customer’s demand with the least amount of resources.
Let’s see why customer development is important and what methodologies can be used?
Lean Startup Methodology: The Customer Development Manifesto
The Lean Startup Methodology is based on customer development methodology. Developed by Steve Blank it emphasizes “Learning about customers and their problems as early in the development process as possible.”
Lean Customer Development in Action
Customer Development helps to avoid mistakes and identifies the new market opportunities. Instead of assuming your beliefs about your businesses to be true, entrepreneurs must focus on scientific methods to validate the idea.
Before, proceeding with product development ask yourself
- Who are your customers?
- What are their needs and what problems they are facing?
- What is the existing scenario?
- What solution you can provide your customer?
- How you will provide solutions that work?
To come up with the best product, Eric Ries in 2011 proposed Lean Startup methodologies which describe:-
- Hypothesis-Driven Experimentation: Rather than focusing on only planning and research, entrepreneurs must think about new ideas to achieve an expected outcome. Uncertainty can be eliminated by conducting hypothesis-driven experiments to validate ideas. This ensures that teams are getting their task done by discarding bad ideas. Lean isn’t just about failing fast, failing cheaply. It is about putting a process, a methodology around the development of a product.
- Iterative Product Releases: If the companies invest their time in iteratively building products to meet the needs of early customers, they can reduce the market risks and can even avoid the large funding and expensive product launches and failures.
- Validated Learning: The process involves the testing iterations at every step. Through validated learning, it is possible to make decisions based on the data rather than speculations.
By employing these methods, the businesses will have a certain way of getting to a conclusion instead of employing trial and error method.
What is the process of successfully employing Lean Startup methodology?
To understand how you can shorten the product development cycle and how you can check the feasibility of the business, below is the process of employing Lean Startup methodology:
The Process of Lean Startup: Build-Measure-Learn feedback loop
The first thing that an entrepreneur needs to understand is that the Lean Startup is not a onetime process, it is a loop that needs to be followed at each stage of the business and the process of Lean Startup is actually a loop.
As said earlier, ideas and businesses are to be based on statistics and figures and not on sentiments and assumptions! While it might not be possible to study the whole market, but it is essential that a certain sample research is done before identifying a pain point or a gap in the market and then ideating it into a certain business model.
Accelerated Development of Minimum Viable Product (MVP):
A business idea may comprise of many different products and services, but, an entrepreneur must understand that it is a bigger financial as well as strategic risk to launch a business to the end-customer only after completing the whole product or service. And instead of taking such risk, an entrepreneur must break their product into phases and launch it to the customers as soon as they have a Minimum Viable Product.
MVP is developing a product with all the basic requirements and launching it to a smaller group of customers. This will enable them to test and measure the performance of their product in the market and before the whole product is ready to be launched in the market for mass consumption, it will already have a strong base of established customers.
Even developing an MVP can be accelerated! Below are the factors to be employed to attain accelerated development of MVP:
- Unit Tests
- Usability Tests
- Continuous Integration
- Cluster Immune System
- Just In Time Scalability
- Cloud Computing
As soon as the product is launched in the market, it is to be measured continuously. Continuous measurement can be attained by employing the following tasks and methodologies:
- Split Tests
- Continuous Deployment
- Clear Product Owner
- Real-time monitoring
- Funnel Analysis
- Net Promoter Score
- Real-time Alerting
- Predicting Monitoring
So, if the performance of the MVP is as expected, then the development can be carried forward towards the next phase, and if there are certain setbacks, they need to be rectified and ensured that they are not repeated in the further development.
But, if the product fails at capturing the market, it is a clue to the entrepreneur to initiate major changes in the business model by identifying the problem or to shut the doors permanently to avoid further damage.
One of the most important aspects of Lean Startup is learning, as soon as an entrepreneur launches a product in a market, they start generating data. And it is essential that all that data is analyzed and certain outcomes or learning is derived from it. Then that outcomes or results are to be used for the betterment of rest of the product and making the wider product more profitable.
Pivot is changing a business strategy to test a new approach for your product after receiving direct or indirect feedback. Taking a pivot decision is one of the toughest decisions for entrepreneurs as they have invested much time and money with the high expectations of the product. There are different types of Pivot, each designed to test the viability of the products. It includes:-
- Zoom-In Pivot: Entrepreneurs can use this pivot when they see that one feature in the product is gaining a lot traction than others. They can then pivot, by offering the whole new product with a single feature.
- Zoom-Out Pivot: It’s a reverse of the above pivot. Sometimes features in the product are insufficient to support the large customer base. You need to broaden your product to support more features. In this case, the whole product becomes a single feature of the much larger product.
- Customer-segment Pivot: Your product may have got good ratings in the market but not from the users which you have targeted. In such a scenario, you need to redefine your product positioning, value proposition, pricing, and channels.
- Customer-need Pivot: From customer feedback, you may realize that the problem your product is not really very important to customers. In this case, you must understand the problems more deeply. You may need to do repositioning or build a new product to solve their problem.
- Platform Pivot: In this case, you need to change your application platform or vice versa. You may be surprised to know that brands like Uber, AirBnb, eBay etc. need to opt form platform pivot to support certainty.
- Business architecture pivot: There are two types of business: high-margin, low-volume businesses and low-margin, high-volume businesses. You cannot be both but sometimes you can pivot from one to the other.
- Value Capture Pivot: This refers to the modification in revenue or monetization model. When you change the strategy of making money it impacts the product, business, sales, marketing and operational sides of the business model.
- Engine growth Pivot: Generally startups use three primary growth engines: the viral, sticky and paid growth model. They can pivot from one of this growth engine to another.
- Channel Pivot: Here you need to change how and where you sell your products and services. (In-store, online, in-app etc.)
- Technology Pivot: Use of modern technology to achieve the same outcome. It is helpful if technology provides a cost-effective or better-performing solution.
Apart from this, there are certain principles that an entrepreneur must follow for successful execution of Lean Startup methodology. Those principles are mentioned below:
Lean Startup Principles to shape your business
Entrepreneurs are everywhere
Anyone who has a startup is an entrepreneur, according to Eric Ries. He defines a startup as “a human institution designed to create a new product or service under conditions of extreme uncertainty” Regardless what size the company is, what type it is; anyone can become an entrepreneur if they’re facing uncertainty. There has never been a better time to innovate than today. Think Big – Start Small – Scale Fast.
Accounting is just not only limited to financial-based documenting revenues, losses, profits, and sales but also refers to how to measure progress, how to set up milestones, how to prioritize work etc. This type of accounting is termed innovation accounting. Think of the creative ways to solve the problem so that it has enough points of differentiation to gain an edge in the market.
Entrepreneurship is management
An entrepreneur must not forget that a business is not just a product, customer and an owner; it is an organization that comprises many different entities and subordinates. Today startups require a new type of management which have to be geared towards the context. Because there are many businesses that had amazing products and a huge market, but they failed because of their failure in management.
While most of the entrepreneurs wish to make big in the market and aim at developing a successful brand, they often restrict their vision to money making. When you run a business, it is essential to understand the market and to validate all the learning with scientific tools and methods to look over all the elements of the business and eventually develop a sustainable brand for a long and successful business future.
Lean startup is all about turning ideas into products by building the simplest product called the MVP. This is done by evaluating through tests and user feedback to collect data on how targeted user accepts the product. As stated earlier, to build a successful business, it should be processed in the feedback loop.
Compelling Benefits of Deploying Lean Startup
- The scientific approach to understanding the feasibility of the business
- Reduces the risk of economic loss
- Accelerates development of a product that is at an initial stage
- Quickly helps to learn what is not working, to make changes immediately
- Recommends to pivot or stop, if the initial plan is not working
- Progress can be tracked by user activity, engagement, and retention
The Limitations of using Lean Startup: When not to use it
- Design and product seems disorganized at the development process
- Reveals the venture idea to the competitors
- Hard to create MVP for most of the products
- Coming up with an innovative approach is a difficult job
- Uncertain projects need more time to reach their payback time
Learn Quickly: Why Lean works well than Traditional Method?
Lean doesn’t start with a business plan; it begins with a search of a business model. Only quick rounds of experimentation and feedback reveal that idea will be executed or not. Let’s see how it is different?
|Traditional Approach||Lean Approach|
|Works as per the Business Plan and is implementation Driven||Hypothesis-Driven – All scenarios are tested before implementing|
|New product development follows a linear or step-by-step plan||New product development focuses on gaining customer insights to generate test and optimize ideas for product and services.|
|Generally, the development of a product is iterative or fully specify the product before building it||Builds the product iteratively and incrementally|
|Focuses on releasing plan||Focuses on developing Minimum Viable Product|
|Sprint Review is done to inspect the increment and adapt the product backlog if needed.||Decision is made once the company passes from the build-measure-learn feedback loop. Business model/product can be modified based on MVP’s results in market|
|The team makes software ready before release when all functionality for the release has been developed. This takes a long time to release||The team keeps its software ready for release at all times during development. This takes less time to release|
|Cost can be higher||Reduces cost drastically|
Using lean methods across a portfolio of startups will result in fewer failures than using traditional methods.
When to use Lean?
- When there are shorter and less complex problems
- When developing MVP and running experiments is possible
- When there are no high-risk situations such as serious legal/compliance, brand, political or financial risks
- When you need rapid improvement
- When the problem and solution are unknown
Drew Houston – the CEO of Dropbox came up with an idea of providing storage facility in 2007. He validated his idea by releasing a simple video explaining what the product is about, how it benefits the user. He used the Digg platform and targeted the audiences that were early adopters of the technology.
Casually, the video looked like the product demonstration but fortunately, he received 5000 to 75000 sign-up forms overnight. After receiving an overwhelming customer feedback, Drew was confident about releasing the final product as it focused on solving the actual storage problem and secured file sharing. After coming up with the final version, Dropbox catered 1 million users in less than 10 months.
Summing It Up
It is necessary to understand that a big bang product launch is the perfect recipe for failure in today’s marketplace. For this big-bang, all you have to do is follow principles, keep experimenting and focus on adding value for the customers with less resource. Learn to lean to achieve favorable outcomes.
This is all an entrepreneur needs to know about Lean Startup. And it is essential to understand that, the Lean methodology is a continuous process and it is to be carried out time and again in the business.
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