In a world of uncertainty, startups need all the help they can get to navigate the treacherous waters of the business world. That’s where the “lean business startup” method comes in. But what exactly is it, and how does this differ from traditional business models? Think of the lean business startup approach as a set of principles, almost like building blocks, designed to help entrepreneurs learn faster, reduce risk, and achieve success with fewer resources.
The “lean business startup” emphasizes rapid experimentation, continuous customer feedback, and a flexible approach to product development. The core of this method involves building a minimum viable product (MVP), a bare-bones version of your product with just enough features to attract early adopters and validate your core business assumptions. Instead of spending years perfecting a product in isolation, this method encourages you to get your product into customers’ hands as soon as possible. The lean business startup involves constantly listening, learning, and iterating based on the feedback you receive.
Table of Contents:
- The Lean Business Startup Method: A Historical Perspective
- The Building Blocks of Lean Business Startup
- Innovation Accounting: Measuring What Matters in a Startup
- The Lean Business Startup Methodology in Action: A Closer Look
- FAQs about Lean Business Startup
- Conclusion
The Lean Business Startup Method: A Historical Perspective
Before I delve deeper, you might be surprised to know this isn’t exactly a new idea. The concept of a lean business startup is rooted in older practices, such as Toyota Production System. Implemented in the 1950s to combat the looming threat of bankruptcy, Toyota revolutionized its approach to manufacturing with a system that prioritizes efficiency and waste reduction. Instead of building large quantities of products and hoping to sell them, they focused on understanding what customers truly wanted and produced only what was necessary.
In the early 2000s, Steve Blank, an author and entrepreneur, pioneered a unique customer development methodology that put the Lean Startup method in motion. He stressed that businesses need to deeply understand customer needs and integrate their feedback right from the early development process.
The Building Blocks of Lean Business Startup
Validated Learning: Embracing Failure as a Stepping Stone to Success
One of the core principles of a successful lean startup is embracing “validated learning,” which is essentially learning through constant experimentation and feedback. This principle also implies being open to failure – not shying away from it but using it as a critical step to finding out what works.
As uncomfortable as failure may seem, it’s through those failures that you’ll gain valuable insights about your customers and your market. This kind of validated learning, pioneered by Steve Blank, allows entrepreneurs to shorten their development cycles significantly, making them more agile and adaptable. Like Blank advocates, validated learning emphasizes building products based on what customers actually want, not just what we *assume* they want. The entire concept can be seen as a learning cycle involving creating the product, gauging consumer response, and refining the product to target your market more efficiently.
The Minimum Viable Product: From Concept to Customer Feedback Quickly
Creating a minimum viable product (MVP) is crucial to a lean startup’s success. The MVP isn’t just a prototype or an unfinished product; it’s a strategic tool for gathering valuable feedback from early adopters.
For example, Zappos, the online shoe retailer, employed an interesting strategy. Instead of building a complete e-commerce platform, they took photos of shoes at local shoe stores and posted them on their website. When someone purchased shoes online, Zappos staff bought them from those local stores at full price and shipped them to the customers. This simple MVP allowed Zappos to validate their fundamental hypothesis: customers were ready to buy shoes online.
This simple test eventually led to an Amazon acquisition, proving that sometimes simplicity speaks louder than elaborate execution. Zappos’s early successes show that an efficient way for businesses to test an approach or their overall business model is through an MVP because it’s far more time-consuming and cost-effective than traditional methods. As we saw, testing your product firsthand with customers doesn’t require much funding.
The Pivot: Embracing Change as a Catalyst for Growth
No plan survives first contact with the customer. That’s why a lean business startup needs to be flexible and willing to adapt. The ability to ‘pivot’ is paramount in this startup strategy. What do I mean by ‘pivot’? Simply put, pivoting means making a strategic shift in your business model or product based on customer feedback. This could involve anything from refining your product’s features to entirely re-envisioning its core value proposition.
Look at the now multi-billion dollar company, Groupon, as a stellar example of a successful pivot. Initially, they weren’t offering discounts or daily deals; instead, they launched The Point, a social platform for activists to organize group activities. With a dismal start and almost no interest from its target audience, The Point’s founders shifted gears after their small attempt to organize a group pizza deal using their website’s blog drew in enough people to spark an idea.
That minor experiment illuminated a massive unmet demand: for an effective way for customers to get discounts and deals on products and services. Today, we all know Groupon. This example shows it’s more about listening and making swift adjustments than having all the answers beforehand.
Innovation Accounting: Measuring What Matters in a Startup
Traditional businesses often use metrics like net income or profit margins to measure their success. However, this won’t quite cut it with lean startups. This is where the concept of “innovation accounting” enters the picture. A “lean business startup” utilizes specific metrics—ones more closely aligned with measuring progress. These could be anything from measuring customer acquisition costs to tracking user engagement and churn rates.
There are three key levels of innovation accounting: the macro level focuses on proving that a minimum viable product satisfies the basic requirements of its intended users and target market, the micro level determines the best approaches and pathways that the business uses to get more people to use or try the product, and the split testing or AB testing which is comparing two different ways to solve the macro and micro level assumptions to see what delivers the better result. The idea here is to identify the right indicators of progress and continuously analyze those results so the startup can effectively measure the true effectiveness of the MVP as well as its marketing, pricing, and overall business strategies.
The Lean Business Startup Methodology in Action: A Closer Look
The Power of a Business Model Canvas
As you get started, one practical tool you can use is the business model canvas. This handy visual representation, Alexander Osterwalder’s brainchild, breaks down a business into 9 key elements (you can learn more about building a business model canvas here). These 9 elements cover everything from outlining the customer segments and the business value proposition to revenue streams and cost structures.
Applying The “Lean Business Startup” In Other Business Settings
As you can see, “lean business startup” isn’t just limited to startups. The concepts can apply across industries and large organizations, such as Intuit, General Electric (GE), and Qualcomm. Each incorporates lean practices into their systems with proven results. Lean has shown significant positive results in many areas, including brand management, hardware manufacturing, analytics, sales, user experience design, and event planning.
While traditionally taught to approach businesses through a 2 to 5 year business model, MBA programs have also shifted, realizing the benefits this method offers for entrepreneurial success. Educational institutions are beginning to adopt this method in their courses, highlighting modern business strategy changes. It has transitioned from traditional textbook theories to an approach that leans into market demand, allowing quicker results.
The rise of technology further amplifies the benefits of the “lean business startup” method. Launching a business with limited funds has become more achievable with innovations such as open-source software, readily available cloud services, and global access to funding and advisors.
So whether you’re a founder starting your tech venture, a budding student entrepreneur, or leading a Fortune 500 company, the “lean business startup” model has the potential to enhance innovation, agility, and growth within the business environment.
FAQs about Lean Business Startup
What are the 5 principles of lean startup?
The five core principles of lean startups are:
- Entrepreneurs are everywhere.
- Entrepreneurship is management.
- Validated learning.
- Innovation accounting.
- The build-measure-learn feedback loop.
What is an example of a lean startup approach?
In its initial phase, Zappos validated its customer base by essentially acting as a middleman. When online customers ordered through the Zappos website, Zappos bought products from a local store at full price and shipped the purchased products to those online customers. This served as a relatively inexpensive way to validate that customers would buy shoes online and laid the groundwork for a future SaaS business model.
What are the basics of lean startup?
The “lean business startup” method challenges entrepreneurs to test their core business hypothesis before committing massive amounts of time and resources. It involves a cyclical system that identifies problems and builds a simple solution. The “lean business startup” approach centers around developing a minimum viable product, launching it, measuring how customers interact with it, and continuously improving based on real-world feedback. A “lean business startup” aims to deliver products quickly based on consumer demands by continuously testing, learning, and iterating.
Is Lean startup still relevant?
In today’s modern world, lean startup methods continue to be a relevant and practical framework for starting a business and gaining quick insight into your customers. Artificial intelligence (AI) has further enhanced lean startup methodology, automating various parts of the development cycle to gain quicker results and deliver faster solutions. So, it’s not just still relevant – this powerful system can potentially drive success for modern and established businesses. For those involved in investments, adopting lean startup methods can ultimately be seen as safer and smarter for VCs to bet on startups.
Conclusion
The “lean business startup” method is more than just a buzzword; it’s a complete shift in mindset that requires adaptability, a commitment to learning, and a passion for building businesses with customer needs in mind. Instead of fixating on detailed business plans that are obsolete even before you launch, the method prioritizes action over theory and a focus on efficiency rather than just lowering costs. In a way, you could almost say this new method was the missing link for efficient growth.
Subscribe to my LEAN 360 newsletter to learn more about startup insights.
