What Is A Lean Startup?

A startup is a human institution designed to create a new product or service under conditions of extreme uncertainty.” ― Eric Ries, The Lean Startup

According to stats, 90% of all startups fail, with 20% of those failing in the first year of business. One of the main reasons for this failure is simply because there’s no market for the products or services they’re trying to sell. Regardless of what business you’re entering into, you’re going to have both setbacks and successes. But if you start your business on the right foot, you’ll have a better chance of making it through that first year and well into the future.

That’s where the Lean Startup Method can play a part. It was originally developed by Eric Ries, a US entrepreneur and founder of the Long-Term Stock Exchange. His book, The Lean Startup, is available in 30 languages and highly regarded.

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So, what is the Lean Startup method all about?

The Lean Startup Method essentially sees businesses develop products that consumers have already shown interest in, knowing that you’ll have customers once you market your product. This is compared to the traditional method where business owners generally develop a product, and then try to captivate the market.

The Lean Startup Method provides a scientific and systematic way that business owners can bring a new product into the market. It uses data to speed up a product’s development, giving business owners an idea of how to set up their business and how to move forward with it. The end goal = success.

It’s essentially a great way for entrepreneurs to get their product onto the market fast, and more affordably by decreasing the time in development and planning, and simply getting the product out into the market.

Five principles of the Lean Startup methodology

1. Entrepreneurs are everywhere

As long as you have a good idea that could make a viable business, you can be an entrepreneur. It doesn’t matter if you don’t have an office, and it’s not important how many people you have working for you. As long as you have drive and the right resources, you can succeed.

2. Entrepreneurship is management

All businesses need management, and that includes start-ups. Lean start-ups, however, require flexible management, and they must be willing to learn and experiment.

3. Validated learning

To build a sustainable business, lean startups need to adapt to their target market’s needs and to do that, they need to learn about them – what does the customer want and need?

4. Innovation accounting

Entrepreneurs need to be able to set goals, prioritise work and make good decisions based on available data. It’s a new kind of accounting that monitors the progress of the business.

5. Build-Measure-Learn

Understanding feedback and the market response to products is essential for future success and this is a key principle for lean methodology.

Understanding Build Measure Learn

This is where you gather and analyse customer suggestions, complaints and other feedback, and action them. Here’s how it works:

1. Build

This is where you design the product or service. Decide what you’re going to do and how it’s all going to work. Then decide how you’re going to experiment on consumers with this product – and how you’re going to collect data. It could be that you’re sending out emails and asking for a response, making phone calls, or simply heading out onto the street and asking people.

2. Measure

In this phase, you need to analyse the data you’ve received. How did the experiment go? How did people respond? This analysis of user feedback is imperative as it will help you determine whether your product or service needs changes to ensure value.

3. Learn

Finally, what lessons did you learn from the analysis and how are you going to implement them?

It’s important to understand that Build, Measure, Learn is actually a loop and before you can build, you also need to learn about your product, your intentions and your audience. If you don’t learn about your customers first, you can’t build something they will want to buy.

In simple terms, ask yourself “Does my product or service actually solve a problem for the users?” If so… decide on a course of action that will test your product or service on potential customers. Then, get feedback from those people. And finally, consider the future – will you be able to perfect your product and sustain it, into the future?

Lean business plan vs traditional

The main difference between a lean startup and traditional, is that the lean method focuses more on experimentation. It essentially begins with your business plan.

A traditional startup approach requires a multiple year business plan that gives you a glimpse of the future of your business – what you want to achieve, goals and so on. A traditional plan is centred around a summary of your business, a description and strategy, competitor analysis and market analysis, details of management and structure of the organisation, along with financial details such as projections and information about investors and invoicing.

A lean startup business model (not generally called a plan), on the other hand, is more of a summary that covers the value your business might bring to the market. It also includes key partnerships and strategies you’ll use to get ahead of your competitors, target market details, and your revenue streams.

Is the Lean Startup method only for new tech ventures?

Anyone can use the Lean Startup method – any individual, group of people, company that is looking to develop and market new products, services or systems. The techniques are used by entrepreneurs, just as much as they’re used by major corporations for the release of new products.

Final thoughts

In summary, there are three key steps for getting started on the lean startup method.

1. Have the right business idea and write your model (plan). Is your product or service going to solve problems that are important enough that people will pay for it?

2. Create a minimum viable product that allows you to test the market – getting feedback and data from a select number of potential customers. You could also consider something like Kickstarter – which gives you the chance to sell your product before it’s designed.

3. Experiment. Introduce your product to the world and test with real customers to see if your idea is viable. You’ll need to collect data and analyse it to ensure you’re on the right track.

The Lean Startup method essentially allows new business entrepreneurs and established corporations the chance to stay with the customers – understanding what they need, in order to keep your products and services on the right track.