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Launching a new startup is widely considered to be a huge gamble – and for a good reason; the failure rate of fledgeling businesses is estimated to be as high as 90% in some sectors. Running an established company is challenging because of the various risk factors associated – both known and unknown.
With startups, the level of uncertainty is much higher, simply because there are far too many unknowns. For instance, will there be enough cash for everything? Will you be able to find the right staff, partners, and vendors? And most importantly, will consumers accept or reject your product?
Usually, by the time you find the answer to that last question, it is too late to save your venture from business oblivion. However, the lean startup movement is a new approach to managing startups that aims to find the answers to these questions before it is too late.
What is the Lean Startup Movement?
Lean startup is the brainchild of Eric Ries, an American entrepreneur, blogger, and author of several books on modern startup management. He started working on this new approach in 2008, based on his experiences in the VC sector.
This new approach became a massive hit in Silicon Valley in the early 2010s. Tech startups took to the lean startup movement en-masse, raising the profile of this novel approach, with the defining principle behind Reis's approach known as "validated learning."
Validated Learning
Part of the reason behind lean startup's success is its simplicity – it is easy to grasp and put into practice. Validated learning is an approach to product development that involves constant experimentation.
Within the lean startup framework, your aim should be to create a minimum viable product (MVP) as quickly and efficiently as possible – a product that you know customers will like and will be a guaranteed success when you launch it.
So, how do you develop this MVP? Through constant testing of your prototype – not just in-house, but through beta trials involving members of your target demographic. This is a very customer-centric approach to management.
You are essentially creating an iterative product development cycle based on the feedback you get from testers. If the product is found to be wanting during this testing stage, your startup must remain prepared to make hard "pivots," shifting from your original business idea to something else more promising.
How Does it Differ from the Traditional Approach?
To fully understand the basic premise of the lean startup approach, let us first recall the traditional methodology behind starting a new business. You follow a set of basic steps: have an idea, create a business plan, attract funding, recruit staff, develop the product, and sell it to the market as best as you can.
However, the problem with this model – especially for startups – is that the customer does not enter the equation until the latter stages of product development.
This is not usually a problem for businesses dealing with time-tested products and service, but the levels of uncertainty involved are too high for startups – especially as most of the time you are trying to build something that the market has not seen before. Going in blind in this scenario is near suicidal, which is why it makes sense to replace the product with the customer as the main priority.
This traditional approach relies on creating a business plan through research and planning and then sticking to it during the execution stage. But even the best-laid plans can and will fail during the later stages in a startup.
The lean approach embraces this truth and works around it by focusing on flexibility. If you get negative feedback about a product during testing, you must be ready to make changes – even drastic ones, if necessary.
How to Execute a Lean Startup Approach
The first thing you will need to do on the path to building lean is to overhaul convention. This means throwing away static business plans with 5-year forecasts for income, cash flow, and other vital metrics. Those are crucial for traditional businesses treading the familiar and time-tested paths.
For startups, it may be much better to adopt a business model: a flexible collection of hypotheses about your business idea, or product, and its viability in the market. Your aim is to develop a working product that can be used to test out these hypotheses.
Once you have decided on a business model, the next step is to create the MVP – a working prototype of your product or service, which is fit enough for the testing phase. You can reach out to many different entities during this phase, with your potential customers the obvious starting point.
You should also involve other entities, though, such as your vendors, key business partners, and other potential stakeholders. Actively seek feedback on all the critical factors related to your MVP, such as its best features, value proposition, pricing, and possible distribution model.
If the subsequent feedback reveals minor areas for improvement, you can easily tweak the product accordingly. But if the consumer response shows significant issues, your business must be ready to make more sweeping changes, either to the product – or even the target demographic.
This isn't necessarily a failure or even a setback; there are numerous examples of successful products that began life as something else before finding the right audience. For instance, Listerine mouthwash was initially a surgical antiseptic, while Play-Doh was originally marketed as a wallpaper cleaner. Even Coca-Cola was envisioned as a tonic for headaches and morphine addiction.
Using the traditional approach, it took these products decades before they found success. The lean approach aims to reduce this delay by actively seeking inputs from the customer, and aggressive brainstorming on the feedback you receive.
The Importance of Balance
If you have a startup or an established business that wants to try out an innovative new idea for a product or service, the lean approach has many advantages. But, like anything in life, this method is not without flaws; going all out – without moderation – can end up doing more harm than good.
Being agile and ready to pivot is great, but you have to be careful about choosing the right moment. There is a delicate balance between being poised to make a sudden shift if necessary, and being so twitchy that you jump and move around at the slightest provocation.
This latter approach will ultimately harm your business, and might even cause you to reject what might have been a solid product in the long run. The rush to create an MVP for testing can also have negative consequences. Often you can end up with a sub-par prototype not up to the standards of your original idea. It is great to be lean, but at times, you have to believe in your product and give it the time and resources it needs to develop.
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It should be noted that these weaknesses are less about the approach itself, and more about how companies apply it. Wherever you are operating from, the startup scene is a high-pressure industry where you have to deliver results fast to survive. The lean approach provides on that front, although too much focus on it can lead to tunnel vision – and even burnout – for both you and your team.
Ultimately, you need to strike a balance when adopting a lean startup approach in your business. Apply the basic principles – but always have faith in your product – and there is no reason why you cannot achieve success.
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