Feb 13, 2023
“We must learn what customers really want, not what they say they want or what we think they should want.” So wrote US entrepreneur Eric Ries, co-founder and CEO of the Long-Term Stock Exchange, in his bestselling book The Lean Startup (2008).
So what is the lean startup process he invented? At the heart of Ries’s method is developing new products that customers have already shown that they need or want. That way, the product will have a market as soon as it is launched – as opposed to a Field of Dreams style ‘if you build it, they will come’ approach, where a product is launched in the hope that a demand for it will materialise (while that may have worked for Kevin Costner’s character in the film, sadly the real world is a harsher place).
The three steps of the lean startup process
1. What’s the big idea?
Your new product or business idea should provide a solution to a problem so that people truly want to buy it. The question any entrepreneurial lean startup owner should be asking is not ‘can I build it?’ but ‘should I be building it?’, according to Ries.
Lean startup owners should ask themselves if the problem that the product or service will solve is important enough for customers to want to buy it. When coming up with a business idea it’s important to put themselves in others’ shoes, paying close attention to problems that people are facing in everyday life and thinking about the solutions which they are actively seeking.
“The world around you is filled with ideas that can be useful,” according to Andy Boynton, co-author of The Idea Hunter. “Innovation is not about how smart you are; it’s about the hunt for ideas…Behaviour trumps IQ.”
2. Does anyone really, truly want it?
One of the central planks of the lean startup approach is so-called ‘validated learning’ during the development process. Through a ‘build-measure-learn’ feedback loop, product developers gauge consumer interest in the product and then work out how the product needs to be refined to provide exactly what they want.
This allows companies to side-step unnecessary product creation and development costs – because if an idea is likely to bomb, in the lean startup process it will fail quickly and cheaply instead of in a slow and costly way.
The startup must validate its so-called minimum viable product (MVP) – another phrase coined by Ries – which means a prototype version of a product with just enough features so that it can be used by the first customers.
Selling your MVP before it is finished means these early adopters can give feedback that will feed into future product development and the startup’s business model. The product will actually be solving the customers’ problem from the get-go, driving brand awareness and real-world interest, as well as raising funds for the startup.
3. Refine and grow your product
“Startups exist not just to make stuff, make money, or even serve customers. They exist to learn how to build a sustainable business. This learning can be validated scientifically by running frequent experiments that allow entrepreneurs to test each element of their vision,” writes Ries in The Lean Startup.
After the startup is up and running, it’s been shown that there is a customer need for the product in the market, and that customers are using it, it is time to scale up and grow the business.
At this stage, startups need to secure funds, use data to find the best marketing and sales channels and most importantly keep their nose to the grindstone on refining their product or service.
One example of a well-known business that used lean startup planning is Dropbox – a company which launched a no-frills version of the product and then sought customer feedback as they went along, refining and improving on the go. Using Lean Startup principles, Dropbox went from 100,000 registered users to over 4 million in just 15 months.
How is a lean startup different from traditional business models?
In the past, anyone starting a new company had to do months of planning and comprehensive business research – the traditional business model.
This typically results in a formal, 40-page plus business plan. Inside are detailed goals, how to measure startup success, a detailed explanation of the product or services, extensive market research including customers, product pricing and competitors and detailed financial projections. All before a single product has been sold.
A lean startup, on the other hand, aims to launch and begin selling as quickly as possible. A lean startup’s business plan is more of a one or two-page ‘elevator pitch’. This will typically outline the problem the startup solves, its target audience, how the product or service makes things easier for customers, what its unique selling point is, and its pricing and costs.
Another key difference is when it comes to hiring. Lean startups employ staff who can learn, adapt, and work quickly while traditional businesses tend to hire workers based on their competence and experience.
Advantages of the lean startup method:
- Gets your products to market quicker – important for competitive industries or time-sensitive ideas
- You can make lemonade from life’s lemons – lean startups can pivot if needed: great in unprecedented circumstances like a pandemic
- Less risk – you can junk the product and walk away relatively unscathed if it doesn’t work, moving onto the next idea
- More attractive to investors – cash rich, time poor investors can prefer a quick pitch to a weighty report and they’ll be able to see a tangible product.
Disadvantages of a lean startup vs. a traditional model:
- Risk of rushing to market too soon – while a traditional business plan allows you to be thorough and meticulous, rolling out your product in haste could see it fail, land you in legal hot water or damage your brand
- Tougher to get financing – if you need a loan, banks will want to see the detailed financial planning that a traditional business plan provides
- Less effective for larger products – you will struggle with minimum viable product for a complex or expensive item like a car or a new technology that can’t go through multiple iterations and rounds of customer feedback.
So is lean startup methodology the way forward for every entrepreneur with a hot new idea? While it is modern and alluringly efficient, it is not the right fit for every new business. Sometimes it pays off to go down the traditional route and do thorough research and analysis, and sometimes jumping into the build-measure-learn process to get ahead of competitors can work out best. But whether it’s a one-pager or a weighty report, startups with a business plan have a 30% higher chance of growth than those without one; it’s no surprise that this is a common feature to both approaches.
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