What are the lean start-up main principles?
Getting a business to start from ground level is quite tricky without any tools or resources. There have been many instances when a business or firm crashed even before it hit the market. At these times comes Lean start-up, which is a methodology for the development of businesses and products. This methodology helps to decrease the timeframe for development of products. The main speculation of a lean startup is that startup companies can reduce market risks by investing their time to meet the needs of customers. This would lead to requiring less funding for the initial product launch.
Developed by Eric Ries in 2008, this methodology is now used extensively by individuals as well as companies looking to launch new products into the market. This terminology was first introduced in his bestselling book, The Lean Startup, published in September 2011. ‘The Lean Startup’ was the best selling business book in 2011.
What made Lean Startup popular?
Before understanding the popularity of Lean Startup, it is necessary to understand the roots of the lean startup which will enable everyone to understand the reasons for popularity. The production process of vehicles developed by Taiichi Ohno who is known as the father of Toyota’s Production System (this became the Lean Manufacturing in the United States) and the principles established by Henry Ford were the sources of inspiration for the development of Lean Startup.
Ries borrowed and repurposed the methodology of software development and made it work better as Lean Startup. The popularity rose when Ries and his team started an annual technology conference called Startup Lessons Learned, which later came to be popular by the name ‘Lean Startup Conference.’There are lean startup meetings in almost 100 cities and 17 countries which has over 20,000 regular participants as well as online discussion forums. The best, as well as unique part of this conference, is the introductions of The Lean Startup Machine which make the participants start a new company in three days. It is reported that over 600 start-ups have begun through the Lean Startup Machine.
Companies such as Dropbox, Zappos as well as Intuit have employed the lean startup methodology. Even the United States of America government started to use some of the lean startup ideas. Other than the influence of lean startup in various departments of the United States government, the introduction of the Presidential Innovation Fellows program, which gather top innovators and government officials to work on high-level projects together.
Methods of Lean Startup
Various methodologies have been explained through Lean Startup. Let us discover some of the most popular methodologies.
This methodology is used for new products as well as the ones which are already on the market. This is one of the popular scientific methods derived from lean startup. By creating a hypothesis, products can be tested and then the results can be analyzed and improved upon if needed. The Build-Measure-Learn cycle is a quick method as it has an emphasis on speed. The company’s success is set by its ability to create a minimum viable product and measure its success in the market.
The phases of the loop are: Ideas ? Build ? Product ? Measure ? Data ? Learn
The Minimal Viable Product (MVP)
While the product development through traditional methods takes up time as well as resources, Minimal Viable Product is easily iterated through a single Build-Measure-Learn cycle. A strategy towards making and selling is MVP.
The objective of the Minimal Viable Product is to test the business hypotheses as well as help the entrepreneurs to process the developments. The term was created and explained by Frank Robinson in 2001, but it was popularized by Steve Blank and Eric Ries. The results obtained from the minimum viable product test shows whether the product should be built or not.
It is seen that the reason why some firms become successful while others fail is that successful companies can discover, tools to modify and the foresight to observe. The most laborious feature of the lean startup is decision making leading to pivot. This is mainly because entrepreneurs and inventors are emotionally tied to their products with energy and money spent on them. A pivot determines how much successful the project is and can be said as a “structured course correction designed to test a new fundamental hypothesis about the product, strategy, and engine of growth.” The principal kinds of Pivots are:
Zoom-in pivot where a single feature increases exponentially and becomes the entire product.
Zoom-out pivot is the opposite of Zoom-in pivot
Customer segment pivot is where the product is right, but the customer has to be changed.
Channel pivot where the internet has created many channel options for startups to develop and promote.
Technology pivot is where the latest technology is used to balance the benefits and keep things like before.
Groupon is one company that has successfully utilized pivot to become a billion-dollar business.
A split test, also known as A/B test or bucket test is an experiment to determine the selection choices of different groups. Here two different versions of the same product are given to the customers at the same time, and their response in selecting one is noted. One of the variants would be the one which is currently in use while the other one would be the modified version of it. A/B testing can also be performed incorrectly which will undermine the validity of the results. This could happen from conducting both phases of tests at two different times or by assigning users to one or the other A/B version of the same product using any non-random method.
There are other few other tests which are similar to A/B testing like Multivariate testing or Multinomial, but the differences are that they test more than two variants of the same product.
Different uses of Lean Startup
Lean startup concepts have been used extensively in different areas in many ways. Two of the unique purposes of Lean Startup is as follows:
Lean manufacturing is also known as lean production is a method for waste minimization without compromising productivity within a system. It provided information for improving the effectiveness, efficiency, and profitability of the manufacturing operations. It also takes into account waste generated through the overburden and also wastes generated through unevenness in workloads. Lean manufacturing focus on what adds value more. Their philosophy was derived from the Toyota Production System which was one of the leading motivations for the lean startup.
Lean Software Development
Lean software development is the conversion of lean manufacturing practices and principles to the software development. The term ‘Lean Software Development’ originally originated from a book by the same name which was written by Mary Poppendieck and Tom Poppendieck. The book redefined the traditional lean principles and compared them to corresponding agile practices.
The Model Canvases inspired by Lean Startup
Lean Startup started a revolution among the business firms around the world. Among the inspirations from Lean Startup, the two most prominent ones are Business Model Canvas and Lean Canvas.
Business Model Canvas
Developed by Alexander Osterwalder in 2008, Business Model Canvas is a management template for developing business models. It contains elements including:
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Customer Segments, which denotes the different groups of people or organizations the business strives to reach and serve.
Value Propositions, which represent the products and services that create value for the business model to flourish.
Channels describe how the business communicates with their customers.
Customer Relationships denotes the communication and rapport the company shares with the customers. It is the key factor in determining the overall customer experience.
Revenue Streams denotes the methods in which the company will generate revenue from all sources.
Key Resources are the most critical factors that the company utilizes.
Key Activities are the most important and essential things undertaken by the company to be resourceful and profitable.
Key Partnerships describes the relationship between the company and suppliers, retailers and partners.
Cost Structure describes the total cost incurred along with the operational costs.
Created by Ash Maurya, the Lean Canvas is a one-page derivation of the Business Model Canvas which addresses broader customer issues and used explicitly for startups. It replaced the sophisticated business model canvas a more straightforward plan. There were a few changes made to the canvas. Key Activities, as well as Key Resources, have been removed. He replaced the Customer Relationships box with the Channels box. Key Partners were removed from the canvas because the risk inefficiency was not because of lack of partners.
Future of Lean Startup
Lean Startup had taken the world by storm, and the success stories of firms which employed lean startup are inspiring. The number of businesses taking up Lean startup is increasing day by day and by using lean methods across a wide range of startups will result in less amount of failures than while using traditional methods.
The lean startup approach is changing the entrepreneurial landscape. Through its research and stats, products which are loved by the customers are launched instead of launching and waiting to see if the customers like it. Since the entrepreneurs have all the information beforehand, the risk factor is very less. With the access to various types of financing increasing day by day, the future of firms using lean startup is promising and bright.