The Lean Approach for startups14 Jan 2016
The lean startup approach from Silicon Valley is a model that works well for early stage investor funded high tech startups. Eric Ries and Steve Blank first created the lean startup model. It discusses the behavior they should adapt to increase the likelihood that they will succeed. While the concept is best suited for technology or Internet startups, it has a wider application for all startups.
The Lean Startup Model has gained traction because many people want to emulate Silicon Valley startups, and think that what works for those new startups should work for them. But the reality is that the Lean Startup Model is about iterating quickly in the early stages of your startup in order to make sure there is a product-market fit, and that it is a great solution to a real problem. Even if you figure out product market fit through iterations, you will still need a budget, a business plan, a projected cash flow, and decide the milestones you need to achieve in order to implement your strategy. The lean startup method is not a shortcut.
What is the lean startup approach?
According to co-creator Steve Blank, “a startup is essentially an organization formed to search for a repeatable and scalable business model.” Eric Ries who describes how a startup has to focus on discovering a viable business model while operating in a climate of ‘extreme uncertainty’. Building a startup in this way helps shift the focus to a more scientific approach where activities undertaken are viewed as tests that quickly help you validate assumptions (or otherwise).
Is the lean startup a viable business model for you?
When you are searching for the right business model for your startup, it is crucial that you understand that there can be simple processes to ensure an efficient and scalable business model. It is necessary to understand that here time and money is very crucial and is the first basis for making decisions to build what will be called your minimum viable product (MVP). This MVP is the early version of the product or service that can be sent to some customers (early adopters) who will give you feedback, which will help you iterate.
Eric Ries accurately explains this concept in his book:
Rather than building the service and trying it out on customers, create a sign-up page that merely promises to deliver this groundbreaking capability. Then present it to some prospective clients. Compare their enrollment rate with that of a control group shown the usual sign-up page. The results will give the team the confidence either to proceed or toss the idea into the circular file. No one would actually get the new feature yet, of course, because it hasn’t been built.
Understanding a Lean Startup
Here are some key concepts of the lean startup model:
- Test Frequently and Learn Quickly
Use your MVP for testing; don’t build an elaborate product before you have tested the products several times.
- Observe and Measure Real Customer Behavior
Don’t use focus groups. Watch how real customers behave. Get your MVP to customers and early adopters and learn quickly what iterations need to be made.
- Focus on Real Metrics
Metrics that don’t convert are no use. For example, what good is 1 million page impressions if none of them convert? Instead entrepreneurs need to focus on real metrics, which can help you make informed decisions.
- Be ready to pivot
If your original plan is not working, and your research and feedback suggests that changing course is more likely to be successful.
- Stay Lean
The word ‘lean’ refers to speed and agility and not ‘cost savings’. Ries recommends that startups take advantage of the research phase and the MVP feedback phase to quickly learn what is not working so they can make changes immediately.