I have been asked repeatedly what is the Lean Startup method and why is it relevant to established businesses as well as startups. So, I thought I should write a longer post for the sake of the curious and the ignorant. The following description are a few thoughts on lean as I understand it and practice it.
The Lean Startup method seems to be the quickest and most effective way to build a new business, or to succeed in turning around a more established business. It applies to all types of organisations (businesses, governments, NGOs, other) wishing to commence a new venture, or find new markets, or succeed in a new field. In addition, it has been designed for extreme economic conditions, such as the one we face for the past few years (since 2008), and it seems to dramatically improve the odds for businesses to survive and thrive.
As a matter of fact new businesses suffer the highest rate of failure across the globe. Specifically in the UK according to Statistic Britain (http://www.statisticbrain.com/startup-failure-by-industry/) almost 25% of registered businesses – who managed to get off the ground – drop out of the race in their first year, 36 % in the second and 44 % in their third year. Of course, this is just the ‘official’ statistics. There are many other failed businesses that never make it to the statistical charts, since they never become a legal entity!
Even though many startups despair at the odds, there is certainly light at the end of the tunnel. Several studies conducted in Stanford University (mainly by Steve Blank) concluded that the entrepreneurs who follow the Lean Startup method, stand much better chances to survive than those who do not. In addition, several Lean Startups found themselves in the enviable position of building scalable businesses that have been sold for millions!
I would have to emphasize here that no credible academic research has yet been published on the effectiveness of lean methodology. After all, this method has not been around for adequate years that would allow a critical mass of lean businesses to go through a full cycle. Bear in mind also that academics need to dedicate 3-5 years of study before they submit their works for publication, which in turn takes another 1-3 years. For definitive academic results, you should wait another 5-10 years.
Saying that, business developments take place at a much faster pace than the completion of academic studies. As entrepreneurs we are obliged to follow the speedy tempo of the market, instead of waiting for universities and research centres to provide concrete evidence on whether a method works or not. As consequence, it is best to rely in indications that point toward a successful outcome.
These indications are well attested in several blogs that are been published online for the past few years. Among them, my favourite are written by Steve Blank, Eric Ries, Ash Maurya, Ben Yoskovitz, Justin Wilcox, Roger Cauvin, a few among many! They all record the latest developments in business technology and provide several case studies for our perusal.
Although it is very difficult to outline this method in a few paragraphs, I will try to give you a general idea of how it works. There are certain principles that you should follow, if you want your business to flourish.
First of all, the fact that the method is called Lean is not a coincidence. Its advocates strongly believe that there should be a reduction of waste, in terms of time and money. Some take it as far as to declare that there is no need for funding, loans or investments during the initial stages. Of course, this extreme form of lean is none other than bootstrapping.
The business owner is expected to restrain himself/ herself from expensive marketing or other expenses. Instead s/he should concentrate on the development of his/ her client base, before s/he even develops a product fully! Going into business at a bootstrap is not without its problems. It can be very stressful finding your way around the business world and building the empire you always dreamed of. Even so, there are advantages that exceed the problems.
If anything, by the time you achieve growth, you would not have to share the profits with other investors who anticipated your success. In addition, you would not have to abide to their wishes or allow them to take any important decisions; the company and its responsibility will be solely yours. Imagine not having anyone else to answer to about the future of your business, imagine being your own boss, and imagine leading the company to the direction you always hoped for, taking into consideration only the wishes of your customers.
On the other hand, investments should not be excluded altogether. In fact, lean methodology aims at preparing the business to accept a substantial infusion of cash that will be used for the growth of the company. Several business angels may see the potential of the venture early on and contribute to its success. However, the majority of these funds, to my opinion, should be used after the business has achieved product/market fit. That is after there is concrete proof that the customers love the product and buy it en masse!
As I already mentioned, lean methodology helps you to save your resources by teaching you how to avoid the wastage of time and money. As part of this process I would like to introduce another basic principle: the Minimum Viable Product. This is a kind of a prototype you could sell to your initial customers without putting too much effort (or money) into it. In architecture the model of a building would be the prototype of the final product. In online businesses a simple landing page with a few elements of the final idea may serve the same purpose.
At this stage it does not matter how well developed the product (or service) is and you should not concentrate on making it perfect. If it solves one of the problems a customer faces in his business or in his life, then you will be able to sell it easily. This group of early customers will give you incredibly valuable information on the development of the product and will guide you towards the next steps you are likely to take. A Minimum Viable Product should take maybe as little as a couple of weeks (or less) to be created and be presented to the first potential customers.
After that, the customers will provide the necessary feedback to develop the product further. There is no reason to create something nobody wants. Every feature you add should be based on the wishes of the customers and their ultimate needs. Even if you do not take action on all feedback, at least some of it should be realised in the features of the final product.
There are two ways to get guidance from your customer. One is to analyse the numbers of people that engage with your website or the numbers of those who buy your product or the numbers of customers who recommend it to their friends and relatives. If these people reach a critical mass (depending on the stage of the business and the type of the product), then you most likely have a viable business model in your hands. If the numbers do not add up, it is time to pivot. There is no way in persisting on actions that do not work; that is, they do not increase growth, profits, customers etc.
Similarly, you could take into account the qualitative feedback you will receive from your early customers. Through a series of long interviews that last around 30 minutes to 1 hour and 1/ 2, you may be able to assess whether the product or service you created can really solve your customer’s problem. Just remember not to allow your subjective views to guide the discussion, because the results will be untrustworthy. You will need to avoid meaningless questions and hypothetical sentences. You should also avoid pitches and the marketing cacophony of a determined salesman.
The above process seems to be straightforward but not all entrepreneurs are willing to follow it. Alistair Croll and Benjamin Yoskovitz in their book Lean Analytics (http://leananalyticsbook.com/) refer to dozens of excuses that stop the CEOs from fulfilling their destiny. Among them the most popular are: a) The product (or service) is not good enough, b) A low quality product/ service will give a bad first impression to the clients, c) We should add more features aspects to it, d) It has not yet been designed to serve hundreds of thousand of customers, e) If we launch too early with an unfinished product, someone may copy the idea, f) The potential investors will not appreciate its value, g) We will attract bad press…. etc. I have heard all of these excuses and a lot more. In actual fact, the only reason for this type of procrastination is that the entrepreneur thinks that his/ her dreams will be crushed if s/he fails to attract the anticipated attention.
Failures are unavoidable in life and we should embrace them as our work develops. The Lean methodology advocates that the entrepreneur should learn from the failures but focus on the successes. The learned lessons are far more valuable than any university degree, course or module. There is no point to strive for perfection because perfection is an ideal state and does not have a basis on reality. We should learn from our mistakes in every step of the way, so that we become better entrepreneurs, not the perfect business people.
Flexibility in your approach will prove to be another asset in your business building. Once the Minimum Viable Product is launched it takes only 8-12 weeks to get definitive results. The statistics you will be conducting will give a clear picture of whether the product will be a success or not. If it fails to attract the attention of customers, then you should pivot, change direction, make instant decisions and move away from the initial assumption.
One of the biggest problems of early businesses is that they insist on their original idea, hoping that something down the road will change. This concept is as far from reality as it can be. Ideas may work for us but they may not work for the customers, who will send their message to you loud and clear. Then it will be your responsibility to take action and change either the product, or the revenue method or the way you market it, or indeed any other aspect of the business that does not seem to be working. This way you will enter a new cycle that eventually will lead you to final success.
Every action you take, every failure you count against your product is, in fact, part of the intense learning process and will lead you one step closer to what we call product/ market fit. Product/ market fit is the point of glory we yearn for. This is the time when we confirm that we have a popular product that will sell over and over again. At that point we know that we have a repeatable business, which has the potential of growing exponentially, so that we enjoy a profitable existence. The confirmation of our superior position in the market instigates the next step, which is massive (and hopefully also viral) growth.
One last note. Lean methodology is not the aim. It is just a means to an end. The guidelines are there to be used loosely with the intention to create scalable and repeatable businesses. There is no point in becoming a lean advocate, if you do not see any profits out of it. Even so, I strongly believe that the methodology provides a series of helpful tools to entrepreneurs who are keen to innovate and disrupt. And I consider myself one of them.
If you want to learn more about the basic principles of lean startup methodology, you could take my FREE course on the subject. I put together a few videos that will help you get a better grasp. You will find all of my free courses here http://ekonomiaconsultants.com/online-courses/