What is the Lean Startup Methodology and What Can It Give to You?
Statistics say that the majority of startups face a dismal fate. You may have heard that 8 out of 10 startups fail. However, this is not quite correct; according to a study performed by Statistic Brain, more than 50% of U.S. companies fail after five years, and more than 70% fail after 10 years after creation. Nevertheless, the fact is that startups obviously face challenges that many of them cannot overcome.
Why does this happen? Eric Ries, an American entrepreneur and the creator of the Lean Startup methodology, believes that the standard approaches to business development are not applicable to startups. Unlike businesses, startups operate innovations; they are funded and scaled differently, and they have different aims. Startups’ aim is to bring an innovation to the masses rather than to follow a beaten path of the well-known business schemes. Eric Ries defined a startup as a “human institution designed to create a new product or service under conditions of extreme uncertainty”.
Ries sees two reasons for startups’ failures:
– Application of traditional business instruments of management, success measurement, building strategies and market investigations. These conventional tools are almost useless for startups, which act in conditions of uncertainty.
– Exactly the opposite reason: seeing that all this doesn’t work, entrepreneurs start ignoring the abovementioned tools and any other management strategies, arranging a sort of business anarchy under the “Just do it” banner.
Both directions are inefficient, and it seems it’s a tough way. No panic — the Lean Startup method races to rescue. Eric Ries proposed this approach in 2008 as a methodology that aimed to manage high-tech startup enterprises. The principle itself and the eponymously named bestseller The Lean Startup that was published in 2011, have got an enormous success and have been helping many startups to avoid mistakes.
The Lean Startup methodology can be characterized as “a guideline system for solving a problem”, and it copes with the task highly efficiently, slicing and dicing every single aspect of the innovative enterprise. Any startup is a huge experiment that was created to answer a question, and the question is not “Can we create this product?”, but rather “Should we create this product?” and also “Is it possible to build an effective business around this set of services and products?”
Key Methods of the Lean Startup methodology
- Minimum Viable Product (MVP). This is an essential component in the Lean Startup methodology, which represents a prototype of a future service or product with a minimum amount of effort and time. MVP should have key characteristics of a future product, and it is created with the aim to receive feedback on the implemented idea, as well as to make quick relevant adjustments. Therefore, a lean approach is a customer-oriented one, which focuses on the clients’ needs and requirements. As soon as you validate your idea with the help of a minimum viable product, you can move on to another learning cycle. A more detailed overview of MVP and its features can be found in our article on that topic.
- Pivot. The Lean method implies that every single idea is tested and improved, so often startups need to change the direction in favor of a new hypothesis, which is then again tested for market success. Such change is called pivot, and the startup’s success to a large extent depends on the promptness and accurateness of its implementation. Many startuppers are reluctant to make pivots since it is always a disappointment to abandon the idea, which seemed to be perfect. A pivot is not a synonym to failure; moreover, a prompt and correct pivot can save the business. There are various types of pivots, which include switching to other target audience or starting solving other problem of the customers, changing the project’s scale, changing business architecture, changing technologies etc.
Basic Principles of the Lean Startup methodology
- Entrepreneurs are everywhere. Anyone who has a startup, is an entrepreneur, according to Eric Ries. Thus, lean startup principles can be applied to companies of any kind and size.
- Entrepreneurship is management. The manager should be able to act in conditions of uncertainty, and the employees should be encouraged to do as many experiments as it is possible.
- Validated Learning. The Lean approach considers every startupper’s action to be an experiment, which is aimed to achieve validated learning. All the hypotheses should be empirically proved. Validated learning includes three stages: (a) creating MVP and receiving feedback to understand the actual state of things; (b) trying to put the baseline closer to ideal rates; this may require multiple attempts; (c) deciding whether to move in this direction, or admitting that a startup requires a pivot. It is very important to ensure you are relying on correct metrics and are not deceived by some irrelevant figures. For instance, likes in social media are so-called vanity metrics, which have nothing in common with the real status quo of the users’ opinion. The time spent on the site speaks much more about your product’s popularity.
- Build-Measure-Learn loop. This lean startup principle has it that a product or service should be designed and presented to the market as soon as possible. For this, the following scheme should be applied:
Ideas → Build → Product → Measure → Data → Learn. It implies a determination of a hypothesis, seeing what happens and acting accordingly.
- Innovation Accounting. An entrepreneur should understand how the progress should be measured, how to set up the milestones and how to prioritize work. A startup needs to objectively assess its current position, and then start experimenting on improvement, pausing once in a while to see whether a pivot is needed.
Following the Lean way of startup’s development can take control over the chaos since the method gives the instruments for continuous testing of a vision. It’s almost impossible not to fall, but the Lean methodology gives possibilities to fall quickly and cheaply, and then promptly get up and keep on moving.
As you can see, startups have little in common with traditional businesses, since the latter are deprived of an innovative component, and are managed quite differently. When you develop a software product for your enterprise, it is very important to find a development company that has an expertise in working specifically with startups. Such teams know many nuances of innovative products’ creation, will give you valuable recommendations and, of course, will apply the principles of the Lean Startup methodology. Work smarter, not harder, and breathe life into brand new projects!