Lean Startup Methodology: What it is and why it has changed everything
For many years, startups have been built by taking a business idea, discretely developing a product or service, launching it, then marketing it to consumers. This process can result in business success, but it can also leave many startups vulnerable to failure. When startups spend a lot of time and money on product development without including customer needs and perspectives in the process, the number of sales that will be achieved becomes a guessing game — a high-risk gamble when early revenue is imperative to keep the business alive.
When approximately 50 percent of small businesses in Canada won’t survive longer than five years, more and more startups are following the Lean Startup Methodology to lessen risk and create a higher probability of success.
What is Lean Startup Methodology?
A great way to think of Lean Startup Methodology is that it aims to discover if a product should be developed, not if it can be.
First introduced in 2011 by Eric Ries in his book, “The Lean Startup”, Lean Startup Methodology designs and builds businesses and products based on consumer needs and demonstrated desires rather than first developing a product and hoping there will be a demand.
Too many startups make assumptions about what consumers want and spend years perfecting a product only to discover that consumers have little interest or are unhappy with its features. If your product is super innovative but people don’t want to buy it, a business will not exist.
5 Key Principles of Lean Startup Methodology
1. Entrepreneurs are Everywhere
There are many types of entrepreneurs and therefore startups don’t need to fit a particular mold to apply lean startup principles.
2. Entrepreneurship is Management
Lean startups look a bit different than traditional startups. It is less about processes and protocols and more about being learning-driven, flexible, and making changes as you go.
3. Validated Learning
Through experiments and retrieving results, lean startups make decisions by learning and adapting to the needs of consumers.
4. Innovation Accounting
Keeping detailed records of experiments and analyses is important to determine how to proceed. Lean startups must monitor processes objectively and come up with next steps.
Lean startups build a Minimum Viable Product (MVP), then put it through extensive testing and evaluation with customer feedback. By building a product and then measuring its effectiveness, lean startups learn and improve their product before finalizing it.
How has Lean Startup Methodology changed everything?
a) Detailed planning used to be one of the most crucial elements for a startup. Lean startups now consider experimentation more valuable, and consider five-year business plans an ineffective use of time.
b) Lean startups already have an established customer base by the time their product is ready for wide distribution because they have been involved since the beginning stages of the product.
c) The hiring process has pivoted giving preference to applicants who can learn and adapt easily and placing less emphasis on experience and technical ability.
d) Financial reporting focuses on customer acquisition costs and lifetime customer value among other things rather than traditional income statements and balance sheets.
How to Apply Lean Startup Methodology
Learning why Lean Startup Methodology can benefit your startup is much different than knowing how to apply it. We recommend turning to an experienced startup mentor to help guide you through the process of becoming a lean startup.
Having a startup mentor or joining a startup incubator provides you with invaluable knowledge, expertise, and support so you have more confidence and success in applying the Lean Startup Methodology.