Doing more with less in a brand new business might sound like the essence of what’s known as the lean startup methodology, but there’s more to it than that.
In his seminal 2011 book, The Lean Startup, Eric Ries detailed a process that aims to get a startup’s products and services to market more quickly, with an emphasis on incorporating customer feedback—and responding rapidly as needed, perhaps even dropping the original idea entirely if necessary.
Here’s a look at the lean startup methodology and how it can play a role in building a sustainable business.
What is the lean startup methodology?
The lean startup method helps entrepreneurs quickly figure out if their business or product is viable in the long term. This typically involves launching a minimum viable product (MVP), or the simplest version of your product or service, and soliciting feedback from customers. The results of these efforts may show where the company can drop wasteful practices, make changes to a product, pivot to another idea entirely, or even create new business models.
Many of these concepts have appeared in previously established analysis and research, including agile development, lean manufacturing, and customer development.
Compared to traditional startup approaches, lean startup practices can help emerging companies validate their product and create a lean business plan before investing lots of resources and developing more elaborate business plans.
The 5 key principles of the lean startup model
- Entrepreneurs are everywhere
- Entrepreneurship is management
- Validated learning
- Innovation accounting
Before diving into how the lean startup process works, consider the five core principles Ries uses in the lean method:
1. Entrepreneurs are everywhere
A huge part of the folklore of Silicon Valley is the rags-to-riches story. Entrepreneurs like Apple’s Steve Jobs and Google’s Larry Page and Sergey Brin started their companies in garages and built them into international powerhouses.
But this isn’t most entrepreneurs, and many startups are not even young tech ventures. In reality, Ries notes, anyone who owns a business is an entrepreneur: a musician, an accountant, a software developer, an ecommerce business owner. He goes further to say he believes “‘entrepreneur’ should be considered a job title within all modern companies”—applicable to even, say, managers of new products or initiatives within large companies.
2. Entrepreneurship is management
A startup isn’t just a product or service. It’s a human institution, designed to have a scalable business model for long-term market success. Management needs to be specialized and appropriate for this purpose, including being comfortable with experimentation and pivots.
3. Validated learning
The point of a startup is not simply developing products, nor even serving customer interests. Rather, they can help entrepreneurs build a business that is successful and sustainable. But many entrepreneurs fall into the trap of relying on what Ries calls “vanity metrics” such as page views or message volume.
Instead, to ensure metrics are relevant and applicable to learning, he calls for metrics to follow the “three As,” which he detailed in a Harvard Business Review article:
- Actionable. Metrics should demonstrate that cause and effect was real, not random, and can be replicated.
- Accessible. They can be read and understood by everyone in the company.
- Auditable. The data can be verified and is credible. This lets the startup test fundamental business hypotheses and feel confident in the results.
4. Innovation accounting
Ries recommends creating three dashboards that display data in a clear way to track progress. The first displays customer-focused data, including what percentage of reviews are negative versus positive, the number of existing customers who contacted the company that week, and more. The second is “leap of faith” assumptions to assess whether the product fits a market need and can grow sustainability. The third is determining the net present value (NPV) of products and services.
One of the most crucial lean startup principles is the build-measure-learn feedback loop, which combines many of the lean principles . In this loop, the startup first determines the problem that needs to be solved and develops a minimum viable product (MVP) in response. Then the company’s managers focus on learning as much as possible as quickly as possible by measuring appropriate metrics, soliciting customer feedback, experimenting, and changing the product or business model as needed.
4 stages of the lean startup model
The lean approach informs the entire product development and business development cycles for a startup.
1. Business model canvas
Think of this as a visual depiction of the building blocks—there are nine of them—for creating or redesigning a business. In this stage, you’ll analyze the building blocks, think about how the parts relate to your business idea, and then develop assumptions about each. The nine parts are customer segments, value proposition, revenue streams, channels, customer relationships, key activities, key resources, key partners, and cost structure.
2. Formulating hypotheses
Next, you’ll develop and categorize some hypotheses into three categories: desirability, viability, and feasibility. These will be judgments on the strength of your hypotheses. The most important is desirability of your business idea. A hypothesis example for this category is “College students will be interested in our product.” The second category is viability, or “College students will be willing to pay $X per month.” The third category is feasibility, such as “We can build X number of products by X date.”
3. Minimum viable product
The goal here is to build a working basic version of the product or a version that incorporates a new feature, because it lets you get to market as quickly as possible and start collecting customer feedback and data. Though you might have lots of features in mind, the MVP winnows everything down to two key questions: What’s the core value proposition for my customers, and what’s the minimum we need to do to deliver that value?
Once the MVP is launched, you can begin gathering customer feedback through surveys and focus groups and analyzing metrics that follow the three As (actionable, accessible, auditable).
The feedback can let you know if your initial hypotheses were right, or if you should change the product, whether your current revenue model works or if a different revenue model, such as tiered subscription plans, would be more attractive to your customers. Using this information, you begin the build-measure-learn cycle all over again and iterate—repeating as needed. And if those initial assumptions were wrong, or the feedback after new iterations is worse, you may have to pivot in a different direction.
The lean startup model FAQ
How does the lean startup model differ from traditional approaches?
Lean startups try to reduce risk by testing business ideas and assumptions early and focusing on rapid iteration through a build-measure-learn loop. Traditional businesses usually have longer development processes that often involve more upfront investments before assessing market demand. Lean startups encourage pivoting based on customer feedback, while traditional approaches often are more persistent in sticking to the original plan.
What are the main characteristics of a lean startup?
Lean startups generally emphasize iterative product development, data-driven decisions, direct customer feedback, experimentation and learning, and a willingness to pivot from an original plan or idea.
Where did the lean startup methodology come from?
The methodology and name come from Eric Ries’s 2011 book, The Lean Startup. Some of the core lean concepts, however, have their roots in previously established practices like agile development, lean manufacturing, and customer development, among others.
What are some advantages of using the lean startup methodology?
This method may potentially reduce risk by validating business ideas early, get products to market more quickly, cut costs by launching with a minimum viable product, and better meet the needs of customers by actively seeking feedback—all practices that increase the likelihood of success.