Traditionally, companies spend considerable time and money developing a product and once ready, the product is tested in the market. More often than not the resultant feedback leads to numerous changes and wastage of time and resources and sometimes the product is even ditched. Lean Startup methodology offers a way to circumvent this lengthy process by frequently iterating the product based on customer feedback and thus avoid a complete pivot. General Electric is a great example.
Some years back GE was about to commercialise a battery technology by offering it to other companies. They had some extensive and great market research to back the value and demand for the technology. Yet, even though the CEO had given the General Manager Prescott Logan a $100 million to execute the commercialisation, Logan decided to check the hypothesis, much like a startup, and flew to every continent even Antarctica. He discovered that the specifications of the various industries differed substantially enough such that if they had a standard product delivered from a standard factory, none of the batteries would have sold!
Based on the ensuing feedback, which was not visible from the market research report and the confines of the corporate office, Logan and his team identified who their customers really were and in the following 18 months developed suitable variants of the battery for different customers. This worked so well that two years later they have backlogs running into the next three years!
Eric Ries, author of The Lean Startup Methodology believes,
Startup success can be engineered by following the process, which means it can be learned, which means it can be taught.”
His book provides a scientific approach to creating and managing startups and get a desired product to customers’ hands faster. This is based on the creation of an MVP – Minimum Viable Product which has 20% of the features used by 80% customers. These customers are the early adopters who will provide feedback on the product leading to quicker iterations and a better product faster. Lean Startup replaces planning with experimentation, intuition about what a customer wants with actual customer feedback and big, bold designs with iterative designs based on feedback.
The Lean Startup framework is built on the following principles:
Entrepreneurs are Everywhere
Innovation can happen anywhere. All big ideas need not take birth in someone’s garage. Ries defines startups as a human institution designed to create new products and services under conditions of extreme uncertainty. This means startups and entrepreneurs are everywhere from the smallest to the biggest companies, industries and sectors.
Entrepreneurship is Management
Since a startup is not just a product but an institution, it has a management that is specifically geared to its context.
Startups are not just about building a product or making customers happy. They aim to learn how to build a sustainable business. This learning can be validated scientifically, by running experiments that allow them to test each element of their vision.
Startups essentially focus on transforming ideas into products, measure customer feedback about the product and then learn whether to pivot or persevere. Ries suggests that all startups should be geared to accelerate this feedback loop.
A lot if measurement is involved is the success of startups. Thus includes measuring progress, setting milestones and prioritising tasks. How this is done for startups is the basis of innovation accounting.
Thus, Lean Startup is a combination of various different product development ideas such as Lean Manufacturing, Design Thinking, Customer Development and Agile Development.
BabyCentre, a leading site for pregnant women and new parents was started by two guys without kids. They had to talk a lot of people and the more people they spoke to they developed a certain intimacy with their customers which allowed them to come up with the insight that their target customer would benefit from highly personalised week by week ‘what to expect during pregnancy’ information. They developed their core business around this insight along with a set of features – baby naming and personalised information – and offered it as a ‘minimum viable product’. The rest of course is history.
Despite the huge and wide success of the application of Lean Startup methodology there are limitations. According to this HBR article, one of the downsides is that too many iterations based on customer feedback can leave entrepreneurs disheartened. It also lacks a linear relationship between the number of validated hypotheses and a team’s subsequent success. The author also suggests lean startup may be producing false negatives leading to some ideas being rejected due to customer feedback. However, he also cautions that the popular methodology should be tailored and employed with reflection and constraints, not blind allegiance.
In the last few years since Lean Startup was introduced to the world it has come to be the mantra that entrepreneurs rigorously follow. It has been in curricula at most big business management schools and academicians have even designed courses around the Lean Startup methodology. Steve Blank, an academician who also worked with Eric Ries at IMVU believes this is a strategy for the 21st century for not just startups, but big corporations as they seek to increase efficiencies by driving down costs. He suggests Lean Startups will help every kind of organization—start-ups, small businesses, corporations, and government – innovate rapidly, and transform business as we know it.